CHUY KEDI formerly known as CHUY PUI YEUNG v. AZPRO ENTERTAINMENT CO LTD

DCCJ 1818/2015

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 1818 OF 2015

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DCCJ 1819/2015

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 1819 OF 2015

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DCCJ 1820/2015

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 1820 OF 2015

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J U D G M E N T

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1.  The plaintiff in the respective case are performing artists (“Tsang”, “Chu” and “Chuy” respectively and “the plaintiffs” collectively) seeking declaratory reliefs against the defendant (“Azpro”), their artist manager company that their respective agreement with Azpro :

a. to be rescinded on the ground of misrepresentation;

b. to be set aside and unenforceable on the ground of undue influence;

c. be void and unenforceable as an unreasonable restraint of trade; and/or

d. be lawfully and validly terminated by the plaintiffs for Azpro’s breach of the agreement.

Damages and account of the remunerations and/or all sums due to the plaintiffs also form part of the plaintiffs’ claim, together with interest and costs.

2.  Although Azpro had filed its Defence and Counterclaim in each case, it had not taken part in these proceedings since 15 December 2016 when it is ordered that the Defence and Counterclaim be struck out on the grounds that they disclose no reasonable defence and cause of action.  By the order of Mr Registrar Ho on 12 September 2017, all 3 cases are to be heard together.

3.  The plaintiffs are the only witness at trial and the evidence quoted in this judgment are facts found to be proved and accepted by this court.

Misrepresentation

4.  When the plaintiffs first met Ms Wu (“Wu”) the sole director and shareholder of Azpro, in November 2011 for Tsang and Chuy and in June 2012 for Chu, Wu made, inter alia, the following representations which turned out to be materially false (“the Representation”):

a. Azpro was a subsidiary of Galaxy Entertainment Group Ltd (“the Galaxy Group”), a well-establish entertainment conglomerate listed in Hong Kong or soon to be acquired by the Galaxy Group but in fact Azpro had no connection whatsoever with the Galaxy Group;

b. Azpro was financially sound when in fact Azpro failed to pay the wages for its staff for several months resulting in all staff members resigned by July 2012; and

c. Wu was previously the manager of artist Mr Jacky Cheung which is never the case.

5.  Because of the Representation, each of the plaintiffs signed and entered into an artist management agreement with Azpro (“the Agreement”), for Chu on 10 June 2012 and for Tsang and Chuy, on 5 December 2011.  The plaintiffs said that had it not been for the Representation, they would not have signed the Agreement with Azpro and appointed Azpro as their artist manager and Wu made the Representation fraudulently or recklessly.

6.  Based on the evidence above, I agree with Mr Wong for the plaintiffs that but for the Representation, the plaintiffs, who were aspiring artists trying to make a career in the entertainment industry in Hong Kong, would not have entered into the Agreement with Azpro.  The Representation was to project a false sense to the plaintiffs of Azpro’s financial soundness as well as its capability in promoting an artist as successful as Jacky Cheung in order to lure the plaintiffs into signing their respective Agreement.  And Wu, being the director and shareholder of Azpro, must knew the Representation were false statements of fact, the Representation were made fraudulently or she did not care whether they were true or false.  In my view, once fraudulent misrepresentation is established on the part of Azpro, it cannot rely on an entire agreement clause like the present one in Clause 21.2 of the Agreement.

7.  Given the plaintiffs were induced to enter into the Agreement as a result of the fraudulent misrepresentation, the plaintiffs are entitled to rescind the Agreement.

Undue Influence

8.  The plaintiffs said that when they were being shown the pre-printed draft Agreement, their request to take the document away for further reading and consideration (and for Tsang, to seek independent legal advice as well) was declined by Wu who warned them that if they did not sign the Agreement there and then, she would not sign the Agreement with them but to sign up with someone else.  In face of the said pressure from Wu, the plaintiffs signed the Agreement.

9.  The general principles on are (see Goff & Jones, The Law of Restitution, 7^th ed.) :

“11-003 : … If actual undue influence is alleged, it is necessary for the claimant to prove affirmatively that the wrongdoer exerted undue influence on the complainant to enter into the particular transaction which is impugned. In the view of the Court of Appeal in BCCI v Aboody :

           “... a person relying on a plea of actual undue influence must show that : (a) the other party to the transaction (or someone who induced the transaction for his own benefit) had the capacity to influence the complainant; (b) the influence was exercised; (c) its exercise was undue; (d) its exercise brought about the transaction.”

For its exercise to amount to undue influence the party relying on the plea must show specific (or overt) acts of persuasion.

... It is then for the complainant to prove affirmatively that he is the victim of undue influence which induced him to enter into the impugned transaction. In discharging this burden, she may be able to demonstrate that she is a vulnerable person and the other party a domineering, forcible character. If, on the balance of probabilities, the party influenced would have entered the transaction in any event, it will not be set aside.

...

11-010 The circumstances in which a claimant may lose his right to set aside a transaction on the ground of undue influence are similar to those which may bar a claim for rescission or rectification....

In Allcard v Skinner it was said that the party influenced must object within a reasonable time; if he does not, he is deemed to have affirmed the transaction. In Mutual Finance Ltd v Wetton the critical time was said to be the date when the influence ceased to operate. ...”

10.  I find that the plaintiffs has failed to prove on a balance of probabilities that any undue influence was exercised on them by Wu.  The allegation of undue influence is only first raised in the pleadings in these proceedings and was not even mentioned in the pre-action letter sent to Azpro in February and August 2014.  This delay is difficult to understand. If, as alleged by the plaintiffs, they had signed the Agreement because of Wu’s undue influence, one would expect them to immediately raise that with Wu when they became themselves again or when they approached their lawyers for assistance.

Collateral Contract

11.  It is the plaintiffs’ evidence that when they first met Wu, apart from the Misrepresentation, Wu also assured and agreed that if the plaintiffs were to enter into an artist management agreement with Azpro, Azpro would :

a. provide training to the plaintiffs at Azpro’s costs, advise on clothing styles and image, arrange to participate in auditions and casting for movies and commercials and the plaintiffs will receive no less exposure than other artists;

b. promote the plaintiffs to teenagers and young adults through various channels in Hong Kong and in Mainland China;

c. produce and release a solo album for the plaintiffs in 2012 and procure Larry Wong to produce the album and promote the same in Hong Kong and in Mainland China with profits to be shared with the plaintiffs;

d. use the music and lyrics composed by Chu for songs and album that Azpro releases for its artists; and

e. negotiate with Music Globes on Chu’s behalf to terminate his existing contract with Music Globes.

12.  The plaintiffs contended that this forms a distinct contract  collateral to the Agreement which had not been effectively excluded by the entire agreement clause at Clause 21.2 of the Agreement (“Entire Agreement Clause”). 

13.  In my view, the use of standard forms here is neutral and would not lend support to the plaintiffs’ contention that the Entire Agreement Clause is not effective.  Entire agreement clause operates to denude what would otherwise constitute a collateral warranty of legal effect and it renders inadmissible extrinsic evidence to prove terms other than those in the written contract. The purpose of such a clause is to achieve the exclusion of liability for statements other than those set out in the written contract.  The effect of the clause will necessarily depend upon its precise wordings.

14.  I do not agree with Mr Wong that the Entire Agreement Clause in the Agreement is ambiguous and ineffective. 

15.  Clause 21.2 of the respective Agreement reads:

“本協定包含雙方充分且完全的認識，並取代先前所有書面或口頭的與本協議有關的標的物…”.

Mr Wong submitted that there is no object after the words “所有書面或口頭的”(“all previous written or oral”), it can mean “all previous written or oral undertakings”, “all previous written or oral warranties” or “all previous written or oral implications”.

16.  The object of Clause 21.2 clearly referred to anything said or done in written or oral form，in relation to the subject matter related to the Agreement (“與本協議有關的標的物”).  The interpretation suggested by Mr Wong had taken the sentence quoted at §15 above in piecemeal ignoring the words following “all previous written or oral”.  This should cover what is alleged to be said by Wu at the first meeting before the Agreement was signed.

Restraint of Trade

17.  The plaintiffs contended that the Agreement was unreasonable and unnecessary restraint of the plaintiff’s trade and business in the entertainment industry, contrary to public policy hence void and not enforceable. 

18.  In the pleadings, the terms which the plaintiffs alleged to be unreasonable are:

a. the Agreement is to last for an initial period of 5 years and the plaintiffs are required to offer Azpro a sole/exclusive option to extend the duration of the Agreement, up to a maximum period of 15 years (Clause 2);

b. Azpro is to procure and conclude engagement agreements on the plaintiffs’ behalf and the plaintiffs could not conclude any engagement agreement on their own and was required to divert all benefits or enquiries to Azpro (Clause 1.1-1.3);

c. Azpro had been assigned the sole and exclusive rights to publish or distribute any article or audio/video records of the plaintiffs to the whole world but not the obligation to do so (Clause 1.8);

d. the plaintiffs were required to do any or all acts, to sign any or all documents upon Azpro’s request (Clause 1.6);

e. Azpro could, at its absolute discretion, unilaterally transfer its rights and responsibility under the Agreement to any third party that it considered suitable for the plaintiffs (Clause 1.9);

f. Azpro could at its discretion discontinue/terminate the Agreement but the plaintiffs had no right to do so (Clause 11-14);

g. during the contract period, the plaintiffs should always report to Azpro their location and provide Azpro with their telephone number and the plaintiffs could not leave Hong Kong without the prior written approval of Azpro (Clause 4.19);

h. without Azpro’s written consent, the plaintiffs could not accept any interview, attend publicity activity or render any service to any third party (Clause 4.7-4.8); and

i. if Azpro elects to discontinue the Agreement, the period of discontinuance equals to the remaining of the contractual period and during the period of discontinuance, Azpro’s duty to pay remunerations ceased but it could still enjoy all rights conferred under the Agreement and the plaintiffs has to fulfil his duty under the Agreement (Clause 12).

19.  I agree with Mr Wong that the terms alleged to be unreasonable and amounts to a restraint of trade is analogous to those in the case of A. Schroeder Music Publishing Co Ltd v Macaulay [1974] 1 WLR 1308.  The facts and findings of this case is succinctly set out in Chitty on Contracts (32^nd ed, 2015), at §16-094 as follows:

“The doctrine applies to restraints which operate during the continuance of the contract. This is well illustrated by A. Schroeder Music Publishing Co Ltd v Macaulay. There the plaintiff, a young songwriter, agreed to work as such exclusively for the defendants, who were music publishers, for five years. He assigned to them full copyright of his existing works and in future works composed during the five years. The five years was extended to 10 years if the plaintiff’s royalties exceeded £5,000. The defendants could determine the agreement at any time on one month’s notice and could assign the benefit of it. Although the plaintiff’s royalties depended upon whether the defendants exploited his compositions, there was no obligation on the defendants to exploit any composition of the plaintiff, and if the defendants failed to do so, the plaintiff could not do so even after the determination of the contract. Lord Reid held that the contract was unduly restrictive, it was not a commercially acceptable one “made freely by parties bargaining on equal terms”, “or moulded under the pressure of negotiation, competition and public opinion … However, the absence of reciprocal obligation may be a factor in determining whether a restraint is reasonable”.

20.  Applying the reasoning in Schroeder, I find the clauses in the Agreement quoted at §18 (a), (c) to (f) and (i) above are apparently unduly restrictive terms and are one sided, with the plaintiffs bearing a more onerous responsibility and depriving them the right to reciprocal obligation.  The plaintiffs are bound to offer an option to renew to Azpro for 15 years and do not have the right to discontinue or terminate the Agreement.

21.  As for the clause at §18 (g), I do not agree that this is a restraint of “trade” but rather a restraint of “movement” so the doctrine is not applicable.  For clauses at §18 (b) and (h), given the nature of the Agreement, it is not unreasonable for Azpro to have exclusive right to procure, negotiate and decide on the kind of work to be engaged for the plaintiffs as their manager.

22.  I find that Clauses 1.6, 1.8-1.9, 2 and 11-14 in the Agreement are unreasonable restraint of trade, hence are void and unenforceable. 

Breach of Contract

23.  In any event, the plaintiffs said that Azpro had failed to fulfil the terms of the Agreement for the respective plaintiff in that Azpro failed to :

a. procure and/or conclude engagement agreements and image usage agreements that are reasonably expected of an artist management company;

b. engage any staff after resignation of the employees due to non-payment of salary and Wu was the only person conducting the daily operation of Azpro and only minimal efforts and resources were used to promote the plaintiffs’ professional interests;

c. procure and/or conclude any engagement agreement on behalf of the plaintiffs, for Tsang and Chuy since 9 August 2013 and for Chu since 29 April 2013;

d. conclude any image usage agreements and to arrange media coverage for the events the plaintiffs took part;

e. provide management services, such as providing the necessary advice and/or training for the plaintiffs;

f. arrange publicity plan or public relation promotions;

g. produce the album or hold any solo concert for the plaintiffs; and

h. give any account of and/or pay any remuneration and sums that the plaintiffs are entitled to.

24.  Having considered the evidence of the plaintiffs, I find as a fact that Azpro had failed to discharge its obligation under the respective Agreement in the manner particularised above.  These are fundamental breach of the Agreement and despite repeated request, Azpro still failed to rectify the same.  The plaintiffs had, by the letter from their solicitors dated 14 February 2014, lawfully terminated the Agreement by accepting such repudiation on the part of Azpro.

Relief

25.  The plaintiffs ask for declaration that the Agreement has been validly rescinded on the grounds of misrepresentation, or alternatively the Agreement is set aside and unenforceable on the grounds of undue influence, or the Agreement is void and unenforceable as an unreasonable restraint of trade, or  the Agreement is lawfully and validly terminated by the plaintiffs for Azpro’s breach as well as damages for misrepresentation and breach of contract and an account of the sum of performing remuneration due to the plaintiffs under the Agreement.

26.  Given the findings that there is misrepresentation at §7 above, the declaration that the Agreement has been validly rescinded is justified and other declarations sought are no longer necessary.

27.  As for the claim for damages for misrepresentation, the plaintiffs had failed to adduce any evidence before this court as to the nature and extent of their loss or damage, so only nominal damages can be awarded for damages arising from the rescission of the Agreement. 

28.  The plaintiffs were entitled to be remunerated for their performance arranged by Azpro and the terms of the Agreement also required Azpro to account to the plaintiffs the sum due to the plaintiffs (Clause 8.1).  Since the plaintiffs cannot provide all details as to the sum received by Azpro as well as how to work out their entitlement under the Agreement, an account of the remunerations due to the plaintiffs is required from Azpro and the taking of the account be conducted by a Master of the District Court pursuant to Order 43 of the Rules of the District Court.  Azpro do pay to the plaintiffs all remunerations found due to the plaintiffs.

Costs

29.  Costs should follow the event.  I grant an order nisi that costs of these proceedings be to the plaintiffs to be taxed if not agreed on party-and-party basis, with certificate for counsel.  This is a costs order nisi.  Unless any of the parties applies by summons to vary it, the costs order nisi shall be made absolute upon expiry of 14 days.

Order

30.  In the circumstances, I make the following order:

(1) declaration that each of the plaintiffs was entitled to rescind, and has validly rescinded, their respective Agreement with the defendant;

(2) nominal damages of $1 to the plaintiffs for misrepresentation by the defendant in procuring the Agreement;

(3) the defendant do account for the sum of performing remunerations due to the plaintiffs under the Agreement and the defendant do pay to the plaintiffs all remuneration found due to the plaintiffs;

(4) the taking of the account be conducted by a Master of the District Court pursuant to Order 43 of the Rules of the District Court; and

(5) costs of these proceedings be to the plaintiffs,to be taxed if not agreed on party-and-party basis, with certificate for counsel. This is a costs order nisi.  Unless any of the parties applies by summons to vary it, the costs order nisi shall be made absolute upon expiry of 14 days.