KWOK WING KIU v. BOXING PROMOTIONS LTD AND OTHERS

DCCJ 4578/2011

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 4578 OF 2011

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JUDGMENT

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INTRODUCTION

1.  This is an action by the plaintiff to set aside two contracts of hers.  Although the prayer of the statement of claim also includes claims for damages and interest, Mr Pun, counsel for the plaintiff, informed the Court that the plaintiff is no longer pursuing those remedies. 

2.  The first contract (“the Boxing Agreement”) which is the subject matter of this action was made by the plaintiff, the 1^st defendant (D1) and the 2^nd defendant (D2) on 1 May 2008.  The second contract (“the Minnie Agreement”) was between the plaintiff and the 3^rd defendant (D3) and dated 1 May 2008. 

3.  The present action is unopposed.  Although D1 filed a notice of intention to defence on 13 December 2011 and a defence and counterclaim on 17 January 2012, it has reached a settlement with the plaintiff by way of a consent order on 6 December 2012 and is now out of the picture.  As regards D2 and D3, they had not filed any notice of intention to defence or defence.  The plaintiff had previously applied to enter default judgment against D2 and D3.  However, the master who heard the application opined that the matter would be more appropriately dealt with at trial, as the relief sought by the plaintiff is declaratory.

4.  Neither D2 nor D3 turned up at the trial and they were not represented.  According to the records of the Company Registry, D2 is now a dormant company.  As both of D2 and D3 had all along been informed of the proceedings and none of them had ever appeared in any of the pre-trial procedure, I was satisfied that they were voluntarily absent and that the trial should proceed in their absence. 

THE RELEVANT FACTS

5.  The only witness in this case was the plaintiff whose evidence was not subject to any challenge.

6.  Briefly stated, the plaintiff was and is at all material times an artiste making a living in the entertainment business in Hong Kong since 2002 when she was only 17 years of age.  The person who introduced her to that field was a man called Minni Hung (“Hung”) whom she met after a singing contest in 2001.  Hung enquired whether the plaintiff was interested in retaining him as her manager/agent. Impressed by his apparent experience of and influence in the entertainment industry, the plaintiff began to seek his advice as to how she should go about achieving her ambition to become a singer.  It was at that time that the plaintiff began to repose trust and confidence in Hung which later developed to the extent that she regarded him as a father figure. 

7.  On or about 7 June 2002, at the invitation of Hung, the plaintiff signed a management agreement with Imediabiz Limited (“the Imediabiz Agreement”) as her sole and exclusive agent.  The Imediabiz Agreement was in English with which the plaintiff was not conversant.  At the time, the plaintiff was still a minor and therefore her mother was added as a signatory to the agreement.  Hung did not explain the terms of the agreement to her in detail, nor did he advise her to seek independent legal advice.  Hung was a shareholder cum director of Imediabiz having the control of its operation and as such he became her de facto sole and exclusive agent and was personally responsible for arranging and negotiating jobs for her as well as providing advice and guidance in respect of her career in the entertainment industry.  Yet, during the life of the Imediabiz Agreement, Hung arranged very limited jobs for her and her total income during that period was less than $50,000. 

8.  The Imediabiz Agreement came to an end in June 2007.  After that, Hung suggested that D1 should promote her singing career and D2 should produce records for her.  Hung also represented to the plaintiff that D1 was prepared to release an album for her in 2009. 

9.  On 1 May 2008, Hung represented to the plaintiff in the presence of the representatives of D1 and D2, Spencer Wong and Kenneth Fong, that the purpose of the Boxing Agreement was for recording songs for her albums.  Before the plaintiff signed on the agreement, which was in English, Hung had not explained to her its terms in detail nor had he advised her to seek independent advice.  The plaintiff was briefly told that D1 would get 20% out of her gross income and that she would have to be responsible for her expenses of make-up, image styling and travelling.  She was also told that D2 would be responsible for music production but she had not been told that she would have to bear the costs in that regard.  The plaintiff signed the Boxing Agreement in reliance of Hung’s representation that an album would be released for her and also by reason of the trust and confidence she reposed in him. 

10.  Unbeknown to the plaintiff, the Boxing Agreement contained terms to the effect that D2 was entitled exclusively to her services and had the right and authority to personally represent her during the term of the agreement.  The Boxing Agreement also contained the following terms:-

(a)   the duration of the agreement was 6 years;

(b)   D1, with the consent of D2, had the right to terminate the agreement summarily without liability for compensation or damages if the plaintiff had committed any serious or persistent breach of the provisions of the agreement or if the plaintiff became insolvent or made any arrangement or compromise with her creditors; and

(c)   the plaintiff was prohibited from getting married, becoming pregnant and pursuing studies during the course of the agreement.

11.  The plaintiff testified that she would only consent to (a) above, if she was guaranteed a certain amount of work and that an album would be released for her.  She said that had she known of the terms (b) and (c) above, she would not have signed the Boxing Agreement.

12.  Sometime after the signing of the Boxing Agreement, in 2008 Hung presented the plaintiff the Minni Agreement and asked her to sign it.  The effect of that agreement was to appoint D3 as the sole and exclusive manager of the plaintiff.  Hung advised the plaintiff that given that she was then a singing artiste, she would require a manager.  Again, Hung did not explain the terms of the Minni Agreement, which was in English, to the plaintiff in detail, nor did he advise her to seek independent advice.  Hung also threatened that if she refused to sign it, D1 would cancel all her on-going and pending jobs, including her jobs at the TVB, as well as her music recording jobs.  Records from the Company Registry show that Hung and Fong were each a one-third shareholder of D3 and Fong was also its director. 

13.  In view of what Hung said would happen if she refused to sign and also by reason of her trust and confidence in him, she signed the Minni Agreement with D3, which was backdated to 1 May 2008.  As a matter of fact, the plaintiff’s career and personal finances would suffer badly if her jobs were to be cancelled by D1.

14.  The Minni Agreement contained the following terms:-

(a)   D3 was entitled to 30 to 50% from her gross income of her jobs as commission;

(b)   the duration of the agreement was for 9 years, which might be extended by D3 for a further 3 years; and

(c)   D3 undertook to advise the plaintiff in connection with the development of her career, as well as to procure work for the plaintiff. 

15.  After the signing of the Minni Agreement, the plaintiff asked for a signed copy but was not given one by Hung.  The plaintiff testified that had she known of terms (a) and (b) above, she would not have signed the agreement.  It is noteworthy that the 30 to 50% commission which D3 would obtain was on top of the 20% commission of D1 as already provided in the Boxing Agreement. 

16.  Despite the two agreements, according to the plaintiff, the job opportunities procured by D1 were sparse. In late 2009 and early 2010, her income derived from the Boxing Agreement was nearly zero.  Moreover, contrary to what she had been promised, D1 had not released any album for her.  As regards D2, on 17 December 2012 it passed a resolution that the company would become dormant.  As regards D3, it had failed to advise her as to her career development or to procure any work for her whatsoever.

17.  By letters dated 4 March 2010 addressed to D2 and D3 respectively, the plaintiff through her solicitors asserted that the Boxing Agreement and the Minni Agreement were void.  It was also said that should the agreements be voidable rather than voidable, the plaintiff elected to avoid them.  

THE PLAINTIFF’S SUBMISSIONS

Misrepresentation

18.  The plaintiff seeks to rescind the Boxing Agreement on this ground by relying on the alleged pre-contract misrepresentation made by Hung on 1 May 2008 that D1 would release an album for her which, she says, induced her into signing the agreement and which caused her financial losses, as she was then unable to accept works from other agencies.  The plaintiff’s case is that Hung was acting as an agent of D1 and D2 when he made the alleged misrepresentation or alternatively, the alleged false representation was made in the presence of the representatives of D1 and D2 which the representatives had done nothing to disabuse her.

Undue influence

19.  The plaintiff also seeks to rescind both the Boxing Agreement and the Minni Agreement on the ground that she had entered into agreements with the defendants respectively under the undue influence of Hung. 

20.  Mr Pun’s submission, if I understand correctly, was that the plaintiff and Hung, as artiste and manager, was in a type of relationship where it is presumed as a matter of law that Hung had influence over her.  It was further submitted that Hung was acting as an agent of the defendants in procuring the plaintiff’s signature on the two agreements in question.  Alternatively, it was submitted that the defendants were aware of the close relationship between the plaintiff and Hung such that the defendants were put on inquiry.  It was further submitted that the defendants having failed to take any reasonable steps to satisfy themselves that the plaintiff was not acting under the undue influence of Hung, “the presumption of undue influence has not been rebutted”.  Reliance was place on Chitty on Contracts, 31^st Edition, Volume 1, at §7-108.

Restraint of trade

21.  It is submitted that the durations of the Boxing Agreement and the Minni Agreement were unreasonably and excessively long and that the plaintiff and the defendants were in unequal bargaining position regarding the execution of the two agreements.  It is further submitted that had the plaintiff been in equal bargaining position with the defendants and had the plaintiff sought independent legal advice, she would not have agreed to the unreasonable terms.

Duress

22.  As regards the Minni Agreement, it was submitted that the plaintiff entered into that agreement under duress by Hung by his threats to her that should she refuse to sign it, D1 would cancel all her on-going and pending jobs and that there was no reason for the plaintiff to doubt that such threat would not materialize. 

Breach of condition

23.  As regards the Minni Agreement, it was submitted that D3 has failed to and has no intention to perform any of its duty under the agreement and therefore the plaintiff is entitled to terminate the agreement and treat herself as discharged.

CONSIDERATION OF SUBMISSIONS

Misrepresentation

24.  This ground concerns the Boxing Agreement alone.  Since D1 has already been out of picture, I only need to consider the case against D2. 

25.  There are apparent difficulties with this ground.  First, the alleged misrepresentation was not made by D2 but by Hung, who was not a party to the Boxing Agreement: Bank of China (Hong Kong) v Leung Wai Man [2011] 4 HKLRD 707, 719-720. Secondly, even accepting, in the absence to the contrary, that Hung was making the representation as an agent of D1 and D2 or that the representation was made with their acquiescence, the representation was on its face not a statement of fact, but a statement of D1’s future intention.  In the present case, however, there is little evidence as to why D1 did not fulfill its promise to release an album for the plaintiff, if such promise had ever been made.  It is trite that if a person is prevented from following a future intended course of action or simply changes his mind, this will not render the statement as to his original intention a misrepresentation: Wales v Wadham [1977] 1 All ER 125; and Inntrepreneur Pub Co (CPC) Ltd v Sweeney [2002] 2 EGLR 132.

26.  In this regard, Mr Pun invited the Court to draw the inference from what had happened post-contract that D1 had never intended to release an album for the plaintiff and on that basis, Hung’s representation in question was a false statement of fact: see Chitty on Contracts, supra, at §6-012. 

27.  With respect, I am unable to accept this submission.  First, I am not satisfied that, on balance of probabilities, the material available is sufficient to give rise to the inference which Mr Pun invited the Court to draw.  Secondly, even if it can be proved that D1’s intention was false, in order to succeed on this ground the plaintiff has also to prove that D2 knew of the falsity at the time.  However, the evidence is slim in this regard.  In my judgment, this ground has not been made out.

Undue influence

28.  This ground concerns both the Boxing Agreement and the Minni Agreement.  Again, the Court needs only to consider the case against D2 and D3.

29.  To start with, this is not a case in which the relationship between the plaintiff and Hung was one of the well established categories of relationship where the relationship as such would lead the court to presume that undue influence had been exerted unless evidence was adduced proving the contrary.  To use Slade LJ’s categorization in the well-known case of Bank of Credit and Commerce International SA v Aboody [1990] 1 QB 923, 953, it is not a Class 2A case.

30.  On the other hand, based on the plaintiff’s evidence, which is unchallenged, I am satisfied, on balance of probabilities, that it is a Class 2B case, that is to say that on its particulars facts the relationship between the plaintiff and Hung, as artiste and manager, whilst falling outside Class 2A, was one of trust and confidence such that an inference can be drawn that Hung had influence over the plaintiff: cf O’Sullivan and Another v Management Agency and Music Ltd and Others [1985] QB 428.   

31.  However, as to whether the plaintiff can avail herself of the “presumption of undue influence”, it is important to take heed of the judgment of the Court of Final Appeal in Li Sau Ying v Bank of China (Hong Kong) Ltd (2004) 7 HKCFAR 579, which is  the leading local case authority on undue influence.  In that case, Lord Scott of Foscote NPJ, who gave the judgment of the Court of Final Appeal, said,

“30. The strong message from Royal Bank of Scotland Plc v Etridge (No 2) [2001] UKHL 44 therefore is that, particularly in Class 2B cases, concentration on a so-called presumption of undue influence is likely to detract from the real issue, namely, whether the evidence justifies a conclusion that the impugned transaction was procured by undue influence.

   …

34. I do not wish to leave this issue without expressing the hope that in future cases, where undue influence has to be proved but where the relationship between the parties is not a relationship that falls within Slade LJ's Class 2A category, the parties will concentrate on whether the evidence justifies the inference that, on a balance of probabilities, the impugned transaction was procured by undue influence, that is to say, by an abuse by the allegedly dominant party of the trust and confidence reposed in him by the allegedly subservient party. References in such cases to, and attempts to invoke the assistance of, an alleged evidential presumption of undue influence are, in my opinion, likely to be, as they have been in this case, a source of confusion and an impediment to the evaluation of the available evidence.” (Emphasis supplied)

32.  In the present case, is there any evidence which justifies the inference that, on a balance of probabilities, the two agreements in question were procured by the abuse by Hung of the trust and confidence reposed in him by the plaintiff?  In my judgment, there is.  My reasons are as follows:-

(a)   the fact that it was Hung who asked the plaintiff to sign  the two agreements;

(b)   the unchallenged evidence of the plaintiff that she had not been explained the terms of the agreements in details, that she signed the agreements because of the trust and confidence she reposed in Hung, that she had not been asked to seek independent legal or any advice at all and that she would not have entered into the agreements had she known of their terms; and

(c)   the absence of any written promise in the two agreements that she would be given any amount of work or that any album would be released for her, the very onerous obligations on her under the two agreements including the lengths of the agreements, the high commission rates which left her with very little, if any, remuneration from her jobs, the absence of any control by her over the expenses which D1 might incur under the Boxing Agreement and her potential personal liability for those expenses and D1’s unilaterally right to terminate the Boxing Agreement with any compensation to her.

I find that the terms of the two agreements in question were so disadvantageous to the plaintiff that her entering into them cannot be readily explained on the basis of the relationship between the plaintiff and Hung, except that the plaintiff was acting under the undue influence of Hung. 

33.  The next question is whether the two agreements in question were tainted by the undue influence of Hung who was not a party to either of the agreements.  In my judgment, the answer is also in the affirmative:-

(a)   as regards the Boxing Agreement, I am satisfied that D2 was “put on inquiry” of Hung’s undue influence.  I accept Mr Pun’s submission that Fong, the representative of D2, had sufficient knowledge of the close relationship between the plaintiff and Hung.   Accordingly to the plaintiff, Fong was a friend of Hung. In 2003, Hung introduced Fong to her and Fong knew ever since that Hung was her manager.  It was Hung who asked the plaintiff to sign the Boxing Agreement even though Fong knew that Hung was not a party to the agreement and had no formal role in it.  Moreover,Hung’s representation about D1’s intention of releasing an album for the plaintiff was made in Fong’s present; and

(b)   as regards the Minni Agreement, given the fact that Hung was its shareholder and also that it was Hung who asked the plaintiff to sign the agreement, I am satisfied that Hung was acting as D3’s agent in that transaction and that it had knowledge of the undue influence.  I note also that Fong was also a shareholder and director of D3.  

34.  In view of the above and since D2 and D3 had not taken any reasonable steps to see that the plaintiff understood the true nature of the two agreements and her obligations under them or to ask her to seek independent advice, in my judgment the plaintiff has made out her case on balance of probabilities that the two agreements were procured by undue influence and were voidable. 

35.  The last issue in this regard is whether restitution in integrum is possible and whether the plaintiff is barred from having the two agreements in question set aside. This issue was not covered in any length by Mr Pun’s in his written and oral submissions.  However, in the absence of any evidence from the defendants, basing on the plaintiff’s evidence that neither D2 nor D3 had invested any significant sums, if at all, on her and in view of the fact that the plaintiff is not seeking any damages or account from the defendants, I am satisfied that the plaintiff has not been barred from setting aside the two agreements.   

36.  Based on the above, I am satisfied that the Boxing Agreement and the Minni Agreement has been avoided by the letters of the plaintiff’s solicitors dated 4 March 2010.

Breach of condition

37.  Given my judgment on undue influence above, it would be unnecessary for me to deal with this ground in length which concerns the Minni Agreement only. 

38.  To deal with this ground shortly, based on the plaintiff’s unchallenged evidence that D3 had not performed any of its obligations under the Minni Agreement, I find that D3 had committed a repudiatory breach of the agreement.  As such, I am satisfied that, had the plaintiff not already avoided the Minni Agreement, she would have been entitled to accept D3’s breach, terminate the agreement and treat herself as discharged from her contractual duty.  This is, however, different from her remedy for undue influence, the effect of which is retrospective, Chitty on Contract, supra, §6-111 to 113.

Duress

39.  This ground only concerns the Minni Agreement.  Given my judgment on undue influence and breach of condition, I do not think it is necessary to deal with this ground in length.  For completeness sake, I would simply say that I am satisfied that what Hung said as to what D1 would do should she refuse to sign the Minni Agreement amounted to a threat which he made on behalf of D3, that the threat was an overwhelming cause of the plaintiff entering into the agreement, that the plaintiff believed that Hung was in a position to influence D1 not to give her jobs, that the stopping of jobs from D1 could mean a severe blow to her career as an artiste and her personal finances and that she had no practical choice opened to her but to enter into the agreement: Pau On v Lau Yiu Long [1980] AC 614.  

Restraint of Trade

40.  This ground concerns both the Boxing Agreement and the Minni Agreement.  However, given my judgment on undue influence, breach of condition and duress and also given the fact that D2 is now a dormant company, I do not think that it is necessary to deal with this ground. 

CONCLUSION

Declaration

41.  Based on all of the above, I conclude that the Boxing Agreement and the Minni Agreement were voidable on the ground of undue influence and have been avoided by the plaintiff on 4 March 2010.

42.  I am satisfied that this is an appropriate case to grant the declarations sought by the plaintiff even though she is not pursuing any other consequential relief: see Order 15, Rule 16; see also Hong Kong Civil Procedure 2013, Volume 1, §15/16/3.

Costs

43.  Although D2 and D3 had not filed any notice of intention to defence and did not appear, the plaintiff could not have obtained the declarations she sought in default of defence without adducing evidence.  I see no reasons not to follow the general rule that costs should follow the event.  See Grant v Knaresborough Urban District Council [1928] Ch 310; see also Hong Kong Civil Procedure 2013, supra, at §15/16/10.  I make an order nisi that D2 and D3 do pay the plaintiff’s costs, to be taxed if not agreed. 

44.  I also make an order nisi that the plaintiff’s own costs be taxed in accordance with legal aid regulations.