The case of Hummingbird Music Limited v. Dino Acconci and Guilio Acconci [2009] HCA836/2007 (the “Soler” case) raised some issues common to disputes in relation to artist management agreements. These issues include, inter alia, restraint of trade, undue influence and fiduciary relationship.

Background

In 2004, the Defendants (a Hong Kong pop group ‘Soler’) entered into a series artist and management agreements with the Plaintiff whereby the Plaintiff was appointed as the Defendants manager, exclusive agent, record producer and music publisher (the “1^st Agreements”). In April 2006, right after the Defendants’ concert performance, the parties signed another set of agreements effectively extending the Plaintiff’s appointment up to December 2010 (the “2^nd Agreements”).  The parties’ relationship deteriorated and in 2007, the Defendants purported to terminate the agreements.  As such, the Plaintiff brought proceedings against the Defendants for breach of various terms of the agreement

Restraint of Trade

The Defendants argued that the agreements were voidable and unenforceable because they were in restraint of trade.  In his Judgment, Carlson J relied on the principles set out in the English case Panayiotou & Ors v. Sony Music Entertainment Ltd [1994 EMLR 229] as a guide to the law on restraint of trade.  Below is a summary of the more important principles: -

1.            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.

2.            As to the first stage, the Court was to consider whether in all the circumstances sufficient grounds existed for excluding that contract from the application of the doctrine.

3.            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.

4.            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.

5.            Although the Court would not generally interfere with the parties’ freedom to contract, it would nevertheless take inequality of bargaining power into account when considering reasonableness.

6.            The restraint which only 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.

7.            The background against which the contract was negotiated, e.g. pre-existing contractual relationship between the parties, is to be considered.

In considering of the above principles, the Court found that there was no inequality of bargaining power between the Plaintiff and the Defendants. Unlike cases where the bargaining power was between an up and coming talent against a vast record company, the Plaintiff was a novice manager (albeit wealthy) and the Defendants had some industry experience (including previous recording contract).  Once satisfied that there was no unequal bargaining power between the parties, the Court held that the terms of the 1^st Agreements were found to be fair even though some of the terms might appear to be more advantages to the Plaintiff than the Defendants.

Undue Influence

One of the issues raised by the Defendants was that the 2^nd Agreements were voidable for undue influence. In doing so, the Defendants alleged that there existed a relationship of confidence between manager and artist, in which the Plaintiff “occupied a position of dominating influence”.  This would give rise to the issue of undue influence when the artist enters into a transaction which cannot be explained by ordinary motives.

However, the Court rejected the Defendants’ arguments. Since the Defendants were individuals in their mid-thirties who were well able to decide what was best for them and they made the decision by signing on the 2^nd Agreements, there was no evidence showing that the Defendants were subject to undue influence when they entered into the 2^nd Agreements.

Fiduciary Duties

The Plaintiff, being the manager/agent of the Defendants, owes fiduciary duties, inter alia, to act in good faith and in the best interests of the Defendants.  The Defendants alleged that the Plaintiff had breached fiduciary duties by misappropriating and failing to give proper account of the Defendants’ income. However, the Court held that the Plaintiff had acted conscientiously in relation to its duties to the Defendants.

Conclusion

Although this case involves the contractual relationship between manager/agent and an artist, some of the principles involved apply just as well to employment and other personal services agreements involving a high degree of trust and confidence. A further point to note is that specific performance cannot be granted for a contract of personal services on both sides which involves mutual trust and confidence. In these circumstances, the Court will be more likely to award damages.