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Warner Music Hong Kong Ltd v Soliton (Hk) Ltd

Judgment Cited authorities 3 Cited in Precedent Map Related
Vincent
Judgment Date08 March 2019
Neutral Citation[2019] HKDC 192
Year2019
Judgement NumberDCCJ4/2018
Subject MatterCivil Action
CourtDistrict Court (Hong Kong)
DCCJ4/2018 WARNER MUSIC HONG KONG LTD v. SOLITON (HK) LTD

DCCJ 4/2018

[2019] HKDC 192

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 4 OF 2018

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BETWEEN
WARNER MUSIC HONG KONG LIMITED
(華納唱片有限公司)		 Plaintiff

and
SOLITON (HK) LIMITED
(立子(香港)有限公司)		 Defendant

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Before: Deputy District Judge Elaine Liu in Chambers (Open to the public)

Date of Hearing: 25 January 2019

Date of Decision: 8 March 2019

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DECISION

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1. By an agreement titled “Warner Sales Agreement” dated 31 August 2017 (“the Agreement”), the plaintiff agreed to make available copies of specified music recordings and related materials forming part of three music labels (“Licensed Materials”) and grant copyright licences for the use of the Licensed Materials to the defendant for a term of 1 year from 18 August 2017 to 17 August 2018. The defendant was engaged in the business of providing digital copies of music recordings on website for streaming and tethered downloading by customers. A digital music service platform provided by the defendant is hmv PLAY.

2. Pursuant to the Agreement, the defendant shall pay to the plaintiff a “non-refundable but fully recoupable pre-payment” (“the Prepayment”) in the sum of HK$850,000. The defendant has not made the Prepayment. After repeated demands from the plaintiff, the defendant sought to pay the monthly revenue instead. This was not accepted by the plaintiff, and eventually the Agreement was terminated.

3. This was the hearing of the plaintiff’s application for a summary judgment under Order 14 rule 1 of the Rules of District Court against the defendant for (1) the sum of HK$850,000; and (2) a mandatory injunction requiring the defendant to destroy and remove all Licensed Materials in the defendant’s possession or subject to its control.

4. At the hearing, the plaintiff confirmed that the alternative claim for damages for breach of the Agreement was not pursued in this application.

LEGAL PRINCIPLES ON SUMMARY JUDGMENT APPLICATION

5. The legal principles on summary judgment application are well established and are not in dispute. The relevant principles can be summarised as follows:-

(1) The underlying reason of the summary procedure is to prevent the defendant from delaying the plaintiff from obtaining judgment in a case in which the defendant clearly has no defence, and the summary procedure enables the plaintiff to obtain an expeditious judgment without delay.

(2) The plaintiff shall establish a prima facie case.

(3) The defendant may show cause by proving that:

(a) the plaintiff’s application was not in compliance with the preliminary or technical requirements under Order 14; or

(b) it has a good defence on merits; or

(c) there is an issue or question in dispute which ought to be tried; or

(d) there is some other reason that a trial ought to be heard.

(4) In assessing the merits of the defence, the court shall not embark on a mini-trial on affirmations. The court shall consider whether the defendant’s assertions are capable of being believed, not whether they are to be believed. The defendant’s assertions shall be tested against contemporaneous documents and other pertinent circumstances. The defendant’s stated defence will not be taken on its face value. Judgment shall be granted if the defence put forward is “frivolous and practically moonshine”.

(5) If it is considered that leave shall be given to the defendant to defend the claim, the court may grant leave to defend unconditionally or subject to such terms that the court considers appropriate.

[See: Hong Kong Civil Procedures 2019 §§14/4/1–14/4/10; Man Earn Ltd v Wing Ting Fong [1996] 1 HKC 225; Manciple Ltd v Chan On Man [1995] 3 HKC 459]

THE PLAINTIFF’S CASE

6. The plaintiff’s case is that the Prepayment is a minimum guarantee payment payable by the defendant under Clause 6 of the Agreement, which reads,

“6. Pre-Payments & Minimum Guarantee. [Defendant] shall remit to [plaintiff] a non-refundable but fully recoupable pre-payment of Hong Kong dollars Eight Hundred & Fifty Thousand (HK$850,000) (net, exclusive of all taxes) which shall be payable immediately upon the signing of this Agreement and in any event no later than 30 days after receiving the invoice, all to be applied and recouped against future proceeds payable to [plaintiff] hereunder.”

7. The Prepayment is a non-refundable payment, it shall be payable immediately upon the signing of the Agreement and in any event no later than 30 days after receiving the invoice. The Prepayment can be applied and recouped against future proceeds that the defendant shall pay under the Agreement calculated by a formula with reference to the defendant’s sales of the Licensed Materials. The defendant shall settle the Prepayment, which is a minimum payment, irrespective of the revenue or proceeds it may receive. The plaintiff is pursuing this claim as an action in debt.

8. A similar agreement had been made between the parties for the year of 2016. There was the same arrangement for the pre-payment.

9. During the negotiations, the parties agreed that the Prepayment was to be settled in two equal instalments on or before 31 August 2017 and 30 September 2017 respectively.

10. The plaintiff therefore issued two invoices on 15 August 2017 (“Invoices”) to the defendant, each in the sum of HK$425,000. The first invoice was marked payable on or before 31 August 2017. The second invoice was marked payable on or before 30 September 2017.

11. The defendant had not settled the Prepayment despite repeated demands from the plaintiff.

12. Clause 8 of the Agreement stipulated that the provisions of the Warner Standard Terms were incorporated by reference, and formed part of the Agreement.

13. Under Clause 8(b)(i) of the Warner Standard Terms, the plaintiff may terminate the Agreement upon written notice to the defendant if the defendant fails to comply with, inter alia, the payment obligations under the Agreement and fails to cure the non-compliance within 30 working days after notice.

14. Pursuant to Clause 8(c) of the Warner Standard Terms, upon termination of the Agreement, (1) all rights and authorisations granted by the plaintiff to the defendant under the Agreement shall automatically terminate and immediately revert to the plaintiff; and (2) the defendant shall, at the options of the plaintiff and in accordance with the plaintiff’s instructions immediately return to the plaintiff or destroy all Licensed Materials in the possession of the defendant or subject to its control.

15. The defendant has not settled the Prepayment by the due dates in August and September 2017 respectively. In September and October 2017, the plaintiff sent various email notices to the defendant demanding for payments.

16. By an email dated 4 October 2017, the plaintiff requested the defendant to immediately take down the plaintiff’s contents by close of business on 13 October 2017.

17. On 6 October 2017, the defendant replied that they were having internal discussion, and would try their best to settle the payment in their earliest possible way and time. In the same email, they also said that they would have their staff to start the take down procedure step by step.

18. No update on the payment or the take down procedures were received from the defendant. The plaintiff gave a notice to the defendant by email dated 12 October 2017 that it would commence the action on 13 October 2017 to take down the contents made available to the defendant.

19. The defendant wrote to the plaintiff on 26 October 2017 proposing the payment of the monthly revenue shares instead of the entire sum of the Prepayment. The defendant delivered two cheques to the plaintiff representing the monthly revenue shares.

20. This proposal to settle only the monthly revenue shares instead of the Prepayment was not accepted to the plaintiff. The two cheques were returned to the defendant. The plaintiff considered this act of the defendant was a unilateral variation of the terms of the Agreement, and constituted a further breach of the Agreement that entitled it to terminate the Agreement.

21. On 2 November 2017, the plaintiff exercised its right of termination under Clause 8(b)(i) of the Standard Terms and gave the defendant a written notice to terminate the Agreement and demanded the destruction and removal of the Licensed Materials.

THE DEFENCE

22. In the Amended Defence, the defendant put forward the following defences:-

(1) The defendant’s obligations to make payment under the Agreement only arises after the receipt of invoices from the plaintiff issued pursuant to and after the execution of the Agreement. The Invoices issued by the plaintiff pre-dated the Agreement, the due dates specified in the Invoices did not correspond with the 30 days period stated in Clause 6 and there was no reference to the Agreement in the Invoices. The defendant contended that the Invoices are not related to the Prepayment.

(2) Clause 6 is a penalty clause and is not enforceable.

(3) The plaintiff terminated the Agreement before the obligation to pay had arisen as no invoices were issued under the Agreement. The defendant was deprived of the opportunity to earn future revenue that it was entitled under the...

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