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Derochemont Societe Anonyme v Kent International Films Limited (In Liquidation) And Others

Judgment Cited authorities 12 Cited in Precedent Map Related
Vincent
Judgment Date18 March 1987
Year1987
Judgement NumberHCA4425/1985
Subject MatterCivil Action
CourtHigh Court (Hong Kong)
HCA004425/1985 DEROCHEMONT SOCIETE ANONYME v. KENT INTERNATIONAL FILMS LIMITED (IN LIQUIDATION) AND OTHERS

HCA004425/1985

1985, No. A4425

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

___________

BETWEEN

DEROCHEMONT SOCIETE ANONYME Plaintiff

and
KENT INTERNATIONAL FILMS LIMITED(IN LIQUIDATION) 1st Defendant
ROY MCAREE 2nd Defendant

LIM KOON LEONG alias LIM KON YEUNG

 3rd Defendant
CUTLAND LIMITED 4th Defendant

____________

Coram: The Honourable Mr. Justice Nazareth in Court.

Dates of Hearing: 16th - 20th, 23rd - 27th February, 1987.

Date of Delivery of Judgment: 18th March, 1987.

___________

JUDGMENT

___________

BACKGROUND

1. This is a claim in substance for the return of US$95,000 invested by the Plaintiff in the production of a film by the Defendants, which, in the event was never produced. The 1st Defendant is in liquidation and the proceedings against it have been stayed. In default of the 3rd and 4th Defendants making discovery as ordered, judgment was entered against them. The action has accordingly proceeded against the 2nd Defendant, Mr. Roy McAree, alone.

2. The Plaintiff ("DER") is a Liberian corporation with a Swiss domicile. In its participation in the subject matter of these proceedings, it was advised and represented by Mr. Robert Citroen an American attorney of the State of California, who conducts an international commercial practice from Los Angeles. On behalf of the Plaintiff he invested in a project undertaken by the 1st Defendant ("Kent") to produce a firm called ''Kwailo". The corresponding person acting on the other side, for the 1st Defendant, was Mr. Roy McAree. He has been in the film business, mostly it seems in the United Kingdom and America, for over thirty years. Together with the 3rd Defendant, a Chinese gentleman from Singapore, he was at all material times a shareholder and director of Kent and of the 4th Defendant ("Cultand"); the other minor and transitory shareholdings and directorships in Kent and Cutland are of no significance. To all intents and purposes the two corporations were owned and controlled by Messrs. McAree and Lim. Mr. McAree provided the expertise and of the two directors was by far the more active, Mr. Lim apparently being concerned only with negotiating and dealing with Chinese interests and Chinese speaking contacts, particularly in Taiwan.

3. In 1982 Messrs. Citroen and McAree came into contact and exchanged visits between Los Angeles and Hong Kong. They discussed investment by Mr. Citroen in a film called Kwailo which was to be produced in Zimbabwe. I shall refer to that film as the original Kwailo as it was resusitated or superseded by a film of the same name which was to be produced in Hong Kong and Taiwan in the following year, 1983. It is that subsequent film that has given rise to these proceedings and to which I shall refer as Kwailo. For reasons into which I need not enter the original Kwailo did not get off the ground and attention shifted to a film called Horatio IPI (subsequently renamed Heroes Three). An investment was made in Horatio IPI by Mr. Citroen on behalf of a Liechtenstein corporation called Commercial Enterprises Corporation ("CEC").

4. About January 1983, when Horatio IPI was nearing completion, Mr. Citroen visited Taiwan and Hong Kong and discussed the production of Kwailo with Mr. McAree. Mr. Citroen was not sure if Mr. Lim was present but says that he was introduced to a Chinese gentleman who did not speak English and who, he was told, would be investing US$350,000 in the production of Kwailo by way of local financing in Taiwan. Mr. Citroen also says that he accompanied Mr. McAree and others on a tour of Taiwan looking at likely locations for filming Kwailo. Mr. McAree for his part insists that Mr. Lim was present, that the Chinese gentleman was not represented as an investor who had agreed to put up US$350,000, but as a person with whom such an investment was being negotiated. He also denied that the trip around Taiwan was anything more than a holiday visit. Mr. Citroen and Mr. McAree subsequently went on to Hong Kong.

5. Mr. Citroen agreed to invest US$90,000 in the production of Kwailo in return for a share of the profits. That amount was subsequently increased to US$140,000. On or about the 15th February 1983 Mr. Citroen, who had other interests in the area opened an account with Barclays Bank in Hong Kong in the name of DER. He claims that the account was opened primarily for the purpose of financing the firm Kwailo although it was to be used for other purposes later. Because of the high interest rates then prevailing, which was not disputed, he claims that he decided to make Mr. McAree one of the signatories who could independently effect withdrawals, so that the funds could be retained as long as possible in the account and so maximize the interest earnings. It was clearly established and, in any case, was not disputed that Mr. McAree was made a signatory who could effect withdrawals on his own. But the purpose of the power to make withdrawals and consequently the trusts attaching to the amounts withdrawn is disputed and is the central factual issue between the parties. It is claimed in paragraph 8 of the Plaintiff's Statement of Claim that "by agreement with the Plaintiff the 2nd Defendant was an authorised signatory to the said account as agent for the Plaintiff and for the sole purpose of withdrawing funds therefrom to meet production expenses actually incurred in the production of the Picture" (Kwailo).

6. Mr. Citroen testified that he had a conversation with Mr. McAree in regard to his use of the power to sign. The conversation, he claimed, took place at the Regent Hotel in Kowloon and continued while he and Mr. McAree walked over the overpass to Salisbury Road. He says he expressed to Mr. McAree his client's intent that the funds provided would remain at interest in its account at Barclays and that he anticipated that Mr. McAree would make "hard funding disbursements" from the account as necessity therefor arose, such as paying actors or paying a director or whatever hard financing payments were required. He told Mr. McAree that he trusted him. He says he very specifically remembers stating to Mr. McAree that he trusted him to look after his client's money diligently.

7. Mr. McAree for his part says he cannot recall such a conversation. He is not sure why the account was opened but he understood Mr. Citroen had future business with mainland China and other business matters one of which involved Brazil. Mr. Citroen just asked him to be a signatory, he did not know why and did not see any problem. As to the time of availability of the funds, these had to be assured to the producer before shooting commenced. Once that commenced it was virtually irreversible and heavy commitments could not be avoided. He would accordingly not have agreed to any situation which left control of the funds in the hands of the investor, once shooting was about to commence. In that context it is not disputed that he informed Mr. Citroen in writing that the funds should be in place by 16 April 1983 as it was intended to commence shooting in June. The funds arrived about that time. They were needed. He had no reason to believe that the DER account was other than a conduit and he withdrew the amounts and credited them to Kent. US$45,000 was withdrawn on 18 April 1983 and US$50,000 on 16th June 1983.

8. Shooting did not commence in June as projected and there were delays. On the 16th August 1983 Mr. McAree wrote to Mr. Citroen mentioning that Kent was experiencing cash flow problems. On 25th October 1983 he wrote to Mr. Citroen informing him that Kent's situation was critical and that it was unable to repay the investment in Kwailo. That in short order led to these proceedings.

ASSESSMENT OF EVIDENCE

9. Not only the conflict of evidence between Messrs. Citroen and McAree but also various allegations levelled at the Defendants, particularly Mr. McAree, have to be resolved. I have already referred to the alleged misrepresentation that the Chinese gentleman in Taiwan was to invest US$350,000 in Kwailo. In addition the other main allegations against Mr. McAree were that he failed to disclose the information that no such Taiwanese investment was being made, that the Defendants themselves had assumed that responsibility although they knew they could not discharge it, and that Kent was later in financial difficulty and in no position to complete Kwailo or even commence shooting. It was also alleged that the US$95,000 was not needed for Kwailo but for another film known as BLAM; that in fact no action to produce Kwailo was taken; that no expenditure had been incurred for the production of Kwailo; and that extravagant amounts were improperly debited to the accounts for the production of Kwailo.

10. A considerable volume ofdocumentary evidence was adduced. Understandably, where it was of a decisive nature there was little dispute; no less understandably, upon most of the matters disputed it is of no great value in resolving the truth of the conflicting oral testimony, primarily because it was explained away or because of its ambiguous nature which according to each side supported its own version. It does, however, assist in regard to Mr. Citroen's allegation that no production work was done and no expenditure incurred on Kwailo.Video tapes produced and proffered by Mr. McAree as evidence were not challenged. The implication of that together with the substantial documentary evidence produced by him, in my finding, amply establish the falsity of that allegation. That inevitably tended to diminish the reliability of Mr. Citroen's evidence.

11. Both Messrs. Citroen and McAree were subjected to searching and protracted cross-examination. It...

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