Guangzhou Chinese Investment Company v. Jiang Su Jiang Kong Filming Company Limited

People’s Republic of China Supreme People’s Court Civil Judgement

Zhi Zhong Zi No. 9 (2000)

Introduction

The Plaintiff is Guangzhou Chinese Investment Company (“Investment Company”) and the Defendant is Gong Su Cheung Kong Filming Company Limited (“Jiang Kong”).  This is an appeal case filed by Jiang Kong against the Decision No. 4 of 1999 of the Highest People’s Court of Gong Su Province (1999). 

Brief Facts

The Respondent (Investment Company) entered into an agreement with Nanjing Filming Company (“Nanjing”) covenanting the rights and obligation between the two parties in making a film “maintaining mother and son relationship” (the “Film”).  In the agreement Nanjing is a “Film Production Permit” holder and is responsible for submitting the film to the National authorities for approval whereas the copyright of the film vested in the Investment Company.

In May 1998, the Appellant (Jiang Kong) entered into an oral agreement with the Investment Company covenanting that Jiang Kong has distribution rights in 13 cities within Gong Su Province.  The Agreement provides, inter alia, that 

·    The Film can be showed in Gong Su from May 1998 to December 1998;

·    All income generated is distributed between the two parties in accordance to their agreed allocation;

·    Jiang Kong must comply with the following terms and requirements:

·    Box office reports to be sent to the Investment Company via fax before noon of the following the show day,

·    A financial report to be sent to the Investment Company within three days of the following week;

·    Jiang Kong shall pay the money into a designated account of the Investment Company within 2 weeks from the date of initial showing;

·    The Investment Company shall receive all payment within a week upon completion of the show;

·    Jiang Kong shall be responsible to audit the accuracy of the box office figures.  If there is any missing figures or non-disclosures, Jiang Kong shall be liable for 10 times of the damages.

It was later agreed that the profit allocation between the Investment Company and Jiang Kong is 32% and 68% respectively.

Jiang Kong submitted reports on daily turnover, box office, profit distribution, accumulation figures of the Gong Su box office to the Investment Company in January 1999.  Box office figures of 40,012 were not reported to the Investment Company. It is difficult for Jiang Kong to trace the box office figures and there are discrepancies between the figures provided by province and the cities. Jiang Kong sent a letter enumerating the profit allocation in a letter and the Investment Company filed a complaint before the Original Court.

Decision held by the original court:

1.       The validity of the contract

The contract entered into between Investment Company and Jiang Kong regarding the film distribution is valid.  Jiang Kong alleged that Investment Company does not have a distribution license and therefore the contract is invalid.  The Court considers that since Investment Company is the copyright owner of the film, it is protected by PRC law.  Although Investment Company does not have the distribution license, its role is a middleman between the filmmaker and distributor.  It did not involve works relating to film processing and distribution.  The Film is produced by Nanjing Film Maker which is under the state’s control.  Distribution right is owned by Jiang Kong who is also controlled by the states.  The act performed by the Investment Company did not contravene to the spirit laid down by “The Film Trading Provisional Regulations”.  Therefore, Jiang Kong’s argument is not acceptable.

2.       Non-disclosures of fact and turnover

The non-disclosed sum of 52,109, 9,429 was not concealed information on the ground that Investment Company can check the discrepancy.  Jiang Kong should pay 2,771, the amount which is yet to finalize.  Jiang Kong has not included the balance of 42,680 into the total turnover.  According to the Court’s findings of 852 schools, unreported figures of Kong Ling Province are 29,088.20, unreported figures of Chung Zhuk is 231,892.65 following which total unreported figures of the provinces are 260,980.85.  Due to certain reasons, 1080 schools are unable to provide the turnover figures.  The total non-disclosures figures of 42,680 by Jiang Kong, 260,980.85 by provinces and 50,000 by the cities totaling 353,660.85 constitutes Jiang Kong has breached the contract.  The breach of contract allegation made by the Investment Company therefore has established.  Whereas, the allegation made by the Investment Company that the concealed figures of 353,660.85 by Kong So Province is not support by any substantial evidence.   Therefore, such allegation is unfounded.

3.       non-disclosures turnover and breach of contract

The non-disclosures of turnover by Jiang Kong constitutes breach of contract.

Jiang Kong submitted that the parties who failed to disclose the turnover figures should be liable for their acts and not Jiang Kong.  Since Clause 4(6) of the Agreement entered into between the Investment Company and Jiang Kong provides that Jiang Kong is responsible for the turnover figures, Jiang Kong is liable for the non-disclosures. 

As for the damages of 10 times of the economic loss imposed by the Investment Company, the Court considers that although penalty clause is provided in the contract, evidential support provided by the Investment Company is incorrect.  The non-disclosures figures are revealed by the Court and not by the Investment Company; whereas the penalty clause provided in the contract do not tally with the national law and practice.  As a matter of fairness, the damages is 5 times of the economic loss and therefore the figure is 5 times of 353,660.85 totaling 1,768,304.25.

The contract entered into between the Investment Company and Jiang Kong regarding profit sharing is valid according to the PRC law and practice.  The Court does not accept the arguments put forwarded by Jiang Kong that (a) the Investment Company acted contrary to the “Film Regulations” and “Film Trading Provisional Regulations”; (b) dating back the contract by the Investment Company is deception.  The Court considers that the Investment Company, being an investor could be the copyright proprietor and take the profit generated from the film distribution.  According to the PRC Copyright law, copyright owner has the right to authorize the others to exercise its copyright right and the copyright owner is entitled for rewards in return.

4.       Delay payment and breach of contract

The profit sharing between the Investment Company and Jiang Kong has agreed in the agreement in April 1999.  The deadline for payment by Jiang Kong is 7 May 1999.  An amount of 237,937.20 remains outstanding.  Investment Company did not consent to extend the payment beyond the deadline.  Therefore, Jiang Kong has breached the contract and is liable for the outstanding payment of 237,937.20.

5.       Jiang Kong’s act of non-disclosures and delay payment does not constitute infringement.  The claim of public apologies by the Investment Company is ill-founded.

To conclude, Investment Company has achieved part of the claims.  It is order that:

(1)       Jiang Kong shall pay 1,768,304.25 as economic loss to the Investment Company;

(2)       Jiang Kong shall pay the finalized sum of 2,771 to the Investment Company

(3)       Jiang Kong shall pay the outstanding balance of 237,937.20 to the Investment Company.

All the costs must be paid within 30 days. 

The remaining claim made by the Investment Company is turned down.

The costs of these proceedings are 86,199.69.  Investment Company shall be liable for 46,199.69 whereas Jiang Kong shall be liable for 40,000.00

The Investment Company filed the case with an Appeal Court. 

Appeal Court’s findings are as follows :

·    The profit sharing agreement entered into between the two parties covenanting that Jiang Kong is responsible for the film’s distribution work in Gong Su Province and that the profit sharing corresponds to the income generated by the box office are in line with the PRC Copyright law and the contract entered into between the parties.

·    Regarding the deception issue, although the written contract is proposed by the Investment Company. Both parties agreed the terms of the agreement and there was no deception.  Further the date of the contract was agreed by Jiang Kong which is not prejudicial to Cheung Kong’s interest, the national’s interest or third party.  Therefore, dating back the contract cannot be regard as deception.

·    Clause 4(6) of the profit sharing agreement provides Jiang Kong is liable for the accuracy of the sales figures provided by the box offices and is also liable for the box offices’ non-accuracy and non-disclosures.  Jiang Kong’s act of unilaterally amended this clause to read the filming company is liable does not exempt it from liability.  Although Investment Company issued a letter to Jiang Kong, filming company and theatre demanding the actual figure, failing which a penalty of 10 times of the damages would be imposed. this letter cannot support that the Investment Company and Jiang Kong reached a new agreement.  According to law of contract, Jiang Kong is liable for any non-disclosures and inaccuracy of the figures provided by the box offices.

·    Due to the fact that it is difficult for the Investment company to prove the inaccuracy and the penalty was agreed by both parties, the Court does not agree to Jiang Kong’s submissions that the damages is 5 times of the non-disclosures figures.

·    As for any non-disclosures of box offices’ figures, the request for an in-dept enquiry on the actual figures showing in Gong Su Province is not granted by the Court.  Firstly, the Investment Company is required to comply with the burden of proof as stipulated in the agreement. Secondly, the Court only verifies the non-disclosures figures and the burden of proof on damage is on the Investment Company.  Otherwise, it will act contrary to the agreement agreed by both parties and the neutral position of the Court is a problem.  Further, it is not fair to the other party.

·    In addition, the penalty is able to compensate the damage caused by Jiang Kong.  According to the PRC law and to the Agreement, the burden of proof of any non-disclosures is on the Investment Company.  As the Original Court has verified the figures provided by Investment Company and use those figures as missing figures, the Court will not go beyond this point.   The objectiveness of the test adopted by the Original Court was one of the grounds of appeal raised by the parties, the Court has accepted this as part of the appeal reasons.

·    According to 1095 sets of investigation reports provided by the Investment Company, there are some discrepancies in the showing time in Hoi An Province.  These investigation reports were treated as evidence on non-disclosures.  Further there are discrepancies on the statement provided by witnesses.  The Court did not accept this as evidence.  The Court compared the daily report on the show and the reports on the film accounts and confirms that the regional filming company did not provide the box office figures accurately.  Jiang Kong submitted same report to the Investment Company and therefore the fact of inaccuracy of the figures is correct. 

Decision held by the Appeal Court :-

1.       Decision No. 1 made by the High Court of Kong So Province has been withdrawn;

2.       Kwang So Film Company Limited is liable to pay the Investment Company 2,277,312;

3.       Upheld the Decision No. 2, 3, 4 made by High Court of Kong So Province;

Jiang Kong is liable for the costs of the original court for 86,199.69.  The costs for the present proceedings are 86,199,69.  Kwang Su Company Limited is liable to pay the costs of 43,100 and Investment Company is liable to pay the costs of 43,099.69.