KOOEE COMMUNICATIONS PTY LTD & ANOR v PRIMUS TELECOMMUNICATIONS PTY LTD [2008] NSWCA 5 (12 February 2008)

Last Updated: 12 May 2008

NEW SOUTH WALES COURT OF APPEAL

CITATION:
KOOEE COMMUNICATIONS PTY LTD & ANOR v PRIMUS TELECOMMUNICATIONS PTY LTD [2008] NSWCA 5
This decision has been amended. Please see the end of the judgment for a list of the amendments.

FILE NUMBER(S):
40278/07

HEARING DATE(S):
31 October 2007

JUDGMENT DATE:
12 February 2008

PARTIES:
Kooee Communications Pty Ltd – First Appellant/First Cross-Respondent
SP Telemedia Limited – Second Appellant/Second Cross-Respondent
Primus Telecommunications Pty Ltd – Respondent/Cross-Appellant

JUDGMENT OF:
Giles JA Tobias JA Basten JA

LOWER COURT JURISDICTION:
Supreme Court

LOWER COURT FILE NUMBER(S):
SC 50004/06

LOWER COURT JUDICIAL OFFICER:
Einstein J

LOWER COURT DATE OF DECISION:
16 February 2007; 20 April 2007; 7 May 2007

LOWER COURT MEDIUM NEUTRAL CITATION:
[2007] NSWSC 91; [2007] NSWSC 374; [2007] NSWSC 444

COUNSEL:
A J Meagher SC/J G Duncan – Appellants/Cross-Respondents
R Garrett QC/D Priestley – Respondent/Cross-Appellant


SOLICITORS:
Aleco Vrisakis, Rylestone – Appellants/Cross-Respondents
Browne & Co, Melbourne – Respondent/Cross-Appellant

CATCHWORDS:
CONTRACT – construction–whether terms of contract accord with “commercial reality”
CONTRACT – construction – admissibility of extrinsic material

LEGISLATION CITED:


CATEGORY:
Principal judgment

CASES CITED:
[<i>Antaios Compania Naviera SA v Salen Rederierna AB</i>] [1985] AC 191
[<i>Codelfa Constructions Pty Ltd v State Rail Authority of NSW</i>] [1982] HCA 24; (1982) 149 CLR 337
[<i>Fitzgerald v Masters</i>] [1956] HCA 53; (1956) 95 CLR 420
[<i>Gardiner v Agricultural and Rural Finance Pty Ltd</i>] [2007] NSWCA 235
[<i>Investors Compensation Scheme Ltd v West Bromwich Building Society</i>] [1997] UKHL 28; [1998] 1 WLR 896
[<i>Maggbury Pty Ltd v Hafele Australia Pty Ltd</i>] [2001] HCA 70; 210 CLR 181
[<i>McCann v Switzerland Insurance Australia Ltd</i>] [2000] HCA 65; 203 CLR 579
[<i>Pacific Carriers Ltd v BNP Paribas</i>] [2004] HCA 35; 218 CLR 451
[<i>Peppers Hotel Management Pty Ltd v Hotel Capital Partners Ltd</i>] [2004] NSWCA 114
[<i>Royal Botanic Gardens and Domain Trust v South Sydney City Council</i>] [2002] HCA 5; 76 ALJR 436
[<i>Ryledar Pty Ltd v Euphoric Pty Ltd</i>] [2007] NSWCA 65
[<i>Wilkie v Gordian Runoff Ltd</i>] [2005] HCA 17; 221 CLR 522

TEXTS CITED:
Lewison, [<i>The Interpretation of Contracts</i>], 3rd ed, (2004) Sweet & Maxwell at s 7.15

DECISION:
(1) Appeal allowed.[<br>][<br>](2) Cross-appeal dismissed.[<br>][<br>](3) Set aside the orders of Einstein J giving judgment in favour of Primus Telecommunications Pty Ltd in the amount of $2,647,832 and ordering that Kooee Communications Pty Ltd pay 75% of the costs of the proceedings in the Equity Division.[<br>][<br>](4) Give judgment for Primus Telecommunications Pty Ltd in an amount of $1,391,040.[<br>][<br>](5) Reserve the question of the costs of the trial and the appeal and direct the parties, if unable to agree as to those costs, to file any material involving offers of compromise and any written submissions on which they wish to rely within 14 days of the date of these orders.



JUDGMENT:

IN THE SUPREME COURT

OF NEW SOUTH WALES

COURT OF APPEAL

CA 40278/07

SC 50004/06

GILES JA

TOBIAS JA

BASTEN JA

12 February 2008

KOOEE COMMUNICATIONS PTY LTD & ANOR v PRIMUS TELECOMMUNICATIONS PTY LTD

Headnote

The First Appellant, Kooee Communications Pty Ltd (“Kooee”) was part of a television broadcasting group. Kooee was owned by the Second Appellant, SP Telemedia Ltd. In 2000, the Appellants decided to establish a new business involving the delivery of internet and telephony services to residential and small business customers. The Appellants entered into an agreement with the Respondent, Primus Telecommunications Pty Ltd (“Primus”). Under the agreement, Primus agreed to provide telecommunications services under Kooee’s name and to pay Kooee 8% of agreed revenue.

In 2005, SP Telemedia agreed to sell its shares in Kooee to another telecommunications provider, B Digital Ltd, which was to provide the telecommunications services previously supplied by Primus. In April 2005, Kooee and Primus executed a separation deed pursuant to which the existing agreement was terminated; arrangements were made for the transfer of Kooee customers from Primus to B Digital and outstanding financial arrangements between Kooee and Primus were sought to be resolved. The separation deed effectively provided that Kooee would be entitled to collect and retain outstanding debts, in return for a lump sum payment to Primus. The present appeal concerned disputes as to the basis upon which various payments under the separation deed were to be calculated.

Primus commenced proceedings against Kooee and SP Telemedia in the Equity Division. The matter was heard before Einstein J, who delivered the principal judgment in February 2007, followed by two subsequent judgments on questions of set off, interest on outstanding payment obligations and costs.

The present appeal was brought by Kooee in relation to the calculation of the amount due to Primus for outstanding debts. Primus cross-appealed in relation to the period for which interest should run on payments to be made by one party to the other under the separation deed. Primus also sought to appeal against the costs order made by Einstein J.

The issues for determination on appeal were:

(i) Whether the trial judge erred in rejecting the construction of the “net debtors” provision proposed by Kooee.

(ii) Whether the trial judge erred in admitting and relying upon extrinsic evidence in constructing the contract.

(iii) Whether Primus was entitled to interest on “collections”.

(iv) Whether Primus was entitled to interest on “migration costs”.

(v) Whether Primus was entitled to interest on “revenue share”.

The Court held, allowing the appeal and dismissing the cross-appeal:

In relation to (i)

(per Giles JA)

1. Net debtors was but one element in the bargain between the parties recorded in the separation deed. It was not demonstrated that in the overall bargain between the parties deduction from the debts of those in respect of which Primus had made provision, as distinct from deduction of the amount of the provision, was aberrant or uncommercial: [2].

(per Basten JA, Giles and Tobias JJA agreeing)

2. Considerations of business commonsense do not permit a court to disregard clear words or to rewrite contractual provisions to accord with “commercial reality”: [27], [38].

Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70; 210 CLR 181; Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; 218 CLR 451, applied.

Fitzgerald v Masters [1956] HCA 53; (1956) 95 CLR 420; Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191, considered.

3. The trial judge erred in holding that an ordinary construction of the language used in the deed presented a “strong aura of commercial unreality”: [34]. The words in the deed relating to the calculation of the amount payable for net debtors were clear and should not be reformulated by the Court: [38].

In relation to (ii)

4. How far evidence may be admissible to prove the factual matrix within which a contract has been agreed may depend upon the extent to which the words of the written document are seen to be ambiguous or unclear. Extrinsic material may be admitted to prove objective surrounding circumstances but not subjective intention: [52].

Codelfa Constructions Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337; Peppers Hotel Management Pty Ltd v Hotel Capital Partners Ltd [2004] NSWCA 114, applied.

Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65, referred to.

5. The existence of Primus’ bad debt policy was a background fact which was admissible. The use of that policy as a means of calculating the amount of net debtors for the purposes of the payment due from Kooee to Primus fell within the category of statements and actions of the parties which was not admissible: [53].

In relation to (iii)

(per Giles JA, Tobias and Basten JJA agreeing)

6. Where the net debtors amount was payable by Kooee to Primus and the collections amount was to become payable a week or so after payment of the net debtors amount, there is a compelling case for exercising the discretion so as to include in Primus’ judgment interest on the net debtors amount less the collections amount. Thus, the calculation of interest on collections was properly resolved in the exercise of the discretion to award interest, without the need to rely upon equitable set off: [7].

(per Basten JA, Tobias JA agreeing)

7. The obligation of Kooee to make payment from 20 January 2006, combined with its failure to do so, was conceded as carrying interest from that date. The payment over of collections, which was also not made, was accepted as a set off against the payment due to Primus. Interest was conceded as being payable on the balance from the date when the notional set off occurred: [64].

(per Basten JA, Giles and Tobias JJA agreeing)

In relation to (iv)

8. Primus did not satisfy the Court that it had complied with its obligation to provide satisfactory evidence of its migration costs. Accordingly, it did not properly trigger an obligation on Kooee to reimburse it for those expenses and is not entitled to interest on the agreed amount for migration costs: [70].

In relation to (v)

9. The amount of revenue share payable by Primus to Kooee was known to Primus, in accordance with the contract. If it failed to pay that amount, interest was properly payable from the date on which it was due: [73].

IN THE SUPREME COURT

OF NEW SOUTH WALES

COURT OF APPEAL

CA 40278/07

SC 50004/06

GILES JA

TOBIAS JA

BASTEN JA

12 February 2008

KOOEE COMMUNICATIONS PTY LTD & ANOR v PRIMUS TELECOMMUNICATIONS PTY LTD

Judgment

1 GILES JA: I have had the advantage of reading the reasons of Basten JA in draft. I agree that Kooee’s appeal should be allowed and that Primus’ cross-appeal should be dismissed, and that the substituted judgment for Primus against Kooee should on the figures provided by the parties be $1,361,040. The challenge to the costs judgment must fail.

2 With the following additional remarks, I agree with his Honour’s reasons for allowing Kooee’s appeal. An additional difficulty in the trial judge’s view that deduction from the debts of those in respect of which Primus had made provision “would effectively mean that very large sums were simply being in effect being given away” is that Net Debtors was but one element in the bargain between the parties recorded in the separation deed. Kooee was entitled under cl 2.1 to collect and retain debts, but some of the debts would undoubtedly prove to be irrecoverable and the short-fall in recovery may or may not have reflected provision in accordance with Primus’ bad and doubtful debt policy. The payment by Kooee to Primus for which cl 2.3 provided was to be calculated by regard to both Net Debtors and Unbilled Revenue, as to each with an inbuilt discount in the respective 90 per cent and 83.92 per cent proportions and an overall discount in that the payment was to be of one half of the calculated amount. The payment for the debts was itself part of a greater bargain by which Kooee and Primus went their separate ways. It is not correct to isolate from this bargain the amount for Net Debtors and treat payment pursuant to cl 2.3 as giving away some part of a true value of the debts. It is not self-evident, and was not shown by evidence, that in the overall bargain between the parties deduction from the debts of those in respect of which Primus had made provision, as distinct from deduction of the amount of the provision, was aberrant or uncommercial.

3 I agree with his Honour’s reasons in relation to interest on migration costs and interest on revenue share. The position as to interest on collections is in my view as follows.

4 An amount would become payable by Kooee to Primus pursuant to cl 2.3 (inaccurately, “the net debtors amount”). An amount would become payable by Primus to Kooee pursuant to cl 2.5 (the collections amount). In accordance with cl 2.5, the collections amount would not become payable until the last day of the week following the second payment by Kooee pursuant to cl 2.3. The second payment had not been made when the trial judge heard the proceedings, initially because Primus delayed in issuing the notice pursuant to cl 2.2 but more fundamentally because the parties were in dispute.

5 The trial judge allowed interest on the full net debtors amount from 20 January 2006 (although taking 1 January 2006 for ease of calculation), finding that that was the date on which appropriate notice was given pursuant to cl 2.2. Kooee accepted that the trial judge was in error in allowing interest on the collections amount from an averaged date on which the collections were received by Primus, 1 July 2005, because the collections amount had not then become payable. It said that the interest should run from 3 February 2006, the last day of the week following 20 January 2006, and that this would be given effect by taking up the trial judge’s determination that the collections amount should be set off in equity against the net debtors amount and calculating interest on the net figure (net debtor’s amount less collections amount) rather than on the full net debtors amount. Primus responded that an equitable set-off precluded it from proceeding to judgment on its claim without recognising and setting off the counter-claim but did not enhance payability of the collections amount, and that because the collections amount did not become payable until after Kooee had paid the net debtors amount interest did not run on the collections amount and should be calculated on the full net debtors amount.

6 Primus’ position may have involved a challenge to the trial judge’s finding of an equitable set-off, although neither a notice of contention nor a cross-appeal raised that matter. The submissions did not explore whether there could be an equitable set-off although the collections amount had not become payable.

7 Acceptance that the trial judge was in error in allowing interest on the collections amount from 1 July 2005 throws interest open for reconsideration. In my opinion, the position between the parties is properly resolved in the exercise of the discretion to award interest, without the need to rely upon equitable set-off, and I would prefer not to enter upon that matter. Where the net debtors amount is payable by Kooee to Primus and the collections amount will become payable a week or so after payment of the net debtors amount, there is a compelling case for exercising the discretion so as to include in Primus’ judgment interest on the net debtors amount less the collections amount. The reality is that the net figure will pass from Kooee to Primus, and that Kooee will have had the use of the net debtors amount from the time when it should have been paid and Primus will have had the use of the collections amount from a week or so after the time the net Debtor’s amount should have been paid.

8 I agree with the orders proposed by Basten JA.

9 TOBIAS JA: I have had the benefit of reading in draft the judgments of Giles JA and Basten JA. I agree with the reasons of Basten JA and with the additional remarks of Giles JA for allowing Kooee’s appeal and dismissing Primus’ cross-appeal. I also agree with the reasons of Basten JA in rejecting the challenge to the primary judge’s costs judgment and on the issues relating to interest on migration costs and revenue share.

10 As to the issue of interest on collections, Giles JA has adopted an approach which differs from that of Basten JA although the latter has agreed with that approach on the assumption that the points addressed by Giles JA in [4] to [7] of his judgment had been pressed on the appeal. As the adoption of either approach leads to the same result, I do not find it necessary to choose between them to the extent, if at all, to which they may be in conflict. Like Giles JA I therefore agree with the orders proposed by Basten JA.

11 BASTEN JA: Kooee Communications Pty Ltd (“Kooee”), previously known as Newcastle Broadcasting and Television Corporation Pty Ltd, was part of a television broadcasting group with a footprint covering northern New South Wales, from Gosford to the Gold Coast in Queensland. Kooee was owned by the Second Appellant, SP Telemedia Ltd.

12 In early 2000, the Appellants decided to establish a new business involving the delivery of internet and telephony services to residential and small business consumers. To do so, Kooee entered into a contractual arrangement with an existing telecommunication service provider, namely the Respondent, Primus Telecommunications Pty Ltd (“Primus”). The agreement, completed in July 2000, was known as the Virtual Service Provider Agreement. In short, Primus provided the telecommunications services, including billing and collection services, under Kooee’s name. Primus paid Kooee 8% of agreed revenue. At some stage a difference arose between the parties as to whether Primus was to pay on a percentage of billings or of collections, in effect a dispute as to whether Kooee was to bear directly any part of the cost of bad debts.

13 In 2005, SP Telemedia Ltd appears to have agreed to sell the shares in its subsidiary Kooee to another telecommunications service provider, B Digital Ltd, which was to provide the relevant telecommunications services previously supplied by Primus. In April 2005 Kooee and Primus executed a separation deed pursuant to which the existing agreement was terminated, arrangements were made to transfer Kooee customers from Primus to B Digital and outstanding financial arrangements between Kooee and Primus were sought to be resolved. The present proceedings arise out of disputes in relation to the financial arrangements under the separation deed.

14 The appeal is brought from a series of judgments given by Einstein J in the Equity Division, the first and principal judgment being Primus Telecommunications Pty Ltd v Kooee Communications Pty Ltd [2007] NSWSC 91, delivered on 16 February 2007. Two subsequent judgments dealt with questions of set off between the parties, interest on the outstanding payment obligations and costs: see [2007] NSWSC 374 and [2007] NSWSC 444. Not all of the issues litigated before Einstein J remain in contention. The most important dispute (in monetary terms) arises from the arrangements with respect to outstanding revenue. The effect of the separation deed in this regard was that, in return for a lump sum payment to Primus, Kooee would obtain the entitlement to collect and retain outstanding debts. The dispute concerned the basis upon which the payment to be made by Kooee was to be calculated. That matter was the subject of Kooee’s appeal.

15 Three subsidiary issues arose on the cross-appeal by Primus. Each concerned the period for which interest should run on payments to be made by one party or the other under the separation deed. Primus also sought to appeal against his Honour’s costs order.

Recovery of debts

16 To identify the primary issue in dispute, it is necessary to refer to the critical parts of the separation deed.

17 The right of Kooee to collect and retain the proceeds of outstanding debts and its obligation to pay Primus a sum for those debts derives from cl 2 of the separation deed, the relevant parts of which provide:

“2 Payment of debts and Unbilled Revenue

2.1 Subject to sub-clause 2.3 below, from Termination Time, Kooee (and not Primus) will collect and may retain the proceeds of all Debts and Primus agrees and acknowledges that neither it nor its Associates is entitled to all or any part of the Debts or any amount in respect of the Debts, other than as set out in this Deed.

2.2 Primus will, on or before 7 clear Business Days after Termination Time to the extent that such details are then known to Primus advise Kooee of the Net Debtors and Unbilled Revenue and must supply the information in Schedule 1 in respect of any such amounts.

2.3 Kooee must pay to Primus one-half of the amount equivalent to the Net Debtors and Unbilled Revenue as stated in the notice issued pursuant to clause 2.2 within three Business Days of receipt of such notice. Kooee must pay the remaining amount equivalent to one-half of the Net Debtors and Unbilled Revenue as stated in the notice issued pursuant to clause 2.2 within 30 Business Days of receipt of such notice.”

18 Questions of “Unbilled Revenue” can be put to one side for present purposes, but it is convenient to note the definition contained in cl 1.1.

“Unbilled Revenue means 90% of the amount of any charges that, but for this Agreement, [Primus] could be entitled to bill or could have been entitled to bill to Customers after Termination Time for Primus Services in accordance with the provisions of the VSPA whether provided before or after Termination Time.”

19 The calculation of the payment to be made by Kooee under cl 2.3 depends upon the meaning of “Net Debtors” and terms included in that definition. The terms are defined in cl 1.1 as follows:

“Net Debtors means an amount equivalent to the Debtors Amount multiplied by 83.92% plus all GST paid by Primus in relation to the Debts.”

“Debtors Amount means an amount equivalent to all Debts recorded in Primus’ books of account at the Termination Time less any of those Debts in respect of which Primus has made provision in accordance with its usual bad and doubtful debt policy in respect of Customer Debts as at the Termination Time.”

“Debts means the amounts properly owed by Customers to Primus in respect of charges for Primus Services to Customers.”

20 It is the definition of “Debtors Amount” which is said to include ambiguity in respect of the amount to be deducted from the debts recorded in the books. In terms, the deduction (“less any of those Debts”) is the amount of the debts identified as those in respect of which Primus has made provision, as described. The alternative reading is to deduct the provision which has been made, rather than the whole of the debts in respect of which provision has been made. In accordance with usual commercial practice, provision depends upon the period for which debts were outstanding. Schedule 1 to the separation deed required that information be provided by Primus for the purposes of transferring customers to B Digital, which included an item under the heading “Finance” identified as follows:

“Debtors Ledger with aged debtor breakdown as to current, 30 days, 60 days, 90 days and more than 90 days.”

21 The term “Debts” was taken to mean amounts for which customers had been invoiced at termination time. The “bad and doubtful debt policy” did not apply with respect to “current” debts, but required that provision be made at 30, 60 and 90 days. Debts which had been outstanding for one year were to be written off. As may readily be appreciated, if a debt was removed from the payment calculation immediately some provision was made in relation to it in accordance with Primus’ usual bad and doubtful debt policy, the payment due from Kooee to Primus would be reduced by a greater amount than if the reduction was limited to the amount of the provision. Unsurprisingly, Kooee contended that the natural meaning of the separation deed was that the full amounts of any debts were to be deducted from the amount payable to Primus if the debts became subject to provision; Primus, on the other hand, argued that that was a commercially unrealistic approach and that the deed should be understood as providing that a deduction should be made in respect of debts the subject of its bad debt policy in an amount equivalent to the provision made in its books.

22 The primary judge accepted the submissions of Primus, with the result that the payment required from Kooee was in excess of $1 million higher than it would otherwise have been.

23 So far as the language of the definition of “Debtor’s Amount” is concerned, Kooee’s contention is clearly correct. From the total number of debts recorded in Primus’ books of account, at the specified time, there is to be deducted “any of those Debts” in respect of which Primus has made (at the specified time) provision in accordance with its bad and doubtful debt policy. For Primus’ contention to be accepted, the deduction should have been expressed as all debts “less any provision made by Primus in respect of any of those Debts in accordance with its usual bad and doubtful debt policy”. However, that language was not used and no application for rectification has been made on the basis that the common intention was that such language should have been used. Rather, it was contended by Primus that the contrary language should impliedly be adopted because it accords with commercial reality and because the ordinary meaning gives rise to a result which “flouts business commonsense”.

24 That argument seeks to transpose the commercial reality that provision should be made in books of account for outstanding debts, as they age, to the basis of calculation of the price paid for a portfolio of book debts. How purchasers of a portfolio of book debts may value them was not a matter which was the subject of evidence with respect to any commercial practice. The purchaser might consider the history of collections, whether the debtors were on-going customers and whether it had the same likelihood of recovering aging debts as did the service provider which had incurred them. Prior to the separation, Kooee either had received, or would receive, 8% of the debts. It was therefore purchasing the balance, but taking responsibility for the cost of recovering the debts. Further, it was common ground that part of the contextual background to the separation deed was a history of disputation as to who should bear the risk of bad debts. It was at least possible that Kooee was prepared to pay less for the debts than their value in the books of Primus because it wished to recover part of amounts it had paid to Primus in the past as a percentage of billings rather than collections.

25 The purpose of identifying these considerations is not to suggest that any of them in fact arose in the present case, but rather to explain the reason why the sale price of the book debts may have been at variance to the value recorded by Primus in its books of account. In other words, what might be accepted as commercial reality in relation to accounting practices in an on-going business would not necessarily constitute commercial reality in relation to the calculation of the value of book debts by a purchaser.

26 The trial judge thought that the construction proposed by Kooee presented “a strong aura of commercial unreality”: [2007] NSWSC 91 at [27]. That was because it involved Primus selling that class of debts for which provision had been made “without payment at all”. That involved the “somewhat startling commercial outcome which would effectively mean that very large sums were simply being in effect given away”.

27 In support of that approach, his Honour referred to the principle articulated by Lord Diplock in Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191 at 201 to the effect that “if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense”. Although this principle has often been repeated, it should not be seen as permission for judicial rewriting of contractual provisions to accord with the result said by one party to accord with “commercial reality”, namely its financial interests. Thus, in restating Lord Diplock’s principle, the joint judgment in Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70; 210 CLR 181 at [43] (Gleeson CJ, Gummow and Hayne JJ) remarked:

“Of course, what in respect of a particular contract comprises ‘business commonsense’, as an apparently objectively ascertained matter, may itself be a topic upon which minds may differ and in respect of which an imputed consensus is impossible.”

Their Honours continued:

“Here the difficulty arises not from the need for detailed semantic and syntactical analysis of the language used in the agreements, but from the use therein of simple terms such as ‘at any time hereafter’ and ‘forever’.”

28 Their Honours approached the resolution of the difficulty not by applying a test of “business commonsense” but by asking whether “something must have gone wrong with the language”, adopting a passage from Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society [1997] UKHL 28; [1998] 1 WLR 896 at 913. This approach has echoes of that adopted in Fitzgerald v Masters [1956] HCA 53; (1956) 95 CLR 420. The parties had apparently agreed upon the significant terms for the sale of a farming property and had signed a written agreement containing the terms. However, clause 8 added that certain “usual conditions of sale” should “so far as they are inconsistent herewith be deemed to be embodied herein”. As explained by Dixon CJ and Fullagar J (at pp 426-427):

“There is a superficial difficulty in cl 8, because it purports to incorporate a set of conditions so far as they are inconsistent with what has been specifically agreed upon. No real difficulty, however, is created. Words may generally be supplied, omitted or corrected, in an instrument, where it is clearly necessary in order to avoid absurdity or inconsistency. Here it would be indeed absurd to suppose that the parties, having expressed their agreement on a number of special and essential matters, should intend to incorporate by reference terms inconsistent with what they had specially agreed upon. What they must clearly have intended is to incorporate a set of general conditions except so far as they were inconsistent with what they had specially agreed upon, and cl 8 must be read as if it said ‘consistent’ or ‘not inconsistent’.”

29 The other members of the Court (McTiernan, Webb and Taylor JJ) reached a similar conclusion on the basis that “the intention of the parties is to be ascertained from the instrument as a whole and that this intention when ascertained will govern its construction”: p 437. By that method, “inconsistencies of expression may be reconciled and it is in this natural and commonsense approach to problems of construction that justification is to be found for the rejection of repugnant words, the transposition of words and the supplying of omitted words (c.f. Norton on Deeds, 2nd ed 1928, p 91).”

30 It may also be accepted that “[i]nterpreting a commercial document requires attention to the language used by the parties, the commercial circumstances which the document addresses, and the objects which it is intended to secure”: see McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; 203 CLR 579 at [22] (Gleeson CJ), quoted with approval in Wilkie v Gordian Runoff Ltd [2005] HCA 17; 221 CLR 522 at [15] (Gleeson CJ, McHugh, Gummow and Kirby JJ). The requirement that the construction of a written agreement is to be undertaken by reference to the understanding of a reasonable person in the position of the parties may be seen as another way of excluding as irrelevant evidence of the subjective intention of the parties, to the extent that it is not revealed in the language of the agreement. However, that gives rise to a question as to what information the reasonable person in the position of the party would have available. As explained in Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; 218 CLR 451 at [22]:

“That requires consideration, not only of the text of the documents, but also the surrounding circumstances known to [the parties], and the purpose and object of the transaction. In Codelfa Constructions Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337 at 350, Mason J set out with evident approval the statement by Lord Wilberforce in Reardon Smith Line Ltd v Hansen-Tangen [1976] 1 WLR 989 at 995-996:

‘In a commercial contract it is certainly right that the court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating.’”

31 These principles were affirmed in Royal Botanic Gardens and Domain Trust v South Sydney City Council [2002] HCA 5; 76 ALJR 436 at [9]- [11]; see also Gardiner v Agricultural and Rural Finance Pty Ltd [2007] NSWCA 235 at [7]- [13] (Spigelman CJ).

32 For present purposes, there were a number of factors which were relevant, though hardly decisive of the approach to be taken to the present issue. First, the contract as a whole involved the sale of a business: it had no operation beyond the immediate interests of the parties. In this respect, it did not call for any broader considerations of the kind which might affect standard form contracts of insurance widely used, both nationally and internationally: c.f. Wilkie v Gordian Runoff at [46]. Secondly, the contract involved the resolution of on-going disputes between the parties arising out of a pre-existing relationship. What might be seen as a commercially unlikely result in other contexts, might not be so in that context.

33 There was nothing relied on by the trial judge to establish commercial unreality, except the terms of the sale of the portfolio of book debts. Nor, in adopting his “primary route” to the proper construction, did his Honour have regard to any background circumstances or contextual matters.

34 For reasons already given, I am not persuaded that there is in fact a “strong aura of commercial unreality” resulting from an ordinary construction of the language used in the deed. Any such aura results, in my view, from an assumption that the parties had adopted normal accounting practices as the basis for assessing the price to be paid for the sale of one aspect of a business. Including reference to a criterion (usual practice as to provisioning for debts) used in preparing accounts does not mean that the parties necessarily adopted the accounting figures as the basis of their calculation.

35 There are two factors which provide independent support for this conclusion. First, nothing is known about the policy for provisioning in relation to doubtful debts undertaken by Kooee. What was known, and may no doubt properly be regarded as part of the contextual background, was that Primus made provision of 30% of the face value of a debt which had been outstanding for 90 days and further provisioning, totalling 50%, at 180 days. In seeking information about the debtors ledger to be transferred, the contract required a breakdown in relation to debtors which were current, 30 days, 60 days, 90 days and more than 90 days overdue: Schedule 1, item 8. That information would have been for the benefit of Kooee. It may be inferred that Kooee either intended to make some different form of provision for aged and doubtful debts, or otherwise thought that periods short of 90 days needed to be taken into account. The trial judge does not appear to have given this aspect of the contract significant weight, but did conclude “on balance” that it provided “some support” to the construction proposed by Primus. I would not accord it any weight in that regard.

36 Secondly, the deed contained an “entire agreement” provision in c 11.6:

“11.6 This Deed is the entire agreement of the parties with respect to its subject matter and supersedes all prior agreements, understandings and negotiations between the parties on that subject matter.”

37 Broad statements of principle often fail to provide a clear indication of the manner in which they are to be applied. Thus, in Maggbury, the Court was concerned with an agreement which purported to impose a permanent restraint on the use of information which was, at the time it was revealed, confidential, but which was likely to become public in the course of a patent application. As the joint judgment noted, ordinarily such obligations would be construed as limited to the period during which the subject matter retained the quality of confidentiality: at [45]. However, their Honours concluded that forbidding the use of the “Information” “for any purpose” and “at any time” would permit injunctive relief, unlimited in time. Their Honours concluded at [53]:

“It is not fairly open to avoid that result by construing these provisions as having as their subject matter only information which at the time of the alleged breach of covenant retains a confidential character which it had when first disclosed by Maggbury. The emphatic temporal extensions ... are expressions of ‘explicit’ intent and are put in ‘inescapable terms’. Any implied term to other effect would contradict the express terms.”

38 All members of the Court in Maggbury concurred as to the proper construction of the agreement: at [62]-[63] (Kirby J) and at [89] (Callinan J). That approach is entirely consistent with the principle that the Court is not able to disregard clear words, nor under the guise of interpreting the contract to re-write it: see Lewison, The Interpretation of Contracts, 3rd ed, (2004) Sweet & Maxwell at s 7.15, and the authorities there referred to. In my view the words in the deed relating to the calculation of the amount payable for “net debtors” are clear and should not be reformulated by the Court.

Extrinsic material

39 It remains to consider the reliance placed, albeit by way of a secondary route to the question of construction, upon the evidence of Mr Michael Simmons, the chief executive officer of Kooee.

40 There was a dispute as to the admissibility of the material relied upon and a challenge to his Honour’s decision to allow evidence of surrounding circumstances external to the deed for the purpose of construing the deed.

41 Both Mr Simmons and his counterpart in the negotiations, Mr Gerald Miller, general counsel for Primus, prepared affidavits which were read in evidence at the trial. Neither sought to deal with the circumstances surrounding the negotiation of the separation deed, except in the most general terms. However, Primus sought to rely upon documents prepared both before and after the signing of the deed. His Honour rejected the documents prepared after the deed was executed, but admitted material brought into existence prior to the execution of the deed which he held was at some stage between 20 and 27 April 2005.

42 The trial judge admitted and relied upon three items of evidence which he concluded demonstrated that it was “common ground” between the parties at the time of executing the deed, that the point of construction now in dispute was to be resolved in a particular way. The first item of evidence was a file note prepared by Mr Simmons on 7 April 2005, including the note of a telephone conversation with Mr Miller which included the following:

“Usually [sic] bad debt policy – provide 30% of 90-180 days

- 50% of 180 day +

Write offs are made against the provision. Will not refer to w/offs specifically.

...

– $5.6M – debtors

– Prov $1.3M

Net debts of approx $3.69M – at termination time”

43 The second item of evidence involved the cross-examination of Mr Simmons in relation to this document (Tcpt, 02/02/07, p 164(5)-(22)):

“Q. You knew at least by 7 April 2005 about the bad debt provisioning policy of Primus?

A. Yes, this was advised by Gerald on 7 April.

Q. And you had, I suggest, a discussion or several discussions with Mr Miller, and perhaps other Primus people, concerning the price that was to be payable for all the Kooee debtors?

A. Yes.

Q. And that’s discussions in the period up to 27 April?

A. Yes.

Q. And in those discussions the only discussion about price was about paying the face value of the debts, being reduced in the case of those debts against which provision had been made by the amount of the provision?

A. Yes.”

Those answers, originally given on the voir dire, were held to be admissible on the construction issue.

44 The third item of evidence involved a deed of undertaking between SP Telemedia and B Digital. It was not suggested that that document ever came to the attention of Primus, but it was suggested that it demonstrated an understanding of the amount that was to be paid for the book debts in keeping with the construction for which Primus now contends. The key provision presently relied on in the B Digital deed was an agreement by SP Telemedia to pay to Kooee an amount equal to the difference between the amounts payable by Kooee to Primus under cls 2.2 or 2.3 of the separation deed on the assumption that the definition of “net debtors” and “unbilled revenue” had different meanings to those defined in the separation deed. Apart from that payment, the B Digital deed also required that SP Telemedia provide loan funds to Kooee sufficient to allow it to pay Primus the amounts required pursuant to cls 2.2 and 2.3 of the separation deed.

45 Clause 2.2 was not directly relevant, it being a provision requiring Primus to supply information which was to be the basis of a payment, the payment being made pursuant to cl 2.3. Clause 2.3 required Kooee to pay an amount equivalent to the “net debtors and unbilled revenue”. The amount of unbilled revenue was defined as 90% of charges which could have been billed, but for the separation deed. Under the B Digital deed, the alternative definition was an amount equal to 83.92% of 90% of the amount of such charges. The variation in respect of net debtors is more complex. It will be recalled that net debtors was defined in the separation deed as an amount equivalent to 83.92% of the debtors amount, plus GST paid by Primus in relation to the debts. In the B Digital deed, net debtors was defined to mean “an amount equal to 83.92% of 90% of all 60 day old debts plus 50% of all debts over 60 days old recorded in the Primus books of account at termination time”. The effect of the variation is hard to determine. The debtors amount was defined to mean all debts recorded in Primus’ books (less the provisioned debts), and accordingly to the extent that the same debts were involved, the B Digital deed would achieve a lower figure because it did not refer to any debts less than 60 days old. In these circumstances the Court cannot be satisfied that, as stated in a memorandum from Ms Sharon Maguire of 27 April 2005, debts less than 60 days old totalled $2.9 million out of a total of $6.2 million. The figures provided by Primus indicated that the 60 day old debts totalled $246,882 and the debts which were 90 days or over totalled approximately $3 million. Applying the new definition of “net debtors” – 90% of the 60 days debts plus 50% of the debts over 60 days – would give a total of approximately $1.72 million.

46 The import of this material is somewhat obscure. According to Primus, the inferences which should be drawn are that B Digital was concerned that Kooee was paying a higher price for net debtors than the amount it would be able to collect. Accordingly, it wished the vendor of Kooee, SP Telemedia, to pay to it (B Digital) an amount equal to the difference between the anticipated recovery and the payment to Primus. This purpose would only be explicable if Kooee, B Digital and SP Telemedia understood that Kooee would be paying an amount which was 100% of all debts for which no provisioning had been made and an amount for other debts equal to the face value of the debt, less the provision made by Primus in its books of account.

47 There are a number of problems with this argument. The first was that there was no evidence to which this Court was taken to suggest that Primus was aware of the proposed payment by SP Telemedia to B Digital, or its basis, prior to executing the separation deed. Secondly, it is necessary to rewrite the deed between B Digital and SP Telemedia so that it refers, in place of “90% of all 60 day old debts”, to 90% of all debts up to and including 60 day old debts. Thirdly, that calculation bore no relationship to the provisioning made by Primus as recorded in the file note of 7 April prepared by Mr Simmons.

48 There was one further piece of evidence to which this Court was taken, although it was not relied upon expressly by the trial judge. It was a calculation sheet undertaken by Mr Simmons in March or April 2005: Tcpt, 02/02/07, p 170G-171H. That document set out a calculation (not using the figures referred to above, but similar figures) of the likely difference between the calculation required under the B Digital deed (subject to the variation in terminology noted above) and the payment to be made to Primus. Dealing only with the payment to be made to Primus, Mr Simmons took the “total Primus debtors transferred”, namely, $6.2 million and the estimated net debtors payment to Primus as $4 million. What is not clear is how the $4 million figure was arrived at. Nor was Mr Simmons asked to explain the calculation. The third item relied upon by the trial judge, namely the calculations undertaken for the purpose of an indemnity arrangement between B Digital and SP Telemedia should be disregarded.

49 So far as the file note of 7 April and the cross-examination of Mr Simmons are concerned, they established that, in the course of negotiations, Mr Simmons was advised by Mr Miller of Primus’ bad debt policy and advised of the provision currently made for bad debts. He noted a figure for “net debts” which might have been approximately equivalent to the calculation of net debtors under the separation deed, taking into account GST. However, this is a matter of speculation. That was not put to him in terms, nor was he asked whether there was a draft separation deed available to him at that time, nor whether he was basing his calculations upon it. He was not asked if the figure which he arrived at was what he believed to be the figure payable under the separation deed for net debtors. The question might well have been inadmissible, but it demonstrates the difficulty in dealing with pieces of paper created during negotiations, the import of which is left to inference.

50 Reliance should not have been placed on this material. At its highest, the evidence demonstrates, legitimately, that Primus had a bad debts policy which allowed for provisioning. So far as the evidence revealed, what was known to Kooee prior to execution of the separation deed was that provisioning commenced at 90 days and was increased at 180 days. The figures available to Kooee pursuant to the contract did not require a breakdown of debtors to indicate those at 180 days. Without that information, Kooee would have been unable to check the calculations for net debtors, in accordance with the construction proposed by Primus.

51 This was not a case in which rectification of the contract was sought by Primus: had it been, Primus would have needed to establish a common intention as to the manner in which the amount for net debtors was to be calculated. Because such relief is equitable in nature, it may be legitimate in such circumstances to look at the subjective intentions of the parties: see Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65 at [176]- [187] (Tobias JA, Mason P agreeing) and [258]-[316] (Campbell JA, Mason P and Tobias JA agreeing). It is not necessary in the present context to consider what evidence might be appropriate in the present case, had rectification been sought.

52 How far evidence may be admissible to prove the “factual matrix” within which a contract is agreed involves a different question which may, in practice if not in theory, depend upon the extent to which the words of the written document are seen to be ambiguous or unclear. There is, in any event, a difference between surrounding circumstances and matters of subjective intention. As explained by Mason J in Codelfa Constructions Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337, at p 352:

“It is here that a difficulty arises with respect to the evidence of prior negotiations. Obviously the prior negotiations will tend to establish objective background facts which were known to both parties and the subject matter of the contract. To the extent to which they have this tendency they are admissible. But in so far as they consist of statements and actions of the parties which are reflective of their actual intentions and expectations they are not receivable. The point is that such statements and actions reveal the terms of the contract which the parties intended or hoped to make. They are superseded by, and merged in, the contract itself. The object of the parol evidence rule is to exclude them, the prior oral agreement of the parties being inadmissible in aid of construction, though admissible in an action for rectification.”

53 The existence of Primus’ bad debt policy was a background fact which was undoubtedly admissible. However, the use of that policy as a means of calculating the amount of net debtors for the purposes of the payment due from Kooee to Primus fell within the category of statements and actions of the parties which was not admissible.

54 The construction proposed by Kooee was correct and should have been applied in the calculation of amounts due under the contract. As expressed by McColl JA in Peppers Hotel Management Pty Ltd v Hotel Capital Partners Ltd [2004] NSWCA 114 at [69]:

“If the words used [in a written contract] are unambiguous the court must give effect to them, notwithstanding that the result may appear capricious or unreasonable, and notwithstanding that it may be guessed or suspected that the parties intended something different. The court has no power to remake or amend a contract for the purpose of avoiding a result which is considered inconvenient or unjust.”

55 Although it cannot be decisive of the approach to construction required of the Court, it is relevant that the contract, by agreement between the parties, included an “entire agreement” clause, being cl 11.6: see [36] above.

56 The construction proposed by Primus, and accepted by the trial judge, should be rejected. Kooee’s appeal in this respect should be allowed. Kooee abandoned its appeal with respect to the interest on unbilled revenue.

Primus cross-claim: interest on collections

57 Although Kooee was required to make the payments discussed above under cl 2.3 in relation to net debtors and unbilled revenue, and was entitled to collect and retain, from termination time, the proceeds of all debts, the parties anticipated that amounts would continue to be paid by customers to Primus after termination time. Pursuant to cl 2.5, Primus was required to account to Kooee for these amounts.

58 It will be recalled that Kooee was to make payments in two tranches. The date of each payment depended upon the date on which Primus advised Kooee of the amounts of the net debtors and unbilled revenue, and supplied the information required by schedule 1 of the separation deed in respect of those amounts. Kooee’s first payment, of 50% of the amount, was required to be made within three business days of the receipt of the notice from Primus. The second payment was to be made within 30 business days of receipt of the notice. Clause 2.5 provided:

“2.5 Subject to Kooee complying with its obligations under sub-clauses 2.3 and 2.4 above any amount paid by a Customer to Primus or any Associate of Primus on or after Termination Time must be paid by Primus to Kooee on the last day of the week following after the second payment by Kooee under sub-clause 2.3 and each subsequent week and, regardless of when any payments are made by Primus under this clause 2.5, if any amount is received by Primus in respect of any Debt, Primus must give Kooee sufficient information for Kooee to identify each Debt and the amount of such Debt in respect of which such payments were made.”

59 The scheme of cl 2.3 was that Kooee would make a payment calculated by reference to amounts set out in the notice received from Primus, which was intended to occur not later than seven clear business days after 20 May 2005, being the definition of “Termination Time”. What was assumed by cl 2.4 was that Primus would discover further amounts which had not been included in the first notice and might, within 180 days of termination time, issue further notices to Kooee, triggering an entitlement to further payments. What in fact happened was that Primus made claims for amounts in excess of the amounts properly owing. The correct figure, namely $4,400,724, based on Primus’ construction of the contract, was not conveyed to Kooee until 20 January 2006. Indeed, on the basis of the construction proposed by Kooee and accepted above, the correct amount was considerably less than that. The difficulty to which these circumstances gave rise was that Primus had had the benefit of moneys received by way of collections for a lengthy period, without the contractual obligation to pay the moneys over having accrued, as a result of its own default.

60 The amount of the collections received by Primus was $2,365,218.75. The bulk of that money was received in the month of June with tapering payments being received thereafter until 30 November 2005. By way of an approximate calculation, his Honour was prepared to accept that Primus had had the benefit of the whole of the moneys from 1 July 2005 and that interest was to be calculated from that date.

61 In the course of the appeal, Kooee conceded that, even if it were successful in relation to net debtors, it should pay interest on the full amount from 20 January 2006 until 3 February 2006 and from then on the amount payable for net debtors less collections, to the date of judgment below.

62 Primus’ position was that until there had been a proper calculation of the amount of net debtors, and the final payment was made, it was not obliged to pay interest on collections because the obligation to hand over the collections had not arisen. The issue thus turned in effect on whether Primus could rely upon its own failure to provide an accurate statement of net debtors as a basis for retaining moneys collected by it for the whole of the period from 1 July 2005 to the date of judgment.

63 Whether there is any longer an issue in dispute between the parties is unclear. Primus stated in its written submissions:

“His Honour’s finding [in [2007] NSWSC 374 at [15]], that Collections should be taken into account by way of equitable set-off against Net Debtors owed by Kooee is not challenged in this cross-appeal. However, there remained no basis, even after that finding, for ordering interest to be paid on the set-off sum from an earlier date, (1 July 2005), than for the primary sum, (1 January 2006).

Interest on Net Debtors was found by the trial judge to not commence to accrue until the proper form of notice was provided by Primus to Kooee, as that is when the obligation to pay arose. The position with respect to Collections cannot have been different.”

64 The position adopted by Kooee was that interest on net debtors accrued from 20 January 2006, accepting in effect that the notice given on that date was effective, with the result that collections should have been paid on 3 February 2006. In substance that reflected the expectation under cl 2.5 that the collections would be paid over by Primus on the last day of the week following the second payment by Kooee. The obligation of Kooee to make payment from 20 January 2006, combined with its failure to do so, was conceded as carrying interest from that date. By the same reasoning, the payment over of collections, which was also not made, was accepted as a set off against the payment due to Primus. Interest was then conceded as being payable on the balance from the date when the notional set off occurred. This result is beneficial to Primus, as compared with the order made by the trial judge in respect of interest on collections and appears to treat equitably the respective interests of Kooee and Primus on their outstanding obligations. (The alternative approach would involve a conclusion, consistently with the approach adopted by the trial judge which is not challenged, that Primus has not yet provided advice in the form of a notice which would trigger the obligation of Kooee to make payment of net debtors and accordingly would not be entitled to interest on net debtors.)

65 If the points addressed by Giles JA at [4]-[7] were pressed on the appeal, I agree with his Honour’s reasons for disposing of them.

Interest on migration costs

66 Pursuant to cl 6 of the agreement, Kooee was obliged to pay to Primus costs involved in the transfer of Kooee customers to Kooee, or a telecommunications service provider identified by it. These have been described as “migration costs”. Kooee’s obligations in that regard were to pay Primus “within 10 business days of Primus giving Kooee satisfactory evidence of such expenses”: cl 6.1. According to the trial judge in [2007] NSWSC 374 at [35]:

“Up until the commencement of the hearing, Primus claimed the sum of $752,588.61. On the eve of the trial, the parties agreed that quantum of Primus’ costs was $300,000.”

67 Kooee’s obligation to pay the amount depended upon receipt of “satisfactory evidence of such expenses”: his Honour concluded that repeated claims for an amount exceeding $700,000 did not constitute satisfactory evidence of a claim for an amount of $300,000. Primus sought to argue before his Honour a contention repeated in this Court in the following terms:

“[Primus] submits that the fact that the amount claimed was compromised ought not lead to the result that interest only commences to run from the date of that agreement. Rather, prima facie the reduced agreed sum should be assumed to have always been payable and attracting interest. Evidence of these costs was provided by Primus to Kooee pursuant to clause 6.1 on 8 November 2005. That evidence should now be assumed satisfactory to the extent of the agreed sum, and that date should be the date to trigger interest.”

68 The parties have agreed, since the argument on the appeal, that the amount at stake in this regard is $32,153. The fact that the parties have agreed the amount payable but not whether interest should be payable thereon prior to the date of their agreement is surprising. However, it is not suggested that the agreement went so far as to conclude that the amount had been payable from any particular date prior to the date of the agreement. Accordingly, the parties have in effect required this Court to determine whether Kooee’s obligation to make that payment arose prior to the agreement as to its amount.

69 The only basis upon which an earlier entitlement was said to arise was the proposition that within material supplied to Kooee apparently on or about 18 November 2005, there were receipts or other materials to support costs totalling $300,000 (and, presumably, to support costs totalling a further $450,000). Whether or not that is so, is a matter of which this Court cannot be satisfied. It was not taken to any of the material. Primus merely referred to one page of an email, which does not obviously contain any evidence sufficient to satisfy either Kooee or the Court.

70 Even if material constituting satisfactory evidence for expenses totalling $300,000 had been supplied, as part of a much larger bundle, it would not seem sufficient to satisfy the contractual obligation. It was a matter for Primus to identify the relevant material, not to provide Kooee with a bundle of materials which purported to justify an amount far in excess of that ultimately agreed, thus giving Kooee the opportunity to consider whether some or all of the materials constituted satisfactory evidence. The obligation to discriminate was imposed by the contract on Primus. It has not satisfied this Court that it complied with that obligation. Accordingly, although it incurred the expenses in 2005, it did not properly trigger Kooee’s obligation to reimburse it for those expenses and thus is not entitled to interest on the agreed amount.

Interest on revenue share

71 In his first judgment of 16 February 2007, the trial judge identified, as a matter of agreement reached between the parties in the course of hearing, an amount payable by Primus to Kooee under the original service agreement, as a share of revenue, of a little in excess of $1.2 million. In the second judgment, his Honour noted that a claim by Kooee for $933,447.72 had been agreed. At [4], his Honour noted that the only outstanding issue in respect of “revenue share” was whether it could be set off against any amount payable to Primus and whether interest should run and if so, from what date. (The difference between the amount originally agreed and that referred to in the second judgment resulted from a part payment by Primus: at [24].) His Honour held that the amount owing should have been paid to Kooee one month after collection and that, averaging the two months over which the amounts were received by Primus, it had effectively had the benefit of those moneys from 1 May 2005. His Honour held that interest should be payable on the revenue share from that date.

72 According to a document provided after the hearing of the appeal, the parties agreed that the amount otherwise payable would increase by $146,308 if Primus succeeded in its argument that interest on revenue share should be allowed only from 25 January 2007, that being the date at which the component of revenue share became subject to agreement as to quantum.

73 The basis for Primus’ argument in this respect is obscure. Its obligation to pay the revenue share was not dependent upon Kooee providing relevant information, as was Kooee’s obligation, said to be analogous, in relation to payment of migration costs. Primus knew what the amount of the revenue was and should, in accordance with the contract, have known what share was payable to Kooee. If it failed to pay that amount, interest was properly payable from the date on which it was due, Primus having had the benefit of the money in the meantime. The cross-appeal in that respect should be rejected.

Conclusions

74 It follows that, according to the figures provided by the parties, the judgment given by the trial judge should be set aside and judgment should be entered for Primus against Kooee in the sum of $1,391,040.

75 In relation to costs, Primus also challenged the failure of the trial judge to award costs on an indemnity basis from 19 January 2007 when Primus offered to compromise its claim by accepting an amount of $2.5 million. The judgment given by the trial judge, in an amount of $2,647,832, exceeded the offer. That judgment having been set aside, Primus has received an amount well below the offer. Accordingly, the challenge to the costs judgment must fail.

76 Whether the orders made below were entered is not apparent from the papers filed in this Court. The relevant operative orders were the judgment in favour of Primus, in an amount of $2,647,832 made on 24 April 2007 and the order that Kooee pay 75% of Primus’ costs of the whole proceedings, made on 7 May 2007. These orders will need to be varied.

77 The final questions relate to which party should pay the costs of the trial and the appeal. The trial judge ordered Kooee to pay Primus 75% of its costs of the proceedings. Primus remains entitled to a payment, but in a lesser amount than that awarded at trial. It would appear that, consistently with the approach of the trial judge, the proportion of costs payable should be reduced. In relation to the costs of the appeal, Kooee having been substantially successful on its appeal and Primus having been substantially unsuccessful on its cross-appeal, Kooee should have its costs of the appeal. If the parties are unable to reach agreement on costs, each should file any material involving offers of compromise and further written submissions setting out its position, within 14 days of the date of this judgment.

78 I would therefore propose the following orders:

(1) Appeal allowed.

(2) Cross-appeal dismissed.

(3) Set aside the orders of Einstein J giving judgment in favour of Primus Telecommunications Pty Ltd in the amount of $2,647,832 and ordering that Kooee Communications Pty Ltd pay 75% of the costs of the proceedings in the Equity Division.

(4) Give judgment for Primus Telecommunications Pty Ltd in an amount of $1,391,040.

(5) Reserve the question of the costs of the trial and the appeal and direct the parties, if unable to as agree to those costs, to file any material involving offers of compromise and any written submissions on which they wish to rely within 14 days of the date of these orders.

**********

AMENDMENTS:


09/05/2008 - Judgment date - changed from 2004 to 2008 - Paragraph(s) Heading pages of headnote and judgment


LAST UPDATED:
9 May 2008