YONFAN STUDIO CO LTD AND ANOTHER v. MOLESWORTH LTD

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JUDGMENT

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Penlington, J.A.:

1. This is an appeal from a judgment of Liu, J. delivered on the 7th of July 1989 following a trial lasting some 13 working days. It was a reserved judgment and deals with all the arguments put before him on behalf of all the parties carefully and in detail.

2. The 1st and 2nd plaintiffs were clearly at all relevant times owned and controlled by Mr. Yang Fan ("Yang") a very well known and experienced film director. Yang had purchased the copyright to a novel "The Rose Story" written by writer Isabelle Yik Shu. He approached the appellant with the idea of producing a film based on the novel as a joint venture, he supplying his own skills and administrative experience together with the copyright while the appellant would put up a share of the capital. Agreement was reached and documents signed but in the end these were cancelled and do not concern us though relevant as general background at the trial.

3. However on the 18th of September 1985 a further agreement was signed between the 1st plaintiff and the appellant under which it was agreed that Yang would be employed as a director by the appellant, who had then purchased the copyright in the book, to produce the film "The Rose Story" ("the film"). This document ("the agreement") was not drafted by solicitors although it used a printed form which probably came from a legal source and its terms have been the subject of this litigation.

4. It was pleaded in the defence that there was a further oral agreement between the parties concerning, in particular, one of the matters in dispute, that is the share of the profits arising from the distribution of the film, and the appellant in his reply also refers to an oral agreement. The respective claims as to the effect of that oral agreement are totally contradictory. There was a considerable amount of evidence given at the trial relating to the oral agreements but the judge based his decision essentially on an interpretation of the agreement though he did consider that in doing so he was entitled to have some regard to a further written agreement dated the 22nd of February 1986 which was made after the first showing of the film. This was signed by Yang on behalf of the 2nd plaintiff and a Miss Woo on behalf of the appellant.

5. The agreement provided, as one would expect in a contract of this sort, that the employee would devote himself during the period of the contract only to the particular film being made, it provides for changes in the script, for the costs of production within the budget and for non-interference by the appellant with the actual shooting.

6. Clause 17 of the agreement provides that "this contract is protected by the law in all the countries and districts in the world". Clause 18 sets out that "all the intentions and ideas of both parties A and B are set out in this contract. There is no other oral agreement."

7. The contract ends with some "remarks" which have been referred to in the judgment as notes 1, 2, 3 and 4 and the first three of this have been the cause of the difficulties which have resulted in this litigation. I set them out in full:

8. Note 1 is clear and there is no dispute that Mr. Yang were not in fact paid anything until 1st March 1986, well after the first showing of the film.

9. Notes 2 and 3 however have to be construed to resolve the areas of conflict between the parties. These are:

10. The trial judge found in favour of the plaintiff on the second issue relating to the worldwide vis-a-vis Hong Kong profits and he assessed the plaintiff's share in the total profits as being 1/8th.

11. Both Mr. Yang and Miss Woo gave evidence and, so far as it is relevant, the trial judge found Yang to be a credible witness but he did not believe Miss Woo on a number of matters. That finding has been challenged here on numerous grounds but those grounds have not been strenuously argued. Having read the relevant part of the transcript I find it difficult indeed to see how that finding could have been reversed here. While the trial judge also made a finding that there was an oral agreement between Yang and Miss Woo that the plaintiff's fee of $320,000 should not be included in the total production costs for the purpose of calculating his share of the profit, he went on to say that the critical exercise is one of construction. Again I entirely agree.

12. As regards the question of worldwide as against Hong Kong profits it seems to me that the words (which are repeated) "of the total share" in note 2 can only mean a share of all profits arising from the film whether arising from Hong Kong or any other countries and from showing rights, sales of film, videos, discs or any other means of re-producing the film. Any other interpretation would require a clear indication in the agreement to the contrary. I can find none.

13. The appellant relies on the wording of note 3 for that indication. It certainly refers to payment being made "40 days after each showing" but I did not consider that that goes anyway near showing what the appellant contends. Firstly, the note refers to "means of distribution" of profits, not to the way they are to be calculated. Secondly, it does not refer in any way to the showing being only in Hong Kong and thirdly, I can see no insuperable practical difficulty to the profit from such sales of videos, discs and film being included along with the rental from actual showing of the film in cinemas. Some further strength is added to this reasoning by the wording of clause 17 of the agreement in its reference to the contract being "protected by the law in all the countries and districts of the world".

14. On the second point, the way in which the appellant's fee was to be treated in relation to total costs, it seems to me to be no doubt that the director's fee was an item in the cost of production but the question is whether the parties have agreed that that item should not be considered when calculating the appellant's share.

15. There is no dispute that when the agreement was signed there was agreement between the parties as to the then estimated budget for the film which was $2,800,000. Note 2 of the agreement sets out that if the total expenditure of the film is $2,560,000 then Party B would take l/8th of the share, if the total expenditure of the film is $2,240,000 then Party B would take 1/7th of the total share.

16. The trial judge in his judgment has very carefully gone into these calculations and points out that both these examples in the agreement contemplate a cost or total expenditure considerably less than the budget. While Miss Woo vigorously denied that there was any possibility of the budget being exceeded the contract did provide for that possibility and there was no explanation as to why both examples given to show a total cost below the budget. It would indeed seem remarkable that if the $320,000 directors fee was to be included in the total cost for the purposes of this exercise it could be seriously contemplated that the total cost might be $2.24 million, $560,000 below the budget. Indeed it seems quite remarkable that this full length film of which a substantial part was shot in Paris only marginally exceeded what seems to be a very modest budget. The trial judge was in no doubt that the examples given show that because Yang's directors fee was not to be actually paid to him as such limit was to be treated as his capital investment, to be eventually returned in the form of a share of the profits, it was not regarded by the parties as a part of the total cost of production and the agreement should be construed accordingly. Once again I can see no reason to differ with that view.

17. I am therefore satisfied that the trial judge was correct in his findings in respect of both the share to which the 1st plaintiff is entitled and as to the basis on which the share is to be calculated and would dismiss the appeal on those points.

18. There is also an appeal on the question of costs relating to the 2nd plaintiff. The 2nd plaintiff was a film production company and it was the 2nd plaintiff who was named in the agreement of the 22nd of February 1986 and the 2nd plaintiff appeared in various other documents which were executed by the parties before the agreement of the 18th of September. It was found that the 2nd plaintiff really had no part to play in this matter and its claim against the appellant here was dismissed, however without costs, the judge finding that there was a minimal extra amount of time and costs caused to the appellant because of the inclusion of the 2nd plaintiff. I agree with his reasons but in any event this is essentially a matter for the discretion by the trial judge who was fully cognizant of all the matters which were argued before him. I see no reason to interfere with his decision and would also dismiss the appeal on that point.

Clough, J.A.:

19. I agree that this appeal should be dismissed for the reasons my Lord Penlington has given. In a careful and full judgment, Liu, J. dealt with all the issues raised before him but, as he said, the critical exercise as regards both the 1st plaintiff's claim for a share of the worldwide profits in the film and for the deduction of the $320,000 director's renumeration when calculating profits made from the film, was one of construction. On those two issues of construction I agree with my Lord Penlington that the judge came to the right conclusion and I do not think that I can usefully add anything further on any of the issues.

Nazareth, J.:

20. I too agree that on the construction of the main agreement the appeal must be dismissed. There is nothing I can usefully add.

Clough, J.A.:

21. The appeal was accordingly dismissed with costs on the common fund basis, the Court being satisfied that the appeal (which had been set down for 6 days but was concluded in two days) was hopeless and merely a means of delaying payment to the 1st plaintiff. We mention this now because we did not give the reasons for our decision on costs at the time we made the decision.