Mobile Innovations Limited v Vodafone Pacific Limited

Supreme Court of NSW|2003-03-06|Before: Einstein J

The Application 1 There is before the court an application by the defendants for leave to file and read as part of their case an affidavit by Mr John Raymond Townsend made on 5 March 2003. The application is resisted by the plaintiff. 2 The proceedings are nearing the end of the third week of the final hearing, an estimate of hearing time of approximately four weeks, having been given to the court some time ago. 3 The present position is that the plaintiff's case is closed and the plaintiff's leading counsel, Mr Hammerschlag SC, is presently cross-examining the second of the defendants' witnesses. That cross-examination is nearing completion and has extended for some time. The witness currently in the witness box is Ms Blake. The first of the defendants' witnesses, Mr Maher, has been cross-examined and re-examined. 4 The application before the court is not supported by any evidence as to the reasons why Mr Townsend's affidavit was not filed in accordance with the usual court directions, quite some time ago. The defendants' submission 5 The defendants' leading counsel, Mr Bathurst QC, has submitted that the court should accept that there are legitimate reasons why the affidavit was not filed earlier and why the defendants, as they accept, took a deliberate forensic decision not to call Mr Townsend some time ago. 6 The submission is that the defendants came to realise, by reason of the particular lines of cross-examination by Mr Hammerschlag of their first two witnesses, that it was necessary or prudent to call Mr Townsend and that this had not occurred to the defendants as necessary up to that point in time, in terms of the pleaded issues and matters being litigated. The Proceedings 7 It is necessary to review, albeit briefly, the issues of relevance. That having been said the pleadings are complex in the extreme and this is not an occasion to be anything like exhaustive in an attempt to summarise the relevant issues. 8 The proceedings concern disputes arising from the contractual and other arrangements of parties carrying on the business of providing mobile telecommunication services. 9 The principal issues concern the proper construction of a long term commercial agreement of some complexity. As often occurs in relation to such agreements, the parties who have contracted into the future using a variety of concepts, formulae and detail, later come to heated disputation about what was agreed. The construction and other issues to be treated with in the final judgment have been litigated up to this point into time and were hotly contested, no doubt by reason of the significance which findings, one way or the other, will have to the parties disparate commercial interests. The ASP Agreement 10 At the centre of the dispute being litigated stands the ASP agreement by which Vodafone engaged Mobile as its agent: · to acquire and connect new subscribers to mobile telecommunication services made available to subscribers by Vodafone on a post paid basis; · to provide management services including retention activities and handset upgrades, to new and existing subscribers. 11 This is not the occasion to treat with the very close arguments put by each party in terms of the proper construction of the ASP. Suffice it to say that the ASP is a complex contract clearly intended, on a long term basis, to regulate the business dealings between the parties, and containing a series of provisions concerning how the parties were apparently intended to go forward on a quarterly basis by consultations in terms of proposed business plans. 12 A reasonably critical question concerns whether, properly construed, the contract entitled Vodafone to set a nil target in respect of any quarter, or to decline to set at any time a target at all in respect of particular or any quarters.

The causes of action 13 The plaintiff's several causes of action include a claim that a number of activities of Vodafone constituted a repudiation of the ASP and comprised breaches of the contract, properly construed. The claim, importantly, also extends to cover an allegation that a number of terms in the agreement were implied terms, including terms said to oblige Vodafone to: · do whatever was necessary to be done on its part to enable Mobile to have the benefit of the ASP agreement; · refrain from doing anything which would or was calculated to deprive Mobile of the ASP agreement; [Each of these implied term allegations were described in the pleading as "the co-operation term"] · act in good faith and reasonably in exercising its powers under the ASP Agreement ["the good faith term"]. 14 Mobile pursues a case that was explained in the overview submissions by Mobile as containing 11 separate causes of action: · "On 30 November 2000 Vodafone, having completed its first review of BAM and CTA, notified MI that the new rates were as follows: (a) BAM: (i) $43.17 per connection up to 8,000 connections (ii) $21.58 per connection thereafter

(b) CTA (i) $7.67 for monthly billed customers (ii) $5.67 for monthly billed customers on low access plans (iii) $5.00 for quarterly billed customers (iv) $nil for non-tolling V.mobile customers. · MI disputes that Vodafone was permitted to set a $nil CTM for non-tolling V.mobile customers · For each quarter from the commencement of the ASP Agreement until the June 2001 quarter the parties agreed a CTA and business plan, although occasionally only after significant disputes and often not within the timeframes dictated by the ASP Agreement. The quarterly targets varied from time to time, but were generally around 20,000 and peaking at 27,900 for December 2000 quarter.

Claims 1 - 3 · However during that period several subsidiary disputes arose between the parties. They are described as Claims 1 - 3 below. [Claim 1 - ACM Agreement dispute; Claim 2 - V Mobile dispute; Claim 3 - MC 9 dispute] Claim 8 · In early 2001 Vodafone decided to change its business approach to reduce the emphasis on customer acquisition and concentrate on high value customers. For the June and September 2001 quarters it drastically reduced the targets and changed the plans available to be used. Further, in March 2001 it changed the amount of, and criteria for, retention funding provided to MI. As a consequence MI suffered a significantly increased loss of customers through "churn". That is Claim 8. Claims 4 and 5 · Although a business plan was agreed for the June 2001 quarter, MI did not achieve the target, because, MI alleges, Vodafone did not provide the plans to enable MI to do so. That is Claim 4 below. As for the September 2001 quarter MI alleges, and Vodafone disputes, that no business plan was agreed. That is Claim 5. Claims 6 and 7 · For each of the succeeding quarters (December 2001 - March 2003) Vodafone has either set a nil target or failed to set any target. That is Claims 6 and 7. Claim 9 · At various times since July 2001 Vodafone has dealt with MI's direct marketing competitors in contravention of its exclusive arrangement with MI. That is Claim 9. Claim 10 · Claim 10 is an allegation that Vodafone, through one or more of setting nil targets, failing to set targets, dealing with MI's competitors and withdrawing retention funding, has repudiated the ASP Agreement. Claim 11 · Finally, there is a discrete claim for MI's costs of running a direct marketing e commerce website for Vodafone. That is Claim 11". The instant application The plaintiff's submission 15 Turning back to the application presently before the court, the plaintiff's senior counsel has identified what are suggested as two essential arguments to be viewed cumulatively, in support of the submission that the application for leave to file and read Mr Townsend's affidavit should not be acceded to. 16 The first argument is based upon the suggested prejudice to the plaintiff. The submission is that: · the plaintiff has conducted the presentation of its case up to this point in time upon the assumption that Mr Townsend was not to be called to give evidence; · the plaintiff has conducted the cross-examination of the first two important witnesses of the defendants upon that basis; · it was always very obvious to anyone conversant with the pleadings and with the materials comprising many written communications, many meetings and conversations, which would go into evidence, that Mr Townsend played at material times an extremely important part in the decision making hierarchy of the defendants and, in fact, authored a number of the vital letters upon which the plaintiff bases heavy reliance in its sundry breach of contract, breach of good faith, breach of reasonableness, breach of obligation to cooperate and repudiation cases. 17 Mr Townsend became Financial Director of Vodafone Plc's operations in Australia in late January 2001 and is currently a director of each of the defendants. 18 Without presently travelling through the particular communications and occasions when Mr Townsend seems, on the evidence, to have likely been a significant player involved in and at the time of the vital communications, or certain of them, it is significant to mention his presence at sundry meetings from March 2001 onwards and his participation in the sending and receipt of correspondence including his authoring of the critical 23 July nil target notification and his authoring of the letters with respect to the September quarter. 19 Mr Bathurst submitted that the court should accept that Mr Maher was reasonably regarded by the defendants' camp as at material times the significant and principal chief executive whose role mandated or required, as a measure of forensic prudence, that he be put forward as the relevant witness, or as one of them. The plaintiff's senior counsel strongly disputes any such suggestion. It seems to me that there is substance in the plaintiff's counsel's submissions in this regard. 20 Clearly at this point in the hearing the court is not able to and cannot reach any final or concluded views in terms of the particular significance of one witness rather than another. However, it does seem to me, from the evidence so far adduced, that it could not possibly be said that Mr Townsend did not play, or arguably play, a reasonably important and significant role in a number of the aspects of the matters being litigated. 21 As is apparent, for example, from the transcript of evidence given by Mr Maher himself at [805.10], his evidence, at least under cross-examination, was that he had nothing to do with the preparation or sending of the important 23 July 2001 letter from Mr Townsend which notified a nil target for December 2001. At transcript at 806.55 Mr Maher accepted that not only did he have nothing to do with the writing of the 23 July 2001 letter from Mr Townsend, but that the decision to set a nil target was taken before he arrived by others and not by him. His evidence was that he was sure that Mr Townsend would have participated in the making of that decision. 22 The proposition for which Mr Hammerschlag contends is that there are two particular and vitally important parameters speaking to the prejudice to the plaintiff if Mr Townsend's affidavit is now to be read. The first is that close to all of the plaintiff's best points on issues such as breach of the alleged implicit obligations of good faith, reasonableness, cooperation and the repudiation issue have now been put to the first two of the defendants' witnesses. Had the affidavit of Mr Townsend been filed and served in accordance with the court's directions in the ordinary course of events, that cross-examination would have been pursued and directed against the certain knowledge that the cross-examiner would have an opportunity, in due course, to cross-examine Mr Townsend. Of course the court may accept that these initial two witnesses may have been asked a number of questions which they were not asked, in an attempt to lay the ground work for a future cross-examination of Mr Townsend. 23 The plaintiff's senior counsel also submits, as I accept, that the whole of the plaintiff's case in chief was presented on the assumption and template that Mr Townsend would not be called. Of course decisions made as to what questions to seek leave to ask of certain of the plaintiff's witnesses in chief and what re-examination to conduct in each case, requires the plaintiff's counsel, as it seems to me, and as a matter of fundamental forensic fairness, to be well and truly aware, if it should be the fact, that a witness of arguably such central significance to certain issues as Mr Townsend, is proposed to be called in due course. 24 Even the occasion for the delivery of this judgment is shown to support the importance of the plaintiff's senior counsel knowing with certainty whether or not he is, in due course, to be faced with Mr Townsend as a witness to be cross-examined. He is close to completion of the cross-examination of Ms Blake, as I understand the position, and has made plain that he can not complete that cross-examination without knowing the answer to the instant application, obviously because he will need to set his sails in his further cross-examination of Ms Blake in the knowledge, one way or another, as to whether Mr Townsend will be called. 25 The second particular matter to which the plaintiff's senior counsel has referred, [albeit in a confidential environment following an order that the court be closed for purpose of taking submissions, and following senior counsel for the defendants giving an undertaking not to disclose this matter to any person without further leave of the court], concerns the plaintiff's forensic decision not to call Mr Andrew Bissex as a witness in its case. 26 The position in this regard is that arrangements, transcribed some time ago, provided for the plaintiff, in a consensual fashion with the defendants, to be entitled to interview Mr Bissex, who in 1996 was the managing director of Vodac, [a subsidiary of Vodafone], in Australia and became a managing director of Vodafone later. He was the managing director of the merged Vodafone entity following the integration of the operations of Vodafone Network and Vodafone Pty Ltd. The regime involved the plaintiffs being in a position to interview Mr Bissex without there being any suggestion from the defendants of any breach of, or participation in, breach of, confidential and/or fiduciary obligations, as long as the plaintiff served any draft synopsis, or any draft statement, which they may have prepared following that interview upon the defendant, which apparently they did. 27 Senior counsel for the plaintiff took the forensic decision not to call Mr Bissex as part of the plaintiff's case, notwithstanding that the draft synopsis included a number of matters which may arguably assist the plaintiff's case had those matters been before the court. Paragraphs 13 to 29 of the synopsis were in the following terms:

At this time (that is, late 1998 through 1999) Vodafone's priority was subscriber growth. Vodafone was competing hard with its 2 main competitors, Telstra and Optus, to sign mobile customers.

Vodafone was always searching for a cheaper way to grow. Adding growth by way of post paid customers (which requires handset subsidies and the like) costs money. The basic rule of thumb was that a subscriber who signed up during the first half of the year would pay for himself during the second half of the year so that on average over the financial year the amount would be at least positive. The difficulty is, in the second half of the year the subscriber signed up but would not have enough time until the end of the financial year to become profitable so that they would be a loss making operation causing Vodafone to want a drastic slowdown towards the end of the financial year. Vodafone, both in the United Kingdom and Australia, had consistently and significantly slowed down acquisition during the final quarter of the financial year.

After the integration of Vodafone Network and Vodafone Pty Limited I became responsible for dealings between Vodafone and Mobile Innovations. I met with Nigel Bramwell. He conveyed to me two things: (a) firstly, his belief that Mobile Innovations could grow at a faster rate; and (b) secondly, whatever the rate of growth, he implored that there should be consistency in the growth targeted and required by Vodafone.

He drew to my attention the fact that under the agreement between Vodafone and Mobile Innovations, if targets for customer acquisitions below a minimum number (four thousand connections per month) were set then Mobile Innovations had to be paid for the four thousand connections per month in any event. I concluded (perhaps as a result of discussions - I cannot now recall) that the minimum connection protection had been inserted in the ASP Agreement precisely because of Bramwell's knowledge of Vodafone's tendency to vacillate at the end of the year and because Mobile Innovations would have geared up to make connections and without such protection would have been exposed to paying overheads, which it could not afford to do.

I was often told by Nigel Bramwell that Mobile Innovations was very efficient, with low management and acquisition costs. He actively and continually sought increased levels of connections. However Vodafone's financial people (such as Denys Webb) stated that, after taking into account the cost of connections and management fees, the net present value of Mobile Innovations subscribers was nil.

The difficulty I had with the information I received from Vodafone's financial people was that within Vodafone there was very poor analysis of the cost to acquire new subscribers. One of the reasons for this was that upon the integration Vodafone became responsible for numerous different legal entities, each with its own subscriber base, billing and accounting system. My recollection is that we kept something like thirteen different sets of company books. It was difficult to accurately attribute costs across the different entities.

At the end of June 2000, after the first quarter of the financial year (Vodafone's financial year is from 1st April to 31st March), Vodafone had met all its targets by way of connection and profit for that quarter.

However, at about the same time I received the market share research which showed that Vodafone's market share of connections during that quarter had dropped significantly below its competitors. An important performance indicator for Vodafone was its comparative position in the market place, by way of number of connections, to that of Optus and Telstra. Notwithstanding that we had maintained budgets and achieved the level of connections required, we had lost market share. Brian Clarke demanded that I find a way of regaining the lost market share while maintaining the bottom line.

For the whole of the rest of the year my team of directors (including Gordon Clubb, Denys Webb, Peter Bolger, Justine Larkin and Andrew Birch) searched for ways to cut costs in Vodafone's business in order to use the savings to find the growth that was required. My team also focused on identifying and implementing ways to increase growth.

Denys Webb was responsible for implementing the strategies identified by those directors. After June 2000, month by month and quarter by quarter, the figures produced by Denys Webb indicated that we were meeting the targets that the team set in terms of both growth and protection of the bottom line.

At the end of 2000 Denys Webb decided to return to the UK and was in handover mode with John Townsend. I believe Denys Webb left on 1st January 2001.

Shortly after John Townsend took over, during his handover from Denys Webb, he conducted an examination of the books and found what he described as a "$70 million hold". This was made up of failure to accrue for annual leave, poor debt collection procedures, major write offs and a series of other irregularities.

John Townsend wrote a report, of which I was given a copy, in effect identifying the cause of the problem as inadequate financial controls and absolving me from responsibility. However, I was nevertheless subsequently made redundant.

From the moment of discovery of the $70 million hole, my instructions to Vodafone staff were to the effect, "stop everything", "stop connections", "just stop the sales machine, stop the whole thing." As stated growth costs money especially late in the year so the only way of reducing the $70m was to stop all growth.

The difficult financial position was exacerbated by the fact that Vodafone was entering the last quarter of the financial year, which always had the most prejudicial impact on the figures with respect to the customer acquisition expenses being incurred and not recovered.

In seeking to implement this immediate slowdown I was briefed by Gordon Clubb and Justine Larkin that we could not stop paying Mobile Innovations the minimum connection fee. I asked them, "is there anything we can do to avoid paying this?" and they said "No. there is nothing we can do."

I left Vodafone in mid March 2001." 28 The plaintiff's senior counsel took the forensic decision importantly for the reason that it was feared that to seek to rely upon the statement of Mr Bissex, or to seek to call him orally, might give the defendants an excuse to seek to reply to this evidence by calling Mr Townsend. 29 In relation to the question of whether this form of suggested prejudice might be ameliorated or removed by the plaintiff now seeking to re-open its case in chief in order to call Mr Bissex, Mr Hammerschlag has made clear that, of course, although he resisted this course, it could occur. 30 As I understand the defendants' senior counsel, such a course would not be opposed. However, the plaintiff's senior counsel resists any such requirement that he call Mr Bissex, and it seems to me does so with very good reason. It is important to recognise, through the regular hearing of a final hearing, the importance of permitting each party to reach forensic decisions in an informed fashion. The purpose of the court's pre-trial directions is obvious to all and is intended to ensure as part of the administration of justice, regularity in the regular conduct of the proceedings, but is also importantly intended to ensure that each party is properly, and in a timely fashion, apprised of the case which it is to be required to meet. 31 Having said that, it is, of course the case that from time to time during the course of a final hearing, applications will be pressed to permit a party to produce a new statement, albeit requiring at the same time an extension of the time for filing of such new statement. Those applications are always determined on their merits and such applications may well be allowed from time to time. 32 Indeed, my own view has always been, and remains, that the court should strain to permit each party to call such evidence as will permit it to present its evidentiary case in full; this being an important underpinning parameter of natural justice, often regardless of court directions. However, there are occasions, and in my view this is such an application, where the nature of the application to call the further evidence, and the prejudice occasioned to the party resisting the application, can be seen as such that, in the particular circumstances, the discretion to permit the calling of the additional evidence be refused. 33 The short position is that in my view the type of prejudice which the plaintiff has pointed out, as earlier referred to, is of such significance that the interests of justice require that the plaintiff not be subjected, at this time in the final hearing, to that prejudice. Why, one may ask, should the plaintiff now be literally forced to reopen its case and have to call a witness who will then be cross-examined against a background which is by now clearly exposed to the defendants' camp, the plaintiff's senior counsel having reasonably thoroughly cross-examined the first two witnesses. 34 There is a certain dynamic which operates in terms of the calling of evidence and there is absolutely no doubt, as it seems to me, that the occasion for the plaintiff to reopen its case in chief to call Mr Bissex, and the concomitant possible changes in the evidentiary landscape, could very well be of clear significance to the plaintiff's causes of action and mode of conducting its case to this point in time. 35 It is simply the case that the final hearing having unfolded up to this point in time in the manner which I have outlined, the plaintiff would be significantly prejudiced as a matter of its forensic stance, if literally forced to call a witness whom it had elected not to call, which witness, no doubt, will be thoroughly cross-examined on issues in the case. In short, the price likely to attach to the court's granting leave to the defendant to read Mr Townsend's affidavit, namely the price of revisiting the plaintiff's forensic decision, should not be visited upon the plaintiff at this point in the final hearing. 36 The court has been referred to certain authorities in relation to the application including the decision of Justice Santow in Ronnoc Financial Limited v Spectrum Network Systems Limited, 20 August 1997, unreported, Santow J, and the decision of the High Court of Australia in Smith v New South Wales Bar Association [1992], 176 CLR 256. Also of some relevance is Urban Transport Authority of New South Wales v Nweiser (1992) 28 NSWLR 471, [Court of Appeal]. Whilst of course those authorities deal with questions of forensic tactical decisions and prejudice, they generally treat with the issue of the court's discretion to allow a party to re-open a case after it had closed a case. Whilst one may gain some assistance from those authorities, which do seem to emphasise the importance of the taking of a deliberate decision not to call particular evidence, as a relevant factor in some such applications which the High Court of Australia in Smith suggested ordinarily would tell decisively against particular applications, my own view is that the matter generally sounds far more in prejudice than in terms of the court endeavouring to weigh the deliberateness of a decision not to call the evidence earlier. 37 The guiding principle for a court in determining the application presently before the court, is whether the interests of justice are better served by allowing or rejecting the application: cf Clarke J A in Urban Transport Authority at 478 D - E. All facts, matters and circumstances of materiality require to be taken into account. A recent development in this State, which the Court is also entitled and indeed required to take closely into account, relates to Part 1 of the Supreme Court Rules as modified by Amendment No 337, which elucidates the overall objectives of practices and procedures as specified in the Rules. The overriding purpose of the Rules is to facilitate the "just, quick and cheap resolution of the real issues" in civil proceedings. The overriding purpose clause imposes an obligation on the Court to give effect to the overriding purpose when it exercises any of its powers." 38 Clearly it is difficult, in the extreme, in a short judgment, to summarise the matters which have been litigated in heated contest over the last almost three weeks. Having said that, senior counsel for the defendant readily accepted that there had been a deliberate decision not to call Mr Townsend taken in this case up to the point in time when Mr Townsend's affidavit commenced in preparation and was then, within approximately a day, produced and served. The defendants, as I have already said, have put forward reasons why it is now suggested that that forensic decision was not, at the time it was made, misconceived. 39 Whilst it is certainly not determinative of this application, my view is that that deliberate decision to put forward Mr Maher as the relevant senior person and to put forward the other witnesses whom the defendants' have always proposed calling, was made in the face of an evidentiary landscape where Mr Townsend's participation should always have been seen as of real, or certainly very arguably, very real significance. 40 As I have said, ultimately in the course of the adjudication, in final terms of the hearing, all such matters including weighing all of the evidence given by all witnesses as well as the documentary evidence, will be able to be treated with in detail. 41 I have given very careful consideration indeed to the proper exercise of the court's discretion in this case and have reached the clear decision that the proper exercise of the court's discretion is to decline the application. I order accordingly.

Last Modified: 11/28/2007 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.

CITATION : Mobile Innovations Limited v Vodafone Pacific Limited [2003] NSWSC 309 HEARING DATE(S) : 06/03/03 JUDGMENT DATE : 6 March 2003

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Judgment (22 paragraphs)

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