Asia Television Ltd v Yau's Entertainment Pty Ltd

Authorisation by Mr Tsao? 42 The first factual dispute to resolve is whether Mr Tsao did authorise the actions by Mr Yau as alleged. Mr Tsao was called and denied it. He has not had any connection with either applicant for many years, as he had effectively been dismissed in September 1992. There is no contemporaneous record of the arrangement. It is not referred to in the facsimile sent by Mr Yau to Mr Tsao after the visit, nor in the note of agreement as to the terms of the new licence agreement to operate from 1 June 1992. It is not contended that the arrangement was ever referred to by Mr Yau with any senior executive of ATV or ATVE other than Mr Tsao. The most that can be said is that Mr Ng visited various sub-licensees' shops during his visit in August 1998, and had the opportunity of observing the practice. Mr Ng says he did not observe the practice. The evidence given by the Yaus concerning advice from ATVE officers as to the timing of programmes to record was very general. It would not be practical to call evidence to rebut it. No senior executive was aware of any such practice. 43 Mr Tsao did not qualify his evidence during the course of cross-examination and, although I observed the cross-examination on video link, I did not receive the impression that he was telling untruths. The supposed authorisation is inherently unlikely. As Mr Tsao indicates, he was not concerned with matters of marketing which Mr Yau put forward as the justification for the authorisation. Furthermore, such authorisation, as I later hold, would have been inconsistent with the various agreements entered into subsequently, and would be against the commercial interests of a licensor as normally perceived. If Mr Yau had received the authorisation that he now claims, there is no reason why that could not have been referred to, albeit briefly, in the letter from the solicitors for Yau's Entertainment replying to the letter of 7 April 1999 from Gilbert & Tobin. 44 Indeed, I am not at all convinced that the practices in question had been carried on for the number of years which the Yaus now claim or concede. From the point of view of relief, it no doubt suits the applicants to accept those concessions. However, when I look at the objective sequence of events, the hypothesis is open that they were instituted by Mr Yau in June 1998 as a result of his great concern as to the relationship between the applicants and Chinatown Entertainment during 1998, followed by the change of control of ATV and the announcement of much reduced supply of ATV-produced material in June of that year. 45 If the practice were as long-standing and widespread as the Yaus now suggest, it is odd that it was not observed by Mr Wing Cheung and his licensees until December 1998. It is clear that, by January 1998, there was discussion between Mr Wing Cheung and executives of ATVE concerning so-called pirating of Fee Tang programmes in Australia, and the obtaining of evidence as to the involvement of Yau's Entertainment in this. Mr Wing Cheung also forwarded the advertisement in September to ATVE. There is little doubt that he would have lost no time in reporting any evidence of pirating ATV programmes by Yau's Entertainment, and evidence of wrong attribution of ATV to other programmes, if he or the sub-licensees had noticed this. Indeed, Mr Wing Cheung did report his observations in late December 1998 of what was occurring in Yau's Entertainment sub-licensees' stores to ATVE. By that time, of course, Mr Yau's concerns about the relationship between ATVE and Chinatown Entertainment were exacerbated because of the failure to proceed against Chinatown Entertainment for the unauthorised use of the ATV name and logo. It is also odd that Mr Ng did not notice any such conduct on his trip to Australia in August, when he did go to some sub-licensees. If he had observed it, he certainly would have raised the issue. It is a fair assumption that the practice was not being followed in those sub-licensees' stores that Mr Ng visited. The first objective evidence of the practice is in June 1998. 46 In any event, by late 1998 and during early 1999, the practices were being carried out on a significant scale without authorisation by ATV or ATVE. ATV production required? 47 I shall return to consider the consequences of this finding of fact after dealing with another important issue, namely, whether the programmes to be supplied under the licence were to be produced by ATV. The offer of 16 April 1997, which was accepted by Yau's Entertainment on 18 April, was on the letterhead of ATVE, which was identified as a subsidiary of ATV, and was headed (or captioned) "Exclusive Homevideo License Contract for Australia and New Zealand For The Period 1 June 1997 to 31 May 2000". As the dispute has turned on Cantonese drama, I will concentrate upon that issue. The programme was described as "various titles of new drama programmes", the programme length was 390 hours, and the language Cantonese. The relevant schedule proceeds: "2. All title selections are subject to ATVE's approval. 3. Subject to ATVE's prior approval, the Licensee has the option to request for the supply of programme(s) in excess of the Programme Length as specified hereabove. The excess Programme Length is defined as Additional Programme." 48 Clause 13 of the offer was in the following terms: "Copyright: All copyright in the Programmes including copyright in the dubbed soundtrack made by or for the Licensee for the Programmes belongs to ATVE." 49 A power of attorney was given to Yau's Entertainment dated 25 April 1997. Paragraph 1 of it was in the following terms: "To lodge complaints and reports with the police and inquiring officials and to commence prosecute enforce defend answer oppose or prosecute to judgment and execute all civil and/or criminal actions suits and other legal proceedings and demands in Australia and New Zealand and in all Courts of law, police stations and governmental organisations under the copyright laws of Australia and New Zealand which are touching or incidental or ancillary to the protection of ATVE's rights and interests concerning ATVE's copyright and all right in the nature of copyright subsisting in Australia and New Zealand in all the cinematograph works which have been solely produced by ASIA TELEVISION LIMITED (ATV)." 50 The matrix of facts against which the licence must be construed includes the fact that ATV conducted free-to-air television in Hong Kong showing drama in Cantonese in competition with TVB. In Australia, ATV and TVB had established networks of distributors of home videos made from the Hong Kong programmes. 51 Part of the matrix of facts is the circumstance that there are many sources of Cantonese language programmes, including producers in mainland China and Taiwan, of variable quality and cost. If the licence does not require that the programmes be produced by ATV, then there is no other limitation which has been suggested which would prevent the licensor from supplying low-quality, cheap Cantonese language drama programmes produced by others under the licence at the rates set out in the licence. 52 Against that background, it seems to me that the provisions of clause 13 of the agreement and clause 1 of the power of attorney support the inference that it is assumed that ATV had solely produced the programmes to be supplied under the licence. This is expressly stated in clause 1 of the power of attorney, and is consistent with clause 13 of the licence. 53 I do not regard the letter of 16 April 1997 and its acceptance as being a formal agreement in the ordinary sense. It is rather like heads of agreement, which contain all of the necessary terms to be enforceable, but does not endeavour to spell out in detail all that would be covered by a formal licence agreement. The task of construing such a document is rather different from that involved in construing a document which purports to set out all the details of an arrangement. The task is to infer the details which are agreed, rather than to imply terms. In the present case, that involves identifying the subject matter of the agreement. I dealt with a somewhat similar issue in Roxborough v Rothmans (1999) 167 ALR 326 at paragraphs 101 and 113-4, and do not repeat what I said there. 54 The respondent's construction of the licence is supported by two other considerations, each, to some extent, controversial - the method of announcement of the change of policy by ATVE, and the history of prior dealings between the parties. 55 By facsimile transmission of 22 July 1998, Yau's Entertainment was informed of the change of policy and the critical paragraphs were as follows: "After months of study and analysis, we have undertaken a thorough re-organization of our drama production in order to solve the problem of our inconsistency in our production quality in the past. As you may have already experienced, we have the ability to turn out good products but occasionally we produce some substandard dramas which might have damaged our image in the overseas market. To ensure that our future production is responsive to the market and is up to our stringent quality control, we will only produce 150 hours of drama in 1999 using our current production structure. This is to say that instead of mass production of over 400 hours in the past, we will select the best 150 hours from the 400 hours to produce. In additional, we will look for the best scripts, producers, and/or talents available in Hong Kong and elsewhere and combined these with our production equipment and facilities as well as our strong post-production capabilities to produce dramas under ATV stringent supervision. We estimate that the number hours will be no less than 300 hours in total. By so doing, we believe that we will be able to supply to you consistently premium drama in the future. Unfortunately, we have seen some press only report the so-called reduction in production as contrary to our strategy of combining best resources in the market for our loyal viewers. I am sure you are aware that we need 520 hours of drama to broadcast in our station in Hong Kong annually. If we only produce 150 hours and purchase the balance, how are we going to control the quality and consistency of the purchased products?" In the lead up to these paragraphs, it was said: "In the future, we will be a market-driven enterprise rather than a production-driven factory." 56 In my opinion, this provides strong support for the conclusion that at the time of entering into the licence in the previous year, the Cantonese language drama which was on offer was that produced by ATV. It is also, in my opinion, an admission that there had been a change of policy which affected that which was to be offered in the future pursuant to the licence. It seems to me that that communication can be used in this way, notwithstanding any limits which may be imposed upon the use of post-contract conduct in construction. As my use of this communication is to confirm rather than form my views, it is unnecessary to explore the intricacies of the law on this topic (see, for example, Sportsvision Australia Pty Ltd v Tallglen Pty Ltd (1998) 44 NSWLR 103). 57 The next issue is the history of dealings between the parties. The first licence to Yau's Entertainment was from ATV, dated 16 September 1991. The recitals were: "(1) The Licensor produces television programmes for (inter alia) broadcast in Hong Kong and owns all proprietary rights therein. (2) The Licensee wishes to be granted an exclusive licence in the Territory (as hereinafter defined) to carry out various acts in relation to the said television programmes." The critical definition was: "1(c) ATV Television Programmes - Television programmes including but without limitation films, dramas, variety shows produced solely by the Licensor." This was a formal document setting out extensively the obligations between the parties. 58 The second licence between ATV and Yau's Entertainment agreed in 1992 included the same definition of ATV television programmes. 59 This was followed by agreements made on 19 October 1992 between ATVE and Yau's Entertainment. The first was a licence agreement, and the recitals to it were as follows: "(1) ASIA TELEVISION LIMITED (ATV) produces television programmes for (inter alia) broadcast in Hong Kong and owns all proprietary rights therein. (2) The Licensor is a subsidiary of ASIA TELEVISION LIMITED. (3) The Licensee wishes to be granted an exclusive licence in the Territory (as hereinafter defined) to carry out various acts in relation to the said television programmes." The definitions included: "1b. Master Programme - Master tapes of ATV Television Programmes in Cantonese and/or Mandarin and/or Vietnamese and/or Cambodian and/or Thai and/or Korean soundtrack on Super VHS PAL video cassettes supplied by Licensor. 1c. ATV Television Programmes - Television programmes including but without limitation films, dramas, variety shows produced solely by Licensor." 60 The substance of the licence was: "2(a) to exhibit and to permit and authorise the exhibition of the number of programme hours as set forth in Schedule B of the First Schedule hereto of ATV Master Programmes on Videograms by way of rental for private and domestic viewing only." 61 At the same time, the parties entered into another agreement which had the following recitals: "(A) By an agreement ("the Licence Agreement") of even date ATVE and YAU have entered into agreement under which ATVE has granted various exclusive rights in the Territory (as hereinafter defined) in relation to ATV Television Programmes (as hereinafter defined). (B) To enable YAU to effectively utilise the rights so granted to it by ATVE, ATVE has agreed to supply to YAU certain Master Programme Tapes (as hereinafter defined)." Amongst the definitions are the following: " "ATV Television Programmes" Television programmes including but without limitation films, dramas, variety shows produced solely by Asia Television Limited (ATV). … "Master Programme Tapes" Master tapes of ATV Television Programmes in Cantonese and/or Mandarin and/or Vietnamese and/or Cambodian and/or Thai and/or Korean soundtrack on Super VHS PAL video cassettes supplied by ATVE. 62 All of these agreements were preceded by a letter of 13 May 1992 of a similar nature to that which forms the sole written evidence of the licence in the present period. 63 The next licence period, namely, 1 June 1995 to 31 May 1998, was dealt with only by a letter agreement. The programmes were described as ATV Television programmes with no further definition, save that they were split up between varying types of programmes for the purposes of licence fee. 64 There is evidence, which the applicants rely upon, as to three exceptions to the sole production rule during the period July 1995 to November 1996. The evidence as to this is not entirely satisfactory. The better view is that these programmes were supplied pursuant to a special arrangement proposed in May 1995. They do not appear to have been supplied under the licence agreement as originally negotiated for that period. 65 It is submitted for the applicants that the differences between the various documents show a lack of consistency, making it unsafe to draw any conclusions as to the intention of the parties in relation to this contract beyond its own terms. It seems to me that the full agreements which were entered into in 1991 and 1992 spell out the arrangements, and that the later heads of agreement or letter agreements assume the same basic structure, and deal with the necessary detail, including variations from the previous arrangements. There is no evidence to suggest that a change in the identification of the programmes or the production of them was a matter of express bargain between, or even express consideration, by the parties, for the purposes of the 1995 and 1997 arrangements. In my opinion, the history of the dealings between the parties does assist the case of Yau's Entertainment on this point. In my view it is relevant to consider those dealings as part of the matrix of facts. Again, as this is not essential to my reasoning, I do not need to explore the various authorities upon that point.

Implied terms 66 The applicant alleged two implied terms the breach of which entitled it to terminate the licence: 1. That the respondent would not distribute any programmes produced or co-produced by or exclusively licensed to the second applicant except programmes supplied by the second applicant to the first respondent. 2. That the respondent would not misuse the goodwill attaching to the product supplied by the second applicant to the respondent. 67 The respondent argues that no such terms should be implied, referring to Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41, particularly at 63-66, 91-95, 117-118, 121-122 and 138-139; Transfield Pty Ltd v Arlo International Ltd (1980) 144 CLR 83 at 91-94, 100-101 and 107 and Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337. 68 The applicant submits that the first term arises from the express terms relating to supply being subject to ATVE's approval of title selections, the prior approval of selected additional programmes, payment for additional programme hours, and reduction of licence fee in case of under-supply of programme length. 69 It was put that it would be strange, for example, if the proper construction of the contract was that Yau's Entertainment could tape ATV programmes off the air, distribute them and then assert that these did not count towards the 390 hours to be provided, were not subject to ATVE's veto and were not subject to payment. 70 I agree with the applicant's submissions. In my view the first term pleaded can be inferred from the express terms of the contract without being troubled by the Codelfa tests, although I am also of the opinion that it comfortably meets those tests. 71 The second pleaded term depends upon more general considerations stemming from the exclusive nature of the licence and the significant term of it, namely, three years with the option of a further year. The licensee effectively has the use of the name, logo and reputation of the licensor for that period. This is no academic issue in the present case. The reputation of ATV and its programmes was obviously significant amongst the Australian Chinese population. The applicants point to the unchallenged evidence of Mr Wing Cheung that pirate videos badged with the ATV name and logo commanded double the price that they otherwise could be expected to command. This is consistent with Mr Yau having offered ATVE significantly more for externally-made programmes than he had been prepared to offer the producers of the programmes when they first offered them to him directly. 72 Whilst the term as pleaded comes close to the "no inimical actions" term rejected by the High Court in Hospital Products Ltd (supra), I think it captures the essence of what should be implied here. In particular, it seems to me that the term is apt to cover conduct such as that involved in the breaches alleged. In using the ATV logo, name and reputation when not authorised to do so, Yau's Entertainment was appropriating to itself the benefit of the rights it was granted for the purposes of the agreement which can be described as goodwill, and was also doing so in a way which was calculated to cause harm to the licensor. It associated the logo, name and reputation of the licensor with goods with which it had no connection, and which members of the public might have regarded as quite inferior. It would also imply (wrongly) that it had the consent of the producers of the programmes to distribute them. In the case of material taped from free-to-air television in Hong Kong and reproduced, it would suggest that the licensor was prepared to flout restrictions upon its licences for commercial gain.

Breach and consequences 73 The relevant part of clause 15 of the licence was as follows: "15. ATVE may terminate this Agreement forthwith by giving written notice to Licensee if: … (b) Licensee commits a breach of any of its obligations hereunder PROVIDED THAT if the breach is capable of remedy and licensee fails to remedy the same within thirty (30) days of receiving written notice thereof; or …" I do not think that it takes elaborate analysis to recognise that, however the implied term may be precisely framed, pirating by a licensee of the licensor's programmes, name, logo and reputation is a breach of the agreement. Furthermore, whilst Mr Epstein put a well-constructed argument based upon the differences between conditions, essential terms and intermediate terms, and the various judicial pronouncements as to when an innocent party may rescind for breach, it seems to me to be relatively plain that it could not be expected that the relationship of licensee and licensor could continue if these terms were breached, absent the special authorisation which was claimed by the respondent. For the sake of completeness, I should say that I do not regard any difference in the way the implied terms are put in the letter of 7 April 1999 from those pleaded as detracting from the applicants' case. The essential facts and the gist of the obligations were referred to in the letter. I appreciate that it might be said that the differences illustrate the fact that there is not sufficient certainty in the terms alleged. As I have said, both the obligation and the breach are basic to a relationship of this kind, and I do not regard textual difficulties as being of any real importance. 74 I agree with the applicants' submission that the obligations do go to the root of the parties' relationship, that the breaches of them were serious, persistent and secret, and that they were not capable of remedy. ATVE was entitled to terminate as it did pursuant to the express terms of clause 15: Shepherd v Felt & Textiles Australia Ltd (1931) 45 CLR 359 at 370, 372, 378-9. See also Bunge Corporation New York v Tradex Export SA Panama (1981) 1 WLR 711 and Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549.

Good faith? 75 The respondent then submits that ATVE was bound to exercise its entitlement to terminate the relationship in good faith. The respondent submitted that ATVE's failure to squarely confront it with any complaint, and the pre-emptory action which it took are strong indications that the power was not exercised in good faith. It also submitted that the suggested breaches were insignificant to the legitimate commercial interests to ATV and ATVE and that they were simply a pretext for terminating the relationship with Yau's Entertainment in order to install Chinatown Entertainment as licensee. 76 The implication of an obligation to act in good faith, and its content, in the case of a licence agreement such as the present, are controversial questions. In my opinion, there can be no relevant application of such an obligation (if it were to be implied) to the facts here. The licensor learned of the possibility of the breaches in January. It moved with reasonable dispatch, but not overweening haste, in investigating the matter and making a decision. I have held that the breaches were serious and entitled the applicants to terminate the contract. The conduct was not capable of remedy. I see no necessity for prior notice to have been given of that decision. 77 I do not doubt that ATVE was not unhappy that circumstances gave it the opportunity of transferring the distributorship to Chinatown Entertainment. The narrative that I have sketched, which does not deal with all of the detail of the relationship between Mr Cheung and the applicants, supports the view that those parties had an eye to that possibility for some time. That does not establish that the applicants acted upon a pretext. They did not manufacture the breach, they were confronted with it. If a pretext had been desired, failure to pay instalments of licence fee had been available for some months, but had not been availed of to purport to terminate the licence. The fact that to exercise the right to terminate accorded with the innocent party's other commercial objectives does not establish bad faith in any relevant sense. Even if such a term were implied, it would not operate so as to restrict actions designed to promote the legitimate interests of a party (Garry Rogers Motors (Aust) Pty Ltd v Subaru (Aust) Pty Ltd [1999] FCA 903 at paragraph 37).

Termination valid 78 I thus conclude on the principal issue that the licence between ATVE and Yau's Entertainment was validly terminated by the letter of 7 April 1999.

Alternative ground? 79 The applicants submitted that they were also entitled to support the validity of the termination by non-payment of instalments of licence fee, even though this was not put forward as a ground for termination at the time, appealing to the principle that circumstances in existence at the time of termination of the agreement which could have justified the innocent party in terminating the contract may justify the termination by subsequent proof of these circumstances (Shepherd v Felt & Textiles Australia Ltd (supra) at 371, 373, 377-8). As I have found the termination valid, it is unnecessary for me to resolve this issue. I should say, however, that I have grave doubt as to whether that principle has any application to breaches which are well-known to all parties at the time of the notice of termination but are not relied upon, and I am clear that it could not apply to breaches which had been waived. Indeed, there is a powerful argument that to terminate for other reasons was, itself, such a waiver. 80 I have not burdened this judgment with an account of all that passed between the parties between June 1988 and April 1999 concerning the payment of licence fee. It is essentially recorded in correspondence with, on the one hand, Yau's Entertainment claiming to be entitled to pro-rate the licence fee on account of the threatened under-supply and claiming that "Thunderstorm Rider" and "End-of-Century Fairy Tale" were not supplied under the licence with, on the other hand, ATVE insisting it was entitled to be paid its nominated instalments regardless of the proposed under-supply of programmes with pro-rating to take place at the end, and also claiming that "Thunderstorm Rider" and "End-of-Century Fairy Tale" were supplied pursuant to the licence at the rates provided for by the licence. In the event that this issue needs to be considered on appeal, I should say that, in my view, "Thunderstorm Rider" and "End-of-Century Fairy Tale" were not supplied pursuant to the licence. I also find that Yau's Entertainment was genuinely concerned by the notification in July, and that its position on pro-rating was a genuine response to that situation. What I have said about the applicants not being obliged to give prior notice for termination on the ground they chose would not necessarily apply to the ground of non-payment of licence fee in accordance with the contract. I will need to look at some aspects of this issue in dealing with the money claim by ATVE for outstanding licence fees.

Relief 81 I propose to make a declaration that the licence agreement between the second applicant and the respondent was terminated by notice dated 7 April 1999 and to grant injunctions in accordance with paragraph 7(a) and (b)(i) and (iii) of the amended application omitting the words "or otherwise". 82 I will then stand the matter over for a short time to enable the parties to consider these reasons. I will then proceed to determine the remaining claims for relief, having discussed with counsel those claims which are still live, and costs. I certify that the preceding eighty-two (82) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gyles.

Counsel for the Applicant: Mr DH Murr SC and Mr D Smallbone

Solicitor for the Applicant: Gilbert & Tobin

Counsel for the Respondent: Mr S Epstein

Solicitor for the Respondent: Frank Low Yeung & Co Counsel for the Second Cross-Respondent: Mr GJ Drake Solicitor for the Second Cross-Respondent:

Date of Hearing: 2, 3, 4, 5, 6, 17, 31 August 1999, 23 November 1999, 2 and 3 December 1999

Date of Judgment: 10 March 2000