China: Performance Management Contract Q&A

Last Updated: 24 March 2017
Article by Yu Ye

Is a performance management contract equivalent to an agency appointment contract?

In most disputes concerning performance management contracts for which a written judgment is publicly available, artists claim that their contract with the management company is an agency appointment contract. This claim is motivated by a provision of Article 410 of China's Contract Law, which states that "either the principal or the agent may terminate an agency appointment contract at any time." In other words, as long as the contract between the management company is characterized as an agency contract, the artist may unilaterally terminate the contract as the principal through a simple procedure.

Nevertheless, in a 2009 IP contract dispute between Xiong Wei, Yang Yang (i.e. Xiong Tianping and his wife) and Beijing Zhengheshiji Culture Communication Co., Ltd (Case Number: (2009) Min Shen Zi No.1203), the Supreme People's Court asserted that a performance contract is a comprehensive contract, and that a provision on performance arrangements in such a contract possesses neither the nature of an agency contract nor the nature of a commission contract, but rather constitutes a portion of the comprehensive contract; and that consequently, the unilateral termination rule for principal-agent relations does not apply. This case is also included in the Annual Report of the Supreme People's Court on Intellectual Property Cases (2009) as a leading precedent.

Rulings in a series of subsequent similar cases were consistent with the Supreme Court precedent. In a lawsuit in which Shanghai Tangren Film Production Co., Ltd sued Ling Gengxin over an agency appointment contract (Case Number: (2013) Hu Yi Zhong Min Yi (Min) Zhong Zi No.2086), although the trial court held that the Manager Contract signed by the plaintiff and the defendant was an agency appointment and that Lin Gengxin was entitled to unilateral termination of the contract as the principal, the appeals court ruled that the contract in dispute "possessed the features of an agency appointment contract, a labor contract, a brokerage contract and an intermediation contract". Therefore, " is inappropriate to determinate the nature of the contract in dispute as a unilateral agency appointment contract" as stated in the trial judgment. The appeals court rejected the assertion by Lin Gengxin that "the contract signed between the two parties is identical in nature to an agency appointment contract and thus should enjoy right of unilateral termination", thereby overruling the trial court.

Is an artist allowed to unilaterally terminate a performance management contract?

Although an artist may not act as a principal simply for the purpose of terminating a comprehensive performance management contract, an artist may exercise the right of unilateral termination if the terms of the contract specifically permit this under specific circumstances, or terminate on the basis of other legal grounds that arise during the performance of the contract.

In contract dispute between Shanghai Kunhong Media Investment Management Co., Ltd and Xue Zhiqian (Case Number: (2013) Hu Yi Zhong Min Yi (Min) Zhong Zi No.2086), the court determined the Artist Contract between the two parties was an "undesignated mixed contract featuring the content of an agency appointment contract, an intermediation contract and a brokerage and performance management contract." Nevertheless, since the management company's failure to fulfill some of the contractual commitments contractually entitled Xue Zhiqian to unilaterally terminate, the contract was terminated as of the day that Xue Zhiqian proposed termination.

Does a contract in stalemate require continuing performance?

Since a performance management contract generally features personal services, the effort to maintain a grudging cooperation with a party who possesses a strong intention to terminate the contract can harm both sides. Consequently, when faced with such disputes, courts normally do not support the demand of the management company for continuing performance of the contract. In an appeal case concerning a contract dispute between Jia and Shanghai Dongjin Culture Communication Co., Ltd (Case Number: (2014) Hu Gao Min Yi (Min) Zai Ti Zi No.8), for example, although artist Jia was not entitled to unilateral termination, the court ordered the contract dissolved on the ground that "it is apparent that continuing performance of the contract would be beneficial to neither side."

Should an artist have to pay large liquidated damages to terminate a contract?

The most controversial issue surrounding termination of contracts is the amount of liquidated damages that the artist must pay for termination. In order to deter a rising star from jumping to another company, a performance management contract usually includes high liquidated damages for unilateral termination. In a dispute over an intermediation contract in which Worth Achieve Associates Limited sued Zhang Yuqi (Case Number: (2012) Hu Yi Zhong Min Yi (Min) Zhong Zi No.2158), the contract stipulated that if it was terminated due to breach by the signing artist, the artist was obligated to "pay a cash penalty to the agent (management company) in an amount equivalent to triple the artist's total income over the 12 months preceding termination of the contract, or 3 million HKD, whichever is greater." The court took into consideration Zhang Yuqi's actual income before termination of the contract as well as the responsibilities that the management company had fulfilled as manager, and ruled that Zhang was obligated to compensate the management company in the amount of 3 million HKD.

Despite these decisions, not every contractual penalty provision is upheld by the courts. According to the Contract Law, where the agreed penalty is lower or unreasonably higher than the loss incurred, an interested party may petition a court or arbitration tribunal for a corresponding adjustment in the amount of the penalty. In another contract dispute between Shanghai Jiushang Performance Management Co., Ltd and Yu Huiwen (Case Number: (2013) Hong Min Yi (Min) Chu Zi No.4194), although the contract stipulated liquidated damages of 5 million RMB, the management company offered to adjust the amount to 850,000 RMB based on expenses incurred by the artist, such as training. Nevertheless, the court held that "although the defendant (Yu Huiwen) is one of the 24 Grade 1 members of the SNH48 Girl Group who has breached the contract, she has not signed another contract with another management company. Since the seriousness of her breach was limited, since her public profile was relatively low, and since her breach occurred relatively early in the performance of the contract", the court set the penalty at 200,000 RMB. This decision illustrates that a court will take into consideration (i) the performance of the contract by both parties, (ii) the time of occurrence of the breach, (iii) the investment in the artist by the management company, and (iv) the artist's income as well as other factors.

(Original article: The Right Way to End a Performance Management Contract by Yu Ye)

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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