Court Rejects "Super-Powerful" Artists' Slave Contract Claims... Emphasizes Binding Force of Exclusive Contracts in Disputes

In Exclusive Contract Disputes in the Entertainment Industry,
Courts Strictly Apply the Fundamental Principles of Civil Law

Pacta sunt servanda (Agreements must be kept).

This is a fundamental principle of civil law, which states that what is agreed upon in a contract must be fulfilled. Exclusive contracts between entertainment agencies and artists are no exception. Considering that all business activities conducted by the company are carried out in partnership with the artist based on the clauses of the exclusive contract, the weight of the agreement is significant.

Photo to aid understanding of the article. Pixabay.

In the past, courts lacked a proper understanding of the structure of the entertainment industry and contract practices. Even after the introduction of the Fair Trade Commission's standard contract in 2009, most court rulings continued to favor artists in contract disputes, often citing the so-called "slave contract" argument.

However, recently, courts have been strictly applying the legal principle that "agreements must be kept" regarding exclusive contracts. Notable cases include rulings that rejected the claims of artists such as members of NewJeans and EXO's ChenBaekXi, who denied the validity of their exclusive contracts. This is interpreted as the court putting a stop to the reckless contract violations by "super-powerful" artists who have previously used their fame to undermine the seriousness of contracts.

ADOR Wins All Legal Battles Against NewJeans

ADOR won the lawsuit it filed against NewJeans seeking confirmation of the validity of their exclusive contract. The 41st Civil Division of the Seoul Central District Court (Presiding Judge Jeong Hoeil) found that NewJeans had no justifiable reason for their claims, stating, "The notice of termination of the exclusive contract by NewJeans has no effect. ADOR retains its management rights."

The court stated, "If one party creates the appearance that the other party has failed to fulfill its obligations under the exclusive contract, issues a notice of termination, and thereby intensifies the dispute, the possibility of terminating the exclusive contract based on circumstances arising after the notice increases. This could allow one party to evade penalty clauses and exit the exclusive contract without any burden. Therefore, such interpretations must be approached with caution."

In November of last year, NewJeans claimed there was a reason attributable to ADOR and asserted the termination of their exclusive contract. The conflict stemmed from Min Heejin, the former CEO of ADOR and the general producer of NewJeans.

HYBE, the parent company of ADOR, launched an internal audit after raising suspicions that Min was attempting to seize management control. In response, Min held a press conference, claiming that NewJeans was being neglected and that her dismissal was unjust. However, the HYBE board of directors dismissed Min from her CEO position. NewJeans then sent a formal notice demanding Min's reinstatement and stated that they would terminate the exclusive contract if their demand was not met.

When NewJeans asserted the termination of their exclusive contract, ADOR filed a lawsuit seeking confirmation of the contract's validity against the members. As NewJeans began activities under the name NJZ, ADOR filed for a provisional injunction to prohibit independent activities and the signing of advertising contracts.

The court determined that it was necessary to prohibit independent activities until a final ruling was made. The court also pointed out that ADOR had fulfilled most of its contractual obligations, such as settlements, and that the unilateral notice of contract termination by the NewJeans members made it difficult for ADOR to carry out its management work. NewJeans filed an objection and appealed, but the court dismissed the appeal for the same reasons. The court even granted ADOR's request for indirect compulsory enforcement, ordering NewJeans to pay 1 billion won per violation per member if they engaged in independent activities.

ChenBaekXi Loses All Legal Battles Against SM Entertainment

EXO's ChenBaekXi (Chen, Baekhyun, and Xiumin) lost all legal disputes against SM Entertainment. Despite involving the police, prosecutors, courts, the Fair Trade Commission, and the Ministry of Culture, Sports and Tourism, none of these institutions accepted ChenBaekXi's claims.

The conflict between ChenBaekXi and SM began in June 2023, when ChenBaekXi demanded the termination of their exclusive contract, claiming it was unfair. On June 18, 2023, both parties agreed that group activities would be managed by SM, while individual and unit activities would be handled by ChenBaekXi's independent label, INB100. The agreement clearly stated that "the exclusive contract remains valid" and that this was a "full agreement." Under this agreement, ChenBaekXi agreed to pay SM 10% of the revenue from their individual activities.

However, in June 2024, SM filed a lawsuit claiming that ChenBaekXi had failed to pay the agreed 10% of individual activity revenue. In response, ChenBaekXi filed a counterclaim for settlement payments and accused SM's co-CEOs Lee Sungsoo and Tak Youngjun of violating the Act on the Aggravated Punishment of Specific Economic Crimes (fraud), arguing that SM had not honored the agreed-upon low album and music distribution commission rate (5.5%).

However, both the police and prosecutors dismissed the case due to lack of evidence, and ChenBaekXi's appeal was also rejected.

ChenBaekXi had previously filed a court petition for an order to submit all settlement documents related to 13 years of EXO activities and for access and copying of accounting books, but their requests were dismissed at all levels, from the first trial to the Supreme Court. In particular, regarding the petition for access and copying of accounting books, the court stated that it was "an expedient to achieve the purpose of the order to submit documents or to psychologically pressure SM," and dismissed the final appeal as well.

The decisions of the Fair Trade Commission and the Ministry of Culture, Sports and Tourism were no different. ChenBaekXi reported to the Ministry of Culture, Sports and Tourism that SM had not provided settlement documents, but the ministry confirmed that "SM regularly disclosed settlement documents in accordance with the exclusive contract and the Popular Culture Industry Act," and found no violation. The Fair Trade Commission also dismissed ChenBaekXi's complaint of unfair contract practices against SM as "no violation."

Reporter Woo Bin, The Law Times

※This article is based on content supplied by Law Times.

This content was produced with the assistance of AI translation services.