LAU KAM HOI, BEN t/a VIN LI HONG CO. v. NEW KWUN LUN FILM PRODUCTION CO LTD.

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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BETWEEN

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JUDGMENT

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Background

1. On 2nd November 1982, the Plaintiff and the Defendant signed five contracts for the copyright in certain films. Each contract was for the sale to the Plaintiff of the copyright to show in the United Kingdom a film to be made by the Defendant in China. In each contract, the price was US$15,000.00 which included two copies of the colour film in Chinese language but with Chinese and English subtitles. Two of the films were historical dramas called "Reign Behind the Curtain" (which I shall simply refer to as "Reign") and "Burning of the Imperial Palace" (which I shall simply call "Palace"). The other three films were Kung Fu films called "Hay Kung", "Red Cloth Lama" (which I shall call "Lama") and "Gathering of Wind and Rain in Central  China" (which I shall call "wind").

2. The Plaintiff paid an initial deposit of US$3,000.00 on the signing of each contract. A month later he made a part payment of US$2,000.00 in respect of each contract. The Plaintiff claims, however, in respect of each contract that the Defendant failed to deliver the film by the due date, that there was an implied term in each contract that time should be of the essence, and that by failing to deliver each film the Defendant was in breach of contract which the Plaintiff treated as repudiation and which he accepted. The Plaintiff therefore claims in respect of each contract the sum of US$5,000.00 together with a sum of US$5,000.00 by way of liquidated damages as provided for in each contract, or damages to be assessed.

3. The Defendant denies liability. First, it is pleaded that the Plaintiff was in breach of the terms of each contract relating to payment whereby the Defendant was discharged from further performance of the contracts. Secondly, there was an implied term in each contract that the contract would be suspended as long as the Defendant was prevented from performing the contracts because of circumstances beyond its control. Thirdly, the Plaintiff was in breach of a proviso in clause 4 of each contract that contingencies beyond the control of human power should be resolved by negotiation. On these grounds, the Plaintiff wrongfully repudiated the contracts; alternatively, he did so by 5 solicitors' letters which notified the Defendant of the Plaintiff's intention no longer to be bound by the contracts.

4. Next, the Defendant pleads that the performance was impossible after 28th February 1983 so that each contract was frustrated. The Defendant then says that in relation to "Reign" and "Palace" any loss suffered by the Plaintiff was a consequence of the Plaintiff's failure to mitigate by accepting these films when the Defendant was allowed to remove them from China at the end of May 1983. Finally, the Defendant pleads that the liquidated damages clause in each contract is a penalty. In relation to the three Kung Fu films, the Defendant also pleads that it was able and willing to perform the contracts.

5. By counterclaim in relation to "Reign" and "Palace", the Defendant accepts the Plaintiff's repudiation and seeks a declaration that it is entitled to forfeit money paid by the Plaintiff and to resell the films, and claims damages for breach of contract. In relation to the three Kung Fu films, the Defendant again accepts repudiation on the part of the Plaintiff and counterclaims for a declaration that either it was absolved from performing the contracts, or that the contracts were frustrated, or that it is entitled to forfeit money paid by the Plaintiff and to resell the films should it be able to complete them.

Clause 4 around which much revolves reads as follows:

 

"Party A shall make delivery of the cinema film before the end of February 1983 (Place of delivery is F. O. B. Hong Kong). In case the delivery is overdue, the deposit and the advance payment already made should be refunded and in addition, an amount equivalent to the deposit shall be paid to Party B as compensation. On the contrary, should Party B fail to make payment when it is so due or fail to make payment on the due date for delivery of cinema film, Party A shall have the right to forfeit the deposit paid by Party B and the right to re-sell the movie to another person. However, where there is such a contingency as is beyond the control of human power, then both parties may have negotiation beforehand for a solution."

                (This is the "Reign" contract).

Plaintiff's case

6. The Plaintiff is and was in the textile business In about October 1982, a friend of his with whom he had had previous business dealings, a Mr. Doo, told the Plaintiff that he could obtain the right to the five films and suggested that the Plaintiff should put up the finance.  Doo thought that the rights could be resold for US$20,000.00 thereby making a substantial profit. The Plaintiff agreed and signed the five contracts with the Defendant on 2nd November 1982. A deposit of US$3,000.00 was paid in respect of each contract. The first part payment on each film was due 30 days later. In the meantime, the Plaintiff through Doo pressed a Mr. Hung Chi Ming for news of progress of the films.

7. It was Hung, a shadowy figure whom the Defendant has been unable to bring to court, who approached Doo about the five films. Hung showed Doo a letter which from a cursory look appeared to Doo to be an authorization by the Defendant to Hung to buy and sell films on behalf of the Defendant. Throughout, therefore, the Plaintiff and Doo regarded Hung as the Defendant's representative with whom they should deal. As will be seen, however, Hung's position was no more than that of a go between in relation to the Defendant and the Plaintiff.

8. The only news which the Plaintiff could obtain from Hung through Doo was that shooting of "Reign" was in progress. In these circumstances, the Plaintiff and Doo decided that they should pay only US$10,000.00 as the second payment instead of the full sum of US$18,000.00. Payment was made by cheque dated 2nd December and Hung, signing for a company called International Film Exhibition, (IFE), acknowledged receipt on behalf of the Defendant on 3rd December. According to Doo, Hung said he had consulted the Defendant about the reduced payment and the Defendant had agreed to it.

9. At the beginning of February, 1983 the plaintiff received a letter dated 31st January from the Defendant. This letter advised the Plaintiff that the Defendant was having difficulties with the Chinese Government over the film "Hay Kung". Consequently, production had to be postponed. The letter also said that the script of "Lama" had been completed and submitted to the Chinese authorities for approval. However, the Defendant could not fix a date for the commencement of production of this film. Finally, the letter said that the script for "Wind" was in the course of preparation. Doo was then contacted by Hung who told him that the 3 Kung Fu films would not be shot. Hung said that the deposit for those 3 films should be transferred to the 2 historical films which were being shot. He showed Doo a contract which he wanted the Plaintiff to sign which would give effect to this proposal and which provided for "Reign" and "Palace" to be delivered in June 1983. Thus "Palace" would be delivered slightly earlier than stipulated in its original contract while "Reign" would be about 3¹/₂ months late in delivery. Doo, who as it will have been seen was the prime mover in this venture, considered he had the authority to make a decision. Indeed, the Plaintiff himself made it plain that he left the venture to Doo to deal with. Doo took the view that he had entered into a contract for a package of 5 films. Of these films, the 3 Kung Fu films had more popularity and a better market potential. Therefore he said "no" to Hung's proposal.

10. Later, Hung got in touch with Doo again and said that either the contracts be varied as he had suggested or the Defendant would return the monies paid when the Defendant had secured a purchaser to buy "Reign" and "Palace". Again, Doo would not accept the proposal and said that if the contracts could not be fulfilled, all monies paid would have to be refunded.

11. According to the Plaintiff, he then spoke to Mr. Lee the director of the films and a director of the Defendant. He spoke to him between the 19th and 24th March, 1983. He told Lee that the Defendant had failed to deliver "Reign" in accordance with the contract and that there was no information about the other films. Lee suggested that the contracts should be varied as earlier proposed by Hung, alternatively that the money paid would be refunded when a new purchaser had been secured. The Plaintiff gave no immediate reply but upon consideration, thought the proposal to be unreasonable. He was by now dubious about the Defendant's ability to deliver any films. He therefore telephoned Hung and said that all monies paid should be refunded or else he would take proceedings against them. The Defendant through Hung did not accept this. The Plaintiff then consulted his solicitors.

12. By 2 letters dated 19th April, 1983 the Plaintiff's solicitors wrote to the Defendant in respect of the films "Reign" and "Hay Kung" which were due to be delivered before the end of February and March respectively. They said that by failing to deliver the films, the Defendant had repudiated the contracts and the repudiation was accepted by the Plaintiffs. Refund of the money paid together with liquidated damages was sought. By 3 letters dated 18th November 1983, the Plaintiff's solicitors wrote to the Defendant's solicitors in relation to the other 3 films "Palace", "Lama" and "Wind", the delivery dates for which had been the end of June, May and July respectively. Failure to deliver these films was treated as repudiation by the Defendant and accepted by the Plaintiff.

Defendant's case

13. The Defendant's case was put by Mr. Lee Hon Cheung. He is a shareholder in and he and his wife are the 2 directors of the Defendant. Although he did not say so, he is clearly the driving force behind the company. He is also a film director and has been in the film business for 32 years. In that business, he is a man of some distinction. In 1979 or 1980 he began studying the feasibility of shooting films in China. In 1981 he entered negotiations with the Chinese Government to shoot films in China. These negotiations resulted in a contract signed in March 1982 with the China Film Co-production Corporation (China Film). The contract was for a joint venture to make the 2 films, "Reign" and "Palace". China Film was in a fact a limb of the Chinese Government because it came under the Motion Picture Bureau of the Department of Culture.

14. Lee knew Hung who worked for IFE. By letter dated 21st October, 1982 Lee on behalf of the Defendant entrusted IFE with the sale of the copyright of "Reign" and "Palace". However, the price was to be confirmed in writing by the Defendant. All money was to be handed over to the Southern Company. At about the same time, Hung suggested to Lee that he should shoot 3 Kung Fu films because they were selling well. Lee acceded to this suggestion and 3 suitable titles, which are the ones referred to earlier, were thought up. By contract, probably made on 21st October 1982, Lee retained Hung to help organize the production of the 3 Kung Fu films. In this document, Lee provided that Hung should obtain written consent before price and terms of sale of the films were agreed with any purchasers. Again, any payments were to be given to Southern Company on behalf of the Defendant. Hung was to receive a 10% commission from the sale price of the films.

15. Thereafter Lee returned to Beijing to proceed with shooting of "Reign" and "Palace". The 5 contracts which are the subject of these actions were made without Lee's knowledge and were signed by his wife on behalf of the Defendant.

16. On 17th November, Lee's wife went to Beijing taking copies of the contracts with her. Although, as he put it, Lee was honoured to see that such a good price was being paid for the copyright of his films, he was appalled at what Hung, who had been responsible for drawing the contracts, had committed him to. Lee said that it can take between 8 and 12 months to complete a Kung Fu film, yet he was being expected to complete and deliver 5 films within 9 months. A day or two after that, Lee had discussions with the Chinese authorities about "Reign" and "Palace". "Reign" was due to be completed first and to be delivered before the end of February. However, the Chinese authorities expressed the view that chronologically "Palace" came before "Reign", that the two films should not be published separately and that "Palace" should be shown first. Lee would not be permitted to take "Reign" out of China before "Palace". Lee agreed to the Chinese proposals. As he said, he felt he had no option. Accordingly a letter dated 30th November 1982 was sent to the Plaintiff explaining the problem, suggesting that both films should be delivered in June 1983 and hoping that the Plaintiff would support this arrangement. Indeed, the Plaintiff was invited to Beijing. A similar letter was sent to other parties with whom copyright agreements for other parts of the world had been concluded. Lee did not post the letter himself but could see no reason why it should not reach the Plaintiff. In fact, the Plaintiff said that he did not receive the letter.

17. On 15th November, before he had seen the contracts, Lee spoke to Hung on the telephone. Lee told Hung that "Reign" and "Palace" were being shot. He also told him that preparation was being made for the 3 Kung Fu films. Apart from what he told Hung, Lee said, and his evidence was not challenged, that both at this time and from time to time there was publicity in the press and media in Hong Kong about the shooting of "Reign" and "Palace".

18. On 8th December, Hung went to Beijing and saw for himself what was happening. He stayed until after Christmas. Shooting went on every working day during that period. Before returning to Hong Kong, Hung was given a copy of the proposed new contract which would vary the 2 contracts relating to "Reign" and "Palace" by providing for delivery of both films in June. This contract Hung took with him on his return to Hong Kong and is presumably the contract which was seen by Doo.

19. At about the beginning of January 1983 difficulties in relation to the 3 Kung Fu films began to emerge. First, the Chinese authorities had decided that "Hay Kung" would involve the depiction of unscientific principles. The practice of these principles was banned and it was indicated to Lee that he would not be able to shoot the film. Next, the script of "Lama" was submitted for approval. The Chinese authorities took the view that "Lamas" were a religious order who stood for peace and goodwill. To show them as robbers or killers would be wrong and might upset minority ethnic groups within China. By January, in fact, the third amended script for "Lama" had been prepared and rejected. Ultimately, over a period of 5 months the script was amended more than 20 times but rejected by the authorities. Finally, through unofficial channels, it was indicated that the authorities did not look with approval upon Lee diverting his attention from "Reign" and "Palace", which were a joint venture with the Chinese and which the Chinese regarded with some importance, in favour of Kung Fu films. Lee inferred that there was little prospect of shooting "Wind" and concluded that the authorities did not want him to shoot any of the films. By letter dated 31st January 1983 Lee advised the Plaintiff of the problems with these 3 films. This letter the Plaintiff received.

20. In the meantime, Lee had been in touch with his chauffeur in Hong Kong. He told his chauffeur to tell Hung to collect US$18,000.00 which was due as the first 30 day payment. The chauffeur advised Lee on the telephone that Hung would only pay US$10,000.00. Lee told his chauffeur to collect the US$10,000.00 and to tell Hung that the amount should be US$18,000.00. He hoped that the arrears would be paid within a few days. He thought that the Plaintiff had encountered some difficulty and that he should try and accommodate him. The balance of US$8,000.00 was not pursued nor were any subsequent payments.

21. On about 26th April 1983, Lee received the two letters written by the Plaintiff's solicitors. He thought that the Plaintiff was in breach of contract, both because the first payment was short by some US$8,000.00, and because the Plaintiff had not responded to any of Lee's letters which invited negotiation as contemplated by clause 4 of the contract. However, he thought that there might be some misunderstanding and decided to do nothing until he returned to Hong Kong. Lee returned to Hong Kong on 29th May, taking with him finished copies of "Reign" and "Palace" which still required to be dubbed for sound. He telephoned the Plaintiff on the 1st or 2nd of June to discuss the matter. The Plaintiff accused Lee of breach of contract because the 3 King Fu films had not been made. Lee explained the difficulties which had arisen and said that the Plaintiff had been in breach first because he had not made payments in accordance with the contracts. He said that "Reign" and "Palace" would be delivered shortly and that earlier arrangements should be forgotten. He would deliver the two films and with one further payment of US$5,000.00 they would be paid for. This would be a harmonious arrangement from which both parties might make a profit. The Plaintiff rejected the proposal saying he had ordered five films, all of which should be delivered or none would be accepted. Each then threatened to sue the other for breach of contract.

22. The two films were subsequently dubbed and completed by 24th June, and trial showings were held in Beijing and Hong Kong on 28th and 29th June respectively. Lee said he could have delivered the 2 films to the Plaintiff before the end of June if he had wanted them. He did not, however, tender the films to him.

Variation of contracts

23. On behalf of the Defendant, Mr. Chong said that there were 5 contracts which have to be considered separately. Mr. Chaine for the Plaintiff did not dispute this.

24. The first issue is whether the contracts were varied by the arrangement between the Plaintiff and Hung that the first payment should be in a smaller amount. Mr. Chaine relies on Hung's actual authority to receive payment on behalf of the Defendant and submits that this included an implied authority to accept a lesser sum, or indeed to waive performance entirely. I am unable to accept this contention. The documents and Lee's evidence make it plain that Hung had no authority other than to collect agreed amounts. Doo himself conceded that Hung was employed by IFE. I am satisfied and so find that Hung was no more than a go-between.

25. However, Mr. Chaine's principle submission is that there was waiver of the terms of payment. He points out that Lee took the lesser sum thinking the Plaintiff to be in difficulty and, apart from telling his chauffeur to collect the balance of few days later, made no further demand. In addition, he says there is evidence, which has not been contradicted, that the Plaintiff had money available to meet the balance of the payment if necessary. Mr. Chong argues that at best there was waiver amounting to a few days grace.

26. In my view, the terms of payment were waived by the Defendant through Lee. As I have said, he appears to be the driving force behind the Defendant. Unfortunately, he was trying to administer the Defendant at a distance from Beijing where, from the middle of November, he had been joined by his wife. Clearly this imposed very real difficulties upon him if he was obliged to refer to his chauffeur for dealing with business activities in Hong Kong. Nevertheless, this did not absolve him from responsibility for ensuring that all proper steps were taken to demand compliance with the terms of the contracts. There is no evidence that the Plaintiff was told that the first payment must be made in full. In my view, therefore, the terms of payment were waived and the Plaintiff was not in breach of contract by making short payment or no further payment.

Time

27. In relation to the two films "Reign" and "Palace", the crucial issue is whether time was of the essence. The contracts themselves simply provided for delivery before the end of February and June 1983 respectively. For the Plaintiff, Mr. Chaine says that this constituted a clear term to which effect must be given. Once delivery was overdue, the Plaintiff was entitled to a refund. The Plaintiff need go no further than to hold the Defendant to the strict terms.

28. In my judgment, however, time was not of the essence for three reasons. First, Lee gave evidence, which was not challenged, that the making of a film can be delayed for a number of reasons which are beyond anyone's control, for example, adverse weather conditions. Secondly, there was no compelling reason to make the delivery date one which required strict compliance. As Mr. Chong pointed out, the two films were historical dramas. They were not contemporary stories whose impact might be lost if they were late reaching the market; nor did they concern a subject for which there was a particular market at the time. The Plaintiff and Doo, particularly Doo, were taxed by Mr. Chong to explain what difference late delivery of "Reign" might make. Doo, who was not a particularly impressive witness, struggled to explain distribution schedules and other factors which he would have to consider. The evidence was vague, imprecise and totally unconvincing. There was not a shred of evidence to suggest that market condition were likely so to change that the sale of the films or their copyright might be adversely affected.

29. Thirdly, Mr. Chong questions the Plaintiff's motive in seeking to hold the Defendant strictly to the delivery dates. He suggests that the Plaintiff made a bad bargain in signing the five contracts and, having realised this, was anxious to extricate himself from it. In my view, there is justification for Mr. Chong's contention. Although Doo spoke of some 400 films which he had distributed in the U. K. market, some of which had reached prices as high as HK$200,000.00, he was constrained to admit in cross-examination that he had never come across one of Lee's films being shown for as much as US$15,000.00. For all his experience in the film industry Doo seemed extraordinarily lacking in knowledge. He had not heard of IFE. He was not aware, as the general public seems to have been, of the progress of the shooting of the 2 films in Beijing. He made a great deal of being able to sell the films for US$20,000.00 each but the fact remained that at no time did he have a purchaser for them.

30. Lee on the other hand was more modest about the value of his films and films in the U. K. market generally. He said that the price would be between HK$30,000.00 and HK$40,000.00. He also said that he was aware that no new films had been distributed since 1981. He was supported by Mr. Lo Hon who gave evidence on behalf of the Defendant and who, from his experience in the industry, put the price of Kung Fu films at HK$10,000 to $20,000. I have no hesitation in accepting Lee's evidence as to the value of films and the state of the market in U. K. Therefore, I am satisfied that the Plaintiff made a bad bargain which constituted a motive for trying to hold the Defendant strictly to the stipulated delivery dates.

31. I find, therefore, that the Defendant's failure to deliver "Reigh" by the date stipulated in the contract was not a repudiation of that contract. It was a breach of contract which would if necessary entitle the Plaintiff to damges. On the other hand, the Plaintiff's clear indication that he would not accept this film did amount to a repudiation which was subsequently accepted by the Defendant.

32. In relation to "Palace", the Defendant was given a clear indication by the Plaintiff that the Plaintiff would not accept the film. The Plaintiff's attitude was, of course, coloured by the fact that he regarded the 5 films as one lot; that as I have already said is not a construction which has been maintained in the presentation of the Plaintiff's case.

33. Although there was no direct evidence that the Defendant was in a position to deliver this film and all the other material required by the contract, it is a fair inference fron Lee's evidence, and I so find, that he could and would have delivered the film had the Plaintiff not made it abundantly clear that the film would not be accepted. The absence of any formal attempt to deliver before the end of June, there fore, does not in my judgment put the Defendant at fault. Again, the Plaintiff's conduct amounted to a repudiation of the contract which the Defendant was entitled to accept as such.

Suspension of contract

34. Should I be wrong in my judgment that time was not of the essence of the two contracts, I would in any event have found that the Defendant's contractual obligation in relation to "Reign" was suspended because of the act of the Chinese authorities in preventing the Defendant from taking the film out of China before the end of May 1983. Although Lee on behalf of the Defendant agreed to this he said, and I have no hesitation in accepting, that he really had no alternative. Authority for the proposition that a contractual obligation may be suspended temporarily will be found in the 14th edition of Chitty at para. 1534.

Judgment in relation to "Reign" and "Palace"

35. Accordingly the Plaintiff's claim in respect of these two contracts must fail and be dismissed. There will be  judgment for the Defendant on the counterclaims. In respect of "Reign", there will be a declaration that the Defendant is entitled to forfeit the sum of US$3,000.000 being the deposit and that he is entitled to resell the film to a third party. In respect of "Palace", there will be a declaration that the Defendant is entitled to forfeit the sum of US$5,000.00, being the deposit and the first part payment, and that he is entitled to resell the film to a third party. The difference in the amounts awarded depends on the way in which the Defendant pleaded the separate counter claims and the concession made by Counsel that the first part payment totalling US$10,000.00 should be apportioned equally between the 5 films. As no damage has been proved, there will be no award of damages.

Frustration

36. Although frustration was argued generally, it must be apparent that it can relate only to the 3 Kung Fu films. The ban by the Chinese authorities on the Defendant removing "Reign" from China until the end of May 1983 was not in my judgment a frustrating event, while there were no problems about the shooting and production of "Palace". What then of the 3 Kung Fu films? As I have already outlined, the Chinese authorities effectively imposed a ban on the shooting of "Hay Kung" because of the alleged scientific principles involved. The script of "Lama" was repeatedly rejected on religious and political grounds. While there were no such events in relation to "Wind", Lee said, and I accept, that it was plain to him that the Chinese authorities intended that the film should not be shot. These factors both in isolation and taken together indicated to me that the Defendant was placed in a position whereby it was impossible in realistic terms to shoot the 3 films for which he had contracted. In most circumstances, this would undoubtedly be a frustrating event.

37. Mr. Chaine contends that there was no frustration of the 3 contracts for two reasons. First, Lee had been studying the feasibility of shooting films in China since 1979. Lee therefore must have been aware of the various problems that he was likely to encounter and cannot be heard to say that the difficulties which arose were unforeseen. Secondly, all that was sold to the Plaintiff was the title to each film. The Plaintiff therefore could not bind the Defendant to any particular content of the film. There was really no implied warranty as to the quality and content of the film other than the warranty as to length. Therefore, says Mr. Chaine, the Defendant could simply have shot 3 uncontroversial Kung Fu films and distributed the 3 titles between them. Even if some connection with the title is required, a matter which he did not concede, then in the case of "Lama" for example it would be sufficient for the film to contain one or more Lamas who might be depicted as good, religious characters.

38. While carrying out his feasibility study in China, I have no doubt that Lee would have learnt of and appreciated many difficulties that might arise. Bureaucratic delay is something which springs immediately to mind. Lack of transport or laboratory facilities might be another. But I cannot conceive, and there is no evidence to suggest, that Lee would have foreseen that the Chinese authorities would effectively have prevented him from shooting any of the films at all. Clearly these were not simple difficulties which, at a cost in time or money, might be overcome, but complete barriers through which the Defendant could not pass.

39. It is more difficult to assess whether the Defendant could have fulfilled the 3 contracts by simply shooting 3 inoffensive Kung Fu films. In relation to "Hay Kung" and "Lama", the answer must I think be "no". Clearly the Chinese authorities would not have approved of any film with the title "Hay Kung". Equally clearly, I think, they would not have approved of "Lama" for fear of giving offence to minority groups. In any event, it seems to me that there must be an implied warranty that the content of the film will bear some relation to the title. "Hay Kung" required a Kung Fu film which would demonstrate the underlying principles. Without those principles being depicted in the film, the Defendant must have been in breach of warranty. In relation to "Lama", it was implicit that a "Lama" would be involved in Kung Fu. A passive and simple role on the part of a "Lama", which might conceivably have satisfied the Chinese authorities, would again have been a breach of warranty.

40. Mr. Chaine also reminded me of the dictum of Lord Roskill in Pioneer Shipping Ltd v. B. T. P. Tioxide Ltd. (1981) 3 W. L. R. 312 where he said:-

"The doctrine is not likely to be invoked to relieve contracting parties of the normal consequences of imprudent commercial bargains''.

 

41. I accept that like the Plaintiff the Defendant made a bad bargain. Thanks to Hung, whose role in relation to the Defendant was mirrored in relation to the Plaintiff by Doo, it was committed to producing 3 Kung Fu films within a period which would barely suffice for the making of one. However, Lee gave evidence, which I accept, of the effort which he made to prepare and shoot the 3 films. That the 3 films could not proceed and were not completed was not, in my judgment, due to any lack of goodwill on the part of the Defendant. There were, perhaps, two alternatives open. First, the parties could have agreed to terminate the contracts as suggested by the Defendant. Secondly, the Defendant could have returned to Hong Kong and shot the 3 Kung Fu films with the story lines which he had developed for them. However, if the latter course had been adopted, the different location and lapse of time would have constituted entirely different contracts.

42. In my judgment, therefore, the 3 contracts were frustrated and the parties were discharged from further performance.

Consequences of frustration

43. In view of my finding, I must address myself to section 16 of the Law Amendment and Reform (Consolidation) Ordinance Cap. 23. The relevant part reads as follows: -

44. Through Lee, the Defendant has adduced evidence of sums spent in connection with the 3 Kung Fu movies. In part, these sums are disbursements and in part salary attributable to Lee himself. For the Defendant, Mr. Chong suggests that not only should the Defendant be allowed to retain the money already paid to him but be reimbursed for expenses incurred. He contrasts the effort expended by the Defendant but which through no fault of its own proved abortive, with the passive position of the Plaintiff who simply sat back and hoped to make a profit.

45. In my view there are 3 relevant factors to be taken into consideration. First, as I have already indicated, the Defendant made a bad bargain and must expect to bear the consequences. Secondly, details of the expenses given by Lee were in fairly round sums, on the basis of information given to him by his accountant. The accountant was not called. The evidence therefore, such as it is, is most unsatisfactory. Finally, Lee agreed with me that the cost of making a Kung Fu film is substantial and that the sum of US$15,000.00 is insignificant when compared with that cost. The Defendant was therefore not relying on the Plaintiff to finance the making of the films.

46. In the circumstances, I do not think it right that the Defendant should be permitted to retain money paid to it by the Plaintiff, let alone recover additional amounts. The 3 sums of US$5,000.00 must therefore be repaid to the Plaintiff.

47. In the circumstances, it does not fall to me to decide whether the compensation provision in Clause 4 of the contracts constitutes a penalty. Nor do I think it necessary to have considered the negotiation provision which, apart from being vague, was of little value to parties who had entrenched positions.

48. I will hear Counsel on the question of costs.