FASHION CHANNEL PUBLISHING s.r.l. v. FASHION ONE TELEVISION LTD

DCCJ 2981/2012

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 2981 OF 2012

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J U D G M E N T

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1.  The plaintiff is an Italian company carrying on business as a television content provider. The defendant is a local company operating a television broadcasting network. The plaintiff provided television contents to the defendant in late 2011 and now claims against the latter for payment due under two invoices.

Background

2.  The parties had previous dealings in the past.  In early November 2011, they commenced discussion on provision of television contents by the plaintiff for the defendant’s use on its broadcasting network.  The discussion matured as evidenced by an email from Mrs Jordan of the defendant (“Jordan”) to Mr. Nocera (“Nocera”) of the plaintiff dated 10 November 2011 and the defendant sent to the plaintiff a draft written agreement via an email of 16 November 2011 (“Agreement”) which the plaintiff signed and whereby the plaintiff agreed to provide to the defendant:

(a) 50 shows (fully edited and ready to broadcast fashion shows each of 12 to 15 minutes in length) at 300 Euro each; and

(b) 50 video clips (fully edited and ready to broadcast fashion show clips) at 300 Euro each.

3.  The Agreement contains several sections.  The first one deals with the contents and deliverables setting out in the form of guidelines the defendant’s requirements as to contents, audio recording, and output formats/specifications and providing the defendant with an “option to reject any material if the shooting is sub par, the material is not engaging (ie: the delivery is not to Fashion One’s standards and guidelines)”.

4.  Oddly enough, in her email to Nocera dated 18 November 2011, Jordan wrote “after reviewing the full shows and the clips, and going back and forth on this deal due to the price point, we’ve unfortunately decided that we will not be moving forward with the contract…we feel that much of the content we already have (at least portions of) and that the price is just too high to justify the content.”

5.  By late November 2011, the plaintiff had delivered 50 shows and 50 clips to the defendant pursuant to the Agreement (on top of another 10 shows the plaintiff delivered to the defendant prior to 16 November 2011).   The defendant admitted to have used and aired some of the shows.

6.  The plaintiff issued two invoices to the defendant in late November and early December 2011 demanding payment of 33,000 Euro for the 60 shows and 50 clips.  The defendant refused to pay, hence the present action.

7.  The defendant has all along been acting in person and was initially represented by one Mr. Gleissner (“Gleissner”) and then by one Mr. Livshits (“Livshits”).  A defence was filed admitting the plaintiff’s delivery of a total of 60 full shows and 50 clips which were evaluated by the defendant but otherwise denying approval thereof by the defendant.  It is averred that the materials provided by the plaintiff had serious quality issues and that the same had been rejected by the defendant.  It is said that several clips were outdated and unsuitable for a television network while several clips did not originate from the plaintiff but were provided by fashion houses for free, which is a material breach of the Agreement.  It is further averred that the material did not meet the contractual specifications.  The defendant relies on the provision in the Agreement which specifically provides that “Fashion One has the right to deny purchase of any content that is not fitting or does not pass QC (quality control)”.  The defendant claims to have “unambiguously rejected all of the material in subsequent correspondence and exercised its contractual right not to purchase any of the material”.  The defendant seeks to set off the loss and damages it suffered as a result of the plaintiff’s alleged breach and a sum of US$1,600 due from the plaintiff by way of certain advertising revenue.

8.  In its Reply, the plaintiff addresses the defendant’s complaints about its materials and avers that the defendant was fully aware that the plaintiff would make use of archived materials and clips produced by fashion houses for production of the shows and clips and that they were delivered in the specified format/specification.  The plaintiff however admits to have agreed with the defendant that the plaintiff would pay the said sum of US$1,600 to the defendant upon the latter settling the plaintiff’s invoices and upon receipt of the latter’s invoice for the amount. While there is no evidence of the defendant having issued an invoice for the sum of US$1,600, there is no reason why, in light of the plaintiff’s admission, this should stand in the way of an award being made in the defendant’s favour for that amount, especially if one treats the counterclaim as a demand for payment of the agreed sum.  In any event, Miss Percy Yue, counsel for the plaintiff, made no submission or otherwise argued that the plaintiff is not liable to pay the sum of US$1,600. 

The plaintiff’s case

9.  Miss Yue put forward the plaintiff’s case as thus: a written contract between the parties was concluded when Nocera for the plaintiff signed and returned the Agreement to Jordan for the defendant on 17 November 2011.  Further or in the alternative, the plaintiff had properly performed its part of the Agreement by delivering the shows and clips to the defendant who admits to have received and evaluated the same.  By accepting the shows and clips from the plaintiff, the defendant had acknowledged and accepted the Agreement by conduct.  The defendant is therefore liable to pay for the materials so provided.

Nocera

10.  Nocera is the only factual witness of the plaintiff.  In his witness statement, he describes the plaintiff as a production and publishing company who specializes in the production of fashion entertainment related video contents and who has one of the largest database and video archive of fashion related video contents and is one of the largest content provider for television networks around the world. Between 2009 and mid 2011, he liaised with one Mr. Bakalenik of the defendant in providing video contents to the defendant.  Towards the end of August 2011, he was approached by Gleissner, CEO of the defendant and after some exchanges of emails they met in Milan a few weeks later to discuss their future collaboration.  Soon afterwards, Gleissner and Jordan, a director of the defendant, approved a list of contents prepared by the plaintiff.  Delivery of video contents to the defendant would be effected by uploading files onto the defendant’s server based in Cebu, the Philippines, to be followed by delivery a hard disk of the same contents for the defendant’s deployment. 

11.  On 10 November 2011, Jordan confirmed by email she would like to move forward with the first block of 50 clips.  On 12 November 2011, Jordan wrote again to confirm she would like to move forward with the full shows as well.  In order to stay inside the budget of 300 Euro per clip, Gleissner requested the plaintiff to use materials from the plaintiff’s archive.  On 16 November 2011, he wrote to Jordan to say the contents would be archive materials retrieved from the plaintiff’s video library which the plaintiff would re-edit exclusively for the defendant.  A few hours later, he received an email from Jordan attaching the Agreement for his signature.  Upon receipt of the Agreement, he signed and returned the same to Jordan by email.  Jordan later confirmed by email that she had aired some of the shows uploaded onto their server pursuant to the Agreement.  On 29 November 2011, however, in an email addressed to her staff Jordan denied the validity of the Agreement and instructed her staff not to settle the plaintiff’s invoice sent the day before.  A telephone conference was then held on 2 December 2011 among Nocera, Jordan and Gleissner during which the defendant’s representatives neither raised question as to the quality of the shows/clips already delivered nor questioned the validity of the Agreement.  As agreed during the telephone conference, the plaintiff sent another batch of 31 clips to the defendant to complete what was required by the Agreement.

12.  In his testimony, Nocera referred to the past dealings between the parties and said the defendant had previously rejected about 5 to 10% of the plaintiff’s video contents such as when it found the same to be vulgar and the plaintiff provided replacement contents.  Hard disks that followed the uploading of video contents were meant for back up and the defendant would indicate its rejection of video contents via email and would not return the hard disks.  He further explained the difference between shows and clips, namely, the former being presentation of individual designers’ works usually 10 to 12 minutes long while the latter special highlights of events edited into 3 minutes clips.  Production of clips was more demanding given their short length. 

13.  In the instant case, Nocera admitted that the defendant complained that some of the video contents sent in late November were not up to date.  Before the 2 December 2011 telephone conference, the plaintiff had therefore sent extra full shows and clips for replacement purposes.  During the telephone conference, Jordan did not deny the validity of the Agreement or complain about the quality of the replacement contents other than saying that she was still watching the materials already sent and would indicate if the same were not acceptable.  Instead the parties arrived at a compromise whereby the plaintiff agreed to deliver another 31 clips, which were all newly created clips as Jordan said she did not like the contents from the plaintiff’s library.  

14.  Nocera confirmed that Jordan did take issue with the copyright of a certain clips prepared by adapting free footages from Pirelli (“Pirelli clips”).  He emphasized that the plaintiff did have Pirelli’s permission to re-distribute their materials and the Pirelli clips were prepared from footages provided by Pirelli and fell within the permission from Pirelli.  The plaintiff was charging for editing/formating work done to the footages provided by Pirelli and not for the value of such footages per se.  When Jordan complained about the Pirelli clips, Nocera proposed to replace the same and there was no further discussion on the subject. 

The Defendant’s evidence

15.  The defendant has all along acted in person in this Action and did not file any opening submission.  While both Jordan and Livshits had given a witness statement, only Livshits attended the trial to give oral evidence while Jordan was reportedly prevented by inclement weather in the United States from flying back to Hong Kong.  Livshits sought leave to rely on Jordan’s witness statement, to which Miss Yue raised no objection.  This is practically all the defendant has adduced by way of evidence in these proceedings as it has filed no list of documents and chooses to reply on the documentary evidence adduced by the plaintiff.

16.  I should note at the outset that Gleissner has not given evidence in this Action despite his involvement in the formation of contract herein.  Indeed, apart from attending the initial case management summons hearing as the defendant’s representative authorized under Order 5A, rule 2 of the Rules of the District Court, Gleissner had absented himself from the rest of the interlocutory process and Livshits had attended all further hearings in his stead without proper authorization.  Livshits was not properly authorized to represent the defendant until a few days before trial.  There being no satisfactory explanation for not calling Gleissner to give evidence in support of the defendant’s case, adverse inference can and should be drawn that if Gleissner had been called as a witness, his evidence would not have supported the defendant’s case.  See Wear Me Apparel LLC v Lam Na also known as Lin Na (HCA 149/2009), unreported, 17 January 2012, Sakhrani J at §89.

17.  Livshits says in his witness statement that as the chief operations officer of the defendant his duty was to approve the technical specification of all purchased contents.  He confirmed the receipt of a drive on 28 November (2011) containing 70 clips (and shows) from the plaintiff.  He and his quality control team then went over all the clips and compiled a report on 5 December (2011) about the image quality of several clips which failed to pass quality control.  The report was passed to Jordan.  On 23 December (2011), he received another 48 clips which were similarly reviewed by him and his QC team and another report was complied. This time Livshits had significant concerns over the copy rights of certain contents including the Pirelli clips.  In the same report, certain clips were said to be outdated and did not match the programming of the defendant.  This second report was passed to Jordan only in early January (2012) due to intervening holidays.  Livshits does not explain what happened after the two reports were passed to Jordan.  Nor does he exhibit such reports or explain exactly how the shows/clips in questions failed to pass quality control.

18.  In his oral evidence, Livshits told this court he had a master degree in psycholinguistics but was otherwise not a “technical man” despite his previous job experience in high technology businesses.  He explained the modus operandi of his quality control team who focused on the technical aspects of incoming contents and left aesthetic issues to a separate department.  He further explained the workflow of his team back in 2011 in that, given the large volume of incoming contents on the defendant’s server, they would not review any contents until the responsible personnel notified them that a deal had been struck in relation to the same.

19.  As regards the contents of Jordan’s witness statement, Livshits was invited to go through the same and see if he had personal knowledge of the matters canvassed therein.  As it turned out, Livshits had very little knowledge of what Jordan had averred to in the statement.  Much of Jordan’s witness statement therefore remains hearsay evidence to which I can give no weight insofar as it can be determinative of the issues in dispute.

Discussion and findings

20.  From the above, one can readily conclude that there was a contract subsisting between the parties hereto.  For one thing, it is not the defendant’s pleaded case that there was no contract at all.  All the defendant is seeking to achieve is to establish a breach on the plaintiff’s part in failing to provide materials in compliance with the Agreement.  In any event, I agree with Miss Yue’s submission that a contract was formed at the time Nocera signed and returned the Agreement. 

21.  By delivering the shows and clips to the defendant who has admittedly received the same and subjected the same to quality control (which Livshits’ team would perform only if there was a contract) and aired some of them, the plaintiff had performed its part of the Agreement and is therefore entitled to payment, subject only to the defendant’s right to reject the contents under the Agreement. 

22.  The burden lies squarely on the defendant to prove the plaintiff to be in breach of the Agreement.  From the above, one can readily see that the defendant’s case is doomed to fail when the defendant chose not to adduce any documentary evidence in support of its case and/or when it decided not to call Gleissner to rebut the plaintiff’s case about the use of materials from the plaintiff’s archive. 

23.  Without Gleissner’s evidence, Nocera’s evidence that it was Gleissner who requested him to use materials from his archive so as to stay within the budget of 300 Euro per clip, which is corroborated by Nocera’s email to Jordan just hours before the latter sent out the Agreement for Nocera’s signature, goes unchallenged and would provide a complete answer to the defendant’s complaint about the outdatedness of the plaintiff’s video contents.  Insofar as is necessary, the court is entitled to take this background fact into account in deciding if the terms of the Agreement preclude the plaintiff from using materials from its archive.  Strictly speaking, this is unnecessary as there is no specific requirement in the Agreement for the plaintiff to produce everything from scratch. 

24.  Livshits had tried to argue otherwise by referring to a clause in page one of the Agreement which reads “You are responsible for producing, shooting, editing and delivering the Project.”  For one thing, it is not the defendant’s pleaded case that the plaintiff’s shows/clips were rejected because they were not fresh production by the plaintiff.  In any event, one can hardly extrapolate from this clause such a requirement, which is not in accord with business commonsense in the present context.  Livshits did not dispute Nocera’s claim that the plaintiff has one of the largest database of fashion related video contents.  Given the short span of time in which the plaintiff managed to provide 100 video shows/clips in accordance with the Agreement and such swiftness did not take the defendant by surprise, it would be fanciful to suggest the plaintiff was supposed to start from scratch and could not tap into its large archive.   Whether on a plain reading of the terms of the Agreement or after taking into account the factual background to the formation of contract, my conclusion is the same, that is, the Agreement does not preclude the plaintiff from using materials from its archive.  Of course, judging from the way the parties had dealt with each other in the past, Jordan might well feel able to request something more up to date and Nocera might well be accommodating enough to comply.  This however would not necessarily suggest any breach of contract on the plaintiff’s part.  It is for the defendant to prove any breach and the defendant has failed so to do.

25.  Also goes unchallenged is Nocera’s evidence that upon receiving Jordan’s complaint either about the outdatedness of video contents or copy right issues, he provided replacement contents with which the defendant did not take issue.  Indeed, with no evidence from Gleissner and with Jordan’s absence from the trial, Nocera’s evidence on what was discussed and agreed during the telephone conference on 2 December 2011 similarly goes unchallenged.

26.  Regarding the quality of the shows/clips uploaded to the defendant’s server and reviewed by defendant’s quality control team, the defendant’s failure to adduce any documentary evidence and not even the reports prepared by the quality control team is fatal to the defendant’s case.  All the defendant has offered by way of evidence is the oral evidence of Livshits who, however, is not an expert and is not professionally qualified to address the quality issues.  That being so, there is not even one single piece of concrete evidence to attack the quality of the plaintiff’s shows/clips. 

27.  The same applies to the defendant’s query about the copyright of some of the materials provided by the plaintiff.   In this regard, Livshits admitted that the defendant was relying solely on the Pirelli’s clips and nothing else.  Jordan did explain in her witness statement how the defendant came to be doubtful about the plaintiff’s right to use the footages from Pirelli.  Without Jordan’s personal attendance in court to testify to the same and further subject herself to cross examination, this court can attach no weight whatsoever to her evidence.  Even if Jordan managed to testify in court, the defendant would still not be able to make good its case without the copyright owner coming forward to testify on any infringement of copyright.  There is simply nothing to challenge Nocera’s evidence that the plaintiff had the permission from Pirelli to use the latter’s footages.  Livshits did tell this court that he found the plaintiff to have done nothing to the Pirelli’s footages other than cutting the same into two shorter ones and adding a title to each of them before delivering the same to the defendant as the Pirelli clips.  However, Livshits did not (and probably could not) challenge Nocera’s evidence that he had proposed to Jordan to replace the Pirelli’s clips and Livshits had admittedly received way more than 100 shows/clips from the plaintiff which might well have covered the replacement of the Pirelli’s clips.  More importantly, the defendant has not produced in evidence the Pirelli clips to show they are not in compliance with the Agreement.  This court cannot rely on the bare assertion of the defendant’s witness in determining this issue. 

28.  Furthermore, despite its pleaded case that it had unambiguously rejected the plaintiff’s materials, there is very little evidence of the defendant having properly notified the plaintiff of its rejection of the video contents and the grounds thereof in exercise of its right under the Agreement to “deny purchase of any content that is not fitting or does not pass QC”.  Among the limited evidence, there is only an email from Jordan to Nocera dated 5 December 2011 in which Jordan said she could not purchase the clips because “they are just terrible”; “materials from 06’ – 5 years old content” and “many of the clips do not pass QC and the voice over is atrocious”.  For one thing, Jordan said in the same email that she found the quality of the full shows “very good and the QC was not a limit to accept thems and pay”.  There is therefore no reason for the defendant not to pay for the shows.  I have dealt with Jordan’s complaint that the clips were not up to date.  As to the alleged failure of the clips to pass QC, Jordan did not provide any particular whatsoever or attach Livshits’ quality control report.  Clips that are “terrible” with “atrocious voice over” would not necessarily fail to comply with the defendant’s guidelines as set out in the Agreement.  In the absence of clear evidence, it is doubtful if the defendant’s right to reject the plaintiff’s materials was triggered at all.  

29.  The defendant (or at least Jordon) seems to think it is entitled to reject all video contents from the plaintiff should it find any problem with some but not all of the contents.  As Miss Yue pointed out, the shows and clips were individually priced under the Agreement.  Even if the defendant is entitled to reject any such materials on the grounds that the shooting is sub par or the material not engaging, the defendant’s right of rejection should be limited to those proven to have failed to meet the contractual requirement but not wholesale rejection of all materials simply because some of them are defective, especially when the defendant had used and aired some of the materials.  In any event, on the plaintiff’s unchallenged evidence, the plaintiff had provided replacement contents in response to the defendant’s complaints and Jordan had no complaint about the replacement.   

30.  On the other hand, Jordan’s email to Nocera dated 18 November 2011 appears to have revealed the true state of mind of the defendant when Jordan said they “feel that much of the content we already have (at least portions of) and that the price is just too high to justify the content”.  This is simply a case of a contracting party having a second thought soon after concluding a contract and seeking to free itself from the contractual burden.  On the facts of this case, there is no basis for the defendant to absolve itself from its contractual liability.

Conclusion

31.  The defendant has failed to make good its defence and the plaintiff is entitled to payment of its invoiced amount.  This should however be set off against the said sum of US$1,600 which the plaintiff has admitted to have agreed to pay to the defendant. 

32.  There shall be judgment in favour of the plaintiff for the sum of 33,000 Euro or the Hong Kong dollar equivalent at the time of payment, to be set off against judgment in favour of the defendant in the sum of US$1,600 or the Hong Kong dollar equivalent at the time of payment, to leave the net balance due to be paid by the defendant to the plaintiff.  The net balance shall carry interest at judgment rate from the date of writ until judgment and thereafter at judgment rate until payment.

33.  As the plaintiff comes out as the overall winner, costs should follow the event and the plaintiff should be entitled to its costs of the action.  See A.L. Barnes v. Tim Talk (UK) Ltd [2003] BLR 331 at§28.  While the defendant has succeeded in recovering the sum of US$1,600 by way of counterclaim, this has required no argument and hardly occupied any court’s time and should therefore give no grounds for depriving the plaintiff of its costs or ordering the plaintiff to pay the defendant’s costs.

34.  I make an order nisi thatthe defendant do pay the plaintiff its costs of this action, to be taxed if not agreed with a certificate for counsel.  The order nisi shall become absolute unless an application is made for variation of the same within 14 days from the date of judgment.