A GERMAN FILM company has claimed before the Commercial Court that two well-known Irish film producers have diverted funds out of a film production company it is the majority shareholder to either themselves personally or corporate entities controlled by them.
In proceedings seeking damages for breach of contract, breach of duty and breach of fiduciary duty, Berlin based W2 Filmproduktion Vertriebs GmbH against film producers Morgan O’Sullivan and James Flynn, says it has lost estimated revenues of €25m in relation to the activities of an Irish registered Octagon Films Ltd.
It says Flynn of Monterey, Ballyedmonduff Road, Stepaside Dublin, and O’Sullivan of Ardmore Park Bray Co Wicklow are directors of Octagon, which W2 owns 49% of the shares.
TV series
The defendants have produced successful international and domestic TV series including The Tudors, The Borgias, Vikings, Love Hate and Raw, as well as movies such as Calvary.
W2, which invests in international film productions, says it acquired shares under a shareholders agreement in Octagon in 2002 so as to join a successful start up company.
W2 claims the defendants have breached that shareholders agreement and currently estimates the loss of revenue to Octagon to be in the region of €50m, with a consequential loss to W2 of €25m.
Among the allegations W2 claims the defendants while using the Octagon name have diverted funds, profit and income to themselves personally or to corporate entities controlled by them.
It is also alleged they failed to ensure income from film and tv productions Octagon was involved in went to the company. The two it is claimed caused work to be sold on at cost or near cost to other entities controlled by them. W2 also claims it was misled and given false and misleading information by the defendants.
Since 2003 the defendants did not give a true and fair view of Octagon’s financial position at the end of every year, it is further alleged.
Correspondence
The defendants have said in correspondence W2 only had an interest in films it specifically funded, and that Octagon was only in the business of developing films and not producing them.
The defendants also say they were perfectly entitled to carry out their own work under the Octagon name.
In a sworn statement to the court W2 director Winfried Hammacher said that following the production of of two films the company had understood Octagon was not trading in any significant way between 2010 and 2014.
At the end of the 2014 he became aware of the series Vikings. When he investigated the makers and producers he noticed a credit for Octagon. This he found odd as he had never been made aware of it before.
Further investigations showed that Octagon presented itself to be involved with more than 70 TV series and films.
The sought more details from the company but only got partial information and justifications, he said. He said that they discovered a pattern with many films where Octagon is the name associated with the production. It does the development and pre-production and incurs the out of pocket development costs.
Hammacher said Octagon received only nominal monies in respect of Vikings. It was “very clear” from documentation it has obtained it should have received “a substantial income fee running to millions of euro”.
Business was diverted to other entities with similar names linked to the defendants, he said. The business he added was transferred at cost with no profit at all to Octagon.
Hammacher said it was expected W2 would be developed by the defendants in accordance with the business plan. Where it was involved in a production W2 expected to get some income, and they expected to be kept informed of this.
In many cases he said Octagan is the nominal developer, producer of films. It takes the initial development risk and funds pre-production. It is the entity recognised by the Irish Film Board and receives loans from it and by Revenue.
Objection
However Octagon appeared to accrue no material profits or fees. It was borderline insolvent for much of its trading life when in fact it was enjoying a central role in the production and financing of some of the most successful film and tv dramas in the Irish market at the time, Hammacher said.
The dispute came before Mr Justice Brian McGovern during yesterday’s sitting of the Commercial Court. W2 represented by Paul Gardiner SC Edward Farrelly Bl applied to the court to have the case admitted to the fast track Commercial Court list.
Lyndon MacCann SC for the defendants said they were objecting to case being admitted to the list. It was their case W2 was guilty of culpable delay in bringing the claim, and they asked the court to use its discretion not to admit the case to the Commercial Court list.
Gardiner denied there was any delay by W2.
The judge adjourned the matter for a week to allow the defendants outline their objections to entry in a sworn statement.
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