Those answers, originally given on the voir dire, were held to be admissible on the construction issue.
44 The third item of evidence involved a deed of undertaking between SP Telemedia and B Digital. It was not suggested that that document ever came to the attention of Primus, but it was suggested that it demonstrated an understanding of the amount that was to be paid for the book debts in keeping with the construction for which Primus now contends. The key provision presently relied on in the B Digital deed was an agreement by SP Telemedia to pay to Kooee an amount equal to the difference between the amounts payable by Kooee to Primus under cls 2.2 or 2.3 of the separation deed on the assumption that the definition of "net debtors" and "unbilled revenue" had different meanings to those defined in the separation deed. Apart from that payment, the B Digital deed also required that SP Telemedia provide loan funds to Kooee sufficient to allow it to pay Primus the amounts required pursuant to cls 2.2 and 2.3 of the separation deed.
45 Clause 2.2 was not directly relevant, it being a provision requiring Primus to supply information which was to be the basis of a payment, the payment being made pursuant to cl 2.3. Clause 2.3 required Kooee to pay an amount equivalent to the "net debtors and unbilled revenue". The amount of unbilled revenue was defined as 90% of charges which could have been billed, but for the separation deed. Under the B Digital deed, the alternative definition was an amount equal to 83.92% of 90% of the amount of such charges. The variation in respect of net debtors is more complex. It will be recalled that net debtors was defined in the separation deed as an amount equivalent to 83.92% of the debtors amount, plus GST paid by Primus in relation to the debts. In the B Digital deed, net debtors was defined to mean "an amount equal to 83.92% of 90% of all 60 day old debts plus 50% of all debts over 60 days old recorded in the Primus books of account at termination time". The effect of the variation is hard to determine. The debtors amount was defined to mean all debts recorded in Primus' books (less the provisioned debts), and accordingly to the extent that the same debts were involved, the B Digital deed would achieve a lower figure because it did not refer to any debts less than 60 days old. In these circumstances the Court cannot be satisfied that, as stated in a memorandum from Ms Sharon Maguire of 27 April 2005, debts less than 60 days old totalled $2.9 million out of a total of $6.2 million. The figures provided by Primus indicated that the 60 day old debts totalled $246,882 and the debts which were 90 days or over totalled approximately $3 million. Applying the new definition of "net debtors" - 90% of the 60 days debts plus 50% of the debts over 60 days - would give a total of approximately $1.72 million.
46 The import of this material is somewhat obscure. According to Primus, the inferences which should be drawn are that B Digital was concerned that Kooee was paying a higher price for net debtors than the amount it would be able to collect. Accordingly, it wished the vendor of Kooee, SP Telemedia, to pay to it (B Digital) an amount equal to the difference between the anticipated recovery and the payment to Primus. This purpose would only be explicable if Kooee, B Digital and SP Telemedia understood that Kooee would be paying an amount which was 100% of all debts for which no provisioning had been made and an amount for other debts equal to the face value of the debt, less the provision made by Primus in its books of account.
47 There are a number of problems with this argument. The first was that there was no evidence to which this Court was taken to suggest that Primus was aware of the proposed payment by SP Telemedia to B Digital, or its basis, prior to executing the separation deed. Secondly, it is necessary to rewrite the deed between B Digital and SP Telemedia so that it refers, in place of "90% of all 60 day old debts", to 90% of all debts up to and including 60 day old debts. Thirdly, that calculation bore no relationship to the provisioning made by Primus as recorded in the file note of 7 April prepared by Mr Simmons.
48 There was one further piece of evidence to which this Court was taken, although it was not relied upon expressly by the trial judge. It was a calculation sheet undertaken by Mr Simmons in March or April 2005: Tcpt, 02/02/07, p 170G-171H. That document set out a calculation (not using the figures referred to above, but similar figures) of the likely difference between the calculation required under the B Digital deed (subject to the variation in terminology noted above) and the payment to be made to Primus. Dealing only with the payment to be made to Primus, Mr Simmons took the "total Primus debtors transferred", namely, $6.2 million and the estimated net debtors payment to Primus as $4 million. What is not clear is how the $4 million figure was arrived at. Nor was Mr Simmons asked to explain the calculation. The third item relied upon by the trial judge, namely the calculations undertaken for the purpose of an indemnity arrangement between B Digital and SP Telemedia should be disregarded.
49 So far as the file note of 7 April and the cross-examination of Mr Simmons are concerned, they established that, in the course of negotiations, Mr Simmons was advised by Mr Miller of Primus' bad debt policy and advised of the provision currently made for bad debts. He noted a figure for "net debts" which might have been approximately equivalent to the calculation of net debtors under the separation deed, taking into account GST. However, this is a matter of speculation. That was not put to him in terms, nor was he asked whether there was a draft separation deed available to him at that time, nor whether he was basing his calculations upon it. He was not asked if the figure which he arrived at was what he believed to be the figure payable under the separation deed for net debtors. The question might well have been inadmissible, but it demonstrates the difficulty in dealing with pieces of paper created during negotiations, the import of which is left to inference.
50 Reliance should not have been placed on this material. At its highest, the evidence demonstrates, legitimately, that Primus had a bad debts policy which allowed for provisioning. So far as the evidence revealed, what was known to Kooee prior to execution of the separation deed was that provisioning commenced at 90 days and was increased at 180 days. The figures available to Kooee pursuant to the contract did not require a breakdown of debtors to indicate those at 180 days. Without that information, Kooee would have been unable to check the calculations for net debtors, in accordance with the construction proposed by Primus.
51 This was not a case in which rectification of the contract was sought by Primus: had it been, Primus would have needed to establish a common intention as to the manner in which the amount for net debtors was to be calculated. Because such relief is equitable in nature, it may be legitimate in such circumstances to look at the subjective intentions of the parties: see Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65 at [176]-[187] (Tobias JA, Mason P agreeing) and [258]-[316] (Campbell JA, Mason P and Tobias JA agreeing). It is not necessary in the present context to consider what evidence might be appropriate in the present case, had rectification been sought.
52 How far evidence may be admissible to prove the "factual matrix" within which a contract is agreed involves a different question which may, in practice if not in theory, depend upon the extent to which the words of the written document are seen to be ambiguous or unclear. There is, in any event, a difference between surrounding circumstances and matters of subjective intention. As explained by Mason J in Codelfa Constructions Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337, at p 352:
"It is here that a difficulty arises with respect to the evidence of prior negotiations. Obviously the prior negotiations will tend to establish objective background facts which were known to both parties and the subject matter of the contract. To the extent to which they have this tendency they are admissible. But in so far as they consist of statements and actions of the parties which are reflective of their actual intentions and expectations they are not receivable. The point is that such statements and actions reveal the terms of the contract which the parties intended or hoped to make. They are superseded by, and merged in, the contract itself. The object of the parol evidence rule is to exclude them, the prior oral agreement of the parties being inadmissible in aid of construction, though admissible in an action for rectification."
53 The existence of Primus' bad debt policy was a background fact which was undoubtedly admissible. However, the use of that policy as a means of calculating the amount of net debtors for the purposes of the payment due from Kooee to Primus fell within the category of statements and actions of the parties which was not admissible.
54 The construction proposed by Kooee was correct and should have been applied in the calculation of amounts due under the contract. As expressed by McColl JA in Peppers Hotel Management Pty Ltd v Hotel Capital Partners Ltd [2004] NSWCA 114 at [69]:
"If the words used [in a written contract] are unambiguous the court must give effect to them, notwithstanding that the result may appear capricious or unreasonable, and notwithstanding that it may be guessed or suspected that the parties intended something different. The court has no power to remake or amend a contract for the purpose of avoiding a result which is considered inconvenient or unjust."
55 Although it cannot be decisive of the approach to construction required of the Court, it is relevant that the contract, by agreement between the parties, included an "entire agreement" clause, being cl 11.6: see [36] above.
56 The construction proposed by Primus, and accepted by the trial judge, should be rejected. Kooee's appeal in this respect should be allowed. Kooee abandoned its appeal with respect to the interest on unbilled revenue.
Primus cross-claim: interest on collections
57 Although Kooee was required to make the payments discussed above under cl 2.3 in relation to net debtors and unbilled revenue, and was entitled to collect and retain, from termination time, the proceeds of all debts, the parties anticipated that amounts would continue to be paid by customers to Primus after termination time. Pursuant to cl 2.5, Primus was required to account to Kooee for these amounts.
58 It will be recalled that Kooee was to make payments in two tranches. The date of each payment depended upon the date on which Primus advised Kooee of the amounts of the net debtors and unbilled revenue, and supplied the information required by schedule 1 of the separation deed in respect of those amounts. Kooee's first payment, of 50% of the amount, was required to be made within three business days of the receipt of the notice from Primus. The second payment was to be made within 30 business days of receipt of the notice. Clause 2.5 provided:
"2.5 Subject to Kooee complying with its obligations under sub-clauses 2.3 and 2.4 above any amount paid by a Customer to Primus or any Associate of Primus on or after Termination Time must be paid by Primus to Kooee on the last day of the week following after the second payment by Kooee under sub-clause 2.3 and each subsequent week and, regardless of when any payments are made by Primus under this clause 2.5, if any amount is received by Primus in respect of any Debt, Primus must give Kooee sufficient information for Kooee to identify each Debt and the amount of such Debt in respect of which such payments were made."
59 The scheme of cl 2.3 was that Kooee would make a payment calculated by reference to amounts set out in the notice received from Primus, which was intended to occur not later than seven clear business days after 20 May 2005, being the definition of "Termination Time". What was assumed by cl 2.4 was that Primus would discover further amounts which had not been included in the first notice and might, within 180 days of termination time, issue further notices to Kooee, triggering an entitlement to further payments. What in fact happened was that Primus made claims for amounts in excess of the amounts properly owing. The correct figure, namely $4,400,724, based on Primus' construction of the contract, was not conveyed to Kooee until 20 January 2006. Indeed, on the basis of the construction proposed by Kooee and accepted above, the correct amount was considerably less than that. The difficulty to which these circumstances gave rise was that Primus had had the benefit of moneys received by way of collections for a lengthy period, without the contractual obligation to pay the moneys over having accrued, as a result of its own default.
60 The amount of the collections received by Primus was $2,365,218.75. The bulk of that money was received in the month of June with tapering payments being received thereafter until 30 November 2005. By way of an approximate calculation, his Honour was prepared to accept that Primus had had the benefit of the whole of the moneys from 1 July 2005 and that interest was to be calculated from that date.
61 In the course of the appeal, Kooee conceded that, even if it were successful in relation to net debtors, it should pay interest on the full amount from 20 January 2006 until 3 February 2006 and from then on the amount payable for net debtors less collections, to the date of judgment below.
62 Primus' position was that until there had been a proper calculation of the amount of net debtors, and the final payment was made, it was not obliged to pay interest on collections because the obligation to hand over the collections had not arisen. The issue thus turned in effect on whether Primus could rely upon its own failure to provide an accurate statement of net debtors as a basis for retaining moneys collected by it for the whole of the period from 1 July 2005 to the date of judgment.
63 Whether there is any longer an issue in dispute between the parties is unclear. Primus stated in its written submissions:
"His Honour's finding [in [2007] NSWSC 374 at [15]], that Collections should be taken into account by way of equitable set-off against Net Debtors owed by Kooee is not challenged in this cross-appeal. However, there remained no basis, even after that finding, for ordering interest to be paid on the set-off sum from an earlier date, (1 July 2005), than for the primary sum, (1 January 2006).
Interest on Net Debtors was found by the trial judge to not commence to accrue until the proper form of notice was provided by Primus to Kooee, as that is when the obligation to pay arose. The position with respect to Collections cannot have been different."
64 The position adopted by Kooee was that interest on net debtors accrued from 20 January 2006, accepting in effect that the notice given on that date was effective, with the result that collections should have been paid on 3 February 2006. In substance that reflected the expectation under cl 2.5 that the collections would be paid over by Primus on the last day of the week following the second payment by Kooee. The obligation of Kooee to make payment from 20 January 2006, combined with its failure to do so, was conceded as carrying interest from that date. By the same reasoning, the payment over of collections, which was also not made, was accepted as a set off against the payment due to Primus. Interest was then conceded as being payable on the balance from the date when the notional set off occurred. This result is beneficial to Primus, as compared with the order made by the trial judge in respect of interest on collections and appears to treat equitably the respective interests of Kooee and Primus on their outstanding obligations. (The alternative approach would involve a conclusion, consistently with the approach adopted by the trial judge which is not challenged, that Primus has not yet provided advice in the form of a notice which would trigger the obligation of Kooee to make payment of net debtors and accordingly would not be entitled to interest on net debtors.)
65 If the points addressed by Giles JA at [4]-[7] were pressed on the appeal, I agree with his Honour's reasons for disposing of them.
Interest on migration costs
66 Pursuant to cl 6 of the agreement, Kooee was obliged to pay to Primus costs involved in the transfer of Kooee customers to Kooee, or a telecommunications service provider identified by it. These have been described as "migration costs". Kooee's obligations in that regard were to pay Primus "within 10 business days of Primus giving Kooee satisfactory evidence of such expenses": cl 6.1. According to the trial judge in [2007] NSWSC 374 at [35]:
"Up until the commencement of the hearing, Primus claimed the sum of $752,588.61. On the eve of the trial, the parties agreed that quantum of Primus' costs was $300,000."
67 Kooee's obligation to pay the amount depended upon receipt of "satisfactory evidence of such expenses": his Honour concluded that repeated claims for an amount exceeding $700,000 did not constitute satisfactory evidence of a claim for an amount of $300,000. Primus sought to argue before his Honour a contention repeated in this Court in the following terms:
"[Primus] submits that the fact that the amount claimed was compromised ought not lead to the result that interest only commences to run from the date of that agreement. Rather, prima facie the reduced agreed sum should be assumed to have always been payable and attracting interest. Evidence of these costs was provided by Primus to Kooee pursuant to clause 6.1 on 8 November 2005. That evidence should now be assumed satisfactory to the extent of the agreed sum, and that date should be the date to trigger interest."
68 The parties have agreed, since the argument on the appeal, that the amount at stake in this regard is $32,153. The fact that the parties have agreed the amount payable but not whether interest should be payable thereon prior to the date of their agreement is surprising. However, it is not suggested that the agreement went so far as to conclude that the amount had been payable from any particular date prior to the date of the agreement. Accordingly, the parties have in effect required this Court to determine whether Kooee's obligation to make that payment arose prior to the agreement as to its amount.
69 The only basis upon which an earlier entitlement was said to arise was the proposition that within material supplied to Kooee apparently on or about 18 November 2005, there were receipts or other materials to support costs totalling $300,000 (and, presumably, to support costs totalling a further $450,000). Whether or not that is so, is a matter of which this Court cannot be satisfied. It was not taken to any of the material. Primus merely referred to one page of an email, which does not obviously contain any evidence sufficient to satisfy either Kooee or the Court.
70 Even if material constituting satisfactory evidence for expenses totalling $300,000 had been supplied, as part of a much larger bundle, it would not seem sufficient to satisfy the contractual obligation. It was a matter for Primus to identify the relevant material, not to provide Kooee with a bundle of materials which purported to justify an amount far in excess of that ultimately agreed, thus giving Kooee the opportunity to consider whether some or all of the materials constituted satisfactory evidence. The obligation to discriminate was imposed by the contract on Primus. It has not satisfied this Court that it complied with that obligation. Accordingly, although it incurred the expenses in 2005, it did not properly trigger Kooee's obligation to reimburse it for those expenses and thus is not entitled to interest on the agreed amount.
Interest on revenue share
71 In his first judgment of 16 February 2007, the trial judge identified, as a matter of agreement reached between the parties in the course of hearing, an amount payable by Primus to Kooee under the original service agreement, as a share of revenue, of a little in excess of $1.2 million. In the second judgment, his Honour noted that a claim by Kooee for $933,447.72 had been agreed. At [4], his Honour noted that the only outstanding issue in respect of "revenue share" was whether it could be set off against any amount payable to Primus and whether interest should run and if so, from what date. (The difference between the amount originally agreed and that referred to in the second judgment resulted from a part payment by Primus: at [24].) His Honour held that the amount owing should have been paid to Kooee one month after collection and that, averaging the two months over which the amounts were received by Primus, it had effectively had the benefit of those moneys from 1 May 2005. His Honour held that interest should be payable on the revenue share from that date.
72 According to a document provided after the hearing of the appeal, the parties agreed that the amount otherwise payable would increase by $146,308 if Primus succeeded in its argument that interest on revenue share should be allowed only from 25 January 2007, that being the date at which the component of revenue share became subject to agreement as to quantum.
73 The basis for Primus' argument in this respect is obscure. Its obligation to pay the revenue share was not dependent upon Kooee providing relevant information, as was Kooee's obligation, said to be analogous, in relation to payment of migration costs. Primus knew what the amount of the revenue was and should, in accordance with the contract, have known what share was payable to Kooee. If it failed to pay that amount, interest was properly payable from the date on which it was due, Primus having had the benefit of the money in the meantime. The cross-appeal in that respect should be rejected.
Conclusions
74 It follows that, according to the figures provided by the parties, the judgment given by the trial judge should be set aside and judgment should be entered for Primus against Kooee in the sum of $1,391,040.
75 In relation to costs, Primus also challenged the failure of the trial judge to award costs on an indemnity basis from 19 January 2007 when Primus offered to compromise its claim by accepting an amount of $2.5 million. The judgment given by the trial judge, in an amount of $2,647,832, exceeded the offer. That judgment having been set aside, Primus has received an amount well below the offer. Accordingly, the challenge to the costs judgment must fail.
76 Whether the orders made below were entered is not apparent from the papers filed in this Court. The relevant operative orders were the judgment in favour of Primus, in an amount of $2,647,832 made on 24 April 2007 and the order that Kooee pay 75% of Primus' costs of the whole proceedings, made on 7 May 2007. These orders will need to be varied.
77 The final questions relate to which party should pay the costs of the trial and the appeal. The trial judge ordered Kooee to pay Primus 75% of its costs of the proceedings. Primus remains entitled to a payment, but in a lesser amount than that awarded at trial. It would appear that, consistently with the approach of the trial judge, the proportion of costs payable should be reduced. In relation to the costs of the appeal, Kooee having been substantially successful on its appeal and Primus having been substantially unsuccessful on its cross-appeal, Kooee should have its costs of the appeal. If the parties are unable to reach agreement on costs, each should file any material involving offers of compromise and further written submissions setting out its position, within 14 days of the date of this judgment.
78 I would therefore propose the following orders: