Entertainment One Films Australia Pty Ltd v Hopscotch Features Pty Ltd (No 2)

Cases Cited: Entertainment One Films Australia Pty Ltd v Hopscotch Pictures Pty Ltd [2024] NSWSC 365)

Category: Procedural rulings

Parties: Entertainment One Films Australia Pty Ltd (First Plaintiff)
eOne Features (Developments) Ltd (Second Plaintiff)
Hopscotch Features Pty Ltd (First Defendant)
Troy Andrew Lum (Second Defendant)

Representation: Counsel:
A Horvath SC (Plaintiffs)
P Abdiel (Plaintiffs)
D A Hughes (Defendants)
Solicitors:
Woodrows Law (Plaintiffs)
Simpsons (Defendants)

File Number(s): 2022/254499

Publication restriction: No

JUDGMENT

1. These proceedings commenced with the filing of a summons and a Commercial List Statement on 26 August 2022. A second Commercial List Statement was filed on 16 April 2024, pursuant to orders made by Ball J (as his Honour then was) on 28 March 2024 (Entertainment One Films Australia Pty Ltd v Hopscotch Pictures Pty Ltd [2024] NSWSC 365 published on 10 April 2024). A Commercial List Response was filed on 29 April 2024, and an amended reply was then filed on 6 June 2024.

2. On 25 July 2025, the plaintiffs filed a notice of motion seeking leave to file and serve a Further Amended Commercial List Statement.

3. Not all of the proposed amendments were opposed. There was no objection to the amendments to paragraphs 53B, 54B and 101. The objections arose in respect of the changes to various paragraphs between 63 and 70B. I think it fair to say that the change to paragraph 63 dominated the argument and the decision on this paragraph would dictate the decisions on the remaining changes.

4. The motion is supported by affidavits of Mr Ross Garland dated 25 July 2025, and 8 August 2025, respectively. Mr Garland is the plaintiffs’ solicitor. The defendants relied upon an affidavit of Ms Clare Young dated 5 August 2025. Ms Young is the defendants’ solicitor. The affidavits attached exhibits which came into evidence as part of the Court Book (Exhibit B).

5. Ball J gave this summary of the background in his above reasons:

“2. The proceedings arise out of an agreement dated 12 May 2011 (the Royalty Deed) by which the second defendant, Mr Troy Lum, and Mr Frank Cox, who at that time each owned 25 percent of the shares in the first defendant, Hopscotch Features Pty Ltd (Features), agreed to assign to the first plaintiff, then known as Pictex Pty Ltd (eOne AU), income they derived from Features.

3. The Royalty Deed was part of a larger transaction by which eOne AU and companies associated with it purchased a number of businesses controlled by Mr Lum and Mr Lum became the Managing Director of eOne AU, a position he held for approximately eight years. Since the Royalty Deed was entered into, Mr Lum has acquired all of the shares in Features.”

6. The case put forward by the plaintiffs is that the second defendant has acted in breach of the Royalty Deed to the financial detriment of the plaintiffs. Accordingly, they seek the monies they say they should have received from the defendants.

7. Clause 2.1 of the Royalty Deed is central to the plaintiffs’ case:

“2.1 Lum and Cox must observe at all times a duty of good faith to eOne and must not enter into or structure transactions for the purpose of, or for purposes which include the purpose of, or which are known to have effect of:

2.1.1 materially reducing the amount payable to eOne under this Deed; or

2.1.2 otherwise materially increasing the amount retained by Hopscotch Features in relation to the proceeds received from the Features Business to the detriment of eOne.”

8. The plaintiffs’ case is that Mr Lum so arranged the affairs of the first defendant (Hopscotch) so as to structure its transactions to reduce the amounts payable to the first plaintiff.

9. The objection to the proposed changes had three themes:

10. the change to paragraph 63 was not coherent with the current pleadings;

11. the changes were a device to widen the dispute and in turn extend the categories of discovery; and

12. the application to amend should have been made earlier.

13. I will deal with each of the above three points in turn.

The changes are not coherent with the current pleadings

11. Part of this complaint is that the proposed paragraph 63 is not consistent with the Royalty Deed and could not be a reflection of a breach of the deed, in particular a breach of cl 2.1.

12. The current paragraph 63 is:

“Hopscotch Features has at the direction of Mr Lum paid monies generated by its film production business to entities associated with Mr Lum (Lum-Associated Payments).

Particulars

The particulars to paragraph 42A are repeated.”

13. The proposed paragraph 63 is:

“Mr Lum has been paid monies by Hopscotch Features and third parties generated by Hopscotch Features’ film production business, including into entities associated with Mr Lum (Lum-Associated Payments).

Particulars

The particulars to paragraph 42A are repeated.”

14. The defendants submitted that the change to paragraph 63 was a significant alteration to the pleaded case. In the current paragraph, Mr Lum is carrying out an activity, by giving directions, which, although denied, is consistent with a breach of cl 2.1 and in particular the obligation to not “enter into or structure transactions for the purpose of … materially reducing the amount payable to eOne ... .”

15. The current pleading might therefore be seen as a statement of an obligation (cl 2.1), an assertion of the breach of that obligation (the current paragraph 63) and then later followed by a claim for the damage flowing from the breach.

16. The proposed paragraph 63, submitted the defendants, excised the active role of Mr Lum in the asserted breach, and inserted, on Mr Lum’s part, a passive role of receiving monies from “Hopscotch Features and third parties”.

17. The defendants submitted that the amendments to paragraph 63 and then through to 70B, made the allegations not only “nonsensical”, but also “vague and confusing”.

18. The transformation of Mr Lum from ‘actor’ to ‘receiver’ could not be a valid expression of a breach of cl 2.1. As a matter of pleading practice, the defendants are correct in identifying a proper pleading, namely one that specifies an obligation, asserts a breach of the obligation, and then describes the consequences of the breach.

19. The difficulty here for the defendants, however, is that the Royalty Deed does contain an obligation to assign to eOne monies received by Mr Lum. Clause 1.1 states:

“1.1 Lum and Cox assign to eOne all dividends, royalties, income, sale proceeds and other monies:

1.1.1 payable in respect of the Features Shares; and

1.1.2 otherwise due to them in any capacity in relation to the Features Business,

and the right to be paid such amounts, for the Term and otherwise on the terms set out in this deed.”

20. In addition, the current pleading also contains assertions of an obligation on the part of Mr Lum to make payments to eOne of monies received by him. Paragraphs 24 and 27 state:

“24. It is a term and condition of the Royalty Deed that Mr Lum and Mr Cox assign to eOne AU all dividends, royalties, income, sale proceeds and other monies payable in respect of the shares of Hopscotch Features and otherwise due to them in any capacity in relation to the film production business conducted by Hopscotch Features (Features Business).

…

27. The obligation to act in good faith imposed on Mr Lum by cl 2.1 when read together with cl 1.1 requires Mr Lum to pay eOne AU any monies due or paid to him or any of his related entities from Hopscotch Features arising from the film production business conducted by Hopscotch Features.”

21. Paragraph 27, in particular, is a straightforward allegation that Mr Lum was to pay to eOne any monies received by him. I do not see that the proposed paragraph 63 is inconsistent with, or wider than, the current pleadings.

22. It is also clear, I think, that the nature of the film production and distribution industry is such that payment paths between a payer and a receiver are not necessarily direct. The use of “special purpose vehicles”, was said to be widespread. An illustration of the use of such a vehicle can be found in the agreements relating to a ‘picture’ called The Water Diviner. It can be seen from the agreements concerning this picture that Mr Lum receives monies for his services through a special purpose vehicle, in this case WD1919 Pty Ltd.

23. In the agreement between Mantova Films Pty Ltd (as lender), Mr Lum (as producer) and WD1919 Pty Ltd (as the company), the company engages the lender to compensate the producer for his services. If monies received by Mr Lum for services fall within the monies to be assigned under cl 1.1 of the Royalty Deed, then the use of the special purpose vehicle might be seen as a structured transaction falling within cl 2.1.

24. I am therefore satisfied that the proposed paragraph 63 is not incoherent, is not inconsistent with the obligations arising from the Royalty Deed and does not so markedly widen the plaintiffs’ case so as to make the amendment objectionable. Of course, this conclusion does not affect any argument the defendants might put forward on the construction of the Royalty Deed so as to exclude the alleged breaches, these being questions which will be decided at the final hearing.

Expanding the categories of discovery

25. In his decision of 10 April 2024, Ball J made these observations, at [40] and [41]:

“In the present case, the plaintiffs have persisted over an extended period of time in seeking to advance a case in one form or another for which they have no factual foundation in the hope that with extensive discovery they may ascertain facts which support the case they seek to advance. The difficulties with the approach taken by the plaintiffs were brought to their attention as early as 30 March 2023 in a letter from the defendants’ solicitors. Those difficulties were apparent at the hearings on 22 September 2023 and 13 November 2023, but despite what was said at those hearings, the plaintiffs continued to press a claim that had no factual basis. In doing so they have put the defendants to considerable expense and have largely wasted the best part of a year. The defendants should not be out of pocket for the expenses that they have incurred unnecessarily over that time.

I do not think that the conclusion of the previous paragraph is affected by the fact that some of the amendments sought by the plaintiff have been allowed or by the fact that the costs sought by the defendants include the costs of the motion for a separate question. As to the first of these points, the dispute has largely related to the amendments which it was said would justify extensive discovery. Indeed, the defendants did not object to the original list statement even though it was inadequately particularised until the plaintiffs indicated that they sought extensive discovery. Consequently, the real dispute between the parties has been whether the plaintiffs were entitled to advance an unparticularised case and to obtain extensive discovery to see whether they could then particularise it. It is that issue that has taken so much time and on which the plaintiffs have been unsuccessful.

26. The defendants submitted that the plaintiffs, by their new pleading, were endeavouring to pursue the same conduct described in the just quoted paragraphs. However, his Honour’s comments were made in the context of whether or not to make a gross sum costs order and his Honour specifically notes that his comments on discovery were made notwithstanding that he had allowed some of the amendments then sought by the plaintiffs.

27. I was also referred to an email letter dated 19 June 2025 from the plaintiffs’ solicitors to the defendants’ solicitors in which it is stated:

“We enclose proposed directions that our clients will seek. In summary, our client will likely be seeking an amendment to the Amended Commercial List Statement. The amendment arises from your client’s response to category 1 of our client’s discovery categories that ‘the plaintiffs’ pleaded case is limited to payments by the first defendant of monies generated by its film production business to Lum-Associated Entities*’* (emphasis added).”

28. The plaintiffs’ response to the allegations concerning discovery is that the amendments to the claim arise from discussions about discovery categories, the above passage which is relied upon by the defendants being conversely relied upon by the plaintiffs.

29. It may well be that the categories of discovery will be expanded by the changes to the pleading, but if the pleading is allowed then the range of discovery will be a natural product of the new pleading. The important point is whether the pleading is sound, which I have found, not whether the scope of discovery will be affected.

Delay

30. The matter does not have a hearing date. The inclusion of the proceedings in the Commercial List gives it an impetus which should be reflected in the efficient promotion of the case by the parties. The amended pleading will require an amended response, leading to the necessity for further time and expense. This is a prejudice that flows unequivocally from amending the pleadings and is equally unequivocally a consequence of the plaintiffs making the application to amend.

31. The plaintiffs submitted that they had acted promptly, although it does seem that many of the ‘new’ documents said to have prompted the amendments seem to have emerged in 2024. Mr Garland says in his second affidavit, at paragraph 5, that Mr Lum’s email account files for eOne only became available in May 2024.

32. I think the present application could probably have been put on at an earlier time, but in the absence of an already set hearing date I do not see any particular, other than presumptive, prejudice being suffered by the defendants. Taken with the validity of the amendments, I do not see such delay, as exists, affecting the plaintiffs’ right to amend.

Costs

33. The plaintiffs have succeeded in their application and the defendants could have conceded the amendments. Thus far the plaintiffs would normally be awarded costs. On the other hand, there has been some delay and there will most likely be further delay in the matter coming to hearing. In addition, the defendants will now need to respond to the amended pleading.

34. I think each party should pay its own costs of the motion.

Orders

35. I make the following orders:

36. The plaintiffs have leave to file and serve a Further Amended Commercial List Statement in the form annexed to the notice of motion dated 25 July 2025.

37. The Further Amended Commercial List Statement is to be filed and served within seven days of the date of these orders.

38. Each party is to pay its own costs of the notice of motion dated 25 July 2025.

39. The matter is listed before the Commercial List Judge on 5 September 2025.

**********