A production company brought a claim for damages against the lead actor who committed crimes during the filming of its drama series and the actor’s former agency.  After the lower courts found the actor and his agency liable, the Supreme Court recently affirmed the lower courts’ ruling without any additional findings.  This decision will influence damages claims against talents who breach morality clauses in their contracts by engaging in socially objectionable behavior.
 
Background
 
In July 2019, the actor dropped out of a drama series in which he was starring as the lead actor after being charged with sex crimes against two female production staff members.  Subsequently, the production company replaced the actor with another.  The actor was also convicted, with the Supreme Court affirming the conviction in November 2020.

The production company sued the actor and his agency for unjust enrichment and damages.  Both the trial and appellate courts ruled partially in favor of the plaintiff, as summarized below.
 
Issue 1: Termination of the Actor Agreement
 
The Actor Agreement between the actor and the production company (the “Actor Agreement”) provides a morality clause that the Actor Agreement may be terminated if “the actor provokes public criticism in violation of the law, which damages his social reputation, disrupts his celebrity activities or damages the reputation of the program produced by the production company (or the production company itself), thereby making it difficult to broadcast the program.”

The production company terminated the Actor Agreement after the actor’s arrest for sex crimes.  Both the trial court and the appellate court ruled that the termination is lawful, and the appellate court specifically ruled that the termination is lawful the morality clause.
 
Issue 2: Findings on Claimed Damages

Based on the termination of the Actor Agreement, the production company sought damages for (i) the performance fee paid to the actor under the Actor Agreement, (ii) the penalty amount under the Actor Agreement, (iii) the performance fee paid to the replacement actor, and (iv) the licensing fees for the drama series that it could not earn due to the actor dropping out.  The production company claimed the actor and his agency were jointly and severally liable under the Actor Agreement.
 

• Performance fee paid to the actor: Both the trial and appellate courts ruled that the Actor Agreement was lawfully terminated, so the actor must return the performance fee for unfilmed episodes as unjust enrichment, but not the performance fee for the episodes already filmed.

• Penalty under the Actor Agreement: Under the Actor Agreement, the party at fault for the cancellation or termination of the Agreement shall pay the other party as a penalty the higher of (i) twice the amount of the performance fee or (ii) the contract fee already paid, and the payment shall not affect the aggrieved party’s right to damages.  The trial court ruled that the penalty provision is not in violation of “public order and good morals,” which was affirmed by the appellate court.  This finding was based on the facts that the production company bears risk that are significantly higher than the performance fee and that the actor received higher fees than other actors and the main reason for experiencing difficulties in drama production was attributable to actor’s crimes.

• Performance fee paid to the replacement actor: The trial court denied this damages claim, but the appellate court accepted it for the two episodes in the series that had to be filmed again with the replacement actor.

• Lost licensing fees:
  -   The production company executed the content purchase agreement with a third party that was conditioned on the lead actor’s appearance.  Upon the actor dropping out, the third party terminated the Content Purchase Agreement, and the production company agreed to pay the third party 40% of the originally agreed license fees as damages, as stipulated in the content purchase agreement.
  -   Both the trial and appellate court awarded the full amount of damages (i.e., 40% of the originally agreed license fees) paid by the production company, finding that the actor could reasonably foresee that the production company would be held liable if he became unavailable due to his own fault during the filming period.
   

This is a rare instance where the court ruled on specific items of claimed damages arising under a talent agreement.  We would advise to consider the courts’ findings in preparing similar agreements, including morality clauses to provide protection to the production company and other stakeholders and remedies for breach.

[Korean Version]