HUMMINGBIRD MUSIC LTD v. DINO ACCONCI AND ANOTHER

HCA 836/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 836 OF 2007

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J U D G M E N T

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Introduction

1.  This is a contractual dispute between a pop group and their manager.  The Defendants, Giulio and Dino Acconci are talented singers and musicians who also compose much of the material that they perform.  They call themselves Soler.  As a singing duo they have become well known on the pop music scene in Hong Kong, Macau, Southern China and Taiwan.  They started their career in earnest in late 2004 when they signed up with the Plaintiff as their manager.  The Plaintiff is the corporate persona of its principal shareholders, who are also brothers, Chang Tan and Chang Wan who is also known as Wayne.  The only other shareholder who I need to refer to is Mr Bernhard Groinig who usually goes by his nickname Lupo.  He became Soler’s musical director, having been musically trained in his native Austria as well as in California where amongst other things he taught music at a well-known music academy in Los Angeles which Chang Tan had attended as a student where he was taught by Lupo Groinig.

2.  The parties’ legal relationship is reflected in two sets of written agreements to which I will in due course need to make detailed reference.  Suffice it to say for present purposes that they began their collaboration in September 2004 on the basis of an oral agreement that Chang Tan would invest $400,000 so as to enable Soler to make their first album, production of which started the following month with Lupo Groinig as its producer.

3.  From there the parties’ relationship was put on a more formal footing.  Chang Tan suggested that written agreements would need to be entered into.  He already owned a music production company called Concrete Corner Music Production Limited which changed its name to that of the Plaintiff, the new name being suggested by the 2^nd Defendant who also designed the Plaintiff’s website.  For their part, the Defendants were already contractually tied to a company called Vocanimals Music Company Limited which also involved their friend Michael Fong.  They were contracted to write music for Vocanimals under agreements they had each signed on 7 May 2004.  In this regard, they were fortunate because Mr Fong was willing to release them on payment of $10,000 and termination letters to that effect were signed on 4 March 2005.

4.  As between the Plaintiff and the Defendants what has been called the first Artist Agreement and the first Exclusive Management Agreement were signed on 1 December 2004.  These are at A73-82 and A83-87.  Both were for three years.  The nature of the case is such that I am going to be required to examine many of their terms in detail which I will come to after I have identified the issues which I will need to resolve in giving judgment.

5.  At this stage it should be said that both parties were relative novices in the music industry.  Although the Defendants have had a lifelong interest in and love of music, they had at best pursued this on a semi-professional basis except for a short period in Italy in the 1990’s when they were signed to the well-known EMI record label and recorded an EP for it.  The Chang brothers come from a well-to-do Macau business family which has extensive property interests.  Chang Tan had gone to university in Australia and briefly tried for a career in accountancy after which he went to California to study music where he met Lupo Groinig.  On returning to Macau, he and his brother Wayne built up a very successful electronic slot machine business which they were able to sell on to the Melco Corporation for over $200 million.  Having obtained his share of this substantial amount, Chang Tan decided that he would invest some of it in the music industry and it is for this reason that he founded Concrete Corner Music, the predecessor to the Plaintiff.  The Defendants were Chang Tan’s first contracted artistes to whom he had been introduced by a mutual friend in March 2004.

6.  Given this level of inexperience, it is not surprising that the draft for the first Artist Agreement was obtained by Chang Tan from a friend of his, it being based on a Sony record company contract in Taiwan which was adapted in a limited way to suit the parties circumstances.

7.  On 5 March 2005, the Defendants also signed a 3-year Writers Agreement.  These are at A88-97 and A98-107.  These agreements were also “borrowed” by Chang Tan, he having downloaded them from his computer.  By entering into these Agreements, the Defendants had bound themselves and their musical careers to the Plaintiff until March 2008.  The Plaintiff was their manager/agent, their record producer and their music publisher.

8.  Before signing these agreements neither party appears to have taken any formal legal advice, the Defendants at some point having asked a relative in Hong Kong who was in practice as a solicitor to caste an eye over the documents but this did not result in any serious negotiation over terms which one might expect where parties instruct lawyers who give in-depth advice and conduct negotiations with the other party’s representatives over the terms of the contract.  It also seems clear that the Chang brothers did not take any formal advice.

9.  My sense of it is that both parties, for different reasons, were eager to sign the agreements and get on with it.  The Changs, particularly Tan was very excited about the prospect of joining the ranks of music impresarios with the promise, if all went well, of the prestige, publicity and profit that might come from such a position.  As for the Defendants, they had been trying for years to make a go of things having left their native Macau where they were born and educated in 1989, when in their late teens, for Europe in the hope of furthering their careers as musicians.  They lived in the UK and in Italy for just under 10 years but had been less successful than they had hoped.  In Italy, they had a manager to promote them and as I have said the EMI record label signed them up and they made an EP for it.  But shortly after that EMI decided not to continue its relationship with them and they returned to Macau and re-entered the music scene there in a fairly modest way playing in bars and doing some composing whilst hoping for the break that their talents merited.  In Chang Tan they found a person with the interest in music and in them and with the money to do something about it, starting with a $400,000 investment in their first album.  They were born in 1972 so by 2004 they had turned 32.  Time was moving on for them.  They needed to make a breakthrough quickly whilst still relatively young.  Given this background, which I have only briefly described, I have no doubt that they jumped at the opportunity of having rich and enthusiastic backers in Chang Tan, and his brother Wayne, who were prepared to invest time, effort and money of which they had an ample supply and the Defendants very little, to launch their full-time professional careers.

10.  Taking at this stage the chronology of the matter briefly, the Defendants’ first album was released in July 2005.  It is right to say that it represented a promising start for them and their career appeared to be set fair.  They started making numerous personal appearances and their popularity was on the rise.  In November 2005, they were given an award at the Composers and Authors Society of Hong Kong (“CASH”) awards ceremony which was held at the Hong Kong Convention Centre.  This was a public event and attended by members of the media, record producers and other artistes.  Whilst this event and the award was a significant recognition of their rising popularity, it was also the scene of some unpleasantness between Chang Tan and the Defendants.  The Defendants had gone on stage to receive their award and made an acceptance speech.  As they left the stage to return to their table, they complain that Chang Tan abused them using insulting language because of the way that they had accepted their award.  They say that this abuse was overheard by people at adjoining tables and they felt humiliated and sickened by it.  It ruined their evening.  For his part, Chang Tan says that he had not been abusive although he accepts that he told them, using reasonable language, that he had been disappointed that they had not thanked the people, like Lupo, who had helped them achieve this award so early in their career.  He also says that he had not spoken loudly and that there had been no “scene”. 

11.  This occasion is the first of a number of incidents relied on by the Defendants which, taken individually and/or in combination, are said to justify their having put an end to their relationship with the Plaintiff which of course forms the subject matter of the action.  In terms of chronology, it came early in the parties relationship.  Thereafter, in December 2005 the Defendants second album, which was called “Intuition”, was released followed by concerts on two nights on 27 and 28 December 2005 to mark the release of the album which were also called the “Intuition” concerts.

12.  In terms of further performances, the Defendants were then contracted to sing at the Hong Kong Coliseum on 25 April 2006.  This concert was called “Let’s Go Crazy”.  A number of issues arise from the concert which I will need to discuss in due course.  Suffice it to say that this offered the Defendants a great opportunity to further their careers.  I was told and I accept that for relative newcomers to the pop scene, it is very rare for such artistes to headline a concert at such a large venue as the Coliseum which can accommodate an audience of up to 12,000 people.  The Coliseum is usually booked for very well-established and very popular big selling performers.  The fact that a concert promoter was willing to back the Defendants at such a venue serves to confirm their own popularity based on the quality of their music and performances and the rapid progress that they were making under the Plaintiff’s management.

13.  Unhappily, whilst the concert itself was a professional success in terms of the quality of the Defendants’ performance, it was not a commercial success.  In fact overall it was, if anything, a loss-maker for the promoters.  Two issues arise from this which will require resolution.  Firstly, the fee paid to the Defendants.  Their case is that they had been promised $100,000.  In fact, they were to receive only $1,300 which would appear to be an absurdly low amount for a full-blown high tech performance at Hong Kong’s premier pop concert venue.  The Plaintiff’s case is that this was due to the fact that ticket sales were disappointedly poor, with the result that over a third of the tickets had to be given away to students and young people in order to put bottoms on seats otherwise there would have been the embarrassing spectacle of large parts of the auditorium being empty which would not have been conducive to creating the “energy” which makes for a successful performance cheered on by a full house with an enthusiastic audience.  The Plaintiff’s case as related in the evidence of Chang Tan is that once the promoter presented him with the accounts for the concert only a very small amount was left over for the artistes.

14.  The Defendants say that they had been misled and taken advantage of.  They considered that they had been guaranteed their concert fee of $100,000.  In the event they had foisted on them, the risks that go with the promotion of such an event which is usually borne by the promoter who agrees the fees of the artiste as part of the expenses of putting on the concert which he hopes will be a success commercially and make him a profit.  The Plaintiff’s response to this is that this concert represented an enormous opportunity, rarely available to a relatively new act, to showcase their talent at a large venue and thereby get the exposure which would not normally be available.  The performance had been very successful, the reviews were very good and the Defendants’ image and publicity had been greatly enhanced.  They should not be heard to complain and should be grateful and satisfied with what they had managed to get out of such a concert which had greatly added to their stock.

15.  The other issue which is part of a larger complaint arising from their relationship with Lupo Groinig is that Mr Groinig came into the 2^nd Defendant’s dressing room where he was getting himself ready for the performance and checking his stage outfit and told him that he looked “like a $2 whore”.  This greatly upset the 2^nd Defendant affecting his confidence and self-esteem just as he was getting himself into the right mental state to go out and perform in front of thousands of people on the biggest night of his career.  Mr Groinig says that he was only joking and that it should have been taken in that light-hearted way by the 2^nd Defendant.  No offence was intended and the 2^nd Defendant had misinterpreted his intentions and, in any event, if this had in fact upset the Defendant as he says it did, there had been sufficient time for him to regain his composure.  As it turned out his performance had not been affected by the comment.

16.  The Defendants say that their relationship with Mr Groinig was already stressful.  They were not taken by his attitude at work — he was a hard and unsympathetic taskmaster which did not fit in with their style of doing things and this hurtful remark on this occasion served to further undermine their confidence in him.

17.  Notwithstanding this, Chang Tan was very anxious, given the promising and successful start to the Defendants’ career under the Plaintiff’s management, to have them sign a new set of Agreements to secure the relationship for a further three years, well before the expiry of the first set of Agreements which would not expire until the end of 2007, it now being only April 2006.

18.  The parties signed what has been called the second Artist Agreement, which annexed an exclusive Management Agreement, on 27 April 2006, two days after the “Let’s Go Crazy” concert [see A111-125].  These agreements were expressed to run from 1 January 2007 until 31 December 2010.  Chang Tan had been suggesting this for a few weeks beforehand.  He says that he wanted this to happen given the successes up to that point and that if he was to successfully continue managing the Defendants’ careers, he needed to have the certainty that he was going to have the Defendants under contract for a number of years ahead.  If they signed he knew that he had available to him 4½ years in which to further plan their careers.

19.  The circumstances in which these agreements came to be signed, which include an allegation by the Defendants that Chang Tan in effect forced them to sign by means of a threat that he would refuse to invest any further money unless they signed, requires very close examination.  Suffice it to say that Chang Tan denies such a thing and says that on the contrary, everybody was delighted that these further agreements had been entered into and that he, Lupo Groinig and the Defendants went and celebrated the signing at a Soho restaurant that evening. 

20.  The evidence will show that despite the Defendants being kept busy by the Plaintiff with performances both in Hong Kong and Guangzhou, the Defendants became increasingly disenchanted with Chang Tan and with Mr Groinig.  On 24 June 2006 whilst the Defendants were at the TVB studios, they complain that Chang Tan spoke to them in a demeaning and authoritarian manner that was both uncalled for and wholly inappropriate.  The tenor of it was that they needed to do things as they were told.  In the course of that month, Wayne Chang had a meeting with the 2^nd Defendant at the Peak Café.  Wayne did not have a hands-on part to play in the Defendants management but he was an investor and shareholder in the Plaintiff with a real say in its affairs.  He was Tan’s elder brother.  The 2^nd Defendant voiced his dissatisfaction to Wayne about the way that he considered the Defendants were being badly treated.  Part of the complaints, which have loomed large in the evidence, was that the Plaintiff was not keeping a separate account of the Defendants’ earnings.  By July 2006, the Chang brothers and the Defendants had a further meeting at which a parting of the ways was discussed by means of the Defendants buying out their contracts with the Plaintiff.  But this all came to nothing and, if anything acrimoniously, when it was suggested to the Defendants that the Changs would require to be paid $20,000,000 for that to happen.

21.  By August 2006, the Defendants had consulted their solicitors Haldanes concerning their rights in the matter.  As I judge the evidence, the parties’ relationship was all but over by then.  The Plaintiff had originally engaged a young woman called Rukhsana Khan to be the Defendants’ personal assistant.  By August 2006, Miss Khan had decided to leave the Plaintiff and became privately employed by the Defendants.  A further reflection of the breakdown came later the same month when on 30 August, a lady called Eva Kan, who had been working for a company called M’Bark Music Limited (“M’Bark”) which was owned by Tan’s sister, resigned from her position as its general manager.  M’Bark had been the Plaintiff’s agent in the Mainland and its role in the Defendants’ representation will need to be further considered in due course.  Following her resignation from M’Bark on 30 August, Miss Kan, in her personal capacity, started to represent the Defendants largely as M’Bark previously had done.

22.  The parting of the ways was further emphasised when by early September Rukhsana Khan was seen to be taking a more independent line as the Defendants’ personal assistant and rejecting some of the engagements that the Plaintiff had obtained for them and wished them to fulfill.  This prompted a letter from the Plaintiff’s then solicitors, dated 8 September 2006, complaining about the Defendants’ refusal to undertake the engagements that the Plaintiff had obtained for them [A157-159].  The Defendants, who had by then sought advice from Haldanes instructed them to reply to this letter which they did on 12 September 2006 [A156].  The first letter was merely an acknowledgment.  The substantive reply was dated 4 October [A151-155].  This letter denied that the Defendants had refused work obtained for them by the Plaintiff and said that the Plaintiff was well aware that Miss Rukhsana Khan was in charge of the day-to-day arrangements for the Defendants in securing engagements and performances for them for which she had been in contact with the Plaintiff’s staff.  The letter reiterated that the Defendants had not been in breach of any of the Agreements with the Plaintiff and that they would continue to abide by those Agreements.  This letter also raised a complaint by the Defendants about the Plaintiff’s failure to keep and present the Defendants with proper accounts as the Agreements required that they should.  It concluded by demanding, amongst other things, a full account and reserved the Defendants’ rights.

23.  This produced a royalty statement from January 2005 to June 2006 [A128-130].  Haldanes then wrote two further letters on 18 October and 23 November [A150 and 149] asking for a reply to their letter of 4 October [A151-155 supra].  There then came a second royalty statement on 28 November 2006 [A127-128].  Something of an uneasy truce prevailed during December 2006 but this all came to an end when on 1 February 2007, Haldanes sent a long letter which finally put an end to the parties co-operation.  It is at A160-164.  It comprehensively dealt with the Agreements signed on the 27April 2005 and posted-dated 1 January 2008,31 December 2007, which have been referred to as the second Agreements, these having come into being after the initial Agreements had been entered into on 1 December 2004.  It is this letter, over which very careful consideration must have been given both by those advising the Defendants and the Defendants themselves as to its future implications, which is largely the basis upon which the Defendants case has been pleaded and conducted.

24.  It refers to the Agreements having been entered into by the Defendants under the undue influence of and/or duress by Tan on behalf of the Plaintiff.  It complains of the Agreements amounting to an unlawful restraint of trade, the voidability of the Agreements for uncertainty and of variations made without consideration. 

25.  The first Agreements were then dealt with by a further letter from Haldanes to the Plaintiff’s solicitors dated 3 March 2007 which is at A166-171.  This letter contains a detailed recitation of the reasons why the Agreements were in restraint of trade, void for undue influence and finally alleges repudiatory breach of these Agreements based on various acts of misconduct by the Plaintiff and its representatives.  Two days later, on 5 March, the Defendants issued a press release announcing that their professional relationship with the Plaintiff was at an end [A448], together with a letter to the Plaintiff which was to the same effect [A450-451].  This marked the start of a contest in the media.  On 20 March, the Plaintiff issued a public announcement.  It made clear that it disputed the Defendants’ right to terminate their agreement with the Plaintiff and reserved its rights against the Defendants and any other involved parties.  It made clear in another press release that it had consulted its lawyers who would be bringing proceedings on its behalf and warned that if any party attempted to deal with the Defendants other than through it, this might be visited with “legal consequences” [A173-174].  A similar press release was made in the Mainland [A455-457].

26.  The writ and the Statement of Claim came on 23 April 2007 followed by an application for an interlocutory injunction seeking compliance with the Agreements by the Defendants.  There then followed something of a public relations contest in the media until 6 June 2007 when Andrew Cheung J heard what had by then become cross-applications for injunctions, the Defendants having taken out their own application to restrain the Plaintiff from putting out what they considered to be false statements about them.  On 18 June the judge delivered judgment dismissing both applications for injunctions, the effect of his judgment being that the Defendants were from now on able to continue performing in their own right but on terms that they paid into court 60% of their earnings pending a speedy trial which he also ordered.  The payment-in was based on the proportion of the Defendants’ income which the Plaintiff would be able to retain under the Agreements that the parties had entered into, and it is this order which has regulated the position between them pending the outcome of the action.

27.  The trial was listed on 20 August 2007 and started on that date.  Unfortunately, as can happen with cases that come on so quickly, it soon became apparent that discovery had not been completed and that the parties had not finished their preparations for trial.  It was also plain that the time-estimate of 8 days was not going to be sufficient.  In the event, having run for most of the 8 days that had been allocated the trial was adjourned to the following April but was not completed until the end of June last year.  Further discovery was ordered and more witness statements had to be filed before the resumption in April.

28.  From that outline review of the chronology of the parties relationship and of the litigation itself, I must now identify the issues which I need to resolve as they arise on the pleadings and as they have been contested over in the trial.

The Issues

29.  In a case such as this where the Defendants have treated themselves as no longer bound by any of the Agreements that they had entered into with the Plaintiff, the issues on the question of liability for breach of those Agreements emerge from the re-re-amended defence and counterclaim of the Defendants by which they seek to justify their decision to discontinue their association with the Plaintiff and to strike out on their own.  The Plaintiff’s claim is perfectly straightforward.  The action is brought for breach of contract based on the two sets of written Agreements.  The claim for specific performance has been abandoned and the Plaintiff now confines itself to damages for breach of contract in the sum of $24,930,417.04, which it says is the net amount that it would have earned as the Defendants’ manager/agent, music publisher and producer as described in the various Agreements, had the Defendants not walked away from their contractual obligations.

30.  In terms of the forensic contest, the crucial issues that call for a decision and which will be determinative of the action are engaged, as I have already said, in the Defendants’ re-re-amended defence and counterclaim.  The issues are these:

(i)  In relation to the first set of Agreements, it is said that these are voidable and unenforceable because they are in restraint of trade;

(ii) The identical point is pleaded in respect of the second set of Agreements;

(iii)    This is denied by the Plaintiff, on whose behalf it is submitted that the terms of the Agreements are reasonable and necessary for the protection of the Plaintiff’s commercial interests;

(iv)  But, even before one gets into a consideration of this aspect, Mr C Y Li, who appears for the Plaintiff, submits that it is not open to the Defendants to take this point because it has not been sufficiently pleaded.  If I uphold that submission then the pleas of restraint of trade must fall away;

(v)    If the Defendants fail on their plea of restraint of trade, they have raised a plea of undue influence and/or duress/coercion in respect of the second set of Agreements, as a result of which it is said that these Agreements are null and void;

(vi)  If these pleas succeed then the Agreements cannot be relied on by the Plaintiff and the action would fail;

(vii)    Then there is a plea based on misconduct by the Plaintiff through Chang Tan and its staff that is said to amount to a repudiatory breach of the Agreements by the Plaintiff which in consequence entitled the Defendants to accept that repudiation which they did and thereby put an end to the parties contractual relationship.  As a result of such conduct, if proved by the Defendants, the only matter that would call for resolution is an assessment of the Defendants’ losses arising out of the Plaintiff’s breach.  This plea has been particularised and I will need to attend to its detail in order to determine whether it has been made out.  By way of brief example, and these are all very much matters of fact, the Defendants have relied on allegedly abusive treatment by Chang Tan after their acceptance speech at the CASH awards ceremony, condescending remarks at the TVB studios and the imposition of unreasonable workloads.  These matters individually and in combination, together with other pleaded allegations under this limb of the defence are said to have amounted to a repudiatory breach of contract by the Plaintiff which justified the Defendants’ decision to terminate their association with the Plaintiff;

(viii)  One then comes to the counterclaim.  Under the first Agreements resulting from the Plaintiff’s repudiatory breach of contract, the Defendants have asserted a claim for lost income as a result of lost performing opportunities and the set-back in their career due to the need to re-establish themselves under their own management.

(ix)  There is also a claim for breach of fiduciary duty by the Plaintiff.  Grave allegations are made that the Plaintiff has misappropriated or misapplied income from the Defendants’ performances in order to cover the Plaintiff’s overheads and other expenses, when such income should have gone to the Defendants.  Related to this is a plea that the Plaintiff has failed to give a proper account to the Defendants of their income.  This aspect has occupied a significant amount of time at the trial with the quality of the Plaintiff’s accounting systems being commented on by accountancy experts on both sides.

(x)    Another category of complaint relates to the sub-standard quality of the Plaintiff’s representation of the Defendants in terms of their career development and of their image and reputation.

(xi)  There is also a complaint about a conflict of interest concerning the Plaintiff’s involvement with M’Bark on the Mainland and a secret commission obtained from M’Bark amounting to 20% of the Defendants’ gross performance income in the PRC.

(xii)    The period after March 2007 when the Plaintiff issued press releases to say that it continued to represent the Defendants and warned that there might be legal consequences if anybody tried to deal with the Defendants directly and not through the Plaintiff, is the subject of a claim for lost income as potential employers who would have been sources of income for the Defendants from performances and appearances were persuaded by the Plaintiff’s press announcements to cancel engagements that they were going to enter into with the Defendants.

31.  These issues will all need to be addressed, the evidence which bears on them analysed and appropriate conclusions arrived at.  I need to take each in turn.

Are the Written Agreements Voidable

32.  This calls for an analysis of the various terms of the Agreements.  The primary submission by Mr Sarony SC, is that they are unbalanced in favour of the Plaintiff and are in restraint of trade.  Mr Li has taken the stance, which he voiced on a number of occasions during the course of the trial, that the re-re-amended defence and counterclaim has not pleaded these allegations with any particularity which would permit Mr Sarony to address this sort of argument.  There is no doubt that Mr Sarony has been put on notice more than once (including in the Plaintiff’s written opening) that he was to face this objection and I have given him every opportunity to amend his pleadings to deal with it, even as late as during the course of the parties closing speeches.  Mr Sarony has indicated, on each occasion that this objection has been raised, that he is content to stand by his pleadings in their present form and that they are in proper order to enable him to address these agreements.

33.  In the event, despite the objections taken by Mr Li during the course of the trial, I have allowed Mr Sarony to continue with his case as pleaded de bene esse leaving the question of any insufficiency of particularity to be decided now.

Has Restraint of Trade Been Sufficiently Pleaded?

34.  For this purpose, it is not necessary to set out the pleading which is to be found that A18-44A.  I need only describe how it purports to have set up the defence on this aspect.  Paragraph 6 [A19] pleads the agreement by the parties to enter into a formal written agreement whereby Tan was to become the Defendants’ exclusive manager/agent.  This was to become the first Artist Agreement together with the first Exclusive Management Agreement and the Exclusive Writer Agreement.

35.  Paragraph 8 of the pleading recites a number of clauses from the first Artist Agreement [A20-21].  Paragraph 10 [A21-22] does the same in respect of the first Management Agreement.  Paragraph 13 sets out some clauses from the Exclusive Writer Agreements [A23].  Drawing from those clauses a number of implied terms are pleaded together with particulars which are pleaded in support of a number of factual assertions.  Paragraph 17 relates the circumstances which gave rise to the allegation of undue influence and/or duress in respect of the second Agreements.  That plea is then fully particularised in six sub-paragraphs.  As a result of those particulars, paragraph 18 pleads that the second Agreements are null and void based on the allegations of undue influence and/or duress. 

36.  Paragraph 19 raises the plea of restraint of trade in respect of the second Agreements in the following terms:

“19.   Further or alternatively, the Second Agreements are unreasonable and unnecessary restraint of the Defendants’ trade and business in the music and/or entertainment industry and are contrary to public policy and illegal.  The Defendants will refer to all the terms and conditions of the Second Agreements and its effect and impact on the Defendants’ business and trade in the music and/or entertainment industry at trial.”

37.  Paragraph 25 makes the identical plea in respect of the first Agreements. It says this:

“25.   The Defendants aver that the First Artist Agreement, the First Exclusive Management Agreement and the Exclusive Writer Agreements (collectively known as ‘the First Agreements’) are unreasonable and unnecessary restraint of the Defendants’ trade and business in the music and/or entertainment industry and are contrary to public policy and illegal.  The Defendants will refer to all the terms and conditions of the First Agreements and its effect and impact on the Defendants’ business and trade in the music and/or entertainment industry at trial.”

38.  Mr Li’s point is that the Defendants cannot just refer to the two sets of Agreements and say that it is proposed to refer to these agreements at the trial for their full terms and effect, and from that go on and allege that they are void as being in restraint of trade, without setting out in the pleading each of the terms to be relied on and how that term is said to be in restraint of trade, unreasonable, unnecessary and contrary to public policy.  Without such particulars, the Plaintiff is not able to fairly deal with the case that is being advanced against it.  In support of that submission, Mr Li has made a number of points relating to how pleadings should be prepared.  By way of example, he has referred to Volume 12 of Atkin, the part which relates to Contract actions.  He showed me the 1990 issue.  I have also considered the most up to date issue which is very much to the same effect.  The editors of Atkin expect that when such a plea is raised, it should be supported by particulars.  The precedent is in this form:

“Claimant [Plaintiff] A.B.

   and

Defendant  C.D.

   DEFENCE

  1.  It is admitted that the Defendant signed the alleged contract set out in paragraph 1 of the Particulars of Claim.

  2.  The contract is an unreasonable and unnecessary restraint of the Defendant’s freedom of trade, and is contrary to public policy and void and not enforceable against the Defendant.

PARTICULARS

(The defendant should set out particulars of any facts relied on by him)

  3.  (The defendant should admit, not admit or deny the other facts alleged in the particulars of claim, giving reasons for the non-admissions and denials).

  4.  By reason of the facts and matters set out in paragraph 2 herein it is denied that the alleged contract is enforceable against the Defendant as alleged or at all and it is further denied that the Claimant is entitled to the relief claimed or to any relief.”

The relevant part is paragraph 2.

39.  Whilst a precedent such as this does not carry the force of law, it is indicative of good pleading practice.  More significantly, Mr Li relies on decided authority for saying that it is not permissible to simply aver that the terms of the Agreement will be referred to at the trial in support of a particular contention, in this case that the Agreement is void because it is in restraint of trade.  He has drawn attention to the decision of the Court of Appeal in Citibank N.A. (Nominees) Ltd v Deacon Te-ken Chiu (1983) HKLR 121.  The headnote to the report demonstrates the importance of setting out the precise terms of the document that are to be relied on.

   “This was an application by the defendants for further and better particulars of certain allegations in the statement of claim in particular:-

1.    An allegation of the execution of certain documents with the statement that the plaintiff will refer further to the documents at the trial ‘for their full terms, true meaning and effect’.

2.    The allegation of a constructive trust without any facts pleaded as being relied upon in support, and,

3.    The allegation of a breach of contract with a prayer for damages for such breach but without any allegations either of special or general damages anywhere in the pleading.

The judge refused to order the particulars sought.

On appeal.

Held:

1.  The formula: the plaintiff will refer to certain documents at trial ‘for their full terms, true meaning and effect’ has no place in modern pleading.  If the precise words of the document are material they must be stated.  Otherwise the effect of the document must be briefly stated.  The judge was right to refuse particulars and at trial the plaintiff should be compelled to limit himself to the effect of the document specifically pleaded.

2.  The defendants were entitled to particulars of the facts relied upon as creating the constructive trust.

3.  As to the allegation of breach of contract and prayer for damages, it was not proper to order particulars of something which had not been alleged.

The substance of this comes from the judgment of Huggins JA at 122E-H.  I will only recite here the material parts of that passage:

“The statement of claim alleges the execution of several documents and twice states that the plaintiff will refer to them at the trial for their full terms, true meaning and effect.  I must say quite clearly that I agree with Mr. Yorke that this formula has no place in our modern system of pleading.  In the days when pleadings were highly technical and prolix and were required to follow set patterns it may have been necessary and permissible to use such a long-stop to avoid the necessity of setting out in full a document the interpretation of which might not be in issue.  Today the formula is inconsistent with O.18 r.7.  If the precise words of the document are material, they must be stated.  Otherwise the effect of the document must be briefly stated.  It is not necessary, as has been submitted, to use the formula in order to reserve a right to the party pleading to refer to the entire document for the purpose of interpretation.  Not only is the formula unnecessary but it tends to be misleading, for it suggests to the other side that the pleader intends to rely in addition upon an effect other than that stated and that he will argue that it entitles him so to do. … there is an irrelevant statement of intention and not a statement of material facts.  … At the trial the plaintiff should be compelled to limit himself to the effect of the document specifically pleaded.”

Basing himself on this, Mr Li submits that where the plea is wholly defective for want of any necessary particularity, Mr Sarony should not be allowed to rely on what amounts to a bare unparticularised plea.  For more modern authority, which he says bears out his objection, Mr Li has referred to the judgment of Ma CJHC, in the case of Wing Hang Bank Ltd v Crystal Jet International Ltd (2005) 2 HKC 638 at 643G to 644D.  The Chief Judge made the following remarks in a case where a party had sought to raise pleas of misrepresentation and undue influence but had done so without particulars:

“6.   If I may, I take this opportunity to reiterate some basic principles:

(1)   The purpose of pleadings is fairly and precisely to inform the other side of the stance of the pleading party so that proper preparation is made possible, and time and effort are not expended unnecessarily on other issues.  The passage at para.18/12/1 of Hong Kong Civil Procedure 2004 Vol I sets out the rationale for proper pleadings.

(2)   In a trial, particularly where evidence is given by witnesses, it becomes extremely important that each side knows exactly what are the live issues.  Where issues are sought to be introduced that have not been adequately or properly pleaded, amendments must be sought unless the consent of the other party or parties has been obtained.  It will simply not do for unpleaded issues to be ‘slipped in’ when evidence is being given in the hope that the other side is not sufficiently alert to object.  Much testimony given in the course of a trial may in truth relate to a number of possible aspects or may simply be background information.  Obviously, counsel must be astute to object when necessary but the primary responsibility of ensuring that any issue is properly before the court is on the party seeking to advance that issue.  He must do so clearly and not ambiguously, and the usual way of doing so is through the pleadings.  Care must be taken to plead issues clearly, and not draft pleadings either vaguely or ambiguously perhaps in the hope that the other side might not readily or easily understand a party’s real case.  While vaguely or ambiguously drawn pleadings may enable a party to escape a strike out application (since striking out is only for plain and obvious cases), this is not to say that where a court has to decide whether or not an issue is to be permitted to be run, it will smile kindly on such types of pleading.

(3)   On appeal, it will be extremely rare for the Court of Appeal to allow unpleaded issues of fact to be run for the first time.  Save in exceptional circumstances (such as where documents can safely be assumed to speak for themselves), the court will often not be in a position to take the view confidently that the other side has not be prejudiced. ”

40.  There is no doubt in my mind that had this case been a single issue action, which it is not, relating to whether the Agreements relied on by the Plaintiff are voidable because they are in restraint of trade, a defence which raised such a plea could not have survived by merely pleading the Agreements and then saying that at the trial they would be referred to for their full terms and effect and concluding with the averment that the effect of the Agreements is that they are in restraint of trade and therefore void and unenforceable.  This is precisely how the plea of restraint of trade is, as I have demonstrated, pleaded in this case.

41.  It strikes me that what has happened is that a proper particularised pleading of this issue has been allowed to get lost in the detail of the other aspects of the facts and defences raised by the pleader.  I have already observed how fully, by contrast, the issue of undue influence has been set out.

42.  In my judgment, the plea of restraint of trade is defective for want of necessary particulars.  The question that now arises is whether at this stage, after all the evidence is before me and both counsel have addressed me so fully on restraint of trade, where they have referred me at some length to all the leading decided cases, I should shut out Mr Sarony on a pleading point.

43.  I have decided that I should not.  Mr Li has not been embarrassed in any way by the lack of particulars nor has the Plaintiff been put at any forensic disadvantage, in the sense of being taken by surprise by evidence which has not been foreshadowed by the spareness of the pleading.  On the contrary, as I will indicate very shortly, Mr Li has been able to address a very detailed submission as to why the Agreements are not in restraint of trade and should be upheld.

44.  The authorities on pleadings, to which I have referred, whilst clearly requiring that a case should be properly pleaded by setting out the facts relied on and setting out the particular terms of a document that is sought to be impugned and giving reasons why this should be so, do not on my reading of them require a court to shut out a particular line of argument provided, that is, reference has been made to it.  Each case and each pleading is different and the particular court must address the point as it arises before it.  Whilst this pleading falls well short of what is to be expected, it has identified the issue and Mr Li has been able to rise to the challenge and deal with it on its merits in terms of the evidence that he has had to meet in support of it and the evidence that he has called against it.  He has not been taken by surprise.  The matter has been fully argued on both sides and I must now decide the issue on its merits.

45.  Nevertheless, before I leave this matter I also ought to say that although the principal purpose of pleadings, as everybody knows, is to fully inform the opposing party of the case that it has to meet, pleadings also have what one might call a historical purpose which is that if, after the event, any interested person wishes to know how a case was contested he may refer to the pleadings to see how the matter was put before the court.  Reference to this re-re-amended defence and counterclaim would only provide an interested reader with the barest reference to this particular issue.  What is certain is that he would not be able to tell why the Agreements are said to be in restraint of trade.

Are the Agreements in Restraint of Trade

46.  This calls for a detailed consideration of the terms of each Agreement judged against the background of the parties relationship overall and what each brought to that relationship. 

47.  Viewed from a broad perspective, the Plaintiff in the shape of the Chang brothers, it was substantial amounts of money that needed to be spent in the establishment of Soler as a recognisable and popular music act.  This would require an organisation in terms of office premises and back-office staff who would provide the point of contact for potential clients wishing to make use of Soler’s services, be it to sing at a concert or other musical event or to appear at a fashion show or to promote a particular product.  The evidence has been that the Acconci brothers occupied much of their working time at commercial promotion events (to use a very general expression) for which they were paid to attend.  These appearances were designed to enhance the Soler brand, to give them a higher profile, to get them in front of the cameras which resulted in getting their photographs in the show-business pages of various newspapers and magazines.  An organisation such as that provided by the Plaintiff employed a number of people to provide such a service.  It included Rukshana Khan and other administrative staff would be required to keep the Soler diary and make the bookings as well as approaching potential clients, who might be interested in using the services of Soler in any appropriate capacity, with a view to persuading them to engage Soler.

48.  The Plaintiff was also required to provide administrative, logistic and accounting services.  All this costs money to provide in terms of staff salaries and the time spent on actually providing such services.  This would be separate from the work put in by Chang Tan using his own social and business contacts to obtain engagements for Soler.

49.  The other vital part of the contractual mix is the contribution of the artistes themselves.  Whilst the Plaintiff, in the various ways that I have just considered, represented the expenditure side of this venture, the Defendants represented the income-earning element.  It is they, by performances on stage, at promotional appearances and by making CD’s and DVD’s, who generate the income.  Put simply, the Plaintiff invested the money and the Defendants invested their talent.  The question which I need to resolve is whether the contracts that regulated their working relationship, are a proper and fair reflection of this division between capital and manpower on the one part and, musical talent and personal appeal honed over years of practice and hard work, on the other.

50.  Shortly, I will also need to consider some of the decided cases that I have been referred to by Mr Sarony and by Mr Li which indicate how a court should approach contractual disputes of this type when it is required to say whether a contract should be upheld or set aside as an unconscionable bargain.  Before I look at these authorities, it is worth reflecting on this, which is that in most, if not all of these cases, the promoters of the artistes were very well-established show-business organisations with considerable presence and influence in their field.  In this case, although there is present a very real imbalance between the parties in terms of financial standing, the fact is that the Plaintiff was a novice in this business.  For the Plaintiff, as represented by the Chang brothers, this was their first proper involvement in artiste management and record production.  The Defendants, if anything, were more experienced as professional musicians.  They had been professionally managed in Italy and had signed for EMI and produced an EP for it.  In saying this of the Defendants, I do not believe that one can place any great weight on this as a consideration in assessing bargaining power because they simply did not have the financial means to launch a professional career without a backer with money to pay the substantial amounts that would be necessary to get them going.

The Authorities on Restraint of Trade

51.  Any sort of comparative exercise between the cases which I am about to refer to and the facts of this case would be a fruitless one.  Each of these cases, as this one will be, were decided on their particular facts.  It is the principles which I must extract from the authorities which is paramount.

52.  In addressing his argument that these Agreements are in restraint of trade, Mr Sarony has principally based himself on two authorities.  Firstly, Lloyds Bank v Bundy [1975] 1 QB 326 as a starting point of general application with reference to the inequality of bargaining power between the contracting parties.  At 339C-D, Lord Denning MR said that:

“…English law gives relief to one who, without independent advice enters into a contract upon terms which are very unfair or transfers property for a consideration which is grossly inadequate, when his bargaining power is grievously impaired by reasons of his own needs or desires, or by his own ignorance … coupled with undue influence, or pressures brought to bear on him by or for the benefit of the other.”

That well-known case was decided against a factual background that is far removed from the present one, nevertheless I recognise that if Mr Sarony can somehow draw sufficiently close parallels, unquestionably I have the power to relieve the Defendants from the restraints of their Agreements with the Plaintiff.

53.  The more recognisable authority relied on by Mr Sarony in terms of the facts of this case is the House of Lord’s decision in A. Schroeder Music Publishing Co. Ltd v Macaulay [1974] 1 WLR 1308.  The headnote to the report provides a sufficient summary of the facts and the issues that called for a decision:

“A song writer, aged 21 and unknown, entered into an agreement with music publishers in their ‘standard form’ whereby the publishers engaged his exclusive services during the term of the agreement.  By clause 1 the agreement was, subject as thereinafter provided, to remain in force for five years.  By clause 3(a) the song writer assigned to the publishers the full copyright for the whole world in all his musical compositions during the term.  Clauses 5 to 8 dealt with the song writer’s remuneration, which was to be by royalties on works published.  By clause 9(a) if the total royalties during the term exceeded £5,000 the agreement was automatically extended for a further five years.  By clause 9(b) the publishers could determine the agreement at any time by one month’s written notice.  No such right was given to the song writer.  By clause 16(a) the publishers had the right to assign the agreement.  By clause 16(b) the song writer agreed not to assign his rights under the agreement without the publishers’ prior written consent.  The song writer brought an action claiming, inter alia, a declaration that the agreement was contrary to public policy and void.  Plowman J. so held and made the declaration sought, and his judgment was affirmed by the Court of Appeal.

On appeal by the publishers:-

Held, dismissing the appeal, that the agreement was on its face unduly restrictive having regard to (i) its likely duration; (ii) the publishers’ right to assign, so that it could not be argued that they would be unlikely to act oppressively and so damage their goodwill; (iii) the fact that the publishers were not bound to publish or promote the song writer’s work if they chose not to do so, which they might do not only for reasons connected with its merits but also for commercial or even less legitimate reasons, so that he might earn nothing and his talents be sterilised, contrary to the public interest; and (iv) the absence of any provision entitling the song writer to terminate the agreement; that assuming that such a one-sided agreement could be justified it had been for the publishers to justify it, especially since it had not been arrived at as the result of negotiation between parties in an equal bargaining position; that, on the evidence, they had not done so and accordingly the agreement was in unreasonable restraint of trade and had rightly been held to be contrary to public policy and void.”

54.  I must now refer to some passages from the speeches of Lord Reid and Lord Diplock.  As to the law on restraint of trade, Lord Reid analysed the position in the following way at 1309H to 1310C:

“The law with regard to the validity of agreements in restraint of trade was fully considered by this House in Esso Petroleum Co. Ltd. v. Harper’s Garage (Stourport) Ltd. [1968] A.C.269, and I do not intend to restate the principles there set out or to add to or modify what I said myself.  I think that in a case like the present case two questions must be considered.  Are the terms of the agreement so restrictive that either they cannot be justified at all or they must be justified by the party seeking to enforce the agreement?  Then, if there is room for justification, has that party proved justification — normally by showing that the restrictions were no more than what was reasonably required to protect his legitimate interests.  In this case evidence on the second question was scanty and I turn first to the terms of the agreement.  The agreement contains 17 clauses.  It must of course be read as a whole and we must consider the cumulative effect of the restrictions contained therein.  I think it best to set it out in full omitting only those parts which deal with performing rights, because neither party founded on them in argument, and some formal matters.”

It is the first part of this passage that provides the approach.  The latter part relating to the agreement itself; the requirement that the agreement is to be read as a whole and that the cumulative effect of the restrictions are to be considered are also matters of general application which I propose to have regard to in construing the effect of the terms relied on by Mr Sarony in contending for a conclusion that these Agreements should be held to be void.

55.  Thereafter, Lord Reid set out the terms of the agreement which were being challenged, which I do not find necessary to relate here.  Nevertheless, it will be necessary to make reference to some of them in order to understand what Lord Reid was saying in his speech.  One of the provisions of the agreement before him, which was being challenged, was its length.  Initially for five years and for 10 years if the royalties for the first five years exceeded GBP5,000 (a modest sum as Lord Reid described it).  He therefore approached the matter on the basis that the music writer would be very likely to be tied to his contract for 10 years.  As to length Lord Reid observed at p.1312G that:

“The duration of an agreement in restraint of trade is a factor of great importance in determining whether the restrictions in the agreement can be justified but there was no evidence as to why so long a period was necessary to protect the appellants’ interests.”

56.  In relation to the power of the music publisher to assign the benefit of his contract with the composer, and as will be seen presently such a power exists in this case as well, Lord Reid questioned whether an assignee would act reasonably over the terms of the contract assigned to him, even if one were prepared to assume that the assignor, the original contracting party, would do so.  The contract in Schroeder gave the publisher, the right not to publish the composer’s music which is also the situation in this case.  An assignee might decide not to publish.  At 1313C to 1314D, Lord Reid set out his concerns in relation to such a power being retained by a publisher:

“The public interest requires in the interests both of the public and of the individual that everyone should be free so far as practicable to earn a livelihood and to give to the public the fruits of his particular abilities.  The main question to be considered is whether and how far the operation of the terms of this agreement is likely to conflict with this objective.  The respondent is bound to assign to the appellants during a long period the fruits of his musical talent.  But what are the appellants bound to do with those fruits?  Under the contract nothing.  If they do use the songs which the respondent composes they must pay in terms of the contract.  But they need not do so.  As has been said they may put them in a drawer and leave them there.

No doubt the expectation was that if the songs were of value they would be published to the advantage of both parties.  But if for any reason the appellants chose not to publish them the respondent would get no remuneration and he could not do anything.  Inevitably the respondent must take the risk of misjudgement of the merits of his work by the appellants.  But that is not the only reason which might cause the appellants not to publish.  There is no evidence about this so we must do the best we can with common knowledge.  It does not seem fanciful and it was not argued that it is fanciful to suppose that purely commercial consideration might cause a publisher to refrain from publishing and promoting promising material.  He might think it likely to be more profitable to promote work by other composers with whom he had agreements and unwise or too expensive to try to publish and popularise the respondent’s work in addition.  And there is always the possibility that less legitimate reasons might influence a decision not to publish the respondent’s work.

It was argued that there must be read into this agreement an obligation on the publisher to act in good faith.  I take that to mean that he would be in breach of contract if by reason of some oblique or malicious motive he refrained from publishing work which he would otherwise have published.  I very much doubt this but even if it were so it would make little difference.  Such a case would seldom occur and then would be difficult to prove.

I agree with the appellants’ argument to this extent.  I do not think that a publisher could reasonably be expected to enter into any positive commitment to publish future work by an unknown composer.  Possibly there might be some general undertaking to use his best endeavours to promote the composer’s work.  But that would probably have to be in such general terms as to be of little use to the composer.

But if no satisfactory positive undertaking by the publisher can be devised, it appears to me to be an unreasonable restraint to tie the composer for this period of years so that his work will be sterilised and he can earn nothing from his abilities as a composer if the publisher chooses not to publish.  If there had been in clause 9 any provision entitling the composer to terminate the agreement in such an event the case might have had a very different appearance.  But as the agreement stands not only is the composer tied but he cannot recover the copyright of work which the publisher refuses to publish.”

57.  Returning to the general run of contractual relationships where a contract may be in standard form, as in this case where the Agreements which the Defendants were required to sign were substantially Sony contracts for Taiwan, Lord Reid referred to a submission made to the House of Lords that the agreement in Schroeder which was in standard form had stood the test of time and there was no indication that it had ever caused injustice [see p.314B].  Nevertheless, Lord Reid referred to Lord Pearce’s remarks in Esso Petroleum v Harpers Garage (Stourport) Ltd [1968] AC 269 at 323 that:

“It is important that the court, in weighing the question of reasonableness, should give full weight to commercial practices and to the generality of contracts made freely by parties bargaining on equal terms,”

and to what Lord Wilberforce said at pp.332-333:

“But the development of the law does seem to show that judges have been able to dispense from the necessity of justification under a public policy test of reasonableness such contracts or provisions of contracts as, under contemporary conditions, may be found to have passed into the accepted and normal currency of commercial or contractual or conveyancing relations.  That such contracts have done so may be taken to show with at least strong prima force that, moulded under the pressures of negotiation, competition and public opinion, they have assumed a form which satisfies the test of public policy as understood by the courts at the time, or, regarding the matter from the point of view of the trade, that the trade in question has assumed such a form that for its health or expansion it requires a degree of regulation.”

Lord Reid in agreeing with these observations stressed the need for such standard form contracts to have passed the test of having been negotiated by parties bargaining on equal terms and of having been moulded under

“the pressures of negotiation …”

Finally, at p.314G-H, he identified different categories of contractual restriction, one to which the doctrine of restraint of trade would have no application and the other, to which the doctrine applied and which therefore would have to be justified before they could be enforced:

“Any contract by which a person engages to give his exclusive services to another for a period necessarily involves extensive restriction during that period of the common law right to exercise any lawful activity he chooses in such manner as he thinks best.  Normally the doctrine of restraint of trade has no application to such restrictions:  they require no justification.  But if contractual restrictions appear to be unnecessary or to be reasonably capable of enforcement in an oppressive manner, then they must be justified before they can be enforced.”

58.  Before leaving this case, it is helpful to refer to the short speech of Lord Diplock because, if I may say so, it contains within its short compass a succinct analysis of the exercise that a court will undertake in deciding whether to uphold a contract which is in restraint of trade:

“My Lords, the contract under consideration in this appeal is one whereby the respondent accepted restrictions upon the way in which he would exploit his earning power as a song writer for the next ten years.  Because this can be classified as a contract in restraint of trade the restrictions that the respondent accepted fell within one of those limited categories of contractual promises in respect of which the courts still retain the power to relieve the promisor of his legal duty to fulfil them.  In order to determine whether this case is one in which that power ought to be exercised, what your Lordships have in fact been doing has been to assess the relative bargaining power of the publisher and the song writer at the time the contract was made and to decide whether the publisher had used his superior bargaining power to exact from the song writer promises that were unfairly onerous to him.  Your Lordships have not been concerned to inquire whether the public have in fact been deprived of the fruit of the song writer’s talents by reason of the restrictions, nor to assess the likelihood that they would be so deprived in the future if the contract were permitted to run its full course.

It is, in my view, salutary to acknowledge that in refusing to enforce provisions of a contract whereby one party agrees for the benefit of the other party to exploit or to refrain from exploiting his own earning power, the public policy which the court is implementing is not some 19th-century economic theory about the benefit to the general public of freedom of trade, but the protection of those whose bargaining power is weak against being forced by those whose bargaining power is stronger to enter into bargains that are unconscionable.  Under the influence of Bentham and of laissez-faire the courts in the 19th century abandoned the practice of applying the public policy against unconscionable bargains to contracts generally, as they had formerly done to any contract considered to be usurious; but the policy survived in its application to penalty clauses and to relief against forfeiture and also to the special category of contracts in restraint of trade.  If one looks at the reasoning of 19th-century judges in cases about contracts in restraint of trade one finds lip service paid to current economic theories, but if one looks at what they said in the light of what they did, one finds that they struck down a bargain if they thought it was unconscionable as between the parties to it and upheld it if they thought that it was not.

So I would hold that the question to be answered as respects a contract in restraint of trade of the kind with which this appeal is concerned is: ‘Was the bargain fair?’  The test of fairness is, no doubt, whether the restrictions are both reasonably necessary for the protection of the legitimate interests of the promisee and commensurate with the benefits secured to the promisor under the contract.  For the purpose of this test all the provisions of the contract must be taken into consideration. …” [See p.315B to 316A]

59.  It seems to me that the approach contained in the final paragraph of the above passage in Lord Diplock’s speech expresses in a few sentences what it is that the court looks for in deciding whether to uphold a contract which is in restraint of trade or whether it should declare it a nullity.

60.  The cases of Schroeder and Lloyds Bank v Bundy supra. were applied by the English Court of Appeal in Clifford Davis Management Ltd v W.E.A. Records Ltd & Anr [1975] 1 WLR 61 in which it set aside an interlocutory injunction in a dispute between two members of the well-known pop group Fleetwood Mac and its manager and music publisher to whom they were contractually bound.  It is helpful to set out the headnote to the report which describes the nature of the dispute and the court’s response to it in discharging the injunction made by the judge in chambers:

“Two song writers of full age and experience were members of a group of musicians under the management of the plaintiffs who were also music publishers.  They each signed, on cyclostyled forms, publishing agreements assigning to the plaintiffs the copyright throughout the world in all their compositions for a period of five years which the plaintiffs could extend to 10.  One writer agreed to deliver to the plaintiffs a minimum of one complete musical composition a month and the plaintiffs agreed to use their best endeavours to exploit her compositions to the fullest, but the plaintiffs gave no positive undertaking to publish any of their works.  Payment was based on royalties and the price of sheet music.  The plaintiffs had the right to assign their rights under the agreements to any third party.

  The plaintiffs and the group separated.  The plaintiffs formed a new group of the same name.  The original group worked under new management and the song writers wrote and composed new songs which were recorded in the United States.  The plaintiffs claimed an injunction restraining the defendants, English publishers, distributors and manufacturers of gramophone records, from infringing the plaintiffs’ copyright in the compositions of the song writers by releasing for sale or dealing with a record album of their songs.  Forbes J. granted an interlocutory injunction which was continued by Lawson J.

  On appeal by the defendants:-

  Held, allowing the appeal, that since there was a prima facie case that the agreements were unenforceable for inequality of bargaining power and the balance of convenience was all in favour of discharging the interlocutory injunction that injunction should be discharged (post, pp.2A, 2B, 2C).

  Instone v. A. Schroeder Music Publishing Co. Ltd. [1974] 1 W.L.R. 1308, H.L.(E.) and Lloyds Bank Ltd. v. Bundy [1974] 3 W.L.R. 501, C.A. applied.

Order of Lawson J. reversed.”

61.  Whilst this was an interlocutory appeal it does show the attitude of the court towards situations where the parties bargaining power could be said to be unequal.  Lord Denning MR mindful that the case what only interlocutory said that;

“(He) would not presume to come to any final opinion.”

At page 64 the Master of the Rolls referred to Lord Diplock’s speech in Schroeder, a case which he described as having an Agreement of the same class as the one before him.  At pp.315-316 in Schroeder supra, Lord Diplock, he said, had urged the courts to be vigilant.  He went on at pages 64 and 65:

“Lord Diplock, at pp.1315-1316, urged the courts to be vigilant.  They should look into the provenance of such agreements.  He made it clear that if one party uses ‘his superior bargaining power’ so as ‘to exact’ terms that are ‘unfairly onerous’ or ‘to drive an unconscionable bargain,’ then the courts will relieve the other party of his legal duty to fulfil it.  He gave this pertinent example:  A strong concern prepares a new standard form containing terms which are most unfair — and dictates to the customer, ‘Take it or leave it.’  The customer is in a weak position.  He has no real option but to accept.  The courts may decline to enforce it or, at any rate, may decline to enforce any term which is unfair to the customer, such as an exemption clause.

Reading those speeches in the House of Lords, they afford support for the principles we endeavoured to state at the end of last term about inequality of bargaining power.  It was in Lloyds Bank Ltd. v. Bundy [1974] 3 W.L.R.501.  Instone’s case [1974] 1 W.L.R. 1308 provides a good instance of those principles.  The parties there had not met on equal terms: the one was so strong in bargaining power and the other so weak that, as a matter of common fairness it was not right that the strong should be allowed to push the weak to the wall.”

62.  It is to all of these sentiments that Mr Sarony appeals in submitting that his clients should be released from their obligations.  As I have already said these principles will need to be applied to the terms of all of these Agreements taken as a whole and having regard to the particular circumstances of the parties in this case.  These situations cannot be determined in a vacuum by applying legal principles to the terms of the written Agreements themselves, without reference to the whole of the parties circumstances at the time that the agreements were entered into.

63.  In response to Mr Sarony, the case that Mr Li has relied on particularly is the more modern one of Panayiotou & Ors v Sony Music Entertainment Ltd [1994] EMLR 229, a decision of Jonathan Parker J (as he then was) which concerned the singer George Michael’s contractual dealings with the Sony record label in all of its emanations.  The report runs to 125 pages and if ever there was a case which demonstrates the fact sensitivity of a restraint of trade case it has to be this one.

64.  Before I turn to those parts of the judgment which will be of relevance and assistance, I should observe that this case is factually so far removed from the present one that it would be quite wrong to attempt to get anything from its facts by way of drawing any parallels with it.  The Sony Corporation is, as we all know, a giant in the music and recording industry and George Michael was by then a hugely successful and wealthy musical artist on the world stage.  Nevertheless, as a guide to the more modern law on restraint of trade, the case provides much guidance.

65.  Given that this case was heard without break, save I presume for the statutory holidays, from 18 October 1993 until 13 April 1994, much of the judgment relates to the very substantial body of evidence that was placed before the judge.  To this I need make no reference.  What I propose to do is to begin by taking from the headnote, the judge’s summary of the law on restraint of trade, now 20 years on from Schroeder and Lloyds Bank v Bundy supra.:

“Restraint of Trade Principles

    1. The doctrine of restraint of trade was to be applied to factual situations with a broad and flexible rule of reason taking into account the wider aspects of commerce as well as the narrower aspect of the contract between the parties.  Its application depended less on legal niceties or theoretical possibilities than on the practical effect of a restraint in hampering that freedom which it was the policy of the law to protect.

    Esso Petroleum Ltd v Harper’s Garage (Stourport) Ltd [1968] AC 269 applied.

    2. In applying the doctrine of restraint of trade the courts recognised that there was a public interest in freedom of contract in addition to a public interest in freedom of trade.

    Dictum of Lord Shaw in Herbert Morris Ltd v Saxelby [1916] 1 AC 688, 716 applied.

    3. The application of the doctrine of restraint of trade to a particular contract fell into two stages.  The first stage was to determine whether the contract was one which attracted the doctrine at all.  If the contract did attract the doctrine, the second stage was to determine whether the restrictions contained in the contract were justified.

    *232 Esso Petroleum Ltd v Harper’s Garage (Stourport) Ltd (above) applied.

    4. As to first stage, the right approach for the Court, once satisfied that the contract before it was (in ordinary parlance) in restraint of trade, was to consider whether in all the circumstances sufficient grounds existed for excluding that contract from the application of the doctrine.

    Esso Petroleum Ltd v Harper’s Garage (Stourport) Ltd (above) applied.

    5. As to what constituted sufficient grounds for this purpose, it was not possible to answer the question by reference to a formula applicable in all cases.

    Esso Petroleum Ltd v Harper’s Garage (Stourport) Ltd (above) considered.

    6. To determine whether a restriction in a contract was justified it was necessary to consider whether it was reasonable so far as the parties were concerned and whether it was reasonable so far as the public interest was concerned (‘the Nordenfelt test’).

    Nordenfelt v Maxim Nordenfelt Guns and Ammunition Company Ltd [1894] AC 535 and Esso Petroleum Ltd v Harper’s Garage (Stourport) Ltd (above) applied.

    7. The onus of establishing that the contract was reasonable as between the parties was on the proponent of the contract, while the onus of establishing that, although reasonable between the parties, it was nevertheless contrary to public policy lay on the party challenging the contract.

    Herbert Morris Ltd v Saxelby (above) applied.

    8. For a restraint to be reasonable between the parties it must be no more than what was reasonably required by the party in whose favour it was imposed to protect his legitimate interests.

    Herbert Morris Ltd v Saxelby (above) and Macaulay v A. Schroeder Music Publishing Co Ltd [1974] AC 1308 applied.

    9. In considering the first limb of the Nordenfelt test, but not the second limb, the consideration for the restraint was relevant to the question of the reasonableness of the restraint.

    Esso Petroleum Ltd v Harper’s Garage (Stourport) Ltd (above) and dictum of Lord Cross of Chelsea in Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co. Pty Ltd [1975] AC 561, 579 applied.

    10.   While the Court was in general slow to substitute its (objective) view as to the interests of the contracting parties for the (subjective) views of the parties themselves in electing to enter into the contract, that consideration would carry less weight, and might carry no weight at all, where the evidence established that the parties were negotiating on other than equal terms.  Thus inequality of bargaining power might be relevant to *233 negative an argument to the effect that the covenantor could not complain that the terms of the contract were capable of being worked unreasonably against him since in entering into the contract he chose to repose a measure of confidence in the covenantee.

    Esso Petroleum Ltd v Harper’s Garage (Stourport) Ltd (above) applied.

    11.   Where the contract was of a standard form in the sense that such contracts had been settled over the years by negotiation by representatives of the commercial interests involved and had been widely adopted, the fact that they were widely used by parties whose bargaining power was evenly matched raised a strong presumption that their terms were reasonable.  This presumption did not apply to standard forms of contract which were dictated by a party whose bargaining power, either alone or in conjunction with others providing similar goods or services, enabled him to say ‘take it or leave it’.  There were also intermediate cases.

    Dictum of Lord Diplock in Macaulay v A. Schroeder Music Publishing Co Ltd (above) at 1316 applied.

    12.   The mere fact that the operation of a restraint was limited to the period of the contract might not suffice to justify the restraint, but it was a factor to be brought into account on the side of justification.

    Esso Petroleum Ltd v Harper’s Garage (Stourport) Ltd (above) applied.

    13.   It was relevant to consider the background against which the contract was negotiated and the circumstances in which it was negotiated.  That included the pre-existing contractual relationship between the parties (if any).

    Esso Petroleum Ltd v Harper’s Garage (Stourport) Ltd (above) and Alec Lobb Ltd v Total Oil (Great Britain) Ltd [1985] 1 WLR 173 applied.

    14.   The validity of the agreement was to be determined as at the date when it was signed and therefore the motives of the plaintiff in alleging that it was unenforceable were not material.

   Dictum of Lord Reid in Macaulay v A. Schroeder Music Publishing Co Ltd [1974] AC 1308, 1309 applied.”

66.  That summary has drawn attention to the means by which a court needs to analyse the contract before it.  When I come to making that analysis I will need to refer back to the various stages that one needs to go through in deciding whether or not to uphold a contract.

67.  Having referred to what I judge to be the relevant cases on this aspect, I will now refer to the various terms of the challenged Agreements.  The first set of Agreements, as well as the second set constituted a package of contractual measures by which each party bound itself to the other.

68.  Mr Sarony has made the point that the combination of the three Agreements, that is to say the first Artist Agreement, the first Management Agreement (signed in December 2004) together with the Writer’s Agreements entered into in March 2005, by which time the Defendants had already released their first CD, had the effect of giving the Plaintiff “a stranglehold” over the Defendants.  He says so because by the Writer’s Agreements, the Plaintiff owned the recording and publishing copyright to the Defendants’ compositions worldwide and in perpetuity and also was their exclusive agent in commercial and non-commercial activities by virtue of the other two agreements.

69.  To see whether that is so one must look to the material clauses of each Agreement.

70.  The first Artist Agreement which starts at A73 was signed on 1 December 2004.  It was for a term of three years, which is not an especially long period.  By Clause 2, the Defendants were exclusively contracted to the Plaintiff.  Clause 3 about which there is no complaint, provides for the recording of music by the Defendants and a promise by the Plaintiff to record and publish no less than three albums of the Defendants.

71.  It is Clause 4 which Mr Sarony submits is completely objectionable [A74].  Under this Clause all of the Defendants master recordings and all publications, whether issued or not, belong to the Plaintiff.  It is entitled to register itself as the copyright owner worldwide.  These rights are exclusive and perpetual and other than the agreed royalty payments due to the Defendants, the Plaintiff does not need to make any further payment to them.

72.  The royalty payments are set out in Clause 6 [A76-77].  These payments, which are on a sliding scale, are said to be very low indeed and cannot amount to just remuneration for the Defendants who were required to give exclusive, worldwide and perpetual copyright of all their work both used and unused.  In relation to payment, the sliding scale is between 5% and 10% [Clause 6I(i)] but this is further reduced by virtue of the fact that royalties were calculated on the basis of “net sales value” with a further reduction exacted by classifying the product into a discounted category.  This is defined in Clause 11 [A79-80], the effect of which, by Mr Sarony’s calculation, is that the Defendants would only receive 5% of a reduced wholesale price of $60 on a CD.  This would come to $2.50 per CD sold.

73.  Complaint is also made about Clause 5III which gives the Plaintiff the exclusive right to establish, manage and operate all “computerised websites related to” the Defendants and use the Defendants’ name in “web-related names in any form and by any means known at present or in the future …”  Mr Sarony points to this clause as being wholly unbalanced because it requires the Defendants to handover all their electronic digital derivative rights although there is no corresponding obligation on the Plaintiff to exploit those rights to, at the very least, the mutual benefit of both contracting parties.

74.  Referring to the fact that the first Artist Agreement is only for three years, the copyright granted to the Plaintiff was perpetual in relation to all master recordings recorded by the Defendants, be they used or unused.  Clause 9.4 has the additional restriction of preventing the Defendants, for 10 years after the expiration of the Agreement, from using any “musical product” manufactured by the Plaintiff to record master recordings or other publications for other people.

75.  Mr Sarony also submits that a further example of lack of balance in this Agreement is provided by Clause 10.1 [A78-79] which provides for harsh consequences for the Defendants in the event of breaches of the Agreement but without providing any remedies for them in the event that the Plaintiff is found to be in breach.

76.  Clause 12.3 is complained of because it permits the Plaintiff to assign its rights and obligations under the Agreement whilst it prohibits the Defendants from doing so without the Plaintiff’s consent.

77.  Mr Sarony says that when one stands back from this Agreement and surveys it as a whole all the rights go to the Plaintiff subject to paying parsimonious royalties and publishing at least three albums and all the obligations fall on the Defendants.  He concludes on this Agreement by submitting that its terms are “unduly restrictive and one-sided to the manifest disadvantage of the Defendants” and that the Plaintiff has failed to justify that these restrictions are necessary to protect its legitimate interests.

78.  I now turn to consider what the Defendants say about the first Management Agreement which is to be found at A83-87.

79.  This is also a three-year Agreement in the first instance.  There is a purported automatic extension provision if the agreement is “in conformity with Clause 10”.  Nevertheless, as Mr Sarony rightly observes, Article 10 appears to want to deal with termination and what is to happen in that event.  In such circumstances of complete uncertainty as to the application of Article 10 to the automatic extension provision in Article 1, I would have thought that one can only construe the Agreement as one valid for three years and ignore the automatic extension provision in Article 1.  What I think one can say with a degree of certainty is that by Article 6, if the turnover is over $500,000 in the final year (the third year of the Agreement), the Agreement can be renewed on the same terms if both parties agree that it should be, which is a perfectly unnecessary provision because presumably the parties can do anything they like provided both of them agree to do so. 

80.  I do not accept Mr Sarony’s interpretation that renewal is automatic once a turnover of $500,000 has been reached.  On its face, Article 6 requires both parties agreement for a renewal.  It is not the case that the Defendants are to be tied to the Plaintiff’s exclusive management for six years on a $500,000 turnover being achieved.  The reference to the renewal being on the “same terms and conditions automatically” means that if they agree to continue the Agreement, they do not need to go through the trouble of having to draft and sign another one because the terms of the present Agreement would continue to regulate their relationship as before.

81.  What I believe Mr Sarony is correct in saying about Article 1 is that for the duration of the Agreement, the Defendants will have handed over control of their entire career to the Plaintiff.  This in itself is neither unusual nor objectionable.  The fact that the Plaintiff is the exclusive manager is neither here nor there, it is the terms upon which that management is exercised that matters.

82.  Mr Sarony has sought to attack four of the Articles of the Agreement including Article 6 upon which I wish to express no further view to that which I have in paragraph 79 above.

83.  As to Article 4 [A85], he says that in circumstances where the Plaintiff has contracted to be the Defendants’ exclusive manager and that its fee for managing them has been agreed under Article 5 as 60% of the Defendants’ net income, it is not clear what further payment can be exacted from the Defendants under Article 4 particularly where the expression “management beyond the management agreement”, which has not been defined, for a service which would justify further deduction from the Defendants’ fees.  For my part where no claim is being made by the Plaintiff under this Article, it is permissible to simply ignore it for these purposes.  Although the expression “management beyond the management agreement” is likely to cause dispute if such a claim were to be made on this basis because of a lack of definition or particularity, it is perfectly possible to foresee some obvious examples such as medical expenses incurred on the Defendants’ behalf whilst on tour which would clearly fall outside the Plaintiff’s usual management obligations.  Nevertheless, it is unnecessary to further dwell on this because nothing turns on it in this dispute.  Whilst this part of Article 4 may not be sufficiently clear, it does not have the effect of vitiating the Agreement as a whole.

84.  Article 5 [A85] is important because, as I have already observed, it stipulates the fees charged by the Plaintiff for its management services.  The first point that can be made, as with other parts of the Agreement, is that the English is not very good and if contracting parties are going to contract in a particular language they should at least ensure that the Agreement is drafted up to the standard of a well-educated native speaker of that language, otherwise grammatical mistakes and failings in vocabulary will cause uncertainty as to what meaning should be placed on the wording of the particular clauses.  This Article provides such a difficulty.  It is helpful in this instance to set out the whole of the Article:

“ARTICLE FIVE   Party B agrees that, in the term of this management agreement, management on Party B’s income from all engagement agreements, performance agreements, and all other kinds of performances (regardless of the time before or after the termination of this broker agreement) shall be calculated as follows and paid to Party A:

(1)   During the term of this agreement, 60% of Party B’s net income* from its performances shall be paid to Party A as part of the management fee.

*(Profit after deducting all cost incurred by Party A for the means of the performance, including but not limited to agency fee, transportation fees, assistant fees, photographer fees, make up stylist fees, hair stylist fees, insurance fees, etc.)”

85.  Mr Sarony has taken two objections to the Article.  Firstly, the definition of what constitutes the Defendants’ “net income” which in turn depends on what costs the Plaintiff is entitled to deduct.  There is no doubt that this aspect has occupied some time in the course of the trial because the Plaintiff’s accounting staff had charged up to the Defendants a lot of items of expense rather than to the Plaintiff as part of the cost of managing the Defendants and of running an artiste’s management company.  This part of the dispute has found its way into the accountancy analysis which the experts have given evidence on.  Mr Sarony complains that the Plaintiff’s accountancy staff have adopted a wholly arbitrary approach to this expenditure and whenever it suited them charged it up to the Defendants.  All of this stems, he says, from this badly drafted article which fails to, as it should have, made clear to whose account items of expenditure should be attached.

86.  Secondly, and perhaps less importantly, Mr Sarony has referred to the linguistic imprecision of the expression “for the mean of the performance” which appears in the part purportedly defining net income.  He calls it gibberish.  Clearly, it has been badly translated from a Chinese original document.  Be that as it may, I do not believe this is in any way fatal.  Everybody has proceeded, and I think rightly so, on the basis that it must mean “for the purposes of the performance”, intending that costs referable to the performance are to be deductible.

87.  In these circumstances, I would have thought that despite the quality of the translation, the meaning of this Article is clear enough, although it has provided cause for dispute as to which items of expenditure are to be charged to the Defendants personally and which are part of the Plaintiff’s running costs as their management company that charges them 60% of their net income to manage them. 

88.  Article 12, which is also badly drafted in translation, has enabled Mr Sarony to draw parallels with a similar clause in the Agreement which the House of Lord struck down in Schroeder ibid.  It says this:

“With notification to Party B in advance, Party A may, for convenience or propriety, make entire or partial transfer of its exclusive agency right to a third party.”

What it does of course is to allow the Plaintiff to assign its rights and obligations under the Agreement to a third party.  Lord Reid observed that it cannot be assumed that an assignee would always act reasonably and not in an oppressive manner [1313B-C].

89.  Other criticisms raised on the Defendants’ behalf based on this Agreement are that there is no provision requiring the Plaintiff to deliver to the Defendants an account of their income and expenditure so as to regularly inform them of the financial position.  This too has resulted in a serious dispute on the accounts with particular regard to their accuracy.  In fact the first account that was produced by the Plaintiff was in August 2006, some 21 months after the parties had signed this Agreement.

90.  As to the 60:40 income split provided for in Article 5, Mr Sarony has submitted that it provides the Plaintiff with a disproportionately large cut of the income generated by the Defendants.  Chang Tan has said that given the expense of managing and promoting an act such as the Defendants, it would have been impossible to survive in this industry with a smaller split of the Defendants’ earnings.  In relation to this, Mr Sarony has already submitted that the arbitrary nature of the allocation of expenditure to the Defendants rather than to the Plaintiff as part of its expense of managing the Defendants has made this income split unfair.  He has highlighted what happened to the “Lets go Crazy Concert” which left the Defendants with hardly anything to show for their hard work in rehearsal and in the concert itself.  He has referred to the accountancy report from Mazars prepared on the Defendants’ behalf which speaks of the:

“difficulties in distinguishing between general promotional activities and personal activities … that the determination of the Plaintiff could at times be quite arbitrary which naturally leads to the issue of the integrity of the amounts recorded in the relevant accounts.” [Bundle D7 para.30]

91.  Taking this Agreement in the round, Mr Sarony has submitted that the Defendants who entered it from a markedly inferior bargaining position were being exploited by a management agreement that is plainly unjustifiable at face value.

92.  Lastly, I turn to the Writer’s Agreements in my consideration of the first Agreements that the parties entered into.  This agreement [A88-97] known as the Exclusive Writers’ Agreement was made by the parties on 5 Mary 2005 for a period of three years.  It is capable of being automatically extended for 12-month periods unless terminated by the Writer (the Defendants) on 30 days written notice prior to the end of any term.  The definition clause which describes the term of the Agreement also appears to provide for termination pursuant to Clause 11, nevertheless Clause 11 does not deal with termination as such but only with the consequences of termination, this being yet another example of either poor drafting or bad translation from the original language of the Agreement.  The effect of all of this is that termination can be effected at the writer’s option on 30 days notice and also under Clause 10 which gives the publisher (the Plaintiff) the right to terminate if the writer is in breach of (the) Agreement and fails to remedy his breach within 14 days of having received written notice of the breach or if, through injury, illness or disability the writer cannot “render his services”.

93.  By Clause 3, the Defendants have permanently assigned to the Plaintiff copyright in their compositions written during the currency of the Agreement.

94.  Clause 4.1 requires the Plaintiff to use its “reasonable endeavours” to exploit the Defendants’ compositions and by Clause 5 it is required to pay the Defendants $1,000 as an advance once a composition is published.

95.  Mr Sarony has submitted that this Agreement would mean that whilst the Plaintiff has no obligation to exploit a composition beyond using its reasonable endeavours, it would obtain perpetual world-wide copyright for the modest fee of $1,000 and together with the first Artist Agreement, which gives it copyright to the master recordings, it has achieved a complete stranglehold over the Defendants for very little in return.  Given this apparent situation, Mr Sarony relies on Lord Reid’s remarks in Schroeder ibid.  At 1313H-1314A as to the potential effect of such provisions:

“But if no satisfactory undertaking by the publisher can be devised, it appears to me to be an unreasonable restraint to tie the composer for this period of years so that his work will be sterilised and he can earn nothing from his abilities as a composer if the publisher chooses not to publish.”

96.  Mr Sarony has drawn unfavourable comparisons with the Vocanimals agreement under which the Defendants were paid 50% for recording and performance royalties whereas, under Clause 7.1 of this Agreement they receive only 10% for sheet music royalties.

97.  Mr Sarony concludes his submission on the first Agreements by saying that these bound the Defendants to the Plaintiff for “lengthy and ill-defined terms and under nebulous contractual provisions, the interpretation of which lay exclusively with the Plaintiff that one is driven to the conclusion that they are quite simply unfair.  Nor is it readily conceivable that such a degree of unfairness could be explicable on the basis of protecting the legitimate interests of the Plaintiff as record company/manager/publisher commensurate with the benefits secured to the Defendants.”

98.  I can now pass to the second set of Agreements which I can refer to more briefly, before setting out Mr Li’s responses as to why these two sets of Agreements ought to be upheld.

99.  The second Artist Agreement is to be found at A111-120 and the Exclusive Management Agreement is from A121 to A125.  In this respect, these Agreements are attacked on two bases.  Firstly, on that which I am presently considering, as being unconscionable bargains and on the further distinct basis, to which I will move to presently, which is that they were entered into under undue influence.

100.  The terms of these second Agreements are based on and broadly similar to the original Agreements.  They were signed on or about 27 April 2006 to replace the first Agreements which still had more than 18 months to run.

101.  Mr Sarony has referred to the second Artist Agreement which contains no obligation to publish any album — the first one had the obligation to publish three.  Unlike Article 6 of the first Management Agreement, the second Management Agreement had no “automatic extension” provision.  Be that as it may, I do not believe that the absence of such a provision can be a matter which the Defendants can point to as being unduly onerous or unfair.  Beyond referring to this difference between the two Management Agreements, there is no further point that can be taken on this.

102.  Clause 13 of the second Artist Agreement is a new term.  It says this:

“I.  Party B [Defendant] artist shall, at the completion of composition of musical works, immediately notify Party A [Plaintiff] of the details (title, author, copyright and others) and submit a copy of cassette and music score.

II.  Party A and Party A’s representative have exclusive publishing right of the above-mentioned musical works and are entitled to their management and use as well as income form them.”

This Mr Sarony attacks because it is completely one-sided because it purports to give the exclusive publishing right and income to the Plaintiff in respect of the Defendants’ compositions.  There is no reciprocal right to royalties to be paid to the Defendants.  Mr Sarony is therefore able to submit that such a one-sided Agreement cannot withstand a plea that it is unenforceable and void as contrary to public policy.

103.  Mr Li begins his response to this part of the case by submitting that I am not bound to follow the English authorities upon which Mr Sarony has placed reliance and that in the absence of any Hong Kong authorities, I should feel free to take my own course and hold that these Agreements do not fall within the category of agreements that are in restraint of trade and, therefore, do not have to be justified by the Plaintiff which seeks to enforce them.

104.  Secondly, he submits that all of the English authorities are predicated on and proceeded upon the footing that the parties who entered into the agreements were not of equal bargaining power.  They are therefore to be distinguished on their facts and that, in any event, as a matter of principle they cannot be applied to the facts of this case because the evidence does not show that the parties were of such unequal bargaining power when the agreements were made so as to engage the restraint of trade doctrine.

105.  Thirdly, even if I hold that they are in restraint of trade, the Agreements can be justified because the restraints are necessary for the protection of the Defendants necessary interests.

106.  And lastly, even if I hold the Agreements to be indefensively in restraint of trade, they are only unenforceable insofar as they remain unperformed and not void ab initio.

107.  All these issues need to be addressed.

108.  Mr Li’s first point is that there is no decided Hong Kong case on whether a contract between an artiste and his manager is in restraint of trade and therefore not enforceable.  He says that Schroeder and Clifford Davis Management v WEA Records ibid. were decisions based on public policy.  That is to say the public policy of England and Wales at the time that the cases were decided.  He submits that I must consider what would be consonant with public policy in Hong Kong today.  I am entitled to look at the matter differently.  The English cases do not bind me.  I am entitled to say that I will not follow them and in any event they fall to be distinguished on their facts.

109.  Before I proceed any further, I ought to indicate how I propose to approach these English authorities, one of the House of Lords and the other of the Court of Appeal presided over by Lord Denning MR.  It strikes me that Schroeder has, if I may say so, more than stood the test of time in showing how these sort of contracts should be addressed by a court of first instance.  What is required is a broad appeal to common fairness to both parties.  All of the cases that I have been referred to emphasise the position of the artiste taking on a bigger, more powerful opponent in the shape of his manager, record producer or publisher, as the case may be.  They do so because that is how, as in this case, the issues had been presented to the court, with the artiste seeking to avoid the agreement.  Nevertheless, it is plain that the courts have always recognised the integrity of a freely entered into agreement and just because one party has, on reflection concluded that it has struck a bargain which is more onerous than it would have liked, will not of itself provide reason for releasing it from a contract which it had freely entered into.

110.  Whilst Mr Li has attempted to re-visit these authorities with the intention of showing that they perhaps, struck the wrong balance or, did not sufficiently take into account certain aspects of the entertainment industry, he has not been able to persuade me that cases like Schroeder should not be applied.  I intend to have full regard to the line of authority placed before me by Mr Sarony, as I will in respect of the George Michael case decided by Jonathan Parker J.  It is only by applying the principles described in these decisions that one gets the correct sense of how cases such as this case can be fairly and correctly decided by the application of the principles that come from these authorities as applied to the facts of this dispute.  One cannot, it seems to me, over-emphasise the importance of the evidence in the particular case that requires a decision which must after all determine its outcome.

111.  As to the merits of the Agreements before me, Mr Li submits that I am required to take into account, the commercial reality of the music and entertainment industry in Hong Kong and, if one adopts such an approach, the court should not view agreements such as these as being in the category of contracts that are in restraint of trade which will need to be justified if they are to be upheld.  It is the commercial realities which will provide the best guide as to whether such an agreement is reasonable and one which should therefore be upheld.

112.  Addressing such realities, Mr Li submits that the music entertainment industry is a very risky one where real and lasting success is usually rarely achieved and when it is, can disappear as quickly and as unexpectedly as it came.  Nevertheless, one thing is certain which is that a manager or record company that wishes to promote an artiste because it believes in his or her potential will have to invest a great deal of money in that artiste in order to put him into the market place.  To make him known to the public by publicity and to invest the money that is required to produce CD’s and DVD’s which hopefully the public will buy and which will enhance the artiste’s popularity. 

113.  In his analysis of the applicable principles, Mr Li has questioned the prominence given to the parties’ inequality of bargaining power which Lord Denning, in particular, stressed in Lloyds Bank v Bundy and in Clifford Davis v WEA Records.  Mr Li submits that this factor has been allowed to assume an importance which has been overstated.  He submits that in the law of contract, the inequality of the parties bargaining power is not a principle of law.  That this is so was made clear by the House of Lords in National Westminster Bank v Morgan [1985] AC 686.  Lord Scarman at 708A-D rejected the introduction of the principle of “inequality of bargaining power” as a feature of the law in the area of undue influence and also doubted the need to apply such a principle into the law of contract.

114.  It seems to me that in approaching agreements such as the present ones, inequality of bargaining power is a matter which goes into the evidential mix in deciding how it was that the contract was entered into and why perhaps some terms in a contract were retained and others deleted or amended.  In a standard form, take it or leave it, agreement it will also play a part, having regard to the nature of the contract and the circumstances which impelled the weaker party to contract on those terms, some of which may well have been onerous and disadvantageous.  Inequality of bargaining power forms part of the evidential background to be taken into account but it will not, I would have thought, by itself be a decisive factor unless the weaker party had been left with no other choice but to contract, in which case other principles of law such as those relating to coercion or actual undue influence would also come to his aid.

115.  In the final analysis, Mr Li has accepted that the two-stage approach propounded by Lord Reid in Schroeder and adopted by Jonathan Parker J in the George Michael case is the way to consider the evidence.  It bears repetition:

“Are the terms of the agreement so restrictive that either they cannot be justified at all or they must be justified by the party seeking to enforce the agreement.  Then if there is room for justification, has that party proved justification — normally by showing that the restrictions were no more than what was reasonably required to protect his legitimate interests.”

116.  From this position, Mr Li submits that the terms of the Agreements are not so restrictive as to attract the doctrine of restraint of trade.  But if the doctrine is engaged he then submits that the terms are reasonably necessary to protect the Defendants’ legitimate interests.

117.  It is convenient at this point to take up Mr Li’s argument that the first and, indeed, the second Agreements were not entered into from a position where the Defendants did not enjoy an equality of bargaining power with the Plaintiff.  In examining that submission one has to start with the undoubted fact that the Chang brothers were significantly wealthy and the Defendants did not have much money.  The financial disparity was very considerable.  Mr Li suggests that this did not affect their respective bargaining powers.  The evidence is that the two sets of brothers were on very friendly terms and I am satisfied that Chang Tan, as the more musically-minded of the Chang brothers, was a great admirer of the Defendants’ prowess and talent as musicians and composers, which is why he decided that it was worth his while to invest large amounts of money in developing them professionally, starting with the injection of $400,000 in the production of their first CD album.

118.  I am also satisfied that this was very much a joint venture, in the sense that the Soler project, if I can so describe it, was a joint investment.  I have previously described the elements of this, with the Plaintiff providing the funding and the organisation that is required to promote a pop duo, and the Defendants putting in their considerable musical talents built up over years of practice and performance. 

119.  This was no up and coming talents coming up against a vast record company or music agency and confronted by a take it or leave it contract and, at the time, having to feel grateful that they were being taken on by such an organisation.  I am satisfied that this was a coming together of different equals.  On the one hand, the novice, albeit wealthy, would-be musical impresarios and on the other, a talented pair of by now experienced musicians looking for a shot at the big time, who were to be backed by friends with the money and enthusiasm to give their career the lift that they had been looking for all their lives.  The first set of Agreements were not presented to the Defendants on a take it or leave it basis.  Once Chang Tan decided, after the first album had been produced, that they would have to put their relationship on a proper legal footing, he obtained the first two Agreements from a friend, these being based on Taiwan Sony contracts, which he adapted to suit the parties situation.  These were not presented as a take it or leave it arrangement.  The Defendants showed the contracts to a relative in Hong Kong who is a practising solicitor to see if they were alright.  He did not suggest otherwise and they signed them.  I have no sense from the evidence of the 2^nd Defendant (Giulio) that either brother had a sense of dismay that they were about to be taken advantage of.  If anything, I am satisfied that they were pleased to have secured a contractual relationship that would enable them to get on with their careers without having to worry about getting jobs, recording opportunities and organising their time.  This was now the Plaintiff’s problem.  The Plaintiff would have the duty to promote the Defendants’ career.  The Chang brothers, particularly Tan, were very keen to make their own mark in the music business and their principal vehicle for that success was to be Soler.  They were prepared to spend both time and money in order to achieve this.

120.  Another feature that I should draw attention to is that the Defendants already had experience of a recording contract.  They had in the fairly recent past signed up with EMI in Italy, and had also employed a Mr Corrado Buffo in Italy to manage them.  Mr Li cross-examined Giulio as to the terms of those agreements, particularly the one with EMI, and although Giulio could not say much about the terms of that contract, I am satisfied that the both Defendants did at least have a feel for such contracts and the sort of terms that would typically appear in a recording industry contract. 

121.  The fact that there was no real negotiation was, in my judgment, more a product of the parties’ friendly relations and mutual respect for each other rather than a reflection of an inequality of bargaining power.

122.  There was also a degree of informality in the relationship, reflecting the friendship between the parties, resulting in Chang Tan allowing the Defendants to use a flat cum rehearsal room, because the Defendants at that time did not have accommodation of their own in Hong Kong and he also allowed them to use his family’s 7-seater people-mover and driver to get them around from place to place in Hong Kong.  This relationship was very far removed from those in the Schroeder case and in Clifford Davis v WEA Records.  I am satisfied that in this case there was, broadly speaking an equality of bargaining power or, at worst, given the financial disparity, the scales in bargaining power were not so heavily tipped in the Plaintiff’s favour to make any difference.

123.  Given my finding that this was not a case of parties’ entering agreements from a position of materially disparate bargaining power, where typically one party will be in a position to dictate terms to the other, this must leave the Defendants in a situation where they must be taken to have entered into these Agreements freely and satisfied with what they had bargained for.  Once Mr Sarony has failed, as in my judgment he has, to demonstrate a lack of equality in bargaining power, he takes on a much more difficult burden in seeking to overturn freely entered into contractual provisions just because, under those Agreements, one party appears to have obtained more favourable terms than the other.

124.  The freedom to contract on such terms as the parties agree to, subject to obvious exceptions such as contracts to perform acts that are illegal or immoral, is to be respected.  It seems to me that because a party may have driven a better bargain than the other will not of itself relieve the other if, on reflection, it does not care for what it has obliged itself to do.

125.  The terms of these first Agreements, as I have already observed, are not to be judged only on the basis of their wording.  These Agreements need to be judged against commercial reality and the Plaintiff’s obligations to the Defendants as well as the cost to the Plaintiff of performing those obligations. The financial risk that the Plaintiff would have to bear also needs to be properly weighed in order to understand why some terms and restrictions have had to be included in order to reflect that risk and the need for the considerable financial investment that was required.  Hence, for instance, the 60:40 split of the Defendants’ net income in favour of the Plaintiff.

126.  Insofar as it has been submitted on the Defendants’ behalf that some terms are so one-sided as to only provide the Plaintiff with a remedy and none to the Defendants, it has to be remembered that the Defendants continue to maintain their right and remedies under common law and in equity, which would provide a complete answer to that point.

127.  Mr Li has sought to distinguish Schroeder and Clifford Davis v WEA Records by going to each term in those cases and comparing or contrasting them with the ones in these Agreements.  For my part, I do not believe that this is an appropriate or helpful exercise to undertake.  Whilst there will be similarities, as there will be differences, that approach cannot have regard to the particular circumstances of the contracting parties especially on whether they came to negotiate on the basis of equality of bargaining power.  In neither of those two cases was this so.  In the present action, I have already held that the parties came to the table on broadly equal terms notwithstanding a pronounced financial disparity and that the first Agreements had not been presented on a take it or leave it basis. Although no negotiations had in fact taken place after the Defendants had shown the Agreements to their relative (a solicitor) for him to look over the absence of negotiation was, in my judgment, reflective of both sides keenness to get on with their association, which they did with a very promising measure of success for the first two years or so until the relationship soured as I have already recounted.

128.  These Agreements were not for unduly long terms.  A period of three years is not a lengthy time to lock-in pop singers to their manager.  An act such as Soler, starting from scratch on a professional basis, requires time to have its public profile developed.  The initial expense to the Plaintiff of developing Soler needs to be weighed in considering both the length of the Agreements and the rest of the terms which Mr Sarony has so vigorously attacked as being unbalanced and unconscionable.

129.  Other terms such as the assignability of the Agreements by the Plaintiff is, in these circumstances, perfectly valid.  I accept Chang Tan’s evidence in this regard, that such a right was necessary in order for the Plaintiff to be able to publish the Defendants’ albums overseas, the assignees being responsible for their development in such overseas territories as the assignees operated in.

130.  As to the first Exclusive Management Agreement, I do not believe that the fact of exclusivity is a feature that can be criticised.  It is perfectly sensible for the Plaintiff to be the Defendants’ exclusive manager.  Any other arrangement, I would have thought, would be unworkable.  The term of three years is also perfectly reasonable and on a proper reading of this Agreement, it can only be extended beyond that by mutual agreement of the parties.  No other construction as to term and extension is possible on a proper reading of this Agreement.  This Agreement is assignable, although I would have thought that this could only happen if this appeared to be the mutually advantageous thing to do.  The expression “convenience and propriety” is used — not the clearest use of language but, sufficient to allow one to understand that this would be done to allow for the proper implementation of the Agreement.  In any event, the prospect of this happening would have been remote as the Defendants were the Plaintiff’s only client at the time.

131.  Turning to the Writer’s Agreement, the issue of exclusivity is, in my view, perfectly understandable and no point can arise on it.  The length of three years is also modest in the circumstances.  As I have observed at paragraph 79 above, the extension provisions are so badly drafted that one can only say with any certainty that the Agreement is amenable to extension if both parties agree, which is a perfectly acceptable provision.

132.  The ownership of the copyright in perpetuity is the subject of very heavy criticism by Mr Sarony.  This feature was referred to by Jonathan Parker J in George Michael, which he found unobjectionable as a matter of bargain between the parties.

133.  The question of royalties and the amounts to be paid are said to be grossly unfair.  Nevertheless, there has been no evidence from the Defendants to say what would be fair.  The Vocanimals contract which is much more generous to the Defendants cannot stand as a precedent in this matter.  The two agreements simply do not stand comparison, the arrangement with Mr Fong on Vocanimals being on a far less extensive basis when one considers the all embracing nature of the arrangements between the parties in this action.

134.  My conclusion on the first Agreements is that they are, as a package, fair overall and should be upheld.  Once I have reached the conclusion that I have on the issue of equality of bargaining power which I have held to be one of broad equality, the Agreements themselves fall to be construed on the basis that the parties were both content to contract on this basis. Whilst some terms may appear to be generous to the Plaintiff and ungenerous to the Defendants, the Agreements need to be understood against the background of the very considerable financial outlay that was required to be forthcoming from the Plaintiff in its promotion of Soler.  I hold that these first Agreements were fair, agreed to by both parties who had agreed to them on the basis of what each was to bring to their collaboration and that the Defendants were ready to accept and did accept the rough with the smooth in the shape of some terms that may not have been generous to them.

135.  This being my view, the Defendants must be held to have failed to demonstrate that these Agreements should be set aside because they are in restraint of trade and voidable as being contrary to public policy.

136.  I now turn to the second Agreements, the main plank of the Defendants’ case being that they are voidable for undue influence.

The Second Agreements/Undue Influence

137.  Given the apparent good progress that was being made by the Defendants, Chang Tan says that he was anxious to extend the parties contractual relationship beyond the period of the first Agreements which still had some distance to go before they expired.  He had suggested that the Defendants sign a new set of Agreements which would extend the parties’ contractual relationship for a further 4½ years which he judged was what he needed to make a success of their careers and repay his investment in them.  This was proposed a few weeks before the “Lets Go Crazy” concert.  He left them copies of the new Agreements for them to consider.  A few days after the concert was over, which the parties felt had been a success in terms of the way Soler’s performance had gone down with the audience and in the press reviews, the parties signed these further Agreements, following which they went out to dinner at a Soho restaurant to celebrate together with Lupo Groining.

138.  Chang Tan’s evidence is that the defendants were very pleased to have signed for a further term.  Soler was catching on with the public, they were becoming popular and whilst the high earnings were not yet there, there was good reason to be optimistic about the future.

139.  The Defendants’ case on this aspect relates back, as a starting point, to the inequality of bargaining power.  Mr Sarony submits that the Defendants were very much beholden to the Chang brothers rather in the manner of a wealthy patron and a struggling and, relatively speaking, poor artist who depends on his wealthy patron for his living.  I have already said why the parties had come to contract on broadly equal terms.  By now the Defendants, who had achieved a promising measure of success, were in an even better position to speak up for themselves.

140.  Notwithstanding which, Giulio told me that he felt “… very disadvantaged … because of the way it was put to us, I was afraid to voice my fear … I felt there was no choice, because he said that if we didn’t sign it then we won’t continue to invest.”

141.  The way that Mr Sarony characterises this is to say that there existed a relationship of confidence between manager and artiste, in which the plaintiff “occupied a position of dominating influence”.  This he submits will give rise to the issue of undue influence when the artistes enter into a transaction which cannot be explained by ordinary motives.  He has relied on the case of O’Sullivan & Anor v Management Agency & Music Ltd & Ors [1985] 1 QB 428, which concerned, as he then was, a young and unknown composer and performer, who was wholly inexperienced in business matters, entering into an exclusive management agreement with an internationally known manager, producer and performer who operated through a series of companies which he controlled.  The composer/musician entered into a series of agreements which the trial judge held to have been in restraint of trade.  Given the nature of the relationship between them, the judge also held that the parties were in a fiduciary relationship and that accordingly, he held that the agreement had been entered into by virtue of the manager’s undue influence and that the agreements therefore fell to be set aside.

142.  For my part, I do not believe that the facts of the present case can be fairly aligned to those in O’Sullivan v Management Agency & Music Ltd supra.  As yet, it has not been necessary to go into any detail as to the nature of the parties’ relationship, although I have made a certain amount of reference to it in general terms.  I refer to my finding that they came to the first Agreements on equal bargaining power.  The parties had a burgeoning friendship.  Chang Tan had an admiration for the Defendants’ talent, hence his willingness to invest in them.  For their part, the Defendants were more experienced in the music industry than he was, although he had very much greater financial resources.  The Chang’s were novices in this business.  They had no real technical expertise in the recording industry and were therefore reliant on Lupo Grioning to supply that on their behalf.

143.  Come the musical and artistic success of “Lets Go Crazy”, the Defendants had demonstrated that they could do it.  They were a worthwhile investment, which is why the Changs were anxious to sign them for a longer period.

144.  Having seen Chang Tan and Giulio in the witness box over a number of days, I was impressed by both of them.  That is not to say that I am prepared to accept everything that each has said to me.  They have given their evidence from diametrically opposed perspectives.  In Giulio’s case, he wishes to demonstrate that he and his brother’s decision to break away from the Plaintiff was justified.  In Chang Tan’s case, he wishes to portray himself and his brother as fair-minded entrepreneurs who were not there to take advantage of the Defendants.

145.  Whilst the resolution of the issue of whether the first Agreements were in restraint of trade and liable to be set aside has largely been decided on the basis of the terms of the Agreements and the factual background of the parties themselves and their relationship up to that point, that evidence has been largely uncontroversial.  But now on this issue, there is a very distinct divergence between them as to what was said by Chang Tan and to a lesser extent by Lupo, which led to the Defendants signing these subsequent Agreements.  Whilst it is accepted by Chang Tan that he wanted to know where he stood with the Defendants over the near and medium term future, so that he could plan his financial backing of them, I reject Giulio’s account that this had been presented to him and his brother Dino in this uncompromising way which in effect had bullied them into signing.  It seems to me that they were perfectly content to sign.  The Agreements had been left with them a few weeks before “Lets Go Crazy” took place.  They had not got round to give them consideration because of the rehearsal schedule but within a day or two after that, with the success of “Lets Go Crazy” spurring them on they committed their futures with the Plaintiff for a further term.  An unfair spin has been put on Chang Tan’s evidence that he needed to know where he stood before committing himself to even more expense.  It seems to me that his stance was a perfectly understandable one given the level of financial commitment that was required.  At the time the Defendants, satisfied with the progress that they had been making with the Plaintiff, were prepared to put aside any niggles that may have occurred up till then and quite freely signed up.  If they were unhappy, they could have asked for more time, over and above the month or so that they had been in possession of the second Agreements, to get outside advice.  They chose not to because, in my judgment, they felt that this was the best option for them at that time.

146.  I find as fact that they had not been pressured to sign.  These were defendants of some sophistication, in their mid-thirties who were well able to decide what was best for them and they made that decision by signing and then going out and celebrating with the Changs and Lupo.  This, on its facts, was never an undue influence case despite Mr Sarony’s persuasive efforts to pigeon-hole it with the previously decided case of O’Sullivan ibid which was completely different on its facts.  Accordingly, the plea of undue influence must fail.

147.  This leaves over the issue of whether the second Agreements should be set aside on the basis that they are in restraint of trade. 

148.  I am satisfied that by now the Defendants had established something of a track record for themselves.  As I have already observed,  whilst not, by any means, big stars they had shown talent on the professional stage and as recording artists.  Where even at the start of the relationship, they had on my finding contracted on equal terms, they had by now well and truly cemented that sense of parity with Chang Tan and his brother.

149.  As the terms of this set of Agreements were virtually the same and, any differences between the two sets of Agreements did not materially alter the contractual landscape, I hold that these Agreements also were not in restraint of trade and that, in any event, they can be justified by the Plaintiff as reflecting a proper protection of their legitimate commercial interests.  This being so, both sets of Agreements have survived the rigorous examination that they have been subjected to by Mr Sarony with the result that this part of the defence must be taken to have failed.  Had he succeeded on these grounds, Mr Sarony would have been able to move on to his counterclaim, the two sets of Agreements having been set aside.  Now, having failed to persuade me on that account, Mr Sarony must seek to justify what the Defendants did on the basis of the Plaintiff’s conduct having amounted to a repudiation of the Agreements which entitled the Defendants to accept that repudiation, walk away and resume their career by managing themselves.  It is to this which I must now turn.

Did the Plaintiff Repudiate the Agreements?

150.  In this regard, the Defendants have raised a number of incidents and courses of conduct which are said to amount to repudiation of the Agreements.  These need to be considered individually to determine whether the complaints raised have a valid basis in law.  If none do, then the Defendants will have failed.  If all succeed their individual and cumulative effect must be weighed to decide whether this in law amounts to a repudiation.  If some fail and others succeed then the same exercise must be undertaken in relation to the matters that the Defendants have been successful on.

151.  The case on this is pleaded at paragraphs 26 and 27 of the re-re-amended defence and counterclaim.  So as to save having to refer back to the pleading, it is convenient to set it out here in its entirety before investigating its component parts on their merits on the evidence.

“26.   Further or alternatively, the Plaintiff has breached the express and/or implied terms of the First Agreements and the Defendants were entitled to and did accept the Plaintiff’s repudiation of the First Agreements by the letter dated 3 March 2007 from Haldanes to the Plaintiff’s solicitors.

Particulars of breaches

(1) From around November 2005 to early 2007, in breach of Article 2(3) of the First Exclusive Management Agreement and the implied terms thereof as pleaded aforesaid:-

  (i)    the Plaintiff imposed unreasonable workloads upon the Defendants by exerting on them constant pressure to attend activities arranged by the Plaintiff, in particular the Defendants were given no or insufficient time for rest and preparation for the activities arranged by the Plaintiff within a short period of time.

(ii)  On or about 18 November 2005, during a public event hosted by the Composers and Authors Society of Hong Kong, a representative of the Plaintiff, namely Tan, verbally abused and humiliated the 2^nd Defendant in front of a large group of media members, causing severe distress and embarrassment to him as a result;

(iii) On or about 24 June 2006, whilst the 1^st Defendant were preparing for the shooting of music video in the premises of Television Broadcasting Limited (‘TVB’), a representative of the Plaintiff, namely Tan, was verbally abusive to the 1^st Defendant and demanded him to act according to the orders of the Plaintiff in a demeaning and condescending fashion, with total disregard to the 1^st Defendant’s self-esteem and integrity as a musician and/or artist;

(iv) The Plaintiff failed to maintain a proper wording relationship with other entertainment and media organisations, which failure hinders the development of the Defendants’ careers in the music and/or entertainment industry.  In particular, as a result of inappropriate comments made by the Plaintiff’s PRC agent, one of the PRC organizations has threatened to boycott and ban the Defendants from future events if they continued to be represented by the said PRC agent.  Despite repeated complaints by the Defendants, the Plaintiff refused to change the said PRC agent, causing severe impediment and damage to the Defendants’ publicity and popularity in the PRC;

(v)   From around July 2006 onwards, after the Defendants have lodged numerous complaints relating to the management of the Plaintiff, the Plaintiff refused to arrange and fund for the recording of the new album and failed to give any constructive proposals and directions regarding the Defendants’ career in the music and/or entertainment industry.

(vi) The Plaintiff failed to disclose to the Defendants that at all material times, Tan of the Plaintiff is and was a shareholder and director of M Bark Music Limited when the same was appointed as the Plaintiff’s agent in the PRC.  Without knowledge or consent of the Defendants, Tan received for himself his 50% share from M Bark Music Limited a secret commission calculated as 20% of the gross performance income of the Defendants in the PRC.

(2) In breach of Article 2(2) of the First Management Agreement, the Plaintiff failed to keep up the Defendants’ reputation by neglecting the maintenance of the Defendants’ website www.solermusic.com.  As a result, various pornographic advertisement were posted on the website and brought the Defendants’ image into disrepute.

(3) In breach of Article 8 of the First Artist Agreement and Clause 9 of the First Exclusive Writer Agreements, the Plaintiff failed to provide any proper account of the royalties or other payments payable to the Defendants or any of them for the period from January 2005 to present;

27.    By reason of the Plaintiff’s aforesaid repudiatory breaches of the First Agreements and the Defendants’ acceptance thereof, the First Agreements have been lawfully terminated and the Defendants are thereby discharged from any further obligations whatsoever vis-à-vis the Plaintiff under the First Agreements.”

152.  I propose adopting the numerical references to the sub-paragraphs in paragraph 26 of the re-re-amended defence and counterclaim in order to identify the various complaints that I am dealing with in my consideration of this part of the case:

(1)(i) In this regard, I have had to consider in some detail the Defendants’ diary kept for them by the Plaintiff’s staff.  What is true is that the Defendants were kept busy.  This occupation requires an artiste to remain in the public eye and not only by concert appearances and record sales but also by attending radio and TV interviews and by appearing at high profile social events where the “beautiful people” might be expected to attend, so that the Defendants might be photographed there.  In Hong Kong such events are often the opening of high-end clothing boutiques and fashion shows at which the defendants were booked to appear.  The diary shows that they attended a considerable number of such events at which they were photographed and those photographs appeared in popular magazines and newspapers.  From the manager’s point of view, this was seen as effective marketing of its client and I have no doubt that this had the desired effect.  I have seen a number of such photographs and articles in the evidence.  Overall, I am satisfied that the Plaintiff had been successful in keeping the Defendants busy and getting them “out there” in the public gaze.  I reject the notion that they were not given sufficient time to rest and re-charge their batteries.  The diary has many blank dates or dates marked as “Hold” which meant that no booking could be accepted without first consulting the Defendants.  The emails have a number of references to the Defendants being accommodated on their requests.  I am satisfied that a correct balance was struck by the Plaintiff between the need to promote the Defendants and the need to give them time off to rest and do their composing.  This complaint is not made out.

(1)(ii)    This concerns what happened at the CASH event that I have already referred to [see para.10] which took place in November 2005.  In my judgment, Giulio has exaggerated Chang Tan’s reaction to his and his brother’s acceptance speech at the awards ceremony.  Whilst I am satisfied that words were exchanged after they had come off the stage, I do not believe that what occurred between them was so heated that this was noticed by people seated at nearby tables.  Chang Tan accepts that he told the brothers that he was not pleased because they had not thanked those who had helped them but this did not escalate to anything more than that.  I reject the notion that this event, which seems to have been forgotten until raised in Haldanes’ letter of 3 March 2007 [A166-171], is one that can properly be said to amount to repudiatory conduct by the Plaintiff.

(1)(iii)    This relates to an incident that is said to have occurred at TVB’s studios on 24 June 2006, when the Defendants were there to record a song.  Chang Tan is said to have addressed the Defendants in a condescending and demeaning manner in relation to their composition of the song that they had composed for this occasion.  Chang Tan says that what he said was no more than constructive criticism at worst.  Mr Li correctly submits that if this incident, which is said to have been one of the defining moments in the breakdown of the relationship had been so serious, one might have expected to see it referred to in either or both of Haldanes’ letters.  It has simply not been referred to.  In my view, this incident has been elevated by Giulio to appear far worse than it was.  This also fails to pass muster as repudiatory conduct by the Plaintiff.

(1)(iv)   This is a generalized complaint, the only particularised complaint being that the Plaintiff refused to change the Defendants’ agent in the PRC.  The evidence is that the person who acted in that capacity was Miss Eva Kan, to whom the Defendants were very well disposed and who has since left the M’Bark Music Limited, the Plaintiff’s agent in the PRC, to work for them.  It seems to me important not to confuse events that took place as from early 2007 when the parties formally split, which are part of the Defendants’ counterclaim and, events before that, which are said to amount to repudiatory conduct justifying the Defendants terminating their relationship with the Plaintiff.

(1)(v)    I believe that what is included under this head is a complaint that the Plaintiff refused to provide funds for a further CD album which would have been their third one.  As to this, the evidence is that the Plaintiff allowed the Defendants to stay at the Chang family house in Macau to let them have peace and quiet in order to write songs for that album.  The Defendants had, more than once, expressed their dissatisfaction with Lupo as musical director and it was agreed that he would be replaced for this CD.  Notwithstanding the concession they still did not deliver the songs that they had promised.  The other complaint here is that the Plaintiff had failed to give “any constructive proposals and directions regarding the Defendants’ career in the music and/or entertainment industry”.  It is difficult to conceive of a more unparticularised complaint on an important matter such as this.  Taking it in the wholesale way that it has been pleaded, it strikes me that the Plaintiff had been very active in the promotion of the Defendants and that as a result they had been kept busy.  In the 2½ years or so that they had been together, the Defendants had made considerable progress in what is an uncertain and highly competitive profession.  Under the Plaintiff’s management, they had made a real impact on the music scene.

(1)(vi)   This complaint has come by re-amendment.  Those representing the Defendants had considered that they had come across a case of a conflict of interest by the Plaintiff in respect of M’Bark Music Limited’s position as the Defendants’ agent in the PRC.  M’Bark was owned by Chang Wen, who is the Chang brothers’ sister.  She has given evidence, which I accept, that Chang Tan was only a nominee shareholder in M’Bark and that at all times she operated M’Bark quite independently of any influence from her brother.  The particular payment which has been relied on by the Defendants is a 20%-commission of the Defendants’ fee for a Budweiser-sponsored concert in the PRC.  It has been described as a secret commission.  On my view of the evidence, I am satisfied that the Defendants knew that M’Bark would be charging a fee for its work on their behalf in the PRC.  The evidence from Miss Eva Kan, the Defendants’ witness, is that the RMB32,000 commission fee earned from the Budweiser concert, which was payable to M’Bark, in fact went on promoting the Defendants in Beijing.  Once all the evidence on the involvement of M’Bark was called, it demonstrated that every thing was above board and that the Defendants had not been short-changed and that Chang Tan had not earned any secret commission.

(2)    This relates to a failure to maintain the Defendants’ website jwww.solermusic.com. It is true that unwanted and unsavoury material had been posted on it but by then the parties relationship was all but over.  I do not believe that this complaint can carry any real weight in the overall scheme of things and, of itself, would not have been sufficient to amount to a repudiatory breach.

(3)    The lateness of royalty payments has been raised and the fact is that royalty statements had not been provided to the Defendants until letters of complaint were sent by Haldanes.  This did amount to a breach of Clause 8(1) of the first Artist Agreement [A77] and Clause 9.1 of the Writers Agreements [A94 and A104].  Mr Li has conceded that this was so.  Nevertheless, he points to the fact that throughout the parties’ working relationship, the Plaintiff made numerous cash advances to the Defendants and provided them with free benefits such as travel to Macau by hydrofoil and a car and driver in Hong Kong.  They used the cash advances in order to live and pay their rent.  When accounts were provided these showed that modest royalty payments were due [see D137 and D149].  The fact is that royalty statements were not an important issue at a time when the Plaintiff was making substantial cash advances to the Defendants, for their upkeep, against all their earnings.  There were also late royalty payments from Taiwan due to the accounting firm in Taiwan having failed to produce these which the Plaintiff’s staff had to chase-up by going to Taiwan.  Some of the relevant figures as to production and distribution costs of albums had been delayed which resulted in the final account not being ready.

(4)   This relates to the third album.  I have largely dealt with this in relation to (1)(v) above.  The evidence has been that the Defendants had decided not to let the Plaintiff have the new songs that they had composed for the new album with the result that they could not review their quality.  In my judgment, it lies ill in the Defendants’ mouth to say that they had been met with a refusal by the Plaintiff to finance this album where on their own case they had refused to release the content of the album to Chang Tan.  This complaint must therefore fail.

153.  In circumstances where on its plea of repudiatory breach, the Defendants have failed to demonstrate conduct by the Plaintiff to justify such a finding, I hold that the Plaintiff did nothing by conduct or otherwise that would justify the Defendants walking out on their contractual arrangements with the Plaintiff and striking out on their own.

The Position So Far

154.  The Defendants have failed to demonstrate that the two sets of Agreements should be set aside as being in restraint of trade and that the second set of Agreements were entered into by virtue of undue influence.  They have also failed to show conduct by the Plaintiff which would amount to a repudiatory breach of the second set of Agreements entitling them to accept such a breach and to be at liberty to make their own separate arrangements.  By way of counterclaim, the Defendants have articulated a number of matters which overlap the allegations which have been raised in the defence which I have rejected.  I now propose to refer to other allegations which they have raised upon which it is necessary to rule.

Breach of Fiduciary Duties

155.  This allegation has found expression in the defence in the sense that it is pleaded in para.11, that the Plaintiff should not put itself in a position whereby its own interests would conflict with those of the Defendants’ in their care and conduct of the Defendants’ career.

156.  In para.33 of the counterclaim, this is more formally pleaded in four different respects as follows:

“33. At all material times, the Plaintiff as the manager, agent and/or representative of the Defendants owed to the Defendants and each of them, inter alia, the following fiduciary duties, namely:-

(1)   duty to act in good faith and in the best interests of the Defendants;

(2)   duty not to place itself in a position where its own interests, conflicted or might conflict with the interests of or their duties to the Defendants;

(3)   duty not to prefer its own interests to the interests of the Defendants; and

(4)   duty to take reasonable care in the exercise of its powers and the performance of its functions as the manager, agent and/or representative of the Defendants.”

157.  The breaches of those duties are particularised, in 11 sub-paragraphs and three sub-sub-paragraphs, in paragraph 34 of the counterclaim.  Sub-paragraphs 5 to 11 inclusive I have already dealt with in resolving the issues so far.  That leaves particulars 1 to 4 which are the following:

“(1)   Misappropriated and/or used the proceeds from divers performance, royalties and other sources of income of the Defendants (‘the Defendants’ income’) to cover its own overhead and other miscellaneous expenses without prior consent of the Defendants;

(2) Wrongfully and/or unreasonably deducted expenses from the Defendants’ income which should be borne by the Plaintiff as the record company and/or publisher of the Defendants;

(3) Failed to give proper account of the Defendants’ income;

(4) Wrongfully and/or unreasonably withheld and refused to release the Defendants’ income on a periodic basis, i.e. every two months, according to the custom and practice between the manager and artist in the music and/or entertainment industry;”

158.  These allegations mostly relate to the Plaintiff’s accounting methods and have resulted in the parties employing experts who have looked at the accounts.  In the event, what had promised to be a substantial dispute between the experts did not materialise.  The reason for this is that overall the Plaintiff’s books of account had been very well kept and whilst there has been a bona-fide dispute as to classification of a number of items of expense as to whether such items should have been charged to the Defendants or to the Plaintiff as part of its running expenses, which has occupied an inordinate amount of time in cross-examination of the Plaintiff’s accounts manager, I am disposed to hold that the Plaintiff’s classification has been a fair one and certainly one that can be supported on basic accounting principles.  The final accounts for the year 2007/2008 show that $131,644.81 is due and owing to the Defendants subject to the Defendants’ income tax liabilities for this period.  This I hold to be the correct amount.  The Plaintiff would be entitled to withhold payment of this until these liabilities are settled and indeed the outcome of this litigation is known.

159.  The very serious allegation that there has been a misappropriation of proceeds from performances and royalties and other sources of income by the Plaintiff to cover its own overheads has not now been pursued on the Defendants’ behalf.  Understandably, they had expected a proper fee for “Lets Go Crazy” and were left with a derisory sum at the end of it all but, having heard Chang Tan’s explanation as to how this had come about, it seems to me that this result cannot be laid at the Plaintiff’s door.  The concert promoter had produced the final account which in fact showed an overall loss.  This occasion was a wholly exceptional one in which the Defendants had been engaged to perform at a venue which relative newcomers would not normally be engaged for.  I accept the explanation given by Chang Tan that whilst the expectation was that the Defendants would be paid a substantial fee, in the final analysis this was out of the Plaintiff’s hands.  The promoter was not willing to pay more on a loss-making event despite the good reviews that the Defendants had obtained on the night.

160.  In conclusion in respect of these alleged breaches, it seems to me that on the evidence the Defendants have failed to show any single substantial breach by the Plaintiff.  Even if it can properly be said that the Plaintiff owed the Defendants a fiduciary duty in the sense of one of trust and confidence going beyond one of mere contract between manager and performer, I am satisfied that in every respect the Plaintiff has acted conscientiously in relation to its duties to the Defendants arising out of all of these Agreements.

The Result on the Plaintiff’s Claim

161.  Where all the challenges that have been advanced by the Defendants have in my judgment failed and the Plaintiff has been able to demonstrate the validity of all of the Agreements that it has sued on, there must be judgment to the Plaintiff on the claim and, subject to one matter, the counterclaim must also fall to be dismissed, which leaves over the quantification of the Plaintiff’s damages and one separate aspect of the counterclaim by the Defendants based on the allegation of unlawful interference by the Plaintiff prior and after the judgment of Andrew Cheung J.

162.  Whilst this is not strictly necessary for the purpose of the judgment, I wish to observe that in the final analysis whilst every professional relationship will bring its misgivings and disappointments the fact remains that to justify a severing of a seriously embarked upon contractual relationship is not an easy task.  In this case, whilst the defendants reached a point where they felt that they could do better on their own, the grounds upon which they have based their decision to terminate the Agreements have in my judgment fallen well short of what would have justified that decision as a matter of law.  They had their falling out with Lupo Groining, although most of the contemporaneous emails suggest otherwise, and they had become frustrated with Chang Tan, none of this could justify what they did in circumstances where the Plaintiff had spent a great deal of money in promoting their careers and achieved a considerable measure of success.  In the event, this has been an ill-advised decision based on scant material.

Unlawful Interference

163.  I am able to take this part of the counterclaim shortly where I have held in favour of the Plaintiff on the basis that the Agreements continued to subsist.  After the Defendants announced that they had parted company with the Plaintiff, the Plaintiff was entitled to defend its position as it did by insisting that it remained the Defendants’ exclusive manager and that anybody wishing to engage the Plaintiff could only do so through its services.  It was perfectly in order for it to point out in the media and in various letters and circulars that it might take legal action against anyone dealing with the Defendants’ directly.  In these circumstances, the Plaintiff was entirely justified to take the course that it did and I dismiss this part of the counterclaim as well.

The Assessment of the Plaintiff’s Damages

164.  This is essentially a claim for the loss of profit which the Plaintiff would have made out of its position as the Defendants’ manager/agent, music producer and publisher, had the Defendants not breached the Agreements by walking out on the Plaintiff.  The court is therefore require to assess, as best it can, what the Defendants would have earned from the date of the break up, in or about March 2007, until the conclusion of the agreements in 2010.  One only needs to state the problem to understand that a certain amount of crystal-ball gazing is unavoidable.  Soler was undoubtedly an up and coming act by March 2007 which had attracted a good following.  It has been said that the Defendants appeal to a more mature female audience rather than teenagers.  They have a uniqueness because they are Eurasian and can sing in English, Italian, Mandarin and Cantonese.  They therefore bring their own particular brand to the local popular music scene.

165.  I have heard evidence from experienced people in the music industry in Hong Kong such as Mr Tse and Mr Yapp.  From what they have told me the Defendants, whilst readily recognisable by the music-following public, are third tier artistes.  They have by no means broken into the big time but they do have a fan base who will go to their concerts and buy their CD albums.

166.  With a relatively short track record to project from, I am in a not uncommon position for a judge to be in, in circumstances such as these, which is really having to do my best based on a hopefully educated prediction of how well two recently-established but talented musicians would have done had they remained contracted to the Plaintiff.

167.  The Plaintiff’s evidence on income projection starts with Chang Tan’s witness statement at B604, on which he was closely cross-examined and challenged by Mr Sarony.  Income projection starts at para.30 [B611].  He has produced a table from pages 637 to 641.  The summary is at page 641 which projects a gross income for the Defendants of $49,638,425 for the period 2007-2010.  After deducting 10% for performance costs, this produces a net of $44,674,583.  60%, which is the Plaintiff’s cut of net income, amounts to $26,804,750 from which he then deducts the Plaintiff’s investment in the Defendants over the three years, being $6,552,000 which produces a net profit of $20,252,750.  The claim as pleaded is in fact more than that, at over $24,000,000.

168.  Giulio has given evidence to contradict this flattering assessment of Soler’s projected income in a witness statement of 22 August 2007 [F125-110] which projects a gross of $12,980,715 over the three years period after deducting costs.  The gross before costs are deducted is just over $19,000,000 compared to Tan’s predicted $49,638,425.  One needs to remember that Giulio’s assessment is based on the Defendants managing themselves but, I must address the matter on the basis of what they would have earned under the Plaintiff’s management which I have already found to have been a competent organization which had achieved an encouraging measure of success for the Defendants.

169.  May I say that I have found the evidence of Mr Tse Po Hung [witness statement at C858-864], who supports Chang Tan’s projection, as unhelpful, certainly in the approach that he has adopted of calculating earnings on an hourly rate of $20,000 per hour.  It is all very well to say what he does, but there is no basis for this in reality.  It assumes far too much without a real basis for making such an assumption.  Mr Yapp’s evidence as well is none too helpful again, simply because it cannot tell the court with any sense of realism how much these performers are likely to make over the three years.

170.  It is neither proper nor, of course, correct to take a judicial stab at things.  What is expected is a finding on projected income as a result of a realistic prediction which must be based on previous earnings and apparent popularity as at March 2007 and then work forward from there.

171.  My sense of it is that Tan has been far too optimistic in his assessment of how well Soler would have done over the remainder of the agreements until 2010.  If anything, Giulio is much closer to the mark because whilst I appreciate that he has every reason to now say that the Defendants’ earnings would be modest, I cannot envisage the sort of dramatic upturn in income that Chang Tan has predicted.

172.  I have demonstrated the approach that I need to take and I have to do my best based on such an approach.  I take the view that had the Defendants stayed with the Plaintiff, they would have earned a little more than Giulio has projected but not very much more.  For the year April 2007 to March 2008, their income would have been $4,500,000, for the year-end March 2009 it would have been $7,000,000 and for the year to March 2010 it would have been $10,000,000 as Giulio has assessed.  It seems to me that the longer one looks to the future, the more difficult the assessment becomes and I also need to have regard to the world economic downturn which will undoubtedly affect this industry as it has all business activity.  This therefore produces a much more modest gross of $21,500,000.  This of course is far less than Tan’s $49,000,000 plus which anticipates Las Vegas concerts and a host of other ambitious plans which, if I may say so, are so unlikely that one can very safely discount them from an analysis such as this.  Adopting Tan’s cost of performance ratio of 10%, which produces a net income of $19,350,000, 60% of that income comes to $11,610,000.  From that one must deduct the Plaintiff’s costs to arrive at the net recoverable loss.  Tan projects an investment of $6,552,000 over the three years which need to be deducted from the $11,610,000 which gives a total of $5,058,000. 

The Damages and Interest

173.  This therefore is the amount damages which the Plaintiff has suffered as a result of the Defendants’ breach of contract.  To this must be added interest upon which I will allow the parties to send in written submissions as to rate and length of time over which interest should be awarded.  The Defendants will have 14 days from the date of this judgment and the Plaintiff will reply within 14 days thereafter.

Costs

174.  These must follow the event.  The Plaintiff’s costs of the action must be paid by the Defendants on a party and party basis.  As to the costs of the application for security for costs, I propose to say that there should be no order for costs because the Plaintiff, although successful had failed to produce to the court its most up-to-date draft accounts which might well have had a bearing on the application.  These orders for costs will be orders nisi in the usual way.  In the event that there remain other unresolved orders of reserved costs,  I would be grateful if the parties addressed me on them when they write in on the question of interest.

175.  Finally, I wish to say that I am extremely grateful to all counsel and solicitors for their enormous hard work both in preparation and in their presentation of the case in court.