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Print article8 Tips for a Successful Co-Production in Asia
January, 2007 -
In recent years, we have seen a surge in co-productions in Asia, whether in the form of co-productions between parties from different parts of Asia (which would normally involve both financial and production contribution from all parties), or co-productions between Western and Chinese parties. In the latter case, in particular, we have seen a surge in Western studios or producers making films in Asia, particularly Hong Kong and the PRC, to take advantage of the many benefits and opportunities offered, including lower production costs, fresh unseen locations, new talent and possibly, access to China’s growing market.
Whilst there are certainly a lot of advantages in co-productions in Asia, there are also many differences in how a film is produced in Asia and in the US or Europe. From our experience, there is the erroneous assumption that the film business in the East is basically the same as the West. From a Western studio/producer’s point of view, the first lesson before embarking on a co-production in Asia is not to assume that you can simply do what you would normally do in the West - there are significant and relevant cultural, language, customs and legal differences between the East and West and the first step to a successful venture into co-production in Asia is to recognise and respect that difference. The following are a few tips to avoid some common pitfalls.
TIP NO. 1: PREPARE AND SIGN CONTRACTS
Signing agreements setting out detailed terms of the parties agreement is a given in the West. Traditionally, detailed written contracts are not regarded as so important in Asia, partly due to the small and closeknit industry where everyone knows everyone else and partly due to the fact that Asians are generally not very litigious (certainly when compared to US). Thus, traditionally in Asia, if there are contracts in the film industry (a step above the normal “handshake” agreements), they are generally very short (say one or two pages) and often are not sufficiently clear or comprehensive to cover all the relevant rights and responsibilities. However, this practice does not mean that the foreign co-production partner should accept this as well. In the recent years, legal contracts have become more important due to the increased interest in Asian films and content and Asian filmmakers are increasingly aware of the importance of a good contract. Their increased dealings with Western distributors, financiers and co-production partners who demand proper chain of title documents as a pre-condition of any deals has certainly helped Asia move towards adopting proper legal documentation. As a co-production partner, our suggestion is that you should ensure your lawyers review and approve all agreements to be signed whether with cast or crew, or production services providers to ensure that the agreements are properly drafted to a standard which will be acceptable when you need to distribute the film internationally. The standard agreements that your Asian co-production partner may provide may not be sufficiently tight to give you a clean chain of title.
TIP NO. 2: NOT YOUR USUAL 50 PAGE CONTRACTS
Whilst it is important to ensure that you have proper contracts signed, it is understandable that to ask an Asian co-production partner who is used to a 2 page contracts to now sign a 50 page contract may be a little difficult. Our second tip is therefore to try, as far as possible not to use the usual 50+ page contracts common in the West. In fact, some Asian parties may get offended if presented with an overly long and one-sided agreement and we have certainly seen parties who choose to walk away from the project rather than to have to go through the agony of reviewing and negotiating one of these contracts. Our suggestion is to pare the contracts down to the essentials. This is not as difficult to do as one may imagine nor would it necessarily mean that the agreement will expose the partner to potential liabilities. In fact, from our experience, many provisions which commonly appear in US agreements are not applicable in Asia (such as provisions dealing with Guilds requirements) and should be taken out anyway.
TIP NO. 3: WORK-FOR-HIRE? WHAT IS THAT?
Another reason not to simply adopt a 50 page US precedent is that there are many legal concepts and terminologies which are not applicable under Asian laws. As an example, an issue often encountered is the concept of “Work-for-Hire” which appears in every US contract. There is no such concept under Hong Kong or PRC laws. “Work-for-hire” is used to deal with situations where employees or independent contractors created work to ensure that ownership belongs to the employer or commissioner. In fact, under Hong Kong and PRC laws, the legal concept for commissioned work is basically the opposite - in a commissioning situation, the author/creator will continue to own the copyright in the work unless there is an agreement or assignment stating that the work should be owned by the commissioner. It is therefore dangerous to blindly adopt a precedent drafted under foreign law. We strongly suggest that the agreements be reviewed by local lawyers to ensure that the terms are relevant and enforceable and actually achieve in what was intended.
TIP NO. 4: ENGLISH, ENGLISH, ENGLISH
English is not the mother language in most Asian countries. Whilst more sophisticated parties in Asia are perfectly able to review and sign agreements in English, do not assume that this is always the case, particularly with local casts and crew. There is a real danger that if the cast or crew member signed an English agreement without actually understanding what the terms mean, the agreement may not ultimately be enforceable (which then defeats the purpose of having the agreement in the first place!). Moreover, for co-productions in China, all documents to be submitted to the authorities must be in Chinese. Thus, we strongly suggest that, unless it is clear that the party in question can understand English perfectly, agreements should be prepared in both English and Chinese to ensure that they are understood and thus enforceable. However, do not assume that all translations are the same - legal documents are drafted in a language that even most native speakers who are not lawyers would not be able to understand. Thus, when getting translations, it is of utmost importance to ensure that the translations are properly done and accurately reflect the English version that you have previously approved. Otherwise, there may be unexpected surprises at the end of the day when the court announces that the word “shall” was actually translated to “may” and therefore the other party is not bound to comply with the provision.
TIP NO.5: OUR LAW AND COURTS ARE ALWAYS BETTER
It is also common for Western parties to automatically choose their own law and exclusive jurisdiction of their own courts for their agreement. What can go wrong with choosing a law familiar to them and have any litigation take place down the road? However, we have seen many disastrous results because of this erroneous belief. A closer look at the laws of most countries shows that most courts do not automatically enforce a judgement issued by a foreign court. This is understandable since each country’s laws are different. Thus, if one is contracting with a foreign party, whilst it may be convenient to sue in your own country if there is a dispute, the question to ask is whether you can enforce that judgement against the foreign party once you have obtained that judgement. If not, any judgement, no matter how positive, that you may obtain will be rendered useless if you cannot enforce it against the foreign party in their own jurisdiction where their assets are located. Thus, it is often advisable to consider nominating local laws and courts, or perhaps arbitration instead. This is a question that deserves careful consideration.
TIP NO. 6: BEWARE OF THE TAXMAN
When structuring any co-production or distribution deals, it is important not to forget about tax issues. For example, it would not be a nice surprise to find out at the end of production that sending Nicole Kidman to shoot in China will incur a PRC tax bill of 40% of her salary! There are tax treaties between the PRC and some countries such as the US and the UK which would allow US or UK nationals to work in China for around 180 days without paying local salaries tax. If the deals are structured with proper tax advice using legal entities incorporated in different countries (for example, Hong Kong instead of the PRC), substantial amounts could be saved in salaries, profits and withholding taxes.
TIP NO. 7: KNOW THE LOCAL RULES - GET HELP FROM THE LOCALS
Every country operates differently. As a foreign party, it is easy to get confused or overpay if you do not have a local adviser who knows exactly how long it takes and how much it costs for example to have a costume sewn by a local seamstress, or what permits are needed to use the local post office as a location. For co-productions in the PRC (which includes any foreign party who simply wants to shoot in the PRC), a PRC co-production partner is required. There are specific regulations in the PRC regarding anything from applications for shooting permits, censorship and ownership to import of equipment, cast and crew and how much time off local crew should get. Again, the rules vary since there are no guilds or trade unions in Hong Kong or PRC. A knowledgeable and trustworthy local partner, producer or production company will be invaluable.
TIP NO. 8: NEVER FORGET “FACE”
Last but not least, the ever elusive concept of “Face” is indeed very real in Asia. “Face” is essentially understanding, respecting and not embarrassing the Asian partner, and ultimately, making them look and feel good. For example, starting off with a one-sided agreement, aggressiveness, being pushy, or even banging on the table may be acceptable negotiating tactics in the West, but many Asians may feel offended by such behaviour. Asians generally tend to prefer dealing with each other in a more polite, friendly and less aggressive way.
A recent experience illustrates the point - our client was in a tough negotiation with a major Western studio and was presented with the usual 80 page contract. The major studio was being particularly aggressive and was being condescending. The client fought every step (on both important and trivial points) and his comment was that “if they were nicer, I would have given in on most of the points”. There is a Chinese saying that one “accepts soft but not hard” - if one keeps in mind the importance of “face”, it should be a good start to a successful venture in Asia.
Whilst there are certainly a lot of advantages in co-productions in Asia, there are also many differences in how a film is produced in Asia and in the US or Europe. From our experience, there is the erroneous assumption that the film business in the East is basically the same as the West. From a Western studio/producer’s point of view, the first lesson before embarking on a co-production in Asia is not to assume that you can simply do what you would normally do in the West - there are significant and relevant cultural, language, customs and legal differences between the East and West and the first step to a successful venture into co-production in Asia is to recognise and respect that difference. The following are a few tips to avoid some common pitfalls.
TIP NO. 1: PREPARE AND SIGN CONTRACTS
Signing agreements setting out detailed terms of the parties agreement is a given in the West. Traditionally, detailed written contracts are not regarded as so important in Asia, partly due to the small and closeknit industry where everyone knows everyone else and partly due to the fact that Asians are generally not very litigious (certainly when compared to US). Thus, traditionally in Asia, if there are contracts in the film industry (a step above the normal “handshake” agreements), they are generally very short (say one or two pages) and often are not sufficiently clear or comprehensive to cover all the relevant rights and responsibilities. However, this practice does not mean that the foreign co-production partner should accept this as well. In the recent years, legal contracts have become more important due to the increased interest in Asian films and content and Asian filmmakers are increasingly aware of the importance of a good contract. Their increased dealings with Western distributors, financiers and co-production partners who demand proper chain of title documents as a pre-condition of any deals has certainly helped Asia move towards adopting proper legal documentation. As a co-production partner, our suggestion is that you should ensure your lawyers review and approve all agreements to be signed whether with cast or crew, or production services providers to ensure that the agreements are properly drafted to a standard which will be acceptable when you need to distribute the film internationally. The standard agreements that your Asian co-production partner may provide may not be sufficiently tight to give you a clean chain of title.
TIP NO. 2: NOT YOUR USUAL 50 PAGE CONTRACTS
Whilst it is important to ensure that you have proper contracts signed, it is understandable that to ask an Asian co-production partner who is used to a 2 page contracts to now sign a 50 page contract may be a little difficult. Our second tip is therefore to try, as far as possible not to use the usual 50+ page contracts common in the West. In fact, some Asian parties may get offended if presented with an overly long and one-sided agreement and we have certainly seen parties who choose to walk away from the project rather than to have to go through the agony of reviewing and negotiating one of these contracts. Our suggestion is to pare the contracts down to the essentials. This is not as difficult to do as one may imagine nor would it necessarily mean that the agreement will expose the partner to potential liabilities. In fact, from our experience, many provisions which commonly appear in US agreements are not applicable in Asia (such as provisions dealing with Guilds requirements) and should be taken out anyway.
TIP NO. 3: WORK-FOR-HIRE? WHAT IS THAT?
Another reason not to simply adopt a 50 page US precedent is that there are many legal concepts and terminologies which are not applicable under Asian laws. As an example, an issue often encountered is the concept of “Work-for-Hire” which appears in every US contract. There is no such concept under Hong Kong or PRC laws. “Work-for-hire” is used to deal with situations where employees or independent contractors created work to ensure that ownership belongs to the employer or commissioner. In fact, under Hong Kong and PRC laws, the legal concept for commissioned work is basically the opposite - in a commissioning situation, the author/creator will continue to own the copyright in the work unless there is an agreement or assignment stating that the work should be owned by the commissioner. It is therefore dangerous to blindly adopt a precedent drafted under foreign law. We strongly suggest that the agreements be reviewed by local lawyers to ensure that the terms are relevant and enforceable and actually achieve in what was intended.
TIP NO. 4: ENGLISH, ENGLISH, ENGLISH
English is not the mother language in most Asian countries. Whilst more sophisticated parties in Asia are perfectly able to review and sign agreements in English, do not assume that this is always the case, particularly with local casts and crew. There is a real danger that if the cast or crew member signed an English agreement without actually understanding what the terms mean, the agreement may not ultimately be enforceable (which then defeats the purpose of having the agreement in the first place!). Moreover, for co-productions in China, all documents to be submitted to the authorities must be in Chinese. Thus, we strongly suggest that, unless it is clear that the party in question can understand English perfectly, agreements should be prepared in both English and Chinese to ensure that they are understood and thus enforceable. However, do not assume that all translations are the same - legal documents are drafted in a language that even most native speakers who are not lawyers would not be able to understand. Thus, when getting translations, it is of utmost importance to ensure that the translations are properly done and accurately reflect the English version that you have previously approved. Otherwise, there may be unexpected surprises at the end of the day when the court announces that the word “shall” was actually translated to “may” and therefore the other party is not bound to comply with the provision.
TIP NO.5: OUR LAW AND COURTS ARE ALWAYS BETTER
It is also common for Western parties to automatically choose their own law and exclusive jurisdiction of their own courts for their agreement. What can go wrong with choosing a law familiar to them and have any litigation take place down the road? However, we have seen many disastrous results because of this erroneous belief. A closer look at the laws of most countries shows that most courts do not automatically enforce a judgement issued by a foreign court. This is understandable since each country’s laws are different. Thus, if one is contracting with a foreign party, whilst it may be convenient to sue in your own country if there is a dispute, the question to ask is whether you can enforce that judgement against the foreign party once you have obtained that judgement. If not, any judgement, no matter how positive, that you may obtain will be rendered useless if you cannot enforce it against the foreign party in their own jurisdiction where their assets are located. Thus, it is often advisable to consider nominating local laws and courts, or perhaps arbitration instead. This is a question that deserves careful consideration.
TIP NO. 6: BEWARE OF THE TAXMAN
When structuring any co-production or distribution deals, it is important not to forget about tax issues. For example, it would not be a nice surprise to find out at the end of production that sending Nicole Kidman to shoot in China will incur a PRC tax bill of 40% of her salary! There are tax treaties between the PRC and some countries such as the US and the UK which would allow US or UK nationals to work in China for around 180 days without paying local salaries tax. If the deals are structured with proper tax advice using legal entities incorporated in different countries (for example, Hong Kong instead of the PRC), substantial amounts could be saved in salaries, profits and withholding taxes.
TIP NO. 7: KNOW THE LOCAL RULES - GET HELP FROM THE LOCALS
Every country operates differently. As a foreign party, it is easy to get confused or overpay if you do not have a local adviser who knows exactly how long it takes and how much it costs for example to have a costume sewn by a local seamstress, or what permits are needed to use the local post office as a location. For co-productions in the PRC (which includes any foreign party who simply wants to shoot in the PRC), a PRC co-production partner is required. There are specific regulations in the PRC regarding anything from applications for shooting permits, censorship and ownership to import of equipment, cast and crew and how much time off local crew should get. Again, the rules vary since there are no guilds or trade unions in Hong Kong or PRC. A knowledgeable and trustworthy local partner, producer or production company will be invaluable.
TIP NO. 8: NEVER FORGET “FACE”
Last but not least, the ever elusive concept of “Face” is indeed very real in Asia. “Face” is essentially understanding, respecting and not embarrassing the Asian partner, and ultimately, making them look and feel good. For example, starting off with a one-sided agreement, aggressiveness, being pushy, or even banging on the table may be acceptable negotiating tactics in the West, but many Asians may feel offended by such behaviour. Asians generally tend to prefer dealing with each other in a more polite, friendly and less aggressive way.
A recent experience illustrates the point - our client was in a tough negotiation with a major Western studio and was presented with the usual 80 page contract. The major studio was being particularly aggressive and was being condescending. The client fought every step (on both important and trivial points) and his comment was that “if they were nicer, I would have given in on most of the points”. There is a Chinese saying that one “accepts soft but not hard” - if one keeps in mind the importance of “face”, it should be a good start to a successful venture in Asia.
