UNLIMITED PRODUCTION LTD v. FILMKO PICTURES LTD

BETWEEN

AND BETWEEN

BETWEEN

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J U D G M E N T

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Hon Tang VP (giving the judgment of the Court):

1.  The protagonists in these actions are Mr Yee Tung Sing Derek (“Mr Yee”), the 2^nd respondent, and Mr Wong Hoi Fung (“Mr Wong”).  Mr Yee is the shareholder of the 1^st respondent, Unlimited Production Limited (“UPL”) and Mr Wong, a major shareholder of the appellant, Filmko Pictures Limited (“Filmko”).

2.  Mr Yee is a well-known producer and director of motion pictures.  By an engagement contract in Chinese made in December 2000, UPL agreed to assign Mr Yee to provide Filmko administrative and production services for 6 to 8 motion pictures and direct 2 motion pictures for 2 years commencing 1 January 2001.  The total consideration was $6 million which were payable by instalments.

3.  In October 2002, Filmko terminated the engagement contract and stopped further payment.  By that time, Filmko had already paid $5.4 million to UPL.

4.  As the learned judge, Deputy Judge Poon, as he then was, explained:

“	6.	This led UPL to commence HCA4219/2002 on 7 November 2002 against Filmko, claiming for the balance of the remuneration of HK$600,000.  Filmko counterclaimed against UPL and Mr Yee for breach of the Engagement Contract in the sum of HK$1,542,857.14 under the Production part and HK$2,700,000 under the Direction part.
	7.	On 4 December 2002, Filmko commenced HCA4568/2002 against UPL and Mr Yee in connection with an alleged oral agreement (‘the TMS Agreement’) for the sale of the film and television production rights (‘the Underlying Rights’) in a novel entitled ‘The Third Master’s Sword’ (‘the Novel’).  It claimed for, inter alia, damages in the sum of HK$1,293,394.80.”

5.  After a trial which lasted 8 days, most of which were taken up by the oral evidence of Mr Yee and Mr Wong, the learned judge, in HCA 4219/2002, found in favour of UPL and dismissed Filmko’s counterclaim.  In HCA 4568/2002, the learned judge dismissed Filmko’s claim.

6.  CACV 401/2006 is Filmko’s appeal against the learned judge’s decision in HCA 4219/2002 (the engagement contract appeal).  CACV 402/2006 is Filmko’s appeal against the learned judge’s decision in HCA 4568/2002 (the Underlying Rights appeal).

7.  Mr McCoy SC, who appeared for Filmko, chose to address us orally only on one point in the Underlying Rights appeal.

8.  In relation to his other grounds of appeal, whilst he had not abandoned them, he made no oral submission, acknowledging that he faced the heavy burden of challenging findings of fact made by the learned judge.  He also acknowledged that if he could not succeed in the Underlying Rights appeal, he could not succeed in the engagement contract appeal.

9.  Both actions turned on the credibility of Mr Yee and Mr Wong.  The learned judge said:

“	F. Credibility
	53.	This action is essentially dependent on the credibility of Mr Yee and Mr Wong.  So is HCA4219/2002.  It is therefore useful for me to state expressly my finding on their credibility.  I find Mr Yee a truthful and reliable witness.  On the other hand, I find Mr Wong an unsatisfactory and unreliable witness.  I will accordingly consider Mr Wong’s evidence in HCA4219/2002 with a pinch of salt.”

10.  It is also clear from the judgment that on every major issue where there was a conflict between Mr Yee and Mr Wong’s evidence he accepted Mr Yee’s evidence.

11.  We are not entitled to disturb the finding of primary fact unless we are satisfied that the learned judge’s conclusion is plainly wrong.  Tin Kwong International Enterprise Co Ltd and Ors v San Tung and Anor [2006] 2 HKLRD 185.  This is a case where we are satisfied that not only was the learned judge not plainly wrong, with respect, he was plainly right.

12.  We will not deal with the arguments outlined in Filmko’s written submissions.  The points were at best nit-picking.  But for Mr McCoy’s realism so that the appeal was essentially fought on one point, we  might have considered a more draconian costs order against Filmko.

13.  The only point on which Mr McCoy addressed us arose out of the following passage in the judgment:

“	(8) Mr Yee’s letter dated 7 October 2002
	48.	For completeness, there is a document that I need to deal with.  It is a letter written by Mr Yee to Mr Wong dated 7 October 2002.  By that time disputes between the parties had already arisen.  In that letter, Mr Yee stated that ‘本人亦將購得該片之版權讓給Filmko’.  However, Mr Chung, who conducted the cross-examination, has not cross-examined Mr Yee on this letter.  And Mr McCoy, in his closing submissions, made no reference to or placed any reliance on it either.  In such special circumstances, I am not going to place any weight on this letter.”

14.  The relevant passage is “本人亦將購得該片之版權讓給Filmko” (“the passage”).  Mr McCoy submitted that the passage supported Filmko’s case.

15.  Mr McCoy submitted that although Filmko’s counsel had not cross-examined Mr Yee on the passage, that did not mean that the passage should have been disregarded by the learned judge.  He submitted that counsel’s duty was to put to Mr Yee any significant differences from his own case, so when counsel asked no question, he should be deemed to have accepted the witness’ account.

16.  However, in the oral evidence of Mr Yee, he did not touch upon this passage.  Although Mr Yee had referred to the letter of 7 October 2002 in his witness statement he had not touched on the passage.  Moreover, it is quite clear from Mr Yee’s case and his oral evidence that he had disputed the Filmko’s allegation that there was any agreement to sell or transfer the underlying rights to UPL in the sense of alienating them.

17.  Mr McCoy accepted that counsel ought to have made reference to the passage in his closing submission, but he submitted that the learned judge failed to take into account that UPL and Mr Yee’s counsel also had made no reference to the passage in their closing submissions.

18.  Mr McCoy submitted that the learned judge ought to have recalled the parties and heard additional evidence and submission in regard to the passage and invite counsel to make submissions on the passage.  He also submitted that the learned judge ought to have found that the passage corroborated the plaintiff’s case that UPL and Mr Yee had agreed to and did sell the underlying rights of novel to the plaintiff.

19.  Mr McCoy compared Filmko’s position with an applicant seeking admission of fresh evidence on appeal.  He submitted that the passage, if it had been referred to at trial, would probably have had an important influence on the result of the case and since the passage was in a letter from Mr Yee and hence credible, the court should have acted accordingly.  He submitted that it might be appropriate to order a new trial.

20.  We do not believe Ladd v Marshall to be relevant.  Nor can we agree with Mr McCoy’s submission that Filmko was in the same position as an applicant who has satisfied the first Ladd v Marshall condition.  The first condition required that the evidence could not have been obtained with reasonable diligence for use at the trial.  Here, the evidence was available at trial.  Its significance, if any, had been overlooked by those acting for Filmko.  I should add that although Mr McCoy appeared at the trial, he was brought in on 14 June 2006, the third day of the trial, and he was not involved in any of the oral evidence.  Nor could he read Chinese.

21.  Here, Filmko’s position could be compared with the position of an appellant who seeks to take a point which was not taken at the trial, but for the first time in the Court of Appeal.  In that situation:

“

… a Court of Appeal ought only to decide in favour of an appellant on a ground there put forward for the first time, if it be satisfied beyond doubt, first, that it has before it all the facts bearing upon the new contention, as completely as would have been the case, if the controversy had arisen at the trial; and next that no satisfactory explanation could have been offered by those whose conduct is impugned if an opportunity for explanation had been afforded them when in the witness box.” Per Lord Herschell in The Tasmania [1890] 15 App Cas 223 at 225.

22.  On this basis, the new point based on the passage would not be allowed to be taken.

23.  Moreover, we are of the view that the passage is equivocal and is consistent with Mr Yee’s case.

24.  Filmko’s case was that UPL and Mr Yee orally agreed to sell to Filmko the Underlying Rights.  It is important to note that Filmko sought rescission of the oral agreement primarily on the basis that the oral agreement was induced by fraudulent misrepresentation by Mr Yee.  The alleged misrepresentations, where relevant, were:

“	… the 1st and 2nd Defendants represented to the Plaintiff and thereby warranted:-
	(a)	that at all material times, the 1st and 2nd Defendants had legally acquired, inter alia, the said copyrights by an agreement (the ‘said agreement’) with Cheung Pang Yee (‘張鵬義’), the legal attorney and the representative of Hung Ching Tat (熊正達), who is the son and the heir of the original copyrights owner of ‘The Third Master’s Sword’ (the ‘said legal attorney’) and that the 1st and 2nd Defendants were entitled to sell the said copyrights to the Plaintiff for the Plaintiff’s production of motion pictures and television series; and …”

25.  The evidence showed quite clearly that UPL and Mr Yee had entered into an agreement dated 30 November 1999 (“the Zhang Agreement”) to acquire the Underlying Rights for the sum of HK$140,000.  That agreement also provided by clause 3 that the Underlying Rights were not transferable during the currency of the Underlying Rights.  Clause 3, however, contained the important proviso that the prohibition against transfer did not apply to the motion or television picture after completion.

26.  Mr Yee’s case is that there was no sale of the Underlying Rights:

“

25.

… Mr Yee explained that there is no need for an investor to acquire ownership or assignment of the right to produce the movie.  The objective of the investor would be to obtain a return for his investment by exploiting the end product, which is the movie.  The important thing for the investor would be to obtain the relevant intellectual property rights in the film, rather than to obtain the right to make the movie.  It would be part of the agreement between the investor and the producer that the producer would assign the relevant rights in the film to the investor.  Mr Yee said it was in fact the trade practice in the film industry.  His evidence on trade practice is corroborated by Mr Sham.”

27.  Mr Sham’s evidence was not contradicted.  According to Mr Sham:

“	4.	Typically, where the production of a film is based on some other works for instance, novel, the first stage in the production of a film in Hong Kong is the acquisition of the necessary legal rights in the works.  Such rights are usually referred to in the film industry as the ‘underlying rights’ and generally consist of literary, dramatic, musical or artistic works.
	5.	In general, a producer will at the outset acquire a right to adapt the work into a dramatic work by way of screenplay, as in the case of ‘The Sword of the Third Master’(三少爺的劍).  The screenplay will then be available to the producer to enable him to solicit finance for the production of the film.
	6.	Having acquired the right of adaptation, a producer will generally, either by himself or by commissioning a scriptwriter, prepare an outline or treatment of the work on which it is proposed to base the film.  An outline is, as its name implies, a short document giving a brief guide to the proposed film, whereas a treatment generally comprises a summary of the plot, sample dialogue and character analyses.  Such documents are generally prepared for the purpose of raising finance for the next stage of the film production process or, where a theatrical film is concerned, to attract a star name who will make it easier to obtain financing for the film.
	7.	Where the producer does not finance the screenplay himself he will generally approach a film investor, for the initial finance to commission the screenplay and ‘develop’ the acquired underlying rights.  Where such funds are forthcoming, ‘development’ will comprise the commissioning from a scriptwriter of a screenplay based upon the underlying idea or material, and the preparation of a production schedule and budget based upon the screenplay for the film.
	8.	Such underlying rights need not be ‘sold’ to the investor(s).  The investor(s) is only investing in the film’s production and need not have ownership to the underlying rights of the original material.  The investor(s) of the film would only own the copyright to the film which is made as a result.
	9.	This practice is to :
		(a)	prevent the film production company from ‘trading’ in film rights by buying at a lower cost and selling at a higher cost with no intention of producing the film; or
		(b)	ensure that the film production company is accountable to the original copyright owner in making the film according to the ideas of the original material.
	10.	The above is a very standard procedure which is recognized in the film industry.”

28.  The learned judge then concluded:

“	33.	In my view, the trade practice makes very good commercial sense for an investor.  He does not need to bother himself with acquiring the right to produce the movie.  For he can utilize the right through the collaboration of the producer.  And for the copyrights in the movie which are his prime concern, as noted, the investor will be able to acquire the rights by assignments from the director and producer.
	34.	Mr Yee’s case on how he dealt with the Underlying Rights in the Novel is entirely consistent with the trade practice while Mr Wong’s case on the TMS Agreement is not.”

And we might add entirely consistent with the proviso to clause 3 of the Zhang Agreement.

29.  In our view the passage is also consistent with Mr Yee’s case that Mr Zhang (Mr Cheung) had no objection to his exploiting the Underlying Rights in collaboration with an investor.

30.  We do not believe the learned judge could be faulted for not recalling the parties.  We do not accept that the learned judge had a duty to do so.  But of course, the learned judge was perfectly entitled to recall the parties if in preparing his judgment, he came across any matter on which he thought assistance from the parties might be helpful.  This was obviously not one of those cases.  The fact that the learned judge did not see fit to recall the parties or invite submission supports the view that the learned judge did not regard the passage as significant.

31.  We are also of the view that if Filmko wished to attach significance to the passage the court’s attention should have been drawn to those words in the final submissions.  It is unacceptable for the point to be taken for the first time in the Court of Appeal.  We do not regard it as the duty of UPL and Mr Yee to draw the learned judge’s attention to the passage which was not inconsistent with their case and to which they attached no significance.

32.  Nor do we agree with Mr McCoy that it was unnecessary for those acting for Filmko to cross-examine Mr Yee on the passage.

33.  Mr Martin Lee SC drew our attention to the helpful decision by Hunt J in the Supreme Court of New South Wales in Allied Pastoral Holdings Pty Ltd v Federal Commissioner of Taxation [1983] 44 ALR 607 at 652.  There the judge gave the example of an issue between X v Y, whether X was in Melbourne upon a specific date and at a specific time.  The burden was on X to prove that he was not in Melbourne.  He gave evidence-in-chief that he spent the whole day in Sydney with A and B.  This is what Hunt J said at page 632:

“	(5)	Y does give fair warning that the evidence of X is challenged, by putting to him simply that he was in Melbourne at the time and place where C and D saw him; there is in evidence (upon some other issue), whether tendered by X or by Y, a diary kept by X in which there is an entry that X had an appointment to see Z in Melbourne on the relevant date and at about the relevant time; Y does not draw any attention to this entry during the course of the evidence, but asks the tribunal by reason of the existence of this entry in the diary to disbelieve the evidence of X. It is the situation postulated in (5) which is applicable in the present case.
		In accordance with the decision of the Court of Appeal in Cullen v Ampol Petroleum Ltd, supra, consistently with all the other authorities to which reference has been made, and provided that such a use of the diary had not in any way been foreshadowed, it would in my view be wholly unfair for Y to rely upon the diary in seeking to have the tribunal of fact disbelieve the evidence of X that he was not in Melbourne. If the diary had been put to X, or its significance had in some other way been made apparent, X could have explained, for example, that the entry had been made in error, or that the appointment had been cancelled, and he could have called Z to corroborate his explanation for the existence of the entry. In the absence of forewarning, X would have no chance to do any of these things. He would, to use the expression of Holmes JA in Cullen, have been well caught in an ambush.”

34.  Moreover, since it was clear that Filmko had a copy of the Zhang Agreement since about December 2001 (at the latest), the learned judge thought that having regard to the prohibition in clause 3 it defied common sense that there was no complaint from Filmko until the commencement of proceedings.

35.  The learned judge’s rejection of the oral agreement is unassailable.  The passage does not in any way cast any doubt on the correctness of the decision.

36.  For the above reasons, the appeals are dismissed with costs to be taxed if not agreed.