IFTA ARBITRATION —15-11
IN THE MATTER OF AN ARBITRATION BEFORE
THE INDEPENDENT FILM AND TELEVISION ALLIANCE (IFTA)
ARBITRATION TRIBUNAL
BETWEEN
RECREATOR LABS, LLC
Claimant
AND
CINEMAVAULT
Respondent
Final Award
The Arbitration
This Arbitration relates to a Sales Agent letter agreement, dated May 13, 2011,(the "Agreement")
entered into between the Claimant and "Cinemavault".
The Agreement contained an IFTA arbitration clause.
By Notice of Arbitration dated January 26, 2015, the Claimant claims that a number of individuals and
entities carryon business as "Cinemavault". The Claimant names Cinemavault.Com Inc., Cinemavault
Releasing Inc., Cinemavault International Inc., Film Watch Inc., Nicolas Stiliadis and John Dunstan in the
Notice of Arbitration. For the purposes of this Award, I shall refer to them collectively as the
"Respondents".
The Claimant seeks the following relief with respect to each of the Respondents:
a) A declaration that the Respondents are in breach of their contractual and fiduciary duties to
the Claimant;
b) An order that the Respondents produce a full accounting of the Gross Receipts from the
motion picture entitled "Recreator"(the Picture), along with source documentation;
c) An order that the Respondents pay Claimant the amounts due under the Sales Agent
Agreement;
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d) An order that the Respondents cease acting as sales agent or distributor of the Picture,
remove it from their catalogue, website and elsewhere and return to the Claimant all
Master videos and digital drives containing a copy of the Picture;
e) Costs of the arbitration on a substantial indemnity basis, including costs of the arbitrator;
f) Pre-award and post-award interest on amounts due and owing; and
g) Such further relief as the arbitrator finds reasonable and appropriate.
In their response to the Notice of Arbitration, the Respondents challenged the jurisdiction of this
Tribunal, on the basis that they are not parties to the Agreement or bound by the arbitration provisions
in the Agreement. They state that Claimant is not entitled to the relief claimed and request that the
claim be dismissed, with costs.
This Arbitration is governed by the IFTA Rules for International Arbitration (IFTA Rules). The Rules give
the arbitrator the authority to determine all issues relating to the arbitrability of any claims (section 8.1)
and all questions of jurisdiction (section 8.3).
In an interim decision dated April 13, 2015, I determined that the Tribunal does have jurisdiction over
the subject matter of the Arbitration —the letter agreement —and that further evidence was required to
determine whether the named Respondents are parties to or bound by the agreement.
directed that the matter proceed to a hearing on the merits, with the Respondents reserving the right
to argue the jurisdiction issues at the time of the hearing.
The hearing was held in Toronto on November 18, 2015.
Further written submissions with respect to costs were received on November 27, December 3, and
December 4, 2015.
Questions to be Determined
The issues to be determined in this Arbitration are:
1. Are the Respondents, or any of them, subject to the jurisdiction of this Tribunal under the IFTA
Rules?
2. Are one or more of the Respondents liable to the Claimant for the relief claimed and, if so:
a. Which Respondent or Respondents are liable, and
b. What claims are they liable for?
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Documents and Witnesses
Prior to the hearing, each of the parties submitted an Affidavit of Documents containing the documents
they considered to be relevant to the matters in issue. The parties agreed to the admission of these
documents in evidence, and agreed to the authenticity of the documents, while reserving the right to
challenge their accuracy and relevance to the issues.
Gregory Orr, the general partner of the Claimant, was the sole witness for the Claimant.
John Dunstan, managing director of the Respondents Cinemavault Releasing Inc. and Cinemavault
International Inc., was the sole witness for the Respondents.
Robert B. Cohen, of Cassels Brock &Blackwell LLP, represented the Claimant.
Glenn R. Solomon, of Solomon Grosberg LLP, represented the Respondents.
Jurisdiction
The Respondents challenged the jurisdiction of the Tribunal.
At the hearing, the Respondents submitted,for the record, copies of the correspondence with the IFTA
Arbitra~ Agent which raised the jurisdiction issue at the earliest opportunity, as required by the IFTA
Rules.
accept that the Respondents did not waive their rights to challenge jurisdiction.
During the course of the hearing, the Respondents conceded that the Respondent Film Watch Inc. is a
party to the Sales Agent agreement and to the arbitration provisions, for the reasons set out in more
detail below. Therefore, I have jurisdiction with respect to Film Watch Inc.
The Respondents continued to dispute jurisdiction with respect to each of the other Respondents. As
previously determined, the question of jurisdiction depends in part on the facts, as disclosed in the
evidence. For the reasons set out below, I find that I have jurisdiction with respect to the corporate
Respondents Cinemavauit.Com Inc. and Cinemavault International Inc.
The evidence does not support a finding that Cinemavault Releasing Inc. was a party to the Sales Agent
agreement or directly involved in the distribution of the Picture or the payment of fees. Therefore, I find
that I do not have jurisdiction with respect to that Respondent.
The evidence does not support a finding that the individual Respondents were parties to the Sales Agent
agreement or personally engaged in the distribution of the Picture. Therefore, I find that I do not have
jurisdiction with respect to those Respondents.
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Evidence
The Agreement appoints "Cinemavault" as the exclusive worldwide sales agent for the Picture, except
for the United States and Canada. The Agreement contemplates the execution of a further definitive
distribution agreement by the parties, but no such agreement was ever negotiated or signed.
Section 15 of the Agreement provides that any disputes arising in connection with the execution and
performance of the agreement will be mandatory binding arbitration, before a sole arbitrator and that
the arbitration will take place in Toronto, Canada.
The issues in dispute in this matter arise in connection with the execution and performance of the
Agreement.
Execution of the Agreement
The Agreement is dated May 13, 2011. It was signed by Mr. Orr on behalf of the Claimant.
The Sales Agent is identified in the Agreement only as "Cinemavault".
Cinemavault is a business name registered under the Ontario Business Names Act. Ontario government
records show that the following corporations all carried on the film distribution business under that
name:
•
Cinemavault Releasing International Inc.(registered 2009)
•
Cinemavault Releasing Inc.(registered 2009)
•
Film Watch Inc.(registered September 2011)
•
Cinemavault International Inc.(registered June 2012)
•
Cinemavault.com Inc.(registered June 2012)
The Agreement appears to have been signed by Mr. Dunstan on behalf of Cinemavault. However, at the
hearing, Mr. Dunstan expressed doubts as to whether he actually signed it. The Agreement may have
been signed by Craig Morrow, another representative of Cinemavault. Mr. Orr's evidence was that he
negotiated the agreement with Mr. Morrow and he did not meet Mr. Dunstan until sometime after the
agreement was signed.
conclude that it does not matter who signed the agreement. There is no dispute that it was executed
on behalf of and is binding on Cinemavault. The only question is: which Cinemavault?
Mr. Dunstan's evidence was that the agreement was entered into and was performed by Cinemavault
Releasing International Inc. That company has ceased to carryon business and was not named as a
Respondent in this Arbitration.
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A Short Form License, prepared by Cinemavault and signed by Mr. Orr on May 21, 2012, identifies Film
Watch Inc. as the Sales Agent. In the course of the hearing, the Respondents conceded that this
agreement establishes that Film Watch Inc. was a party to the Agreement and was bound by the
arbitration clause and other terms of the Agreement.
Performance of the Agreement
The Agreement was for a term of 5 years. Cinemavault was entitled to a distribution fee of 15% of gross
receipts, plus distribution expenses of up to $55,000.
(Note: all dollar amounts referred to in the Agreement are in United States Dollars. Accordingly,
a!1 amounts referred to in this Award are also in USD, unless otherwise noted.]
The Claimant had the option to terminate the Agreement if the Sales Agent did not make $750,000 in
sales within 24 months. Mr. Orr exercised that right in a letter dated March 24, 2013.
At that time, Mr. Orr requested a full reporting and payment of licensing revenues to date. His evidence
was that Cinemavault did not provide a complete report of sales revenues until after this Arbitration was
commenced.
Reported Revenues
The Agreement required Cinemavault to deliver quarterly sales reports to the Claimant. The evidence
included sales reports dated June and December 2012, March and June 2013, and a final report dated
December 2014.
Each of the reports identified the territory, rights granted, distributor, gross royalty, applicable
withholdings and the amount received by Cinemavault.
The sales report dated December 31, 2014, delivered with the Respondents' affidavit of documents in
June 2015,shows gross revenues, net of withholdings, of $131,028. It does not show any outstanding
amounts owing by distributors to Cinemavault. [Respondent's Affidavit, Exhibit 4, Tab 40]
The report showed distribution expenses of $55,000, delivery deficiencies of $3,000, and distribution
fees of $19,654. It also showed that $34,334 was previously paid to the Claimant. The Claimant did not
dispute those amounts.
The report showed a balance owing of $19,040. At the hearing, the Respondents agreed that this
amount was still outstanding.
The Claimant also alleged "discrepancies" between the licensing agreements signed by Cinemavault and
the amounts reported to the Claimant.
The Respondents' own documents, submitted in evidence at the hearing, show the following:
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•
An agreement dated September 6, 2011,for the distribution of 5 films, including the Picture, in
Australia, New Zealand and some Pacific islands, for a minimum guaranteed license fee of
$150,000. There is no stated allocation of that fee among the licensed films. Divided equally, it
would amount to $30,000 per film. The sales report shows a royalty of $10,000. The difference is
$20,000.[Exhibit 4, Tab 9]
•
An agreement dated November 30, 2011,for the distribution of the Picture in Turkey, for a
license fee of $2,500. The sales report shows $1,500. The difference is $1000.[Exhibit 4, Tab 42]
•
An agreement dated March 13, 2012, with Turner International, for the distribution of four
films, including the Picture, in Latin America and the Caribbean. The license fee is $11,650 per
film. The sales report shows $10,000. The difference is $1,650. [Exhibit 4, Tab 23]
•
An agreement dated May 3, 2012,for the distribution of three films, including the Picture in
Thailand and Vietnam. The total license fee was $17,500, or $5,833 per film. The sales report
shows $5,000, a difference of $833.[Exhibit 4, Tab 25J
•
An agreement dated September 7, 2012, between Cinemavault.com Inc. and CBS Chellozone, for
the UK which shows a license fee of $4,500, with no holdback. The sales report shows $3,700.
The difference is $800.[Exhibit 4, Tab 29]
•
An agreement dated November 5, 2012 between Cinemavault.com Inc and Sparrowhawk
International Channels Ltd. for distribution in various European and African countries, for a total
fee of $13,000. The sales report shows $12,400. The difference is $600. [Exhibit 4, Tab 32]
•
An agreement dated May 20, 2013 (after the termination of the Sales Agent Agreement) with a
licensee in China, for the distribution of 11 films including the Picture at a flat fee of $25,000,
net of any duties or other taxes. There is no stated allocation of that fee among the licensed
films. Divided equally, the fee would have been $2,273. The sales report shows $1,273. The
difference is $1000.[Exhibit 4, Tab 30]
The total amount of the differences between the license fees stated in the distribution agreements and
the amounts shown in the final sales report is $25,833. Less the agreed 15% distribution fee, the
additional unreported amount owing to the Claimant would be $22,000.
Mr. Dunstan was questioned about some of the apparent discrepancies.
In his evidence, Mr. Dunstan said he believed the difference was between "gross" and "net" numbers,
but he did not provide any explanation of what those amounts might be, other than possible bank fees.
He stated that he did not have any personal knowledge of the amounts actually owed or collected on
any of the distribution agreements. He said that was the responsibility of the Cinemavault accounting
department.
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At the hearing, it was suggested that some of the license fees may have been subject to foreign
withholding taxes, but no evidence of any such withholdings was provided.
The Respondents did not submit any other evidence to explain the differences between the contract
amounts and the amounts reported to the Claimant. Nor did the Respondents submit any evidence to
support any deductions or withholdings from those amounts, other than the expenses shown in the
sales report. Nor was there any evidence that any of these amounts was still owing by the distributors.
Role of Cinemavault Entities
The evidence shows that the Cinemavault companies operate under common management and control.
In his affidavit of documents, Mr. Dunstan says he is the managing director of Cinemavault International
Inc. and Cinemavault Releasing Inc. In his oral evidence, he said at the time the Sales Agent Agreement
was signed he was managing director of Cinemavault Releasing International Inc. In email
correspondence with Mr. Orr in 2012, Mr. Dunstan identified Film Watch as "our parent company."
Distribution agreements for various territories were signed by Cinemavault.com Inc., Cinemavault
International Inc. and Cinemavault Releasing International Inc. There was no documentary evidence to
show how these entities were granted the rights for those territories. Mr. Dunstan's evidence is that
the distribution was handled in this manner mainly for tax reasons, but he didn't know the details of the
specific arrangements even though he signed some of those distribution agreements and was generally
aware of the others.
Purchase Orders submitted as evidence of expenses incurred in the marketing and distribution of the
Picture, simply identify the purchaser as "Cinemavault".
The 2012 and 2013 sales reports were delivered under the name Film Watch. The December 2014 sales
report was delivered by Cinemavault Inc.
A payment was made to the Claimant by Cinemavault International Inc. in June 2012. According to Mr.
Orr, other payments were received from Cinemavault, but he does not recall which company paid them.
Mr. Dunstan also did not recall which company paid the Claimant.
conclude that in the distribution of the Picture, Cinemavault acted without regard to the specific entity
that held the rights from the Claimant. It did so for its own business convenience.
Parties' Positions
At the hearing, the Respondents acknowledged that Film Watch Inc. was a party to the Agreement and
owes the Claimant any outstanding royalty amounts. The Respondents state that the amount owing is
$19,040, based on the December 2014 sales report.
The Claimant argued that the Respondents should also be required to provide a complete accounting of
all revenues received with respect to the Picture and be liable to pay any additional fees owing,
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including additional amounts under the distribution agreements which were produced in evidence in
this Arbitration and any amounts under other agreements which may not have been produced.
The Claimant argued that each of the Cinemavault entities should be found to be parties to the
Agreement and directly liable for the payment of distribution revenues, by virtue of their active
involvement in the distribution of the Picture.
The Claimant argued that the individual Respondents, Mr. Stiliadis and Mr. Dunstan, should be held
personally liable as they are the directing minds of Cinemavault.
The Claimant also argued that the Respondents acted as fiduciaries in the collection and payment of
distribution fees with respect to the Picture.
The Respondents argued that they are not fiduciaries. The Sales Agent Agreement is an ordinary
commercial agreement. The only party that is liable under the agreement is Film Watch Inc. —the entity
Respondents now acknowledge formally signed or adopted the agreement —and its liability is limited to
the outstanding amount of $19,040 shown in the December 31, 2014 sales report.
In support of its position, the Claimant sought to rely on decisions in other proceedings involving
Cinemavault. The Respondents strongly objected to the admissibility of those decisions in this
Arbitration. I allowed the documents, which were included in the Claimant's Affidavit of Documents,to
be admitted in evidence, but I accept the Respondents' argument that they are not relevant to the
issues in this Arbitration and I do not rely in any way on any evidence, argument or findings of fact with
respect to those proceedings in making my findings and award in this Arbitration.
Findings
Based on all of the evidence, I find that:
The Sales Agent Agreement was executed on behalf of "Cinemavault", which was a business
name used by multiple legal entities during the term of the Agreement. At the time the
Agreement was entered into, there was no clear intention or agreement between the parties as
to which of those entities would perform the Agreement; that was left to Cinemavault's
discretion, based on its own internal business practices.
• Film Watch Inc. acted as the Sales Agent, as evidenced by the Short Form License signed in May
2012.
• Cinemavault.com Inc., Cinemavault International Inc. and Cinemavault Releasing International
Inc.(not named as a Respondent in this Arbitration) all acted as agents or subcontractors of Film
Watch Inc. in entering into distribution agreements with respect to the Picture in various
territories; therefore, they are bound by the terms of the Agreement, including the terms of the
arbitration clause.
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• Cinemavault Releasing Inc. did not play a direct role in the distribution of the Picture. It is not
bound by the arbitration clause and is not subject to the jurisdiction of this Tribunal.
• John Dunstan did not execute the Agreement in his personal capacity and is not a party to the
Agreement. He did not engage in the distribution of the Picture in his personal capacity. He is
not personally bound by the arbitration clause and is not subject to the jurisdiction of this
Tribunal.
• Nicolas Stiliadis did not execute the Agreement and is not a party to the Agreement. He did not
engage in the distribution of the Picture in his personal capacity. He is not personally bound by
the arbitration clause and is not subject to the jurisdiction of this Tribunal.
do not find that the Respondents have any fiduciary duty to Claimant under the Agreement. However,
do find that the corporate Respondents which engaged in distributing the Picture had a contractual
duty of good faith to accurately and timely report and pay any fees owing and that they breached that
duty, both by failing to report licensing revenues and by failing to pay amounts owing.
The Respondents acknowledge, and I find, that Film Watch Inc. owes Claimant $19,040 in unpaid fees,
as shown in the Producer Sales Report dated December 31, 2014.
find that Film Watch Inc., Cinemavault.com Inc., and Cinemavault International Inc., carrying on
business as Cinemavault, failed to report all of the licensing revenue received from the distribution of
the Picture. The documentary evidence submitted by the Respondents themselves shows that the
unreported amount was $25,833. The Respondents did not provide any evidence or make any argument
that these amounts had not been paid by the licensees or to support any other deductions from that
amount. I find that, after deducting the 15%sales agent fee as per the sales agent agreement, the
Claimant is owed $22,000 with respect to those unreported license revenues.
Relief Claimed
My jurisdiction to grant some or all of the relief claimed is limited by the terms of the Sales Agent
Agreement and the IFTA Rules.
The IFTA Rules grant the arbitrator the power to grant any relief available under applicable arbitration
laws, including the power to make a declaration of rights or grant injunctive or equitable relief.
The Agreement is governed by and construed in accordance with the laws of Ontario.
The Agreement provides, in paragraph 16, that "[Claimant's] sole remedy shall be an action for law for
damages and in no event shall [Claimant] be entitled to an injunction, recission (sic), termination or any
other equitable relief."
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Based on the terms of the Sales Agent Agreement,the IFTA Rules and the evidence in this Arbitration,
find that the appropriate remedy is a monetary award of damages, rather than an order for specific
performance.
With respect to each of the heads of relief claimed by Claimant in the Notice of Arbitration, I find as
follows:
(aJ Declaration
For the reasons set out in this award, I find that the Respondents Film Watch Inc., Cinemavault.Com
Inc., and Cinemavault International Inc. were parties to and bound by the terms of the Sales Agent
Agreement and that each of them breached their contractual obligations to the Claimant thereunder.
do not find that the Respondents owed a fiduciary duty to the Claimant.
(b)Accounting of the Gross Receipts
The Agreement allows the Claimant to conduct an independent inspection or audit of the sales agent's
books and records with regard to the Picture. There was no evidence that Claimant exercised this right
prior to commencing this Arbitration or prior to the hearing. Therefore, I do not find it appropriate or
necessary to order the Respondents to produce an accounting of gross receipts.
(cJ Payment of amounts due under the Sales Agent Agreement
For the reasons set out in this award, I have determined that the appropriate remedy is the payment of
both the amount acknowledged by the Respondents to be due and payable to Claimant and the
additional amounts which were not reported by the Respondents.
(dJ Cease Distribution and Return Materials
The Respondents state that they have ceased distributing the Picture, removed it from their catalogue
and marketing materials and returned all materials to Claimant or made them available for retrieval by
Claimant. This was not contested by Claimant. Therefore, it is not necessary to make any order in this
regard.
(e) Costs
The IFTA Rules grant the arbitrator the discretion to allocate the costs of the Arbitration in the award.
This includes the fees and expenses of the arbitrator. The general principle to be applied is that the
parties share those costs equally, but the arbitrator has the power to make an unequal allocation of
costs, if the arbitrator in his sole discretion considers the situation justifies such an order.
The arbitrator also has the discretion to award actual costs incurred by the parties in the arbitration,
including some or all of the party's attorney's fees and expenses, if the arbitrator determines it an
appropriate case for such an award.
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consider this to be an appropriate case for such an award.
Throughout the Arbitration, the Respondents consistently tried to prevent the Arbitration from
proceeding on technical jurisdiction grounds, knowing full well that one or more of the named
Respondents was a party to the Sales Agent Agreement and owed the Claimant at least $19,040 in
unpaid fees (though it may have been unclear which of the Respondents actually owed the money).
The Respondents maintained this position even after the exchange of documents, up to and including
the commencement of the oral hearing.
The Claimant seeks $1,830(CDN),for legal services prior to the Arbitration. I do not believe I have the
jurisdiction to award such costs as they do not appear to be directly related to the Arbitration. In any
event, I would exercise my discretion not to award them.
The Claimant also seeks costs of $5,250(CDN)for time spent in preparation of cost submissions and
reply to the Respondents' cost submissions. I do not consider it appropriate to award costs for these
submissions, particularly since they comprised in part a re-argument of the Claimant's claim.
The Claimant seeks costs of $27,629(CDN) and disbursements of $388.71(CDN) with respect to the
conduct of the Arbitration itself.
The usual practice in Ontario courts is to award the successful party costs on a "partial indemnity' basis,
usually about one half of the actual costs incurred. The courts also have the discretion to award costs on
a full indemnity or "solicitor/client" basis, in appropriate circumstances.
The IFTA Rules give me the authority to award either full or partial costs as I consider appropriate. In
my view, this is an appropriate case for an award of full costs, given the nature of the claim, the conduct
of the Respondents and the result in this award.
The Claimant also seeks to recover the IFTA arbitration filing fee and the arbitrator fees and expenses.
have the authority under Rule 14.1 to award such costs. I have determined not to award any recovery
of the IFTA fees. Having regard to the "general principle" that the parties share arbitrator fees and
expenses equally, I will not make any award with respect to those costs. They will be payable equally by
each party, from the deposits they provided prior to the Arbitration hearing.
(f) Interest
The Claimant seeks pre-award and post-award interest on amounts due and owing.
The applicable interest rate under Ontario law is the rate set under the section 127 of the Courts of
Justice Act and published at the Ministry of the Attorney General website.
The applicable rate for pre-award interest for a proceeding commenced in the first quarter of 2015 is
1.3% per annum.
The applicable rate for post-award interest as of the date of this award is 2% per annum.
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award interest, at the pre-judgment rate, on the $19,040 owing to Claimant from January 1, 2015 to
the date of this award, as the Sales Report dated December 31, 2014 showed this amount owing.
award interest, at the post-judgment rate, on the full amount of the award,from the date of the award
until the date the award is paid in full.
(g) Other Relief
No further relief was sought nor is any required to dispose of this Arbitration.
Award
For the reasons set out in this Award, I hereby find in favour of the Claimant and award the Claimant:
1. $19,040(USD), being the license revenues acknowledged by the Respondents to be owed to the
Claimant.
2. $22,000(USD), being the amount payable to the Claimant with respect to unreported revenues.
3. $28,017.71(CAD), with respect to the Claimant's legal costs and disbursements.
4. Pre-award interest, at a rate of 1.3% on the sum of $19,040(USD)from January 1, 2015 to the
date of this award.
5. Post-award interest, at a rate of 2% per annum, on the entire amount of the award,from the
date of this award until the date it is paid in full.
The Respondents Film Watch Inc., Cinemavault.Com Inc., and Cinemavault International Inc. are jointly
and severally liable for the full amount of this award.
They shall have 10 business days to pay,from the date this award is delivered by the IFTA Arbitral Agent.
For the reasons set out, I find that I do not have jurisdiction with respect to the Respondent Cinemavault
Releasing Inc. and I make no award with respect to that company.
For the reasons set out, I find that I do not have jurisdiction with respect to the individual Respondents,
Nicolas Stiliadis and John Dunstan and I make no award with respect to either of them.
Dated: December 22, 2015
,;~ '~~~
Michael Erdle, C.Arb., FCIArb.
IFTA Arbitrator
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