GOLDEN SUN FILMS DISTRIBUTION LTD v. STAR ALLIANCE MOVIES (HK) CO LTD

HCA 882/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 882 OF 2014

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REASONS FOR DECISION

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1.  Having heard parties’ submissions, I at the hearing dismissed the Plaintiff’s Summons dated 5 November 2015 (the “Summons”) with costs. I now give my reasons for my decision.

A.     THE PARTIES’ RESPECTIVE CASES

2.  In this action, the Plaintiff sues the Defendant for copyright infringement.

3.  The subject matter of the Plaintiff’s case is the copyright work (the “Copyright Work”) subsisting in a film titled “The 13 Cold‑Blooded Eagles (新冷血十三鷹)” (the “Film”) produced by Cheung Yau Production Company (“Cheung Yau”) in 1992/1993.

4.  The Plaintiff’s case is that by a set of agreements entered into in late 2003, Cheung Yau assigned the Copyright Work to Golden Sun Film Company Limited (“Golden Sun”) (the “Assignment”). Later in July 2015, Golden Sun granted and the Plaintiff acquired the exclusive right and licence to all copyright in the Copyright Work.

5.  The Plaintiff alleges that without its consent or authorization, the Defendant has infringed its copyright by copying, authorizing the copying, storing, being in possession and dealing with in the course of trade or business, copies of the Copyright Work and broadcast the same in a cable programme service.

6.  On this basis, the Plaintiff seeks a declaration that it is the rightful licensee of the Copyright Work, and consequential relief against the Defendant in respect of their acts of copyright infringement.

7.  The Defendant admits that the Film was produced by Cheung Yau and that the Copyright Work subsists in the Film.  The Defendant, however, disputes the Plaintiff’s entitlement to bring the copyright claim.

8.  It is the Defendant’s case that by a processing agreement dated 24 November 1992 (the “Processing Agreement”), Cheung Yau engaged Union Film Laboratory Limited (“Union Film”) to process, develop and print the Film. 

9.  In the Processing Agreement, it is expressly provided, inter alia, that:

(1)   Clause 12:

“ As security for due payment of any services rendered and/or material supplied to the customer, the processor shall have a general lien on:

(a) all negative(s) delivered to the processor by the customer and copies thereof developed and printed by the processor for the customer; and

(b) all files (both the negatives and copies thereof) which remain in the possession of the processor and which belong to the customer or in which the customer has a right of distribution or screening.

(2) Clause 14:

“ If any money payable by the customer hereunder is overdue for 30 days and remain unsettled and outstanding after 7 days after a demand is made by the processor, without prejudice to the processor’s right to any other relief, the processor is entitled to sell by private contract or auction, or otherwise dispose of any of the film, negative or copies referred to in clause 12 hereinabove or any right, interest or benefit in such film, negative and copies ‌…” 

10.  The Defendant alleges that despite repeated demands, Cheung Yau failed to settle the outstanding fees owed to Union Film in relation to the processing and storage of the Film.  Subsequently, in the exercise of its right under the Processing Agreement, Union Film entered into a movie copyright licensing agreement with the Defendant on 8 March 2012, whereby Union Film granted and the Defendant acquired the exclusive right and licence to all copyright subsisting in, inter alia, the Film.

11.  On the above basis, the Defendant makes a counterclaim against the Plaintiff for, inter alia, a declaration that the Defendant is the rightful licensee of the Copyright Work, and consequential injunction order restraining the Plaintiff from using or exploiting the Copyright Work in conflict with the Defendant’s licensed rights.

12.  Viewed in this light, the crux of this case concerns what rights (if any) are held by the Plaintiff and the Defendant respectively in respect of the Copyright Work.

B.  THE PLAINTIFF’S APPLICATION AND THE RELEVANT PRINCIPLES

13.  By the Summons, the Plaintiff applies for a determination under Order 14A of the Rules of the High Court (“RHC”) of the following question:

“ Clauses 12 and/or 14 of the Processing Agreement made between Cheung Yau and Union Firm did not allow, authorize and/or entitle Union Film to exercise the lien referred to in Clause 12 of the said agreement by disposing of and/or settling any of the Copyright Work, including but not limited to the right to copy, distribute, broadcast and sub‑license the film, images, sound recordings and script thereof, to the Defendant.”

14.  In the same Summons, the Plaintiff also seeks summary judgment against the Defendant (with damages to be assessed) and/or an order to strike out the Defendant’s counterclaim.

15.  The principles governing the Plaintiff’s applications are not in dispute.

16.  Regarding an application for determination of a question of law (which may include a question of construction of a contract) under RHC Order 14A, it must be shown by the Plaintiff that it is a suitable case for this procedure, and the court may not make such determination where the decision would not finally resolve the controversy, or there were serious disputes of fact, or the trial might take place very shortly: B+B Construction Ltd v Sun Alliance and London Insurance Plc (2000) 3 HKCFAR 503 at 507I – 508A.

17.  As to the application for summary judgment, there is no dispute that whilst the burden is rested upon the defendant to show triable issues, the burden of proof is not a heavy one and that the Court should not embark on a mini‑trial: Schindler Lifts (Hong Kong) LtdvOcean Joy Investments Ltd [2003] 1 HKC 438 at para 10.  Additionally, where there are doubts and suspicion in the plaintiff’s case, such doubts detract from the plaintiff’s right to summary judgment: Billion Silver Development Ltd vAll Wide Investments Ltd [2000] 2 HKC 262 at 268C – D.

18.  As to the application for striking out, there is no dispute that the Court can only strike out a claim where it is plain and obvious that such claim is unsustainable.

C.  THE ISSUES

19.  Mr Philips Wong, counsel for the Defendant, submits that the Summons ought to be dismissed since there are obviously issues that cannot be resolved without a trial.  He helpfully sets out those issues in his written submissions[1] as follows:

(1)  There is triable issue on whether Union Film had an equitable interest in the Film, and the rights thereof (including copyright) upon the default of Cheung Yau in settling the outstanding fees, either pursuant to Clause 14 of the Processing Agreement or the common and established industry practice;

(2)  There is triable issue on whether Golden Sun was assigned the copyright subsisting in the Firm in October 2003 as alleged;

(3)  There is triable issue on whether Golden Sun had notice of Union Film’s earlier equitable interest at the time;

(4)  As a matter of law, the Plaintiff is not entitled to proceed with this action, let alone obtain final judgment, without joining Golden Sun;

(5)  There is triable issue on whether the Defendant has committed any acts of infringement in Hong Kong;

(6)  There is triable issue on whether it is unjust and unconscionable for the Plaintiff to assert any rights against the Defendant in the circumstances; and

(7)  There are serious doubts and suspicion in the Plaintiff’s case such that all the matters should be properly investigated and ventilated at trial, with the aid of proper discovery, interrogatories and cross‑examination.

20.  For those reasons that will become apparent below, it is unnecessary for me to consider and determine each of the issues identified by Mr Wong in order to dispose of the applications before me.  I will focus on issues (1), (2), (4) and (7) in explaining the reasons for dismissing the Plaintiff’s applications.

D.  DISCUSSIONS

D1.  Issue (4): non‑joinder of Golden Sun

21.  I will begin with issue (4) first.

22.  Section 113(1) of the Copyright Ordinance (Cap 528) (“CO”), as far as material, provides that:

“ … where an action for infringement of copyright brought by the copyright owner or an exclusive licensee relates (wholly or partly) to an infringement in respect of which they have concurrent rights of action, the copyright owner or, as the case may be, the exclusive licensee may not, without the leave of the court, proceed with the action unless the other is either joined as a plaintiff or added as a defendant.”

23.  Mr Wong submits that since the Plaintiff brings the copyright claim in this action as an exclusive licensee, this action is not properly constituted without joining Golden Sun (ie the copyright owner) either as a plaintiff or a defendant.  In Swing Studio Entertainment Ltd v Excel Media Technologies Ltd (HCA 8932/2000, 20 July 2001), Chung J (at para 14) held that the absence of joinder in this situation renders the action “incompetently constituted”.

24.  Mr Tony Ng, counsel for the Plaintiff, does not dispute the principle.  He, however, seeks to argue that the Plaintiff (as opposed to Golden Sun) is the copyright owner.  He takes the Court to the authorization letter dated 29 July 2005 signed by Golden Sun and submits that the terms of such letter effectively vested the rights in the Copyright Work in the Plaintiff.

25.  With respect, I am unable to accept Mr Ng’s submission. 

26.  What Mr Ng seeks to argue represents a fundamental departure from the Plaintiff’s pleaded case.  In the Amended Statement of Claim, the Plaintiff expressly seeks a declaration that the copyright subsisting in the Film belongs to Golden Sun and the Plaintiff is the rightful licensee thereof.  Indeed, as correctly pointed out by Mr Wong, the basis for and the term of such declaration are the only changes introduced by the Plaintiff in the Amended Statement of Claim.  In these circumstances, I cannot see any basis for Mr Ng to suggest that the Plaintiff is the full copyright owner.

27.  Accordingly, the copyright claim brought by the Plaintiff is “incompetently constituted”, and all applications made by the Plaintiff on the basis of its copyright claim ought to be dismissed.

D2.  Issue (1): construction of the processing agreement

28.  Despite the Plaintiff’s failure to join Golden Sun in this action, Mr Ng submits that this Court can still strike out the Defendant’s counterclaim since CO section 113(1) only applies to the copyright claim brought by the Plaintiff, but it does not affect its application to strike out the Defendant’s counterclaim. 

29.  At the hearing, Mr Wong fairly accepts that Mr Ng is technically right in this submission.  Thus, it is incumbent upon me to deal with some of the other issues raised by Mr Wong in order to dispose of the Plaintiff’s Summons in its entirety.

30.  As pointed out above, the crux of this case is about what rights (if any) are held by the Plaintiff and the Defendant respectively in respect of the Copyright Work.  The answer to this question turns on whether the Defendant has obtained any rights in respect of the Copyright Work from Union Film under the Processing Agreement.

31.  Mr Ng for the Plaintiff argues that the Processing Agreement did not confer any right upon Union Film to dispose of the Copyright Work subsisting in the Film. His argument can be briefly summarized as follows:

(1)  Clause 12 of the Processing Agreement creates a security in favour of Union Film in the form of a general lien.

(2)  Pursuant to Clause 12, such general lien is confined to:

(a)  all negative(s) delivered to the processor by the customer and copies thereof developed and printed by the processor for the customer; and

(b)  all files (both the negatives and copies thereof) which remain in the possession of the processor and which belong to the customer or in which the customer has a right of distribution or screening.

(3)  The subject matter of Clause 12, therefore, solely concerns the physical materials of the Film handled by Union Film (ie the negatives and printed copies).  The copyright subsisting in the Film (as opposed to the physical negatives or copies of the Film) is outside the ambit of the security.

(4)  Clause 14 of the Processing Agreement merely confers upon Union Film an additional power of sale in respect of the security.  It does not enlarge the subject matter of the security, which is defined in and confined by Clause 12.

32.  Mr Wong disagrees with Mr Ng’s interpretation of the above clauses in the Processing Agreement.  He on behalf of the Defendant submits as follows:

(1)  The two clauses in the Processing Agreements create two distinct security interests.  The security created by Clause 12 is a general lien; whereas the security created by Clause 14 is an equitable charge.  Hence, there is no reason why the subject matter of the security created by Clause 14 must be the same as that of Clause 12.

(2)  Further, although reference is made in Clause 14 to “any of the film, negative or copies referred to in clause 12”, express reference is also made to “any right, interest or benefit in such film, negatives and copies”.  This shows that the power of sale created by Clause 14 is intended to cover not only the physical copies of the Film, but also the copyright subsisting in the Film.

(3)  In any event, it would not make any sense that in case of default of payment, the remedy of Union Film (as the processor of the Film) is limited to the sale of the “physical copies” of the Film, but not the rights subsisting therein.  Without such rights, the “physical copies” of the Firm are not worth anything.

33.  As to the last point in the preceding paragraph, the Defendant has by way of affirmations adduced evidence of Wong Tai Chuen (“Wong”) and Chung Wai Hung (“Chung”), both of whom are very experienced in the film industry, to speak on the customary practice in the film industry. 

34.  According to the evidence of Wong and Chung, in the 1980s and 1990s when the Hong Kong film industry was booming, it was not uncommon for a producer to commence film production even when there was insufficient fund to meet the budget, and it was also not uncommon for the producer and/or film owner to abscond.  Thus, there was a real risk that the outstanding fees owed to the film processor (such as Union Film) would never be settled.  Against this background, there was then a common industry practice (which was usually reflected in the processing agreement signed between the producer and the film processor) to provide the film processor with the right to sell, license or dispose of the firm (including any right and interest therein) to third parties in the event of default of payment.  If such right does not cover the underlying rights subsisting in the film, the physical copies of the film and negatives are not worth anything to the film processor.

35.  It is of great significance to note that the Plaintiff has chosen not to file any evidence in reply to the said customary practice. Further, it is also pertinent to note that Mr Ng (in the absence of any evidence from the Plaintiff) was unable to articulate what value would there be in the “security” to the film processor if the “security” under the Processing Agreement was confined to the physical copies of the Film, but not the copyright subsisting in it.

36.  Both Mr Ng and Mr Wong agree that the modern approach for construction of contract is that laid down in Investors Compensation Scheme LtdvWest Bromwich Building Society [1998] 1 WLR 896 (at 912 – 913), and endorsed by our Court of Final Appeal in Ying Ho Co Ltd vSecretary for Justice (2004) 7 HKCFAR 333 (at 406 – 407).

37.  Put it simply, the process of interpretation involves “the ascertainment of 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”.  Thus, the background (or what is commonly referred to as “matrix of fact”) is such matter which the Court would need to take into account in ascertaining the meaning and effect of the contractual document.  More recently, in Fully Profit (Asia) Ltd vSecretary for Justice (2013) 16 HKCFAR 315 (at para 15), Ma CJ stated that:

“It is in my view not particularly helpful in most cases to refer to the ‘ordinary and natural meaning’ of words because, as very often experience tells us, there can be much debate over exactly what is the ordinary or natural meaning of words. The surer guide to interpretation is context.”

38.  Applying the correct approach of contractual interpretation, I am of the view that the proper interpretation of Clauses 12 and 14 of the Processing Agreement is a matter which cannot be properly determined without a trial establishing the relevant “context”, including the customary practice of the film industry at the time when the Processing Agreement was signed. 

39.  Mr Ng seeks to persuade me that the evidence of Wong and Chung adduced by the Defendant is irrelevant since it is evidence of their subjective intent.  With respect, I cannot accept this submission.  Their evidence, in my view, concerns the practice of the film industry at the relevant time, and that such practice may be taken into account for the purpose of interpreting the meaning and effect of the Processing Agreement.

40.  Mr Ng also refers me to Chitty on Contracts (32^nd ed) Vol 1 (at para 13‑132) and submits that since no custom or usage will be considered by the court on the construction of a contract unless it is notorious, certain and reasonable, the evidence of Wong and Chung is irrelevant.  In my judgment, whether a custom or usage is notorious, certain and reasonable is a matter for trial.  Further, in the same paragraph, the learned authors of Chitty on Contracts also acknowledge that “trade practice … may nevertheless be relevant as part of the factual matrix in aid of interpretation”.  Thus, I cannot at this stage hold that there is no triable issue in relation to the “context” concerning the proper interpretation of the Process Agreement.

41.  For the above reasons, I am satisfied that there is triable issue of fact which goes to the proper interpretation of Clauses 12 and 14 of the Processing Agreement, and that the issue of interpretation is not suitable for determination at this stage, whether under RHC Order 14 or Order 14A.

42.  Further, I am also of the view that such issue of interpretation is not suitable for determination under RHC Order 14A for the reason that, because of the other issues discussed in this Reasons for Decision, its determination will not have the effect of finally resolving the controversy between the parties. 

D3.  Issues (2) and (7): assignment to Golden Sun

43.  In this action, the Defendant further disputes the assignment of copyright by Cheung Yau to Golden Sun.

44.  In the Affirmation of Chan Man Hing filed by the Defendant in opposition to the Plaintiff’s Summons, the Defendant specifically questions the authenticity of the purchase agreement (the “Purchase Agreement”) and the assignment (the “Assignment”) signed between Cheung Yau and Golden Sun on 24 October 2003, whereby Cheung Yau assigned the Copyright Work to Golden Sun.

45.  To substantiate its challenge, the Defendant points to the fact that although Golden Sun (according to the records filed at the Companies Registry) only moved to the address at “Floor 11, Hong Lok House, 477 Nathan Road, Kowloon” in March 2005 (the “New Address”), such New Address had already been used in the Purchase Agreement and the Assignment which were supposed to be signed in October 2003.

46.  Strangely, despite being given the opportunity to explain such matter, the Plaintiff has chosen not to file any evidence in reply. 

47.  Although the point raised by the Defendant is a point which can only be addressed by Golden Sun (as opposed to the Plaintiff), it is the Plaintiff’s own pleaded case that Golden Sun is an “associate company” of the Plaintiff [2]. Further, as rightly pointed out by Mr Wong, prior to the commencement to this action, Golden Sun did instruct its own lawyers to issue a letter dated 5 August 2013 to assert its status as the copyright owner of the Copyright Work subsisting in the Film.  Thus, it appears that Golden Sun would be able to assist the Plaintiff to address the point.

48.  In the circumstances, one would naturally expect that the Plaintiff would be in a position to file evidence in reply to explain why the New Address was used in the Purchase Agreement and the Assignment in order to answer the Defendant’s challenge.  However, the Plaintiff had not filed any evidence to respond to the point, not even any evidence explaining why it could not respond to the point.

49.  Further, at the hearing, Mr Wong draws the attention of this Court to some apparent inconsistencies between the version of the Purchase Agreement and the Assignment produced by the Plaintiff as exhibits to its supporting affirmation, and those supplied by Golden Sun under the cover of its solicitors’ letter dated 5 August 2013.  Although the inconsistencies cannot be said to be very significant, it does go to show that there is some substance in the Defendant’s challenge against the authenticity of such documents.

50.  Further still, in the evidence of Chung filed on behalf of the Defendant, Chung points out that Hong Kong Motion Picture Industry Association (“MPIA”) is a de facto film copyright register/database of the Hong Kong film industry, and that he (as the former Chief Executive of MPIA) is rather surprised to see that neither Golden Sun nor the Plaintiff has registered with MPIA in relation to their alleged rights in the Film.

51.  Again, no evidence in reply has been filed by the Plaintiff to explain why Golden Sun or the Plaintiff had not registered the Film with MIPA despite having obtained its copyright from Cheung Yau back in October 2003.  This, as Mr Wong submits, adds to the doubts and suspicion relating to the alleged assignment of copyright from Cheung Yau to Golden Sun.

52.  In this regard, Mr Ng submits that the statutory declaration (in Chinese) dated 24 October 2003[3] signed by Mr Tsui Siu Hung on behalf of Cheung Yau shows that the assignment of copyright by Cheung Yau to Golden Sun must be a genuine assignment.  However, I note that there is nothing on the face of the so‑called statutory declaration to suggest that the same was administered by such person who was authorized by the law to take and receive statutory declaration.  Accordingly, this document cannot be treated as a “statutory declaration” as such.  In any event, even if any weight is to be given to this document, I am not persuaded that it is sufficient to demonstrate that the matters referred to by the Defendant give rise to no triable issue.

53.  I agree with Mr Wong that in the absence of any evidence in reply filed by the Plaintiff, the matters brought to the attention of this Court are sufficient to raise a triable issue as to whether Golden Sun (from which the Plaintiff obtained the copyright in question) had indeed acquired any copyright in the Film from Cheung Yau in October 2003.

54.  Further and in any event, I am satisfied that the materials before me, coupled with the complete absence of explanation from the Plaintiff, raise sufficient doubts and suspicion in the Plaintiff’s case which detract the Plaintiff from its right to obtain summary judgment in this action.

E.  DISPOSAL

55.  Having dealt with the above issues, I do not consider it necessary for me to express any views on any of the other issues raised by Mr Wong.  Those matters should be left to the trial judge for his consideration in light of the evidence available before him.

56.  For those reasons explained in Section D above, I am satisfied that the Plaintiff’s Summons should be dismissed in its entirety.  In this regard, I agree with Mr Wong’s submission that the Plaintiff should not have issued the Summons since the Plaintiff had been duly put on notice of the Defendant’s case by way of pre‑action letters[4] as well as by its pleadings filed in this action.

57.  Accordingly, it was ordered by me at the hearing that the Plaintiff’s Summons be dismissed, and the Plaintiff do pay the Defendant’s costs of the application, which was summarily assessed by me at HK$300,000.

58.  Finally, I wish to thank counsel for their assistance.