The King of Cannes

But while Davies freely admits that the Montenegrins didn't get Julian and Sandy, he insists that it's not just the Brits who have responded to the film.

"What I believe is, if something is true, genuinely true, then it doesn't matter where it's from or where you come from. You don't have to be Norwegian to appreciate Ibsen, you don't have to be German to understand Schubert. If it's true, we recognise it, even beyond language. I do believe that!"

Davies's own use of language is one of the distinguishing elements of his work: now poetic, now camp, occasionally scatological. The same is true of his conversation.

I ask him if he was nervous about going up the famous steps of the Cannes Palais in front of the world's television cameras. "Oh yes," he says. "I'm just as nervous as I always was as an actor going in front of an audience. But Imodium helps no end! It's the pill that gives and gives."

Davies has made an art form of hiding his passion (and sometimes his pain) behind a string of hysterical anecdotes, some borrowed, some blue, some possibly true. Talking of his struggle to make The House of Mirth, he recalls meeting Martin Scorsese, who had made his own Edith Wharton adaptation, The Age of Innocence, in 1993.

"Seeing our little film alongside that was a bit like being in a production of Joseph and the Amazing Technicolor String Vest," chortles Davies. "But Scorsese was very nice so I asked him what he was going to make next. He said he was going to do a film about the Dalai Lama. Well! I couldn't stop myself ! I said: 'What are you going to call it? Hello, Dalai?'"

Davies talks in little rushes of words, the emphasis always falling where you would least expect it, the whole wrapped up in a breathy delivery - "it's the asthmatic in me," he explains - that is the verbal equivalent of grabbing you by the elbow (which he also does).

What's more, for all the two-uptwodown terraced houses of his childhood (and his early films), there is not a trace of Liverpool in his voice. "I've got a very acute ear," he claims. "When I was a child, I listened to people who spoke posh and I just imitated them. People used to ask me: 'When did you lose your accent?' I asked my sister Maisie and she said: 'You never had one!'"

Nowadays, Davies is the quintessential Englishman abroad, dressing (when not in evening attire) in jacket and tie amid the bling-casual of Cannes, his white hair neatly combed, shoes smartly polished. His mum - who died in 2004 and whom he says he "misses every day" - would have been proud.

"Mmm," he says when I ask him about his Englishness. "Mmm. I don't mean this in a jingoistic way but I'm very proud of my country. I think we've done things any other country would trumpet from the rooftops. We produced the world's greatest playwright, our poetry is second-tonone, and we invented the novel."

But it is not an uncritical pride. He is, for instance, fiercely resentful of the royal family, describing them in the film as "Betty and Phil". "I think they're parasites, I just do," he exclaims.

And he lost interest in popular culture circa 1962 (his passing reference to The Beatles in Of Time and the City is hilarious), peppering the film's lush soundtrack with songs from Hollywood musicals, classical music and, somewhat surprisingly, the Hollies' He Ain't Heavy (He's My Brother).

In fact, Davies seems slightly out of place in the modern Britain of binge drinking, bendy buses and football: his soul remains fixed in the Fifties. Of today's English, he says: "I'm appalled at our neolithic behaviour, both at home and abroad. And our use of language is appalling - estuary English, so glotally stopped that you need subtitles! It's because I'm proud of my country that I'm its most rigorous critic. But I think there are things that we still have that we should treasure."

Britain has not exactly treasured Davies. At 62, he has made just four features, plus a sublime trilogy of short films (recently released on DVD) and now this new documentary.

His career was not helped by the UK Film Council's refusal, a couple of years back, to put in the last small tranche of money needed to complete the financing of an adaptation of Lewis Grassic Gibbon's classic Scottish novel, Sunset Song.

Already in pre-production, the project collapsed (though he now hopes to revive it). When the Film Council snubbed him, Davies certainly didn't grin and bear it: he took every chance to complain, and I've heard him say things about the then head of the Film Council's Premiere Fund, Robert Jones, that the laws of libel prevent me from repeating here.

But the Film Council did contribute to Of Time and the City, one of a trio of films celebrating Liverpool's European Capital of Culture year.

What's more, with a sense of spin redolent of its New Labour origins, the organisation rode the wave of acclaim that greeted the new film by announcing, the day after its Cannes premiere, that it would be backing Davies's next project, a romantic comedy called Mad About the Boy.

For the moment, the director is keeping his powder dry on that one. "I'll believe it when I have the crew together," is all he will say for the moment. He's not afraid to duck a fight - this week, he has attracted controversy for criticising other British filmmakers' work as "sub-American nonsense".

However, he does seem to have kissed and made up with the Film Council. "The new regime are completely different," he claims, "not because they're helping me, which obviously I'm pleased about, but because they love films, they know about them and they care about them. That makes a huge difference. When I talk to Lenny Crooks [who has replaced Jones as head of the Premiere Fund], he's passionate, absolutely passionate about it.

"That restores my belief, because if there's no passion, there's no point in being alive."

He pauses, tugging at his collar, to ask if we can move to a slightly cooler end of the Cannes bar where we have been talking. We stand in the small tabled area by the street, along which the Festival's incessant stream of onlookers is trudging by. Spotting my tape recorder held up to a man in a dinner jacket, several people stop.

Someone takes a photograph. Admittedly, photographs will always be taken in Cannes if a small crowd has gathered, in the hope that someone there might prove to be famous. But I quickly realise the photographer knows what he is doing: as he walks away, I hear him say the word "Liverpool".

Terence Davies, so long forgotten by the British film establishment, is the unlikely king of the Cannes Croisette in May 2008.

Of Time and the City will be released later this year.