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TX Australia Pty Limited v Broadcast Australia Pty Limited [2012] NSWSC 4 (16 January 2012)
Last Updated: 27 January 2012
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Case Title:
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TX Australia Pty Limited v Broadcast Australia
Pty Limited |
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Medium Neutral Citation:
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Hearing Date(s):
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Decision Date:
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Jurisdiction:
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Equity Division - Commercial List |
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Before:
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Decision:
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Summons dismissed with costs |
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Catchwords:
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CONTRACTS - Broadcasting and related industry
contracts - plaintiff owner and operator of broadcast infrastructure - defendant
has
access to and use of plaintiff's infrastructure pursuant to contract -
defendant exercises option to renew contract - contract provides
for expert
determination of licence fee if parties fail to reach agreement - expert charged
with determining a reasonable fee having
regard to rates charged to third
parties at facility in question - term sheet determines that expert
determination final and binding
except if attended by manifest error or error of
law - terms of contract direct task to be performed by expert and whether
determination
binding. CONTRACTS - Plaintiff alleges error of law on basis
expert misconceived function by adopting objective "market value" assessment to
ascertain fee as opposed to a subjective "fair value" approach - function of
expert determined by contractual provisions - contract
provides for hybrid
process requiring consideration of subjective and objective factors, with rates
charged to third parties a mandatory
consideration - contract requires appraisal
akin to 'fair market value' - expert does not have regard to exclusively
objective considerations
and considers position of particular parties - expert
did not misconceive function. CONTRACTS - Plaintiff alleges error of law on
basis expert failed to consider relevant factor - relevant consideration said to
be
'special value' of contract to defendant - requirement for ascertainment of
'reasonable fee' refers to defendant as a willing but
not anxious and
involuntary purchaser - requirement for 'reasonable fee' antithetical to
valuation proceeding on basis plaintiff
a monopolist - expert did consider
special value of contract to defendant. CONTRACTS - Plaintiff alleges error
of law on basis expert failed to give weight to current fees under original
contract - expert
had regard to such fees but concluded of limited relevance -
not an error of law to weigh relevant factors in a particular way as
opposed to
not consider them - circumstances prevailing ten years previously when agreement
first made materially different to present
- fees agreed ten years previously
not useful guide to what constitutes a 'reasonable fee'. CONTRACTS -
Plaintiff alleges error of law and manifest error on basis expert used incorrect
comparator in assessing 'reasonable fee'
- expert said to have incorrectly
compared digital audio broadcasting with digital television broadcasting - audio
broadcasting said
to be inapposite comparator due to fact radio different medium
to television with different cost factors - digital audio broadcasting
fees
considered by expert pertain to agreement between same parties and are
relatively recent - errors in methodology employed by
expert valuer not errors
of law - matter of professional judgment as to weight to accord cost recovery
and profit margin - expert
evidence adduced in attempt to illustrate manifest
error - fact such evidence needs to be adduced conveys error not manifest -
expert
did not make error of law or manifest error. CONTRACTS - Plaintiff
alleges expert failed to give detailed reasons - question whether reasons are
'reasons' within the meaning of
the contract - failure to provide 'detailed
reasons' entails there will not be a binding determination - due to requirement
of 'detailed
statement of reasons', provision of wider than usual scope to
challenge binding nature of determination and fact issues are complex
standard
of reasons required by contract akin to that expected of judges and commercial
arbitrators - expert sufficiently identifies
methodology and provides
sufficiently detailed and comprehensive reasons - reasons are 'detailed reasons'
within meaning of contract.
CONTRACTS - Plaintiff alleges error of law on
basis determination manifestly unreasonable - determination said to be
unreasonable
in Wednesbury sense because of relative magnitude of reduction in
licence fee - contract requires new fee to be determined with predominate
regard
to market based considerations and cost considerations not prevailing when
original fee determined - determination not so
unreasonably low - determination
rewards plaintiff above avoidable cost - arguable that perpetuating current fee
would be unreasonable
- determination not manifestly unreasonable. |
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Legislation Cited:
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Cases Cited:
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Texts Cited:
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Parties:
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TX Australia Pty Limited (plaintiff) Broadcast
Australia Pty Limited (defendant) |
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Representation
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Counsel: AJ Payne SC with M J O'Meara
(plaintiff) JT Gleeson SC with JA Potts (defendant) |
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- Solicitors:
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Solicitors: Gilbert & Tobin
(plaintiff) Minter Ellison (defendant) |
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File number(s):
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Publication Restriction:
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JUDGMENT
- By
summons filed on 14 June 2011, the plaintiff TX Australia Pty Limited (" TXA" )
seeks a declaration that an expert determination
of Mr Tony Samuel (" the
Expert" ) dated 14 April 2011 (" the Determination" ) about fees payable by the
defendant Broadcast Australia
Pty Limited (" BA" ) to TXA for access to and use
of certain broadcast transmission towers owned by TXA, which enables BA to
provide
stand-by digital television transmission services to the Australian
Broadcasting Corporation (" ABC" ), contains manifest errors
or errors of law,
and is not final and binding on TXA and BA.
- TXA
is a joint venture company equally owned by the three commercial television
networks: Seven Network (Operations) Limited, Nine
Network Australia Pty
Limited, and Network TEN Pty Limited (" the Networks" ). TXA owns and operates
broadcast transmission equipment
around Australia, including the five Towers the
subject of the 2000 Agreements. TXA's broadcast infrastructure, including the
Towers,
is used to provide broadcast services to the Networks, but also to
provide broadcast services to the ABC, the Special Broadcasting
Service (" SBS"
), community television channels, and FM radio and community radio stations, and
to provide digital audio broadcasting
("DAB") services, point-to-point microwave
services, internet services and emergency radio services.
- BA
is the successor of a Commonwealth authority, resulting from the privatization
by the Commonwealth in 1998 to 1999 of the National
Transmission Network to form
the National Transmission Company Limited, and the sale of all the shares in it
to ntl Australia Pty
Limited (" ntla "). In 2002, ntla was acquired by Macquarie
Bank Limited and renamed BA. In 2009, the Canadian Pension Plan Investment
Board
acquired BA. BA provides (among other things) managed transmission services to
radio and television customers using a network
of 600 transmission facilities,
predominately located in regional areas. BA's major customers are the ABC and
SBS.
- The
Determination was issued by the Expert pursuant to an appointment under five
relevantly identical agreements between TXA, BA and
the ABC entitled "Licence
ABC Stand-by Facility" dated 9 June 2000 ("the 2000 Agreements" ) - each
relating respectively to one of
five broadcasting transmission towers and
associated facilities owned and operated by TXA at five sites in or near the
capital cities
of New South Wales, Victoria, Western Australia, Queensland and
South Australia (" the Towers" ) - and under a "Term Sheet - Stand-by
Agreements
Determination Process" dated 17 January 2011 ("the Term Sheet" ). The initial
term of the 2000 Agreements was from 2000
to 2010. BA exercised an option to
renew them for a further 10 years from 2011 to 2020. The Determination was to
determine the "Initial
Fee on Renewal", being the fees payable by BA to TXA
under each of the renewed 2000 Agreements in 2011, which fees will increase
by
CPI increments annually thereafter until 2020. Under the 2000 Agreements, the
total fees paid by BA to TXA for all the Towers
for 2010 were $X. Under the
Determination, the sum of the Initial Fee on Renewal for all the Towers in 2011
is set at $X. Accordingly,
the effect of the Determination is that, in 2011, the
total fees are less by $X or X % than the fees paid in 2010. Those reduced
fees
will carry forward annually, subject to CPI adjustments, until 2020.
- TXA
advances six main grounds of complaint, which may broadly be summarised as
follows:
(1) that the Expert misconceived his function in that, rather than determining
(subjectively) what was a reasonable fee for TXA and
BA to agree upon, taking
into account the circumstances affecting them, he instead determined
(objectively) what was the "market
value" or "fair market value";
(2) that the Expert failed to consider relevant considerations, and in
particular the special value to BA of access to TXA's Towers,
which enabled BA
to provide stand-by digital TV services to the ABC under the ABC Agreement;
(3) that the Expert wrongly gave no weight to the fees payable by BA under the
2000 Agreements during their ten year initial term
(2000 to 2010), a conclusion
wrongly supported on the basis that circumstances had relevantly changed between
2000 and 2011;
(4) that, in concluding that it was appropriate to use the fees payable by BA to
TXA for use of the Towers to provide DAB services
to the ABC as the most
relevant comparable transaction, the Expert was manifestly erroneous and erred
in law;
(5) that the Expert failed to satisfy his obligation to give detailed reasons in
a number of respects;
(6) that the Determination is manifestly unreasonable, in that it effects a X%
reduction in the fees that had been payable by BA
to TXA in the year prior to
the renewed term, while providing BA with a "windfall" gain .
- I
have been greatly assisted by the comprehensive, articulate and well-reasoned
written and oral submissions of Mr A.J. Payne SC and
Mr M.J. O'Meara for TXA,
and of Mr J.T. Gleeson SC and Mr J.A.C. Potts for BA.
Establishment of ABC digital television
- In
1998, the Commonwealth enacted the (CTH) Television Broadcasting (Digital
Conversion) Act 1998 , an objective of which was that digital television
transmission be introduced in metropolitan areas in Australia on 1 January
2001.
On 25 June 1999, the ABC issued "Request for Proposal NS211 - Supply of Digital
Transmission Services" (" RFP NS211" ), by
which it sought proposals for the
supply of digital transmission services to the ABC, commencing in the
metropolitan areas on 1 January
2001 . In November 1999, the ABC revised RFP
NS211 to seek, in addition, proposals for the provision of stand-by digital
television
transmission services in the metropolitan areas. The ABC specified
the Towers as the facilities to be used for the provision of the
stand-by
services. On 9 December 1999, BA (then called ntla) and TXA entered into a
Memorandum of Understanding (" MoU" ) which recorded
that BA was tendering to
provide digital transmission services to the ABC and, if that tender were
successful, BA and TXA would use
their reasonable endeavours to negotiate and
execute an agreement by which TXA would provide BA with access to and use of the
Towers
for an annual fee set out in the schedule to the MoU (which was $X). On
23 December 1999, BA was declared the successful tenderer
for the provision of
digital television transmission services to the ABC.
The 2000 Agreements
- TXA,
BA and the ABC executed the 2000 Agreements on 9 June 2000. Under clauses 2 and
3, TXA (a) gives BA the right to install, test,
commission and maintain
equipment on the sites of the Towers to broadcast stand-by ABC digital
television ("the ABC equipment" );
(b) gives BA the right to access the sites of
the Towers to do so; and (c) assumes the obligation to connect the ABC equipment
to
the TXA equipment at the sites of the Towers and operate that equipment in
order to broadcast the ABC signal through the antennas
on the Towers. In return,
BA is obliged to pay the "Total Fees", by two equal instalments each year in
advance on 1 January and 1
July. The "Total Fees" are the amounts set out in
Schedule A to each of the 2000 Agreements, and are subject to an annual CPI
increase
(clause 5). The sum of the "Total Fees", for all the Towers, in 2000
(the first year of the 2000 Agreements), was $X, which was less,
by 13.7%, than
the amount that had been contemplated in the MoU. By 2010, the "Total Fees"
under the five Agreements had grown (by
CPI adjustment) to $X.
- The
services provided by TXA to BA under the 2000 Agreements are of a type known as
"portal services", that is, services which involve
TXA providing an area within
the site of each Tower for installation of the broadcaster's (or intermediary's)
equipment and linking
it to TXA's equipment for broadcast of the transmission
signal. These are to be contrasted with what are known as "managed services,"
where TXA takes full responsibility for the transmission of broadcast signals
and owns and operates all the equipment used to do
so; and also with "access
services," where TXA simply allows a broadcaster to install its own equipment at
the site of and on the
Tower to transmit the signal, but the broadcaster or
intermediary does not otherwise use TXA's equipment at the Tower.
- The
2000 Agreements were for a term of ten years ending on 31 December 2010, but
gave BA an option to renew for a further term of
ten years (clause 4) by serving
a notice, in which event TXA was obliged to grant BA a new licence for a further
ten years on the
same terms and conditions "other than the Licence Fee, the
Service Fee and the Total Fees which are to apply at the commencement
of the
Renewed Term and which will be determined in accordance with clause 18.2", which
clause provides as follows:
[ BA] and TXA agree that if such notice is given and [BA] is not in breach
they will enter into negotiations in good faith as to the
Total Fees to apply in
the first year of the Renewed Term. If [BA] and TXA are unable to agree on the
Total Fees they will refer
the matter to an Expert for a binding determination
in the manner described in clause 3 of Schedule A.
- Clause
3 of Schedule A provides as follows:
Fee for Renewed Term
3.1 For the first year of the renewed Term [BA] will pay to TXA a licence fee
(the "Initial Fee on Renewal") determined in accordance
with paragraph 3.2.
3.2 The Initial Fee on Renewal will be determined as follows:
(a) [BA] and TXA will negotiate in good faith for up to 28 days with a view
to agreeing on the Initial Fee on Renewal which will be
a reasonable fee (having
regard to the rates charged to the other third parties for the use of facilities
located on the Tower);
(b) failing agreement, [BA] and TXA will engage an Expert nominated by the
President for the time being of the Institute of Chartered
Accountants to
determine the Initial fee on Renewal (the "Expert");
(c) [BA] and TXA will be entitled to make written submissions to the Expert
and provide such additional information as the Expert
may request;
(d) the Expert will make a determination ("the Determination") as to the
applicable Initial Fee on Renewal within 8 days from the
date of the Expert's
appointment;
(e) the Determination will be final and binding;
(f) the parties will share the Expert's costs equally.
The ABC Agreement
- On
6 December 2000, the ABC and BA entered into the ABC Agreement, under which BA
agreed to provide digital television transmission
services (called "DCP
Services") to the ABC for a period of 15 years, with the ABC having an option to
renew for a further five years,
using the Towers [redacted] .
The dispute and appointment of the Expert
- On
29 June 2010, BA gave TXA notice of its intention to renew the 2000 Agreements.
From about 29 July 2010 until 5 October 2010, BA
and TXA engaged in negotiations
to determine the "Initial Fee on Renewal" payable for the renewed term of each
of the 2000 Agreements.
Those negotiations were unsuccessful, and on 5 October
2010, TXA notified BA that it was necessary to refer the matter to an expert
for
determination under Schedule A of the 2000 Agreements. TXA propsed to BA a term
sheet to better define the determination process
and its timeline, which itself
was the subject of negotiation. On 12 January 2011, BA and TXA executed the Term
Sheet and exchanged
lists of proposed experts, the Expert being the name
commonly appearing in both lists.
- The
Term Sheet contained the following terms relating to the role of the Expert:
i. The Expert will act as an expert in determining, in his/her opinion, an
Initial Fee on Renewal for the Standby Agreements according
to the expert's
business judgement and commercial acumen and consistently with the terms of the
Agreements.
ii. The Expert will not act as a mediator or arbitrator between the parties.
The Expert shall be independent of, and act fairly and
impartially as between
the parties and shall follow the procedure set out in this Term Sheet and in the
Agreements. ...
iii. The Determination shall comprise a detailed statement of reasons for the
Expert's decision, including explanation of the methodology
used to determine
the Initial Fees.
...
v. The Expert's determination shall be final and binding on both parties
except in the case of manifest error, negligence, fraud,
error of law or any
breach of the Expert's acknowledgement regarding actual or possible conflicts of
interest associated with his/her
appointment.
- On
17 January 2011, the parties notified the Expert that he had been nominated as
expert for determining the "Initial Fee on Renewal"
pursuant to the 2000
Agreements and the Term Sheet, and the Expert accepted the appointment on 10
February 2011.
The Determination process
- On
10 March 2011, BA and TXA provided their submissions (with annexures) to the
Expert (BA providing a revised version on 14 March
2011). On 21 March 2011, the
Expert conferred with representatives of BA and TXA, and the next day wrote to
TXA and BA requesting
further information, including (from BA) a copy of the ABC
Agreement, information about how the price paid by the ABC to BA under
that
agreement was calculated, and how the profit earned by BA under the ABC
Agreement was determined. On 23 March 2011, TXA and
BA provided their
submissions in reply (with annexures) to the Expert. Additionally, on 23 March
2011 BA provided a letter responding
to the Expert's request for information.
- On
31 March 2011, the Expert provided his draft Determination to the parties. On 7
April 2011, both TXA and BA provided notifications
of errors of fact in response
to the draft Determination. On 14 April 2011, the Expert delivered the
Determination. Accompanying
the Determination was a document said to contain his
"detailed statement of reasons" as required by the Term Sheet. The Expert
determined
the Initial Fee on Renewal, in total for all five Agreements, to be
$X.
The basis of review
- Although
there are many similarities, this proceeding is not, strictly speaking, one for
judicial review of a decision in the administrative
law sense. In Legal &
General Life of Aust Ltd v A Hudson Pty Ltd (1985) 1 NSWLR 314, McHugh JA
recognised, and it has repeatedly been accepted, that the fundamental question
is whether the exercise performed in fact
satisfies the terms of the contract so
as to make the determination binding. Absent fraud or collusion, a valuation is
binding if
it was made in accordance with the contract, and if so it is beside
the point that it proceeded on the basis of error, or was a gross
over or under
value, or took into account irrelevant considerations [ Legal & General
Life of Aust Ltd v A Hudson Pty Ltd , 335-336 (McHugh JA); Holt v Cox
[1997] NSWSC 144; (1997) 23 ACSR 590, 596 (Mason P)]. This does not mean that a valuation will
stand regardless of error; it depends on the terms of the contract [ Holt v
Cox , 597 (Mason P)]. Accordingly, t he question is whether the Expert's
determination binds the parties in accordance with their contract,
and that
depends on whether the Expert has performed the task allocated him by the
contract, in a way that the contract makes binding
on the parties.
- Under
clause 18.2, the Expert's task was to determine - the parties having been unable
to agree - what was "a reasonable fee (having
regard to the rates charged to the
other third parties for the use of facilities located on the Tower)". In this
case, the Terms
Sheet went further, to provide that the Determination would not
be binding on the parties in the case of manifest error, negligence,
fraud, or
error of law. And the Determination was required to include "a detailed
statement of reasons for the Expert's decision,
including explanation of the
methodology used". As, in the present case, the contract provides that the
valuation is not binding
in the case of particular classes of error, the
question becomes whether such error is established.
- In
this context, a "manifest error" is an error presented upon the face of the
Expert's determination and accompanying reasons, and
does not distinguish
between "facile errors" and "those of complexity", nor between obvious errors
and less obvious errors, nor between
errors of law and errors of fact (although,
as errors of law are separately addressed, without any requirement that they be
manifest,
"manifest error" will usually be relevant in the case of non-legal
error) [ Westport Insurance Corporation v Gordian Runoff Limited [2011]
HCA 37; 85 ALJR 1188, [42] (French CJ, Gummow, Crennan and Bell JJ), [163]
(Kiefel J)]. The key requirement is that the error be apparent
on the face of
the determination and reasons.
- An
"error of law" includes at least the usual grounds on which courts will review
the decisions of administrators or arbitrators [
Holt v Cox , 597 (Mason
P, Priestley JA agreeing); AGL Victoria Pty Limited v SPI Networks (Gas) Pty
Limited [2006] VSCA 173, [51] - [53] (Nettle JA, Maxwell P and Bongiorno AJA
agreeing)]. I shall address those that are relevant as they arise, below.
The first alleged error - misconception of function
- TXA's
first complaint - which is at the heart of its case, and is echoed in many other
of the grounds - is that the Expert misconceived
his function in that, rather
than determining what was a reasonable fee for TXA and BA to agree upon, taking
into account the circumstances
affecting them (a subjective test) - as was said
to be required by the terms of his appointment - he instead applied a
"principle"
consistent with the "market value" or "fair market value" approaches
to valuation (an objective test), and as a consequence failed
to take into
account or give weight to matters that ought to have been considered, and
utilised an inappropriate comparison with
separate agreements between TXA and BA
in respect of digital audio broadcasting services ("DAB services"), when
the five Agreements were concerned with digital television broadcasting
services. TXA submits that the Expert essentially adopted the "exchange value
test" associated with Spencer v Commonwealth [1907] HCA 82; (1905) 5 CLR 418 ,
positing a hypothetical transaction between a hypothetical vendor and
purchaser having certain qualities - an objective approach to
valuation [
Marks v GIO Australia Holdings Limited [1998] HCA 69; (1998) 196 CLR 494, at 514, [49]].
This is said to be illustrated by t he Expert having instructed himself to
disregard any features that would result
in either of the parties not being
"willing" - meaning willing but not anxious - to enter into the contract, and
then proceeding
to apply that principle by reference to the "standard valuation
approaches" to determining market value - comparable sales, earnings-based
and
cost-based approaches. The result is said to be that the Expert failed to
approach his task on the basis that, as a surrogate
for the agreement of BA and
TXA, he was to ascertain subjectively from BA and TXA's point of view
what would be a reasonable fee for them to agree on as the Initial Fee on
Renewal, and thereby misconceived
his function, asked himself the wrong
question, and thus erred in law, in a manner that permeates the Determination.
- It
is not in doubt that there will be an error of law, and that the determination
will not be binding, if the Expert misconceived
his function, asked himself the
wrong question or applied the wrong test [ Ex parte Hebburn Limited; Re
Kearsley Shire Council (1947) 47 SR (NSW) 416, 420 (Jordan CJ); Avon
Downs Pty Limited v Federal Commissioner of Taxation [1949] HCA 26; (1949) 78 CLR 353, 360
(Dixon J); Coal and Allied Operations Pty Limited v Australian Industrial
Relations Commission [2000] HCA 47; (2000) 203 CLR 194, 208-209, [31] (Gleeson CJ, Gaudron
and Hayne JJ)], as in that event, he would not have addressed himself to, nor
performed, the
task required of him by the contract.
- Consideration
of this ground requires analysis of two issues: first, what was the Expert's
task; and secondly, what did the Expert
actually do.
- As
to the first, the question is whether, as TXA submits, the Expert's task
required that he act as a surrogate for the agreement
of BA and TXA, to
ascertain subjectively from BA and TXA's point of view what would be a
reasonable fee for them to agree on as the Initial Fee on Renewal, as distinct
from
determining a "market fee" .
- In
Ponsford v HMS Aerosols Ltd [1979] AC 63, the House of Lords held that a
rent review clause which provided for "a reasonable rent for the demised
premises", properly construed,
required the assessment of what rent the demised
premises would command if let on the terms of the lease and for the period the
assessed
rent were to cover, assessing the reasonable rent that others - not
just the tenant - would be prepared to pay.
- In
Thomas Bates & Son Ltd v Wyndham's (Lingerie) Ltd [1980] EWCA Civ 3; [1981] 1 All ER
1077, the Court of Appeal considered a clause that provided for "such rents as
shall have been agreed between the Lessor and the Lessee".
Buckley LJ (at 1088)
distinguished the form of the clause in Ponsford - which focused
attention on "a reasonable rent for the demised premises" without any reference
to agreement between the parties to
the lease at all (emphasis added):
But it appears to me that the terms of the clause there under consideration
were noticeably different in important respects from the
clause which we have,
which refers to nothing other than such rent as the parties shall have
agreed. ...
- His
Lordship noted that a contention, that the circumstance that the so-called
arbitrator was to act not as an arbitrator but as a
valuer suggested that the
rent should be the market rent, had been abandoned in favour of a concession
that the agreement was one
to arbitrate and not one to abide by a valuation, so
that "the rent should be such as it would have been reasonable for this landlord
and this tenant to have agreed under the lease".
- In
Lear v Blizzard [1983] 3 All ER 662, an arbitrator referred four
questions of law, involving the proper construction of a clause in a lease that
referred to "rent" either
"to be agreed between the parties hereto" or "in
default of agreement at a rent to be determined by a single arbitrator", and the
basis on which the arbitrator should assess the rent, to the Queen's Bench
Division under the (UK) Arbitration Act 1979 . Tudor Evans J (at 667-668)
distinguished Ponsford and applied Thomas Bates, concluding that
the emphasis in the clause was on what the parties had agreed, and that the
arbitrator was required to determine what
it would be reasonable for those
landlords and tenants to agree in all the circumstances of that case.
- In
Email Ltd v Robert Bray (Langwarrin) Pty Ltd [1984] VR 16, the relevant
provision of the lease referred to "reasonable rental". The Court (at 20)
construed it having regard to certain factual
considerations which, it could be
inferred, were present in the minds of the contracting parties, including that
the premises had
been custom built by the landlord for the tenant, and that the
complex would be difficult to let. The Court said (at 20-21):
... Looked at in the factual setting to which we have referred, the question
is what the parties intended by the expression "a reasonable
rental". Mr Gillard
invites the Court to say that the words mean "the market rental", but we find
ourselves resistant to that invitation.
The parties have selected the word "reasonable". We agree with Mr Graham that
the expression "reasonable rental" is not a term of
art. It has no fixed or
precise meaning. It is of a quite different character from "market rental".
In Opera House Investment Pty. Ltd. v Devon Buildings Pty. Ltd. [1936] HCA 14; (1936)
55 CLR 110, the High Court was concerned with construing a provision in a lease
which required the lessee to pay to the lessor such rate of
interest as the
lessor "may reasonably contract to pay on the said moneys". At p. 116, Latham
C.J. said: "The word 'reasonable' has
often been declared to mean 'reasonable in
all the circumstances of the case.' The real question, in my opinion, is to
determine
what circumstances are relevant. In determining this question regard
must be paid to the nature of the transaction." Starke J said,
at p. 117
"'Reasonable' is a relative term, and the facts of the case must be considered
before what constitutes a reasonable contract
can be determined."
- Their
Honours concluded that "reasonable rental" meant "a rental which is reasonable
in light of all of the relevant circumstances".
- In
Ricciardello & Anor v Caltex Oil (Australia) Pty Ltd & Anor
[1991] ANZ ConvR 445, Malcolm CJ said (at 450):
In the context of rental valuation or assessment there is a well-established
distinction between "market rent" on the one hand and
a "fair rent" on the
other. In the former case the rent is determined on the basis of the rent the
premises would bring on the open
market having regard to the rents paid for
comparable premises in the same or a comparable area. The test is objective. In
the latter
case the rent is determined on the basis of the rent which it would
be fair for the particular landlord and the particular tenant
to have agreed
under the lease in question having regard to all the circumstances relevant to
any negotiations between them of a
new rent from the review date. The test is
largely subjective.
- In
MMAL Rentals Pty Ltd v Bruning [2004] NSWCA 451; (2004) 63 NSWLR 167, a contract provided
for the price payable for certain shares upon exercise of an option to be "fair
market value". Spigelman CJ
said (at [47]):
It is convenient at the outset to determine the proper construction of the
words "fair market value". All the words in the contractual
formula in cl 11.2.3
must be taken into account in its construction. The term employed is neither
"fair value" nor "market value"
but "fair market value".
- His
Honour emphasised (at [52]) that what a valuation exercise will require is
always dictated by the context:
There are a number of contractual, statutory and accounting standards
contexts in which the administration of justice must determine
the "fair value"
of property. The meaning of that formulation will vary with the context. In some
contexts the formulation refers
to what is just or equitable in all the
circumstances. In such a case the scope of the relevant considerations which may
be taken
into account by the requisite decision-maker, whether an arbitrator or
a judge, is wide. ... Where the relevant test is "fair value",
a market value is
often not decisive ...
- As
his Honour said (at [53]), "The overall context will be determinative". Allowing
that, his Honour said that the terms "fair value"
and "fair market value"
usually imported elements of subjectivity - the former moreso than the latter -
not involved when one was
concerned merely with "market value". His Honour
continued (at [57]-[60]):
Where the focus of the valuation process is on a "market value", even in a
context, as so often occurs, where there is no or little
trading history in the
relevant property, the approach will usually be quite different to that which
arises where a "fair value"
is required to be determined. The range of relevant
circumstances to be taken into account is not as wide and regard is not had to
the particular history of the commercial or personal relationships between the
prospective vendor and purchaser of the property to
be valued.
Where, as here, the formulation is "fair market value", the valuation test
requires a similarly limited focus on the range of circumstances
relevant to a
process of determining exchange value. A "fair market value" may diverge from a
"market value" for numerous reasons,
for example, where property is thinly
traded, or the parcel is small, or there exist market distortions.
In the present contractual context, the intrusion of the word "market"
between "fair" and "value" points away from a process of determining
what is
just or equitable between the parties, towards an objective standard. ...
Nevertheless, the word "fair" has, in my opinion, work to do. In a
contractual context, this additional word suggests that the valuation
should
proceed on the assumption, which may be contrary to the facts of a particular
contractual relationship, that there is no impediment
to the process of
bargaining, whether in terms of availability of information or restraints
arising from the characteristics of a
particular vendor or purchaser or
otherwise. ...
- In
Colin Marg Pty Ltd v Mackay Medical Investment Ltd [2006] QSC 181; [2007] 1 Qd R 303,
Wilson J applied Lear and Thomas Bates , in connection with an
expert determination of a rent review of premises leased and used as a
gymnasium, where the relevant clause
provided that the rent for the first year
of the new term "shall be mutually agreed upon by the Lessor and the Lessee",
and then
"Should the Lessor and the Lessee not reach agreement as to the rental
then the annual amount for the first year shall be determined
by a registered
Valuer ...". The expert valued the premises on the basis that the highest and
best legal use for the premises was
as second tier medical suites - and thus,
although appointed to value a renewed tenancy by a tenant using the premises as
a gymnasium,
and where the permitted use was a health and fitness centre,
proceeded to value the premises on a hypothetical highest and best use
basis.
The tenant alleged that the determination was not in accordance with the lease,
and that the determination should have been
undertaken on a "subjective" basis -
meaning, as Wilson J explained: "what he should have determined was the rent
payable under the
particular lease between the particular parties (which
included the permitted use being that of a health and fitness centre)". Her
Honour said (at [9]):
The further lease is in all relevant respects on the same terms and
conditions as the original lease: in other words, it contains
the same
restriction on the use of the demised premises. The primary method for
establishing the rent for the first year is by agreement
of the parties (cl
15.4.3), and it is only where the parties do not agree that a valuer is to be
appointed. That is a strong indicator
that the valuer is to do what the parties
cannot agree to do, and so to take into account all the considerations which
would affect
the minds of the parties when negotiating to a conclusion.
- In
a passage on which TXA particularly relies as expressing the applicable test,
her Honour concluded (at [13]-[14]):
In the present case the rental is to be determined by agreement between the
parties, and in the event of failure to agree, by an appointed
valuer. It is
therefore directly analogous to Lear and Jefferies : the valuer is
to perform the task that the parties have been unable to do themselves, and so
must determine the rent subjectively.
The requirement that the valuer have regard to rents for comparable premises
(if any) in the locality of the demised premises does
not limit the scope of his
task; on the contrary it is a prescription of one matter to be taken into
account in the broader inquiry
into what would be a reasonable rent for the
parties to have agreed having regard to all the circumstances. In
Ricciardello the relevant clause expressly provided that the requirement
that the valuer have regared to rents for comparable premises not limit
the
scope of his inquiry. Even though the present lease does not contain such an
express provision, on its proper construction the
requirement that the valuer
consider rents for comparable premises does not limit the scope of his inquiry.
- Her
Honour said that a submission that the appointment of a valuer rather than an
arbitrator indicated an objective rather than a
subjective approach, was
unconvincing in the context (at [17]):
Where the valuer is required by the clause in the lease to have regard to all
the circumstances in determining a fair rent as between
the particular parties,
the process is no longer objective.
- Thus
the nature of the task set in the clause, rather than the character of the
person appointed to perform it, was paramount (at
[19]). But I do not read her
Honour's judgment as excluding the possibility that the character of the
appointee may illuminate the
nature of the task.
- In
the present case, ultimately, the Expert had to determine, in place of the
parties, what was a "reasonable fee (having regard to
the rates charged to the
other third parties for the use of facilities located on the Tower)". Thus there
are two aspects - a subjective
one that the fee be reasonable, and an objective
one that it be so having regard to the rates charged to the other third parties
for the use of facilities located on the Tower. Unlike the clauses in Lear
, Thomas Bates , and Colin Marg, clause 3.2 of Schedule A to
the 2000 Agreements required the parties, in their negotiation or agreement of
the fee, to have regard
as a mandatory consideration to an objective factor,
namely the fees being paid by others for use of the Towers. The express
requirement
to have "regard to the rates charged to the other third parties for
the use of facilities located on the Tower" imports, as the sole
specified
consideration, an objective requirement. The clause provided not merely for such
fee as the parties shall have agreed,
but first, negotiation of a
reasonable fee having regard to a mandatory consideration (namely, what
other third parties are paying for use of the Towers), and secondly,
"failing agreement" that the Expert will determine the Fee. The mandatory
consideration specifically involves a criterion of comparable
transactions,
typical of a market value analysis. It is not without significance that the
mandatory factor in clause 3.2(a), namely
the rates charged to the other
third parties for the use of facilities located on the Tower, focuses
attention on other third parties , as distinct from the rates charged to
BA under the 2000 Agreements. These features of the description of the mandatory
factor weigh
in favour of the objective element.
- Moreover,
while it may not be of great significance, the location of the reference to the
mandatory consideration in the clause relates
it more proximately as a matter of
construction to what is a reasonable fee, rather than to what the Expert must
take into account,
and in this regard is to be distinguished from
Ricciardello and Colin Marg . This too favours objective
considerations.
- Further,
the Term Sheet provides that the Expert is required to form his opinion on the
question bringing to bear his business judgment
and commercial acumen, and to do
so within defined parameters as to submissions, information requests,
confidentiality and the like.
The Expert is required to act as an expert valuer,
not a mediator or arbitrator. This favours the view that the Expert is more than
a mere surrogate for the parties' agreement, and is required to form an expert
valuation opinion; it too indicate s a more objective
than subjective approach.
- The
context of the 2000 Agreements was that if BA wished to secure the ABC Agreement
it had no choice but to use TXA's Towers for
the Standby Facility, and thus to
accept TXA's terms and price; in that respect, TXA was then in the position of a
monopolist, able
to set its own price. There was then no market in such rights,
but it was envisaged that one might soon emerge, given the impending
access
regime. The Agreements embodied acceptance of TXA's price for the initial
decade, but preserved BA's ability, if it exercised
the option to renew, to have
the price determined independently, including by reference to such objective
market factors as might
by then have emerged. The parties did not include in the
Agreements any "ratchet" clause, to the effect that the initial fee for
the
renewal term could not be less than the former fees. This meant that, however
good or bad the initial bargain was for either
party, it could be re-opened upon
exercise of the option.
- Accordingly,
while the clause does not limit the Expert to exclusively market value
considerations, they are given an important role
at the first stage, and the
Expert was not only justified but required to give them an important role at the
second stage. In my
view, the task was akin to ascertainment of "fair market
value" in the sense described by Spigelman CJ in MMAL v Bruning.
- The
second issues, then, is what did the Expert actually do?
- Having
noted (at [11]) BA's submissions on what he was required to do, he also noted
(at [12]) TXA's submission (to the effect that
the Expert should take into
account any consideration he considered relevant, but not the rates
charged to other third parties), and (at [13]) that TXA had agreed that the fee
should be "reasonable", and had submitted
that "I should take into account the
matters I consider relevant". He said (at [14]) that "consideration of a
reasonable fee requires
consideration of amounts paid by third parties for the
same or similar services". He repeated (at [21]) that the 2000 Agreements
required him to determine a fee that was "reasonable, having regard to the rates
charged to other third parties". He observed (at
[22]) that he was authorised to
use his own business judgment and commercial acumen, and that that gave him
considerable scope. He
noted (at [23]), without apparent demur, BA's submission
that a reasonable fee was not necessarily a market fee. He then described
his
methodology as follows (at [24]-[25]):
... The principle I have applied is that the reasonable fee would be the
amount that would be determined if the Parties were entering
into the contract
on a willing basis, acting at arm's length, with neither party compelled to
enter into the transaction. This principle
is consistent with "fair market
value" and "fair value" definitions used for the purpose of valuing businesses
and assets, including
intangible assets, as well as for the purpose of
determining reasonable royalty rates and licence fees in both contentious and
non-contentious
circumstances.
My approach necessarily sets aside the requirement of the Parties to enter
into a further agreement, which requirement can result
in one party (or both
parties) not being "willing".
- The
Expert then explained (at [26]) that he had had regard to the standard valuation
approaches commonly used by valuers, which he
described broadly as the market
approaches (being the value determined by comparable transactions), income
approaches (being the
value determined by future cash flows) and cost approaches
(being the value determined by the actual or replacement cost of the asset).
- The
statement (in [24]) that a "reasonable fee should have regard to all of the
circumstances that are relevant up to the date of
the Determination" is entirely
consistent with Email Ltd v Robert Bray . In the statement (also in [24])
that a reasonable fee "would be the amount that would be determined if the
Parties were entering
into the contract on a willing basis, acting at arm's
length, with neither party compelled to enter into the transaction", the
reference
to the Parties (a reference to these parties, as distinct from
a hypothetical lessor and lessee) indicates a subjective aspect to the Expert's
approach.
The Expert explained that this was consistent with his understanding
of "fair market value" and "fair value" definitions used for
the purpose of
valuing businesses and assets, royalty rates and licence fees. This bespeaks
that he was undertaking the hybrid exercise
described by Spigelman CJ in MMAL
, and not a purely objective, market-based analysis.
- While
he made clear (at [26]-[28]) that, in determining the reasonable fee, he would
have regard to standard valuation approaches
- including market, income and cost
based approaches - it is plain that in the application of each of those
approaches, he had regard
to the specific circumstances of TXA and BA. The
Expert said (at [59]) that he had had regard "to the financial consequences of
any
fee on the Parties", although observing (at [60]) that confidentiality
issues required his "comments in this section of my report
... [to] be brief and
conceptual". He noted submissions of TXA to the effect that the fees proposed by
BA would prevent cost recovery
by TXA, and that a reduction in the "Total Fees"
from the 2010 fees would financially benefit BA to the detriment of TXA for no
sound
commercial reason, and dealt with those submissions as follows (at [61]):
... I have reviewed the following documents and drawn my own conclusions as
to whether this would be so, having regard to the non-arm's
length nature of the
fees charged by TXA to its shareholders:
i. TXA's financial statements;
ii. the effect on TXA of the fees submitted by the Parties;
iii. the effect on TXA of the fees I have determined to be ` reasonable; ...
- He
rejected (at [62]) BA's submission that the " financial consequences of its
agreement with the ABC are irrelevant ". He took into account the
circumstances of BA and TXA, and their respective positions as they were known
to him (at [63]-[64]).
- The
Expert stated his conclusions as follows, indicating that the financial
consequences for each of the parties were considered (at
[79]) (emphasis added):
In my opinion:
(a) the [Building Blocks Methodology] approach as applied by BA undervalued
the fees when compared with the amounts negotiated by
parties with TXA, and
therefore could not be relied upon in isolation to determine a reasonable fee;
(b) the circumstances have changed considerably since 2000, so the Initial
Fees in the Agreements cannot be relied upon in isolation
to determine a
reasonable fee;
(c) I am unable to comment on specific financial consequences, due to
confidentiality ;
(d) the circumstances relating to the amounts paid by other third parties
differ from the circumstances for the ABC Standby facility,
so cannot be relied
upon in isolation. However, I found the amounts paid for DAB services to be the
most comparable to the ABC Standby
facilities, being the provision of portal
services for digital transmission from the same zone of the towers. In my
opinion, the
DAB services provided a basis for determining a minimum amount from
which a reasonable fee could be determined; and
(e) the amounts negotiated by TXA and BA for use of the DAB facilities need
to be adjusted to allow for other factors including the
additional reach of the
ABC service, the Agreements, the amounts paid by other third parties, TXA's
costs and the financial consequences of the fee itself . I have made this
adjustment on the basis of business judgment.
- The
Expert did not merely engage in a wholly objective and hypothetical exchange
value test exercise. He correctly identified as the
fundamental question what
was reasonable between the parties, having regard to the rates charged to other
third parties. He correctly
focused on the actual use permitted under the
renewed Agreements. While he appropriately took into account, as an important
factor,
market considerations (as clause 3.2(a) mandated), he also took into
account a broader range of considerations affecting the financial
circumstances
of the parties. He did not confine himself to purely market considerations. Thus
the Determination evinces an approach
that included subjective as well as
objective factors. This is implicit in the "Income" and "Cost" approaches, which
required consideration
of the circumstances of each of the parties. In
particular, the Expert took into account the financial position of BA and TXA
and
the impact of his Determination upon them; the fees under the 2000
Agreements (although giving them little weight); and that the
particular purpose
of the 2000 Agreements for BA was the performance of its obligations under the
ABC Agreement. He did not simply
adopt objective "market value", notwithstanding
that under the contract, the "rates charged to the other third parties" are a
relevant
and important, though not exclusive, consideration. It would have been
plainly erroneous not to take them into account. To give objective
considerations a predominant (but not exclusive) significance does not betray a
misconception by the Expert of his task. He undertook
the hybrid exercise
described by Spigelman CJ in MMAL v Bruning . He correctly conceived the
task required of him by the 2000 Agreements and the Term Sheet, and he performed
that task.
- The
first complaint therefore fails.
The second alleged error - failed to take into account special value to BA
- TXA's
second complaint is that the Expert failed to consider (and indeed expressly
excluded from consideration) relevant considerations,
and in particular a matter
that would inevitably have factored in the parties' subjective assessment of a
reasonable fee under the
2000 Agreements, namely the value to BA of the use of
TXA's Towers, which enabled BA to provide stand-by digital TV services to the
ABC under the ABC Agreement. As BA had factored the fees it paid to TXA under
the 2000 Agreements into the price paid by the ABC
to BA under the ABC Agreement
when it was negotiated, and the price paid by the ABC (which continues to apply
for at least another
5 years, if not 10 years) [redacted], the Determination
resulted in a large windfall gain to BA.
- It
is not in doubt that taking into account irrelevant matters, or excluding from
consideration relevant matters, is an error of law
[ Avon Downs v FCT,
360; Craig v South Australia [1995] HCA 58; (1995) 184 CLR 163, 177].
- Special
value is the value which a property or service has to a particular person over
and above its market value ascertained by the
exchange value test. Special value
can be ascertained by asking what a particular purchaser would pay for access to
the property
or service rather than fail to obtain it [ Boland v Yates
Property Corporation Pty Limited [1999] HCA 64; (1999) 74 ALJR 209, 225 [78] - [82]
(Gleeson CJ); 245 [173] (Hayne J); 269 [292] - 270 [297] (Callinan J)].
- The
value to BA of access to use of the Towers, as provided by the 2000 Agreements,
was that it enabled BA successfully to tender
for the contract to provide
digital television transmission services to the ABC, and thereafter to perform
its obligations under
the ABC Agreement. BA's costs under the 2000 Agreements
were taken into account in setting the price charged by BA to the ABC under
the
ABC Agreement, which [redacted]. TXA submits that: (1) the special value to BA
of facilities and services provided under the
2000 Agreements, in enabling BA to
perform its obligations under the ABC Agreement, was a (if not the) critical
matter which should
have informed the Expert's assessment of what price BA and
TXA might reasonably agree on as the Initial Fee on Renewal, and that
the facts
before the Expert compelled a conclusion that, to avoid failing to obtain use of
the Towers for the Renewal Term, BA would
pay TXA at least as much as it was
already paying under the 2000 Agreements; but (2) having erroneously adopted the
position that
his role was to ascertain the objective market value of the
services provided under the Agreements using an exchange value test,
the Expert
wholly failed to consider the value to BA of those services, and expressly
excluded that matter from his consideration,
thus failing to consider the major
issue that should have formed the basis of consideration of what, subjectively
as between BA and
TXA, was a reasonable fee to agree on as the Initial Fee on
Renewal; (3) having done so, the Expert was led to a result that represented
a
large windfall gain to BA at the expense of TXA, and thereby erred in law.
- I
accept that the facilities and services it accessed under the Agreements were of
"special value" to BA, as BA had no real choice
but to exercise the option to
use the Towers, unless it were to default under the ABC Agreement. This was even
more so in 2011 than
had been the case in 2000, when while it had no choice but
to enter into the 2000 Agreements if it wanted to secure the ABC Agreement,
it
did have the freedom not to pursue the ABC Agreement if dissatisfied with the
terms it could negotiate with TXA.
- However,
I do not accept that this was the, or even a, critical matter which should have
informed the Expert's assessment. F or reasons
explained under the first
complaint, the Expert rightly set aside the commercial imperative for BA to
exercise the option, which
made it an anxious as distinct from merely willing
purchaser. This is apparent from his statement that "the reasonable fee would
be
the amount that would be determined if the Parties were entering into the
contract on a willing basis, acting at arm's length, with neither party
compelled to enter into the transaction", which approach "necessarily sets aside
the requirement of the Parties to enter into a further agreement, which
requirement can result in one party (or both parties) not
being "willing"" -
meaning anxious as opposed to willing. TXA complains that this means that the
Expert set aside a subjective approach
and failed to take into account the
"special value" of the 2000 Agreements to BA. BA submits that the Expert meant
that he would
not proceed on the basis that BA was "over a barrel" in 2010, and
was correct to do so.
- In
my view, the requirement that the fee be "reasonable (having regard to the rates
charged to the other third parties for the use
of facilities located on the
Tower)" is antithetical to the suggestion that the valuation should be on the
basis that TXA could,
by reason of its monopolist position, extract whatsoever
extravagant price it liked, or that the valuation proceed on that basis.
To the
contrary, the rationale for the dispute resolution process selected by the
parties, including the mandatory consideration
of the fees paid by other
third parties , was to remove the element of the monopolist's control of the
price. If the expert were to proceed fundamentally on the basis that
BA was not
a willing but an involuntary purchaser, one would have expected to see some
reference in the Agreements to that as a factor,
rather than to "the rates
charged to the other third parties for the use of facilities located on the
Tower". In this case, "reasonable"
does work similar to that attributed to
"fair" by Spigelman CJ in MMAL v Bruning, suggesting that the valuation
should proceed on the assumption, which may be contrary to the facts of the
particular relationship,
that there is no impediment to or constraint on the
process of bargaining, arising from the characteristics of a particular vendor
or purchaser. Similarly, in Holt v Cox it was accepted (at 594) that
determination of the "fair" price of shares required an assumption that they
were marketable and impelled
disregard of provisions that made the holder the
only eligible owner.
- Moreover,
f or reasons also explained under the first complaint, I do not accept that the
Expert confined himself to market value
and did not consider the particular use
that BA would make of the benefit of the 2000 Agreements, namely the provision
of standby
services to the ABC. Throughout the Determination, the Expert has
correctly assumed that that will be the nature of the use, and
nowhere makes the
type of error - apparent in Colin Marg - of valuing the rental on the
assumption of a use different from and not permissible under the Agreement. The
Expert was invited to
consider the financial consequences to BA arising from
such fee as might be set, and that a fee that was lower than the previous
fee
would, other things being equal, improve the financial position of BA overall,
and relative to its whole of network contract
with the ABC for at least 5 years.
The Expert made further inquiries and received such information as BA considered
itself able to
give.
- In
any event, there was the countervailing consideration of how such fee as was set
might impact on TXA's position, where TXA's primary
function was to provide
broadcast services to its three shareholders, the three commercial television
channels. The provision of
the use of the facilities by TXA to BA, enabling BA
to provide a service to the ABC, generated value for both parties: it provided
BA with an input it required to perform its whole of network agreement; but it
also generated extra revenue for TXA at modest marginal
cost by using otherwise
excess capacity on its Towers, [redacted]. Accordingly, when considering the
subjective positions of the
parties, the question is not merely how much would
BA be prepared to pay for access to the Towers rather than lose it; the
corollary
is, how low a price would TXA accept rather than lose an additional
source of revenue [redacted]. In this respect too, the Expert
received
submissions, sought further information and received such documentation as TXA
considered it should provide (although it
did not provide its shareholders
agreement). The Expert has manifestly taken into account the consequences of the
determination on
the respective financial positions of the parties: see the
Determination at [24], [26(b)], [26(c)], [37(b)], [57], [59], [60], [61]-[64],
[75], [78(b)], [79(c)] and [79(e)]. Specifically, the Expert reasoned that such
submissions as he had about the benefits to BA under
the ABC Agreement were
relevant in the adjustment which he made from the DAB value in [53] to the final
value in [80], but did not
render the final value unreasonable. At the same
time, he reasoned that the final amount did not preclude TXA from achieving
costs
recovery, nor did it have a material detrimental effect on it.
- As
to the supposed "windfall", the consequence of the ABC Agreement [redacted]. In
this context, the Determination means no more than
that, for the last 5 years of
a 15 year term (or 20 years, if the ABC exercises its option to renew the ABC
Agreement), there has
been an adjustment in one input price favourable to BA.
The Expert has taken that matter into account in adjusting what would otherwise
be the fee (at [79(c), (e)]).
- The
second complaint therefore fails.
The third alleged error - failure to give weight to fees paid under
Agreements for Initial Term
- TXA's
third complaint is that the Expert wrongly gave "little weight" - in truth, no
weight at all - to the fees payable by BA under
the 2000 Agreements during their
ten year initial term (2000 to 2010), a conclusion that he justified on the
basis that circumstances
had relevantly changed between 2000 and 2011 -
referring specifically to the ABC conditions of requiring the TXA Towers to be
used
for standby services provided to the ABC, and the introduction of an access
regime under the (CTH) Broadcasting Services Act 1992 ("the Broadcasting
Act") - in that the matters he mentioned had not changed between 2000 and 2011,
as the requirement that BA provide standby services to
the ABC by way of TXA's
Towers remained an obligation of BA under the ABC Agreement. TXA draws attention
to the circumstance that
despite this requirement (and the conditions of tender
that preceded it), BA had been able to negotiate a downward reduction in fees
payable to TXA prior to entry into the 2000 Agreements, hardly an indication
that the initial fees under the 2000 Agreements were
obtained under some sort of
commercial duress. As for the access regime, it is said that the Expert was
wrong in law, as the regime
does not apply to BA, but only to licensed
broadcasters; and in any event the introduction of the regime (which has not
changed since
its introduction) was known by both parties at the time the 2000
Agreements were negotiated in 2000. In this approach, it is said
that the Expert
erred in six ways, elaborated below.
- The
first, and foremost, answer to this submission is that the Expert stated (at
[41]) that he had "had regard" to the fees paid under
the 2000 Agreements in
their initial terms, "but accorded them little weight", for reasons that he
explained - namely, that "the
circumstances under which the fees for the initial
10 year period were agreed in 2000 are different to the circumstances for
determining
a reasonable fee today ", by reason of:
(a) " the date at which the Agreements were entered into, being more than
10 years ago ";
(b) " the timetable under which the Agreements were developed ". This
referred to the circumstance that the 2000 Agreements were executed in a context
where the ABC was under pressure to comply
with the Federal Government policy
requiring digital television to commence by 1 January 2001 and, for this reason,
required tenderers
(including BA) to use TXA sites for the provision of stand-by
services;
(c) " the ABC requirement that BA use the TXA sites for a stand-by
facility, and that this requirement was known prior to the negotiation
and
signing of the Agreements ". The Expert concluded (apparently on the basis
of the matters summarised in sub-paragraph (b) above) that "in my opinion, in
order
to comply with the [ABC's tender requirements], BA had no option but to
use the nominated TXA facilities", and observed that the
ABC Agreement will
continue to run for another 5 years and that the ABC has an option to renew it
for a further 5 years;
(d) " the provision of Federal Government funding to support the use of
the sites ". The Expert noted that the Commonwealth provided funding support
to the ABC for the purpose of the introduction of digital television,
and that
provision of this funding was a condition precedent to the 2000 Agreements; and
(e) " the relevance of the Access regime ". The Expert found that
"there was no access regime or other mechanism in place at the time the 2000
Agreements were signed that
could moderate the fees that TXA could charge BA for
access to the nominated facilities". He referred to the (CTH) Broadcasting
Services Amendment (Digital Television and Datacasting) Act 2000 ,
which amended the Broadcasting Services Act to create an access
regime applicable to the Towers for persons holding commercial television
broadcast licences and the ABC and SBS,
which came into force in August 2000.
However, the Expert also accepted that the 2000 Agreements were negotiated with
knowledge of
the impending commencement of the access regime.
- The
Expert's statement that he took this matter into account is not to be gainsaid;
and he expressly listed it amongst the factors
that inclined him to adjust
upwards the result obtained on analysis of third party transactions (at
[79(e)]). No legal error is involved
in the weighting accorded to various
relevant factors, as distinct from failing to consider them at all. Legal error
could be established
only if it were shown that, contrary to the Expert's stated
reasons, he had in substance not taken this consideration into account
at all,
and I see no sufficient ground to disbelieve his reasons in that respect.
- Next,
it is to be borne in mind that, the Expert's task being to determine what was a
"reasonable fee (having regard to the rates
charged to the other third parties
for the use of facilities located on the Tower)", while he was required to take
into account,
as a mandatory consideration, "the rates charged to the other
third parties for the use of facilities located on the Tower", there
was no such
stipulation in respect of the rates charged by TXA to BA under the 2000
Agreements. While it is unnecessary and inappropriate
to resort to the "
expression unius" rule, it could not be said to be wrong in that context
to give but slight weight to the latter consideration.
- Further,
the conclusion reached above (at [57]) that the requirement for a "reasonable
fee (having regard to the rates charged to
the other third parties for the use
of facilities located on the Tower)" is antithetical to the suggestion that the
valuation should
be on the basis that TXA could, by reason of its monopolist
position, extract whatsoever extravagant price it liked, or that the
valuation
proceed on that basis, leads to the conclusion that it was correct to give
little weight to the original fee. Essentially,
what the Expert did in this
respect was to attribute little weight to the fees payable under the 2000
Agreements because they were
a relatively poor indicator of what was a
"reasonable fee (having regard to the rates charged to the other third parties
for the
use of facilities located on the Tower)", having been negotiated in
circumstances in which there was no market, and TXA was a virtual
monopolist.
- Turning
to the six specific points raised by TXA, the first is that whereas the
role of the Expert was to determine what, from the subjective viewpoint of BA
and TXA, was a reasonable fee for
them to agree on as an Initial Fee on Renewal,
it was no part of his function to revise, as if providing an opinion on behalf
of
a competition regulator, the commercial history of the agreements between BA
and TXA and to conclude that the fees paid under them
should be ignored for the
purposes of setting a reasonable Initial Fee on Renewal on the basis that they
did not adequately reflect
the outcome of a competitive market. But the Expert's
task was far from purely subjective, and the market evidence was a mandatory
and
important consideration. Moreover, he did not determine, expressly or
implicitly, that the fees under the 2000 Agreements were
unreasonable in the
circumstances in which they were negotiated; the effect of his reasoning was
that he considered them of little
utility in determining what was reasonable in
2010 - because of its remoteness in time and its different factual and
commercial setting
.
- The
second was that the Expert was manifestly in error in concluding that the
fact that BA was obliged to use the Towers to provide the ABC stand-by
digital
TV services under the ABC Agreement in 2000 represented any change in
circumstances between 2000 and 2011, because, on the
Expert's own findings, BA
is still obliged under the ABC Agreement to use the Towers to provide the
stand-by digital TV services
and remains so obliged for at least another five
years, if not ten. However, this misunderstands the Expert's reasons: t he point
of his reference to the circumstance that BA had been required to use TXA's
Towers in 2000 was not that there was no longer any such
requirement, but that
the imperative of using those Towers meant that BA was then an anxious - if not
involuntary - purchaser, such
that little weight should be given to that
transaction as a comparable when it came to determining what was reasonable now.
It is
not implicit in this approach that the original price was then
unreasonable, or was known or believed to be unreasonable.
- The
third was that the Expert's conclusion ignored that in the period between
entry into the MoU between BA and TXA, and the execution of the
2000 Agreements,
the fees to be paid by BA to TXA for the use of the Towers were negotiated
downwards by 13.7%, and also ignored
TXA's submissions to the effect that that
downward negotiation, together with the fact that in 2000 (and today) BA was, by
any measure,
a large commercial enterprise which had the opportunity to obtain
independent advice and which had never sought to set aside the
2000 Agreements
or objected to the fees payable under them, was inconsistent with any conclusion
that BA had agreed to enter the
2000 Agreements under any sort of duress. I am
unpersuaded that the Expert ignored this matter, to the extent that it was
before
him. H e sought further information from both parties to come to a better
understanding of the rather distant historical circumstances
surrounding the
MoU, and neither was able to assist with contemporaneous records. But the MoU
was even more remote in time than the
2000 Agreements; and it was not legally
binding, and so did not provide any sound evidence of a "sale" for comparison
purposes. That
the initial fee under the 2000 Agreements was less than that
referred to in the MoU does not mean that the 2000 Agreements necessarily
provide useful evidence informing the valuation 10 years later. And the
circumstance that between the MoU and the 2000 Agreements
BA had been able to
negotiate some reduction in price does not detract from the conclusion that, due
to its vulnerability to TXA's
monopolist position, the 2000 Agreements were an
unsafe guide to what was a "reasonable fee (having regard to the rates charged
to
the other third parties for the use of facilities located on the Tower)" in
2011.
- The
fourth was that the Expert erred in treating the creation of the access
regime in the Broadcasting Act as a matter that effected a relevant
change of circumstances between the date of the execution of the 2000 Agreements
in 2000, and
2011: it was said that the access regime in the Broadcasting Act
could only be a relevant change if it had the capacity to apply to the
benefit of BA in relation to the Towers, whereas Broadcasting Act, Sch 4,
Pt 5, s 42, makes clear that only the holders of a commercial television licence
or a "National Broadcaster" (meaning, in effect, the ABC or
SBS) can seek access
under the access regime, and as BA is not the holder of a commercial television
licence nor a "National Broadcaster",
the access regime in the Broadcasting
Act cannot constitute a material change of circumstances from those which
prevailed in 2000 relevant to BA and TXA. However, the Expert's
reasoning was
that whereas in 2000 there was no access regime in place that could moderate the
fees that TXA could charge to BA ([39(a)]),
the parties knew one was likely
([39(c)]); by 2010 there was in place an access regime, which, where it applies,
confines TXA to
a price representing cost plus a reasonable return ([29]); that
approach to valuation was relevant to but not determinative of what
was a
reasonable free - regardless of whether or not BA was an eligible applicant
under the access regime ([29]); moreover, the existence
of the access regime was
an influence on the prices negotiated with third parties ([47]).
- The
fifth was that the Expert's conclusion that the advent of the access
regime under the Broadcasting Act represented a change of circumstances
from those which prevailed in 2000 was inconsistent with his statement that he
did not decide
whether BA could avail itself of the access regime under the
Broadcasting Act, and with his conclusion that the 2000 Agreements were
negotiated in the shadow of the impending creation of the access regime in the
Broadcasting Act . But the point of the Expert's reference to the
introduction of an access regime - as had admittedly been anticipated in 2000 -
was
not that it applied to BA, but that its materialization resulted in the
development of a market, and a mechanism for third parties
to access it, which
did not exist in 2000 but by 2011 provided relevant guidance, not available in
2000, better to inform the valuation
exercise.
- The
sixth was that insofar as the Expert's application of the access regime
in the Broadcasting Act was in the nature of an analogical application of
its terms outside of their strict application, the Expert has again misconceived
his function and adopted the role of competition regulator and not an Expert
charged with determining what BA and TXA, from the subjective
point of view of
those parties, would find was a reasonable Initial Fee on Renewal; and that if
the access regime in the Broadcasting Act did not apply in its terms (and
it did not) it was not a matter that could reasonably inform what subjectively
BA and TXA might agree
on as a reasonable fee for the Initial Fee on Renewal.
However, this submission again understates the objective, and overstates the
subjective, aspects of the Expert's task. And he has not acted as a "competition
regulator", but rightly considered that the access
regime, which influences what
TXA can charge third parties, informs what is a "reasonable fee (having regard
to the rates charged
to the other third parties for the use of facilities
located on the Tower)" in 2011.
- The
Expert identified a set of circumstances that prevailed in 2000, when the
Agreements were negotiated - including that BA really
had no choice but to adopt
the site dictated by the ABC, and thus accept the fees dictated by TXA. Ten
years is indeed, in commercial
terms, a lengthy period in which economic
considerations and cost factors change considerably. He reasoned that, in the
context of
an approach to valuation that required setting aside any element that
rendered BA an involuntary or anxious rather than merely willing
purchaser,
those circumstances meant that the fees negotiated in 2000 were not a very
useful guide to what was a "reasonable fee
(having regard to the rates charged
to the other third parties for the use of facilities located on the Tower)" in
2011 - all the
moreso when there had indeed been relevant changes (including the
emergence of a market) which made it possible to ascertain what
was a
"reasonable fee (having regard to the rates charged to the other third parties
for the use of facilities located on the Tower)",
something that was not
possible ten years earlier. Once it is accepted that he was correct to set aside
aspects that might have the
consequence that BA would be more anxious than
merely willing, the conclusion that the (ten year old) Agreements were not of
great
assistance in informing assessment of what was a reasonable fee was
inescapable.
- Accordingly,
the third complaint fails.
The fourth alleged error - use of DAB Agreements as most relevant
comparable
- TXA's
fourth complaint is that, in concluding that it was appropriate to use the fees
payable by BA to TXA for use of the Towers to
provide DAB services to the ABC as
the most relevant comparable transaction, the Expert was manifestly erroneous
and erred in law,
because DAB is not properly comparable with digital television
broadcasting, for reasons that include (but are not limited to) that
the latter
yields greater commercial return to its providers than DAB.
- TXA
invoked the judgment of the High Court in Maurici v Chief Commissioner of
State Revenue [2003] HCA 8; (2003) 212 CLR 111 for the propositions that (1) the use of
sales evidence as comparable sales for the purposes of ascertaining value where
the sales
are not truly comparable is an error of law; (2) sales are not truly
comparable and capable of providing a reliable indication of
value if the
supposedly comparable asset is one that will attract a different type of
purchaser than the subject; (3) an essential
element of a truly comparable sale
capable of providing a reliable indication of value is that it is comparable
from the point of
view of the purchaser and the value the purchaser looks to
extract from the asset; and (4) to provide reliable evidence of value,
sales
evidence must be sufficient in volume, so that one piece of sales evidence will
not suffice. In particular, reference was made
to the following passage (at
[18]) (citations omitted):
... In valuing the land, the respondent's valuer, ... "ignored a principle of
assessment of [value]", the principle being, that sales
to be treated as
comparable sales need to be truly comparable; or, to put it another way, in
valuing the land the respondent's valuer
did not proceed rationally, in that he
was unreasonably selective in ultimately confining himself to two sales of
scarce vacant land
for the purposes of the comparison. The respondent could not,
and did not suggest that he would be performing his statutory duty
if he made
other than a fair estimate of the value of the subject land. A fair estimate
could only be made here on the basis of a
fair, that is to say, a reasonably
representative group of comparable sales. A group of comparable sales cannot be
representative
if it does not go beyond sales of scarce vacant land. That is not
to say that sales of comparable vacant land may not provide useful
evidence of
value. But as J F N Murray observes in Principles and Practice of Valuation
[4 th ed (1969), p 120] in discussing valuations under federal land tax
legislation of land in its notionally unimproved state, "sale
evidence [must
be] relevant and sufficient in volume " (emphasis added). So too, sales
relied on, such as of scarce vacant land, are likely to be to a special and
different class of buyer
from buyers of improved land. As Waddell J said in
Sher v Commissioner for Main Roads [(1975) 24 The Valuer 150 at
151], sales of properties of a different character are likely to attract a
different class of buyer and are unlikely to provide
a reliable indication of
value.
- I
do not agree that Maurici establishes that the use by a valuer of sales
for the purposes of ascertaining value where the sales are not truly comparable
is necessarily
an error of law. In Maurici , the Chief Commissioner had
proceeded to ascertain the unimproved value of improved land in Hunters Hill by
reference to very scarce
sales of unimproved land in the vicinity (which, due to
its rarity, had a higher value), and ignoring comparable sales of improved
land;
that amounted to ignoring a valuation principle resulting in the valuer not
performing his statutory duty of making a fair
estimate of value. This was an
appellable error because deliberate exclusion of a significant and substantial
body of relevant sales
had the consequence that the valuer could not perform his
statutory duty of ascertaining a fair value, by reason of ignoring a principle
of valuation. However, not every decision as to whether a sale is or is not
sufficiently comparable to be taken into account amounts
to disregarding a
principle of valuation. Valuation is an inexact science, and precise correlation
with a comparable transaction
is often impossible. Even where there are multiple
similar transactions - such as units in the same building - differences in size,
elevation and aspect will often mean that adjustment is required. Comparability
is a question of degree, and sometimes the only available
sales evidence will
involve property with quite marked differences from the subject, in which case
extensive adjustment using the
valuer's professional judgment will be required.
Thus "errors" in valuation methodology are, at least generally speaking,
mistakes
in the course of doing what the contract requires, within the judgment
of the valuer, and are not errors of law [ Strang Patrick Stevedoring Pty Ltd
v James Patrick & Co Pty Ltd (1993) 32 NSWLR 583, 592; Holt v Cox
, 594]. In Maurici , the valuer, in performing a statutory function,
wrongly determined to ignore a highly relevant body of available sales evidence.
That is far removed from making a determination whether a particular body of
sales is sufficiently similar to the subject to provide
some relevant evidence,
to which adjustments can then be made to allow for the differences. That this is
so is apparent from the
acknowledgement, in the passage in Maurici cited
above, that the statement that a group of comparable sales cannot be
representative if it does not go beyond sales of scarce
vacant land, does not
mean that sales of comparable vacant land may not provide useful evidence of
value.
- The
Expert rejected the relevance of the fees paid by the Networks to TXA because
they "are not at arm's length as they are shareholders
of TXA and the amounts
paid do not vary in a manner consistent with the amounts paid by other parties".
- The
Expert identified four relevant third parties who paid for services from the
Towers: SBS stand-by services, DAB services for ABC
and SBS, and community
television broadcasting in Melbourne and Perth. He also identified the factors
he had taken into account "that
may influence the fees negotiated by a third
party", being the service provided, the costs and non-fee benefits to TXA and
other
terms of the relevant agreement, market conditions (in substance, the
availability of broadcast infrastructure other than TXA's),
the existence of an
access regime and " TXA's submission as to the factors it uses to determine a
fee ". The Expert explained that he had had regard " to the amounts paid
by third parties and other transactions between BA and TXA ", but gave more
weight to the DAB services than to other potentially comparable services. In
doing so, h e recorded both BA's submission
that the DAB services were "directly
comparable" and "very comparable" to the services provided under the 2000
Agreements , and the
following submissions of TXA (at [50]-[51]):
TXA submitted that the DAB service is not comparable to the ABC digital
television service, as:
(a) "radio is a completely different medium to television with substantially
less extensive production costs and substantially lower
advertising revenue and
cannot sustain the same transmission costs as television";
(b) "in relation to the DAB services provided to BA in respect of SBS, in
addition to the ongoing fees, BA made significant upfront
capital payments to
TXA in respect of the DAB infrastructure, which BA did not do in relation [to]
the broadcast communication transmission
infrastructure which is now used to
transmit the ABC"; and
(c) "DAB is a relatively new technology".
In reply to BA's Submission, TXA further submitted that the services were not
comparable, stating:
(a) "only the tower space (or aperture) is shared - the DAB antenna is
completely separate, as is the whole transmission system, including
combiners
and feeders";
(b) "DAB services use a bandwidth of 1.5MHz, whereas the ABC digital
television services used a bandwidth of 7MHz" (but did not discuss
why this is
relevant);
(c) "BA's analysis only takes into account 1 DAB ensemble or service per
Site, whereas in Sydney and Brisbane there are 3 services
and in Adelaide and
Perth there are 2"; and
(d) "BA made a $X capital contribution towards the rollout of DAB services".
- The
Expert dealt with these submissions as follows (at [52]):
In my opinion, the agreements between BA and TXA for the DAB services are the
most comparable agreements as:
(a) they are agreements between the same parties, TXA and BA;
(b) they were agreed relatively recently, having been signed on 6 February
2009;
(c) BA had the option of using its own facilities, as it did in Melbourne;
and
(d) they were for a portal service (as with the ABC Digital TV Standby
service) for digital transmission (as with the ABC Digital
TV Standby Service)
and, when used in the same Towers, are used in the same zone of the Towers (VHF
Band III).
- Thus
the Expert found that the fees paid to TXA by BA for the use of the Towers to
provide DAB services provided the most relevant comparable for the
purposes of determining the Initial Fee on Renewal, and used them to establish a
starting point, by grossing
up the fees paid to TXA in connection with DAB
services to account for capital contributions made by BA in respect of those
services
(being $X per annum), and which he then adjusted having regard to
various differences between the DAB transactions and the Agreements
(at [79(e)],
to determine the Initial Fee on Renewal. T he Expert (at [52]) gave four reasons
for adopting DAB services as the relevant
comparator. Contrary to TXA's
approach, an assessment of comparability does not involve independent analysis
of each of these four
reasons; they are inter-related and must be viewed as a
whole. However, the significance of the first - that the relevant agreements
were between the same parties (BA and TXA) - is that because the DAB Agreements
were also between TXA and BA, they would have been
influenced by the subjective
positions of the very same parties - thus (unlike third party transactions)
taking into account the
subjective aspect that TXA contends should have been
considered. The significance of the second - that the DAB transactions were
relatively recent - is that a recent transaction is far more likely to provide
relevant market evidence at the date of valuation
than one that is a decade old.
The third - that BA had the option of using its own facilities to provide DAB
services - is significant
because it means that, as BA had the option of using
its own facilities where it contracted with TXA to use its Towers for the DAB
services, the fees agreed were commercial, and therefore reasonable;
consistently with the approach, which I have accepted to be
correct, that
excludes the factor of compulsion which impinges on the 2000 Agreements.
- As
to the fourth reason - that they were for portal services and located on the
same zone of the Towers as the subject services -
which I accept is fundamental
to the question of comparability, both parties adduced expert evidence - as to
the similarities and
differences between digital television broadcast services
and DAB services - from experienced engineers in the broadcast industry:
Mr
Peter Gough and Mr Chris Gill, between whom there was a significant measure of
agreement, as to the following matters:
(a) the data carrying capacity (or "payload") of the digital television
signal broadcast by TXA under the 2000 Agreements is 23 megabits
per second (
mbps ), which is significantly - 6.66 times - greater than the data carrying
capacity of all the DAB signals broadcast
by TXA, namely 3.456mbps;
(b) related to (a), the product transmitted by a digital television signal is
different to the product transmitted by the DAB signal:
the former consists of
moving pictures and sounds (television), whereas the latter is sound only
(radio);
(c) it is intended that analogue television cease broadcasting in 2013, which
will leave digital television as the only television
broadcasting service, but
there are no similar plans to phase out analogue radio broadcasting, which
predominates in the radio industry
over DAB. As a result, digital television
transmission is of much greater relative importance to the consumer - and
therefore to
a television broadcaster - than digital audio transmission to a
radio consumer and broadcaster; and
(d) the broadcast of ABC digital television occurs on channel 12 of Band III
of the spectrum reserved for TV broadcasting, which has
a bandwidth of 7
megahertz ( MHz ), whereas all DAB broadcasting occurs in channel 9A in Band
III, which is currently 6MHz wide and
carries up to three frequency blocks of
1.536MHz, which together can carry upwards of 50 separate radio programs.
- Mr
Gough concluded that "whilst there are some technical similarities between
[digital television broadcasting] and DAB, there are
significantly greater
technical differences between those two forms of broadcasting". Significantly,
Mr Gough focuses on the "forms
of broadcasting". On the other hand, Mr Gill
concluded that "digital radio broadcasting and digital television broadcasting
can be
considered comparable services", focusing on "the point at which the
digital radio service and/or digital television service pass
from BA to TXA".
TXA submits that the effect of the "narrow" focus of Mr Gill's opinion is, as he
concedes, that the points of comparison
he identifies can only inform the
cost of the provision of digital television and digital broadcasting
services, as distinct from the price that might reasonably be charged for
those services insofar as the latter reflects the value of the services to
the purchaser , demonstrating that the point of comparison between digital
television broadcasting and DAB on which the Expert rested his conclusion
(that
they were both portal services) was relevant, and only relevant, to the cost
of providing the services, as distinct from what was a reasonable price for
them. TXA emphasized that w hen asked whether there was
a recognised body of
opinion which regarded DAB as sufficiently comparable to digital television to
justify taking the former into
account when determining what the fees for the
former should be, Mr Gill, who has 40 years international experience in the
broadcasting
industry, said:
With the exception of the Final Determination by Tony Samuel about this case,
I am not aware of other commercial contracts or expert
opinion that have
previously regarded digital audio broadcasting services as sufficiently
comparable to digital television broadcasting
services in order to justify
taking the price of digital audio broadcasting services into account when
determining renewal fees.
- TXA
submits that, by using DAB as the comparator for digital television broadcasting
services, the Expert adopted a comparison that
wholly ignored the value
of the service being provided to the purchaser, and therefore what price
they would reasonably be prepared to pay for it, and that
the matters that
inclined Mr Gough to the view that DAB and digital television were not
comparable were substantially associated with what value the purchaser (BA)
might extract from the product: digital television has
more data carrying
capacity than DAB; it includes pictures as well as sound; it occupies more space
on the broadcasting spectrum
(what is, in effect, "broadcasting real estate");
and it is of more significance in the television broadcasting industry than DAB
is in the radio broadcasting industry. It is said that commercial parties in the
position of BA and TXA negotiating the Initial Fee
on Renewal would consider not
only matters that inform the cost (to TXA) of providing the service, but also
matters that inform the
value the purchaser extracts from the service, and that
an expert standing in their shoes to ascertain a reasonable Initial Fee on
Renewal, should also do so.
- I
agree that a reasonable fee must take into account, not only the cost to TXA of
providing access, but also the value of the benefits
derived by BA from its
provision - just as rents for premises are influenced to some extent by the
profits that the tenant can generate
from their use. But within those
parameters, the weight to be attributed to each of the elements of cost recovery
and profit share
is a matter for professional judgment.
- It
is to be remembered that the nature of the service being provided by TXA to BA
was, essentially, access the Towers from which to
broadcast, and in that respect
there was close comparability with the DAB transactions. Most of the differences
pointed to through
the expert evidence pertain to technical radio transmission
matters, such as the respective characteristics, payloads, and spectrum
use of
DAB signals and DTV signals. TXA was not granting BA a licence to broadcast, or
to use a particular part of the spectrum,
nor foregoing an opportunity to do
itself; it was granting a licence to place the ABC Equipment on TXA's Towers and
linking it to
TXA's equipment to feed the signal to that equipment. The subject
matter of the 2000 Agreements was not space in the broadcasting
spectrum, but
space on the broadcasting Towers .
- Moreover,
the commercial advantages to the broadcaster of digital television over DAB are
less significant in this case, where the
broadcaster is the ABC. While TXA
submitted that evidence before the Expert demonstrated that much greater value
could be extracted
from television broadcasting than from radio broadcasting, in
that in the order of $3.68 billion was spent on television advertising
in 2010,
as distinct from $612 million on radio (of which DAB likely represented only a
small percentage, because in that year only
5.6% listened to digital radio,
while around 100% had access to analogue radio), and that "radio is a completely
different medium
to television with substantially less extensive production
costs and substantially lower advertising revenue and cannot sustain the
same
transmission costs as television", the extraction of commercial revenue from
television advertising was irrelevant in the present
case, as the broadcast
facility was being procured for use by the ABC, which does not broadcast
commercial advertising.
- In
this context, and bearing in mind that the statutory access regime provided for
TXA to charge only a reasonable return on cost,
it is impossible to see error in
giving predominant weight to the cost factor, and in those circumstances no
legal or manifest error
was involved in treating the DAB transactions as the
most relevant comparables to provide a starting point for adjustment having
regard to differences.
- Notably,
the Expert concluded that a cost basis alone would provide insufficient reward
to TXA (see at [75]-[77], [79(a)]). He was
conscious of the need to have regard
as well to "the relative value derived by the users" (see [76]). He adjusted the
results derived
from the DAB Agreements to take into account "other factors
including the additional reach of the ABC service, the Agreements, ...
and the
financial consequences of the fee itself" (see [79(e)]. Absence of specific
reference to the greater commercial potential
and the use of spectrum, where he
did refer to the "additional reach" of the ABC service, does not mean that those
matters were overlooked.
To the contrary, the passages to which I have referred,
read together, demonstrate that in the adjustments he made, he took into
account
the value to the user - BA - of the additional potential and reach of digital TV
over and above that of DAB.
- In
my view, it has not been shown that the Expert erred in selecting the DAB
Agreements as the best comparable starting point, to
which adjustments could be
(and were) then made to take account of differences between them and the subject
Agreements. He did not
treat them as equivalent, but acknowledged that
adjustments were required. The reasons he gave as regarding them as the most
relevant
- albeit not identical - comparable, were sound. He recognized, and
made adjustments to allow for, the relevant differences.
- If
he were wrong in his preference for the DAB Agreements, he was not manifestly
so: if it requires the adducing of contentious expert
opinion before me to
establish error, the error was certainly not "manifest". And if he were in
error, it was not an error of law:
an opinion that the DAB Agreements provided
the best comparable was a matter of valuation judgment, in the heartland of the
professional
expertise for which the Expert was selected. He did not (like the
valuer in Maurici) wholly disregard a relevant body of evidence, such as
to render his approach irrational; nor did he slavishly adopt the prices from
the DAB Agreements without adjustment to recognize that there were differences.
- The
fourth complaint therefore fails.
The fifth alleged error - inadequate reasons
- TXA's
fifth complaint was that the Expert failed to satisfy his obligation to give
detailed reasons in a number of respects, and that
significant aspects of how
and why he reached his conclusions remain unexplained, in particular that while
stating that he had regard
to the financial circumstances of BA and TXA in
reaching the Determination, he did not say how he did so or what particular
circumstances
he took into account, or how he considered the parties' financial
circumstances at all.
- A
failure to give reasons of the requisite standard may amount to an error of law
[ Westport v Gordian, [36]], but in this case the express stipulation in
the Term Sheet that the Expert's determination "shall comprise a detailed
statement
of reasons for the Expert's decision, including explanation of the
methodology used to determine the Initial Fees" means that there
will not have
been a determination for the purposes of the 2000 Agreements such as to bind the
parties if that stipulation is not
satisfied. However, what will amount to a
sufficiently "detailed statement of reasons" in this context is illuminated by
the authorities.
- In
Shoalhaven City Council v Firedam [2011] HCA 38; 85 ALJR 1220, French CJ,
Crennan and Kiefel JJ said (at [26]-[27]):
... The content of the requirement to give reasons must reflect the nature of
the expert determination process, which is neither arbitral
nor judicial. It
must also be informed by the nature of the issues to be determined. Judicial
observations in other cases about contractual
requirements to give reasons in
expert determinations or in arbitrations must be read according to their
context. It may be accepted,
as a general proposition, that a mistake in the
reasons given for an expert determination does not necessarily deprive them of
the
character of reasons as required by the relevant contract nor deprive the
determination of its binding force. There are mistakes
which may have that
effect and others that will not.
A deficiency or error in the reasons given by an expert may affect the
validity of the determination in two ways:
1. The deficiency or error may disclose that the expert has not made a
determination in accordance with the contract and that the
purported
determination is therefore not binding.
2. The deficiency or error may be such that the purported reasons are not
reasons within the meaning of the contract and, if it be
the case that the
provision of reasons is a necessary condition of the binding operation of the
determination, the deficiency or
error will have the result that the
determination is not binding.
- Gummow
and Bell JJ observed (at [39]) that "[t]he character and quality of the
"reasons" [required of an Expert] in any particular
instance may be expected to
respond to the nature of the issues before the Expert for determination".
- I
accept that in this case, the standard of reasons required of the Expert more
closely approached that expected of judges, or arbitrators
deciding commercial
cases, than may often be the case. This is for a number of reasons. First,
the Term Sheet expressly requires "a detailed statement of reasons.
S econdly , the parties expressly provided for wider than usual rights to
challenge the binding nature of the Determination, including error
of law and
manifest error; just as the judicial and arbitral obligation to give reasons
exists in part to facilitate an examination
by a court on appeal of a decision
for error of law or other error, so here that rationale applies with similar
force. Thirdly , the issues before the Expert were complex; he received
detailed submissions that involved "something in the nature of an intellectual
exchange", so that the issues before him were not merely matters of impression
susceptible to a so-called "look-sniff" reference
[cf Bremer Vulkan Schiffbau
und Maschinenfabrik v South India Shipping Corp Ltd [1981] AC 909, 919
(Donaldson J)].
- Accordingly,
I accept that the content of the Expert's obligation to give reasons in the
present case is aptly described in the following
passage from the judgment of
the Victorian Court of Appeal in Oil Basins Limited v BHP Billiton Limited
[2007] VSCA 255; (2007) 18 VR 346, 367-368 (Buchanan, Nettle and Dodds-Streeton JJA),
recently referred to with approval by the High Court in Westport v Gordian
(at [53], fn 35) :
[57] ... [I]n complex commercial arbitrations, it may appear that the
determination of the dispute demands reasons considerably more
rigorous and
illuminating than the mere ipse dixit of a 'look- sniff' trade referee. And in
cases like the present, which involve
an intellectual exchange with reasons and
analysis advanced on either side, conflicting expert evidence of a significant
nature and
substantial submissions, the parties to the dispute are almost
certain to be left in doubt as to the basis on which an award has
been given
unless the reasons condescend to an intelligible explanation of why one set of
evidence has been preferred over the other;
why substantial submissions have
been accepted or rejected; and, thus, ultimately, why the arbitrator prefers one
case to the other.
Hence, in our view, the reasons in this case should have been
of that standard.
- That
said, it is to be observed that that passage does not dictate that it will
invariably be necessary to explain why every unsuccessful
submission has been
rejected; the touchstone is that the reasons should enable the parties to
understand the basis on which the determination
had been made.
- TXA's
contends that a fundamental obscurity attends why and how the Expert has reached
his conclusion, on accounts of the following
matters, individually and
cumulatively:
(a) While the Expert stated that he had had regard to the rates charged
for services provided to a number of other third parties who use
the Towers for
services other than DAB - being the SBS standby service, and two community
broadcasting channels - and that he had
assessed the amounts those third parties
pay by reference to a number of cr iteria, nowhere did the Expert explain how
those criteria
were applied to each of the third party services, or how the
facts and his assessment of the criteria in each case influenced his
assessment
of a reasonable fee under the 2000 Agreements . However, the Expert noted
(at [46]) TXA's submission that those services were not comparable; listed (at
[47]) the factors which
influenced comparability of rates charged to a third
party; and concluded (at [48]) that while having regard to those arrangements
he
did not do so in isolation and gave more weight to the DAB agreements. His
treatment of those rates did not require further exposition,
particularly in
circumstances where the DAB agreements were treated as the predominant
comparable, and his analysis of them was disclosed
(at [53], [54], [79] and
[80]); given the partly intuitive nature of the valuation exercise when
adjusting comparables; and bearing
in mind the constraints of confidentiality
(as to which see [46]);.
(b) The Expert's treatment of the relevance of the access regime under the
Broadcasting Act contained the alleged inconsistency referred to at [73] above,
which inconsistency was said to be unexplained . However, for the reasons
also advanced at [73] above, there was no such inconsistency.
(c) While the Expert stated that he had considered the financial
consequences to TXA of his determination "in conjunction with charging
TXA's
shareholders arm's length amounts", he did not say what he had determined to be
the "arm's length amount" he considered TXA
should charge its shareholders, nor
how he had ascertained that amount, what evidence and methodology he had used to
ascertain it
and how that "arms-length amount" - whatever it was and however it
had been ascertained - had been applied by him to inform his assessment
of the
"financial consequences to TXA" of his Determination. However, the Expert
rejected (at [56]) the amounts paid by TXA's shareholder networks as a
comparable, because they were not at arm's
length and did not vary in a manner
consistent with the amounts paid by other parties. [Redacted]. But he added (at
[57]):
In determining a reasonable fee, I have considered the financial consequences
for TXA of charging the reasonable fee to BA as determined
by me in conjunction
with charging TXA's shareholders arms-length amounts.
The Expert explained his approach (at [61]). He specifically considered
whether there would be an unreasonable positive effect on BA (at [62]).
It was not necessary for the Expert to determine an "arm's length amount" that
TXA should (notionally or otherwise)
charge its shareholders; provisional
determination of the amount payable by BA would sufficiently enable comparison
with the amounts
actually paid by TXA's shareholders to inform a view as to the
consequences to TXA of the determination "in conjunction with charging
TXA's
shareholders arm's length amounts". In my view the Expert's rationale is clear
enough without further exposition in this respect
- again, bearing in mind the
constraints of confidentiality (as to which see [55] and [60]).
(d) While the Expert said that he had had regard to the financial
circumstances of BA and TXA in arriving at his Determination, he did
not, even
at a general level, explain how he had had regard to them and what those
circumstances were. However - in addition to the foregoing (at (c) above) -
the Expert was constrained by confidentiality from descending to much detail
(see at [60]); moreover, it is clear enough that while aware that the
Determination would result in BA having markedly reduced outgoings
[redacted] in
connection with the 2000 Agreements, he considered that if TXA's
shareholders were treated at arm's length it would not have an unreasonable
detrimental impact on TXA nor an unreasonable positive
impact on BA (see [62]).
(e) While the Expert addressed TXA's submission that BA's approach to the
reasonable Initial Fee on Renewal would prevent cost recovery
by TXA, and said
that he had drawn his own conclusions on the basis of the documents supplied to
him, he did not explain what that
conclusion was or how he had reached it.
However, it is clear that he rejected the approach urged by BA in this
respect, as it would result in a lower than reasonable fee
(see [77]). The
Expert noted (at [67]-[69]) that both TXA and BA had submitted that the range in
which a reasonable fee could fall
was bounded (on the high side) by the
stand-alone cost to BA of building a facility to replicate the Towers and (on
the low side)
by the avoidable costs to TXA were it not to provide the services
under the 2000 Agreements; (at [70]) that the submissions of BA
and TXA as to
the cost of providing the facilities at the Tower and the weighted average cost
of capital applied to those costs were
"reasonably similar," and (at [71]) that
the primary difference between BA and TXA was in the allocation methodology used
to allocate
the costs of the Towers between BA and the other users of the
Towers. He rejected (at [72]) TXA's submission that all of the costs
should be
allocated to BA. He also rejected (at [74]-[77]) BA's allocation methodology
that, in his view, allocated too little to
BA.
(f) While the Expert noted TXA's submission that a reduction in the fees
paid to TXA under the 2000 Agreements would financially benefit
BA and be
detrimental to TXA for no good commercial reason, he did not say what his
conclusion was in relation to that submission
or how and why he had reached it.
However , the Expert was amply aware that a reduction in fees payable to TXA
would be relatively beneficial to BA and detrimental to TXA vis-a-vis
the status
quo, but considered that result appropriate in the context of determining what
was a reasonable fee, bearing in mind the
non-arm's length fees charged to TXA's
shareholders (at [57]).
(g) While the Expert said that he had adjusted the amounts paid for DAB
services to allow for "other factors including the additional
reach of the ABC
service, the 2000 Agreements, the amounts paid by other third parties, TXA's
costs and financial consequences of
the fee itself", and that he had made that
adjustment on the basis of "business judgment", he did not explain how he had
brought
to bear his judgment on those issues, what his judgment was in relation
to them, and how he had applied it to produce the result
he reached .
However, the considerations that informed these final adjustments, reflected in
[79(e)], are explained; their quantification is
a matter of holistic value
judgment, of the type in which valuers must often engage, incapable of further
exposition. To the extent
that it was capable of further exposition by reference
to the financial position of TXA and/or BA, that would have involved revealing
confidential financial information.
- To
the above might be added the following matters, advanced by TXA under its fourth
ground of complaint but more conveniently addressed
here:
(h) The Expert failed to deal with the submission that radio is a
completely different medium to television with lower production costs
and lower
advertising revenue and cannot sustain the same transmission costs as television
and therefore erred in law . However, he recorded the submission (at [50(a)]
of the Determination), as well as TXA's other submissions as to why DBA was not
comparable (at [50] and [51]), and then set out (at [52]) his conclusion that
the DBA Agreements were the most comparable transactions,
and his reasons for
that conclusion. Those reasons appearing in the context of the competing
submissions that precede them, I do
not accept that it can be said that the
Expert has overlooked, or failed to take into account, the submission in
question; and he
has given reasons for reaching a different conclusion.
(i) The Expert failed to deal with submissions to the effect that, even if
DAB could be considered an appropriate comparator for digital
television
broadcasting, a significant adjustment needed to be made to reflect that he was
not comparing like services from a spectrum
or bandwidth perspective; and
ignored the fact that while TXA was able to generate further significant revenue
for DAB services from
the unused spectrum left on the DAB channel after the DAB
service provided to BA is accounted for, it cannot do in respect of the
ABC
digital television services because they use all the spectrum available on the
channel. However, a gain, I do not accept that the Expert failed to consider
this submission, having recorded it (at [51(b)]) immediately before
his
conclusion (at [52]) that the DAB Agreements were the most comparable and his
reasons for it . The Expert's allowance for the
differences is to be found in
[79(e)], where he adjusted the results derived from the DAB Agreements to take
into account "other
factors including the additional reach of the ABC service,
the Agreements, the amounts paid by other third parties, TXA's costs and
the
financial consequences of the fee itself".
- Regardless
of those answers to the several particular complaints, I do not accept that
"fundamental obscurity" attends why and how
the Expert reached his conclusion. T
he Expert rightly noted the tension between the requirements that he provide a
detailed statement
of reasons, and that he keep confidential information
supplied to him by the parties on a confidential basis, and resolved this by
stating that his report contained his " detailed reasoning and methodology,
but not any calculations that rely on confidential information ". He
identified his methodology and gave sufficiently detailed and comprehensive
reasons to enable its essence to be understood.
In particular, his reasons
enable the reader to understand that he adopted a "hybrid" approach of the type
described in MMAL ; that he determined that the DAB Agreements provided
the best comparable (though requiring further adjustments), and why; that he
considered that the 2000 Agreements were of little assistance as a comparable in
2011, and why; that he considered that the fees
paid by TXA's shareholders were
not of assistance as a comparable, and why; and what factors he took into
account in making an holistic
adjustment to the amounts derived from the DAB
Agreements, to allow for the differences between them and the subject Agreements
and
other considerations. In my judgment, his reasons - although, for
confidentiality reasons, not providing calculations - satisfy the
contractual
obligation to give reasons that were detailed, as opposed to simply producing a
dollar figure as the Initial Fee on Renewal.
(This conclusion relieves me of the
need to consider BA's submission that the Court could resolve any defect in
reasons without holding
the Determination to be not binding, by making an order
pursuant to (NSW) Supreme Court Act 1970, s 65, that the Expert give
further and better reasons).
- The
fifth complaint therefore fails.
The sixth alleged error - manifest unreasonableness
- TXA's
sixth complaint is that the Determination is manifestly unreasonable, in that
it: (1) effects a X% reduction in the fees that
had been payable by BA to TXA in
the year prior to the renewed term, while providing BA with a "windfall" gain
over the rate of return
it had assessed as adequate when negotiating the price
paid to it by the ABC under the ABC Agreement; and (2) proceeds on the basis
that digital television services and DAB services are comparable when it is
obvious that the value of those services to those who
obtain them are
significantly different - a circumstance that would have been taken into account
by the parties when negotiating
the renewal fees. It is said that, apart from
any specific error of law or manifest error, the result arrived at by the Expert
is
one which lies outside the range of Initial Fees on Renewal at which the
Expert could reasonably arrive, considering the circumstances
from BA and TXA's
subjective point of view.
- Although
BA submitted to the contrary, I accept that manifest unreasonableness in an
expert determination - that is, unreasonableness
in the Wednesbury sense
- would amount to error of law, and that this would be established in the case
of a determination so extravagantly large or
inadequately small that it leads to
the inference that some error though not precisely identified must have
occurred. This accords
with the statement of Denning LJ, as he then was, in
Dean v Prince [1954] 1 Ch 409 (at 427) , in the context of an appeal from
a judgment on a challenge to a valuation of shares in a private company by an
auditor
pursuant to the company's Articles of Association (emphasis added):
Even if the court cannot point to the actual alleged error, nevertheless, if
the figure itself is so extravagantly large or so inadequately
small that the
only conclusion is that he must have gone wrong somewhere , then the court
will interfere much in the same way as the Court of Appeal will interfere with
an award of damages if it is a wholly
erroneous estimate.
- To
like effect is the following observation of Dixon J (as he then was) in Avon
Downs Pty Limited v FCT , that a decision by an administrative official
might be liable to review if (at 360):
The conclusion he has reached may, on a full consideration of the material
that was before him, be found to be capable of explanation
only on the ground of
some misconception ... It is enough that you can see that in some way he must
have failed in the discharge
of his exact function according to law.
- In
Dean v Prince, Denning LJ said (at 427) that "if the courts are satisfied
that the valuation was made under a mistake, they will hold it not to be
binding
on the parties". Later, in Campbell v Edwards [1976] 1 All ER 786, his
Lordship withdrew that observation (at 788c):
In former times (when it was thought that the valuer was not liable for
negligence) the courts used to look for some way of upsetting
a valuation which
was shown to be wholly erroneous. They used to say that it could be upset, not
only for fraud or collusion, but
also on the ground of mistake. See for instance
what I said in Dean v Prince. But those cases have to be reconsidered
now. I did reconsider them in the Arenson case [[1973] 2 All ER 235,
[1973] 1 Ch 346]. I stand by what I there said. It is simply the law of
contract. If two persons agree that the price of property should be fixed by
a
valuer on whom they agree, and he gives that valuation honestly and in good
faith, they are bound by it. Even if he has made a
mistake they are still bound
by it. The reason is because they have agreed to be bound by it. If there were
fraud or collusion, of
course, it would be different. Fraud or collusion
unravels everything.
It may be that, if a valuer gives a speaking valuation - if he gives his
reasons or his calculations - and you can show on the face
of them that they are
wrong, it might be upset. But this is not such a case. ...
- In
Campbell v Edwards, Denning MR did not hold that manifest
unreasonableness was not error of law; rather, his Lordship held that where the
parties had
contracted to be bound by a valuation, then absent fraud or
collusion, error did not vitiate the valuation. In this respect, his
Lordship
(at 788g) distinguished the position of a valuer from that of an arbitrator,
pointing out not only that the former but not
the latter could be sued in
negligence, but also that the latter's award was amenable to review on a number
of bases, including error
of law on the face of the award. In the present case,
the contract to be bound by the valuation was not unqualified, and one of the
exceptions was error of law.
- The
New South Wales cases are to like effect. While, absent fraud or collusion, a
valuation is binding if it was made in accordance
with the contract, and if so
it is beside the point that it proceeded on the basis of error, or was a gross
over or under value,
or took into account irrelevant considerations [ Legal
& General Life of Aust Ltd v A Hudson Pty Ltd , 335-336 (McHugh JA)],
this does not mean that a valuation will stand regardless of error; it depends
on the terms of the contract
[ Holt v Cox , 597 (Mason P)]. If, as in the
present case, the contract provides that the valuation is not binding in the
case of particular classes
of error, then the question is whether such error is
established.
- TXA
submits that the Expert's Determination is outside the range of reasonable
conclusions such as to compel the conclusion that something
has gone seriously
awry, the proper inference being that he has made some error in the performance
of his function. TXA contends
that:
(a) the reduction of more than X% from the fees paid under the 2000
Agreements in 2010 was not within the range of Initial Fees on
Renewal on which
BA and TXA might reasonably agree, particularly as it [redacted];
(b) the Determination rests principally on an assimilation of digital
television transmission services with DAB services when digital
television and
digital radio are obviously fundamentally different, the class of persons who
acquire those services is obviously
different, and the value they produce to the
person acquiring them (and thus the amount they are prepared to pay for them) is
obviously
different, so that no rational commercial parties could ever
reasonably be thought likely to adopt such an inappropriate comparison
to guide
their negotiations; and
(c) The Expert's reasons are otherwise irremediably obscure, and i f the
reasons for his Determination have not been rationally explained,
the proper
inference is that they cannot be rationally explained.
- The
contentions referred to in (b) and (c) above have been addressed and rejected
above, under the fourth and fifth grounds of complaint.
This ground therefore
relies in substance on the size of the decrease in the fees relative to those
previously payable under the
2000 Agreements, and that in the absence of
increased costs to BA this worked a "massive" adjustment in the apportionment of
the
benefits derived from the enterprise in favour of BA.
- The
Agreements did not stipulate that, following exercise of the option, the
immediately preceding fee provided a basis for the new
fee, or even that it was
a mandatory consideration. The new fee was derived from an evaluation of
market-based transactions not in
existence at 2000, and an examination of cost
considerations which were not the subject of debate in 2000. I do not accept
that there
is significance in the circumstance that the result "benefitted" BA,
in the sense that because BA's costs under the ABC Agreement
were unchanged,
there would be a large increase in BA's profits - which TXA characterizes as a
"windfall". Under the ABC Agreement,
[redacted]. To the extent that the result
will improve BA's profitability, the Expert took that factor into account. It is
clear
enough that while aware that the Determination would result in BA having
markedly reduced outgoings [redacted] in connection with
the 2000 Agreements, he
considered that if TXA's shareholders were treated at arm's length it
would not have an unreasonable detrimental impact on TXA nor an unreasonable
positive
impact on BA (see [62]). The circumstance that a reasonable
apportionment of the benefits of the enterprise between BA and TXA, having
regard to the fees paid by third parties, required a very substantial
re-adjustment from the prevailing arrangements made in circumstances
where TXA
was in a position of negotiating strength and before there was any market, does
not bespeak error.
- The
parties agreed that the "bottom end" of the scale would be "avoidable cost" to
TXA, and the upper end "replacement cost" to BA.
In that context,
unreasonableness in the relevant sense might well have been demonstrated had the
result been outside that range.
But the Determination results in a fee that
rewards TXA above avoidable cost, and is not so unreasonably low as to bespeak
error.
Indeed, it could be argued that perpetuating the 2010 level of fees would
be unreasonable. Over the first 10 year period, BA has
- for its partial and
limited use of a facility much more extensively used by TXA's shareholders -
paid TXA a sum in excess of X%
of the capital cost of the facilities. If TXA
were to charge to what is but one partial user X% of the full capital cost for a
second
time over the next 10 years, it would have recovered the whole cost, and
much more, from one relatively minor user.
- The
sixth complaint therefore fails.
Conclusion
- My
conclusions may be summarized as follows.
- First,
while clause 3.2 does not limit the Expert to exclusively market value
considerations, they are given an important role at the first
stage, and the
Expert was not only justified but required to give them an important role at the
second stage. His task was akin to
ascertainment of "fair market value" in the
sense described by Spigelman CJ in MMAL v Bruning. The Expert did not
merely engage in a wholly objective and hypothetical exchange value test
exercise. While he appropriately took
into account, as an important factor,
market considerations (as clause 3.2(a) mandated), he also took into account a
broader range
of considerations affecting the financial circumstances of the
parties. To give objective considerations a predominant (but not exclusive)
significance does not betray a misconception by the Expert of his task. He
undertook the hybrid exercise described by Spigelman CJ
in MMAL v Bruning
. He correctly conceived the task required of him by the 2000 Agreements and
the Term Sheet, and he performed that task. TXA's first
ground of complaint
therefore fails.
- Secondly,
the facilities and services it accessed under the Agreements were of
"special value" to BA. However, this was not the, or even a,
critical relevant
consideration. T he Expert rightly set aside the commercial imperative for BA to
exercise the option. The requirement
that the fee be "reasonable (having regard
to the rates charged to the other third parties for the use of facilities
located on the
Tower)" is antithetical to the suggestion that the valuation
should be on the basis that TXA could, by reason of its monopolist position,
extract whatsoever extravagant price it liked, or that the valuation proceed on
that basis. Moreover, the Expert did not confine
himself to market value, and
did consider the particular use that BA would make of the benefit of the 2000
Agreements, namely the
provision of standby services to the ABC. In any event,
there was the countervailing consideration of how such fee as was set might
impact on TXA's position, where TXA's primary function was to provide broadcast
services to its three shareholders, the three commercial
television channels. As
to the supposed "windfall", the Determination means no more than that there has
been an adjustment in one
input price favourable to BA (which could as easily
have been detrimental), and the Expert has taken that matter into account. The
second ground of complaint therefore fails.
- Thirdly,
the Expert's statement that he took into account the fees payable under the
2000 Agreements, though affording them little weight,
is not to be gainsaid. No
legal error is involved in the weighting accorded to various relevant factors. W
hile the Expert was required
to take into account, as a mandatory consideration,
"the rates charged to the other third parties for the use of facilities located
on the Tower", there was no such stipulation in respect of the rates charged by
TXA to BA under the 2000 Agreements. Once it is accepted
that he was correct to
set aside aspects that might have the consequence that BA would be more anxious
than merely willing, the conclusion
that the (ten year old) Agreements were not
of great assistance in informing assessment of what was a reasonable fee
was inescapable. Accordingly, the third ground of complaint fails.
- Fourthly,
the Expert did not treat the DAB Agreements as equivalent to the subject
Agreements, but acknowledged that adjustments were required.
The reasons he gave
for regarding them as the most relevant - albeit not identical - comparable,
were sound. He recognized, and made
adjustments to allow for, the relevant
differences. Even if he were wrong in his preference for the DAB Agreements, he
was not manifestly
so. And if he were in error, it was not an error of law. The
fourth complaint therefore fails.
- Fifthly,
the Expert identified his methodology and gave sufficiently detailed and
comprehensive reasons to enable its essence to be understood.
In particular, his
reasons enable the reader to understand that he adopted a "hybrid" approach of
the type described in MMAL ; that he determined that the DAB Agreements
provided the best comparable (though requiring further adjustments), and why;
that he
considered that the 2001 Agreements were of little assistance as a
comparable in 2011, and why; that he considered that the fees
paid by TXA's
shareholders were not of assistance as a comparable, and why; and what factors
he took into account in making an holistic
adjustment to the amounts derived
from the DAB Agreements, to allow for the differences between them and the
subject Agreements and
other considerations. His reasons, although - for
confidentiality reasons - not providing calculations, satisfy the contractual
obligation
to give reasons that were detailed. TXA's fifth ground of complaint
therefore fails.
- Sixthly,
the parties agreed that the lower end of the scale for a reasonable fee
would be "avoidable cost" to TXA, and the upper end "replacement
cost" to BA.
While unreasonableness in the relevant sense might well have been demonstrated
had the result been outside that range,
the Determination results in a fee that
rewards TXA above avoidable cost, and is not unreasonably low. The circumstance
that the
result "benefitted" BA, [redacted] - which TXA characterizes as a
"windfall", does not bespeak error: a reasonable apportionment
of the benefits
of the enterprise between BA and TXA, having regard to the fees paid by third
parties, might legitimately require
a very substantial re-adjustment from the
prevailing arrangements made in circumstances where TXA was in a position of
negotiating
strength and before there was any market . The sixth ground of
complaint therefore fails.
- It
follows that all TXA's grounds of complaint fail.
- My
order is, therefore, that the Summons be dismissed, with costs.
- Pursuant
to (NSW) Court Suppression and Non-publication Orders Act 2010, s 7, and
upon the ground referred to in s 8(1)(a) that the order is necessary to prevent
prejudice to the proper administration
of justice, and the ground referred to in
s 8(1)(e) that it is otherwise necessary in the public interest for the order to
be made
and that public interest significantly outweighs the public interest in
open justice, I make a suppression order prohibiting the
disclosure, by
publication or otherwise, of the information specified in the Confidential
Schedule and redacted from the published
judgment. Pursuant to s 9(4), this
order does not prohibit disclosure of the said information to the legal
representatives of the
parties. Pursuant to s 11, it is specified that this
order applies throughout the Commonwealth. Pursuant to s 12, it is specified
that this order operates until the earlier of further order of the Court, or 31
December 2020 (or such other date as the Court might
substitute), unless before
then it has been extended by the Court. I reserve liberty to the parties, and to
any interested party,
to apply by arrangement with my associate to vary or set
aside this order.
**********
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