AMUSE HONG KONG LTD. v. CHAN KIN TIM, LESLIE AND ANOTHER

IN THE COURT OF APPEAL

1993, No.216
(Civil)

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J U D G M E N T

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Power, V.-P.:

1. The 2nd plaintiff, Kinn's Music Limited ("KML") is involved in the publishing and production of popular music and the management of groups who produce such music. The 1st plaintiff Leslie Chan is a director of KML and appears to be the driving force in that company. KML managed a successful group of musicians ("the Band") who perform under the name "Beyond". Many of its songs have been written by its members, either individually or collectively, and they, by written agreements ("the copyright assignments") assigned the copyright to KML or, before KML's incorporation, to its predecessor Kinn's Music Productions. When KML was incorporated in November 1986 the benefit of the earlier assignments passed to it. In June 1986 the Band entered into a Representation Agreement with KML but its increasing success led to the realization that it would be better served if promoted by an international company and in mid-1992 KML transferred its management responsibilities to a Japanese corporation Kabushiki Kaisha Amuse, of which the defendant is the Hong Kong subsidiary. KML did not, however, transfer any of its rights under the copyright assignments which covered all of the songs up to those included in the Band's 1993 album. The songs in that album are referred to as "The Compositions" and the previous songs are referred to as "The Back Catalogue".

2. On 8th April 1993 the four members of the Band, in their own names, issued a writ against KML. The remedies sought in this writ are summarized in the following passage from the affidavit of Yip Sai Wing, one of the members of the Band, which states:

"2. The letter of 16th September, 1993 (hereinafter "the Letter") which would appear to have prompted these proceedings by the Plaintiff's (exhibit "LC-12" of the 1st Plaintiff's Affidavit) is consistent with the Statement of Claim filed on 28th September, 1993 by the Band in High Court Action No. A2950 of 1993 to which the Letter refers. The Statement o Claim in High Court Action No. A2950 of 1993 details the basis of our claim and our assertions of right to title in the past, present and future compositions of Beyond ("the Compositions"). There is now produced and shown to me marked "YSW-1" a copy of the Statement of Claim aforesaid in which we seek, amongst other relief

(a) a declaration that various contracts by which the 1st and 2nd Plaintiff claim title to past, present and future compositions written by the Band are void and/or voidable as being in restraint of trade and/or were procured by undue influence or inequality of bargaining power and/or misrepresentation and/or mistake and/or breach of fiduciary duty.

(b) an injunction to restrain the Plaintiffs from representing or alleging that they have any rights pursuant to such contracts.

(c) an order that the Plaintiffs re-assign all such rights obtained pursuant to such contracts to the Band.

(d) a declaration that all copyright in future compositions of the Band resides with the Band.

(e) an account of all publishing income earned by the Plaintiffs and an order that all sums as are found due be paid to the Band; and

(f) a declaration that any profits made from the contracts aforesaid and/or breaches of fiduciary duty be held on trust for the Band."

As regards the copyright assignments the Statement of Claim pleaded that they were void and/or unenforceable:

i) "as being in unreasonable restraint of trade";

ii) "as being an unfair or unconscionable agreement entered into by the Plaintiffs or some of them as a result of undue influence or unfair bargaining power" of the defendants;

iii) for "mistake and/or misrepresentation".

It was finally pleaded that "Insofar as the Copyright Assignments or any of them were voidable only the same were avoided by the Avoidance letter". This was a letter dated 1st April 1993 written by the plaintiffs to KML.

3. In summary the pleading asserted that the copyright assignments were void and/or unenforceable as being in unreasonable restraint of trade, as being an unfair or unconscionable agreement entered into as a result of undue influence or unfair bargaining power and/or because of mistake and/or misrepresentation.

4. On 16th September 1993 the defendant wrote a letter ("the offending letter") which they sent to publishers in the music business in Hong Kong stating that KML did not own the copyright in the Band's songs. On 8th November KML commenced this action for damages for slander of title and unlawful interference. The writ sought an in junction restraining the defendant from publishing a denial that KML were the owners of the copyright. The writ pleaded inter alia that the "said words and/or their clear implication were false and were maliciously published".

5. On 9th November KML by summons sought an interlocutory injunction ordering that the defendant withdraw the letter of 16th September unconditionally and until after trial of the action or further order refrain from publishing any denial that KML are the owners of the copyright.

6. The offending letter stated:

"On behalf of Amuse and Beyond we would wish to respond as follows:-

1. The compositions contained on the latest Album ("the Compositions") are registered with the Composers and Authors Society of Hong Kong Ltd naming Amuse as publisher and members of Beyond as the owners of the copyright in the Compositions. The said registrations are countersigned by members of Beyond, the composers of the Compositions. Copies of the relevant Publishing Agreements between Beyond and Amuse covering the compositions can be provided at your request.

2. The Contention by Kinn's Music Ltd that they own the copyright in the Compositions is spurious and without foundation. In addition to claiming rights in the Compositions, we understand that Kinn's Music Ltd. also claim to own copyright in a number of other compositions written by the members of Beyond as scheduled in a circular letter from Kinn's Music Ltd. to all record companies/Karaoke producers/music publishers of 19th August, 1993 ("the Back Catalogue;) - we enclose a copy of the schedule of these compositions for your ease of reference. Beyond categorically refute any claims of Kinn's Music Ltd. to copyright in the Compositions or the Back Catalogue and have filed proceedings in the High Court (High Court Action No.A2950 of 1993) asserting their title in the Compositions and the Back Catalogue and seeking a declaration from the High Court in this regard. If you wish a copy of the Writ of Summons can be forwarded to you.

C.A.S.H./have been put on notice of the aforementioned High Court Action and of Beyond's request that Amuse be the publisher of records of all of the Compositions, past, present and future. All publishing rights should, therefore, be negotiated through our offices."

7. The application for an interlocutory injunction came before Barnett J. who, when granting the injunctions sought, stated:

"I have no hesitation in finding that the Plaintiffs ought to get the mandatory relief which they seek. That relief, the withdrawal of the offending letter, will not as in so many cases involving mandatory injunctions, have the effect of deciding the action. Further, like Hoffmann J., I find no difficulty about formulating the order in an enforceable form. It is also difficult to see how that withdrawal could cause loss, let alone uncompensatable loss, to the Defendant. On the other hand, if the letter is not withdrawn there will be loss to the Plaintiffs, a loss which will be difficult to quantify. Finally, if the letter is withdrawn, the status quo will be restored the status quo being the Plaintiffs' undisputed holding of agreements and assignments vesting copyright in them, and the collection of royalties therefor, subject only to the Group's action in which those documents are sought to be avoided.

In the circumstances, it is not necessary for me to deal with the Plaintiffs' other cause of action, unlawful interference. Suffice it to say that that tort depends upon the letter and the tort of slander of title. I agree with Mr. Faulkner that the same considerations would apply. I reject Mr. Garland's unsupported submission that it would fall to be considered in accordance with ordinary American Cyanamid principles. If Mr. Garland's submission is correct, he would be able to get in by the back door what he could not get in the front.

In principle, therefore, I am prepared to grant the relief sought by the Plaintiffs. I will grant an order in terms of paragraph 1 of their summons, so that the offending letter is withdrawn without comment and unconditionally. I am concerned that paragraph 2 is drawn in terms which are perhaps too wide because it would prevent the Defendant from legitimately answering questions about the Group's action. I will hear counsel as to how this might be more suitably worded. I will also hear counsel on the question of the proper protection of the copyright pending resolution of the Group's action, and of course, on the question of costs."

Having heard counsel, the judge ordered -

"1. The defendant do, whether by its directors, officers, servants or gents or any of them or otherwise howsoever, forthwith retract its letter of 16th September 1993 by sending to all recipients of such letters a letter/notice/communication stating without further comment that it is unconditionally retracting the same;

2. The Defendant be restrained, whether acting by itself, its directors, officers, servants or agents or any of them or otherwise howsoever, until after the trial of this action or until further Order, from publishing statements orally or in writing to any third party that the Plaintiffs or either of them are not the owners of the copyright in the compositions contained in the album '?' or in the 'Back Catalogue."

8. The judge was satisfied that "the sting" to which the plaintiffs took exception was contained in the words "The contention by Kinn's Music Ltd that they own the copyright in the Compositions is spurious and without foundation." He stated that, without that sentence Mr. Garland, who appeared for KML, had conceded that they would probably have had no cause for complaint. He went on to say that he was satisfied "that the offending words colour and infect the whole letter and that there can have been no doubt as to the Plaintiffs' attitude to this letter".

9. He was mindful when coming to his decision that the tort of slander of title requires proof by a plaintiff that the words used were false and made maliciously and that an interlocutory injunction in an action based on libel is granted sparingly and only in the clearest case, particularly where a defendant pleads justification.

10. He stated it to be trite law that if a defendant pleaded that he was going to justify no interlocutory injunction would be granted unless the court was satisfied that he would not be able to justify. He stated that he could see no assertion of justification on affidavit by anyone on behalf of the defendant. When saying this he indicated that he was mindful of Mr. Faulkner's argument for the defendant, that if the Band's action was successful, it may have the effect of making some of the agreements void which would show KML's claims to copyright to have been without foundation and necessarily spurious. He was little impressed with this argument as he was satisfied that the judge trying the action would have to look at the circumstances which prevailed at the time when the offending letter was written. He stated that at that time the defendant was not only aware of the Band's action but also that KML's claim was based on documents which went back a number of years during which KML's title was never challenged and during which it had arranged for publishing or licensing of the Band's material and had received royalties therefor. He was unable in those circumstances to see how anyone could suggest that KML's claim to copyright was "spurious and without foundation". He stated:

"Those words suggest that the Plaintiffs, in order to take advantage of a successful group of musicians, have very lately come forward with some cock and bull story about an agreement or arrangement with the Group, in relation to copyright, which had not previously seen the light of day. In my judgment, the words complained of were false and plainly known to be false on the part of the Defendant. A successful outcome (for the Group) of the Group's action will not, in my judgment, have any effect upon this action. I fail to see how the Defendant can hope to justify the offending words."

He went on to state that:

"In the circumstances, malice is to be inferred notwithstanding the absence of any express allegation by the Plaintiffs."

He was satisfied that the plaintiff could have had no other purpose in sending the letter "than to make life as difficult as possible for the Plaintiffs". He was further satisfied that there was no evidence that the defendant was likely to suffer any direct financial loss or damage if the injunction were granted but was satisfied that:

"As far as the Plaintiffs are concerned, the loss of royalties, even if on a temporary basis (and temporary in these circumstances might be many months if not years) will plainly affect the Plaintiffs' ability to do business. That will equally plainly be aggravated by the damaging allegation which has been made against them."

11. Being satisfied that the words were false and malicious, that the defendant had not pleaded justification and that KML but not the defendant would suffer damage if the injunction were not granted, the judge turned to the exercise of his discretion. He was satisfied, having considered the principles set out by Hoffmann J. in Films Rover International Ltd. and Others v. Cannon Film Sales Ltd. (1987) 1 W.L.R. 670, that he should exercise his discretion in favour of KML.

12. Before this court Mr. Faulkner first argues that the judge erred in holding that what he referred to as "the sting" was the principal matter of complaint by KML. It was suggested that this was not really what KML were complaining about. We find no merit in this suggestion. As the judge rightly observed, "the sting" coloured and infected the whole letter and KML was clearly objecting to the letter as coloured and infected by those words.

13. It was next submitted that given that the words of the sting were the principal matter of complaint, the injunction granted which ordered the defendants to publish the retraction and to refrain from publishing any statements suggesting that KML were not the owner of the copyright in The Compositions and the Back Catalogue, was much more extensive relief than that which was required to remedy the suggested wrong. This would only be so if the complaint was limited as was Mr. Faulkner suggested. The concluding words in the paragraph set out above state: "All publishing rights should, therefore, be negotiated through our offices." The defendants were clearly saying that KML was making a wholly false claim to copyright in the songs and that the publishing rights with regard thereto should be negotiated through them. The judge was right to regard the offending words as colouring the whole letter. There is nothing in this first ground.

14. In the second ground it is complained that the judge erred insofar as he held "that the defendant did not assert, whether in terms or in effect, that it intended to justify the matter complained of". What the judge said was:

"I am not aware of any assertion of justification on affidavit by anyone on behalf of the Defendant."

What is argued is that the defendant was plainly asserting justification insofar as it relied upon the action of the Band which, if successful, would have the effect of making the agreements between KML and the Band void. Barnett J. was satisfied that the judge hearing such an action would have to look at the circumstances which prevailed at the time when the offending letter was written, and that at that time its contents were inarguably "false and plainly known to be false on the part of the defendant".

15. Mr. Peter Loehr, the General Manager of the international division of Kabushiki Kaisha Amuse stated that his company "fully support" the Band in their High Court Action and that they would assert the rights of the Band set out in the Statement of Claim and intended to establish the truth of the matters asserted in the offending letter.

16. Mr. Loehr went on to state:

"From meetings with the Band and also as a result of advice from our Solicitors, Messrs. Haldane, Midgley and Booth in late January 1993 we concluded that the 1st Plaintiff and/or the 2nd Plaintiff did not have a good title in the various compositions of the Band to date or indeed the future compositions of the Band."

17. While it may be that Mr. Loehr did not, in terms, assert an intention to justify he made it clear beyond argument that the defendant would be relying upon the rights asserted by the Band in its action.

18. It was the argument of Mr. Faulkner that rescission is not a judicial remedy but is the act of the party who is entitled to rescind and that the Band had by the Avoidance letter rescinded the copyright agreements. As the defendant relied upon the assertion of the Band as pleaded this was, he argued, a sufficient assertion of justification on their part.

19. This was, however, his fall back position. He relied firstly upon the claim of the Band that the copyright agreements were in restraint of trade and were, therefore, being in breach of public policy, void ab initio. His fall back position was that, even if this be not so, the agreements had been obtained by a breach of a fiduciary duty owed to the Band and that the Band was, therefore, entitled to and did rescind them.

20. The first contention can be quickly dealt with. In Sullivan v. Management Agency Ltd. (1985) 1 Q.B. 428 in which Waller L.J., relying on Instone v. Schroeder Music Publishing Co. Ltd. (1974) 1 All E.R. 171, which was affirmed in the House of Lords under the name ofA. Schroeder Music Publishing Co. v. McCally (1974) 1 W.L.R. 1308, said, at p.470 :

"The Court of Appeal held that because the agreement was in unreasonable restraint of trade it was unenforceable insofar as it had not been carried out. And Lord Reid, dismissing the appeal against that decision, concluded his speech with these words, at p.1315 :

'It must therefore follow that the agreement so far as performed is unenforceable'.

The effect of this finding taken by itself is that the two agreements to which I have referred were unenforceable so far as they have not been performed and not void."

This disposes of the contention that the agreements which had been performed were void ab initio because they were in restraint of trade.

21. The submission that the defendant was asserting justification relying upon an election to rescind by the Band on the ground of breach of fiduciary duty which was evidenced by the Avoidance letter written in April 1993 raises more difficult questions. This contention will only fail if it can be demonstrated that the election could not, in the circumstances of the matter, have affected a rescission of the contract. At first sight the authorities appear to indicate that an election to rescind does terminate the contract forthwith. There appears to be support for this view in Horsler v. Zorro [1975] 1 Ch. 302 in which Megarry J., at p.310, said:

"Second, the process of rescission is essentially the act of the party rescinding, and not of the court. Of course, if matters are disputed, the dispute may have to be determined by the court, and until the decision is given it will not be known whether or not there has been a proper and effectual rescission: but that does not mean that there is no rescission until the court speaks. I think that this appears plainly from the speech of Lord Hatherley L.C. in Reese River Silver Mining Co. Ltd. v. Smith (1869) L.R. 4 H.L. 64, 73, where he says that the agreement -

'subsists until rescinded; that is to say, in this sense - until rescinded by the declaration of him whom you have sought to bind by it, that he no longer accepts the agreement, but entirely rejects and repudiates it.' Lord Hatherley added that the expression "until rescinded" did not mean that "the rescission must be an act of some court of competent authority, and that, until the rescission by that court of competent authority takes places, the agreement is subsisting in its full rigour."

As Lord Atkinson observed in Abram Steamship Co. Ltd. v. Westville Shipping Co. Ltd. [1923] A.C. 773, 784, Lord Westbury and Lord Cairns seem to have approved Lord Hatherley's statement; and Lord Atkinson's view, in the Abram case at pp.781-783, is to the same effect."

Lord Atkinson in the Abram Steamship Co. Ltd. case said, at p.781 :

"Where one party to a contract expresses by word or act in an unequivocal manner that by reason of fraud or essential error of a material kind inducing him to enter into the contract he has resolved to rescind it, and refuses to be bound by it, the expression of his election, if justified by the facts, terminates the contract, puts the parties in statu guo ante and restores things, as between them, to the position in which they stood before the contract was entered into."

22. That statement read, standing alone, would seem to give clear support to the suggestion that the election of the party once communicated rescinds the contract. Lord Atkinson, however, went on to state:

"It may be that the facts impose upon the party desiring to rescind the duty of making restitutio in integrum. If so, he must discharge that duty before the rescission is in effect, accomplished; but if the other party to the contract questions the right of the first to rescind, thus obliging the latter to bring an action at law to enforce the right he has secured for himself by his election, and it latter gets a verdict, it is an entire mistake to suppose that it is this verdict which by itself terminates the contract and restores the antecedent status. The verdict is merely the judicial determination of the fact that the expression by the plaintiff of his election to rescind was justified, was effective, and put an end to the contract. Questions as to whether the judgment relates back to a date earlier than its own are really irrelevant. So long ago as the year 1804 this was in effect decided by Lord Ellenborough C.J., Grose, Lawrence and Le Blanc JJ., in the case of Hunt v. Silk (1804) 5 East, 449. It was there laid down 'that a contract cannot be rescinded by one party for the default of the other, unless both can be put in statu guo as before the contract."' (Emphasis supplied.)

23. This further passage makes it clear that the notification does not rescind the contract and that where restitutio in integrum is required, and it would be clearly required in the present case, the rescission is not "accomplished" until the rescinding party discharges whatever duty lies upon him to effect restitution in integrum. We observe in passing that the authority of Horsler v. Zorro (supra) was severely questioned in Johnson v. Agnew [1980] A.C. 367 where, at 3950 Lord Wilberforce said that Megarry J.'s judgment was "discoloured by the erroneous conception of rescission ab initio". We are satisfied that the rescission was not accomplished by the avoidance letter nor has it been accomplished up until the present time. For these reasons we are satisfied that the judge was right to hold that no justification could be asserted.

24. The third ground of appeal was that the judge erred in suggesting a meaning for the libel which had never been asserted by the plaintiffs in pleading or in affidavit or in submission and which therefore the defendant never had a chance to meet. The words of the judge complained of are:

"Those words suggest that the plaintiffs, in order to take advantage of a successful group of musicians, have very lately come forward with some cock and bull story about an agreement or arrangement with the group in relation to copyright, which had not previously seen the light of day."

25. The words "The contention by Kinn's Music Ltd. that they own the copyright in the Compositions is spurious and without foundation" were the clearest statement that KML had no foundation of any sort for making a claim to the ownership of the copyright of any of the songs of the Band. There was no indication in the offending letter that the claim was disputed and was the subject of ongoing litigation. Put in colloquial language the words, in our view, do suggest that KML's claim was a "cock and bull story". Clearly any such claim, if unfounded, would be an attempt "to take advantage of a successful group of musicians". The "contention" referred to in the letter was undoubtedly that made in the advertisements placed by KML in daily newspapers in Hong Kong on 3rd and 4th December 1993. The judge was doing no more when using the words "very lately come forward" than indicating that the letter was referring to a recent public statement by KML that it owned the copyright. We are satisfied that the judge did not give any meaning to the alleged libel other than which it reasonably bore, and that it was this meaning about which KML was, throughout, complaining. Mr. Leslie Chan in his affidavit had said:

"Contrary to the impression given in the letter from Amuse (H.K.), KML is not suddenly and without reasonable foundation asserting such ownership; its documented title goes back many years and, until very recently, that title has never been challenged."

26. As an alternative to the above ground, it was suggested that the judge erred in holding that the meaning was one which a jury or a judge would inevitably attach to the words. We find no substance in this contention. We are satisfied that it is the meaning which any person would reasonably give to the words used.

27. The next ground urged that the judge was wrong when he stated that he failed "to see how the defendant can hope to justify the offending words". We have already dealt with this ground. Given that there were subsisting copyright agreements, the judge was quite entitled to hold that the defendants had no hope of justifying their statement that KML's claim to own the copyright was spurious and without foundation.

28. The next ground argued was that the judge was wrong to hold that malice was established or that there was sufficient evidence of malice. His finding in this regard was as follows:

"In the circumstances, malice is to be inferred notwithstanding the absence of any express allegation by the Plaintiffs. In any event, it is difficult to conceive what other purpose the Defendant could have had in sending the letter in the terms in which it did, other than to make life as difficult as possible for the Plaintiffs. I do not regard the letter simply as an emphatic denial of the Plaintiffs' title."

29. The judge was satisfied that the word complained of were "false and plainly known to be false from the part of the defendant". He was satisfied that the defendant knew that KML had signed copyright agreements which over a number of years both parties had accepted as binding. He was satisfied that at the time when the letter was written there was nothing which would have justified the defendants in concluding that these agreements had come to an end. He was satisfied that the defendants had published an injurious falsehood which they knew to be false with the object of injuring KML and that this constituted malice. He appears when dealing with these findings to have been relying upon the third proposition in the following passage, cited in the judgment, from wilts United Dairies Ltd. v. Thomas Robinson Sons & Coy., Ltd. [1957] RPC 220 per Stable J. at p.237:

"'As I understand the law it is this, that if you publish a defamatory statement about a man's goods which is injurious to him, honestly believing that it is true, your object being your own advantage and no detriment to him, you obviously are not liable. If you publish a statement which turns out to be false but which you honestly believe to be true, but you publish that statement, not for the purpose of protecting your own interests and achieving some advantage to yourself, but for the purpose of doing him harm, and it transpires, contrary to your belief, that the statement that you believed to be true has turned out to be false, notwithstanding the bona fides of your belief because the object that you had in mind was to injure him and not to advantage yourself, you would be liable for an injurious falsehood.'

'The third proposition which I derive from the cases is this, that if you publish an injurious falsehood which you know to be false, albeit that your only object is your own advantage and with no intention or desire to injure the person in relation to whose goods the falsehood is published, then provided that it is clear from the nature of the falsehood that it is intrinsically injurious - I say "intrinsically", meaning not deliberately aimed with intent to injure but as being inherent in the statement itself, the defendant is responsible, the malice consisting in the fact that what he published he knew to be false.'"

We see force in the suggestion that the judge was wrong to find knowledge of falsity on the part of the defendant as there was nothing to contradict the statement by Mr. Loehr that the defendant relied upon the advice of the solicitors which must have been that the agreements between the Band and KML had been rescinded by the Avoidance Letter.

30. Even if this be accepted the defendants fall within the second proposition as they published a statement which turned out to be false whose primary purpose was to injure KML.

31. It was further argued that malice was not asserted on the affidavit and that the judge was therefore wrong to proceed to find that it existed. The plaintiffs were clearly asserting a deliberate, untruthful attack upon their proprietary rights which was intended to and would cause them damages. No further assertion of malice was in our view needed.

32. The next ground suggested that the judge was wrong in finding that damage had occurred to KML or, alternatively that such damage could not be compensated in damages. We find it difficult to understand the first part of this contention as there is clear evidence in the affidavit of Mr. Leslie Chan that damage had occurred. The judge was further right to hold as he did, upon the evidence in Mr. Chan's affidavit, that the loss of royalties would "plainly affect the plaintiffs' ability to do business" and that this would be "aggravated by the Damaging allegation which has been made against them".

33. The penultimate ground was that the mandatory injunction was too wide as it should only have ordered a retraction limited to the alleged "sting". We have already dealt with this. We are satisfied that the sting coloured the whole letter and that the judge was right to order that it be retracted in toto.

34. The final ground was that the judge erred in ordering a negative injunction. It was submitted that such an injunction should be issued in only the rarest circumstances and that it wholly inhibited the defendants from asserting matters which truly described the state of the action between the Band and KML. We are satisfied that this was an exceptional circumstance. Numerous third parties are or are likely to be involved. The interlocking relationships of the KML, the defendant, the Band and those third parties is likely to be thrown into inextricable confusion if charges and counter charges are flung across the music world. It is clearly in nobody's interest that this should be done. The judge was satisfied, rightly in our view, that the proper order was one which would maintain the status guo until after the trial of the action.

35. The application is dismissed. We make an order nisi that the appellant pay the Respondents' costs to be taxed.