Australia, 21 December 2011 - Appeals lodged by Omnilab Media and

ex Digital Cinema Network (DCN) director Michael Smith against the findings of Justice

Gordon were on Monday unanimously dismissed by three judges of the Full Federal

Court.

In September 2010, Digital Cinema Network (DCN) directors Martin and James Gardiner

alleged that fellow director Michael Smith had illegally passed DCN's negotiation of VPF

contracts to Omnilab, and he had done so with Omnilab's knowing assistance. Earlier this

year, the trial judge, Justice Gordon, upheld DCN's claims.

On appeal all three justices on the Full Bench of the Federal Court agreed that, 'Mr

Smith, without the consent of DCN, diverted to . . . Omnilab . . . a business opportunity

which belonged to DCN.' Further, the Court concluded that Smith had acted dishonestly

as he 'stood to obtain benefits from the Omnilab Parties in the form of a board seat and

monetary payments' and that he had 'failed to make full and true disclosures to the

Gardiners'. Mr Smith's actions were characterised by both the original trial judge and the

appeal court judges as 'fraudulent and dishonest'.

Martin Gardiner, Managing Director of DCN, said, 'This judgement again vindicates

DCN's action against Michael Smith and Omnilab. It confirms the extent of Michael

Smith's illegal behaviours. The judgment also makes clear, as the original trial judge did,

that Omnilab was not even a competitor in this space until Michael Smith passed on our

valuable knowledge and contracts to them without our consent.'

DCN has been impacted significantly by Smith's and Omnilab's false claims that DCN

was not negotiating the VPF contracts with the film studios. The appeal court ruled

unequivocally that it was, 'Mr Smith, as a principal of DCN, [who] had been conducting

negotiations for the VPFs with the film studios'. Justice Jacobson said '. . . all of the

protagonists [Omnilab and ICAA] knew that during the critical periods, Mr Smith was

negotiating the VPFs with the studios on behalf of DCN'.

The justices were equally clear about Omnilab's role as an accessory, including and

especially the role played by Mr John Fleming, General Manager of Omnilab Media

Melbourne. Justice Jacobson said 'There was ample evidence of actual knowledge by Mr

Fleming that . . . DCN had been conducting the negotiations for the VPFs with the film

studios'. Further, his Honour stated, '[Mr Smith] enabled the Omnilab Parties to take over

the negotiations with the film studios "seamlessly" and in a way which sacrificed the

interests of DCN. Her Honour's findings make it clear that Mr Fleming knew this.'

Justice Besanko said "[Omnilab] participated in a plan whereby it obtained the benefit of

the [VPF] information and negotiations without DCN's consent and without paying any

compensation to it. Mr Smith's conduct was dishonest 'judged by the standards of

ordinary, decent people'... and the Omnilab parties had actual knowledge of that

conduct".

Despite being notified in August 2010 that DCN's contracts had been misappropriated by

Smith and Omnilab, the board of the Independent Cinemas Association of Australia

(ICAA), the body representing many independent cinema owners in Australia, placed its

public support behind Omnilab. ICAA has continued to support Omnilab in the face of

Justice Gordon's findings. In numerous statements and submissions to the court,

Omnilab claimed that DCN never had the support of ICAA. Justice Jacobson refuted any

such claim, stating that 'for some time, Mr Smith did have authority from ICAA to speak

on DCN's behalf'.

The Gardiners have expressed relief that the question of liability has now been settled,

however they remain concerned for the vast majority of independent cinema owners who

still do not have a VPF agreement. Martin Gardiner said 'James and I have actively

supported the independent cinema market for the last 15 years. DCN was formed to

secure VPF agreements for independent cinemas in the absence of any other organisation

indicating their interest in undertaking that role during 2008 and 2009. We were working

tirelessly to obtain a VPF scheme for independent cinemas until Michael Smith and

Omnilab tried to take advantage of that work for themselves. DCN has always been, and

remains now, committed to the interests of independent cinema and we hope that a

positive outcome eventuates for them in the future.'

Background Notes:

VPF contracts (Virtual Print Fee contracts) are offered by the Hollywood Studios (Fox,

Sony, Warner Brothers, Disney, Paramount, and Universal) as a rebate scheme to

encourage the mass migration of cinemas from 35mm film to digital projection. These

contracts are usually negotiated with a 'digital integrator' that administers the contracts

and monitors their implementation for individual cinemas over the contract period.

Australia's major cinema chains (Village, Hoyts and Greater Union) already have VPF

contracts, leaving independent cinema owners with an uncertain future if they do not

follow suit.

DCN began negotiating the VPF contracts for independent cinemas in 2008. In

September 2010 DCN lodged an action in the Federal Court alleging that Omnilab had

knowingly assisted DCN's director, Michael Smith, to inappropriately divert sensitive

information about the VPF negotiations, including the VPF contracts, to Omnilab. In

May 2011, Justice Gordon found that Smith breached his duties to DCN, and that

Omnilab had knowingly assisted him. In June 2011, Omnilab filed an appeal with the

Federal Court against Justice Gordon's orders.

A link to the full judgment can be found at:

Omnilab Media Pty Limited v Digital Cinema Network Pty Ltd [2011] FCAFC 166 (19

December 2011)

http://www.austlii.edu.au/au/cases/cth/FCAFC/2011/166.html

Digital Cinema Network

1 Kings Place

South Melbourne VIC

Australia 3004