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URL: http://www.bailii.org/ew/cases/EWHC/Ch/2010/902.html
Cite as: [2010] EWHC 902 (Ch), [2010] BCC 684, [2010] 2 BCLC 61

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		Neutral Citation Number: [2010] EWHC 902 (Ch)
		Case No: 3899 OF 2008

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

Royal Courts of Justice
Strand, London, WC2A 2LL

28/04/2010

B e f o r e :

MR JUSTICE PETER SMITH
____________________

Between:

	Surjit Singla	Applicant
	- and -
	(1) Thomas Hedman (2) Gone to Hell Limited (3) Stonewood Communications BV	Respondents

____________________

Andrew Clutterbuck (instructed by Stockler Brunton) for the Applicant
David Stancliffe (instructed by Southcombe & Hayley) for the Respondents
Hearing dates: 3rd, 4th, 5th, 8th, 9th, 10th, 11th and 15th March 2010
____________________

HTML VERSION OF JUDGMENT
____________________

Peter Smith J :

INTRODUCTION

This is a judgment arising out of the trial of the Claims brought by the Liquidator of NMD (UK) Ltd ("NMD"). It was compulsorily wound up on 14th November 2007 pursuant to a petition presented by One Step Beyond CC ("OSB") on 6th June 2007. As will be seen OSB is apparently the only creditor of NMD. Its claim arises out of a Production Services Agreement dated 24th March 2006 ("the PSA"). It was signed by the First Respondent on behalf of NMD on that date. It had actually been signed by OSB on 27th February 2006. However the effective date was when NMD accepted the agreement on 27th March 2006. As will appear below the claim against the First Respondent arises out of the entry into the PSA.

The purpose of the PSA was for OSB to provide production facilities in Namibia (the location of the film which NMD was formed to make and exploit). OSB was to provide the ancillary services for the production. Production commenced on 30th March 2006 and terminated abruptly on the next day. The reason for that termination was the refusal of the proposed main actor Oliver Martinez ("OM") to enter into an agreement to appear in the film and the inability of NMD to finance the film making costs. I will explore these 2 events further in this judgment.

OSB intimated a claim under the PSA which went to arbitration in South Africa. On 19th December 2006 acting Judge Le Grange made an order registering the award of the arbitrator appointed under the PSA dated 4th December 2006. His award was for R3,677,742.98 damages and interest at the rate of 15.5% per annum from 15th May 2006 together with costs.

OSB registered that judgment in the High Court Queen's Bench Division in England by an order of Simon J on 23rd April 2007. Following failure of NMD to make any payments OSB presented the petition which led to the winding up order.

THE CLAIMS

In brief the claims fall into 2 categories. First the Liquidator of NMD as Applicant seeks an order for wrongful trading against the First Respondent ("Mr Hedman") who, at all material times, was the sole director and shareholder of NMD.

He seeks against all Respondents declarations that certain alleged agreements were of no effect or were void or should be set aside under section 423 of the Insolvency Act 1986. These agreements were all agreements that were created in November/December 2007 (i.e. after the company was in liquidation) but were back dated to dates in January 2006. The Respondents accepted these documents were of no effect and were void. However the issue was important because of the role played by various parties in the creation of those documents, and the attempt to utilise them as being genuinely created on the dates mentioned and as a matter of determining the credibility of 2 witnesses in particular Mr Hedman and a Mr Waller the latter being called at the very last minute as a witness by the First and Second Respondents.

The other matter sought by the Liquidator is a declaration that NMD at its election is entitled to either an enquiry as to damages for copyright infringement or an account of profits. There are alternative claims if it fails to establish that right for damages for breach of warranties given by the Third Respondent ("Stonewood") when it granted NMD the right to produce the film under a document called the One Picture License ("OPL") dated 18th January 2006. The claims by the Liquidator other than the wrongful trading claim arise out of this agreement and there are issues as to the construction and effect of the OPL and whether and if so how it was varied and the effect of any such term as varied.

There was also an issue as to whether or not Stonewood had power to grant the rights under the OPL. The First Respondent's contentions are that the actual rights were owned by another company Stone & Stone.

The trial was handicapped by the fact that Stonewood did not appear at the trial. Paradoxically the beneficial owner of Stonewood (Mr Waller) produced a witness statement on 2nd March 2010 just before the trial was due to commence. Surprisingly Mr Waller's witness statement was not given on behalf of Stonewood despite his beneficial ownership in that company. He was initially reluctant to attend court in case that in some way prejudiced Stonewood's position as regards its non attendance. All relevant documents have been served on Stonewood but it has chosen as I have said not to participate in the proceedings. However it seems to me plain that Mr Waller's evidence would be relevant evidence which could operate either for or against Stonewood depending on its effect.

Because of his reluctance the First and Second Respondents sought permission to rely on Mr Waller's evidence despite the fact that he was not willing to attend for cross examination. I refused them permission so to do as I could see no reason for departing from the standard order requiring deponents of witness statements to attend court for cross examination (see the order of Registrar Simmonds dated 6th April 2009). In view of that refusal Mr Waller was then produced as a witness for cross examination. Mr Clutterbuck who appears for the Applicant initially objected to him giving evidence. Ultimately however because there was an intervening period between it becoming apparent that he was going to give evidence and his going into the witness box Mr Clutterbuck was able to deal with Mr Waller's evidence. He was also able to deal with the large amount of material which Mr Waller and Seven Arts produced pursuant to orders I made on 4th & 5th March 2010 for third party disclosure against Seven Arts Pictures PLC, Nik Hedman and Mr Waller.

This trial originally came on before me on 26th January 2010. At that hearing the First and Second Respondents' solicitor who appeared for them submitted that the Second Respondent was surprised that there was a claim for infringement of copyright against it. He contended that it only appeared clear to it when it was identified in Mr Clutterbuck's skeleton argument for the hearing. This was investigated and it appeared to me that at the time of a hearing before Sales J on 16th July 2009 it was understood clearly that an infringement of copyright claim was being intimated. The Second Respondent's stance however was not to challenge the form of the amendment of the application to say it was not clear before Sales J but to reserve its right to challenge it at the trial. This is an inappropriate way under the CPR to deal with pleading issues.

Further it was said on behalf of the Second Respondent that as it was perceived that there was no copyright claim it had not consulted its insurers. Apparently it has insurance when it produces a film against claims being brought against it for infringing third parties' copyright. Thus it was submitted that it had not notified their insurers and it was prejudiced. It seemed to me as a matter of ensuring justice so that it could be fairly represented on all issues that I should grant it a short adjournment at its expense to enable it to consult its insurers. This I did. I also directed the Applicant to serve a Points of Claim summarising its issues. This he did and it was amended subsequently so that all issues are now in a pleaded form about which there can be no mistake.

That led to the rescheduled trial before me.

DRAMATIS PERSONAE

Mr Hedman was at all material times as I have said the sole director and shareholder of NMD. It was incorporated on 19th March 2004. On the same day Mr Hedman was appointed its director. It carried on a business of motion picture and video production. Its share capital was £1,000 with £2 issued only. Apart from any claim arising out of the OPL it has no assets. It has a liability to OSB as set out above. There is a possibility that it might owe Stonewood $1,500,000 due under the OPL but Stonewood has never intimated any claim and has not proven in the liquidation. For present purposes I therefore conclude that Stonewood has no claim for the $1,500,000.

NMD only filed one set of accounts and those were filed on 11th December 2007 by Mr Hedman after liquidation. These accounts show that the company has nothing and suggested it was dormant which was plainly untrue. Mr Hedman could not explain why he filed those accounts and purportedly approved them on 11th December 2007, after NMD had been wound up. He also could not explain why he did not include the OSB claim which by that date had crystallised. And further NMD was clearly aware of the claim because it was represented at the winding up hearing which took place before he purportedly prepared the accounts. In my view the preparation of these accounts was a part of the various acts of deception perpetrated by Mr Hedman to frustrate OSB and the Liquidator of NMD from making any effective claim arising out of the entry into the PSA and the OPL.

There is a curiosity which was never satisfactorily resolved in that about the same time as Mr Hedman signed off the accounts exchanges of emails took place between him and Mr Waller, and Mr Hoffman and Mr Waller (Mr Hedman copied in) which suggested that $200,000 had been set aside to deal with the OSB claim. This never materialised and so far as I can see no such fund was ever set aside. Ultimately NMD's sole purpose was to make and produce the film Nine Miles Down pursuant to the OPL.

NMD acquired its rights from Stonewood under the OPL. It is a Dutch company and is owned by Stone & Stone NV which is a Curacao formed company. Although Mr Waller is "not on the notepaper" for either Stonewood or Stone & Stone he was the authorised representative for Stonewood at the hearing and is the ultimate beneficial owner (perhaps behind an offshore trust) of Stone & Stone. It follows therefore that ultimately Mr Waller has the power to control both Stonewood and Stone & Stone. This is relevant when I come to consider one of the contentions of the First and Second Respondents (not Stonewood of course because it does not participate) but that paradoxically Stonewood had no right to grant the rights to NMD under the OPL. This is of course an unusual stance for Mr Hedman to make because it means that he caused NMD to enter into an agreement with somebody who was not in a position to grant rights. The result would be that if I am satisfied that the OPL was not terminated in the circumstances contended for by the First and Second Respondents NMD (acting by its Liquidator) will be able to bring an action either for the infringement of the rights under the OPL or alternatively if it turns out that Stonewood had no power to grant the OPL a claim for damages against it for various warranties it gave under the OPL. The present trial does not involve quantum. It is only to establish liability.

Peter Hoffman is apparently a Los Angeles entertainment lawyer. Kate Hoffman who features in this case (but not perhaps as fully as originally intended) is his daughter.

Seven Arts Pictures Inc ("Seven Arts") is a US company which finances films. It is owned or controlled by Peter Hoffman. His daughter acted for Seven Arts at all material times.

In addition Ms Hoffman is the owner of and a director of the Second Respondent Gone to Hell Ltd ("GTH"). It has produced a version of the film NMD pursuant to OPL granted to it in 2007.

Mr Hoffman has also had a role in the litigation. First he drafted a number of letters which Mr Hedman sent to OSB when it was seeking to enforce its claim for breaches of the PSA. Those letters contained a number of untruths in them. I do not of course for certainty know whether Mr Hoffman knew they were untrue as he has not given evidence. I cannot believe that Mr Hoffman (given his extensive involvement) did not know what he was drafting was untrue. Mr Hedman however who signed the letters (being willing to sign anything Mr Hoffman drafted for him) knew that the contents of those letters were untrue.

In addition Mr Hoffman wrote a statement which was provided to the court purportedly on behalf of Stonewood. As this judgment will show large amounts of that statement were fictional. Paradoxically when this document was shown to Mr Waller despite the fact that he is the beneficial owner of Stonewood he claimed never to have seen it before.

Mr Hoffman also purportedly on behalf of Stonewood wrote a letter to the court seeking an adjournment of the trial to enable it to instruct its insurers apparently in respect of a copyright claim. I did not accede to that application. It seemed to me clear that by this time there was enough time for any insurer to be consulted. In any event of course apart from Mr Waller appearing magically immediately before the trial Stonewood had deliberately (apparently on the advice of Mr Hoffman) absented itself from the proceedings.

Mr Waller apart from being the beneficial owner of Stonewood through Stone & Stone was the proposed director of the film to be produced by NMD. He was apparently (and willingly it was said by him) a director of NMD for short periods of time but nothing turns on that and no claim has been brought against him as such director.

Kate Hoffman apart from being the director and shareholder of GTH also represented Seven Arts. She was also instrumental in creating a number of forged documents as I will set out in this judgment.

She served four witness statements. It was proposed that she would give her evidence last but in the event the Second Respondent indicated that Ms Hoffman was not prepared to give evidence. She gave two reasons which in my view were not genuine. In my view she was unwilling to give evidence because she had seen how badly Mr Hedman and Mr Waller had performed as witnesses and she knew she was going to be subject to robust cross examination in respect of her role in various forged documents. I conclude therefore that she had no genuine reason for not giving evidence.

ABSENT WITNESSES

As the complicated facts of this issue are set out in this judgment it will be seen that Nik Hedman and Peter Hoffman had significant roles and would have been able to give significant evidence concerning a number of vital issues. They have however not given evidence. No reason has been put forward as to why they could not give evidence. In those circumstances I conclude that the reason that they will not give evidence is that they would not be supportive of the cases put forward by the First and Second Respondents. This is an inference that I am entitled to draw see Lewis v Eliades (no 4) [2005] EWHC 488 and the authority referred to in paragraph 61 of that decision.

RESPONDENTS' CONDUCT OF THEIR DEFENCE

The manner in which the response to the Liquidator's claim has been dealt with was in my view evasive. No reason was given why Stonewood could not participate in the trial. What happened was that Stonewood documents were drip fed via the First and Second Respondents. In addition I was presented with the bizarre situation of Mr Waller the beneficial owner of Stonewood not giving evidence on its behalf but on behalf of the First and Second Respondents and then only with a witness statement which was served extremely late. Further although Mr Hoffman had a finger in every part of the pie one way or another he did not give evidence. As I have set out above however he did produce a statement on behalf of Stonewood although Mr Waller claims never to have seen it nor approved of it. I do not believe him in that respect as I do not believe him in many aspects as I will set out further in this judgment. Kate Hoffman is of course a director and shareholder of GTH. However she had a significant role on behalf of Seven Arts which of course is her father's company.

Further the Respondents attempted to delay the trial unreasonably in my view. First there was the attempt by the Second Respondent in January to obtain belated advice from its insurers. Not to be outdone as I have said Stonewood awoke to this possibility shortly before the re-fixed trial date. All of this was unsatisfactory and in my view was a calculated course of action designed to obscure issues and delay the hearings.

BACKGROUND OF EVENTS LEADING UP TO THE OPL AND PSA

At no time did NMD have any more capital than the nominal £2. Further it had no cash or enforceable agreements for the provision of finance to support it. In addition as will be seen below it signed the PSA when it did not have the finance or other resources to honour its obligations thereunder. In addition at the time it signed it did not have a contract with the proposed leading actor Oliver Martinez. None of this might have been important if NMD had had the luxury of time and money. It had neither and OSB has lost as a result.

It hoped partly to finance the production of the film (between 15-20% of its budget) on the basis that it qualified for low budget film tax relief under section 48 of the Finance (2) Act 1997. This was a scheme whereby the government allowed people to invest in films provided the films satisfied various criteria and write off the investments for tax purposes. These schemes have been abused. There is nothing to suggest the proposal here was an abuse of the scheme. However for it to be effective it had to have a certain amount of EU participation i.e. by the producer, the director or even some of the actors. Further it had to commence "principal photography" of the film by 31st March 2006 and had to complete the film by 31st December 2006. Mr Hedman in his first witness statement (paragraph 10) stated that the date to finish was April 2007 but it is agreed by all parties that was an error on his part arising from a suggestion to that effect made by the Liquidator in an interview. Obtaining this relief involved (to use Mr Waller's words) peddling the film to the authorities.

Filming was to commence in Namibia in late March 2006. Mr Hedman engaged the services of OSB to provide the services for filming in South Africa and Namibia. To obtain those services on 24th March 2006 he signed the PSA with an effective date of 27th February 2006 so that immediate sums became payable and also committed NMD to pay further sums. Seven Arts paid $120,000 to OSB to reflect work that it had done before the PSA had been executed but in anticipation of the same being executed.

As I have said when Mr Hedman signed the PSA he knew or he ought to have known had he made any proper enquiries that there was no signed agreement which committed a leading actor to the film nor did he have any contractual obligation on the part of Seven Arts to finance it. He demonstrated his attitude to his responsibilities as director of NMD in paragraph 4 of his first witness statement. After acknowledging that NMD at the start of the filming had no assets he stated it was his experience that it would be very unusual for a film company to begin its activities with sufficient funds of its own to make the film. Most films are made by special purpose vehicles and almost all rely entirely on finance. He suggested it was quite normal to begin work on a film before the SPV has received funds (or even a commitment to provide funds) to complete the picture for the intended budget and that it was common for the budget for a film to change during the production. Acknowledging no revenue can be expected for an SPV producing a film until the film is produced and distributed so that it is inevitably in debt and can only look to the future completed product to make the money. If the film is made and is successful the venture results in a net gain, if the film is not made or does not sell then the company will fail. The statement demonstrates in my view Mr Hedman's casual approach to his director's duties to look to the best interests of NMD and if the company does not have assets to pay creditors the duty that he owes to those creditors to minimise their losses see West Mercia Safetyware v Dodd [1988] BCLC 250.

In fact his evidence showed that he had no direct role or knowledge of the financing arrangements (which he left effectively to Peter Hoffman), nor the arrangements for ensuring the commitment of the vital principal actor. Those were apparently left to Peter Hoffman again and Mr Waller. That would be all very well if the organisations represented by Mr Waller and Mr Hoffman (i.e. Stonewood and Seven Arts) were the only potential losers if the matter did not work out. Mr Hedman left entirely out of the frame the fact that if he committed NMD to its obligations under the PSA without sufficient funding to discharge them two things would happen. First the film would stop fairly rapidly because there was no money to pay for the production. This happened in the sense that filming started on 31st March and finished that day. I interpolate of course to remind myself that the other reason why the film stopped was that it is alleged that it then became apparent for the first time that Mr Martinez was not ever going to be the principal actor. The second matter however that Mr Hedman overlooks in his casual approach to his director's duties is that without being able to procure the finance and the attendance of the principal actor when he signed the PSA he knew or ought to have known that by committing NMD to that liability he would know or he ought to have concluded that there was no reasonable prospect that the company could avoid going into insolvent liquidation (i.e. the criteria for wrongful trading under section 214(2) (b) of the IA 1986). The other requirements of subsection (a) and (c) are satisfied.

PROVISIONS OF THE OPL

The OPL was apparently created by Peter Hoffman. It is a poorly drafted document. To demonstrate the casualness for example under the key licence of rights (paragraph 3) it has NMD granting the rights instead of receiving them. It also has the grantor of the rights coming under the obligation to pay $1,500,000. This casualness also finds itself in the first OPL that GTH obtained from Stone & Stone dated 25th October 2007 (paragraph 3) although by the second OPL and assignment dated 12th November 2007 this error was corrected.

Nobody suggests that the OPL should be construed as meaning the roles of the licensor and licensee are correctly stated in paragraph 3 i.e. they both agree licensor should mean licensee and vice versa in that clause.

Paragraph 1 contained a definition of "PROPERTY" which means collectively:-

1) All of Licensor's right, title and interest in and to the picture including without limitation the agreement set forth on Exhibit 1 attached thereto (collectively, "the documents"), to the extent necessary for the licensee to make and distribute throughout the universe one feature length motion picture based on the screenplay by Everett De Roche and Mr Waller dated May 2005.

The Licensor is Stonewood. By clause 2 it gave various warranties in particular sub paragraph (d) it warranted that it was the sole and exclusive owner of the entire copyright in and to the Property and to the benefit of the Documents free from all encumbrances, security interests and proprietary claims or rights of third parties of whatsoever kind. Further it warranted it would have by that date the unfettered right to grant the OPL to the licensee and would have a good and valid title to the Property out of the benefit of the documents. Warranty (f) was to the effect that it was free to enter into the agreement and to grant the licence of the rights and warranty (g) is a warranty that there was no present or prospective claim, proceedings or litigation in respect to the Property and or the documents which might impair, limit, inhibit, diminish or infringe on any of the rights in the Property and/or the documents. Finally warranty (i) provided that the documents were complete and sufficient to allow the licensor to grant the OPL to the licensee.

The OPL was signed by Mr Hedman as director and Nik Hedman as secretary. It was signed on behalf of Stonewood by Payday Film Accountancy BV its managing director acting as its authorised representative (a Mr Van Leeuwen).

Mr Waller as the beneficial owner of Stonewood through Stone & Stone knew at all material times that Stonewood was purporting to grant the OPL to NMD to enable it to make the film. Yet in these proceedings he asserted in his evidence that Stonewood had no title. His evidence was that there was always intended to be two stages. The reasoning behind this was that it was fiscally attractive for the Netherlands company to receive the money rather than a Curacao company where Stone & Stone is registered. Thus Stone & Stone was supposed to grant rights to Stonewood and it in turn would grant them pursuant to the OPL. He asserted that no agreement was entered into between Stone & Stone and Stonewood at the time of the OPL. He asserted in his evidence that the OPL was simply signed because NMD was urging him to do so. He said that the OPL was signed on a provisional basis because it was urgently needed for the purposes of obtaining the section 48 finance. I simply do not accept this. This is a convenient lie to justify the suggestion that the OPL either was not intended to be effective in the terms that it was or as a backdoor attempt to re-instate similar terms to those which were set out in the forged documents. Having seen him give evidence I simply do not believe this version at all. I also reject his evidence that NMD through Mr Hedman and Seven Arts were aware of this situation (paragraph 5 of his witness statement). It would make a nonsense of the document if Mr Hedman through NMD entered into an agreement which he knew was of no effect because Stonewood had no title and then committed NMD to incur liabilities in producing the film. If that was the correct scenario then it could incur large expense in producing a film and then be faced with a claim by Stone & Stone that it could not release the film because it was made under a license where the licensor had no right to grant any such rights. There is evidence showing that a draft agreement was in circulation but not signed. However I am not convinced that there has been full disclosure and it is quite possible in my view that there was actually a document which has been withheld from the court because it is convenient so to do.

In the event I do not think this technicality has any significance. Mr Waller as he said in his witness statement was involved on behalf of Stonewood. He was the beneficial owner of Stone & Stone. I do not accept that Stone & Stone can deny Stonewood had a title to pass on under the OPL. Either it would be estopped from asserting it (see by analogy Rodenhurst v Barnes 1936 2 All ER 3 C.A.). Alternatively the OPL by Mr Waller's involvement will be construed as being entered into by Stonewood on behalf of Stone & Stone. Mr Waller's role ensures in my view that it is impossible for Stone & Stone to deny the authority of Stonewood to enter into the OPL.

As I said earlier in this judgment in any event if that assertion is maintained Stonewood is in breach of the various warranties under the OPL set out above. However my view is that Stonewood had authority to grant the rights under the OPL. If I am wrong then as I have said it was in breach of the warranties it had given.

OTHER TERMS OF OPL

Despite the document being headed license and granting a license clause 3 purports "[to grant] exclusively, unconditionally and irrevocably to Licensor (sic) the One Picture License in perpetuity and throughout the universe, including, without limitation, any and all right, title or interest which the Licensee may or will have in and to the Documents to the extent necessary to enable the Licensee to make and distribute the Picture throughout the universe in perpetuity. Licensor (sic) shall cause the producers of the Picture to pay from the budget to Licensee (sic) $1,500,000 ….. as reimbursement for Licensees (sic) expenses in connection with the acquisition and development of the Property, all as included in the approved production budget for the Picture". The Respondents' case is that the OPL merely grants a license to NMD to make one film and nothing further. Thus it is contended that the OPL did not even prohibit Stonewood from granting a parallel license to a third party although it was suggested that it might be "difficult" for Stonewood to resist the submission that there would be in the OPL an implication that the licensor would not derogate from it by granting such a license. From the Respondents' point of view they would not be bothered by such a license because it is contended that NMD would merely have a contractual claim against Stonewood but would have no claims against them because it has no proprietary rights to assert.

Clause 3 is clearly difficult. It is accepted that it is possible to effect a partial assignment of copyright so that one or more but not all of the things the copyright owner has the exclusive rights to do can be created (section 90 (2) Copyright Designs and Patents Act 1988). It was strongly submitted before me on behalf of the Respondents that it would make no commercial sense for Stonewood to assign any part of the copyright. It was a valuable asset and therefore it was submitted it would not do it. Against that I have difficulty with the idea that NMD would commit itself to the expensive production of a film when it only had a license. Further under the terms of the OPL it has to pay $1,500,000 for the privilege. I cannot see it agreeing to make such a payout if Stonewood retained such rights that it could grant a license to another film maker in parallel. It would also be somewhat odd if a third party could breach the copyright in the film by making another film and leave NMD with a forlorn hope of persuading Stonewood to take action in that regard.

The wording of clause 3 by use of the words "hereby grants exclusively …… and irrevocably…. in perpetuity …. throughout the universe all rights it might have or would have under the Documents" are far more consistent in my view with a partial assignment. The effect of the partial assignment in my view is that as long as the OPL subsists the only body which has the copyright to make the film (and one film only) is NMD. During the subsistence of the OPL Stonewood has assigned its rights giving the ownership of the copyright and the right to make the film to NMD. It is possible that such rights also could extend to underlying rights such as issuing copies of the works in DVD or video, renting or lending copies of the works or even ancillary rights such as to copy the work in the form of a remake or a prequel see Copinger and Scone James on Copyright (15th edition) paragraphs 27-190. The extent of the OPL to these underlying or ancillary rights is not before me. The only question I have to decide is whether NMD has a proprietary right by virtue of the OPL which still subsists and enables it to stop any other organisation making a film utilising the copyright in the screenplay.

The only possible indication that the OPL is a license and not an assignment in my view is the labelling of it as a license. Labelling is not necessarily conclusive see Messager v British Broadcasting Corp [1929] AC 151. In that case parties to an assignment were described as licensors and licensees. One finds numerous other instances in the law of landlord and tenant (see the cases cited in Copinger paragraph 5-202).

In my view the labelling is not sufficient to displace the other factors that I have set out above. I conclude that notwithstanding the labelling of the OPL it is actually a partial assignment.

In any event this might be academic. It seems to me clear that upon its wording the grant of rights under paragraph 3 is at its lowest a statutory exclusive license.

EVIDENCE RE: OPL

Apart from the Amendment Letter which I shall refer to separately the evidence about the OPL was confused. Both Mr Hedman and Mr Waller gave evidence to the effect that the OPL was not conclusive as to what was intended to be agreed. Mr Waller went so far as to say it was not intended to be a legal document. Further they both attempted to disavow the terms of the Amendment Letter when giving evidence.

Mr Waller asserted in his evidence that the OPL was not intended to be legally binding and was merely a document that was being peddled around the world to obtain funding (ultimately from the DCMS). Mr Hedman did not support that. Both of these were witnesses for the Respondents.

I frankly disbelieve Mr Waller on this and all the key points of his evidence. I found him evasive and unconvincing. I had the same view of Mr Hedman. More seriously Mr Hedman told a whole series of lies which I shall set out below.

The evidence for the supposed oral variation was unsatisfactory:-

1) Mr Hedman and Mr Waller were entirely unclear as to what the terms of the agreement were but both said that they were not reflected in the Amendment Agreement which is surprising given their role in its creation.

2) Mr Hedman did not know whether the film had to be started or finished by 31st December 2006.

3) Neither could explain how the oral agreement made commercial sense (in that it exposed the company to the risk of wholesale loss in the event of the film being a day late). Both attempted to avoid that consequence of the supposed oral agreement by suggesting that the parties would negotiate. However in such negotiations NMD would be in a hopeless position. It would have incurred a vast amount of expenditure and it would have a film "in the can" which it simply could not release unless Stonewood or Stone & Stone was prepared to let it on whatever terms they chose to give.

4) There was not one single contemporary document referring to or consistent with there having been an oral agreement.

5) On 21st February 2006 Mr Hedman on behalf of NMD wrote to Stonewood referring to the OPL. By this time according to his and Mr Waller's evidence the amendments had already been agreed. Yet not only does the letter not refer to it, no opportunity was taken to put the terms of the oral agreement into writing. The reason why that opportunity was not taken is in my view obvious. It did not exist at that time.

6) Further there were attempts to obtain a completion guarantee with respect to the picture. The first attempts were shortly after the OPL was signed. The second was somewhat slenderly evidenced by a letter from Cine Finance dated 28th December 2006 addressed to Mr Hedman. It is countersigned by his son. If there was an agreement orally made in January 2006 one would have expected that to have been disclosed. It is inconceivable that anybody would be contemplating guaranteeing the production of the film at 28th December 2006 when according to the understanding of the parties seeking insurance the rights would terminate 3 days later. Either the proposed guarantor was being misled by hiding that fact or (as I find) there was no such variation of the OPL.

7) If there was an oral agreement as alleged Mr Hedman would have referred to it when he was writing to OSB's lawyers. There are a series of letters he wrote in 2006. They were all apparently drafted by Mr Hoffman and they all contained lies. For example in the letter dated 16th August 2006 he asserted that the rights granted under the OPL had been terminated. There can have been no basis for suggesting any termination as at that date. He could have said (if he had been telling the truth) that the OPL would terminate on 31st December 2006 if the film was not made by that time and $1,500,000 was not paid. He could have then also said that it was impossible for NMD by the time he wrote the letter to comply with those provisions. That he did not do so in my view is another example of why his evidence as to the oral agreement is false. He did not do so because the idea of the oral agreement had not then arisen. It arose in 2007 as I shall set out below.

8) It is also significant that in the series of letters he repeatedly asserted that NMD was about to or going into liquidation. Those were just lies. They were lies drafted by Mr Hoffman. I cannot believe that Mr Hoffman did not know when he drafted the letters that what he was drafting was untrue. The company was wound up a year later but only after OSB had been forced to go through the full procedure of the arbitration, the award, the registration of the award in the Court in South Africa and the registration of that consequent judgment in the High Court followed by the winding up petition.

THE AMENDMENT LETTER

By the Amendment Letter the terms of the OPL were varied to provide for a termination in all respects automatically if two conditions were not satisfied. The first condition was that the film was completed and delivered pursuant to section 48 on or before 31st December 2006. The second was that all monies pursuant to the agreement had not been paid (this related to the fee of $1,500,000 payable under clause 3 of the OPL). I have commented that the OPL did not actually provide a time for payment whereas the Amendment Letter does. The Amendment Letter is signed by Mr Van Leeuwen the managing director of Stonewood and it is signed (curiously) by Nik Hedman as secretary. I have no evidence from Nik Hedman nor Mr Van Leeuwen as to how this document came to be signed. I have already observed that in their oral evidence, Mr Waller and Mr Hedman disavowed its terms (but differently).

It is accepted that this (and several other documents) were forgeries and were created in December 2007. They were thus created just after NMD had been compulsorily wound up. Mr Hedman of course the sole director would no longer have any authority to execute documents on behalf of NMD. Neither would its secretary. The initial stance of the Respondents was that this document was reflective of the oral agreement. If it is it does not say so and no explanation was given as to why the document was backdated.

At the same time a document called the Short Form Assignment ("the Short Form Assignment") was created. It purported to have a date on it of 31st December 2006. It was executed by Nik Hedman. It purported to have NMD assign all its copyrights in the Picture to Stonewood. This document of course was purportedly executed 3 days after Nik Hedman was still seeking insurance for NMD for the same film. The third forged document is a document called a Quit Claim Release ("the Quit Claim Release"). This is executed again by Nik Hedman and purported to be a release of all claims that it might have in favour of GTH. It was purportedly dated 31st January 2007. This was a false date because Miss Hoffman created it in December 2007. Mr Hedman and Nik Hedman were well aware that the document was going to be backdated as set out in her email to them of 19th December 2007. Miss Hoffman and Nik Hedman did not give evidence. When asked about the Quit Claim Release Mr Hedman declined to answer the question on the ground that he would incriminate himself. This was one of a series of questions that he declined to answer concerning these forged documents having received legal advice and having received a warning from me as to the nature of his answers. I am quite satisfied that Mr Hedman well knew these documents were forged and actively participated in the forgery. That did not become immediately clear. He had not signed any of them himself. I do not believe him when he says that he did not consider these documents in any detail. As he said during examination in chief before verifying his witness statements, he authorised his son to sign the documents as a matter of convenience because he was not in London.

NEED FOR THESE DOCUMENTS IN 2007

It is quite clear why the documents were gestated. By the end of 2007 Mr Hedman, Miss Hoffman and Nik Hedman and Mr Waller wanted to have GTH produce the film. The title to GTH therefore had to be clean. By this time of course as I have said NMD has been wound up leaving its sole creditor OSB high and dry in a company which it stated had no assets. However Harmon Kaslow (the lawyer for the new backers of GTH) on 20th December 2007 (3.46 pm) raised the question of what had happened to the title which NMD had. Miss Hoffman's initial reply was "in any event NMD's UK rights in an (sic) screenplay were terminated as a result of the attached amendment executed by Stonewood and NMD Ltd". The attached document is a draft of the Amendment Letter. She clearly lied when she carried on "unfortunately I do not have an executed copy of this amendment here at home with me but will forward it as soon as I get into the office tomorrow morning". I should say that her email of the same date at 16.22 said that that response was as a result of a conference call with her father and Mr Hedman. Mr Waller was copied into all of the emails in question.

Mr Waller was informed by Miss Hoffman by her email timed at 16.52 (Mr Hedman copied in) that there was a need to prove the original OPL had been terminated. Miss Hoffman then said "therefore, it has become necessary to execute the amendment I had drafted some time ago. It is incredibly urgent that we get this executed as quickly as possible and I would be grateful if you could please confirm that Paul (Mr Van Leeuwen) can sign the attached and return it". Mr Waller passed it on to Mr Van Leeuwen for his execution. He then noted that the document (which was lifted from a similar form of document elsewhere) had a footer note "Noise-FMR Yugo-interplus-letter of amendment-5MAR07". He asked Kate Hoffman what should be done about it and she advised him by email that the footer should be deleted and Mr Van Leeuwen should re-execute it. Mr Waller procured this. The purpose was of course to hide the fact that the documents were created in 2007.

Both Nik Hedman and Mr Hedman were copied into all of the documents.

It is clear therefore that all of the parties namely Mr Hedman, Nik Hedman, Miss Hoffman and Mr Waller knew that they were creating a forged document which was to be backdated to January 2006. The purpose of the document was to create a false document which should be used to persuade the new backers of GTH that the OPL had been determined pursuant to contractual rights set out in the forged Amendment Letter.

Unsurprisingly Mr Waller was asked why it was necessary to delete the footer error. He was unable to satisfactorily answer that. The reason is plain and obvious. It would have revealed that the document purportedly dated 31st January 2006 was actually created towards the end of November 2007.

USE OF FORGED DOCUMENTS

Much was made at the trial that none of the Respondents sought to rely upon the forged documents. However the reason for that is that they had been caught out on the forgery of the documents. Mr Waller sent the documents (including the footer note) to the Respondents' solicitors in early 2009 when the proceedings were commenced. Thus it would be impossible for the Respondents properly to rely on the documents and their solicitors would know it. Those solicitors represented the Respondents at the trial and quite properly disclosed the documents which showed the 2006 dated documents were all forgeries.

However the solicitors were not aware of that fact until January 2009. Mr Hedman had referred to the Amendment Letter on two occasions previously. First Mr Hedman was interviewed by the Official Receiver on 16th January 2008. I was provided with Mr Stancliffe's note of that interview. He was and is the Respondents' solicitor. There was an exchange between Mr Hedman and the Official Receiver as follows:-

"V (for the Official Receiver) NMD owes OSB. Valid WU order deal with right to film

H- No rights – reverted to owner. Free option- make movie and pay $1,500,000

Stone & Stone held rights NMD had OPL. It did not pay fee

DS (i.e. Mr Stancliffe) hands over license agr and letter (emphasis added)

V need original of letter (have original license) letter signed a year before arbitration".

It is clear that Mr Hedman had produced both the OPL and the Amendment Letter for his solicitor and thus he falsely put forward to the Official Receiver's representative at the first interview a document dated 31st January 2006 when he knew that it had come into existence less than 4 weeks earlier.

He repeated the lie when he was interviewed by the Liquidator on 16th April 2008. The Liquidator's representative prepared a note of the interview. Mr Stancliffe prepared what was clearly a more detailed note and submitted his varied note. It provided (CB169) as follows:-

"Q: Does the agreement say that if the contract is terminated, this has to be in writing?

A: We did agree in writing that if we couldn't pay back $1,500,000 and weren't able to make the film under the plan envisaged we had to give it back….."

That can only be a reference to the supposed rights granted by the Amendment Letter. That is the only place where such rights to determine the OPL are to be found.

Once again Mr Hedman deceived his solicitor.

It is insufficient for the Respondents at the trial to disavow any reliance upon these documents. It is quite clear that all the participants in the preparation of the false documents did so to create a false title trail which would be shown to the backers of GTH. Such was designed to show that NMD had no rights because it had failed to produce the film within the alleged timeframe and pay the $1,500,000 fee. It was therefore an attempt to defraud the backers of GTH and an attempt to deprive the creditors of NMD of a valuable asset. Having seen Mr Waller and Mr Hedman in the witness box I am quite satisfied that they both knew this is what was happening. The emails referred to above make the position clear beyond doubt.

Their attempts to distance themselves from the creation of these documents were completely unconvincing. I also infer that Mr Hoffman, Nik Hedman and Miss Hoffman would not give evidence because they knew that these documents also were forged and would be challenged on that.

Mr Hedman as I have said not only participated in the attempt to defraud the new backers but he also attempted to defraud the creditors of NMD by asserting untruthfully twice that the OPL had been terminated.

These are serious lies but they are by no means the only lies in my view which Mr Hedman made.

MR HEDMAN'S LIES

In addition to the lies above Mr Hedman was willing (as set out above) to tell lies when he signed letters drafted by Mr Hoffman when responding to OSB's lawyers. In that correspondence he told a whole series of lies about the solvent status of NMD. He was its sole director and he must have known that what he was saying was untrue.

He also after NMD was wound up filed a false set of accounts for the year 2006 stating that they were approved on 11th December 2007. The timing again in my view is significant. He prepared them and filed them in December 2007. He would know (unless he is the most casual company director which I do not accept) that the winding up petition and the order put an end to his authority to act. At that time he had his present solicitors advising him. I cannot believe that he was unaware that he no longer had any power to act on behalf of NMD after it was wound up. He purported to file dormant company accounts. It failed completely to deal with the OSB claim as a liability. He was unable to explain how he could file accounts for a dormant company. The purpose of the filing of these accounts was once again a pattern designed to put (in this case) the creditors of NMD off the scent as to the availability of any assets. It was to reinforce the falsity of the Amendment Letter and the other documents which were signed at or about the same time. The picture to be given was that the OPL had terminated and had no worth because of the extra contractual provisions. Thus the dormant company accounts were drawn to reflect that position.

A similar position appertained to the Quit Claim Release as I referred to above. These false documents were necessary to deal with the copyright registration in the United States.

Thus the overall pattern is an attempt to deceive which only unravelled as I have set out above. Belated reliance on them now is insufficient. It is clear that in any event the Respondents must explain how and why these documents were created. Neither Mr Hedman (who declined to answer numerous questions in respect of the documents on the grounds he might incriminate himself) nor Mr Waller provided any explanation which was at all credible. It is quite clear that the false documents were created to give the impression that there was a written amendment to the OPL in January 2006. When it became clear (after 2009) that the documents could no longer be relied upon they invented the false story of an oral agreement. Thus they moved on from the creation of false documents to telling lies before me.

This is such an important series of misconduct that it means that it is really impossible to take any word of either Mr Waller or Mr Hedman unless it is corroborated by genuine independent evidence or documentation. The oral agreement did not emerge until after the written forged documents needed to be discarded.

OTHER LIES OF MR HEDMAN

I have referred to the major lies. There are others however. I refer to the false statements made in the correspondence between him and the lawyers acting for OSB.

Mr Hedman prepared false company documents as set out above after the company was put into liquidation.

MR WALLER'S UNTRUTHFULNESS

Mr Waller did not give a truthful account as to why the forged documents were created in 2007. He also in my view allowed Mr Hoffman to write a completely false statement setting out the facts purportedly on behalf of Stonewood. Mr Waller affected not to have seen the documents before in the witness box. I disbelieve him. I am quite satisfied that that letter was written by Mr Hoffman with his knowledge and approval of its contents. That statement told an untruth in the first paragraph when it said that Stonewood rescinded the OPL based on the facts set out in that statement and purportedly with the consent of NMD first given orally and then confirmed in writing.

It went on to a second lie for example when it said that Stonewood had requested NMD to confirm its loss of rights in a Quit Claim. This Quit Claim was required by the Lender's Counsel and as a matter of caution was signed. As I have set out above, the Quit Claim was a forgery. Mr Hoffman will have known that. It is disappointing to see an advocate of the California State Bar being willing to tell lies.

I have already commented on the absence of Mr Hoffman, Nik Hedman and Miss Hoffman.

The result of all of this is that I simply do not believe the Respondents' case that there was any variation of the OPL whether orally or otherwise. I will revert to this further when I go on to consider the claim against the Respondents arising under the OPL.

In case I am wrong and it is considered elsewhere that there was some form of oral agreement, in my view such an agreement was unenforceable because there was no consideration for NMD varying its rights as contended for by the Respondents. Further such transaction would be in my view a transaction at an under value for the purpose of section 238 IA 1986. Either it gave no consideration or the result of the amendment such as it was, was significantly less in value for the company. I can see no suggestion that there was any question of NMD entering into the arrangement in good faith nor can there be any reason for grounds for believing the transaction would benefit NMD. As I have said earlier in the judgment the consequence is that the OPL terminates on 31st December 2006 if the conditions set out in the amendment letter are not made out.

Mr Waller's supposed agreement namely that the second stage was never agreed at all is equally a transaction that infringes section 238 IA 1986. The idea that NMD would commit itself to the expense of production and the possible risk that when all that production was expended would then have to negotiate a license to release the film because Stonewood did not grant the rights is in my view so unrealistic that it cannot be argued that accrued any benefit to NMD whatsoever.

CONCLUSION AS REGARDS OPL

For all the reasons that I have set out above, in my view the OPL constituted a partial assignment of the copyright in the film production rights and that remains vested in NMD. It follows that the subsequent film produced by GTH is an infringement of NMD's rights granted by the OPL.

I am of the view and so determine that Stonewood had power to grant the rights under the OPL because I am not persuaded on the evidence before me that Stone & Stone necessarily retained the right. Even if I am wrong Stone & Stone by the conduct in particular of Mr Waller as set out above cannot assert that right as against NMD.

Once again if I am wrong and it is determined by another court that NMD obtained rights under the OPL then Stonewood is liable on the various warranties set out in the OPL.

ENTERING IN TO THE PSA

As I have set out earlier in this judgment the liquidator's claim is that Mr Hedman ought not to have committed NMD to OSB by entering into the PSA. Mr Hedman signed the PSA on 24th March 2006. As at that time NMD had a capital of £2. It had no source of any finance which it could call upon. Seven Arts was supposed to secure the funding and whilst it had made some payments to OSB it never committed itself by way of contractual obligation to securing funding for the making of the film. It never provided the funding. Mr Hedman signed the PSA therefore when he knew that NMD had no funding at that time to meet the commitments put on it by the PSA. This is not disputed by him.

Further there were by that date doubts about whether or not DCMS funding under section 48 would be forthcoming. On 10th March 2006 Colin Green of the Culture department of the UK Government sent an email to Nik Hedman where under note 9 he observed that there were so many unusual costs and so many large costs under generalised headings as to give us real cause for concern not to mention apparently misleading information. They were not minded to approve the application as it stood.

The other stumbling block was the presence of a lead actor. When Mr Hedman signed the PSA on 24th March 2006 he knew that no terms had been agreed with the proposed leading actor Oliver Martinez.

Surprisingly Mr Hedman left the securing of Oliver Martinez to Mr Waller. On 22nd March 2006 Mr Waller sent an email to Mr Hedman and others. It was quite clear from that email that Mr Martinez was reluctant to front the film at least on the terms of the money that was being offered. Apparently he agreed with Mr Waller that he would do the film for $850,000. He proposed to contact his agent to tell him that. The next day (23rd March 2006) Mr Waller sent a further detailed email to Mr Hedman setting out all matters that were required to be done for the production to start and proceed. A lot of these outstanding matters related to Oliver Martinez. He indicated that the deal with Mr Martinez would have to be in place on 24th March 2006 for him to join him on Sunday and fly out via Paris or London to Namibia. Various other of Mr Martinez's requirements (such as speech trainer and the like) needed to be put in place. He concluded the email with the prophetic words "help!"

Thus Mr Hedman knew that Mr Waller believed that Mr Martinez's contract needed to be in place on the day that he signed the PSA. He also knew that it was not. He also knew that he had no means of financing the film and that OSB would incur significant expenditure in entering into the PSA. Further of course NMD would expose itself to financial obligations under the PSA which it had no means of discharging.

The requirements of section 214 IA 1986 are as follows:-

"(1) subject to subsection (3) below, if in the course of the winding up of a company it appears that subsection (2) of this section applies in relation to a person who is or has been a director of the company, the court, on an application of the liquidator, may declare that person is to be liable to make such contribution (if any) to the Company's assets as the court thinks proper.

(2) this subsection applies in relation to a person if :-

(a) the Company has gone into insolvent liquidation

(b) at some time before the commencement of the winding up of the Company that person knew or ought to have concluded that there was no reasonable prospect that the Company would avoid going into insolvent liquidation, and

(c) that person was a director of the Company at that time."

Sub paragraphs (a) and (c) of subsection 2 are made out.

I should also refer to subsection (4) which provides :-

"for the purposes of subsections (2) and (3), the facts which a director of a company ought to have known or ascertained, the conclusions which he ought to reach and the steps he ought to take are those which will be known or ascertained or reached or taken by a reasonably diligent person having both:-

(a) the general knowledge, skill and experience that may reasonably be expected of a person carrying out the same functions as are carried out by that director in relation to the Company, and

(b) the general knowledge, skill and experience that that director has."

It is therefore for the court to judge objectively whether there was as at 24th March 2006 (being the relevant date in this action) no reasonable prospect that NMD would avoid going into insolvent liquidation and then to conclude objectively whether Mr Hedman ought on 24th March 2006 to have concluded that was the case.

It is not suggested that Mr Hedman knew that NMD would go into insolvent liquidation on that date. The submissions of the Liquidator are that he ought to have known that having regard to the facts in relation to the signing of the PSA on that date. Mr Hedman's liability is measured by his knowledge and experience as set out in subsection (4).

Interestingly Mr Hedman in his second witness statement dated 24th July 2009 made some observations about the risks in the film industry (paragraph 13) where he said:-

"It is true that the film industry is a risky one, and that film companies do fail. It is inevitable, if a film does not recoup its costs, that some creditors at least will be left with money owed to them. I was a director of NMD not the guarantor of its debts, and I did not agree to assume the risks of the Company failing. I do not agree that I improperly attempted to push any risk on to creditors, or that I have acted unreasonably in not personally paying NMD's debts if that is what is suggested. I have not personally taken any money out of the Company for my work on the film".