Endorsement contracts and morals clauses in Hong Kong and cross-border campaigns
An old interview clip resurfaces while an endorsement campaign is running. Criticism spreads in a market that matters to the brand. The marketing team wants an answer that afternoon, but the contract may say little about conduct that happened before it was signed.
For a Hong Kong brand, public criticism alone does not establish a right to terminate an endorsement contract. The agreement needs to address the termination trigger, any suspension right, payment consequences, continued use of campaign materials and dispute resolution. Campaigns may already have been produced, stock may carry the endorser’s image, and retailers and platforms may have commitments to fulfil.
Those questions should shape the agreement at the outset. A morals clause, which addresses conduct or events that may harm a brand’s reputation, is one part of that agreement. Suspension rights, payment provisions, licences and dispute resolution terms have to work alongside it.
Hong Kong, England and Wales, the United States and Mainland China approach these issues differently. The comparison below concerns general principles, without referring to any particular person or controversy. The United States material is illustrative and depends on state law. PRC-law points should be confirmed by PRC-qualified counsel.
How Hong Kong and English law treat the right to exit
Under Hong Kong common law, a brand can terminate for a repudiatory breach or under an express contractual right. A celebrity becoming unpopular does not, by itself, establish a breach. The brand needs a broken promise, such as a conduct covenant or past-conduct warranty, or a defined event that gives it a contractual right to leave.
A separately negotiated right to terminate without cause can provide a useful fallback. In Yang Zhizhong v Nomura International (Hong Kong) Ltd [2024] HKCFI 2192, the Court of First Instance held that an express right of this kind could be exercised for no, good or bad reason. It declined to imply restrictions based on bad faith, arbitrariness or irrationality that would dilute the express right. The court did recognise a narrow limit: the employer could not terminate to avoid the employee becoming eligible for consideration for, or receiving, a bonus (paras 164–171).
Yang concerned employment. Its application to endorsement agreements has not been decided, so it should not be treated as an endorsement-specific ruling. It nevertheless explains why a clear convenience exit, with its notice requirements and financial consequences agreed in advance, deserves attention during negotiations.
A clause that depends on the brand’s opinion raises a different question. Suppose it permits termination where conduct is, in the brand’s reasonable opinion, likely to damage its reputation. The wording gives the brand a decision to make, but that decision may still be reviewed.
In Braganza v BP Shipping Ltd [2015] UKSC 17, the UK Supreme Court discussed implied limits on contractual decision-making powers. The decision must not be dishonest, made for an improper purpose, capricious, arbitrary or irrational. The review can address both the process and the outcome; it does not allow a court simply to substitute its preferred decision (paras 18–24 and 30). Whether and how that approach applies depends on the contract and context. English authority is persuasive in Hong Kong, but the Hong Kong position on reputational opinion clauses in endorsement contracts has not been directly decided.
For a brand relying on such a clause, a contemporaneous record should explain what happened, which market was affected, what evidence was considered and how the contractual test was met. Disagreement with an endorser’s views and satisfaction of the agreed termination trigger may require different evidence.
The payment provisions need the same care. In Law Ting Pong Secondary School v Chen Wai Wah [2021] HKCA 873, the Hong Kong Court of Appeal adopted the modern English penalty test. A secondary obligation triggered by breach is penal if it imposes a detriment out of all proportion to the innocent party’s legitimate interest in performance (paras 69–71). The English test comes from Cavendish Square Holding BV v Makdessi [2015] UKSC 67.
A brand’s interest in reputation and campaign integrity may extend beyond direct financial compensation. That does not make every agreed sum enforceable. The amount, the interest it protects and the way the payment obligation operates all matter. The penalty rule distinguishes primary obligations from secondary obligations arising on breach. Fee refunds linked to an agreed termination event therefore need to be drafted and assessed as part of the payment structure, with legal advice on their characterisation.
Hong Kong also has no general statutory image right. Continued use of existing campaign material depends mainly on the licence terms, passing off and data privacy law. The contract should say what happens to that material when the relationship ends.
What a United States morals-clause dispute illustrates
In Mendenhall v Hanesbrands, Inc., 856 F. Supp. 2d 717 (M.D.N.C. 2012), a brand terminated an athlete’s endorsement after social-media comments. The clause covered situations tending to bring the endorser into public disrepute, contempt, scandal or ridicule, or to shock, insult or offend the majority of the consuming public. It also described the brand’s decision as conclusive.
Applying New York law, the federal court refused the brand’s motion for judgment on the pleadings. The discretion remained subject to the implied covenant of good faith and fair dealing, and the endorser had plausibly alleged unreasonable conduct. The court had not finally decided whether the termination was lawful.
The public statement mattered. Although the termination letter relied on the clause, the brand’s statement said that it strongly disagreed with the comments and regarded them as inconsistent with its values. It did not state that the contractual trigger had occurred. The court observed that mere disagreement would not trigger the clause.
This was a pleading-stage decision under one state’s law, and it binds neither Hong Kong nor Mainland courts. For a brand preparing a response, it is a useful reason to check the internal record, termination notice and public statement together. They should reflect the same contractual ground.
Mainland China adds rules on termination, damages and personality rights
The PRC Civil Code permits parties to agree events that allow one party to terminate when they occur (Article 562(2)). Without an agreed event, a brand must establish a statutory ground under Article 563, principally a breach that defeats the contract’s purpose. Where a party validly exercises a termination right by notice, Article 565 generally provides for termination when the notice reaches the other party; either party may ask a court or arbitral tribunal to confirm its validity.
Force majeure is an uncertain route for a reputational event. Article 590 concerns inability to perform; a campaign may remain possible even when continuing it has become commercially unattractive. Article 533 addresses major unforeseeable changes outside ordinary commercial risks and starts with renegotiation. An endorser’s reputational event may be regarded as a known commercial risk. The agreement’s own definition of force majeure also needs review, particularly if it could encompass the endorser’s conduct or resulting regulatory action.
A court-system account of a Shanghai Songjiang District People’s Court case illustrates the use of an agreed trigger. A film investor’s supplemental agreement allowed termination, recovery of fees and actual losses where a lead performer’s unlawful activity or misconduct led to a regulatory ban affecting filming or release. The court upheld the exercise of that right and confirmed termination as of 24 February 2021. It also assessed whether the conduct amounted to misconduct. Defined examples and a clear connection to regulatory consequences can help a brand explain why the clause applies.
Agreed sums still need evidence of loss
Article 584 covers loss caused by breach, including benefits that performance would have produced, subject to foreseeability when the contract was made. Under Article 585, a court or tribunal may increase agreed liquidated damages below the loss or reduce them where they are excessively higher.
The Supreme People’s Court’s interpretation on the general provisions of contracts, effective from 5 December 2023, uses actual loss as the starting point. Articles 64 and 65 treat an amount more than 30% above the loss as generally excessive. A clause excluding adjustment does not, by itself, prevent adjustment; reduction is generally refused to a party in bad-faith breach. These are provisions to assess in context, rather than a promise that a particular formula will survive scrutiny.
Published court and company accounts report substantial awards in two disputes. The Songjiang court account describes a RMB30.5 million fee refund and RMB60 million in damages, assessed by reference to production costs and signed copyright licences. The appeal was dismissed. In a separate Beijing dispute, listed-company filings report RMB48.85 million in damages, interest, RMB150,000 in liquidated damages and legal fees, with the actor’s agency jointly liable. The 2022 inquiry-response report and later filing should be read together.
Those accounts illustrate the importance of the clause, evidence of loss and the parties liable to pay. The full judgments were not obtained from primary sources for this article, and the figures should not be treated as a guide to recovery in another case.
Licences must address image, name and voice
The Civil Code expressly protects personality rights. Article 1018 permits a person to license use of their portrait. Article 1019 prohibits infringement through technological forgery and, subject to statutory exceptions, use of a portrait without consent. Ambiguity in a portrait licence is resolved in favour of the right holder under Article 1021.
Even a fixed-term licence requires attention: Article 1022 permits the right holder to terminate for proper reason on reasonable notice, with compensation for resulting loss unless that loss is not attributable to the right holder. Article 1023 applies the relevant rules by reference to names and protects voice on the model of portrait rights.
The Supreme People’s Court has reported a Beijing Internet Court decision extending voice protection to an AI-synthesised voice where the individual remains identifiable. Article 997 also permits an order to stop an infringing act where delay would cause irreparable harm. Brands should address synthetic likeness and voice expressly, alongside the permitted media, territories and post-termination use.
Advertising rules affect whether a campaign can continue
Under Advertising Law Article 38, endorsements must be based on fact and comply with the law. An endorser may recommend only goods or services they have actually used.
The 2022 guidelines on endorsement by public figures, issued by seven regulators led by the State Administration for Market Regulation, also cover online influencers. They set expectations for checking an endorser’s conduct and credit before engagement. Continuing to use an endorser after a serious adverse event may itself attract scrutiny.
The Internet Advertising Measures impose endorser duties on livestream marketers who recommend goods in their own name or image, where that constitutes endorsement (Article 19), and contain advertising-labelling requirements for relevant content carrying shopping links (Article 9). The 2022 code of conduct for online hosts adds behavioural standards. A documented vetting and response process can support both the regulatory assessment and the brand’s explanation of its decision.
Draft the agreement around the campaign’s actual exposure
Start with the trigger. Define objective events, any reasonable-opinion limb and the markets that matter. Address conduct occurring before the agreement if it becomes public or is republished during the term. A past-conduct warranty and disclosure exercise help establish what the brand knew when it signed. A separate, priced convenience exit can give the brand another option, subject to the applicable law.
Suspension deserves its own provision. A right to pause campaigns and payments while facts are checked can preserve options, but the agreement must confer that right and describe how it works. Consider a mutual reputational exit where commercially appropriate. Agree how public statements will be cleared and any restrictions on public comment about a dispute.
Set the financial consequences alongside these rights. Explain what an agreed sum protects, retain the calculation and identify foreseeable losses such as reshoots, stock and media write-offs, and replacement fees. Review refunds as part of the payment structure, and state how refunds, agreed payments and any preserved damages claims fit together. If the endorser contracts through a studio or agency, consider personal guarantees or joint liability and require notice of changes to the contracting entity. Do not assume that an individual will answer for a company’s obligations.
For the content, specify licensed materials, media and territories. Agree takedown and stock sell-off periods, what may remain online, and whether any synthetic likeness or voice is permitted. Termination of the services agreement and the permitted use of material already produced need to be addressed together.
The dispute resolution clause should reflect where the assets are. Hong Kong-seated awards may be enforced in the Mainland under the arbitral awards arrangements, subject to their requirements. Parties to Hong Kong arbitrations administered by qualifying institutions may also apply to Mainland courts for preservation under the interim measures arrangement, in force since 1 October 2019.
Court proceedings are another option. The reciprocal arrangement for civil and commercial judgments, implemented in Hong Kong by Cap 645 and in the Mainland by a judicial interpretation, applies to qualifying judgments given on or after 29 January 2024, subject to its scope and exclusions. Arbitration can provide confidentiality, subject to the contract, applicable rules and statutory disclosure exceptions. Neither the forum nor a favourable decision guarantees recovery.
Choose the governing law and forum together, with advice on Mainland mandatory rules affecting personality rights and advertising. The law governing the contract will not necessarily answer every question about a campaign running in another market.
When an incident occurs, assemble the evidence before announcing the exit
Preserve the original material, when and where it appeared, any republication, and evidence of the reaction in each relevant market. Identify the contractual ground and notice requirements before drafting the public announcement. If the facts remain uncertain, assess any contractual suspension right.
Record the reasons for the decision while they are current. Check that the notice and public statement reflect those reasons, then serve notice in the agreed form. For a Mainland-law termination, receipt is particularly important under Article 565.
Carry out the takedown and stock plan within the licence terms. Keep the regulatory assessment, mitigation steps and costs, and obtain early advice on preserving assets through the appropriate court or arbitration route.
TITUS advises businesses on commercial agreements and cross-border disputes and enforcement. Before signing an endorsement agreement or announcing an exit, contact TITUS to discuss the contract, campaign plan, content licences and any studio or agency arrangements that will govern the response.
This article is for general information only and does not constitute legal advice. Specific advice should be sought for any particular situation. The Hong Kong position on reputational opinion clauses in endorsement contracts has not been directly decided; the United States discussion is illustrative and state law varies. PRC-law points should be confirmed by PRC-qualified counsel.