ICAA backs CEO Mark Sarfaty

06 June, 2011 by Brendan Swift

The board of the Independent Cinemas Association of Australia (ICAA) has unanimously supported chief executive Mark Sarfaty after conflict of interest issues were raised about his handling of virtual print fee negotiations as part of a Federal Court case.

The issue was referred to by Justice Gordon last month when handing down judgement in the matter of Digital Cinemas Network versus Omnilab Media and Omnilab Media Cinema Services and Michael Smith.


The judgement referred to internal Omnilab documents, in which Omnilab Media Melbourne’s general manager John Fleming wrote about paying Sarfaty a potential $50,000 success fee for choosing Omnilab as ICAA’s preferred digital cinema system integrator, as well as an annual fee of $20,000 for a board seat on its new digital integration business.

However, in a statement released last Friday, the ICAA board rejected those claims and unanimously supported Sarfaty “and the manner in which he conducted its negotiations aimed at securing the best available VPF [virtual print fee] arrangement with the studios and other distributors (VPF negotiations) on behalf of ICAA and NZMPEA members”.

The ICAA board said it approved Sarfaty to seek a total of $70,000 to be paid as a sponsorship benefit to ICAA and a fee paid to ICAA in consideration for the services of the ICAA Board-appointed representative to an advisory committee, which appears to be the amount referred to in the Federal Court judgement.

The ICAA board said: it was not a party to the recent Federal Court proceedings; was not asked any questions about the meaning of the Omnilab internal documents about the proposed payments; and neither ICAA board members nor Sarfaty were aware of, or had any input into, those notes.

It released extracts (see below) from correspondence from Sarfaty to Omnilab Media and two extracts from Sarfaty to the board of ICAA, which state that the payments from Omnilab were to be made to ICAA (extracts from the court case can also be seen below). ICAA said all supporting documentation of the negotiations showed the payments were for the benefit of ICAA and its members exclusively.

ICAA also referred to a "seemingly malicious campaign to damage the reputations of both ICAA and its chief executive, Mark Sarfaty" by "anonymous parties to a number of journalists and industry colleagues alleging that Mr Sarfaty sought personal financial benefit from Omnilab Media in the course of negotiations aimed at securing Omnilab Media’s participation in the virtual print fee negotiations for independent cinemas".

IF magazine has not received any such anonymous accusations.

ICAA said it remains concerned that there may be “forces acting against the best interests of independent cinemas in Australia and New Zealand by conducting a smear campaign to undermine the successful conclusion of VPF negotiations between the major studios and independent cinemas in Australia and New Zealand”.

ICAA is continuing to pursue VPF agreements with studios on behalf of its members.

A previous article about the court case (which Omnilab has appealed) can be found here while the full judgement can be found here.

October 23, 2009 – Judgement extract
ICAA member and Screen Australia board member Ross Entwistle, who was being retained by Omnilab (at Sarfaty’s suggestion), prepares an opportunity statement for Omnilab about digital opportunities.

November 8, 2009 – Judgement extract
Entwistle emails Fleming with a suggested approach and reports that he had meetings scheduled with Sarfaty (followed by Smith) that week. Entwistle sought Fleming’s approval to approach those meetings with the aim of convincing Sarfaty that ICAA should skip the tender process and immediately enter into a co-operative approach with Omnilab Media.

December 1, 2009 – Judgement extract
At a meeting between Smith, Sarfaty and Fleming, Sarfaty invites Omnilab (on behalf of ICAA members) to undertake the role of deployment entity for the VPFs, as well as potentially being the supplier of digital equipment.

December 15, 2009 – Judgement extract
Fleming writes a draft: ICAA would prefer Omnilab to be integrator and outlines terms. Fleming notes that there is angst between Sarfaty and Michael Smith [director of DCN and MGS]. "This is being presented by [Sarfaty] as an issue in that it will be difficult to get key ICAA members onboard with [Smith] involved. It could also be seen as [Sarfaty] increasing his value for pulling this alliance together." The draft also notes: "Action: Consider compensation for Sarfaty – success fee”.

January 31, 2010 – Judgement extract
The Omnilab board considers a proposal drafted by Fleming for: Omnilab to become an integrator, to negotiate a VPF with the studios and to undertake sales installation and support of digital cinema systems for ICAA members. Sarfaty and Smith have board seats and Entwistle is independent chairman of the new Omnilab subsidiary. The summary proposal also says: “There is an expectation that Mark Sarfaty will be rewarded for his role in bringing together this deal and selling it to ICAA members. Possible method of dealing with this is to provide a success fee …[Holding Redlich] to confirm requirements to avoid any issues of secret commissions given Mark’s position on ICAA board.”

February 16, 2010 – Judgement extract
Fleming prepares a digital cinema update which includes a section called “ICAA Commitment”. In the paper, consideration was still being given to a success fee for Sarfaty comprised of an upfront payment of $50,000 along with an annual fee of $20,000 for his proposed role on the advisory board for three years.

February 25, 2010 – ICAA Extract
Correspondence from Sarfaty to Omnilab Media states that the desired parameters of ICAA’s commercial relationship with Omnilab Media were:
“c) That ICAA itself receive an ongoing benefit or consideration for supporting and facilitating member participation in the activities of the new company (paid board seat)”

March 4, 2010 – ICAA Extract
Correspondence from Sarfaty to Omnilab Media further developing the nature of the benefit or consideration:
“e) That ICAA receive an ongoing benefit or consideration for supporting and facilitating member participation in the activities of the new company of $50k p/a”

March 18, 2010 – ICAA Extract
Briefing note from Sarfaty to the board of ICAA:
“ICAA tabled the following conditions *with Omnilab+ as being the commercial parameters for reaching agreement:
e) That ICAA receive an ongoing benefit or consideration for supporting and facilitating member participation in the activities of the new company of $50k p/a”, and
“d) “Agreed that ICAA would have a seat on the company advisory board.”