Yau's Entertainment Pty Limited v Asia Television Limited

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

AND: ASIA TELEVISION LIMITED AND ATV ENTERPRISES LIMITED

REASONS FOR JUDGMENT SUNDBERG J: 1 I agree with the orders proposed by Hely J and with his reasons therefor.

I certify that the preceding numbered paragraph is a true copy of the Reasons for Judgment herein of the Honourable Justice Sundberg.

AND: ASIA TELEVISION LIMITED & ATV ENTERPRISES LIMITED

FINKELSTEIN J: 2 I agree in the reasons for judgment of Hely J. I certify that the preceding one (1) numbered paragraph is a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein.

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

AND: ASIA TELEVISION LIMITED AND ATV ENTERPRISES LIMITED

REASONS FOR JUDGMENT HELY J: 3 For many years, Asia Television Ltd ("ATV") has operated a free-to-air television broadcasting station in Hong Kong. During that time ATV produced drama programmes for broadcasting on its Chinese television channel in Hong Kong including programmes produced in Cantonese. The primary judge found that the reputation of ATV and its programmes was significant amongst the Australian Chinese population. ATV Enterprises Ltd ("ATVE") is a subsidiary of ATV. ATVE is the marketing arm of ATV, and is responsible for the distribution of programmes produced by ATV or purchased by ATVE. 4 At relevant times there were two commercial free-to-air broadcast stations in Hong Kong. ATV's competitor was known as TVB. As at 1987 there were a number of Chinese and other Asian video stores throughout Australia which were offering, principally for rental, videos of programmes broadcast on TVB. 5 In 1987 Mr Yau was approached by representatives of ATV with a view to establishing a distributor network in Australia for home videos of ATV programmes. From 1988 onwards, Yau & Partners (initially) and Yau's Entertainment Pty Limited (later) entered into various licence agreements with ATV, and later with ATVE, pursuant to which Yau's (ie Yau & Partners or Yau's Entertainment Pty Limited, as the case may be) reproduced and distributed television programmes supplied by ATVE or ATV. 6 The primary judge did not make any specific finding as to the way in which videos or promotional materials were made available by Yau's to its sub-distributors. However, it appears to have been common ground that ATV or ATVE supplied Yau's with master tapes of the programmes the subject of the licence arrangements. Yau's copied those tapes onto videograms which it supplied to its sub-licensees. The sub-licensees made copies of the videograms for home video rental purposes. The copies were hired to customers of the sub-licensees for private domestic viewing. 7 Again, although not the subject of a specific finding, it appears to have been common ground that along with the master tape of programmes the subject of the licence arrangements, ATV or ATVE supplied Yau's with colour labels, spines, posters and other promotional items bearing the ATV logo and the relevant programme title. There was evidence from Mr Ng, the marketing manager of ATVE: "If the number of tapes copied from the master tape for rental exceeds the number of spines provided by [ATV, ATVE], the sub-licensee would print copies of the spines with the ATV logo or use labels with store logo or labels without any logo on it."

The history of the licence agreements 8 Formal licence agreements were entered into on the following dates for the following periods: Date of contract Period 19 May 1988) 1 June 1988 - 31 May 1991 28 July 1988) 16 September 1991 1 June 1991 - 31 May 1992 10 September 1992) 1 June 1992 - 31 May 1995 19 October 1992 ) 9 The terms and conditions of the licence for the period 1 June 1992 - 31 May 1995 were set out in a letter from ATV to Yau's of 13 May 1992. The letter states that on receipt of an original copy of the letter signed by Yau's, ATV would "proceed with the detailed licence contract to you". The licence agreement made on 10 September 1992 appears to be the licence contract envisaged by that letter. 10 The terms and conditions of the licence for the period 1 June 1995-31 May 1998 were set out in a letter from ATV to Yau's of 5 January 1995. That letter concluded with a statement that Yau's "agreed to be bound by the terms and conditions of this agreement letter until you sign the licence contract". On this occasion no "licence contract" distinct from the letter was executed by either party. 11 The terms and conditions of the licence for the period 1 June 1997-31 May 2000 (with an option to renew for a further year) are set out in a letter from ATV to Yau's of 16 April 1997. This is the agreement in suit. The letter concludes: "Please confirm your acceptance of the above terms and conditions by signing and returning this letter to us on or before April 18, 1997. You agree to be bound by the terms and conditions of this agreement letter until you sign the licence contract. This letter is printed and signed in duplicates. Please retain the designated copy for your record." The letter was signed on behalf of Yau's. As was the case with the letter of 5 January 1995, no "licence contract" distinct from the letter was executed by either party. 12 The primary judge did not make any finding as to why a formal licence contract was not entered into in relation to the arrangements embodied in the letters of 5 January 1995 or 16 April 1997. There was some evidence from Henry Or, an executive of ATVE, that in 1997 ATVE had adopted a new standard form of licence agreement which was sent to Yau's but: "Yau's refused to enter into the new standard form and insisted to renew the licence agreement in the form of the existing one". It is not entirely clear what form of agreement was intended to be picked up by the reference to "the existing one", particularly as the operative agreement in 1997 was the letter agreement of 5 January 1995. Nor does it appear whether ATVE made any, and if so what response to the statement which Henry Or attributes to Mr Yau. The Full Court was informed by Mr Epstein SC that this evidence was not dealt with or challenged orally. 13 The primary judge said that he did 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."

The purported termination of the licence agreement 14 One of the terms and conditions of the letter agreement of 16 April 1997 is clause 15(b), which provides as follows: "15. ATVE may terminate this Agreement forthwith by giving written notice to Licensee if: (a) ... (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;" 15 By letter of 7 April 1999, ATVE, by its solicitors gave written notice of termination of the letter agreement of 16 April 1997. The letter of 7 April 1999 asserted: "Our clients have recently become aware that your company is supplying its Sub-Licensees with video programs bearing the ATV Logo which are not programs produced by or associated with our client, and falsely representing to Sub-Licensees that such programs are ATV product lawfully provided to them under your Distribution Agreement with ATV and, in turn, falsely representing to the general public that such programs are those of our client. In particular, we have statements and evidence from your Sub-Licensees confirming that you have supplied them with the following programs bearing the ATV Logo: · 'The Age of Glory'; · 'Trials and Tribulation'; · 'The Immortal Fugitive'; · 'Poet Mr Tong'. The Sub-Licensees from whom we have statements confirm that they received the above programs from you with the ATV Logo, displayed both on the label and on the video tape. The above programs were not produced, co-produced or otherwise associated with ATV. Many are of inferior quality or below the established production standards of ATV program. Our client has also ascertained that you have recorded programs broadcast on ATV in Hong Kong and distributed those programs under the ATV label to your Sub-Licensees. These programs were licensed to ATV for broadcast only in Hong Kong and were not the subject of the Agreement." That conduct was said to constitute an infringement of ATV's trade mark, a breach of ss 52 and 53 of the Trade Practices Act 1974 (Cth), an infringement of copyright, a passing off and a repudiation of the licence agreement of 16 April 1997. The letter continued, in relation to that agreement: "... your conduct in distributing non-ATV programs with ATV Logos has denied our client the benefit of the whole Agreement. Furthermore, such conduct is a breach of the implied term that the ATV Logos would not be used for another purpose. This breach is not capable of remedy within the meaning of Clause 15(b) of the Agreement as our client has already suffered serious irreparable damage. Such conduct constitutes a repudiation of the Agreement entitling our client to immediately accept such repudiation and terminate it. You should accept this letter as notice of termination. Consequent upon termination of the Agreement, you are requested to immediately return to our client all master tapes, promotion materials, labels and other material received from our client."

Did Yau's engage in the conduct complained of? 16 The primary judge found that: - in the second half of 1998, Yau's supplied master tapes of programmes to certain of its sub-licensees. Those programmes had not been produced by ATV, and had no association with ATV, but had labels applied showing the ATV name and logo; - in January 1999 ATV was informed by Mr Wing Cheung, and from other sources, that videos had been seen in Yau's sub-licensees stores bearing the ATV logo which did not appear to be ATV or ATVE programmes. It was then that ATV learnt of the possibility of breaches of the licensing arrangements; - in early March 1999 ATV obtained sample tapes of the programmes from Mr Cheung. When examined, the tapes were of programmes either acquired by ATV from third parties for telecasting in Hong Kong only, which had been broadcast by ATV in Hong Kong free-to-air, or were of programmes with no connection with ATV at all, but which bore the ATV logo; - On 30 March 1999 executives of ATVE came to Australia to investigate the matter. They collected a number of videos from video shops in Sydney which were sub-licensees of Yau's. This confirmed the evidence collected by Mr Cheung. 17 There was no challenge on appeal to any of those findings. Indeed Mr Yau accepted or asserted in his evidence that from June 1992 onwards, programmes distributed by Yau's to its sub-distributors which were not produced by ATV and which had no connection with ATV, nonetheless bore the ATV logo on the box in which the tape was encased. Mr Yau also asserted that his friends or associates in Hong Kong taped programmes broadcast by ATV in Hong Kong free-to-air. Tapes produced in that way were forwarded to him by his friends and used by him as master tapes for distribution to sub-licensees. 18 It was Yau's case at first instance that there was nothing improper in Yau's applying ATV labels to videos which had not been produced by ATV and which were not associated with ATV. Nor was there anything improper in Yau's recording programmes which ATV had not produced, but which ATV broadcast free-to-air in Hong Kong. That was because in 1992 Mr Tsao, a director and deputy chief executive officer of ATV, visited Australia and specifically authorised Yau's to engage in the practices of which ATV now complains. Those practices were allegedly undertaken at Mr Tsao's suggestion, in order to maximise the revenues derived by the "ATV shops" operated by sub-licensees from Yau's. Yau's also contended that these practices did not involve a breach of the terms of the letter agreement.

What was the agreement between the parties? 19 The Further Amended Points of Claim ("FAPC") allege that the agreement in suit is in writing, and consists of the licence agreement dated 16 April 1997 ("the letter agreement"). The concluding words of the letter agreement, quoted in par [11] above, envisage that a licence contract would be executed, which would replace the terms of the letter agreement. As earlier indicated, that did not occur. 20 I agree with the primary judge's observation that the letter agreement is like a heads of agreement, which contains 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. 21 That this is so is apparent on the face of the letter agreement, particularly having regard to the provisions of the formal licence agreements entered into in relation to earlier licence periods. The course of dealing between the parties involved the provision of master tapes of programmes the subject of the licensing arrangements by ATV to Yau's and the making available by Yau's to its sub-licensees of videos derived from those tapes. The 1991 and 1992 licence agreements contained express provisions in this regard. Schedule C to the letter agreement, dealing with payment terms, assumes that master tapes will be supplied by ATV to Yau's, but the letter agreement otherwise makes no provision in this regard, other than to specify the type of tapes which are to be supplied (clause 11). 22 Paragraphs 34 and 39 of FAPC are as follows: "34. It was an implied term of the licence agreement 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 respondent. PARTICULARS This implied term is necessary to give business efficacy to clause 3 of schedule A to the agreement. 39. It was an implied term of the licence agreement that the respondent would not misuse the good will attaching to the product supplied by the second applicant to the respondent. PARTICULARS This implied term is necessary to give business efficacy to clause 3 of schedule A to the agreement. The material circumstances were that the licence agreement was an agreement by which the respondent would gain access to significant volumes of copyright material for the purpose of sub-distribution and that the respondent would have control of such sub-distribution." 23 It is important to note that FAPC does not allege that the terms in question should be implied having regard to any past course of dealing between the parties: see Byrne v Australian Airlines Ltd (1995) 185 CLR 410 at 422, 442. Nor does FAPC seek to make out a case that the agreement between the parties consists of the provisions of some earlier form of licence agreement (and they do not take the same form) as modified by the terms of the letter agreement. None of the earlier agreements included as an express term either of the terms sought to be implied into the letter agreement.

The express terms of the letter agreement on which the implied terms pleaded are based 24 Schedule A to the letter agreement specifies the programmes which are the subject of the licence arrangements, the programme length and the language in which the programme is released and supplied. For each licence year, "various titles" of specified types of programmes (eg, new drama programmes) are to be supplied of a specified programme length (eg, in the case of new drama 390 programme hours) which have been released and supplied in a specified language (eg, Cantonese). Clauses 2 and 3 of Schedule A are as follows: "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." 25 Schedule B provides for payment of a fixed licence fee in each licence year. Schedule C provides for the payment of the licence fee for each licence year by six instalments, each of a fixed amount, on the dates specified in Schedule C. 26 Schedule B also provides for an additional licence fee per programme hour for Additional Programmes. For example, in the first licence year the licence fee is A$460,000 and A$1,180 per programme hour for Additional Programme insofar as it consists of Cantonese Drama, and A$15.00 for "Others". If the programme length as stipulated in Schedule A is undersupplied, the fixed licence fee for that licence year is to be reduced at the rate of the corresponding Additional Programme as stipulated in Schedule B for each undersupplied programme hour.

The implication of terms in the case of a written agreement which is incomplete on its face 27 In a number of cases (eg, Codelfa Construction Pty Ltd v State Rail Authority of NSW (1981-1982) 149 CLR 337 at 347; Khoury v Government Insurance Office of NSW (1983-1984) 165 CLR 622 at 636), the High Court has accepted the summary of the majority of the Privy Council in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 282-283 of the criteria which must be satisfied before a term will be implied in a formal contract which is complete upon its face. The terms: (i) must be reasonable and equitable; (ii) must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (iii) must be so obvious that "it goes without saying"; (iv) must be capable of clear expression; (v) must not contradict any express term of the contract. 28 In Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 121, Deane J cautioned against an over-rigid application of those criteria to a case where the parties have never attempted to reduce their contract to complete written form. In particular a rigid approach to the requirement "that it must be necessary to give business efficacy to the contract" should not be adopted in the case of an informal and obviously not detailed oral contract where the term which it is sought to imply is one which satisfies the requirement of being "so obvious that it goes without saying". At 156 CLR 121 Deane J said: "As a general rule, however, the 'so obvious that it goes without saying' requirement must be satisfied even in the case of an informal oral contract before the courts will imply a term which cannot be implied from some actual statement, from previous dealings between the parties or from established mercantile practice." 29 In Hawkins v Clayton (1987-1988) 164 CLR 539 at 572 Deane J re-iterated the undesirability of attempting to formulate a precise mechanical test for determining what terms, if any, should be implied in a case where it is apparent that the parties have never attempted to spell out all of the terms of their contract. Whilst the BP Refinery (Westernport) criteria may be of assistance in ascertaining the terms which should be implied, there is neither the need nor the justification for the law to refuse to imply any imputed term which does not clearly satisfy all such requirements. 30 At 164 CLR 573 Deane J said: ... in a case where it is apparent that the parties have not attempted to spell out the full terms of their contract, a court should imply a term by reference to the imputed intention of the parties if, but only if, it can be seen that the implication of the particular term is necessary for the reasonable or effective operation of a contract of that nature in the circumstances of the case. That general statement of principle is subject to the qualification that a term may be implied in a contract by established mercantile usage or professional practice or by a past course of dealing between the parties." 31 In Byrne v Australian Airlines Ltd (supra) all members of the High Court endorsed the passage quoted above. At 185 CLR 422 Brennan CJ, Dawson and Toohey JJ stated that the "appropriate test to apply" in the circumstances of that case was whether the implication of the particular term was necessary "for the reasonable or effective operation of the contract of employment in all the circumstances". 32 At 185 CLR 442 McHugh and Gummow JJ said that where the parties have not reduced their agreement to a complete written form, caution is required against an automatic or rigid application of the cumulative criteria identified in BP. In such situations: "... the first task is to consider the evidence and find the relevant express terms. Some terms may be inferred from the evidence of a course of dealing between the parties. It may be apparent that the parties have not spelled out all the terms of their contract, but have left some or most of them to be inferred or implied. Some terms may be implied by established custom or usage, as described above. Other terms may satisfy the criterion of being so obvious that they go without saying, in the sense that if the subject had been raised the parties to the contract would have replied 'of course'. If the contract has not been reduced to complete written form, the question is whether the implication of the particular term is necessary for the reasonable or effective operation of the contract in the circumstances of the case; only where this can be seen to be true will the term be implied." See also Moneywood Pty Ltd v Salamon Nominees Pty Ltd (2001) 177 ALR 390, 407 at par 80 per Gummow J. 33 Thus, where a contract is not on its face a complete and comprehensive statement of the parties' bargain, a court should imply a term by reference to the imputed intention of the parties if, but only if, it can be seen that the implication of the particular term is necessary for the reasonable or effective operation of the contract in the circumstances of the case. 34 A test formulated in this way does not, at least in terms, incorporate the familiar requirement of obviousness. But in Byrne at 185 CLR 446 McHugh and Gummow JJ said: "In contracts of this nature, apparently lacking written formality and detailed specificity, it still is necessary to show that the term in question would have been accepted by the contracting parties as a matter so obvious that it would go without saying." And in Hospital Products (supra) Deane J said at 121 that the "so obvious it goes without saying" requirement must be satisfied before the Court will imply a term even in the case of an informal contract. 35 As a matter of fact, it is unlikely that a term which fails to meet the obviousness criterion would be one which is necessary for the reasonable or effective operation of the contract. Where the question is whether a particular term will be implied into an informal contract as a matter of fact, the circumstance that the term is not "so obvious that it goes without saying" is at least a relevant consideration: Breen v Williams [1995-1996] 186 CLR 71 at 105 per Gaudron and McHugh JJ. 36 Finally, on this aspect of the case, it is interesting to contrast the view of the High Court with that taken in the English cases. The English courts have accepted the proposition that it should be easier to imply terms into a contract which is lacking in express terms: Harrods Limited v Harrods (Buenos Aires) Limited [1997] FSR 420. However, this is not done under the rubric of a new style of an "inferred" implied term. In Society of Lloyd's v Clementson [1995] Lloyd's Reinsurance Law Reports, 307 at 330 Steyn LJ made the point that "[i]t is not analytically right to say that there is an independent ... category [of] incomplete contracts. Cases of so-called incomplete contracts are covered by the principles governing terms implied in fact or by law".

Are the pleaded terms to be inferred or implied? 37 As Gummow J said in Roxborough v Rothmans of Pall Mall Australia Ltd (2001) 185 ALR 335 at 349, the first task in implying terms is to consider the evidence and to find the relevant express terms. Those terms, insofar as the provisions of programmes under the licence are concerned, are largely to be found in Schedules A, B and C to the letter agreement. There is no express stipulation in the letter agreement that the programmes to be supplied under licence are programmes produced by ATV/ATVE, but after a consideration of background facts, the primary judge concluded that the subject matter of the agreement was programmes which had been produced by ATV/ATVE. That finding was not challenged on appeal. 38 There is no express stipulation in the letter agreement which would preclude Yau's from obtaining programmes not produced by ATV/ATVE from other sources, or from supplying any such other programmes to its sub-licensees.

The first term 39 The first term sought to be implied is that set forth in par 34 of FAPC (see par 22 above). The primary judge dealt with the implication of the first term as follows: "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. 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. 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." 40 I would agree, with respect, with this conclusion if it were confined to the programmes which were the subject matter of the letter agreement. Given the express terms of that agreement as to the number of programme hours to be provided by ATV/ATVE in each licence year; as to payment for Additional Programmes; and for a reduction in the licence fee in the case of undersupply of the specified number of programme hours, a term that Yau's would not distribute programmes (or, perhaps, more accurately, obtain programmes for distribution) the subject of the licensing arrangements except programmes supplied by ATV/ATVE to Yau's would satisfy the Codelfa/BP Refinery (Westernport) tests, and thus, necessarily, the gloss on those tests accepted by the High Court in Byrne. 41 However, the implied term pleaded is not so confined. It extends to programmes co-produced by ATV/ATVE. The primary judge did not accept that such programmes were the subject of the licensing arrangements. If there is any doubt about whether his Honour reached a concluded view on this issue, his Honour certainly did not accept that programmes exclusively licensed by third parties to ATV/ATVE were the subject of the letter agreement. 42 Accordingly, a term that Yau's would not distribute programmes co-produced by, or exclusively licensed to ATV/ATVE except programmes supplied by ATV/ATVE to Yau's is not necessary for the reasonable or effective operation of the letter agreement as programmes of that type are outside the scope of the letter agreement. 43 There can be no justification for implying into the letter agreement terms which relate to programmes of a type which are outside the scope of that agreement. That is all the more so when, on a literal reading of the term sought to be implied, the proposed term would prevent Yau's from distributing in Australia a programme which was exclusively licensed to ATVE for broadcast or distribution in Hong Kong. No legitimate interest of ATV's would be infringed if Yau's were to enter into an arrangement with ATV's licensor for distribution in Australia of a programme exclusively licensed to ATV in Hong Kong. 44 In 1988, 1991 and 1992 the parties reduced the terms of this arrangement to formal written contracts, apparently complete upon their face. A term to the effect of the first term is not to be found in any of those contracts. That circumstance does not conclude the issue of implication of a term, as a term satisfying the Codelfa tests may be implied even in the case of a complete written contract. Nonetheless it is a factor which it is material to take into account in determining whether the term sought to be implied is necessary for the reasonable or effective operation of the contract. It is not a factor which was referred to by the primary judge. 45 Clause 11(h) of the agreement made on 28 July 1988 is an undertaking by Yau's not to distribute any television programmes "commissioned and/or produced (solely or jointly)" by ATV/ATVE except programmes supplied to Yau's by ATV/ATVE without the prior written consent of ATV/ATVE and the payment of a fee therefor. Clause 7(a) of the licence agreement made on 16 September 1991 is an undertaking by Yau's to duplicate the Master Programmes of ATV Television Programmes (defined as programmes produced solely by ATV) only from master tapes of ATV television programmes supplied by ATV. Clause 3(b) of the agreement made on 10 September 1992 is a provision to similar effect. The exclusive licence made on 19 October 1992 also contains a provision to similar effect. 46 These clauses relate to the same subject matter as the first implied term, but the constraints which are thereby imposed upon Yau's are narrower than those imposed by the first term. The constraints imposed by the 1991 and 1992 agreements are confined to programmes produced solely by ATV. None of the agreements impose constraints on the distribution by Yau's of programmes exclusively licensed to ATV. 47 Even if it were possible now to reformulate the implied term pleaded so as to confine its operation to programmes produced by ATV/ATVE, that would not avail ATV/ATVE in the circumstances of the present case, as none of the programmes the subject of complaint in the letter of 7 April 1999 were programmes produced by ATV/ATVE.

The second term 48 The second term sought to be implied is that referred to in par 39 of FAPC (see par 22 above). The primary judge dealt with the implication of the second term as follows: "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. 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." 49 None of the written licence agreements included an express term to the effect of the second term. 50 The implied term as formulated is not restricted in its terms to misuse of ATV's name and logo as, for example, by applying the name or logo to videos of programmes which have not been produced by ATV. In this respect, the second term as formulated in FAPC is to be contrasted with that referred to in the letter of 7 April 1999 (ATV logos "would not be used for another purpose."). 51 It is not necessary to imply the second term (or for that matter, the term as formulated in the letter of 7 April 1999) in order to prevent Yau's from misusing ATV's name and logo, as, for example, by applying the ATV name or logo to videos of programmes which have not been produced by ATV. Subject to the question of consent, laws in relation to trade mark, passing off and ss 52 and 53 of the Trade Practices Act 1974 (Cth) proscribe misuse of ATV's name and logo in that way without the need for the implication of any term. It is true that contravention of those laws would not of itself entitle ATV/ATVE to determine the letter agreement in the absence of an implied term, but the fact that the provision sought to be implied would provide a greater protection to ATV/ATVE is not a sufficient reason for implying it: Secured Income Real Estate (Australia) Ltd v St Martins Investments Proprietary Ltd (1979) 144 CLR 596 at 605; Hospital Products v United States Surgical Corporation (supra) at 117. Except in cases which are not presently relevant, a term is not implied in a contract, if the contract is effective without it: Breen v Williams (supra) at 80 per Brennan CJ. 52 For a term to be implied it must be capable of clear expression and reasonably certain in its operation: see, generally, Halsbury's Laws of Australia Vol 6 [110-2145]. For example, in Luxor (Eastbourne) Ltd v Cooper [1941] AC 108 at 115 Viscount Simon LC objected to the implication of a term which operated except where the defendants had "reasonable cause" for not completing the transaction in question because of the uncertain nature of that expression. Whether so strict an approach would be adopted today, particularly in relation to an informal contract may be open to question. But a stipulation that Yau's would not "misuse the goodwill attaching to the product" supplied by ATV/ATVE to Yau's is so imprecise in its potential application, and uncertain in its effect, that it cannot be postulated that both parties would have agreed to the inclusion of a term so formulated in the contract. It is by no means clear, as was submitted by ATV, that the term has no wider operation than preventing Yau's from affixing the ATV logo to items which are not products supplied by ATV. Nor can it be said that a stipulation whose effect is not clear is necessary for the reasonable or effective operation of the contract. 53 For those reasons, the primary judge erred in holding that the letter agreement included the first or the second term. Having regard to the way in which the case was pleaded and conducted, the issue was whether the first and second terms as formulated in FAPC were to be inferred or implied as a term of the letter agreement; not whether some differently formulated term(s) should be inferred or implied. No application was made by counsel for ATV/ATVE on the hearing of the appeal to reformulate the term sought to be implied to take into account criticism of the term as formulated which was advanced during the course of argument. It follows that ATV/ATVE was not entitled to terminate the letter agreement on the grounds referred to in the letter of 7 April 1999.

An alternative ground for termination? 54 At first instance, ATV/ATVE submitted that they were entitled to support the validity of the termination of the letter agreement by non-payment of instalments of licence fee, even though this was not put forward as a ground for termination at the time. As the primary judge found the termination to be valid, his Honour concluded that it was unnecessary for him to resolve this issue. It is apparent from the reasons for decision that there was a dispute between the parties as to the licence fee which was payable, but his Honour did not resolve this dispute. Nor did he determine whether prior notice of intention to terminate the contract on this ground was required having regard to the provisions of clause 15(b) of the letter agreement (see par 14 above). 55 At first instance, the case was heard in three stages. The first stage was concerned with whether the letter agreement was validly terminated by the letter of 7 April 1999. The second stage was concerned with the cross claim for revocation of ATV's trade mark and with some issues as to relief. It will be necessary to return to these matters later in these reasons. The third stage was concerned with the issue of damages. Again it will be necessary to return to this stage later in these reasons. For present purposes it is sufficient to record that during the third stage of the proceedings, his Honour noted that it was agreed that there was an amount of $1,560 due pursuant to the licence agreement. No details are given in relation to this agreement, but I infer that it represents the amount agreed upon by the parties as representing the amount of outstanding licence fees at the date of the purported termination of the letter agreement. I draw that inference, because in the course of his reasons for decision on the second stage, his Honour said: "As to licence fees, I found in the first judgment that the relevant licence agreement required the supply of programmes produced by ATV. The consequence is that ... there is only a small amount owing, even on the case for the applicants. In these circumstances, this issue ... can be left for the quantum hearing." 56 No notice of cross appeal (O 52 r 22) was given in relation to the primary judge's failure to determine whether or not non-payment of licence fees provided an alternative basis for termination of the licence agreement, nor were any submissions put to this Full Court on that question. It may be that the size of the amount agreed as owing for licence fees explains why this aspect of the matter was not pursued in the Full Court. However, for whatever reason, it was not pursued in submissions in this Court, hence it is unnecessary to deal with the matter further.

Consent to the conduct complained of? 57 A factual issue at first instance was whether, when Mr Tsao (formerly the Deputy Chief Executive Officer of ATV) visited Australia in February 1992, he authorised Yau's to engage in the conduct of which ATV/ATVE complained in its letter of 7 April 1999. Mr and Mrs Yau gave evidence of consent, which was denied by Mr Tsao. The primary judge accepted Mr Tsao's evidence in this respect. 58 Although this is a finding on an issue of credibility, Yau's contends that the primary judge misdirected himself in making his factual finding on this issue, hence there should be a new trial. 59 The misdirection is said to arise in this way: the primary judge found, on the basis of admissions contained in Yau's pleadings, that Yau's had engaged in the conduct complained of from 1992. Declarations 1-6 of the orders made on 30 June 2000 reflect that finding, which was made in the second phase of the proceedings. Yet in the first phase of the proceedings the primary judge said: "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." In par 45 his Honour found that the first objective evidence of the practice was in June 1998. 60 Yau's contention is encapsulated in ground 8 of its Notice of Appeal, which is as follows: "8. The learned trial judge misdirected himself in his findings of fact, by propounding the hypothesis which he describes in paragraphs 44 and 45 of his Reasons for Judgment given on 10 March 2000 when: (a) that hypothesis was not propounded on the respondents' behalf either in cross-examination, in argument or otherwise; (b) that hypotheses [sic] was not put in cross-examination to the principals of the appellant, contrary to the rule in Browne v Dunn; (c) that hypothesis, had it been put forward in the course of the trial, was capable of disproof, including disproof through the evidence of the appellants' sub-licensees who gave affidavit evidence in the proceedings; and (d) that hypothesis was inconsistent with the factual basis upon which his Honour held on 22 June 2000 that the respondents were entitled to claim damages from the appellant." 61 Mr Epstein SC accepted that if he were to succeed on this ground, there would have to be a new trial. The appellant's supplementary written submissions included the following: "4. Ground of appeal No 8, in the event it is upheld (and other grounds of appeal fail), would properly give rise to an order for a new trial." 62 The primary judge was not bound by any assertions in Yau's pleadings that the practices in question had been carried on by it since 1992. The mere fact that the "hypothesis" referred to in par 44 of the reasons for judgment is inconsistent with the declarations which were made on the basis of admissions contained in Yau's pleadings is insufficient of itself to establish that the primary judge misdirected himself in any relevant respect. 63 The real question is whether the primary judge used the "hypothesis" as a basis for preferring the evidence of Mr Tsao to that of Mr and Mrs Yau, and if so, whether use of the "hypothesis" in that way involved a denial of natural justice to Yau's. 64 It is important that findings of the type under consideration should be made in the context of the trial as it was argued. Otherwise there may be a denial of natural justice. However, as the Full Court of the Supreme Court of Western Australia observed in Klahn v Audeh [2001] WASCA 336 at [18], judges are both entitled and bound to think for themselves and to determine cases according to the evidence in front of them. That observation is, of course, subject to natural justice considerations. 65 The onus lay on Yau's to establish that conduct which would otherwise be wrongful was undertaken with the consent of ATV/ATVE. The case which Yau's sought to make in that respect was that the conduct complained of began in 1992 and continued thereafter. Whether that was so or not was a matter peculiarly within the knowledge of Yau's. The conduct was said not to be wrongful because it had been authorised by Mr Tsao on his visit to Australia in 1992. ATV, on the other hand, adduced evidence that the conduct of which it complained did not come to its attention until late 1998 or early 1999 and there was some inconclusive evidence that when Mr Ng visited ATV stores in August 1998, he did not observe any ATV logos on videos that were not made or supplied by ATVE to Yau's. 66 If it were the fact that the conduct in question only began in 1998, a contention that it had been authorised by a conversation with Mr Tsao back in 1992 (he having been dismissed by ATV in September 1992) would be likely to have been dismissed as fanciful. For all practical purposes, the onus lay on Yau's to persuade the primary judge that the conduct complained of began in 1992, and ATV's alleged consent to that conduct occurred in 1992. The parties were at issue on those matters. Yau's did not succeed in persuading the primary judge of either of those matters. The primary judge found against Yau's on the issue of authorisation by Mr Tsao. The primary judge accepted Mr Tsao as a witness of truth for reasons which he gave, apart from the "hypothesis" referred to in par 44 of the reasons for judgment given in relation to the first phase. 67 I am not persuaded that this "hypothesis" was part of the process of reasoning by which the primary judge preferred the evidence of Mr Tsao to that of Mr and Mrs Yau. Other and cogent reasons are given for coming to that conclusion before any mention of the "hypothesis". The "hypothesis" is expressed as something which is "open", rather than as something which has been established. 68 It is less clear whether the primary judge found against Yau's on the authorisation point partly because of a finding that the conduct in question did not commence until June 1998. The first objective evidence of the practice was found to be in June 1998 (first judgment [45]; second judgment [16]). In the second judgment at [17] the primary judge appears to reject a contention that in his first judgment he made a positive finding that the conduct in question did not commence until 1998. That is consistent with the language of the first judgment which recorded that the first objective evidence of the practice was in June 1998, and the primary judge "was not at all convinced" that the practices in question had been carried on since 1992. 69 Given the onus which Yau's bore of establishing that the practices in question had been carried on with the consent of ATV/ATVE, a finding that the primary judge was "not at all convinced" that the practices had been carried on for the number of years for which Yau's contend did not involve any breach of the rules of natural justice. Rather, the evidence adduced by Yau's did not make out the case which it sought to establish. If, on the evidence before him, the primary judge was not persuaded as to this matter, there is no reason why he should not say so. 70 Yau's contends that the primary judge misdirected himself in a second respect. In par 43 of the reasons for judgment his Honour said: "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 and Tobin." The terms of Yau's solicitor's letter are set forth in par 39 of his Honour's reasons. The first paragraph of that letter is as follows: "We are unable to be more specific at this stage, however, [we] can indicate that approval has been obtained from your client to use the ATV logo. 71 I do not accept Yau's submission that in making the observation in par 43 quoted above, the primary judge overlooked the terms of the letter which he had quoted only four paragraphs earlier. Rather, the primary judge was making the point that if it was Yau's case that consent had been given by Mr Tsao on his visit to Australia in 1992, a brief reference to that fact could have been made in the letter in lieu of the entirely non specific assertion which was made. 72 In any event, the issue of consent would only be relevant to the contractual claims if the implied terms for which ATV contends were established. The supplementary written submissions make it reasonably clear that if this issue is found in Yau's favour, then the consent issue does not arise. 73 Declarations 1-6 of the orders made on 30 June 2000 are premised on the assumption that ATV/ATVE did not authorise the conduct the subject of those declarations. As things transpired the conduct the subject of those declarations was not carried forward into the damages claim, which were ultimately claimed on a basis which did not include that conduct. 74 The issue of consent would have been relevant to whether the conduct the subject of the declarations was wrongful. Although the Notice of Appeal seeks the setting aside of the "orders" made by the primary judge on 30 June 2000 and 29 June 2001, no submissions were put on the hearing of the appeal in relation to those declarations. Yau's failed to prove that the conduct the subject of the declarations was undertaken with the consent of ATV/ATVE, and the finding of the primary judge on this issue is not infected by appellable error. No other cause has been shown for setting the declarations aside, even though, at least in the events which have happened, the declarations appear to lack utility: cf Truth About Motorways Pty Ltd v Macquarie Infrastructure Investment Management Limited (1999-2000) 169 ALR 616 at 629 [52] per Gaudron J.

Revocation of trade mark 75 ATV is the proprietor of four Australian trade marks, each being registered from 13 March 1989. The mark is the same - a "triquetra" device registered in relation to four classes of goods. By its cross claim Yau's sought the removal of the trade marks from the register for non-use under Pt 9 of the Trade Marks Act 1995 (Cth) ("the Act"). 76 Yau's claim was grounded in s 92(4)(b) of the Act. Under that section, non-use of a trade mark for a period of three years ending one month before the day on which the non-use application is filed is a ground on which a "non-use application" may be made. The onus is on the registered owner to adduce evidence to show use. Apart from use by the registered owner itself, it is open to the registered owner to show that there has been authorised use of the trade mark in the relevant period. Any authorised use of the mark is taken to be use by the registered owner: s 7(3). A person is an "authorised user" of a trade mark if the person uses the trade mark in relation to goods under the control of the owner of the mark: s 8(1). 77 The primary judge found that there had been use of the mark in relation to goods in the relevant period by ATV/ATVE, as well as use of the mark in relation to goods by Yau's as an authorised user. 78 As to the former, the primary judge found that ATV/ATVE supplied Yau's with video master tapes bearing the ATV logo (which was equivalent to the registered marks for relevant purposes: s 7(1)) for copying and sale. ATV/ATVE also provided large quantities of promotional material to Yau's for use by it in relation to the sale of video tapes in Australia, as well as stickers bearing the logo for placement by Yau's or its sub-licensees on videos made from the master tapes. 79 No error has been shown in the primary judge's conclusion that these facts were sufficient to establish use of the trade mark by the registered owner in relation to goods. 80 There will only have been authorised use of the mark if ATV/ATVE exercised control over Yau's use of the mark in the sense defined in s 8. As Aickin J observed in Pioneer Kabushiki Kaishi v Registrar of Trade Marks (1977) 137 CLR 670 at 683, the essential requirement for the maintenance of the validity of a trade mark is that it must indicate a connection in the course of trade with the registered proprietor, even though the connection may be slight, such as selection or quality control. It does not follow from the rejection of the implied terms pleaded that "control" in the relevant sense was lacking. Yau's entitlement to use the marks was referrable to the licensing arrangements, one of the terms of which was that title selections were subject to ATVE's approval. That provides a sufficient connection. 81 For both of these reasons, ATV/ATVE discharged the onus of showing use of the mark in the relevant period by the registered owner and by Yau's as an authorised user.

Conclusions 82 It follows that the primary judge was in error in finding that the licence agreement between ATVE and Yau's was validly terminated by notice dated 7 April 1999. 83 Yau's submitted that if it succeeded on this issue, ATV's proceedings against it should be dismissed and the cross claim should be upheld, with the quantification of damages remitted to the trial judge, or another judge of the Court. 84 The third judgment of the primary judge records the following: After some delay and hesitation on the part of the applicant, the claim was defined on 18 December 2000 as follows: '1. It be noted that the applicants elect to claim damages under the following heads: (a) infringement of copyright of the programs 'Flaming Brothers' and 'Forest Cat II' for those episodes not supplied under the licence agreement; (b) additional damages pursuant to section 115 of the Copyright Act 1968; and (c) any amounts due and payable under the Licence Agreement between the Applicants and the Respondent.' As [a] result of concessions made by both parties and rulings made during the hearing, the issue for decision is narrow, namely, the additional damages to be awarded pursuant to s 115(4) of the Copyright Act 1968 (Cth) ('the Act') for infringement of copyright in respect of the films 'Flaming Brothers' and 'Forest Cat II'." The nature of the concessions made by the parties and the rulings made during the hearing do not emerge from the judgment. 85 In the result, the parties agreed at first instance that a licence fee approach was appropriate for the assessment of damages in relation to nine hours of film, being episodes 31-36 of the film "Flaming Brothers" and episodes 1-3 of the film "Forest Cat II". 86 On that basis the primary judge assessed damages at $1,300 per hour (the hourly rate for the second year specified in Schedule B to the letter agreement) making a total of $11,700. Damages were awarded pursuant to s 115(4) of the Copyright Act 1968 (Cth) in the sum of $11,700. It was agreed that an amount of $1,560 was due pursuant to the licence agreement, presumably for licence fees. The formal order of the Court was that the respondent pay the applicant the sum of $24,960 "in damages", albeit a small part of that sum represented money payable pursuant to the licence agreement. 87 The parties argued this appeal on the implicit assumption that the resolution of the issue as to the validity of the termination of the letter agreement would resolve ATV's monetary claim, although if the termination was found to be invalid, that would leave outstanding Yau's cross claim for damages for breach of contract. In particular, counsel for ATV/ATVE did not argue on the hearing of the appeal that the finding of infringement of copyright in respect of the films "Flaming Brothers" and "Forest Cat II" could be sustained if it were found that the termination of the letter agreement was invalid. However, as the damages under s 115(2) of the Copyright Act 1968 (Cth) were assessed upon the basis of a licence fee approach, it would seem to follow that the sum of $11,700 would, in any event, be payable pursuant to the letter of agreement in relation to the reproduction of these films. The Full Court was not provided with any submissions on this question, but it is a matter which needs to be addressed and, for that reason, the amount of ATVE's monetary claim against Yau's should be remitted to the primary judge for determination in the light of these reasons. However, the award of damages pursuant to s 115(4) of the Copyright Act 1968 (Cth) should be set aside. 88 In the result: - the appeal should be allowed; - the finding of the primary judge that the letter agreement was validly terminated by notice dated 7 April 1999 should be set aside and a finding that the letter agreement was not validly terminated by notice dated 7 April 1999 substituted for that finding; - the declaration and order made on 10 March 2000 should be set aside; - declaration 7 made on 30 June 2000 and the orders made on that date should be set aside; - ATV/ATVE should pay Yau's costs of the appeal. The costs of the proceedings at first instance should be remitted to the primary judge for reconsideration in the light of the result of the appeal; - the order made on 29 June 2001 that the respondent pay the applicant the sum of $24,960 in damages should be set aside; - the matter should be remitted to the primary judge for determination of the quantum of ATVE's monetary claim against Yau's; - Yau's cross claim should be remitted to the primary judge for determination of Yau's claim for damages for wrongful termination of the licence agreement. I certify that the preceding eighty-six (86) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Hely.

Solicitors for the Appellant: Frank Low Yeung & Co

Date of Hearing: 26‑27 November 2001