Eastern Extension Australasia & China Telegraph Company Ltd v Commonwealth [1908] HCA 59;

Eastern Extension Australasia & China Telegraph Company Ltd v Commonwealth [1908] HCA 59; - HCA 1908 case summary — Zoe

[23]

The plaintiffs contend that the word "reduce" in Article 5 does not include the case of total abolition. They say that the substance of the agreements between them and the Tasmanian Government was that the undertaking should be for the joint benefit of both parties, who were, in a sense, co-adventurers engaged in an adventure from which each party was to derive a benefit, the amount of the plaintiffs' profits as well as the keeping down of the liability of the Government being in substantial part dependent upon the volume of traffic; that the right of monopoly conferred upon them implied a right to make whatever profit they could during its continuance; that the possibility of making a profit was an essential element of the enterprise; and that the guarantee of a minimum income of £5,600 in addition to the subsidy of £4,200 was a guarantee of the amount of actual earnings from the traffic, at some rate, whatever it might be, and not a promise to pay a fixed subsidy. And they say that the total abolition of charges involves a subversion of all these conditions - that the position of the company is changed from that of co-adventurers, entitled to the chance of earning more than £5,600 a year, to that of servants bound to perform any work imposed upon them by the Government for a fixed remuneration, that the natural consequence of the abolition of the charges would be (as in fact it has been) largely to increase the volume of traffic and the consequent working expenses without giving them any opportunity of recouping themselves by increased earnings. Whatever, therefore, might in another context be included in the literal meaning of the word "reduce," they say that, as a promise would be implied on the part of the Government not to do anything which would prevent the substantial continuance of the adventure from which the plaintiffs were to have an opportunity of making profits of an indefinite amount, the word cannot in this agreement be so construed as to have the effect of authorizing the Government to make such a radical change of conditions.

[32]

The charges made for the transmission of what was called Australasian traffic, that is, messages between Australia and the rest of the world, were not regulated by the agreement of 1889, but by other agreements to which other Colonies were parties. The arrangement with respect to this traffic was to charge through rates for messages, and to apportion the total rate amongst the owners of the different lines over which they were carried, the plaintiffs being allowed a specified sum in respect of the Tasmanian cable, and other sums in respect of other cables between Australia and Asia and Africa. The defendants contend that the plaintiffs' receipts in respect of these messages were part of the "moneys ... receivable by them from all sources in respect of such telegrams" within the meaning of Article 5 of the agreement of 1889, and ought to be taken into account in relief of the guarantee. They were, in fact, so treated so long as it was necessary to compute the amount of the earnings of the plaintiffs for the purposes of the agreement of 1883, and, I think, rightly, just as they had been taken into account when it was necessary to ascertain their net profits. The plaintiffs, however, contend that this practice was erroneous, and say that, although the words "such telegrams" primâ facie mean telegrams transmitted by the cable between Tasmania and Victoria, yet upon a proper construction they should be limited to telegrams with respect to which the Government of Tasmania had power to reduce the scale of charges. There is much to be said in favour of either view, but, on the whole, having regard to the practice - necessary while the net profits of the company had to be ascertained, and continued after the account to be taken was limited to one side of the ledger, showing receipts only without disbursements - and to the words "from all sources," to which some effect must be given, I think that the contention of the defendants on this point is correct. The defendants are, however, bound until the plaintiffs' share is lawfully altered to account to them for the moneys payable to them in respect of these messages. This amount up to 31st December 1906 is agreed at £14 19s. 6d.

[36]

The expression to be interpreted is to be found in Article 5 of the agreement of 1889. I need not repeat the Article. The Government (that of Tasmania under this agreement, and now that of the Commonwealth by force of the transfer of 1901) was to have "full power at any time to reduce the scale of charges for the transmission of all or any telegrams to be transmitted by the said cable between Tasmania and the Colony of Victoria, and vice versâ." The scale of charges then in existence was, for private messages of ten words in addition to address and signature, which were not to exceed another ten words, one shilling; every additional word, one penny; for press messages not exceeding one hundred words, two shillings; every additional fifty words or part thereof, one shilling. Let us assume, as I think it was assumed in argument, that in the phrase quoted the words "power at any time to reduce" imply that the power may be exercised from time to time. What then is done when the Government in its exercise "reduces" the scale of charges? Primarily the reduction of a charge means its diminution. When we are offered goods at reduced prices we do not expect to get them for nothing, however cheap they may have been before the reduction. But then it is said that the power may be exercised by successive steps until next to nothing remains, so that when an infinitesimal sum is reached by way of residuum, the charges have been practically abolished. To this there is a plain answer. Assuming the successive exercises of the power, there must be something left, and when that ultimate something is reached, ex vi termini there is neither a reduction to nothing nor an abolition. In truth, the power to reduce involves a direction to leave something, and therefore entire abolition is not an exercise of the power granted. After reduction, therefore, the rate is the residuum; that is, the whole rate as it stood, minus the part or parts taken off. And then the whole agreement could continue to operate as to the residuum.

[37]

Having arrived at the primary meaning of the term to be construed, let us next take it in connection with the rest of Article 5. What aid is thus afforded to construction? There is literally nothing to help the defendants' contention that reduction includes abolition - which, by the way, is very much like urging that the less includes the greater power. But there is something to confirm the company's contention. The guarantee of the difference between the "message receipts" and the sum of £5,600 seems to imply continuing message receipts as the starting point for the calculation of the guaranteed difference. That difference, again, is to be made good "if after any such reduction ... the message receipts shall not in any year of the said current period of twenty years, or of the said extended period of twenty years, by reason of such reduction or otherwise, amount to the sum of £5,600." This passage certainly looks as if there were to be message receipts in every year up to the expiration of the agreement; and if the case of entire abolition as a new species of reduction had been within the view of the parties, one would expect to see the term "message receipts" qualified by some such words as "if any." The final words of the Article draw a sharp distinction between the "subsidy" of £4,200 and the "message receipts guarantee" of £5,600. Any such distinction would be absurd in the absence of message receipts, for then the £5,600 would be subsidy as well as the £4,200. It seems to me also that, beyond the implication that the power to reduce is not a power to abolish, it may be further implied from the terms of the Article that the parties did not intend to give power to reduce to what Mr. Starke has termed the "vanishing point," because the Article evidently contemplates that the total message receipts shall always amount to something substantial - enough to be a factor of some value in the calculations of business men making such an agreement. The reduction made in 1902 left the rates sufficient to secure this result. The defendants' position then gains no support from the context of Article 5. Is it assisted or weakened by any other part of the agreement of March 1889? Article 1 gives the company "the exclusive right of submarine telegraphic communication" between Victoria and Tasmania for twenty years from the 1st of May 1889, subject to determination in the event of an interruption extending beyond twelve months. Now, the exclusive right can only have been a monopoly. There were to be no other cables. The public, therefore, could not communicate except through the plaintiff company's cables; and throughout the period of this concession to them they could charge the then existing rates or "scale of charges," subject, of course, to reduction from time to time. If the power to reduce was a term used by the parties in the sense of a power to "reduce to nothing and abolish," what meaning can be attached to this Article upon the ultimate exercise of such a power, say within six months or even a week of the execution of the agreement? The contention for the Commonwealth must go the length of claiming that such an exercise could have been resorted to, otherwise the whole contention must be abandoned. Would not the grant of "exclusive right" become from that day a grant of nothing, and would not the very term be a mockery? We are not to conclude that in this solemn deed the parties would have used such a term if it carried such a meaning. Let us turn to Article 4, which, in annulling Article 5 of the agreement of 1868, declares it to be the intention of the parties "that ... the whole of the net profits (including the said subsidy) arising in every year from the said line of telegraph shall belong to the telegraph company and their assigns," &c. Can any one read this without admitting that both parties took it for granted that, whatever powers were rightfully exercisable, there would still "in every year" be receipts of the company over and above the subsidy, and therefore arising from the use of the cable by the public, which would be the source of net profits? That view of the parties cannot consist with the intention that one of them should be invested with the power to put an end to such receipts altogether.

[38]

The defendants then can take no comfort from any context of the agreement of 1889. But that document is avowedly "supplemental" to what it designates "the principal agreement," that of 24th January 1868, and in Article 9 the parties covenanted that, except so far as the principal agreement was modified by that of 1889, the principal agreement, so far as its provisions were then subsisting and capable of taking effect, should remain in full force. They intended, therefore, that the agreement of 1868 should as far as possible be treated as written afresh into the agreement of 1889. Article 6 of the principal agreement gives the company "the exclusive right of submarine telegraphic communication" between Victoria and Tasmania for 20 years from the opening of communication, which was the 1st day of May 1869, subject to determination in the event of an interruption extending beyond twelve months. This is the provision, enlarged as to time by Article 1 of the agreement of 1889, which I have already dealt with in connection with that document. Article 8 gives the Government priority in respect of their messages, and provides also that they shall "be entitled to obtain and have the exclusive use of the said submarine telegraph upon giving reasonable notice to the company ... and upon payment to them of an amount equivalent to the cost of the line and the value of the profits thereof including the Government guarantee" - that is, the subsidy - to be determined by arbitration. It is here made clear that it will be necessary for the Government to pay the cost of the line and the value of the profits before they can obtain a title to its exclusive use. But if the defendants' contention is correct they can, by abolishing the rates between the company and the public, obtain, in effect, the exclusive use of the line without any terms whatever. But that cannot be seriously urged. Thus the wide context of the two agreements taken together gives no help to the defendants' contention as to the meaning of the power to reduce rates; and it derives, as I have endeavoured to show, no support from the narrower context of the agreement of 1889 or that of the Article, taken by itself, of which it is part. I think the plaintiff company are justified in attributing to the two documents the meaning that they were to enjoy up to the 30th of April 1909 the monopoly of the traffic and of the profits thereof; that provision was made that the Government should be enabled to see that these profits did not become inordinate, and to that end should have power to reduce the rates in the interest of the individual citizen: yet that it was never contemplated by the parties that nothing should be received in ease of the guarantee of £5,600, or that it should be brought into the position of a mere arbitrary addition to the subsidy of £4,200 a year. The right of the plaintiffs to make some profit cannot be eliminated from a reasoned construction of the two agreements. To do away with the charges altogether would wrongfully annul that right. It would involve the Government in the absolute addition of a sum of £5,600 a year to the subsidy, and take the first named sum out of the category of a guarantee, in which by their own terms the parties have placed it throughout. For they made it a merely contingent liability, payment of the whole of which could never become necessary. In my opinion the construction contended for, instead of carrying out the intentions of the parties in 1868 and 1889, would enable the defendants to defeat those intentions in very material respects. Complete effect can only be given to the compact of the parties by the continuance to the plaintiff company of the opportunity to make some, and perhaps a substantial, profit from the public traffic along their cables. Using the words of Cockburn C.J. in the case of Stirling v. Maitland[1]: - "I look on the law to be that, if a party enters into an arrangement which can only take effect by the continuance of a certain existing state of circumstances, there is an implied engagement on his part that he shall do nothing of his own motion to put an end to that state of circumstances, under which alone the arrangement can be operative," or, as the present Lord Chief Justice of England has put it, "without the continuance of which effect cannot be given to the arrangement." Lord Alverstone C.J. in Ogdens, Ltd. v. Nelson[2], citing Stirling v. Maitland[3], and Telegraph Despatch and Intelligence Co. v. McLean[4]. I hold, therefore, that the Government of the Commonwealth was not entitled to "reduce to nothing and abolish" these rates, for it had impliedly covenanted to do nothing of its own motion to put an end to them, since full effect could not be given to the agreements without their continuance. The Order in Council could not be effective as a lawful exercise of the power to reduce rates. As, therefore, there has been no valid exercise of the power, the plaintiffs are entitled to a continuance of the rates fixed in 1902 until they are reduced in terms of the agreement.

[45]

The articles of agreement under consideration were entered into in March 1889. Four years previously the plaintiffs had at their own expense as a necessary preliminary to the agreement laid a second cable. Taking a general view of the whole agreement the consideration moving to the plaintiff company may be divided into three parts. The first part is the annual payment by the Tasmanian Government of £4,200, being interest at 6 per cent. on the capital cost of the first establishment of cable communication. That amount, described as the "subsidy," is to be paid irrespective of any other portions of the consideration during the continuance of the agreement. The fixing of rates is to be in the hands of the company as it had been previously, but subject to the power of reduction vested in the Tasmanian Government by Article 5. By an Article of the first agreement the company were obliged to hand over to the Government any net profits over £7,000 until the £4,200 subsidy was covered. Article 4 alters that basis of remuneration, declaring it to be "the intention of the parties hereto that the Tasmanian Government shall not henceforth be entitled to have any excess over the sum of £7,000 referred to in that Article refunded to them, but that the whole of the net profits (including the said subsidy) arising in every year from the said line of telegraph shall belong to the telegraph company and their assigns, whether such net profit shall in any year exceed the sum of £7,000 or not;" thus constituting the second part of the consideration, which gave the company substantial compensation for the business risks of their outlay on the second cable, and for working expenses in the opportunity of making profits in a growing business of which they had the monopoly. The third part of the consideration is described in the agreement as the "message receipts guarantee," and is constituted by the following words of Article 5: - "... and the telegraph company and their assigns shall in each year be entitled to take the whole of the proportion of the moneys collectable and receivable by them from all sources in respect of such telegrams, which proportion of such money is hereinafter referred to as the message receipts, and if after any such reduction in the scale of charges, the message receipts shall not in any year of the said current period of twenty years, or of the said extended period of twenty years, by reason of such reduction or otherwise, amount to the sum of £5,600, the Tasmanian Government shall guarantee and pay to the telegraph company and their assigns the difference between the message receipts and the said sum of £5,600; and any payment made by the Tasmanian Government under this Article shall be in addition to the said subsidy, and is hereinafter referred to as the message receipts guarantee."

[46]

In the first agreement of 1868 the company's right to fix rates was uncontrolled. By the agreement of 1883, acted on in this and other respects, though not signed by the parties, a maximum rate was arranged of 1s. for ten words, and 1d. for every additional word for private messages, and for press messages not exceeding 100 words 2s., and 1s. for every additional 50 words or part thereof. Except for that limitation the fixing of rates remained in the uncontrolled discretion of the company, and at the time of the present agreement the rates arranged in 1883 were in force. The present agreement makes no stipulation for a maximum rate, but it gives in the opening words of Article 5 a very important power to the Government in the following words: - "The Tasmanian Government shall have full power at any time to reduce the scale of charges for the transmission of all or any telegrams to be transmitted by the said cable between Tasmania and the Colony of Victoria, and vice versâ." Then follows the rest of the Article which I have already quoted. Except for that stipulation the power of fixing rates is in the company as before. From 1883 to 1895 the amount received by message receipts had to be supplemented by the Government under their guarantee, first under the unsigned agreement of 1883 and later under the existing agreement. But, from 1895 until the abolition of rates by the Commonwealth now complained of, the message receipts received by the company were such as to relieve the Government from the necessity of payments under their guarantee. In 1902 the company and the Commonwealth agreed on a reduction of the rates to ½d. a word for ordinary telegrams, including address and signature, and for press telegrams to 1s. for the first 100 words and 6d. for each additional 50 words. And so the rates continued until 4th December 1906, when the Commonwealth Government, by Order in Council purporting to be in exercise of their powers under Article 5, reduced the rates to nothing and abolished them. In pursuance of that executive action they notified the company that as from 6th December 1906 the scale of charges for transmission of telegrams over the company's cables "were reduced to nothing and abolished."

[61]

Now, there is here no express qualification of the power to reduce the charges. Therefore the power to reduce is a power to reduce without limit, unless there is some limit necessarily implied. The Article enables the company to take - "the company shall be entitled to take" - the whole of the proportion of moneys "collected and receivable by them from all sources in respect of such telegrams;" so that if there is nothing collected or receivable by the company, the company simply takes nothing. Apart from the use of the word "reduce" there is absolutely nothing to indicate that any scale of charges need be left. If any limit of the power to reduce is implied, what is the limit? The only suggested limit of the power is that the reduction must be reasonable. But why is such a limitation to be implied? Who can say even that a clear subsidy of £4,200 per annum, and a guarantee of £5,600 message receipts per annum will not provide a reasonable reward to the company during the twenty years, especially when the grant of a monopoly to the company (Article 1) is taken into account? Even if some limitation of the power were probable under the circumstances, probability is not enough. We have no right to add words to the agreement by conjecture. As Rigby L.J. said in In re Cadogan and Hans Place Estate Ltd.; Ex parte Willis[6]: - "But with regard to all agreements I think it will now be found that the tribunals are more and more disposed to refuse to imply what the parties did not express, and to hold that no implication arises unless there is something amounting nearly to a certainty. By amounting nearly to a certainty, I mean that there is something which the tribunal sees must have been meant by the parties." It is, to my mind, idle to say that we are not now called on to say what is reasonable. It must be shown that such a qualification of the power is necessarily implied; and for this purpose there must be, at the least, some indication of a possible basis on which reasonableness in a contract of this kind is to be estimated. In such a case as this, where there is a definite subsidy, and a definite guarantee in case of reduction, there can be no such basis, and no such necessary implication. It is not uncommon in wills and settlements to find an estate given to an eldest son, with a power for the parent to charge the estate in favour of younger children. In the absence of an express limit to the amount of the charges, there is no obligation on the parent to leave a "reasonable," or any, margin for the eldest son. In such a case it might be urged with at least equal plausibility that the power to charge involved that some "reasonable" surplus would be left for the eldest son. The argument would not succeed; for the parent may charge up to the hilt: Long v. Long[7]. I cannot help feeling that there is a tendency among lawyers to be over-subtle in the interpretation of documents, to import ingenious conjectures into plain words, and to confound what may seem à priori probable with what must be necessarily implied; and it is our duty continually to revert to the fundamental principle, that we are to take the words as expressing the intention of the parties, and not to infer that they mean something more unless the implication be more than highly probable, unless it be clearly necessary. So far, the question is one merely of interpretation of documents, as to which the principles at law and in equity are the same; and my conclusion is that there is at the least a power to reduce without limit, a power to reduce ad infinitum. The difference that remains is the difference between vanishing point and nothing - a difference which is appropriately dealt with by mathematicians, but not cognizable in practical affairs or by the Courts. De minimis non curat lex; and certainly not æquitas.

[63]

If we may look now at the circumstances under which the agreement was made, it seems, according to paragraph 5_a_ of the special case, that the actual message receipts for several years before 1889 were very much below £5,600. The deficiencies in 1884-1887 had varied between £1,461 and £1,736; in 1888 it was nearly £800; and this deficiency in message receipts occurred even after the company had laid a second cable (1885). The agreement in question was for 20 years from 1st May 1889, and if we are to regard probabilities at all, nothing would have been more natural than for the company to make sure of the £5,600 message receipts per annum for the whole term (in addition to the clear subsidy of £4,200 per annum), even if it ran the risk of losing any possibility of profits beyond these payments during the latter years of the term. The company also secured for itself the chance of being allowed to receive the extra profits from message receipts should they exceed £5,600, and it appears that the annual receipts for some years before 1901 were always in fact more than the £5,600. By Article 1 the company secured for itself also the exclusive right of submarine telegraphic communication for the 20 years - a monopoly which would give the company a great advantage over rival companies, and against the Government, in establishing a connection with customers, and in bargaining for a renewal of the agreement. According to the special case, the Government made the laying down of a second cable a "condition precedent" to entering into an agreement so advantageous for the company. Therefore, a bargain as to reduction of cable rates ad infinitum provided that £5,600 message receipts were guaranteed as well as a subsidy of £4,200 per annum - interest at 6 per centum on the first cost of establishing the communication - has no semblance of absurdity or inconsistency. It is said that the abolition of the cable rates would mean a great increase of business to the company and great expenses. But so would any substantial reduction of cable rates; and it is not contended that the reduction must not be substantial. A great deal has been made of the allegations in paragraph 19 of the special case, as to an actual increase in expenses; but I deny that such a fact, if proved, should affect our construction of the agreement. We should seek rather to know what the parties had before their minds at the making of the agreement; and this we do not know, except that there had been a big deficiency for years. Moreover, not a single extra employé was added to the staff, at the time of the special case, since the abolition of the scale of charges; and although it is said that "since the beginning of October 1906 the traffic over the said cables has considerably increased," it is not alleged that this increase is owing to the reduction of the rates for Tasmanian telegrams. These considerations, however, are to my mind nearly all outside the true question; and I have only examined these in order to see whether there is anything which makes the grammatical and ordinary meaning of the words absurd or inconsistent; and I can find nothing. My answer to the first question is that the Government had power to reduce the scale of charges to nothing.

At a glance

Court

Decision date

Before

Source

Judgment (71 paragraphs)

Eastern Extension Australasia & China Telegraph Company Ltd v Commonwealth [1908] HCA 59; (1908) 6 CLR 647 (28 September 1908)

Parties

Legislation Cited (2)

Cases Cited (1)