462 My tentative view is that application of the test accepted by the parties, particularly in light of the authorities referred to by Optus in para 292 of its written submissions of 24 September 2004, would lead to the conclusion that these entitlements should be set off. However, on reflection, I think that the appropriate course is to do as Gilsan submits and allow the parties an opportunity to consider my reasons and to make further submissions on this issue also should they wish to do so."
43 In each case, the services giving rise to Optus' "quantum meruit" claims were provided to facilitate the business conducted by Gilsan. In one way or another, they were either necessary or desirable if Gilsan was to operate its business in the way that I described in paras [9] to [12] of my first judgment. Thus, the provision of those services either enabled Gilsan to carry on its business in that way through Optus, or facilitated its doing so. It was because Gilsan carried on its business that way, using those services, that it became entitled to receive payments from Optus pursuant to cls 1.5 and 1.6 of the Optus agreement.
44 Gilsan's submission summarised in para [41] above appears to adopt the tested stated by Giles J in AWA Ltd v Exicom Australia Pty Ltd (1990) 19 NSWLR 705 and applied by his Honour in Murphy v Zamonex Pty Ltd (1993) 31 NSWLR 439. Because the parties agree that the doctrine of equitable set-off applies, I do not need to examine the correct test or its application. However, if it were necessary for me to do so, I would enquire whether the set-off actually goes to the root of, is essentially bound up with, or impeaches, the title of the plaintiff: see the judgment of Sheller JA (with whom Kirby P and Meagher JA agreed) in Lord v Direct Acceptance Corporation Ltd (Receiver and Manager Appointed) (1993) 32 NSWLR 362, 367. His Honour's formulation of the test for equitable set-off appears to follow the decision of Lord Cottenham LC in Rawson v Samuel (1841) Cr & Ph 161; and see Meagher Gummow & Lehane's Equity, Doctrines & Remedies (fourth edition by Meagher, Heydon and Leeming, 2002) at para [37050], and the decision of Gummow J in Re Just Juice Corp Pty Ltd (1992) 109 ALR 334. In the present case, as Gummow J remarked in Re Just Juice at 349 was true of many other cases, it may not matter which test is applied; and because the question is decided by the agreement of the parties, I shall go no further to investigate it.
45 The services were provided to Gilsan month by month, just as Optus was obliged to pay Gilsan, in respect of the business generated by use of those services (and others) month by month. Prima facie, therefore, the amounts due by each to the other should be set off, with only the balance (in favour of Gilsan) payable.
46 There does not appear to be any authority directly in point. Optus relied on Wood, English and International Set-Off, (Sweet & Maxwell, 1989), at 11-27 and following, where the author considered "multi currency judicial set-off and counterclaim". He considered a number of categories. The first was "self-help set-off exercised prior to judicial proceedings" and can be put to one side. The second was "self-help set-off exercised in judicial proceedings". This refers to a case where the debtor has a right to set off but, instead of having done so, pleads a set-off defence. The author said:
"The approach ought to be a flexible one according to the circumstances. If the cross-claim qualifies the transaction set-off it may be that justice would be achieved by converting at the date when the cross-claim abated, reduced, diminished, the creditor's claim, but in the case of transaction set-off of cross-claims which are more tenuously related, conversion at the judgment date might be more appropriate, namely (in most cases) the date when an unliquidated transaction defence is ascertained."
47 The author referred to the decision of Brandon J at first instance in The Despina R [1978] QB 396 at 414-416. That concerned a "both to blame" ship collision. The rule was said to be "that one judgment is given for the difference between the two claims". On that basis, his Lordship's proposition that conversion should be effected at the date of judgment, or alternatively at the date when the two liabilities are established by agreement, is not applicable to the present case which depends on an analysis and application of the principles relating to equitable set-off.
48 The next category dealt with by the author was "set-off not available as self-help remedy" and again may be disregarded for present purposes.
49 The final category, and one on which Optus placed reliance, was "counterclaims". It was said:
"In the case of counterclaims, the solution may be for the Court to give judgment for the claim and counterclaim in their respective currencies, instead of a balanced judgment. Each judgment debtor should be able to pay in Sterling converted at the date of payment. If not, each judgment should be converted at the time of enforcement."
50 It is apparent that, in this last category, the author was dealing with the situation where there was no right of set-off (either at law to the extent that it is or remains available) or in equity. Accordingly, I do not regard what was said at 11-32 as relevant.
51 I accept the proposition stated at 11-29 that the approach should be a flexible one, and determined by the circumstances of the case. However, I find the explanation of that proposition difficult. If set-off is available, I think that justice would ordinarily require conversion at the date of abatement (or reduction or diminution) of the claim. That gives effect to the underlying principle by which equitable set-off operates. However, I do not understand what is meant by "set-offs of cross-claims which are more tenuously related". The relationship will be such that either, on the one hand, equitable set-off is available or, on the other, that it is not. To introduce into the former category the qualification of tenuousness is to introduce something that is both conceptually irrelevant and impossible of ascertainment. I do not accept the qualification that, where a right of equitable set-off exists, some independent and apparently subjective value judgment should be made of the nature of the claim, to see whether the logical consequence of the operation of the doctrine of equitable set-off should follow.
52 Gilsan relied on Derham, The Law of Set Off, (Oxford University Press, 2003), at 5-77. The author had considered the impact of the decision of the House of Lords in Miliangos v George Frank (Textiles) Ltd [1976] AC 443 on set-off under the Statutes of Set-Off (ie, set-off at law). He said at 5-76 that the effect of the decision "upon the right of set-off has yet to be determined". Having dealt with that, he turned to the question of equitable set-off and said at 5-77 that, because equitable set-off provided a substantive rather than a procedural defence, different considerations (to set-off at law) might apply. He considered the following proposition to be consistent with the true nature of the defence of equitable set-off where foreign currency claims were involved (omitting citations):
"When an equitable set-off is pleaded as a defence to an action and one or both of the demands is in a foreign currency, the principle should be the same as for the Statutes of Set-Off, so that conversion should take place by reference to the rate applicable at the date of judgment for a set-off. However, the creditor's conscience is affected even before judgment, so that to the extent of the defence the creditor is not permitted to treat the debtor as having defaulted in payment. In the determination at any point in time prior to judgment whether the debtor has defaulted, and whether the creditor can take action on the basis that a default has occurred, regard should be had to the exchange rate at that time."
53 The focus is on the true character of equitable set-off. Because it operates on the conscience of the creditor, its effect is to satisfy pro tanto the obligation owed by the debtor. That is why, as the author pointed out, to the extent of the defence the creditor may not treat the debtor as in default: because it would be unconscionable to do so. This aspect of the operation of the defence was amplified by Derham in an article entitled "Recent Issues in Relation to Set-Off" (1994) 68 ALJ 331. He pointed out at 337 that equitable set-off does not operate "as an automatic extinction of cross-demands". He said that "a proper statement of the principle is that, if there is an entitlement to an equitable set-off, the cross-demands as a matter of law remain in existence between the parties, though as far as equity is concerned it is unconscionable for the creditor to treat the debtor as being in default to the extent of the cross-demand while the circumstances exist which support an equitable set-off."
54 This approach is consistent with that taken by Giles J in AWA at 711, where his Honour said that "equitable set-off … operates to reduce or extinguish the plaintiff's claim." His Honour relied, among other authorities, on the decision of Street CJ in Eq in Stewart v Latec Investments Ltd [1968] 1 NSWLR 432. That decision was cited with approval in Stehar Knitting Mills Pty Ltd v Southern Textile Converters Pty Ltd [1980] 2 NSWLR 514 at 518 (Hutley JA), which in turn was cited with approval in Covino v Bandag Manufacturing Pty Ltd [1983] 1 NSWLR 237, 238 (Hutley JA). Finally, for present purposes, Sheller JA in Lord stated at 367 that "[i]f available, the [equitable] set-off would operate on judgment or perhaps earlier to diminish or extinguish [the] claim" (emphasis supplied).
55 Thus, I conclude, where the doctrine of equitable set-off applies, the party having the benefit of the equitable set-off may use it to reduce its liability to the creditor. But equally, as Derham points out, the creditor is obliged to recognise the effect of the set-off, and to treat the debtor as not indebted to the extent of the set-off. The creditor would not be entitled to interest on the amount of its claim that has been satisfied by operation of the doctrine of equitable set-off.
56 It is therefore necessary to consider the relevant circumstances to see whether equity requires that the set-off operate from time to time, or whether it is sufficient for the set-off to operate at judgment.
57 The feature that seems to me to be of particular significance is that the services for which Optus is entitled to be paid by Gilsan were rendered from month to month (indeed, from day to day) whilst, at the same time, the transactions occurred whereby Optus became liable to pay Gilsan. The services for which Optus is entitled to be paid were provided by it to Gilsan at Gilsan's request (as I have found) to enable Gilsan to carry on, or better to carry on, the business by which it derived its entitlement to be paid. Once Optus commenced to supply the relevant services for which it is entitled to be paid, a proper analysis would lead to the conclusion that there was a situation of true running account.
58 In those circumstances, the operation of the doctrine requires that the amounts owing by Gilsan from month to month be set off against the amounts owing by Optus to Gilsan from month to month. To the extent that the amounts are owed in different currencies, conversion should take place (notionally or otherwise) at the end of the month. The doctrine of equitable set-off can then have its effect, with only the balance after set-off remaining as owing, and carrying interest. Any other approach - and, in particular, the approach for which Optus contends - would not be to do equity, but to deny it. It would deny equity because of the very circumstance to which I refer in para [60] below, namely the failure of Optus (for whatever reason) to render monthly accounts for the services, which would have enabled the offsetting effect of the rights and obligations to be demonstrated and given effect. On this point I see Optus' present submission as inconsistent with its claim that it is entitled to interest from the date of provision of the various services, and not from the date when demand was made for payment for them.
59 This conclusion means that interest will accrue on the balance of the set off in favour of the party to whom that balance is due. The parties did not address the rate, but it is implicit in their submissions and approach that the rate of interest on the balance will be that applicable to the currency in which the balance is denominated.
60 My conclusion on this issue makes it unnecessary to consider an alternative argument propounded by Gilsan: that some of the amounts that I have found it to owe to Optus should not carry interest for particular times. Gilsan relied upon the failure of Optus to make demand for those amounts. In some cases, it seems, the failure resulted from inadvertence. In at least one case, it appears to be the result of a deliberate decision taken by Ms Bicknell.
61 If it were necessary to decide the point, I would conclude that interest should run from the date when the services were provided and the quantum meruit obligation to pay for them arose, and not from the date when demand was made. That is because the obligation to make the payment arises by the receipt of the benefit (in this case the services) in circumstances where it was clear, and objectively the parties understood, that the services were not intended to be provided gratuitously. The recipient of the services derives a benefit at the expense of the provider. The value of those services may be measured by what it would cost to obtain them in the market, or by some other way. But there is a benefit also in having the services without payment, even where payment has ultimately to be made: that benefit consisting in the use of the money that, otherwise, would have been required to pay for the services. I see no basis in equity or good conscience for the recipient of the services to retain that benefit. See (although in a different context) Heydon v NRMA Ltd (No 2) (2001) 53 NSWLR 600, 605 (Mason P, with whom Beazley JA and Ipp AJA agreed).
62 I said in my first judgment at para [510] that the amounts payable by Gilsan to Optus were denominated in AUD. That reflected the assumed position at the first hearing. However, in the course of this hearing, Gilsan submitted that the amount for domestic traffic services referred to in sub para (4), $198,560 (and the equivalent reference in para 410(4)), should be denominated in USD. Optus accepted that this was so. The concluding sentence of my answer to issue 47 in para [510] of my first judgment should therefore read:
"The first three amounts are expressed in Australian dollars. The fourth amount is expressed in US dollars".
Quantum issue 8
63 Gilsan submitted that this issue should be answered: "on the last day of the traffic month."
64 Optus agreed. The issue will be answered accordingly.
Quantum issue 9
65 Gilsan submitted that this issue should be answered: "no". It advanced three reasons: