STAR TV FILMED ENTERTAINMENT (HK) LTD AND ANOTHER v. GOLDEN PRINCESS AMUSEMENT CO LTD

HCMP 1556/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1556 OF 2006

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J U D G M E N T

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1.  The plaintiffs, by way of Originating Summons, seek declaratory relief from the court in respect of their rights in certain films which they acquired from the defendants in the 1990s.  The issue before the court is one of construction of contract.  The contractual documents concerned are an Initial Agreement dated 16 December 1992, and a Licence, two Short Form Assignments of Copyright and a Completion Memorandum, all dated 6 August 1993.

The Originating Summons

2.  The plaintiffs apply for:

(1)     A declaration that on a true construction of the Initial Agreement and the Short Form Assignments, the defendants have transferred or confirmed the transfer of all rights, interest and title in the whole world of every kind and nature, whether the well-known or hereafter devised, in relation to the films listed in the Short Form Assignments (“Films”), including all contents thereof, all present and future adaptations and versions thereof, and the theme, title and characters thereof, and in and to the copyright thereof for the full period of copyright and all renewals reversions and extensions of such copyright.

(2)     A declaration that upon the true construction of the Licence, the plaintiffs have the exclusive rights, interest and title to the underlying works to the Films, including without limitation, the copyright and all other rights in the scripts, theme, story and characters.

(3)     A declaration that upon the true construction of the Licence, the exclusive rights to the films licensed to the first defendant are limited to the distribution of the cinematographic work of the licensed films in the format and media of theatre, television (including free, pay or subscription, pay-per-view, terrestrial, cable, satellite, CATV, MMDS, SMATV), video, radio broadcasts, publishing, and merchandising in the jurisdiction specified in the Licence and that the term “all allied and incidental rights” should be construed by reference to the aforesaid and such rights are limited to the cinematographic work of the Films licensed to the first defendant.

Background

3.  The plaintiffs are part of the Star Group of companies owned by Mr Rupert Murdoch, which undertakes, inter alia, satellite television broadcasting.  I will call them, collectively, “Star TV”.  The 2^nd defendant is the major shareholder of the 1^st defendant, and I will refer to them collectively as “Golden Princess”.

4.  In 1992 Golden Princess owned a film library consisting of 148 films and all the intellectual property rights subsisting therein.  The local entrepreneur, Mr Richard Li wanted to buy the film library, and sell it on to Star TV.  A company named Media Assets (BVI) Ltd (“Media Assets”), which later changed its name to Fortune Star Entertainment Ltd. was used to acquire the film library from the defendants.

5.  Media Assets entered into the Initial Agreement with Golden Princess for the purchase of 148 films and all intellectual property rights subsisting therein, at a consideration of HK$132,250,000.  The Initial Agreement contained a provision for the immediate licensing back to the 1^st defendant of the rights in the films in all countries, save for those defined as “the Retained Territories”, a number of territories in Asia and the Middle East, including Hong Kong.  A draft licence was appended to the Initial Agreement.

6.  The Retained Territories are or were, according to Golden Princess’s witness Mr Fung, who was a signatory to the contractual documents, those on which Star TV’s footprint fell, i.e. those in which its satellite transmissions could be received.

7.  The Initial Agreement provided for the purchaser, on payment of a percentage of the purchase price, to carry out investigations and inquiries into the films and all licenses and agreements entered into to acquire rights therein within a certain period, and, if it chose, to give notice of its intention to decline to complete the transaction; otherwise the transaction was to proceed.  Investigations were duly carried out and the transaction proceeded with the execution of the other documents concerned on 6 August 1993.

8.  Media Assets and Golden Princess executed the Completion Memorandum, which provided for the reduction of the purchase price to $130,226,250 and that Irvine Services Ltd. be nominated to acquire the non-Hong Kong rights, and Penda Jade Ltd. the Hong Kong rights in the films, as defined in the Short Form Assignments.

9.  By the Short Form Assignments of Copyright, Golden Princess assigned to Irvine Services Ltd. throughout the universe except for Hong Kong, and to Penda Jade Ltd. for the territory of Hong Kong, all rights in the films listed in Schedule 1.  In 1995, Irvine Services Ltd and Penda Jade Ltd. changed their names respectively to Star TV Filmed Entertainment (HK) Ltd and Star TV Filmed Entertainment Ltd., which are the plaintiffs in this case.

10.  Irvine Services Ltd. and Golden Princess entered into the Licence Agreement, whereby a licence back was granted to Golden Princess of the rights in the films for all countries in the world other than Retained Territories.

The dispute

11.  Among the films there is a trilogy named “A Better Tomorrow” which is regarded as a Hong Kong classic.  In 2006, Star TV decided to co-operate with other companies to re-make this trilogy.  Star TV noticed interest from other third parties in producing remakes and sequels to the trilogy.  They considered that any production by third parties would infringe on its rights, and prejudice its own project.  They caused to be published a report that a Korean company, Fingerprint Pictures, had acquired from them the remake rights.  They also published a notice that that they (Star TV) were the copyright owner and that their rights included

“all rights held in the underlying works including the stories and the publications relating to and on which the films were based, rights in adaptation and the re-make of the films and rights in all of the films’ distinctive characters and themes”

and that any reproduction, exploitation and use of the films and the related underlying works anywhere in the world must be authorised by them.

12.  This produced reactions from various quarters, and in particular from Golden Princess whose solicitors on 11 July 2006 wrote to the effect that Golden Princess had retained, by way of the Licence Agreement, the sole and exclusive rights to the exclusion of Star TV to exploit the films in all countries in the world except the Retained Territories, and that Star TV had no right to license any “re-make rights” or indeed any other rights in relation to the films to any third party outside the Retained Territories.

13.  The solicitors added that Star TV’s announcement of their having licensed the “re-make rights” to Fingerprint Pictures had caused much concern that such rights might not have been strictly confined to the Retained Territories.  I do not quite understand why this should be, given that Fingerprint Pictures is Korean, and Korea is one of the Retained Territories.  This seems to make these proceedings somewhat academic, but the point was not taken.

The issue

14.  The issue is whether Star TV, having acquired all the rights in the films, licensed back to Golden Princess, to the exclusion of themselves,

(1) only the right to broadcast and distribute the films, but not the rights to the underlying works, or

(2) all the rights in the films, including those to the underlying works,

throughout the world, except for the Retained Territories.

The Documents

15.  I set out here the relevant parts of the documents.

The Initial Agreement

16.  Clause 1 recites the Purpose of the Initial Agreement which is:

“(i)  the acquisition by the Purchaser of all rights, title and interests (including without limitation, copyright and other intellectual property rights and all other rights of any nature and now known or hereafter created) in the films and sound recordings owned by the Vendor and/or any Associate (as defined below) all produced by or for the Vendor by any producers or any Associates prior to the date hereof, including but without limitation, to the films (and materials relating thereto) listed in Appendix I (all of the foregoing, ‘the Films’);

(ii)   the immediate licensing back to the Vendor (pursuant to a licence as set out in Appendix II) of all rights title and interest in the Films acquired by the Purchaser hereunder in respect of all countries in the world other than the retained Territories (‘the Retailing Territories’) listed in Appendix 3.”

17.  Clause 2 deals with the effect of the Agreement and Clause 3 with the right to acquire which is to be exercised after an agreed period of investigation.  Clause 4 continues:

“Upon exercise by the Purchaser of the entitlement under paragraph 3 above:

(a)     the Purchaser shall thereupon acquire and the Vendor shall, as beneficial owner, assign, convey and transfer to the Purchaser, free from any encumbrance, all right, title and interest and all copyright and other intellectual property rights in and to all Films, together with:

(i)      the rights in and to any sound-track associated with such films and the benefit of all licenses or other rights granted to third parties in respect of the films;

(ii)      all music publishing rights;

(iii)     all rights held in the story or the publication of which the film was based; and

(iv)     all merchandising rights

and all other rights whatsoever held by the vendor in the Films throughout the world.”

18.  Clause 6 provides that forthwith upon completion the parties are to enter into and complete the Licence “substantially in the form set out in Appendix II”.

19.  Appendix 1 lists the films, with an additional paragraph relating to physical materials, which does not concern us here, and Appendix III lists the Retained Territories.  Appendix II contains the following definitions:

“‘the Films’:      all audio or visual or audiovisual material and all recordings on any media and from which a moving picture image may by any means be produced, together with an associated soundtrack, in which the Licensor has any right title or interest, including without limitation those Films listed in Schedule II;

‘Rights’: all the following rights, title and interest in and to the Films other than in the Retained Territories including, without limitation, those rights set out in Clause 2 hereof;”

20.  Clause 2, however, does not set out any particular rights.  Rather it refers to the grant of the “exclusive licence to exercise all rights in the Films”.

The Short Form Assignment of Copyright

21.  There are in fact two of these, one in favour of Penda Jade Ltd for the Hong Kong rights and the other in favour of Irvine Services Ltd for the non-Hong Kong rights.  Their effect is identical but we are concerned with rights to be exercised outside the Retained Territories which include Hong Kong, so I will set out only the latter Assignment here.

“For valuable consideration the sufficiency and receipt of which is hereby acknowledged, the undersigned Golden Princess Amusement Company Ltd for itself and on behalf of the Owners, does hereby sell, grant, aside and set over unto Irvine Services Ltd (‘Purchaser’) and its successors, licensees and assigns forever, throughout the universe except for Hong Kong, in perpetuity, all rights of every kind and nature, whether now known or hereafter devised, including but not limited to, the sole and exclusive theatrical rights (silent, sound, talking), television rights of every type now known or hereafter invented including without limitation free, pay or subscription, pay-per-view, terrestrial, cable, satellite, CATV, MMDS, SMATV or other whatsoever, video rights (all formats, including without limitation, video cassettes and video discs), radio broadcasting rights, publishing rights, merchandising and all allied and incidental rights on/in and to the those certain films entitled as follows:-

Titles: See Schedule I attached

Including all contents thereof, all present and future adaptations and versions thereof, and on the theme, title and characters thereof, and in and to the copyright thereof for the full period of copyright and all renewals the versions and extensions of such copyright.”

22.  Star TV relies in particular on this last paragraph as indicating the assignment to it of the rights to the underlying works.  There is in fact no dispute that the effect of these Assignments is to assign to Star TV all the rights, including those rights; but the point which Star TV makes is that the words of inclusion do not appear in the definition of “Rights” in the Licence Agreement.

The Licence Agreement

23.  This commences with a recital that the Licensor “has acquired the Rights (as herein defined) and has agreed to grant a licence back to the Licensee of the Rights in the Film was for all countries in the world other than the Retained Territories.”

24.  Both “Films” and “Rights” are defined.  Clause 1 provides:

                   The following words and expressions shall have the following meanings:

“‘the Films’:      all audio or visual or audiovisual material and all recordings on any media and from which are moving picture image made by any means be produced, together with an associated soundtrack, in which the Licensor has any right title or interest, including without limitation those Films listed in Schedule II:

‘Rights’:      all rights of every kind and nature, whether now known or hereafter devised, including but not limited to, the sole and exclusive theatrical rights (silent, sound, talking), television rights of every type no known or hereafter in vented including without limitation three, pay or subscription, pay-per-view, terrestrial, cable, satellite, CATV, MMDS, SMATV or other whatsoever, video rights (all formats, including without limitation, video cassettes and video discs), radio broadcasting rights, publishing rights, merchandising and all allied and incidental rights on/in and to the Films in all parts of the world.”

25.  Clause 2 contains the words of grant, as follows:

“Subject to the due performance by the Licensee of it obligations hereunder and in consideration of the payment by the Licensee to the Licensor of HK$1 (receipt of which is hereby acknowledged) the Licensor hereby grants in perpetuity to the Licensee the exclusive licence to exercise all Rights in the Films acquired by the Licensor pursuant to the Initial Agreement and the Completion Memorandum in all places other than the Retained Territories.”

26.  Clause 2 also contains provision for the Licensor an agent of the Licensee in all territories outside the Retained Territories to exploit the television rights in certain “retained films”, the identities of which were to be agreed, though in fact they never were.  Notwithstanding this provision, and without limitation the Licensor could also as agent exploit all of the films in all media in all places outside the Retained Territories.  These arrangements were to last for a renewable period of three years, and an agency fee of 20% of the gross revenue was provided for.

27.  At Clause 7.4 there is an “entire agreement” clause in these terms:

“This Agreement constitutes the entire agreement between this Licensee and the Licensor with respect to the subject matter here in contained and this Agreement cannot be changed or terminated orally, and no changes, amendments or assignments thereof shall be binding upon the Licensee until accepted in writing by a duly authorised representative of the Licensor.”

The Affidavit Evidence

28.  Star TV rely on the affirmations by Mr Poon, the general manager and director of Fortune Start Entertainment (H.K.) Ltd.  Although Mr Poon purports to set out the background to the Agreements, he has no direct knowledge of this, because he joined the company in 2002, although he can and does speak to what happened more recently.  In fact, as so often happens, most of his evidence is legal argument which has been supplied by those advising him.

29.  Golden Princess relies on an affirmation by Mr Fung, a director, and a signatory to the original agreements.  He has first knowledge of the background against which the Agreements were made.  He says that when media assets approach to Golden Princess to acquire the rights in the films, the discussions started off as a negotiation for full assignment of the whole of the film the library worldwide.  However, as negotiations went on, the price for the film rights in respect of territories outside the 38 “Retained Territories” could not be agreed, and because of time constraints it was agreed that the rights over the “Retained Territories” be concluded first.  The parties negotiated a deal whereby all the rights in the films were divided on block by division of territory rights only.

30.  Mr Fung goes on to set out the purpose of the agreements.  He says that after the parties had reached agreement on the price for the exploitation of the film rights in the Retained Territories, which in fact represent Star TV’s footprint, it became known that Media Assets was under the control of Mr Richard Li, who was negotiating with Star TV with a view to selling Media Assets.  The latter was keen to conclude the deal with Golden Princess and other owners of film rights so was to build up a substantial library.  Such a library was expected to earn substantial revenue for Star TV by offering them for viewing to subscribers throughout its footprint.  The price offered to Golden Princess for the films was calculated with reference to the revenue expected to be generated in this way.

31.  Because the conclusion of the deal between Media Assets and Star TV was imminent, there was pressure to conclude a quick deal in respect of the rights to the films in the Retailing Territories, leaving the same rights for the rest of the world to be negotiated for later.  Pending later agreement, it was agreed that all the rights be assigned to the nominees of Media Assets, and for the rights outside the Retailing Territories to be licensed back to Golden Princess for nominal consideration only.  Such rights were to remain in the latter’s sole control until terms were agreed for the sale.

32.  Mr Poon, in a second affirmation, takes issue which this, and says that the negotiation, as described by Mr Fung, focused entirely on the exploitation of the films, and the underlying works were excluded from the negotiation.  As I have indicated, Mr Poon was not there, and he cannot say anything useful about the negotiations.

33.  Mr Shipp, counsel for Star TV, argues that much of what Mr Fung says is evidence of subjective intention all previous negotiations of the parties, and it is to be regarded as inadmissible for purposes of interpretation of the contract between them.  The principles are set out fully Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] WLR 896 at 912.  The passage is well-known and I will not reproduce it here.

34.  Ms Tam SC, counsel for the Golden Princess relies on the following passage from Lewison on the Interpretation of Contracts, 3^rd ed. §3.11:

“In construing any written agreement the court is entitled to look at evidence of the objective factual background known to the parties at or before the date of the contract, including evidence of the ‘genesis’ and objectively the ‘aim’ of the transaction. However, this does not entitle the court to look at evidence of the parties’ subjective intentions.”

35.  With this I respectfully agree, and it seems to me that, to the extent that Mr Fung’s evidence deals with the background matrix of facts,and the genesis and objective aim of the Agreements, I am entitled to take it into consideration.

The parties’ arguments

36.  At the risk of not doing full justice to the arguments, I will set them out briefly.

37.  Ms Tam relies strongly on the evidence of the evidence coming from Mr Fung of the genesis and purpose of the Agreements.  She also argues that the Agreements must all be read together.  Clause 1 of the Initial Agreement, which provided for the sale and licence back, referred to “the immediate licensing back of all rights, title and interest in the Films”.  Clause 2 of the Licence, as set out above, grants the exclusive licence to “all Rights in the Films acquired by the Licensor pursuant to the Initial Agreement”.  Further Clause 1 of the Licence refers to “all rights of every kind and nature … including but not limited to the sole and exclusive theatrical rights … and all allied and incidental rights on/in and to the Films in all part of the world”.

38.  The references to rights in the documents are always inclusive rather than exclusive.  The words taken together, it is argued, show that there was an arrangement in respect of all the rights, taken together, whereby they would be divided between the parties en bloc by reference to territory. 

39.  Mr Shipp argues that the Initial Agreement was not itself an assignment of copyright or any underlying rights.  At the relevant time, the Copyright Ordinance had not been passed.  The applicable law was the Copyright Act 1956, which applied to Hong Kong.  Section 36 thereof provides the methods by which copyright may be transmissible; these include assignment; therefore the effective documents which transmitted the ownership of the rights to the Films were and could only the Short Form Assignments.

40.  By sections 13(1) and 48(1) of the Act, copyright exists separately in films and in the underlying works from which they are made.  That is why there is a separate mention of these rights in Clause 4 of the Initial Agreement and why they are specifically included in the rights assigned by the Short Form Assignments.

41.  The Rights which were licensed back are defined in the Licence.  Reference in the preamble to the Initial Agreement and the “rights as therein defined” is irrelevant, because there was no definition there.  The definition covers only the theatrical rights, television rights, video rights, radio broadcasting rights, publishing rights, merchandising and all allied and incidental rights; but these do not include the rights in the underlying works.

42.  Mr Shipp also relies heavily on the “entire agreement” provisions in Clause 7.4 of the Licence and refers to the dicta of Lightman J in Inntrepreneur Pub Company (GL) v East Crown Limited [2000] All ER (D) 1100, cited with approval by Le Pichon JA in Edward Wong Finance Co. Ltd v Profit Making Investment Ltd & Ors., CACV 1049 of 2000 at paragraph 34:

“In Inntrepreneur Pub Company (GL) v East Crown Limited [2000] All ER (D) 1100 Lightman J held at [7] as follows:

‘such [an entire] agreement clause constitutes a binding agreement between the parties that the full contractual terms are to be found in the document containing the clause and not elsewhere, and that accordingly any promises or assurances made in the course of the negotiations (which in the absence of such clause might have effect as a collateral warranty) shall have no contractual force, save in so far as they are reflected and given effect in that document.  The operation of the clause is not to render evidence of the collateral warranty inadmissible ... : it is to denude what would otherwise constitute a collateral warranty of legal effect.’”

Discussion

43.  The exercise of interpretation of a contract, to use the words of Lord Hoffman in Investors Compensation Scheme Ltd., requires me to ascertain “the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.”

44.  The contract to be interpreted is the Licence Agreement by which, for $1, the exercise of the Rights outside the Retained Territories was licensed to Golden Princess in perpetuity.  Clause 7.4 provides that the Licence Agreement “constitutes the entire agreement between this Licensee and the Licensor with respect to the subject matter herein contained”, i.e. the Licence.  It seems to me that this precludes me going to any other agreement to look for a definition of the “Rights.”

45.  What must be interpreted in the definition of “Rights” in Clause 1.  I can, however, look at the background matrix of facts and to the purpose of and genesis of the Licence Agreement and insofar as those are contained in other documents, I can have regard to those documents.

46.  Mr Fung’s evidence that the rights outside the Retained Territories were to remain in the sole control of Golden Princess until terms were agreed for their sale cannot be right, because by Clause 2 the Licence is granted in perpetuity.  Whatever rights were licensed back to Golden Princess would, on the face of the documents, remain with Golden Princess forever, and not for three years or any extended licence period. 

47.  What Mr Fung says goes further than being an inadmissible declaration of subjective intent; it is simply incredible.  There would be no point in licensing back the rights in perpetuity, if there was a question of Star TV buying them three years hence. 

48.  Mr Fung’s evidence is contradicted by the terms of the contemporaneous Licence Agreement.  It must therefore be regarded with skepticism.  Mr Poon has no first-hand knowledge of what happened in 1992.  There is therefore no very good evidence from the witnesses as to the genesis or purpose of the Licence Agreement.

49.  It is however probably right that if there were any such discussions as referred to by Mr Fung, they would, on his own evidence, have related to the exploitation in any media of the films themselves for the purpose of testing the market in territories outside the Retained Territories.  Star TV did not broadcast there but could, for example, have sold recordings there.  There is nothing in the evidence to suggest that any consideration was given by either party at that stage to what was to happen to the rights in the underlying works.  If that is right, the evidence is equivocal as to the purpose and genesis of the Licence Agreement. 

50.  At first glance it appears clear enough from the terms of the Initial Agreement that the parties’ purpose was that all the rights in the Films be sold to Media Assets or its nominees, and that all the rights be immediately licensed back in respect of all countries outside the Retained Territories.  There is no differentiation between different types of rights.  This is followed by Clause 4 which sets out the rights to be acquired; these include the rights to the underlying works; and that purpose was followed in the Short Form Assignments.

51.  However, there is no definition of “Films” in the body of the Initial Agreement.  It first appears in Appendix II, and is followed verbatim in the Licence Agreement.  It defines the films as the audio or visual or audio-visual material plus the associated soundtrack; i.e. only the vision and sound recorded on the films.  The sketchy definition of “Rights” is simply the rights in and to the Films.  So the purpose of the Licence proposed in the draft at Appendix II appears to be to license back the rights in the vision and sound, rather than to license back all the rights acquired.

52.  I do not see that this can be glossed over.  It is not clear from the Initial Agreement, when read as a whole that the parties’ purpose or intention was that all the rights acquired were to be licensed back.

53.  While the definition of “Rights” in the Licence Agreement appears to be inclusive rather than exclusive it has to be read with the definition of the “Films” which remains, in effect, the vision and sound recorded on them.

54.  Under the legislation in force at the time of the Licence Agreement, copyright exists separately in films and in the underlying works from which they are made.  This does not appear to have changed.  Section 2(1) of the Copyright Ordinance now in force provides

“Copyright is a property right which subsists in accordance with this Part in the following descriptions of work-

(a)     original literary, dramatic, musical or artistic works;

(b)    sound recordings, films, broadcasts or cable programmes; and

(c)  the typographical arrangement of published editions.”

55.  I therefore do not see that the definition of “Rights” can be taken as including the rights to the underlying works, when the rights defined are rights only to the vision and sound recorded on the films.

Result

56.  It follows that the plaintiffs are entitled to the declarations sought.  There will be an order in terms of Paragraphs 1, 2 and 3 of the Originating Summons, with costs (nisi) in favour of the plaintiffs to be taxed if not agreed.