FEDERAL COURT OF AUSTRALIA

Asia Television Ltd v Yau’s Entertainment Pty Ltd

[2000] FCA 254

CONTRACT – licence agreement for the reproduction and distribution of entertainment programmes – appropriation by a licensee of the licensor’s programmes, logo, name and reputation – breach of implied terms and a proper basis for termination – if there was an obligation to act in good faith in terminating there was no breach in this case

Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 cited

Transfield Pty Ltd v Arlo International Ltd (1980) 144 CLR 83 cited

Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 cited

Roxborough v Rothmans (1999) 167 ALR 326 referred to

Sportsvision Australia Pty Ltd v Tallglen Pty Ltd (1998) 44 NSWLR 103 cited

Garry Rogers Motors (Aust) Pty Ltd v Subaru (Aust) Pty Ltd [1999] FCA 903 applied in part

Shepherd v Felt & Textiles Australia Ltd (1931) 45 CLR 359 followed on one point and cited on another

Bunge Corporation, New York v Tradex Export SA Panama (1981) 1 WLR 711 cited

Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549 cited

ASIA TELEVISION LIMITED and ATV ENTERPRISES LIMITED v YAU’S ENTERTAINMENT PTY LIMITED, AND YAU’S ENTERTAINMENT PTY LIMITED and ASIA TELEVISION LIMITED, ATV ENTERPRISES LIMITED, CHINATOWN ENTERTAINMENT (AUSTRALIA) PTY LIMITED

N 343 OF 1999

GYLES J

SYDNEY

10 MARCH 2000

THE COURT DECLARES AND ORDERS THAT:

1.                  Declares that the licence agreement between the second applicant and the respondent was terminated by notice dated 7 April 1999.

2.                  The respondent by itself, its servants or agents be restrained from:

(a)                using or attempting to use the word “ATV” or any words which are substantially identical with or deceptively similar to the word “ATV” in relation to promotion, advertising or distribution of ATV programmes in Australia by way of video rental; and

(b)               representing or attempting to represent that the respondent:

(i)                  is authorised by the applicants or either of them to use the word “ATV”;  or

(ii)                is associated with the applicants or either of them or the business of either of them.

3.         The matter be stood over to a date to be fixed.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT

1                     The proceedings concern a licence agreement between ATV Enterprises Limited (“ATVE”), the second applicant, and Yau’s Entertainment Pty Limited (“Yau’s Entertainment”), the respondent, pursuant to which ATVE licensed certain entertainment programmes for reproduction and distribution by Yau’s Entertainment in Australia and New Zealand as video cassettes.  By letter of 7 April 1999 ATVE, by its solicitors, gave written notice of termination of the agreement and shortly thereafter entered into a new licence agreement with Chinatown Entertainment (Australia) Pty Limited (“Chinatown Entertainment”), the second cross respondent.  Yau’s Entertainment did not and does not accept the validity of the termination or of the new licence.  There are a multiplicity of claims and cross-claims.  The principal issue for determination is the validity of the termination.  It is that issue which gives the proceedings a claim to urgency which led to an early final hearing.

Facts

2                     ATVE is a subsidiary of the first applicant, Asia Television Limited (“ATV”).  For many years, ATV has operated free-to-air television in Hong Kong, including a Chinese channel which shows, inter alia, drama in Cantonese.  At all material times it has had a competitor known as TVB.

3                     In 1987 Mr Andy Yau, who was a former Hong Kong resident (and apparently an entertainer of some note), and by then a resident of Sydney, was approached by representatives of ATV with a view to establishing a distributor network in Australia for home videos of ATV programmes.  TVB had had a network of licensees and sub-licensees in Australia for some time.  The negotiations which ensued culminated in two agreements between ATV and Yau & Partners – one for Cantonese and certain Mandarin language programmes and another for Vietnamese language programmes, dated respectively 19 May 1988 and 28 July 1988.  During the three-year term of those licences, sub-licences were entered into with about 20 sub-licensees throughout Australia.

4                     On 16 September 1991 a new licence agreement was entered into between ATV and Yau’s Entertainment, the present respondent, for a term of one year between 1 June 1991 and 31 May 1992, together with an ancillary agreement.  By December 1991 Mr Yau was proposing that the next licence agreement should be for a period of three years. 

5                     In February 1992, Mr Tsao, who was the deputy chief executive officer of ATV and responsible for its operation to Mr Lim, the then chief executive officer, came to Australia and spent time with Mr Yau.  There is conflict as to precisely what occurred during this visit, which is important, perhaps decisive, as to one aspect of the matter.  I shall return to it in due course.  Discussion did take place as to the new licence. 

6                     By April 1992 ATVE and Yau’s Entertainment had agreed to the terms of a new licence agreement for a period of three years from 1 June 1992 to 31 May 1995 which were recorded in a letter.  After some revision, three formal agreements were entered into – a licence agreement with ATV on 10 September 1992 and two agreements with ATVE, each made 19 October 1992, one being a licence and the other a collateral agreement in relation to the provision of master programme tapes. 

7                     On 20 September 1992 there was a meeting between Mr Yau and various executives of ATV in Hong Kong at which it was agreed that Yau’s Entertainment could suspend a licence fee instalment due to an expected under-supply of programme hours for that year. 

8                     On 5 January 1995, ATVE and Yau’s Entertainment agreed upon a new three-year licence for the period 1 June 1995 to 31 May 1998.  This agreement was recorded in a similar letter to those which had been used to record earlier agreements, but on those occasions formal documents were ultimately executed.  This was not done in relation to the 1995 licence.  By this time, there were about 25 to 30 ATV stores in Australia and 45 to 50 TVB stores. 

9                     On 16 April 1997, ATVE and Yau’s Entertainment entered into a further three-year licence agreement, for the period 1 June 1997 to 31 May 2000, with an option to renew for a further year.  This is the agreement in suit.  It will be observed that this licence was entered into prior to the expiration of the previous licence.  This agreement is again in letter form.  By this time, there were about 35 ATV stores and still about 45 to 50 TVB stores in Australia.  The evidence from Mr Yau was that this agreement was entered into following approaches to him by another Hong Kong producer of Chinese dramas to act as its distributor in Australia and that he thereupon organised the new agreement with Mr Tong Ching Chuen, the then controller of ATVE.  There was no evidence from Mr Tong to challenge this. 

10                  Mr Tong was replaced as controller of ATVE in December 1997 by Mr William Au.  He was responsible for the policy-making and management of ATVE.  Shortly thereafter, a cloud appeared over the relationship between ATVE and Yau’s Entertainment.  This concerned the dealings between ATVE and Chinatown Entertainment and its principal, Mr Wing Cheung.  ATVE had the rights to programmes produced by Fee Tang Production Company Limited (“Fee Tang”), from mainland China, which were being distributed to a number of other countries.  The precise relationship between ATV and Fee Tang was not fully explored in evidence, but was clearly close.  Mr Au decided to distribute these programmes in Australia.  By March 1998 (and probably earlier) there was an oral arrangement between ATVE and Chinatown Entertainment concerning the distribution of these programmes.  Later, there were direct arrangements between Fee Tang and Chinatown Entertainment. 

11                  One or more of these programmes had been offered to Yau’s Entertainment, but Mr Yau was not prepared to pay the asking price for them.  By 3 February 1998, Mr Yau reported to Mrs Gigi Leung, an employee of ATVE, that a company had started to recruit sub-licensees, claiming to be the sole distributor of Fee Tang Productions.  At that stage, Mr Yau had not received details of the Fee Tang programmes, including names, casting or expected delivery dates.  In a letter of 12 August to ATVE, Mr Yau said:

            “Your company telephoned us early February asking whether we would like to bid for the Fee Tang drama.  Because of the under supply of ATV drama, we offered A$840 for one episode and your company promised to consider.  However, ten days later, you told us that it had been sold to Chinatown Entertainment (Australia) Pty Ltd.”

12                  By 16 March 1998, Yau’s Entertainment had received letters from two licensees claiming to have been informed by Wing Cheung that Yau’s Entertainment was no longer the sole ATVE distributor.  On that date solicitors on behalf of Yau’s Entertainment wrote to Chinatown Entertainment (with a copy to ATVE) complaining about the assertion that Yau’s Entertainment was not the Australian exclusive licensee for ATVE for the years 1998 and 1999.  Solicitors for Chinatown Entertainment replied, denying making the alleged assertion.

13                  ATVE claims that Mr Cheung was favoured over Mr Yau simply because he offered more money.  Whether this is true, and the actual sequence of events concerning this relationship are in contest.  There is also an issue as to whether, and if so, to what extent, the products supplied to Chinatown Entertainment bore any identification with ATV.

14                  In June 1998 another cloud appeared on the horizon.  The Lam family sold a controlling interest in ATV to a group from mainland China.  It was apparently reported in Hong Kong that ATV would be reducing its production of drama from 390 to 150 hours per annum.  By 26 June, Mr Yau was reporting to Mrs Gigi Leung that the sub-licensees were becoming agitated over the news of the proposed drop in the production of drama, which by then was reported in the major Chinese newspapers in Australia.  Mr Yau at that stage said he would not accept any Chinese or Taiwanese produced programmes repackaged as part of the ATVE offering as they could be acquired more cheaply elsewhere.  He reserved the right to pursue compensation under the licence agreement.  Mr Yau’s letter of 28 June 1998 is to the same effect.

15                  The first notification from ATVE to Yau’s Entertainment on this topic was by facsimile transmission on 22 July 1998.  The substance of the communication was 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?

We suspect that the press may have gotten the wrong idea from our broadcasting of purchased drama recently.  Let me assure you that this is a temporary arrangement during this transitional period and does not represent our long term strategy.”

16                  By facsimile transmission of 3 August 1998, ATVE communicated to Yau’s Entertainment the home video programme release for 1999.  So far as drama was concerned, it was 300 hours in-house production or joint production;  and 300 hours – carefully selected best drama series available from major independent producers. 

17                  Mr Yau complained about the fact that ATV were only going to supply 150 hours of its programming under the licence agreement at a meeting with senior executives of ATV and ATVE in Hong Kong on 11 September 1998.  Mr Au suggested the parties could enter into a new contract for 150 hours and they could then negotiate another contract for the co-produced material which ATVE would supply.  Mr Yau refused to do this.

18                  In response to a letter threatening to stop the supply of tapes unless licence fees outstanding were paid, Mr Yau wrote the following letter, dated 18 September 1998, to Mr Au (omitting formal parts):

 “I refer to your letter demanding payment of licence fees and your threat to stop supply of tapes if payment is not received.

As you are aware, there is a contract between ATV and me.  One of the terms of the Contract is that you supply 390 hours of ATV new drama programmes.

On 22 July 1998, you wrote to me and said you would only supply 150 hours of ATV new drama programmes.

This is in breach of the Contract.

Please advise me whether you intend to breach the Contract, or to honour the terms of the Contract.

If you do not honour the Contract, I would suffer substantial damages.  The licence fees I pay are based on you supplying 390 hours of ATV new drama programmes.  If you do not supply 390 hours, I am paying too much licence fees.

My dealers and agents are refusing to pay me because they have heard that they won’t be receiving 390 hours but only 150 hours.  They said that their business would close if they don’t receive 390 hours.

As you can see, if you do not honour the Contract, I would be forced to take action to protect my interest.  No doubt, my dealers and agents would take action against me.

I am surprised that you would decide to cut production to 150 hours when there are Contracts in place requiring to you to supply 390 hours.  I imagine that you would be breaching Contracts world wide.

Again, Please inform me what your position is in relation to our Contract and the supply of the ATV new drama programmes.

Until you clarify the position, it is ridiculous that you demand fees and threaten supply of tapes.  Should you stop supply, I shall take immediate action.

However, I am sure we can resolve this matter without my taking action.  We have had a good business relationship for over 10 years and I trust this good relationship will continue for may [sic] more years.”

19                  In the meantime, a licence agreement had been entered into between Fee Tang and Chinatown Entertainment in July.  In early August, Yau’s Entertainment supplied to ATVE tapes of a Vietnamese version of a drama “Legend of Yung Ching” and a copy of a Vietnamese magazine advertisement, the tapes apparently recording the ATV copyright announcement.  They had been hired from a shop run by a company of which Mr Wing Cheung was a director.  This followed complaints from ATV franchisees that the Fee Tang dramas were being used to create two types of ATV agents.  During August, Yau’s Entertainment reported to ATVE that four video shops were letting a film entitled “Moc Que Anh”, otherwise known as “The Heroine of the Yangs”, which was an ATV television series, and that Mr Wing Cheung was a director of each of the four companies running these shops (although apparently the lists of directors were not up-to-date in relation to one of them).  Mr Wing Cheung admitted in evidence that he was a shareholder in three of those shops, but claimed that he had no personal knowledge of the alleged illegal hiring and that, to the best of his knowledge, no company with which he was associated ever distributed or sold “The Heroine of the Yangs”.

20                  In August 1998 Mr Alfred Ng visited Australia on behalf of ATVE to investigate these complaints.  He went to three video stores supplying the pirated programme, and took copies of the tapes and photographs of each store.  He accompanied Mr and Mrs Yau and their solicitor to a conference with Ms Angela Bowne, a barrister in Sydney, for advice on proceedings to restrain the breach of copyright.  The advice was that ATV, as a copyright holder, would need to be a plaintiff in any proceedings.

21                  Mr Ng’s contemporaneous report of his visit is significant.  It completely supports Mr Yau’s complaints concerning the activities of Chinatown Entertainment.  Indeed, it shows that it was even pirating Fee Tang programmes.  It is also instructive in that Chinatown Entertainment was described as “our exclusive licensee of Fee Tang Productions in Australia” (emphasis added).  On his return to Hong Kong, Mr Ng, on 3 September 1998, wrote to Yau’s Entertainment including the following:

 “I have spoken to management about this matter.  ATV is against theft and agrees that proceedings should be taken.  The affidavit will come.”

22                  In the meantime, Mr Yau had written to Mr Au concerning the piracy of “The Heroine of the Yangs” by letter dated 27 August 1998.  In the letter he commented that this kind of incident had never happened in Australia in the last ten years until certain Fee Tang Productions programmes were sold to Wing Cheung. 

23                  In a conversation after his return to Hong Kong, Mr Ng said to Mr Yau that ATV would not commit itself to be a party to the proceedings, as it was company policy not to use ATV as a party in court actions, although there was an offer to support through documentation.  Mr Ng says there was an offer to execute a power of attorney. 

24                  By letter of 5 September to Mr Ng, Mr Yau, amongst other things, mentioned that there were two issues which had arisen which were linked, one being the pirate tapes, the other was the use of the ATV logo and copyright announcement on other programmes. 

25                  Shortly after, ATVE forwarded to Mr Yau a draft announcement to be published in Australian newspapers concerning the piracy of “The Heroine of the Yangs”, confirming that Yau’s Entertainment was the exclusive licensee of ATV programmes, and warned that legal action would be taken against any unauthorised distribution of ATV programmes.

26                  On 10 September 1998 Ms Bowne’s written advice was received, confirming that ATV had to be a plaintiff in any action commenced in relation to the piracy of “The Heroine of the Yangs”.  Mr Yau travelled to Hong Kong, and, as I have noted earlier, had a meeting on 11 September with Mr Loo (senior vice president, Finance and Special Projects of ATV), Mr Au and Mr Or, each of ATVE.  Whilst there is some dispute about the detail of the meeting, it is common ground that ATV refused to be a party to the proceedings, notwithstanding the legal advice which had been received that this was necessary.  This position was confirmed by letter from Mr Au of 18 September 1998, to the following effect:

 “We confirm the theft of the programme.  It is good that you is taking proceedings.  ATV agrees with this and will assist.

ATV prefers that Yau be the only party.  You can protect both parties benefit.

The affidavit needs amendment.”

27                  On 22 September 1998, the solicitor for Yau’s Entertainment wrote to Mr Au confirming that ATV must be a party to any infringement proceedings, requesting confirmation that it would be prepared to do so, and that a power of attorney dated 25 April 1997 provided with the licence agreement, was still valid.   There was never any substantive reply to that letter.

28                  Another issue which was discussed at the meeting in Hong Kong on 11 September was the film “Legend of the Condor Lovers”.  This was the subject of a licence agreement between ATVE and Yung Tei Pei Workshop (the producer) granting to ATVE the exclusive right to use, market and distribute the film, including the right to dub and sub-title it.  The film was to be marketed as a joint production between both companies, with the logos of both parties on the film and on promotional material.  It seems that the copyright was to remain with Yung Tei Pei Workshop. 

29                  In his letter of 3 September to Mr Yau, Mr Ng had offered this film at a special discount price of $900 per hour for 48 episodes.  In his reply, Mr Yau explained that while the film was at shooting stage it had been offered to him at $300 per episode and he had rejected it for reasons he set out.  He also rejected the offer by ATVE.  He added:

 “In order not to arouse unnecessary misunderstanding, please do not send any paper cutting or promotion materials of “The Legend of Condor Lovers” to us because pirate tape of this drama had already in the black market.”

30                  It is common ground that at the meeting Mr Yau confirmed his rejection of the offer, and that Mr Yau said that ATVE could offer this programme to others in Australia.  There is dispute as to whether it was offered under the licence agreement or as an ad hoc arrangement.  Mr Yau also said that his agreement to offer the programme to others was on the basis that it would not be sold under the name of ATV or with the ATV logo.  I accept Mr Yau as to this.

31                  The three contentious items discussed at the meeting, namely “The Heroine of the Yangs”, “The Legend of the Condor Lovers” and the obligation to supply 390 hours of drama, were never satisfactorily resolved.  Another dispute simmering along during this period was the issue of licence fees.  Put shortly, ATVE were insisting upon payment of licence fees as per the schedule in the licence agreement, whereas Yau’s Entertainment was taking the position that there had to be an adjustment of these licence fees to recognise the under-supply of drama which would take place for that year.  That issue was never resolved.

32                  Meanwhile, another sub-plot was being played out. In June 1998 Yau’s Entertainment had supplied master tapes of the programmes “Age of Glory”,  “Trials and Tribulation”, “Immortal Fugitive” and “Poet Mr Tong” to Mr Jason Tan, the manager of Broadway Video and Audio, one of Yau’s Entertainment’s sub-licensees.  Those programmes were not produced by ATV and had no association with it, but had labels applied showing the ATV name and logo.  In July and August, Yau’s Entertainment supplied another sub-licensee at Eastwood with master tapes of programmes which were not ATV programmes in any sense, but were supplied as ATV programmes including use of the ATV logo.  The same thing occurred in August and September, to another sub-licensee at Marrickville.  The Eastwood sub-licensee proposed advertising in Australian Chinese magazines, including descriptions of the programmes supplied to him by Yau’s Entertainment as ATV programmes but which were not.  Mr Yau told him that if he wanted to place an advertisement for his shop he could do it, although at his own expense.  This was done, and published on or about 11 September 1998. 

33                  Mr Wing Cheung sent a copy of the magazine to Mr Au.  This was given by Mr Au to Mr Ng, saying that he had obtained it from a “friend”.  Mr Wing Cheung claims that his purpose in sending it was to show Mr Au Chinatown Entertainment’s own promotional advertising.  In any event, Mr Ng faxed Mr Yau, drawing attention to the advertisement and said:

“The advertisement misleads the market in facts, and appears to give rise to having been borrowed for the promotion of other people’s movies.  Therefore, our company hopes that your company will be able to effect control of and to make corrections in these type of misinformation.”

I shall not set out the reply, but on Mr Yau’s own evidence it was, to say the least, disingenuous and he was much taxed with it by Mr Murr QC during cross-examination.  The basic message, as I read it, was that if you will not pursue Mr Wing Cheung then I will not protect your rights in Australia.

34                  For the remainder of 1998 these themes continued to be played.  The dispute as to whether ATVE was obliged to provide its own programmes continued, with a corresponding dispute as to whether certain programmes offered and taken at rates less than the licence agreement rates were supplied pursuant to the agreement or otherwise, and there was a dispute as to the impact of this upon the accruing of licence fees.  Yau’s Entertainment continued to complain about the lack of action against Mr Wing Cheung and Chinatown Entertainment, and the complaints were exacerbated when “Legend of the Condor Lovers” was supplied to Chinatown Entertainment by Fee Tang and then advertised with a poster clearly showing the name ATVE. 

35                  During January 1999 Mr Wing Cheung telephoned Mr Ng to inform him that he had seen videos in Yau’s Entertainment sub-licensees’ stores bearing the ATV logo which did not appear to be ATV or ATVE programmes.  There was evidence of ATVE having received similar information from other sources at about that time.  Mr Ng asked Mr Wing Cheung to collect and send sample tapes of the programmes.  He did this and supplied the tapes by early March.  When examined, they were either programmes acquired by ATV for telecasting in Hong Kong only or were programmes with no connection with ATV at all but bore the ATV logo.

36                  It was decided that representatives of ATVE should go to Australia to investigate the matter, and by 30 March Ms Li, a senior marketing executive, and Mr Chan, a corporate lawyer, met Mr Wing Cheung at their hotel and he took them to four video shops in Sydney which were sub-licensees of Yau’s Entertainment.  They visited Gilbert & Tobin, solicitors, prior to actually visiting the stores.  A number of videos were collected and observations made as to posters and the like.  This confirmed the evidence collected by Mr Cheung.

37                  The evidence of Mr and Mrs Yau was that those programmes which were ATV programmes which they had not received from ATV had been taped from Hong Kong free-to-air television by contacts in Hong Kong and received from them.  It was said that practice had been authorised during the discussions with Mr Tsao on his visit to Australia in February 1992, as had the practice of presenting non-ATV programmes as ATV programmes in the sub-licensees’ shops.  It was said that the practice of taping was assisted by ATV staff notifying Yau’s Entertainment of the timing of the programmes to enable recording.

38                  By letter dated 7 April 1999, Gilbert & Tobin, on behalf of ATV and ATVE, said, inter alia:

 “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. 

…

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 programs. 

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.”

The solicitors alleged that conduct constituted, amongst other things, a repudiation of the agreement, and they threatened litigation in relation to trade mark infringement, breaches of the Trade Practices Act, copyright infringement and passing off.  The letter proceeded:

 “In relation to the 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. …”

39                  In the reply from the solicitors for Yau’s Entertainment of 9 April 1999, it was said, inter alia:

 “We are unable to be more specific at this stage, however, can indicate that approval has been obtained from your client to use the ATV logo.

In relation to recorded programmes broadcast on ATV in Hong Kong, we request particulars of those programs so that we can obtain instructions.”

40                  On 13 April 1999, ATVE entered into a licence agreement with Chinatown Entertainment, to commence on 19 April 1999, and this was publicly announced on 19 April 1999.  Yau’s Entertainment thereafter supplied ATV programmes to its sub-licensees, some having been obtained from Canada and some taped from the ATV channel in Hong Kong, and an advertisement was published in the Australian Chinese Daily dated 28 April 1999 which claimed that Yau’s Entertainment was the exclusive licensee of the programmes so obtained.

41                  These proceedings were commenced on 21 April 1999.

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.

Associate:

Dated:              10 March 2000