YONFAN STUDIO COMPANY LIMITED AND ANOTHER v. MOLESWORTH LIMITED

1986, No. A6908

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. This is a claim by the plaintiffs against the defendant for a share in the film "The Rose Story" and all its revenues. The plaintiffs seek appropriate declarations, account and other consequential relief.

2. The defendant's Counterclaim has been withdrawn with leave. Reliance on custom of the trade has also been abandoned on all hands. The proceedings are protracted. Counsel for the defendant observed at one time that litigation is pursued as a matter of principle. There are multifarious'' minor pleading points and credibility points. I have taken them all into consideration in testing the conclusions I have reached, but it is quite unnecessary to set out fully all the issues other than those crucial to the two central questions.

3. Let me first set the scene in which the dispute arose. Mr Yang Fan is a successful professional photographer and is one of our recognised quality directors. He has a cynical attitude towards the film industry which he describes as "a dirty business" with "a lot of swindling". Even at the time of negotiation for the agreement now under consideration, Mr Yang left Miss Teresa Woo with an impression "that he was afraid he could not get any share". After Mr Yang had good cause for expecting. "The Rose Story" to be a hit, he incessantly pressed for quantification of his share to the point of irritation. Conflict also set in as regards the extent of Mr Yang's revenue entitlement. The disagreement lies in whether his share is confined to showings within Hong Kong or whether it comprises revenues of every shape or form. In addition, Mr Yang and Miss Woo seem to be equally conceited in attitude with unbending determination. It is to he expected that they had a personality clash. In their encounters, they virtually disagreed in every decision taken. Much of such animosity has unfortunately also permeated through these proceedings.

4. In April 1985, Mr Yang purchased the copyright of the book version of "The Rose Story" from Isabelle Yik Shu for $40,000. In, the following month, May, he signed up Margaret, Cheung Man-yuk through the vehicle of the 2nd plaintiff company to play the female lead in "The Rose Story" for $240,000.

5. It is no surprise that throughout these proceedings, Mr Yang and Miss Woo seldom see eye to eye. They do not agree even on who made the intial approach which resulted in an agreement signed by the defendant company managed by Miss Woo with the 2nd plaintiff company of Mr Yang to film "The Rose Story". Mr Yang was to be the director and Miss Woo the producer. This agreement is dated the 4th July 1985 and has been described as the 1st Joint Venture Agreement, with a share capital of $2.8M subject to a call for an extra 10% by way of further contribution. The signatories were equal partners and the capital was to be contributed in equal shares. During negotiation, a rough budget "P8" was shown to Miss Woo by Mr Yang. There is again a dispute between Mr Yang and Miss Woo as to how the director's fee for Mr Yang was increased. Even the reason for the agreed increase of the $300,000 director's fee to $320,000 is hotly debated. Mr Yang maintains that he was the soul of the movie and had to be remunerated at a rate higher than that payable to the lead actress. Miss Woo accuses Mr Yang of manipulating his demand for an increase by handing out an extra $60,000 to the lead actress, raising it to $300,000 from $240,000.'

6. The vehicle for implementing the joint venture was Service Good Company Ltd. which signed up Mr Yang Fan as director for $320,000 by an agreement dated the 24th July 1985.

7. It is also to he noted that under item 2 of the rough budget "P8", the third last entry of $100,000 for script evidently included the copyright, be it $40,000 as per the purchase price or $60,000 by way of resale to Service Good company Ltd. for the joint venture on the 9th September 1985. Again Mr Yan and Miss Woo disagree on the time of disclosure of the original purchase price for the copyright. Mr Yang is said to have pleaded with Miss Woo to find a way for accommodating the unjustified $20,000 profit on the copyright, which allegedly came to light later. However, the amount of $60,000 was ultimately accepted. It is hard to believe that a personality like Miss Woo would have readily made any concession on these alleged manipulated increases or, inequitable profit on the copyright if indeed; Mr Yang had misconducted himself.

8. Earlier on the 31st August, Mr Yang's share; in "The Rose Story," via the 2nd plaintiff was reduced from, 50/50 to 40/60. That agreement of the 31st August is described as the 2nd Joint Venture Agreement. Before the change of share ratio, the initial contribution had been paid by Mr Yang and the defendant under the 1st Joint Venture Agreement. There is a further dispute as to the reason why the cheque for Mr Yang's initial payment was at one time dishonoured. Under the 2nd Joint Venture Agreement, the second instalment payable 10 days before the shooting of the movie was not paid by be 2nd plaintiff. Again, Miss Woo and Mr Yang disagree as to why this $400,000 representing 40% of Mr Yang's share via the 2nd plaintiff was not paid.

9. Different views were held on the proposed engagement of Mr Lau as the 2nd male lead. Mr Lau was dropped, and the male lead actor was requested to play both roles with an extra remuneration.

10. The reason for not securing the service of Mr Lau is another topic of contention. Mr Yang and Miss Woo also give diverging versions as regards the Assistant Director. Mr Yang and Miss Woo do not agree even as to who, in fact, dismissed the Assistant Director if there was a dismissal at all.

11. The script was to he written by Mr Yang and it had been finished. Shooting started on or about the 25th September 1985. Perhaps a week or two later, Mr Yang walked out of the joint venture and shooting stopped.

12. For once, Mr Yang and Miss Woo agree that there was hopelessly a deadlock in which Hr Yang agreed to sell his share to the defendant for $100,000. By an agreement dated the 18th September 1985, the 2nd Joint Venture Agreement was cancelled. The true basis for the financial adjustment under this cancellation agreement is also disputed. Under this cancellation agreement, "the contractual plan" for using Service Good Company Ltd. as a join agreement vehicle was abandoned. Copyright of "The Rose Story" was agreed by the 2nd plaintiff to be transferred to the defendant. In fact, the copyright had already been sold to Service Good Company. Ltd. and was no longer owned by the 2nd plaintiff. There is no document in Court signed by Service Good Company Ltd. for or confirming the transfer.

13. Mr Yang describes how he gas persuaded by Peter Choi of Gala Film Distribution Ltd. to continue to co-operate with Miss Woo for the production of "The Rose Story". Miss Woo denies that there was any telephone conversation on the 18th September 1985 with Mr Peter Choi at all, and she claims that the change of mind for continued co-operation was as the result of good services rendered by other intermediaries.

14. Another agreement of the same date, the 18th September 1985, was also signed. This has been described as the Main Contract. All along, the agreements were entered into through the vehicle of the 2nd plaintiff on the part of Mr Yang. Mr Yang himself originally signed the Main Contract in his personal capacity. According to him, on the advice of his accountant; he chose to enter into the Main Contract as through the 1st plaintiff. That was agreed to by Miss Woo. Instead of 40/60 share contribution under the 2nd Joint Venture Agreement, Mr Yang's agreed remuneration of $320,000 for his directing services was to he retained as his "investment share in the Film".

15. Mr Tong, counsel for the defendant, argues that it was a wholly service contract with strict control exercised by the defendant as employer over the director. The 1st plaintiff and not Mr Yang personally was to be paid a $320,000 remuneration and a bonus out of a fixed level of surplus revenue from the first run of the movie in Hong Kong. Mr Yang was himself to be engaged by the defendant. The nature of the Main Contract would hardly affect the construction of the provisions for Mr Yang's entitlement thereunder via the 1st plaintiff, but I take the view that it is an employment cum investment agreement between the 1st plaintiff and the defendant, with Mr Yang involved as the truly expected employee.

16. Mr Yang testifies that he would only agree to the continued co-operation on three express conditions. First, Miss Woo was to be present at the set during the shooting of the film. Secondly, he was to have 100% freedom in the production and there should be no change in the film after completion without his consent. Lastly, his $320,000 invested remuneration was not to be included in the production cost up to A Copy. "A Copy" can loosely he described as the first screening copy for the projection room subject to further adjustment in sound or colour.

17. It is agreed that Mr Yang asked for a share in all the revenue worldwide. Mr Yang maintains that Miss Woo agreed to it but Miss Woo claims that she rejected Mr Yang's request. Miss Woo further says that Mr Yang agreed to take into consideration the defendant's view on the script. Miss Woo explains that the only concessions she made were: first, she would not alter the A Copy without Mr Yang's consent. Secondly, the defendant was to pay all expenses, and thirdly she acceded to Mr Yang's request for setting out examples of how his share was to be calculated, based on production cost up to the A Copy.

18. At the end of the Main Contract, four remarks were added in manuscript. Again, Mr Yang and Miss Woo disagree on the authorship of these four remarks although they were put down by Angela Fung, a former employee of the defendant. These remarks are:

[1] Party A agrees that Party B.'s remuneration of HK$320,000 will be used by Party B as Party B's investment share capital in the said film. Accordingly Party B has no right to get any salary remuneration during the period of shooting and filming.

[2] The share distribution of both Party A and Party B is based on percentage calculation of the cost of the shooting and making of the movie up to the completion of the whole film and the making of the A copy. If the total expenditure of the film is $2,560,000.00 then Party B will take 1/8 of the total share. If the total expenditure of the film is $2,240,000.00 then Party B will take 1/7 of the total share.

[3] Both Parties A and B agree that the method of distribution (of profit and loss) will he done 40 days after [addition] every showing of the film, deducting distribution fee, advertising fee and 2 percent expenses, distribution of accounts shall be made according to the percentage proportion (as referred to in [2]).

[4] Party A shall not delete or alter the work of Party B."

19. A Copy was completed in January 1986. Mr Yang himself felt confident that "The Rose Story" was to be a success. He persistently pressed Miss Woo for quantification of his share. The excuse advanced by Mr Yang was admittedly a white lie, but even this is not t a matter in agreement between Mr Yang and Miss Woo. Mr Yang says that he told Miss Woo that Mr Choi of Gala Film Distribution Limited was interested in taking over his share but Miss Woo testifies that Mr Yang was asking for a favour under the pretext that he was to show his quantified share to an interested Taiwan film merchant with a view to a sale so as to avert financial difficulty. Whatever the reason, the defendant signed an agreement dated the 22nd February 1986. Miss Woo claims that it was a certificate, having no binding legal effect. Mr. Tong, counsel for the defendant, submits that there was no considertion moving from the 2nd plaintiff. It as signed by the 2nd plaintiff and cannot be, as suggested by Miss Eu, a document supplemental to the Main Contract entered into by the 1st plaintiff. Miss Woo recalls: Mr Yang "constantly asked us to give him a certificate showing what percentage he had in the film". Whatever it was, it was to serve as a confirmation to an outsider what Mr Yang's share in "The Rose Story" was.

20. The 1st plaintiff company and the 2nd plaintiff company were limited companies of Mr Yang's. Mr Yang also runs the Yonfan Studio. In whatever names documents were signed, Miss Woo was left in no doubt that Mr Yang was the ultimate beneficiary. The 1st Joint Venture Agreement, the 2nd Joint Venture Agreement, the copyright agreement with Service Good Company Ltd. and the cancellation agreement were all signed by the 2nd plaintiff. The Main Contract was signed by the 1st plaintiff. The share quantification agreement dated the 22nd February 1986 was signed by the 2nd plaintiff.

21. The share quantification agreement is set out as follows:

"Film [The Rose Story) Share Agreement

Party A: Molesworth Limited

Party B: 'Far-Sun Film Company Limited

(1) Party A agrees to Party B's remuneration of HR$320,000.00 as Party B's investment share in the Film.

(2) The shares distribution of both Party A and Party B shall be on percentage calculation of the production cost in completion the whole film up to the making of the A copy. The production cost of the film up to the making of the A copy is HK$2,560,000.00, that is to say, Party B is entitled to 1/8th of the total share.

(3) Both Party A and Party B agree the method of distribution of accounts to be that 40 days after every showing of the Film and after deducting distribution fee, advertising fee and 2 percent expenses, distribution of account shall he made according to the percentage proportion (as referred to in (2))."

22. The two central facts for my determination are

(1) whether Mr Yang's invested remuneration of $320,000 was to be included or excluded in the production cost up to the completion of A Copy, and

(2) whether Mr Yang is entitled to a share of the revenue arising from showings within Hong Kong or from all the sources within and outside Hong Kong.

23. Miss Eu, counsel for the plaintiffs, concedes that if $320,000 was to be excluded from the production cost of "The Rose Story" up to A Copy, then her client would be content with a 1/8th share Mr Tong was not disagreeable as to the 1/8th ratio if production cost up to A Copy was not to include the $320,000.

24. The defendant doe's not dispute its liability to account to the 1st plaintiff.

25. To recapitulate: up to the Main Contract, all the relevant agreements were signed with the 2nd plaintiff. The Main Contract was entered into in the name of the 1st plaintiff. The share quantification agreement was signed with the 2nd plaintiff. Mr Yang and Miss Woo clearly understood that the real personality involved was Mr Yang. Payments effected under the Main Contract have throughout been made to Mr Yang who, however, deposited them into the account of the 1st plaintiff. Under the cancellation agreement signed by the 2nd plaintiff, copyright of "The Rose Story" was to be unconditionally transferred by Service Good Company Ltd. to the defendant. Earlier, copyright had been sold by the 2nd plaintiff to Service Good Company Ltd. on the 9th September 1985. Although Service Good Company Ltd. has not been shown to have signed any document for the unconditional transfer to the defendant, it was apparently thought by the parties to the Main Contract that the 2nd plaintiff's confirmation was desirable in the cancellation agreement. The share quantification agreement provided a change of identity back to the 2nd plaintiff again. Mr Yang was the prime mover, but the shift and re-shift of corporate identity might attract unwelcome arguments that contractual rights and obligations had accrued to one and not the other. As a matter of fact, a like argument is being run on the share quantification agreement. Miss Eu is now prepared to accept a duty to account towards the 1st plaintiff, but prudence required that both plaintiffs be joined in the way they were in these proceedings. In any case, negligible time has been wasted in differentiating one plaintiff from the other.

26. I shall deal with credibility for finding of facts before I turn to the question of construction, with or without the aid of any of the facts so found.

27. Mr Yang has been criticized for being insensitive to the interests of the shareholders and directors of the 1st plaintiff company and 2nd plaintiff company. He is accused of being indifferent to their interests when he was advised to use the name of 1st plaintiff to sign the Main Contract allegedly on the advice of his accountant. These limited companies are virtually alter egos of Mr Yang's. Counsel's criticism has no substance.

28. Much is also sought to be made of the profit of $20,000 from the copyright of "The Rose Story" and the $20,000 increase on the originally agreed $300,000 director's fee. It is charged that Mr Yang is manipulative and prevaricating. Mr Yang has given his explanations. Even if his explanations were wholly rejected, these profit and increase were ultimately accepted by Miss Woo. Moreover, I cannot find anything truly immoral for a party seeking to secure better terms from his counterpart. I need say no more on these matters. I have commented on Miss Woo's probable reaction if her version were accurate.

29. When Mr Yang was planning a vacation to America in March 1986, he requested a $50,000 advance under the pretext that he was hard on cash. Mr Yang had sources for instant cash but he preferred to enjoy the fruit of his success. It is not challenged that he had managed to procure a huge amount for his previous undertaking. Mr Yang explains that the defendant has a history of dilatoriness in effecting payment, hence his make-believe excuse. Whatever the reason was for advancing this excuse, it was an innocuous one. The request for $50,000 was not one for distribution or early distribution, but he was seeking an advance. What other harmless excuse could Mr Yang have made? In any case, $30,000 was willingly lent.

30. Mr Yang is also condemned for not standing by a writ ten document evidencing his liability to spay $53,500 worth of complimentary tickets. That cannot be well founded. Mr Yang explains that if indeed the sum is still outstanding, he is prepared to meet it. He has not paid cash for it as the tickets were not issued for cash. The amount, if still outstanding, will be finalized in account settlement.

31. From first to last, Mr Yang has harboured considerable fear of being taken advantage of. His anxiety must have been enhanced by the sizable revenue expected from the acclaimed success in his direction of "The Rose Story". He is determined to secure his fair share in the movie. He is over-sensitive in temperament. At a later stage, he made an unbearable number of daily calls to the defendant. He is also persistent. Miss Woo could understandably be driven to exasperation by these endless approaches and enquiries. However, Mr Yang is basically straight-forward. It must have been very trying for him to sit through his extensive cross-examination.

32. The defendant has been less than enthusiastic in making a genuine attempt to account to Mr Yang or pay him. After repeated demands without much success, Mr Yang through the plaintiffs' solicitors obtained an order from the Master in early 1987. Accounts were purportedly furnished by the defendant in January 1987 pursuant to the Master's order. Almost immediately these accounts were corrected. The initially supplied figures and the corrected version were prepared by a very junior clerk, Mr Lok under the supervision of Miss Woo. The original accounts are at p.175 and p.176 of Bundle A. The corrected version is at p.p.178 and 179 of the same bundle. Not only was Mr Lok's preparation without any contribution from Miss Law, a person assigned by the Sing Tao Group to check the accounts of the defendant and perhaps other similar movie production companies, he obtained information in the main from Miss Woo together with some figures in the audited accounts and other documents as directed. In fact, more than half of monthly account documents up to the end of 1988 from Gala Film Distribution Limited are said to have been locked up in the drawer of Margaret Cheung, a former staff of the defendant. Miss Woo kept the key to the drawer, but the key was not given to Mr Lok until after the hearing. Mr Lok has still not obtained concrete official confirmation of the revenue for the two showings on the 14th and 16th February 1986 from Gala. From p.227 of Bundle A, in May 1986 Gala Film Distribution Limited supplied figures of the first revenue, between the 21st February to 20th March 1986, to the defendant. Yet in the Defened filed by the defendant in January 1987, it was then still being maintained that accounts for the first run had to be finalized. Revenue from the subsequent run commencing from 16th to 23rd April 1987 was given by Gala on or about the 8th June 1987 at p.228 of Bundle A. From Exhibit "D2", p.15, Gala supplied further monthly revenue accounts up to May 1989, giving income for the period from July 1987 to March 1989 (except for August 1987). That illustrates that Gala has been supplying revenue figures to the defendant monthly. Confirmation has also come from Mr Lok who testifies that a cheque would be collected from Gala every month by the defendant after the receipt of the Gala monthly revenue accounts. However, the amendments to the defendant's Counterclaim (ordered in April but filed in September 1988) disclosed only figures for revenue of the first run up to March 1986 as set out at p.227 of Bundle A. The revenue accounts for "The Rose Story" from Gala for the first and subsequent runs at p.227 and p.228 of Bundle A were only disclosed in the defendant's list dated the 30th May 1989. These monthly figures thereupon appeared in the green amendments to the Counterclaim on the same day, the 30th May 1989. That was two and a half years after the completion of A Copy in January 1986. Monthly figures were given in a further list, "P2" dated 9th June 1989. In the opening of counsel for the plaintiffs, certain figures were attempted to be understood. Thereupon it was explained on behalf of the defendant that certain documents were retrieved from the locked drawer of Margaret Cheung. The Counterclaim was subsequently withdrawn, and the court was later told that the withdrawal was possibly yet a further error. The matter was not pursued.

33. Mr Lok's further revised figures of production cost in Exhibit "D1" was given to the plaintiffs on the 14th June 1989 during the course of these proceedings. Of course, the defendant has not supplied any other revenue figures for outright sales, showings outside Hong Kong or from copyrighted video tapes or laser discs. Disclosure of Hong Kong revenue, even under legal compulsion, has been piecemeal, incomplete and without diligence.

34. Mr Yang has been paid five times: (1) in March 1986, the advance of $30,000,(2) in May 1986, $183,784.33, (3) in September 1986, $16,980.89, (4) on the 27th January 1987, after the Master's said order through the former solicitors of the plaintiff, $19,287.54 and (5) during this trial on the 14th June 1989, at the same time when Exhibit "D1" was supplied, $18,444.29.

35. Accounts of Hong Kong revenue are still far from being satisfactory. There is every indication that some monthly incomes have yet to he accounted for. It remains unclear whether the test runs on the 14th February and the 16th February 1986 have been included in the figures of revenue already supplied by Gala. The $5,500 for the complimentary tickets payable by Mr Yang seems to have been deducted in exhibit. There is every possibility that the same sum has been doubly deducted. From the revised production cost in "D1" prepared by Mr Lok, at least the cost for the stills and posters seems to have been erroneously included.

36. Despite Mr Yang's personal scepticism and loose reference to "not trusting or not believing the defendant", the defendant management are simply people not to be relied on, as judged by their past attitude and in the accounts they have furnished. These figures of Hong Kong revenue do not appear to be in any way complex. The Hong Kong revenue information from Gala or other distributors can only be uninvolved. Verification and calculation cannot be demanding. The defendant company has always had staff in charge of its accounts. Miss Woo has had possession of the key to Margaret Cheung's locked drawer. Miss Law is known to have been assigned by the Sing Tao Group to oversee the accounts of the defendant. Could it have been likely that the Sing Tao Group also overlooked these monthly accounts? Miss Woo has been the head of the defendant responsible for its affairs. She has been well tested as a business woman. I cannot accept that she could have had the slightest difficulty in causing figures of Hong Kong revenue to be properly complied and collated within a reasonably short time. She simply cannot hide behind the accounting staff of the defendant. It is unforgivable of the defendant not to have kept Mr Yang or the 1st plaintiff promptly and accurately informed.

37. It is agreed that Mr Yang expressly requested a share of all revenue in whatever shape or form. He tells the court that Miss Woo understood the Chinese term he used as meaning "any kind of income from the movie" and she agreed to it. A share of the worldwide revenue could have been explicitly recorded in the Main Contract. Mr Yang was cautious enough to modify the Main Contract by an insertion for "every", by deletions and additions. Clause 18 expressly shut out any oral stipulations. Moreover, the phrase "the worldwide revenue from the Film" was not unknown to Mr Yang who had deleted it in the original Remark Note [4], but the phrase was not introduced. Mr Yang explains that the atmosphere was friendly and he was in a jubilant mood so that Clause 18 and the other inconsistent standard terms were not carefully noted. Mr Yang further explains that they had discussed even the territories for outright sale and distribution. He advised Miss Woo that apart from U.S., Canada, Malysia, Singapore and Taiwan, the rest of the territories should be for outright sales.

38. On the other hand, Miss Woo testifies that she rejected the request for a share in all the revenue and that they "had an argument for a while". She denies that there was any discussion on territories. She claims to have also refused to allow Mr Yang to write down worldwide revenue in the Main Contract.

39. Mr Yang also recalls what was said to him by Miss Woo thus.

"I can hire you as a movie director for this Rose Story. The salary would be $320,000, but you will not take any of the salary during the shooting of the movie but also before the screening of the movie. I want you to invest in this movie with your salary."

"I believe in this movie very strongly. You will at least double your amount in your investment."

40. Miss Woo explains that she would like the director's fee to be treated as part of the investment in the film because it "would directly affect his share in the production". According to Miss Woo, Mr Yang had "also agreed if the film was making a loss, his share of profit would, be even less or even nil". Miss Woo herself evidently treated Mr Yang as an investor in the movie and it is inconceivable that she could have justifiably refused Mr Yang's claim to a share in the worldwide revenue.

41. Following that, Mr Yang proposed his three terms, including the exclusion of the $320,000 director's fee from production cost up to A Copy. He allegedly impressed upon Miss Woo that he would "try to use all (their) connections and ability to manage production of (the) movie free of charge" and that "(their) talents, (their) connections and (their) work" were invisible contributions.

42. Miss Woo denies that she ever agreed for the $320,000 to be excluded from the production cost.

43. As I have said, much play is also made of the other clauses inconsistent with the allegation that Mr Yang demanded and secured an undertaking from Miss Woo to have 100% freedom in the production of "The Rose Story". Miss Woo even cites as an example the cause of death of the two characters played by the male lead actor, not cancer as originally scripted. Mr Yang further concedes that save for his intangible contribution in talent and connections the exclusion of his director's fee of $320,000 would otherwise be contrary to the investment concept that he "should contribute the money towards capital of the movie". But Mr Yang emphasizes the value of these "invisible" contributions.

44. At the time when the Main Contract was signed, it was known that production cost was to be in the region of $2.8M. Mr Yang personally was not a signatory to the Main Contract, but Clause 7 provided that "the director (should) absolutely observe not to exceed the budget". However, it must not be forgotten that Clause 2 of the 1st Joint Venture Agreement contemplated a possible extra 10%, (excluding actors' expenses) on top of estimated $2.8M production cost. In the later Main Contract of the 18th September 1985, the defendant was to be responsible solely for production expenses, and there was good reason for urging the director to keep within the budget. But it fell short of making $2.8M the absolute maximum. I shall return to the Main Contract for other provisions which did not place $2.8M as the dead ceiling. It stands to reason that if the estimated cost was expected to be possibly a little over $2.8M, the two examples given in Remark Mote [2] should be based one on an estimate slightly over $2.8M and the other on a production cost slightly below $2.8M. The complete multiple of $320,000 slightly above $2.8M is $2.88M giving the ratio of 1/8th and the complete multiple immediately below the budget of $2.8M is $2,56M giving the ratio of 1/7th, that is to say $2.88m-$320,000=$2.56M (1/8th) and $2.56M less $320,000=$2.24M (1/7th).

45. Whoever signed the share distribution agreement of the 22nd February 1986, by that tine the production cost was known to be slightly over $2.8M. Again, it stands to reason to have a round figure which would accommodate a complete multiple of $320,000 above $2.8M. That should take us to $2.88M. $2.88M less $320,000 would make $2.56M. That was precisely the production cost ($2.56M) given by the defendant in the share distribution agreement, Whoever the principals were under that agreement and whatever its legal effect was, Miss Woo concedes that it was a certificate issued to Mr Yang. Irrespective of whether and how that document could be used in a court of law, the subsequent conduct of the defendant plainly corroborates Mr Yang 's alleged oral agreement not to include the director's fee of $3,20,000 in the production cost. This version of Mr Yang is also consistent with the working of mathematics in these documents and Miss Woo's understanding of him as an investor. Ignoring mathematics and documents, on demeanour of witnesses alone that I observe. I have no hesitation in preferring the version of Mr Yaneg to that of Miss Woo.

46. As to the alleged agreement of his entitlement to all possible revenue from "The Rose Story", Miss Woo also argues that subject to exceptions, distribution of revenue 40 days after every showing in Remark Hote [3] could not apply to the worldwide revenue. Miss Woo offers no sensible solution as to why "distribution 40 days after showing" would be unworkable for showings all over the territories. She leans heavily or the fact that Remark Note [3] could not operate with out any show, for instance, in an outright sale or a copyright sale in terms of in-flight movie, video tapes, laser discs or any other form of disposition for more than a or a series of public exhibition. Remark Note [3] relates to distribution of profit or loss after every show. It is not a comprehensive provision for distribution of profit or loss in all cases. How could Remark Note [3] as a provision for distribution in one area affect the nature and extent of Mr Yang's entitlement to and in "The Rose Story"?

47. Counsel for the defendant suggests that both alleged oral agreements are recent fabrications. Mr Yang agrees that he did not repeat these oral agreements to solicitors after instructions thereof had been given to his former solicitors. Miss Eu has throughout been counsel for the plaintiffs, and she offers for my assistance her understanding, of the sequence of events. Counsel explains that Mr Yang's entitlement to all forms of revenue is primarily a question of construction, and there was no warrant for pleading any oral agreement. The defendant initially confined itself to Hong Kong revenue in paragraph 4(a) of its Defence filed in January 1987. Only in paragraphs 5(b) and 6 of its Amended Defence dated 19th August. 1988, was it alleged that an oral request for sharing in the worldwide avenue was made but rejected. To counsel, it was then necessary to join issue with that allegation in the Reply which was filed in April 1988, and at the same time the Statement of Claim was accordingly amended to incorporate the oral agreement. As for the oral agreement for excluding the director's fee of $320,000, Mr Eu explains that the defendant was not expected to try to include $320,000 in the production cost until early 1987 when production cost as given at p.175 of Bundle A was supplied after the Master's said Order. An item there for $1,342,511 attributable to: "Film Directors, Actor, Actress, Film Production Stage Hands" caused some concern as to whether the defendant was indeed seeking so to include the $320,000 director's fee. An enquiry was made of the defendant's solicitors by "P10" and by a reply dated 26th January 1988, the defendant through its solicitors confirmed that $320,000 director's fee was so included. Thereupon, in April 1988 the plaintiffs pleaded the oral agreement for excluding the director's fee from the production cost. I am not satisfied that there was any real culpable delay on the part of Mr Yang in raising these oral agreements.

48. In my view, the deleted Remark Note [4] also goes some way in fortifying Mr Yang 's alleged oral agreement for a share in all the revenues.

49. As for credibility in terms of quality of evidence, on the two oral agreements, I have no hesitation in preferring Mr Yang's evidence to that of Miss' Woo. Mr Yang is open and allows himself to be thoroughly tested, though not without annoyance. Miss Woo strikes me as a person determined to adhere to one version. She often tends to excuse herself on account of the long time lapse and figures. The issues are really quite simple and she was managing the company with accounts kept by her staff and overseen by the Sing Tao Group. Both against the scenario known to me and from my observation of them in the stand, I accept Mr Yang as a credible witness. It is difficult to judge Mr Yang and Miss Woo on every peripheral issue, but Mr Yang is decidedly a much more impressive witness in his overall performance.

50. In conclusion, I find that Mr Yang and Miss Woo did orally agree for $320,000 director's fee not to be included in the production cost up to A Copy and for Mr Yang to share in worldwide revenue or every kind of revenue from "The Rose Story".

51. The critical exercise is one in construction. As a matter of pure interpretation of the hand-written remarks as opposed to the standard printed clauses in the Main Contract, there can be little doubt that Mr Yang was an investor under Remark Note [1]. He invested in the "share capital in the said film" with his director's fee of $320,000. His entitlement is a share of "the total share" in accordance with the ratio specified in Remark Note [2]. Of course, formally the 1st plaintiff and not Mr Yang was a party to the document. The Main Contract is a joint venture agreement between the 1st plaintiff and the defendant with provisions for Mr Yang to be employed by the defendant. Mr Tong, counsel for the defendant, submits inter alia that since the phrase "worldwide revenue from the Film" previously used in the deleted original Remark Note [4] was not unknown to the parties to the Main Contract, the lack of reference to it or a similar term in the Remarks is indicative of an intention to be limited to Hong Kong revenue, the majority of which was expected to be derived from public exhibition or showing in local cinemas. Remark Note [1] made provision for the 1st plaintiff to invest in the "share capital in the said film". Remark Note [2] confirmed that the 1st plaintiff was to take a percentage "of the total share". Remarks [1] and [2 ] are not susceptible of any other interpretation. The language is tolerably clear without any ambiguity. The 1st plaintiff has a share as an investor in the movie. Remark Note [3] as a down a manner for distribution in respect of "showing of the film". Even that specified mode of distribution was found impractical and revenue after every showing was invariably ready for distribution only much later than the stipulated period of 40 days. But however imperfect or incomplete, Remark Note [3] laid provision for distribution cannot have the effect of altering the entitlement of the 1st plaintiff as an investor. In my view, on pure construction of the Maim Contract the 1st plaintiff has a share: in "The Rose Story" and all its revenue. Although I have held in favour of Mr Yang on his version of the oral agreement, one need not resort to any extrinsic or parol evidence for the second question under consideration. I hold that the 1st plaintiff is entitled to a share of "The Rose Story". How then is its share to he quantified?

52. Remark Note [2] provides two computation bases or two equations in round figure as illustrations:

"If the total expenditure of the film is $2,560,000.00 then Party B will take 1/8 of the total share. If the total expenditure of the film is $2,240,000.00 then Party B will take 1/7 of the total share."

53. The budget was $2.8M up to the completion of A Copy. This $2.8M budget had always included the $320,000 director's fee to Mr Yang. The $320,000 is described in Remark Note [1] of the Main Contract as the 1st plaintiff's remuneration. Miss Woo acknowledges that in reality changes and modifications in the production of "The Rose Story" were virtually unavoidable and would in turn affect production cost. In sheer logic, the sun of $2.8M had to be selected as the arithmatic mean, thus yielding examples in the two multiples of $320,000 closest to $2.8M, one up and one down. $2.88M is the nearest multiple of $320,000 beyond $2.8M. $2.56M is the nearest multiple of $320,000 below the budget sum of $2.8M. Therefore two illustrations were provided in good arithmatic sense ($2.88M - $320,000) - $320,0003=8, or in other words, the director's fee ($320,000) is 1/8th of $2.56M, being the production cost with $320,000 director's fee deducted. Similarly, ($2,56M - $320,000) - $326,006=7; or in other words, the director's fee ($320,000) is 1/7th of $2.24M, being the production cost with $320,000 director's fee discounted.

54. Whilst Miss Woo is prepared to recognise the inevitable fluctuations in production cost, she maintains that a budget is finance planning to keep expenditure within an estimate and that it would be unacceptable in principle to exceed a budget. Hence, she explains that the two computation bases or equations in round figure as provided for in Remark Note [2] are illustrations taken both below the budgeted $2.8M at $2,56M and $2.24M respectively. In effect, she concludes that the figures in Remark Note [2] do not reflect any deduction of the $320,000 director's fee from the production cost up to A Copy. However, it has not been satisfactorily explained why there was any need for illustrating the same situation twice by providing two multiples of $320,000 both below the budgeted $2.8M. Moreover, in the Main Contract itself, it was anticipated that the budget could possibly be exceeded. Clause l enjoined Mr Yang as a director to continue to work until completion and full completion was a matter to be decided by the defendant. Under Clause 1, production would not at once cease when the $2.8M budget was reached. Clause 7 provided that "the director should absolutely observe not to exceed the budget" or "the director should absolutely stick to and should not exceed the budget", but in the case of an over expenditure, Clause 7 would not abruptly put an end to production. It would merely give the defendant "the right to stop shooting of the movie and to claim from (the 1st plaintiff) all the loss". Under Clause 3 of the Main Contract, the 1st plaintiff was to receive a bonus "based on the surplus amount of the total income from the first showing …..in Hong Kong after deducting three times the production cost". Production cost was not thereby rigidly marked down as below $2.8M. I cannot accept Miss Woo's proposition. Properly construed, the computation bases and equations set out in Remark Note [2] evidently carry a built-in discount for the $320,000 director's fee. I so hold.

55. If there should be any residual doubt in interpretation as regards the exclusion of the $320,000 director's fee, the Court would be entitled to look at the factual matrix or factual background in which the parties found themselves at the date of the Main Contract. The factual matrix would explain the true purport of the calculations given and how these given calculations are to operate under these surrounding circumstances. Naturally, the subsequent share quantification agreement with a different party cannot form part of such circumstances surrounding the Main Contract. The true mathematical basis can thus be better explained. On the facts I find, the definite meaning to be assigned to these calculations must be that they had the $320,000 director's fee deducted from the production cost up to A Copy. Since such a particular manner of deduction was adopted in the Main Contract, that is to be the contractually agreed method of calculating the ratio of the 1st plaintiff's entitlement to "the total share" of the film including all its revenues.

56. Once the correct basis is thus ascertained from the Main Contract, it matters not whether revenue could in some instances, be wholly applied for the benefit of the 1st plaintiff. The parties must abide by the formula agreed in the Main Contract.

57. Finally, it remains for me to make a Declaration in terms of paragraph (a)(a) of the prayer in of the 1st plaintiff alone. Miss Fu is content with 1 /8th and Mr Tong has not sought to challenge that ratio. I make a Further Declaration as prayed for in paragraph (a)(b) in favour of the 1st plaintiff. I also order an account to be taken by a Master with powers of all consequential enquiry, directions and/or discoveries. He shall also have power to award interest on whatever sum found due. I further order payment over by the defendant to the 1st plaintiff of the sum or sums so found due upon the taking of such account. Subject to what counsel have to say, the 1st plaintiff is to have costs against the defendant, including costs for the Counterclaim and all other costs reserved. The 2nd plaintiff's claims against the defendant are dismissed but with, for the reasons I have given, no order as to costs.