(7) His evidence on an e-mail dated 11 October 2000 from him to Mr McGinnis (a consultant to Gilsan) and Mr Charlesworth of MDC (another competitor of Gilsan) at PX 2/18-192 (T 850-852). That evidence reeks of both evasion and concoction.
67 Although Mr Bragg's evidence and attitude are to some extent affected by problem that I have outlined in paras [59] to [63] above, I do not think that this is of particular significance in his case. That is not because I think that Mr Bragg was uninfluenced by a perception of a need to achieve the best outcome for Optus; quite the contrary. It is because there is a simpler explanation for the difficulties in Mr Bragg's evidence: namely, that he held the truth in low esteem.
68 I do not regard Mr Bragg as a witness on whose evidence I could rely except where it is corroborated by other acceptable evidence; is consistent with the probabilities objectively viewed; or is against interest. To the extent that his evidence is in conflict with that of Mr Warwick, and to the extent that the conflict cannot be resolved by the factors that I have just mentioned, I would prefer the evidence of Mr Warwick to that of Mr Bragg.
Ms Papachatgis
69 I do not think that Ms Papachatgis sought to do other than tell the truth as she recalled it. However, I do not regard her as a witness on whose evidence I can place great weight. That is because I have concluded that she had no real recollection of the events that she recounted and that her evidence was very much a reconstruction. Her reconstruction, I conclude, was a practical application of the Optus imposition culture. In other words, I think, Ms Papachatgis' reconstruction of events was influenced greatly by her predilection to see those events through Optus-tinted spectacles.
70 For example, Ms Papachatgis gave evidence of a meeting said to have taken place at the Ritz Hotel, London, in about April 1999. In her first statement (DX 13, para 29), Ms Papachatgis said that, among other things, Optus needed to offer originating carriers "a discounted rate [ie, transit rate] to encourage the origin [sic] to change to Optus". She then said (para 30) that she explained the concept of the confidential transit rate: increasing the originating carrier's share of the TAR by discounting the transit rate. Thus, she claims to have said, the originating carrier kept a bigger share of the TAR through the discounting of the transit rate.
71 Ms Papachatgis claimed that Mr Pearson acknowledged having "heard of carriers having a confidential transit rate", but that Mr Warwick did not understand what she was saying. Accordingly, she said (para 31), she wrote out an example on a piece of paper in front of Messrs Pearson and Warwick. She said that, as she did this, she explained the steps. Initially, the TAR was split equally between originating and terminating carriers after deduction of the transit charge. Thereafter, Optus and the originating carrier entered into a further agreement whereby the transit charge was reduced and the originating charge increased. Optus would then deduct "its agreed audiotext transit factored rate of USD 0.25 or SDR 0.175 depending on the currency used by the originating carrier, and then makes payments to the service provider including any payment to the destination carrier". Ms Papachatgis said that she explained this further, with another example, at Mr Warwick's request.
72 Thus, if Ms Papachatgis' evidence were to be accepted, it would show conclusively that by April 1999 at the latest Gilsan, through Messrs Warwick and Pearson, was fully aware of the practice whereby originating and transit carriers negotiated confidential transit rates to the benefit of the originating carrier at the expense of the transit carrier. Further, it would show that Gilsan was aware that Optus would take the transit charge agreed between it and Gilsan in SDR where Optus was so paid and in USD where Optus was so paid (contrary to the wording of Schedule C to the Optus agreement, which referred only to SDR).
73 Messrs Warwick and Pearson accepted that they had met Ms Papachatgis at the Ritz Hotel in about April 1999. However, they denied that Ms Papachatgis had said the things that she claimed to have said and they denied that she had provided them (orally or in writing) with worked examples. They provided circumstantial details of why, in any event, things would not have happened when and where Ms Papachatgis had said that they did.
74 Ms Papachatgis responded to Messrs Warwick's and Pearson's denials by a statement made immediately before she gave oral evidence. She said that, rather than occurring over dinner (as she had said in her earlier statement), the conversation "may have occurred shortly after the dinner, when Mr Warwick, Mr Pearson and I had stopped to talk in the foyer of the Ritz, or later during my visit to Europe".
75 Further, in her second statement, Ms Papachatgis said "that the conversations set out between myself and either Messrs Warwick and/or Pearson referred to in my First Statement may have been with either one or both of them". This, as I understood it, was intended to refer to all the conversations set out in her first statement which she claimed to have had with either Mr Warwick or Mr Pearson. It also called up para 23 of her first statement, in which she said that she had had a number of conversations with Messrs Warwick and Pearson, and that by virtue of the number that she had with one or the other of them, she did not recall "the strict chronological sequence in which each of the conversations took place".
76 In cross-examination, Ms Papachatgis' memory proved to be worse even than was suggested by her second statement. I do not mean to be critical in saying this. By the time of the hearing, she had left the employ of Optus and was engaged full time in domestic duties. It was apparent that she had not had any real opportunity to consider the relevant files at length, in an attempt to assist her to recall the events of which she gave evidence. It was equally clear, as I have already indicated, that her evidence was principally reconstruction rather than recollection.
77 Thus, whilst as I have said I do not think that Ms Papachatgis intended to mislead the Court, I do not regard her evidence of any great weight. Specifically, I do not regard her evidence as providing acceptable corroboration of (for example) the otherwise uncorroborated evidence of Mr Bragg. Further, and notwithstanding my reservations as to Messrs Warwick and Pearson, I prefer their evidence to that of Ms Papachatgis where it is in conflict.
Ms Bicknell
78 In final submissions, no attack was made on the credibility of Ms Bicknell. I therefore need do no more than record that, in my view, Ms Bicknell was a witness on whose evidence I could rely. She gave her evidence clearly and in a forthright manner. When tested, it was apparent that she had a good recall of the events of which she spoke. Her evidence was not marred by inconsistency, obfuscation or evasion.
Mr Pazmino and Ms Kirkham
79 Again, in final submissions, no attack was made on the credibility of either of these witnesses. Nor was there any real evidentiary conflict between the evidence given by them and the evidence given by Messrs Warwick and Pearson.
80 It was apparent that Mr Pazmino had little actual recall of events and that he was substantially reliant on contemporaneous documents to revive his recollection. However, so far as his evidence went, it seems to me to be consistent with the documents and with the probabilities objectively viewed, and I accept it.
81 Ms Kirkham struck me as being very much imbued with the Optus imposition culture. However, notwithstanding that this had a somewhat unfortunate impact on her demeanour in the witness box from time to time, I see no reason not to accept her evidence in so far as it remains relevant to the disposition of the issues.
First, second and sixth issues: "origination charge"
82 Gilsan submitted that the origination charge referred to in Schedule C to the Optus agreement (in the phrase "origination and transit charges") was the origination charge fixed under the relevant tripartite agreement between the originating carrier, Optus and the terminating carrier. Optus submitted that the origination charge was the amount in fact notionally retained by the originating carrier out of the TAR: ie, the amount of its entitlement taking into account any applicable confidential agreement between it and Optus.
83 Each of Gilsan and Optus relied on extrinsic evidence to support its contention. Gilsan relied upon Recommendation D 155 made by the International Telecommunications Union ("ITU") and on statements made by the FCC in its Report and Order adopted 7 August 1997 and released 18 August 1997 (the parties referred to this as the "Benchmark Order" and I will do likewise). Optus relied on negotiations between the parties leading up to the making of the Optus agreement; on the expert evidence of Mr John Hibbard, who described himself as "a telecommunications industry professional" and who said that he specialised "in consulting in the field of international telecommunications"; on the practice of making confidential agreements between originating and terminating carriers; and on the practice of cascade accounting.
84 Gilsan called in aid the well known statement of Mason J in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337, 352. His Honour said, of the parol evidence rule, that evidence of surrounding circumstances might be admitted to assist in the interpretation of contractual language that was ambiguous or susceptible of more than one meaning, but that it was not admissible to contradict the plain meaning of that language. To that end, knowledge would be presumed of notorious background facts; and evidence of negotiations might be received to establish both objective background facts known to both parties and the subject matter of the negotiations and the intended contract. But it would not be admitted to prove the actual intentions and expectations of the parties.
85 Optus relied on the statement of the majority in Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 76 ALJR 436, 439 [10], where their Honours referred to what Mason and Brennan JJ had said in Codelfa. Their Honours noted that it was appropriate to have regard to the circumstances with reference to which the words in question were used so as to discern the objective which the parties had in view. They cited with approval the statement of Lord Wilberforce in Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 WLR 989, 995-996, that an understanding of the commercial purposes of a contract requires "knowledge of the genesis of the transaction, the background, the context, [and] the market in which the parties are operating." They then cited with approval the observation of Brennan J in Codelfa at 401 where his Honour pointed out that "[t]he meaning of a written contract may be illuminated by evidence of facts to which the writing refers, for the symbols of language convey meaning according to the circumstances in which they are used."
86 The commercial purpose of the contract, from Gilsan's perspective, was to enable Gilsan to be paid (in effect out of the TAR) an amount sufficient to permit Gilsan to procure for its service providers and their service agents the use of telephone numbers controlled by TVL. That in turn required that the amount paid to Gilsan should be sufficient to satisfy its obligation to TVL under the TVL agreement and its obligations to its service providers under its contracts with them, and to leave something over from which Gilsan could recover its overheads and derive a profit.
87 From Optus' perspective, the commercial purpose was to enable it to utilise its international telecommunications capacity by carrying traffic for Gilsan or its service providers, at a rate that would enable it to meet whatever overheads it incurred in so doing and derive a profit.
88 It is quite clear that the commercial purpose, as each party perceived it, was known to and understood by the other. It is equally clear that Mr Warwick's focus on the inpayment to Optus was consistent with Gilsan's commercial purpose.
89 I have grave doubts that either ITU Recommendation No. D 155, or the various statements in the Benchmark Order upon which Gilsan relied, are admissible to facilitate an appreciation of the commercial purpose of the Optus agreement, or to prove the genesis of the transaction embodied in that agreement, or the background to it. It may be, although I express no concluded view, that those materials might provide some context for the agreement or some evidence of the market in which the agreement was made. However, I see nothing in them to suggest, let alone require, that the phrase "origination charge" (recognising that this is not the phrase actually used in Schedule C to the Optus agreement, but a phrase extracted from the words "origination and transit charges" actually used) should be construed as Gilsan submits.
90 Likewise, I do not think that Mr Hibbard's evidence is admissible to prove the genesis of the Optus agreement or its background. Again, however, it may provide evidence of the context in which that agreement was made or of the market in which the parties were operating. But again, I do not think that his evidence either suggests or requires that the phrase "origination charge" should be construed as Optus submits.
91 The practice of making confidential agreements, and (in general terms) their effect, is in a slightly different category. Mr Hibbard's evidence suggests that confidential agreements were rife in the international telecommunications industry in 1998 and at all material times thereafter. But his evidence does not satisfy me that they should be regarded as a notorious fact, so that knowledge of them should be imputed to all (including Gilsan) who participated in that industry.
92 However, I think, Mr Warwick did have knowledge, at the time he was negotiating the Optus agreement, of the existence of confidential agreements and of their effect (as increasing the amount of the TAR notionally retained by the originating carrier, at the expense of the transit carrier) although not perhaps of their precise terms. Whilst (as I have said) I do not accept Mr Warwick's denial of the existence and general effect of confidential agreements (see paras [49] to [52] above), it does not necessarily follow, from the fact that I have disbelieved his protestations of ignorance, that I can find that he did in fact have such knowledge: see for example the observations of Gibbs J in Steinberg v The Commissioner of Taxation of the Commonwealth of Australia (1975) 134 CLR 640, 694 (and see Barwick CJ in the same case at 684); and compare the analysis of Clarke JA in Broken Hill Proprietary Company Ltd v Waugh (1988) 14 NSWLR 360, 365-366. The evidence that supports my conclusion that Mr Warwick was aware of the existence and, in general terms, effect of confidential agreements does not of itself show that he had that awareness whilst negotiating the terms of the Optus agreement. Nonetheless, it could be inferred from his conduct (and, in particular, at his failure to protest) that the information came as no surprise to him. In these circumstances, and having regard to what I find was a conscious dishonest denial of something known to Mr Warwick to be highly significant to Gilsan's case, namely the existence and general effect of confidential agreements, I regard the existence or terms of confidential agreements as something that should be taken into account on the construction of the payment formula in Schedule C.
93 Further, I think that Mr Warwick's repeated assertion that he was interested only in the amount of the inpayment to Optus is something that can be taken into account. On his evidence, he communicated that view to Mr Bragg in the course of negotiations. Mr Warwick's focus on the inpayment to Optus supports the proposition, for which Optus contends, that the parties thought that originating charge would be, in substance, the amount of the TAR notionally retained after making what is, (from the originating carrier's perspective) the outpayment to Optus. It would be strange if, thinking that, they provided otherwise in their written agreement.
94 The other matter relied upon by Optus as a relevant matter of background or context was the practice of cascade accounting (see para [6] above). An analysis of its significance requires a slight digression to consider the structure of Schedule C.
95 The starting point in the construction of Schedule C is the concept of the TAR. That, as I have explained, is something agreed between the originating and terminating carriers. The obligation of Optus is to pay Gilsan "their share of the total accounting rate subject to" the specified deductions. As a matter of syntax, the possessive pronoun "their" might be though to refer to Gilsan. Mr Jackman SC, who appeared with Dr Bell for Optus, submitted, however, that "their" referred to Optus. Mr Biscoe QC, who appeared with Mr Kunc and Mr White for Gilsan, did not submit to the contrary.
96 On reflection, I think, Mr Jackman's submission should be accepted. The TAR was a creature of agreement between (for example) AT&T and TVL. The division of the TAR, or the entitlements of interested parties to it, was also a creature of agreement: for example, the tripartite agreement between AT&T, Optus and TVL. On no view did Gilsan have any entitlement under those agreements to a "share" in the TAR. At most, Gilsan would acquire a share in the TAR when Optus made payment to it on the terms set out in Schedule C. If it is correct to regard Gilsan's entitlement to be paid as giving it a "share" of the TAR, it was a share that depended, for its ascertainment, on the deduction of Optus' origination and transit charges and the PTT's (ie, terminating carrier's) share. It follows that if the words "their share of" were intended to refer to Gilsan, they would be entirely redundant, because they would encompass only, and no more than, that which is appropriated to Gilsan by the words following them. At the points in time at which Schedule C operates - namely, each occasion when Optus calculates and makes a payment to Gilsan - Gilsan's share in the TAR is prospective, and depends both for its existence and its quantification on the working out of the formula in the schedule. At that time, Gilsan has no share from which the specified deduction could be made; and if those deductions were to be made from Gilsan's share calculated in accordance with the schedule, there would be double deduction.
97 In effect, then, Gilsan having been eliminated as a possible subject to which the word "their" could refer, Optus remains as the lone candidate. That seems to me to give a very clear indication of how the question of construction of Schedule C should be resolved - in particular, of what is the origination charge. Under the tripartite agreement, Optus' "share" of the TAR was the transit charge of USD 0.42. Clearly, that cannot be what the parties meant as Optus' "share of the total accounting rate" that, subject to the specified deductions, was to be paid to Gilsan. The "share" referred to must therefore be the total amount of the inpayment from the originating carrier to Optus. It is only if the words "their share of the total accounting rate" are construed to refer to that inpayment that the formula in Schedule C makes commercial or practical sense.
98 I therefore regard the handwritten words "their share of" inserted into the typed schedule as providing a very strong indication that the origination charge is the amount in fact retained by the originating carrier pursuant to whatever legal entitlements it has, and not the amount fixed under the relevant tripartite agreement. A consideration of the structure and operation of Schedule C supports that view.
99 The deductions that are to be made before paying Gilsan its share of the TAR are for Optus' charges, the originating carrier's charges, and any (other) transit carrier's charges. The reference to "transit charges" would apply only where there was more than one transit carrier (including Optus) involved.
100 In a sense, where cascade accounting applies, the reference to deductions for originating charges and transit charges, other than those payable to Optus, is misconceived because (in a situation where it was Optus, as the last transit carrier, that was to account to Gilsan) those charges would have been retained, or deducted, before any inpayment to Optus was made. Nonetheless, reference to them makes it clear, I think, that the parties intended that Gilsan should have only the residue of the TAR after deduction of all originating and transit charges and, as the following words make clear, after deduction of the terminating carrier's charge.
101 As matter of language, it is difficult to see why the origination charge should be anything other than the amount in fact retained by the originating carrier pursuant to any legal entitlement that it may have had. It may be accepted that where the originating and terminating carriers have agreed on a TAR, and where they and the transit carrier have agreed on a carving-up of that TAR between them, the originating carrier could not without some further agreement retain out of the TAR an amount greater than its origination charge so agreed. But equally, where the originating carrier and the transit carrier thereafter enter into a confidential agreement, the effect of which is to redistribute between them the total of the origination and transit charges fixed under the tripartite agreement, it is difficult to see why the origination charge should be anything other than the amount retained by the originating carrier pursuant to that confidential agreement.
102 The only deduction that is quantified in Schedule C is the Optus charge, or Optus fee: SDR 0.175. Clearly enough, because the Optus agreement was intended to have general applicability, it would not be possible to specify in monetary terms the originating and terminating carriers' charges, or the charges payable to any other transit carriers that might be involved. Thus, leaving aside the particular agreements, the origination and transit charges (if any, in the latter case) would be such amounts as the originating and transit carriers were entitled, under the various contracts to which they were parties, to retain.
103 In a context where the parties knew either that cascade accounting would be used, or that it was likely to be used, it would be unusual (to say the least) if Optus committed itself to pay out to Gilsan anything other than the amount of the inpayment received by Optus from the originating carrier after deduction of Optus' transit charge and the amount payable to the terminating carrier, or if Gilsan expected anything more than such a commitment. No doubt, those matters fall to be ascertained objectively; but if it is appropriate to have regard to the actual expectations of the parties then again, I think, Mr Warwick's focus on the inpayment to Optus supports what I have just said.
104 Thus, I think, both the language of the payment formula and the commercial context in which it was made show that the origination charge is the amount in fact lawfully retained by the originating carrier, not necessarily (or only) the amount fixed under whatever is the relevant tripartite agreement. Where the parties knew, or were aware, that both transit charges and termination charges were subject to renegotiation (as in my opinion they were, and as in fact happened in the present case), it is difficult to see why the provisions of the tripartite agreement should be regarded as sacrosanct or paramount. In truth, I think, the position was, and the parties well understood, that the tripartite agreement was merely a starting point: it fixed the TAR, and fixed the prima facie division of the TAR; but everyone knew that the prima facie entitlement established by the tripartite agreement were likely to change (in respect of each of the shares that were fixed).
105 It follows that the first, second and sixth issues should be resolved in substance on the basis that, as I have just indicated, the origination charge referred to in Schedule C to the Optus agreement is the amount retained (in a notional sense) by the originating carrier (AT&T or Hellenic) pursuant to any lawful entitlement, including under any applicable tripartite agreement and under any applicable confidential agreement.
106 Before leaving these issues, I should note that the parties in submissions put a number of other arguments that, they said, supported their respective positions. Thus, Gilsan submitted (among other things) that the effect of adopting Optus' construction was that the amount of the terminating carrier's share might be decreased; and Optus pointed to the commercial absurdities that (it submitted) would flow if Gilsan's construction were adopted.
107 As to the former matter: Optus did not submit that any confidential agreement, to which the terminating carrier would not be a party, could have the effect of reducing the terminating carrier's entitlement. Mr Hibbard accepted this proposition. Nonetheless, Gilsan produced worked examples to show (it submitted) that this is precisely what would occur. However, those worked examples failed to take account of the circumstance that TVL had bargained away all but USD 0.10 of its share in the TAR. On no view of events (at least, up until the purported implementation in 2001 of what was said to be the effect of the Benchmark Order) did any dealing between Optus and the originating carriers have the effect of reducing TVL's entitlement below the agreed amount of USD 0.10. Further, to the extent that those dealings reduced the inpayment to Optus to an amount that (before or after deduction of the Optus fee of SDR 0.175) was less than the termination charge established under the relevant tripartite agreement, those dealings, or their effect, were made known to Gilsan and Gilsan at least impliedly accepted them. The result was to reduce the inpayment to Gilsan, but to leave unaffected the TVL charge of USD 0.10 per minute of traffic.
108 As to the latter: whilst I accept that the courts should strain against giving an uncommercial, let alone absurd, interpretation to commercial documents, I have not found it necessary to give detailed consideration to the arguments of the parties on this point. That is because, in substance, I think that the words "their share of" that were added to Schedule C at the time of execution of the Optus agreement were intended to, and did, avert the consequences invoked by Optus as following from adoption of Gilsan's interpretation.
109 In general, however, and because I have come to a clear view on the proper construction to be given the words of Schedule C, I do not propose to deal in detail with all the arguments advanced by the parties. They are adequately identified in the detailed written submissions that were filed.
Eighth and ninth issues: under-declaration of minutes
110 Clauses 1.5 and 1.6 of the Optus agreement dealt with payment "of all monies due, as defined in Schedule C hereto, for each calendar month in which traffic was generated." Neither of those clauses, nor Schedule C, specified the way in which the minutes of traffic in respect of which payment was to be made, carried by Optus for Gilsan, should be measured.
111 In practice, Optus declared minutes of traffic to Gilsan monthly. Optus made payment (to the extent that it did) by reference to the minutes so declared. However, as the evidence showed, the minutes declared by Optus to Gilsan were, for almost all months and overall, less than the minutes actually measured by Optus. For AT&T traffic, the overall difference from January 1999 to February 2001 was 396,542 minutes or 1.7%. For Hellenic, the figures are 34,683 minutes and 3%. (The figures, although not the percentages, were agreed between the parties: see exhibits PX 31R, for AT&T, and PX 32R for Hellenic.) With disarming frankness, Ms Bicknell said that the only explanation of which she was aware was "that it was the practice of Optus during some months to declare at 99%" (T 909.22) and that she did not think that "there was any reference to the contract in regards to the contract" (T 909.27); these observations, made in relation to AT&T traffic, applied also to Hellenic traffic (T 910.10). There is no suggestion that any representative of Optus even mentioned this practice to any representative of Gilsan, let alone that Gilsan's consent was sought or obtained. Gilsan said in its written submissions that the practice was only ascertained on inspection of discovered documents; and Optus did not controvert this.
112 Optus did not submit that it was entitled to withhold payment otherwise than in accordance with the terms of the Optus agreement as from time to time renegotiated. It did refer in submissions to cl 1.4, and submit that there was no evidence of the "normal traffic accounting and payment terms" referred to in that sub clause. That submission appears to me to be misconceived. Clause 1.4 deals with the obligation of Optus to pay the terminating carrier the amount due to it under Schedule B. It has nothing to do with the obligation of Optus to pay Gilsan under cls 1.5 and 1.6, and Schedule C.
113 Optus did, however, submit that a decision on issue 9 should be deferred pending the outcome of an arbitration between it and AT&T. For that submission, Optus relied upon its entitlement, under cl 1.6 (as from time to time varied), to withhold 25% or, for a time, 10% of the amount otherwise due to Gilsan until after it received payment from (relevantly for present purposes) the originating carriers.
114 It appears that AT&T did not receive payment (presumably, from local carriers or perhaps, in some cases, from its own subscribers) for some of the Vanuatu traffic that it routed through Optus as the transit carrier. AT&T purported to claw back from Optus an amount equal to the amounts not paid to it. This it did by deducting from monies otherwise due to Optus what it said were the underpayments in earlier months. Further, it appears, the practice of underdeclaration was contagious: Optus asserted, and AT&T has admitted, that AT&T underdeclared significantly the number of minutes of switched traffic routed by AT&T through Optus to TVL, and paid Optus accordingly.
115 In arbitration proceedings in the London Court of International Arbitration, Optus has made a number of claims against AT&T including in respect of AT&T's purported clawback and in respect of AT&T's underdeclaration. AT&T intends to cross-claim to recover what it says are overpayments to Optus. There has been no award made in the arbitration.
116 Optus and AT&T have entered into an agreement which purports to narrow the areas of dispute between them. That agreement provides, relevantly, as follows: