The reference to Leon is a reference to Magna, elsewhere referred to in the email. Magna is alleged to be a related company to Becker Group; it undertakes the copying of films and other tasks which are charged to and paid by Becker Group, which charges reduce the amount upon which the royalty/profit on distribution is calculated.
19 This email was drawn to the attention of Mr Becker shortly after the Becker Group had received it and Mr Becker gave evidence to the effect that he was particularly concerned about the use of the word "fudged".
20 On 30 October 2006 a letter, on the letterhead of Becker Entertainment entitled "Legal and Business Affairs Memorandum", was sent from Robert Reeve of Becker Group to John Mr Sapsford. That letter said in part:
"… 1. The suggestion in your email that Becker Group Limited ("Becker") has in some way either alone or as part of a conspiracy with our video sub-distributors "fudged" tape and duplication costs is not only unprofessional and without any substance in fact, but clearly defamatory of Becker. Accordingly, Becker reserves it's rights against you concerning that statement and the implication that Becker has acted dishonestly and with an intention to defraud in its dealings with Summit. …
2. … We are advised by Leon … of Magna … that the issue of video duplication costs was not raised by you in your initial discussions with him (notwithstanding that you had raised the matter with us before that time), and it is apparent that your failure to avail yourself of this right under the contract in a timely manner is the principal reason for your current intransigence concerning those costs. Having said this, we note that information has been supplied to you by [Leon] on this issue and we wish to make it very clear to you and to Summit that we are totally satisfied that our video sub-distributors have fully and honestly accounted to us for their exploitation of the Film.
3. Becker has not only complied in all respects with its contractual obligation to provide full and free access to its Financial Records, including all records held by it in connection to the video sub-distribution of the Film, but has gone the 'extra mile' on numerous occasions in supplying requested information, explanations and facilities.
4. We note that you have attended our premises, at considerable inconvenience to us, over the period 3-16 October 2000, although you have not been in attendance on each business day during that period and for many, if not most, of those days, your attendance was for relatively short periods (four hours or less). In our view, based on numerous audits undertaken in respect of Films distributed by Becker, this is more than sufficient time to have completed your audit and any further time would constitute unwarranted and unnecessary expense.
5. In view of the above matters, we must now advise that, as far as Becker is concerned, the audit is at an end and no further access to our premises or records will be permitted."
21 On the same date Mr Sapsford, by email, responded to the letter set out above. He expressed surprise as to its terms, and denied any implication by the use of the term "fudged" that Becker Group has acted dishonestly in any way whatsoever. Mr Sapsford asserted that his intention was certainly not to impute dishonesty and it was understood by Summit in the way he, Mr Sapsford, had intended. Mr Sapsford apologised if he had caused offence.
22 Further distribution agreements were made between Atrium and Becker Group and between other distributors and Becker Group for sub-distribution within Australia and New Zealand. Some of the films covered by those agreements were The Body and D'Artagnan.
23 On 15 March 2001 Film Financial report on the audit in relation to The Blair Witch Project and Curse of the Blair Witch - Mockumentary was delivered to Summit. That audit report makes a number of assertions. It asserts that Film Financial requested access to Magna's records in order to perform their standard audit checks but that Becker Group did not provide them with access to the Magna records and they were, therefore, unable to perform the tests they considered necessary. There are further assertions, the details of which are unnecessary to repeat, relating to the level of payments between Becker Group and Magna based upon what were perceived to be the appropriate costs and other items for which Becker Group calculated that Summit were owed an amount of money and that there were a number of items for which information was requested but that information was not provided.
24 By letter dated 5 April 2001 Summit writes claiming US$138,319 being amounts owing to Summit on the basis of the audit conducted by Film Financial and which, according to that audit, should have been paid to Summit yet were not.
25 As earlier stated, Film Financial had, at various times, provided estimates for the cost of auditing a number of movies which were being distributed by Becker Group. Those movies included Kolya, D'Artagnan and Waking Ned Devine. Those audit estimates were for a number of producers and/or head distributors.
26 On 16 January 2002, Becker Group responded to the letter from Summit in relation to The Blair Witch Project and the audit reports related thereto.
27 The response followed some correspondence between Summit and Becker Group relating to the payment of the overages and the view of Becker Group that there were significant concerns with the audit report and the inferences made in that report. The audit report consisted of 10 pages plus annexures. The response consisted of 10 pages plus annexures. It is a detailed response. The details, like the details in the audit report, are relevant to the issues before the Court only in a peripheral sense. It is sufficient for the purposes of this judgment to recite that issue was taken with amounts that were entitled to be deducted, estimates that were made without substantiating evidence, the deductibility or non-deductibility of certain items from the amounts which would be subject to calculation for the purposes of the payment of royalties, the categorisation of certain expenses and whether amounts ought to have been included in one period's records or another. One of the more significant items related to an allegation of overcharging in relation to sub-distribution fees described in the audit report as action points 11 and 12 and similarly described in the response. Essentially the issue between the parties was the amount charged (and perhaps its reasonableness) by Magna to Becker Group in relation to the costs associated with video revenue and video rental revenue. The amounts in question involved an under-reporting of income or an over-reporting of costs of US$151,337 resulting in an alleged underpayment of US$45,401. Film Financial performed the estimates of these figures on the basis of disallowing all costs or estimating and extrapolating from some minor information. The reason for the estimation and extrapolation, and the reason for disallowance of all costs in relation to one item, was the allegation that Becker Group did not provide Film Financial with access to the documentation necessary to audit the amounts.
28 In an email exchange on 13 and 15 October 2000 it was made clear that Becker Group had arranged with Magna to provide all of the information necessary to Mr Sapsford. The problem was that Magna could provide the information in source documentation only and was in "boxes full of invoices for each month". It was suggested that such an examination would take at least four days and, after consultation with Summit, Mr Sapsford maintained that either Becker Group or Magna should undertake that examination and provide a list from the invoices provided.
29 Mr Sapsford was cross-examined in relation to these matters and the exchange was as follows (at page 21, line 25 et seq):
"Q: Magna offered to provide you with boxes full of the invoices for each month, didn't they?
A: That's correct.
Q: They offered an opportunity of reviewing each invoice and credit note?
A: They offered me an opportunity of going through them and performing that task, yes.
Q: And noting those invoices which related to The Blair Witch Project to compare the figures reported?
A: They offered that opportunity.
Q: They were offering you access to their records in order for you to satisfy your enquiries, weren't they?
A: No. The access I was requesting by my standard information request was a listing of invoice per invoice which would total the amount that Magna were reporting to Becker; they had no such list.
Q: You wanted them to do the hard yards for you.
A: I wanted them to provide information in a normal auditable form.
Q: But they didn't have a list?
A: That's correct.
Q: But what they offered to provide you with were the physical invoices?
A: Correct.
Q: From which a list could be compiled.
Q: Correct."
30 The sub-distribution agreements for The Blair Witch Project were not in evidence. It is therefore impossible for the Court to determine in what form it was necessary to provide the accounting information required. If one were to conjecture on the basis of those contracts that are before the Court, there are a number of aspects which are significant. There is a requirement in some of the agreements (see the sub-licence between Atrium and Becker Group for Waking Ned Devine) for accountings which require the distributor (in this instance Becker Group) to "maintain complete and accurate records in the currency of the Territory of all financial transactions regarding the picture in accordance with generally accepted accounting principles in the entertainment distribution business on a consistent, uniform and non-discriminatory basis throughout the agreement term… . The records will include all gross receipts derived, all recoupable distribution costs paid ". The audit rights have already been set out. Those terms are substantially identical to the standard AFMA terms for accounting records.
31 In the dispute between Becker Group and Film Financial relating to these issues, if the terms were the same or substantially the same as the terms in other such contracts, the obligation on the Becker Group would have been to maintain their own records in an "auditable form" and to provide access to an auditor properly appointed to examine and copy the distributor's financial records.
32 In this instance, an issue has been raised by the auditor, not about the records of Becker Group, but seeking to go behind the costs incurred by Becker Group, being payments to a sub-contractor for the provision of goods and/or services because, on the perception of the auditor, the relationship between Becker Group and its sub-contractor was not arm's length. On the basis of those contracts that are before the Court, there was no requirement on Becker Group to provide the list of invoices at Magna and Magna was not bound by any of the contracts.
33 Of course, as earlier stated, the Court is incapable of making definitive findings in relation to the contractual relationship between Becker Group and Magna or between Becker Group and Summit because those contracts are not before the Court. The reason for the above analysis is that the dispute between Becker Group and Mr Becker, on the one hand, and Film Financial and Mr Sapsford, on the other hand, has its genesis in the suspicion of Mr Sapsford concerning the legitimacy of the costs deducted for The Blair Witch Project which suspicion was based on a certain perception of the relationship between Becker Group and Magna. It is that suspicion which gave rise to the allegation concerning "fudging" and the comments in the audit report. However, the comments in the audit report, to the effect that access to the information was not provided, are false.
34 Access to the information and source documents was provided, but the invitation declined. That which was not provided was a summary document for the purpose of Mr Sapsford and/or Film Financial auditing Magna, not Becker Group. I do not here suggest that an audit or investigation of the legitimacy of the payments between the Becker Group and Magna was not an appropriate function in an audit of the Becker Group. I do suggest that, on the basis of the material before the Court, or even on the basis of some conjecture based upon other material before the Court, there was no contractual obligation on Becker Group to provide in auditable form the financial records of Magna. Further, the audit report of 15 March 2001 in relation to The Blair Witch Project was, to the extent that it stated that "Becker did not provide us with access to the Magna records", false and knowingly so.
35 The suspicion expressed by Mr Sapsford that "the issue of tape and duplication cost is fudged" is one to which Mr Becker took great exception. Mr Sapsford's explanation that no implication of dishonesty arises and that the meaning ascribed to the term by Becker Group was not open to them cannot be sustained. Dictionary definitions were provided to the Court of the use of the term "fudged". The Macquarie Dictionary defines fudge (when used as a verb) in the following way:
"To put together in a makeshift, clumsy or dishonest way; fake … - verb (intransitive) … (in games and contests) to gain advantage improperly".
36 In the context of the email of 24 October 2000, especially the reference to the capacity to obtain duplication for free in certain circumstances, the word is being used to mean "to gain advantage improperly". Even if the word were confined to honest behaviour, it seems to necessarily imply a failure to follow the normal rules and to blur the proper distinctions.
37 As already stated Mr Becker and Becker Group took umbrage at the comments. Thereafter Becker Group refused to allow Mr Sapsford onto the company's premises or access to its books for any purpose.
38 The evidence of Mr Sapsford, given both in affidavit form and orally, is disingenuous in its explanation of the allegation that he was denied access to the records of Magna and his use of the word "fudged". In circumstances where it is accepted that the list which summarised the relevant invoices did not exist in the Magna records, it cannot be said, on any understanding of ordinary language, that he was "denied access" to such a list. Moreover, his explanation of the use of the word "fudged" is not accepted. The evidence, including the manner in which it was given and the demeanour of Mr Sapsford, inevitably leads to the rejection of that evidence. Moreover, the statement in the audit report confirms, albeit indirectly, the opinion that Mr Sapsford then had.
39 Further, the written apology, disavowing any allegation of dishonesty, was not sent to the person in Summit to whom the initial email was sent.
40 Following the correspondence and audit report relating to "The Blair Witch Project", Becker Group continued to prohibit Mr Sapsford from entering its premises or gaining access to its records generally and in particular in relation to the audit of two further films, Waking Ned Devine and Kolya.
41 This prohibition is evidenced in a number of ways and admitted by the defendants. By letter dated 8 February 2002, OFG informed Becker Group that Film Financial had been engaged to perform the audit for Waking Ned Devine and that consultants from that firm would contact them shortly. On 22 February 2002, Pandora informed "Dendy/Becker Films" that Film Financial would be performing an audit for the film Kolya.