Gilsan v Optus

Australian Electoral Commission v Timothy Lalara (1994) 53 FCR 156 AWA v Exicom Australia Pty Ltd (1990) 19 NSWLR 705 Collins Hill Group Pty Ltd v Trollope Silverwood and Beck Pty Ltd [2002] VSCA 205 Covino v Bandag Manufacturing Pty Ltd [1983] 1 NSWLR 237 Goold v Commonwealth of Australia (1993) 114 ALR 135 Heydon v NRMA Ltd (No 2) (2001) 53 NSWLR 600 Lord v Direct Acceptance Corporation Ltd (Receiver and Manager Appointed) (1993) 32 NSWLR 362 CASES CITED : Miliangos v George Frank (Textiles) Ltd [1976] AC 443 Moneywood Pty Ltd v Salamon Nominees Pty Ltd (2001) 202 CLR 351 Murphy v Zamonex Pty Ltd (1993) 31 NSWLR 439 Rawson v Samuel (1841) Cr & Ph 161 Re Just Juice Corp Pty Ltd (1992) 109 ALR 334 Stehar Knitting Mills Pty Ltd v Southern Textile Converters Pty Ltd [1980] 2 NSWLR 514 Stewart v Latec Investments Ltd [1968] 1 NSWLR 432 The Despita R [1978] QB 396

Gilsan (International) Limited (Plaintiff) PARTIES : Optus Networks Pty Limited (Defendant)

P M Biscoe QC/F Kunc (Plaintiff) COUNSEL : I M Jackman SC (Defendant)

Gadens (Plaintiff) SOLICITORS : Gilbert & Tobin (Defendant)

The quantum issues 5 Quantum issue 1 7 Quantum issue 2 8 Quantum issue 3 13 Quantum issue 4 23 Quantum issue 5 30 Quantum issue 6 35 Quantum issue 7 39 Quantum issue 8 63 Quantum issue 9 65 Summary 81 Order 82

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST

50056/02 GILSAN (INTERNATIONAL) LIMITED v OPTUS NETWORKS PTY LIMITED [No 3] JUDGMENT 1 HIS HONOUR: In Gilsan v Optus [2004] NSWSC 1077, I considered and decided a large number of issues agreed between the parties. The parties had hoped that the resolution of those issues would enable their various claims against each other to be quantified, and thereby (subject, of course, to any appeal and its outcome) resolve the matters in dispute. 2 That hope proved to be ill founded. The parties discovered that there were further issues that required decision before they could quantify their respective claims, and, overall, the outcome of the proceedings. I dealt with those further issues in Gilsan v Optus [No 2] [2005] NSWSC 38. 3 Again, the hope with which those issues were propounded, argued and decided has been proved to be ill founded. The parties have now propounded a further nine issues, described as "quantum issues" for decision. In these reasons, I deal with those nine issues. 4 I do not propose to set out the background or the facts. Anyone who, reading these reasons, desires some understanding of the background, and of the fundamental disputes between the parties, should refer to paras [1] to [28] of my first judgment. Further, assuming (as I do) that the reader of these reasons will be familiar with the dispute, I shall use without explanation or re-definition terms that I defined in my first judgment. The quantum issues 5 The parties propounded the following nine issues: " Quantum Issue 1

Does the first AT&T payment for a particular month trigger the totality of the amount due to Gilsan under Clause 1.6 of the Optus Agreement?

Whether, in calculating the damages to which Gilsan is entitled, a payment purportedly made under clause 1.6 of the Optus Agreement is to be wholly attributed to that payment rather than allocating some part of that payment in satisfaction of Optus' breach in relation to clause 1.5.

Whether the refusals to pay for the purposes of clause 1.6 of the Optus Agreement are, in relation to a particular traffic month, the sum of (a) and (b) below or only (a) below:

(a) The difference between the Optus measured minutes and AT&T declared minutes set out in the AT&T settlement statement for that particular month (set out in the Schedule which appears at p.41 of the Blue Folder);

(b) The AT&T clawbacks set out in Exhibit PX30R, Document A, column J (a copy of which is at page 40 of the Blue Folder).

Assuming that clawbacks (para 3(b) above) are refusals to pay under clause 1.6, can such clawbacks for a particular traffic month notified to Optus after the cl 1.6 payment has been made to Gilsan for that traffic month be deducted from a future cl 1.6 payment to Gilsan in respect of a later traffic month?

Is it permissible for Optus under clause 1.6 of the Optus Agreement to accumulate refusals to pay, such that Optus is allowed to apply any specific minutes that AT&T has refused to pay as a reduction against any final tranche payments (the 25% or 10% payment by Optus to Gilsan), so long as:

(i) Optus was aware of AT&T's refusal (in respect of the specific minutes) at the time for payment of the final tranche; and

(ii) at the time for payment of the final tranche, those specific minutes had not previously been used as deductions (based on a refusal to pay)?

If an originating carrier makes payment to Optus for a number of traffic months on the same day, does Optus calculate its payments to Gilsan in accordance with clause 1.6 of the Optus Agreement by reference to the first calendar month and then subsequent months in chronological order or as a whole?

How are the amounts to which Optus is entitled, to be set off against the amounts to which Gilsan is entitled?

For each calendar traffic month should the exchange rate conversion be at the first or last day of the traffic month?

Assuming that AT&T clawbacks are refusals to pay under cl 1.6, whether refusals to pay on AT&T traffic streams can be deducted under cl 1.6 against amounts due to Gilsan for Hellenic traffic streams." 6 I shall deal with those issues in turn. Quantum issue 1 7 In the course of argument, the parties accepted that this issue was hypothetical, because any non payment under the Optus agreement was a refusal to pay. On that basis, the parties agreed that it was unnecessary for me to deal with this issue. I see no utility in deciding a hypothetical question. Accordingly, issue 1 may be answered simply: "does not require an answer". Quantum issue 2 8 At this stage, and notwithstanding what I said in para [4] above, I think it helpful to set out cls 1.5 and 1.6 of, and Schedule C to, the Optus agreement: "1.5 pay SP, for the duration of this Agreement and for twelve months thereafter, 75% of all monies due, as defined in Schedule C hereto, for each calendar month in which traffic was generated, 45 days from that month end; 1.6 pay SP, for the duration of this Agreement and for twelve months thereafter, 15% of all monies due, as defined in Schedule C hereto, for each calendar month in which traffic was generated, within 45 days of receiving payment from the distant and/or transit carriers. Such payment is to be made after deductions have been calculated for payments that have been overpaid as a result of a distant or transit carrier refusing to make payment for the traffic of any particular month; … Schedule C Payment Formula OPTUS will pay SP their share of the total accounting rate subject to deductions for OTPUS [sic] , origination and transit charges and the PTT share in Schedule B above. The commencing OPTUS fee will be SDR0.175 which will be reviewed from time to time, by agreement with both parties, to compensate for lower accounting rates on various originating countries. Where the only point of transit is with OPTUS they will deduct only the OPTUS fee of SDR0.175 deductible for such traffic." 9 "SP" refers to the "service provider" - in this case, Gilsan. 10 As I noted in para [36] of my first judgment, cl 1.6 was varied in August 2000 and again in February 2001. For present purposes, nothing turns on that variation and it is convenient (although not always accurate) to refer to cl 1.6, and the percentage referred to in it, in the form that I have set out above. 11 Gilsan contended that this issue should be answered: "A payment purportedly made under clause 1.6 is to be wholly attributed to that payment." 12 Optus accepted that this was the correct answer. Accordingly, the issue will be so answered. Quantum issue 3 13 Gilsan contended that this issue should be answered: "only (a)". Optus contended in substance that it should be the sum of (a) and (b), although it referred to "the Negative Vanuatu Minutes set out in PX 30R" rather than to "the clawback set out in PX 30R". 14 Optus took this position because it said that, in substance, I had decided the para (b) issue in my first judgment (at para [437], amplified by paras [438] to [445] and the answer to issue 53 given in para [517]). Gilsan submitted that what I had said in para [437] was, in one respect, erroneous; and that I should reopen that aspect and redecide it. 15 In para [437], I said: "There is no doubt that, over the period of time that the Optus agreement was in force, AT&T refused to pay Optus for a large number of minutes of traffic to Vanuatu. Those minutes are set out in exhibit PX 30R, document A, column J. They amount in total to many millions." 16 Gilsan accepted that the first sentence of para [437] was correct. However, it said, exhibit PX 30R (the "R" indicates that it was a revised version of a schedule earlier tendered) recorded clawbacks charged by AT&T (the relevant distant carrier) to Optus, and not refusals to pay by AT&T. As Gilsan said in its written submissions: "It is common ground that column J records amounts paid earlier by AT&T which AT&T later sought to claw back. The only issue is their legal characterisation. That is, are they or are they not refusals to make payment within the meaning of clause 1.6?" 17 Gilsan submitted that there was a distinction between a refusal to pay and a clawback. The evidence does not disclose the relevant contractual terms in force between Optus and AT&T. However, as I understand it, AT&T claimed the right to "claw back" from Optus amounts earlier paid by it to Optus where AT&T's customer refused to pay AT&T for some of the minutes in respect of which AT&T had already paid Optus. That might occur where (for example) the customer claimed that the calls were not made, or were made without authority (in this context, it does not matter if the customer was a direct customer of AT&T or a customer of another carrier that put its long distance business through AT&T). 18 Such evidence as there is showed that AT&T exercised its right (or purported right) of clawback by deducting from amounts otherwise due to Optus the amounts that, it said, it was entitled to claw back. 19 The question is whether, for the purposes of cl 1.6, AT&T (the distant carrier) refused to make payment to Optus for some of the traffic of any particular month, to the extent that it purported to claw back amounts allegedly overpaid in respect of earlier months. 20 In my judgment, that amounts to a refusal to pay. It is as much a refusal because it is reasoned as it would be if it were unreasoned. The effect is the same: an amount apparently contractually due by AT&T to Optus in respect of a particular month of traffic is not paid. That it is not paid because of a dispute, or allegation, in relation to an earlier month of traffic is irrelevant. 21 Relevantly, the ordinary meaning of the verb "refused" as taken from the Macquarie Dictionary is to decline to give, or to deny; to express a determination not to do something. For the purposes of cl 1.6, that expresses adequately the concept embodied in the words "refusing to make payment". The definition focuses attention on what is done, not on the reason. It might be otherwise if there were a contractual or other right of set-off, the effect of which was to satisfy, to the extent of the amount set off, the obligation against which it was set off. But although Gilsan submitted that there was a distinction between refusal and offset (a proposition that may be admitted as a possibility), it was unable, for the reasons given in para [17] above to illustrate the relevance of that distinction to the present case. 22 I therefore conclude that issue 3 should be answered in the manner for which Optus contends, namely: "(a) the difference between the measured minutes and declared minutes set out in the settlement statement for that particular month; plus (b) the Negative Vanuatu Minutes set out in PX30R, document A, column J are refusals to pay for the purposes of clause 1.6 of the Optus Agreement." Quantum issue 4 23 Gilsan submitted that, on the assumption that clawbacks were refusals to pay for the purpose of cl 1.6, this issue had been answered by para [452] of my first judgment, where I held that payments under cl 1.6 when made were not provisional but final. 24 Optus did not challenge the conclusion in para [452]. It said, instead, that it did not answer issue 4, and that what I said in paras [429] to [433], read together with para [443], did. For convenience, I set out those paras: "429 Under cl 1.6 in its original form, Optus was required to pay the balance of the amount due to Gilsan for a particular traffic month within 45 days of receiving payment from the originating or transit carrier. However, Gilsan had a right to deduct, from the amount otherwise payable under cl 1.6, the amount of "payments that have been overpaid as a result of a distant or transit carrier refusing to make payment for the traffic of any particular month."

430 Gilsan submits that the deductions authorised by cl 1.6 are only for non-payment (by the originating or transit carrier) for the particular month to which the particular 25% relates. I do not think that this is correct. There are two textual indications in cl 1.6 that lead me to this view.

431 First, what is authorised is "deductions … for payments that have been overpaid". That suggests that more than one deduction may be made, and that the deductions may relate to more than one overpayment. The overpayments referred to must be overpayments by Optus to Gilsan. In respect of any one traffic month there would have been (or should have been, if cl 1.5 had been performed according to its terms) at the time cl 1.6 operated only one payment made by Optus to Gilsan for the month. That is the payment of the 75% due for that month within 45 days of its end. If deductions may be made from the 25% tranche for more than one overpaid payment, they must relate to more than one traffic month. Thus, the use of the plural forms, "deductions" and "payments", suggests strongly that account may be taken of overpayments in respect of traffic months other than the particular traffic month to which the 25% tranche relates.

432 Second, the reason for the overpayments must be that the originating or transit carriers have refused "to make payment for the traffic of any particular month." The phrase "any particular month" is somewhat confusing. If the word "any" were replaced by the word "the", it would give a strong indication that, despite the confusing use of the plural "deductions" and "payments" earlier in the sentence, the right to deduct for overpayments was limited to non-payment for the particular month. Equally, if the word "particular" were deleted, there would be a strong indication that the right was general, and not limited to overpayments for the traffic month to which the 25% tranche related. In context, I think, the phrase "any particular month" should be read as referring to any traffic month in respect of which the originating or transit carrier has refused to make payment. That gives proper effect to the adjective "any". Nor does it deprive the following adjective "particular" of significance. The use of the adjective "particular" signifies that the non-payment by the originating or transit carrier that gives rise to the entitlement to make a deduction must have been attributable to a particular month (or months) rather than to some aggregate or non-specific period of time.

433 I therefore conclude that cl 1.6 as originally drafted entitled Optus to make deductions, from the 25% tranche not payable by it until payment to it by the originating or transit carriers, in respect of prior overpayments by Optus to Gilsan. That is so whether an overpayment was for the traffic month in question or for another traffic month. The only qualification is that the overpayments must have resulted from the refusal of the originating or transit carrier to make payment for a particular month or months (including, but not limited to, the traffic month in question). … 443 The parties did not address in detail the way in which cl 1.6 (as it applied from time to time) should operate, or on the precise rights of deduction that Optus would have. Consistent with the approach that I take to the construction of cl 1.6, it would seem that Optus' rights of deduction apply only in respect of the unpaid amount from time to time of the particular percentage of monies owing to Gilsan from which deductions can be made. Thus, for cl 1.6 in its original form and as applicable from February 2001 onwards, Optus would have a right of deduction, in respect of non-payment by originating or transit carriers, against such of the 25% tranches as are unpaid. For the months when the August variation is current, the right of deduction would be limited to such of the 10% tranches as are unpaid." 25 I should add that, during the second hearing, I gave the parties the opportunity to address the tentative view expressed in para [443] and the equally tentative view expressed in para [444] (which is relevant to another of the quantum issues). As I recorded in para [4] of my second judgment, "[t]he parties in oral submissions accepted my analysis of the operation of cl 1.6" in paras [443] and [444]. 26 Optus' submission is correct. It is clear from para [433], and the tentative view (later confirmed) expressed in para [443], that the question should be answered "yes". Particularly where the parties were given the opportunity to put further submissions on the tentative view expressed in para [443] and did not do so, I see no basis for departing from what I there said: particularly where it is consistent with para [433]. 27 The statement in para [452] that payments under cl 1.6, when made, are final is to be read in the context of the submission advanced by Optus that the payments were provisional, and subject to recalculation from time to time as further information (including further manifestations of the attitude of AT&T) came to light. I held against that submission. I did not intend, in saying that payments were in that context final, to suggest that what I had said in paras [433] and (tentatively) [443] was wrong. 28 The answer proposed by Optus, consistent with paras [433] and [443], does not impinge on the finality of payments made under cl 1.6. It deals with the application of the "refusal to pay" provisions in a later month. 29 I therefore conclude that, as I have said, this issue should be answered: "yes". Quantum issue 5 30 Gilsan submitted that this issue should be answered "no". Optus submitted that it should be answered "yes", on the basis that I had dealt with it in my first judgment. 31 Optus relied on para [433], which I have already set out. It referred also to paras [434] and [435], but since they deal only with the effect of the August and February 2001 variations - something that, as I have said, is not relevant for the purposes of these nine quantum issues - I will not trouble to set them out. 32 Optus relied also on para [430] of my first judgment. I said: "Gilsan submits that the deductions authorised by cl 1.6 are only for non-payment (by the originating or transit carrier) for the particular month to which the particular 25% relates. I do not think that this is correct. There are two textual indications in cl 1.6 that lead me to this view." 33 Gilsan submitted that para [430] referred only to its "quarantining" argument. That was an argument that deductions for any month could only be levied against payments for the same month. Para [430] certainly related to that argument. However, the reasons that I gave concluded (save for the presently irrelevant references to the variations to cl 1.6) with para [433], in which I said that cl 1.6 entitled Optus to make deductions from the 25% tranche in respect of prior overpayments, whether for that traffic month or another. Self evidently, the reference to "another traffic month" in para [433] must be to a prior traffic month. 34 I therefore accept Optus' submission that this issue was decided in my first judgment. It follows that it should be answered: "yes". Quantum issue 6 35 Gilsan submitted that this issue should be answered: "month by month in chronological order." 36 Optus agreed, although it wished to add the qualification: "subject to the answer to quantum issue 1". 37 Since quantum issue 1 has become hypothetical, leading to the agreement noted in para [7] above that I need not answer it, the qualification can be disregarded (as Optus accepted in oral submissions). 38 It follows that this issue should be answered as Gilsan submitted. Quantum issue 7 39 The parties accepted that the doctrine of equitable set-off should apply. However, they differed on the practical application of this doctrine. Gilsan submitted that the amounts due by each to the other should be set off monthly, with interest accruing on the balance from time to time for the benefit of the party in whose favour the balance accrued. Optus submitted that each claim should accrue interest until judgment, and that the total due by each to the other (with accrued interest) should be set off at judgment. 40 This is not an arid dispute of principle. The amounts owed by Gilsan to Optus are (with one exception, to which I shall refer) payable in AUD, and would carry interest at the rates from time to time applicable to that currency: namely, for present purposes, the rates set out in Schedule J to the Supreme Court Rules. The amounts payable by Optus to Gilsan are payable in currencies (or the equivalent) carrying lower interest rates: USD or SDR. It appears to be accepted that, on the findings I have made to date, Optus will be a net debtor to Gilsan. 41 Gilsan submits that the principles of equitable set-off are applicable because the services provided by Optus to Gilsan, for which (I have found) Gilsan is liable to pay, were intimately connected with the means by which Gilsan's monthly entitlement to be paid by Optus arose. Thus, Gilsan submitted, the amounts from time to time owed by it to Optus operated to extinguish pro tanto, and thereby reduce, the amount owed by Optus to it. 42 I dealt with the question of set-off in paras [454] to [462] of my first judgment. For convenience, I set out what I there said: "454 Optus submitted that it was entitled to set off in equity any amounts found to be owing by it to Gilsan against any amounts found to be owing to it by Gilsan. It submitted that the relevant test involves examining the closeness of connection of all the competing claims, including the nature of each claim, and asking whether or not it would be unjust or inequitable in all the circumstances for the plaintiff to be permitted to proceed with its claim without making due allowance for the cross-demand: relying on AWA Ltd v Exicom Australia Pty Ltd (1990) 19 NSWLR 705 (written submissions dated 24 September 2004, para 291).

455 Gilsan accepted that the test propounded by Optus was the correct test (written submission in reply, para 88).

456 Optus submitted that the connection between the various claims and counter-claims was plain. Thus, it submitted, the infrastructure and domestic traffic services were necessary to enable Gilsan to have the benefit of the traffic in respect of which it claims to have been underpaid.

457 Further, Optus submitted, the parties had dealt with each other by setting off payments due from one against payments due from the other. This, it submitted, reinforced the point that equitable set-off was available to it.

458 Gilsan submitted that "the final determination of the set-off issue should be the subject of submissions once the Court's decision in relation to the various respective claims and counter-claims is known." This followed, it said, "because there are a number of possible permutations of outcomes and Gilsan does not accept that every possibility should result in set-off" (written submissions in reply, para 89). As to the way in which the parties dealt with each other, Gilsan submitted that it was not determinative because "[c]onvenience and Optus' imposition culture no doubt respectively had a part to play when any set-off occurred" (ibid para 90).

459 I have found that Optus is liable to Gilsan on the following claims:

(1) the underdeclaration of minutes (issues 8 and 9);

460 I have found that Gilsan is liable to Optus on the following claims:

(1) the Optus quantum meruit claims (in respect of each of the four services) (issue 41 to 47); and

(2) in principle, the Optus clawback claim (issues 50 to 53).

461 I noted, as to each of the Gilsan claims referred to in para [459], that the general defence of set-off was maintained, and deferred consideration of that issue until I came to the question of set-off.

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:

(1) There was a different accounting rate for each traffic stream, and under Schedule C Optus' obligation was to pay Gilsan "their share of the total accounting rate".

(2) The first argument was reinforced by the obligation under Schedule C to review the Optus fee "to compensate for lower accounting rates on various originating countries."

(3) This was the proper construction of the entitlement under cl 1.6 to make deductions "for payments that have been overpaid as a result of a distant or transit carrier refusing to make payments …". 66 Optus submitted that the issue should be answered: "yes". It relied on the use of the indefinite article in the relevant part of cl 1.6 ("a distant or transit carrier") and contrasted it with the use of the definite article in an earlier part ("the distant and/or transit carriers"). 67 Further, Optus submitted, the application of the grammatical principles upon which it relied was consistent with the operation of the Optus agreement as a whole, because that agreement "was always intended to operate on a "multi-stream" basis (where "stream" means traffic that is routed through a particular originating, transiting and terminating carrier)." 68 I accept that, in the ordinary case, both in the construction of statutes and in the construction of private agreements, attention should be paid to grammatical usage: particularly where the parties themselves appear to have appreciated the differing functions of definite and indefinite articles. Optus relied on decisions such as Goold v Commonwealth of Australia (1993) 114 ALR 135 at 139-140; Australian Electoral Commission v Timothy Lalara (1994) 53 FCR 156 at 163 (both cases dealing with statues); and Moneywood Pty Ltd v Salamon Nominees Pty Ltd (2001) 202 CLR 351 at 398-399 (153 Kirby J). 69 However, in doing so, I bear in mind the warning of Ormiston JA in Collins Hill Group Pty Ltd v Trollope Silverwood and Beck Pty Ltd [2002] VSCA 205 at paras [14] to [18]. At para [14], his Honour said "that the informal agreement which the parties reached … ought to be interpreted in a straightforward, commonsense way and upon the basis that [it] was neither drafted by lawyers nor intended to express with legal precision what the parties intended." His Honour referred to the fact that the language was not always careful nor consistent, and said: "To pick on individual words or phrases and test their grammatical effect and their consistency is unfairly to subject the document to a process of construction which the parties neither desired nor expected." 70 At para [17], having referred to "the informal nature of the agreement", his Honour dealt with "the approach the Court should take to arguments based on the grammatical form of the letter …". It appears that his Honour was not overly impressed by grammatical subtleties, including "the apparently erratic use of the words "will" and "would" throughout" the agreement. Thus, at para [18], he said that, the document not having been drafted by lawyers, there was no need to be "unsure to what extent one can look behind the language for the business object sought to be achieved by the parties." 71 I must say that, with the experience of prolonged observation of the two people responsible for the negotiation (and, I think, wording) of the Optus agreement - Mr Warwick and Mr Bragg - and having heard their use of language over a prolonged period of time, I am by no means sure that I should impute to them both knowledge of and regard for the niceties of grammar. However, the question is not what, subjectively, those gentlemen may have thought they were achieving by the words they used but what, objectively, is to be made of those words. I accept that, in answering that question, it is appropriate to have regard to grammatical principles. 72 The agreement was not specific to traffic generated through AT&T. It applied as well to traffic generated through Hellenic. Had Gilsan generated traffic through any other carrier then (absent agreement to the contrary) the Optus agreement would have applied to that traffic also if it were switched through Optus for Gilsan's benefit. 73 I do not think that the wording of Schedule C, or the circumstance that there are different accounting rates for different carriers, sheds much light on the issue of construction. Schedule C does no more than indicate what it is that is to be paid according to the regime set out in cls 1.5 and 1.6. Clearly, Schedule C contemplates that there may be different originating carriers and, therefore, different accounting rates; but this is because, as was submitted for Optus, the agreement is intended (absent agreement to the contrary) to accommodate business wherever sourced. 74 Nor, that having been said, do I gain particular assistance from the "multi-stream" nature of the Optus agreement or appeal to its commercial purpose. The appeal to commercial purpose (an argument, in substance, that Optus should not have to pay Gilsan for traffic for which Optus was not paid by the originating carrier) does no more than restate the question in different terms or, more bluntly, beg it. 75 One matter of context that may be significant is that the first drafts of the agreement included a general right of clawback given to Optus. That right disappeared in the course of negotiations. To the extent that it remains, it is to be found in the limited right given by the concluding words of cl 1.6. 76 As I see the commercial purpose, it was that 75% of the amount payable by Optus to Gilsan in respect of each traffic stream should be payable without deduction (cl 1.5). The remaining 25% was subject to deduction to the extent authorised by cl 1.6. In any particular case, the engagement of cl 1.6 would depend on actions taken by a distant carrier, presumably pursuant to some contractual right as between it and Optus. 77 The obligation under cl 1.6 is to pay the 25% tranche "within 45 days of receiving payment from the distant and/or transit carriers" but subject to "deductions … calculated for payments that have been overpaid as a result of a distant or transit carrier refusing to make payment … ". It is clear that the cl 1.6 obligation is triggered individually for each carrier. That is to say, for AT&T originating traffic, the cl 1.6 obligation is triggered when AT&T makes payment for a particular month to Optus, not when Hellenic makes payment to Optus for the same month. On the facts of this case, there would be two separate obligations to make the cl 1.6 payment for each month: one accruing when AT&T made payment for that month to Optus and the other accruing when Hellenic made payment for that month to Optus. The use of the plural ("payment from the distant and/or transit carriers") in the first sentence of cl 1.6 cannot derogate from this. It is to be read distributively. This, I think, sheds some light on the meaning to be given to the second sentence of cl 1.6 and, in particular, to the singular reference ("a distant or transit carrier"). 78 In my judgment, it is the use of the singular noun form rather than the use of the indefinite article preceding it that is the key to the proper construction of the second sentence of cl 1.6. When cl 1.6 is read as a whole, the contrast is not between "the carrier" and "a carrier" but between "the carriers" and "a carrier". Each of "the carriers" may, and no doubt in most cases did, pay separately for each traffic month. It was on the fact, or reality, of payment that the right of deduction operated. Thus, I think, where the second sentence of cl 1.6 refers to "a carrier", it is referring to the carrier that has made payment, and that in doing so has refused to make payment to Optus for the traffic of any particular month. 79 Thus, I think, the entitlement in Optus to make a deduction from the amount paid to Gilsan under cl 1.6 arises each time a carrier (one of the several carriers to whom the agreement applies) makes a payment for that month and, in doing so, refuses to pay some part of what might otherwise be thought to be due. 80 I therefore conclude that this issue should be answered: "no". Summary 81 For convenience, I set out each of the quantum issues and my answer to it:

Quantum Issue 1 Does the first AT&T payment for a particular month trigger the totality of the amount due to Gilsan under Clause 1.6 of the Optus Agreement?

Quantum Issue 2 Whether, in calculating the damages to which Gilsan is entitled, a payment purportedly made under clause 1.6 of the Optus Agreement is to be wholly attributed to that payment rather than allocating some part of that payment in satisfaction of Optus' breach in relation to clause 1.5.

Answer: A payment purportedly made under clause 1.6 is to be wholly attributed to that payment.

Whether the refusals to pay for the purposes of clause 1.6 of the Optus Agreement are, in relation to a particular traffic month, the sum of (a) and (b) below or only (a) below:

(a) The difference between the Optus measured minutes and AT&T declared minutes set out in the AT&T settlement statement for that particular month (set out in the Schedule which appears at p.41 of the Blue Folder);

(b) The AT&T clawbacks set out in Exhibit PX30R, Document A, column J (a copy of which is at page 40 of the Blue Folder).

Answer: (a) The difference between the measured minutes and declared minutes set out in the settlement statement for that particular month.

(b) The Negative Vanuatu Minutes set out in PX30R, document A, column J are refusals to pay for the purposes of clause 1.6 of the Optus Agreement.

Quantum Issue 4 Assuming that clawbacks (para 3(b) above) are refusals to pay under clause 1.6, can such clawbacks for a particular traffic month notified to Optus after the cl 1.6 payment has been made to Gilsan for that traffic month be deducted from a future cl 1.6 payment to Gilsan in respect of a later traffic month?

Quantum Issue 5 Is it permissible for Optus under clause 1.6 of the Optus Agreement to accumulate refusals to pay, such that Optus is allowed to apply any specific minutes that AT&T has refused to pay as a reduction against any final tranche payments (the 25% or 10% payment by Optus to Gilsan), so long as:

(i) Optus was aware of AT&T's refusal (in respect of the specific minutes) at the time for payment of the final tranche; and

(ii) at the time for payment of the final tranche, those specific minutes had not previously been used as deductions (based on a refusal to pay)?

Quantum Issue 6 If an originating carrier makes payment to Optus for a number of traffic months on the same day, does Optus calculate its payments to Gilsan in accordance with clause 1.6 of the Optus Agreement by reference to the first calendar month and then subsequent months in chronological order or as a whole?

Quantum Issue 7 How are the amounts to which Optus is entitled, to be set off against the amounts to which Gilsan is entitled?

Answer: Monthly, with interest at the applicable rate accruing on the balance after set off.

Quantum Issue 8 For each calendar traffic month should the exchange rate conversion be at the first or last day of the traffic month?

Quantum Issue 9 Assuming that AT&T clawbacks are refusals to pay under cl 1.6, whether refusals to pay on AT&T traffic streams can be deducted under cl 1.6 against amounts due to Gilsan for Hellenic traffic streams.

Answer: No. Order 82 I direct the parties to bring in short minutes of order to give effect to these and my earlier reasons. That is to be done within 21 days, on a date to be arranged with my associate. 83 If there is to be an argument on costs, that may be fixed by arrangement with my associate. In that case, the draft orders should include directions for the exchange of any evidentiary material and written submissions relating to costs.

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