[The point may be best made by looking at a letter from Vodafone to Mobile [8/1330 Z (XXXiii) written on 13 January 2003 only weeks before the commencement of the hearing in which lip service was given to every form of conciliatory approach possible-offering target numbers and suggesting utility in Mobile considering relevant parameters and then communicating them to Vodafone and indicating that Vodafone would then consider Mobile's suggestions and possibly put them into force. Nothing remotely akin to this letter had come forward from Vodafone during the earlier period from the occasion when the nil targets were set and thereafter when no targets were given. The letter, albeit written too late, and which I infer was obviously written on legal advice and was received at a time when Mobile could not deal with it as its relevant marketing infrastructure had been dissembled, had it been a genuine new deal from the Vodafone camp, would clearly represent a 180 degree turn from Vodafone's stance taken during the period from when nil targets had first been set. The matter is dealt in the judgment in terms of the parties legal rights in relation to the letter. The point sought to be made is that the stance of refusing to set a target and of so refusing at the same time as holding Mobile to ransom unless it produced business plans clearly did represent a repudiation of the ASP and a breach of a fundamental term of the ASP.]
640 This attitude and approach [of simply passing the baton (in terms of you produce business plans and show them to us) and 'you never know but we may then even consider producing a target'], as well as the substantial body of evidence that Vodafone indicated that it had had enough of Mobile, represented the significant breach of the ASP. The ASP did not require Mobile, where no targets at all were given, to work on and produce draft business plans for Mobile's consideration in the hope that such draft business plans may bring forward a target determination from Mobile.
641 It is extraordinarily difficult as one follows for example the close evidence given concerning the events of 2001 to follow with precision the moving pattern of stances taken by the parties on a micro basis. What does come through however quite clearly and represents the courts finding of fact is that Vodafone made a clear and conscious and very deliberate decision that it was not able to and did not wish to continue with Mobile as its direct marketing agent or with the ASP and would proceed to force the issue in some fashion by using its entitlement to set the targets as a weapon in this regard. It determined to and in fact then set about what is shown to have been an initially somewhat vacillating set of directions and changes, [Mr Clubb: "Due to the integration of Vodac and Vodafone Network we are in a hell of a mess"] [never taking into account, Mobiles legitimate interest in its own financial survival or ability to continue in business as direct marketing agent whilst fettered by Vodafone's changing reduction of target levels down to zero], but ultimately resolving into a very clear position. This position involved first dramatically reducing previously agreed upon proposed target levels for certain quarters and in due course resulted in purporting to fix a target for a 12 month period instead of for a quarterly period, which target in any event was for such a low number of acquisitions as made it quite plain to Vodafone that Mobile could never survive if obliged to comply with such direction. The sequence of events simply involved a closing of the tap by Vodafone. I reject the proposition that Vodafone is shown on the evidence to have made clear that if and when Mobile might come forward with suggested business plans which would find favour with Vodafone, Vodafone would re-open the tap and return to the ASP template of setting targets and agreeing business plans and the like. Whilst Vodafone or some of its officers may have had in the back of their mind that commercial realities would surely in due course require Mobile to put up high-value business plans [as a matter of having its back to a wall and therefore no longer having any choice], this was not made explicit to Mobile. Mobile was entitled to conduct itself on the basis that Vodafone had and continued to repudiate the ASP. Further, Vodafone was obliged to determine the target in conjunction with the determination of the business plan[s]. Mobile was entitled to invoke the dispute procedures in the event of any failure by the parties acting in good faith to agree upon the business plans. In that event the dispute resolution procedures could be invoked by Mobile and when and if invoked, authorised the Expert to provide a conclusive, final and binding decision in relation to the matter. In determining the targets at nil, Vodafone walked away from such obligation as there was to endeavour to agree upon business plans. Mobile was denied the entitlement to have the expert resolution procedure operate in terms of the matter of selection of business plans. This walking away from its relevant obligations most clearly exhibits a repudiation and breach thereof when one looks at Vodafone's decision [Vodafone's letter of 7 March 2001 (6/ 775)] to set a yearly target instead of a quarterly target, which decision, setting a 12,000 target for the year 1 April 2001 to 31 March 2002, on examination, meant that at one in the same point in time, Vodafone was announcing that Mobile would have no targets at all for the September, December 2001 quarters and for the March 2002 quarter. Ms Blake conceded in cross-examination, that Mobile was being given no targets at all for the following September, December and March quarters. This decision clearly flew in the face of the ASP, setting at naught [a somewhat apt word to use in these circumstances], Mobile's clear contractual entitlement so long as the ASP remained on foot, to have Vodafone exercise a discretion during the month prior to the commencement of the relevant quarter, as to what target was to be set for that quarter. Vodafone blatantly and deliberately breached its obligation to exercise that discretion during the period of time stipulated for that exercise by the ASP.
642 That Vodafone approached the contract and business relationship in this way is simply a finding of fact. The reasons for it seem to have been shown to be a continuing anxiety to reduce the acquisitions on low-level plans for financial reasons.
643 What one now has, as it seems to me, is a circumstance in which the mechanisms provided for in the agreement can be seen not to be working. Mobile continues to be bound by the suite of obligations expressly requiring it to satisfy each benchmark during the term [importantly it should not be forgotten that "benchmarks" are defined in the ASP as "minimum performance standards" At the same time it is appropriate to point out that there must have been a reason why the ASP obliged Vodafone to review not less than annually, and as appropriate to amend, replace or add to the benchmarks. This must surely reinforce the significance of the benchmarks to the parties as minimum performance standards.] Mobile is however saved from having the appellation "first level breach" or "second level breach" applied to its relevant conduct.
644 Gross connections are new connections. How then is Mobile expected to achieve a minimum performance standard apropos gross connections of more than 3000/month (ie 9000/quarter) [1st level breach provision] or 2000/month (ie 6000/quarter) [2nd level breach provision], in a situation where it has been effectively directed by Vodafone not to achieve any new connections at all? And how, in that circumstance, can Mobile continue to discharge its express obligation to use its best endeavours to promote the Mobile Services, subject to Vodafone's reasonable directions from time to time [clause 13.1 (a)]. Possibly this simply raises a question of whether or not the nil level target determination constitutes a reasonable direction in the circumstances.
645 The same point may be made with respect to net connections. How is Mobile to be expected to achieve quarterly net connections of more than 3000 [2nd level breach provision] or 6000 [1st level breach provision], in a situation where it has been effectively directed by Vodafone not to achieve any new connections at all? By definition net connections comprise the cumulative result when old connections churn away and new connections are acquired. If Mobile is obliged not to seek any new connections, then if any churn takes place there will be no net connections. So by definition Mobile cannot, by reason of Vodafone's nil target determination [or failure to give any target], both comply with the minimum performance standard and at the same time also comply with its obligation to work towards achieving Vodafone's identified target.
Estimated and Actual Acquisition Costs
646 The defendant's senior counsel, Mr Bathurst QC, paid close attention to clauses 17.6 and 17.7 dealing with differences and variations between Estimated Acquisition Costs and Actual Acquisition Costs. The proposition was that:
· there is no constraint in the ASP on Mobile continuing to obtain subscribers even if a target of nil has been set by Vodafone;
· applying clause 17.6, if the Actual Acquisition Costs are, subject to clause 17.7, more than the Estimated Acquisition Cost for that quarter, Vodafone must pay the difference to Mobile;
· subject to the matters provided for in clause 17.7, if the Estimated Acquisition Costs are zero and Mobile acquires one or more subscribers, as a matter of logic the Actual Acquisition Costs will be more than the Estimated Acquisition Costs and Mobile has an entitlement to receive payment for the actual acquisition Costs.
647 If Vodafone's submission in this regard is correct it seems to me that it is particularly important to note that clause 17.7 (a) provides an express positive obligation upon Mobile to use its best endeavours to ensure that the Actual Acquisition Cost for a quarter correspond to the Estimated Acquisition Cost for that quarter as closely as possible. Hence if Vodafone, assuming an entitlement to do so, determines a nil target for any quarter, clause 17.7 (a) in fact imposes a positive obligation upon Mobile not to incur any Actual Acquisition Costs at all during that quarter.
648 It may also be arguable that where one is dealing with a target level of zero then as a matter of semantics, there will be no Estimated Acquisition Cost at all [as compared to an estimated acquisition cost of zero] for the relevant quarter.
649 There is another dimension to Actual Acquisition Costs which the plaintiff seeks to emphasise. This concerns very close reading of how the actual acquisition cost is derived in support of the proposition that, following the relevant provisions, if there was only one new subscriber, the cost to connect of that subscriber would be the title of the relevant overheads. The matter was explained by Mobile's leading counsel [Transcript 1137-1138] by reference to PX volume 1, generally as follows:
· the definition of "actual acquisition costs" is important, not only for assessment and quantum matters, but in the definition of acquisition, actual acquisition costs;
· the agreement provides that it is all actual, direct and indirect costs incurred in providing the acquisition services as derived and set out in schedule 3, but subject to adjustment in accordance with clause 17 and including without limitation all merchant fees charged to merchants by companies or other entities providing credit card or charge card facilities other than the merchant charges but excluding any costs associated with Mobile's business other than the Mobile Direct marketing operation;
· the following matters can therefore be observed about the scheme. The first is that it is all costs. Secondly, it is direct and indirect. Thirdly, they are derived as set out in schedule three;
· now, schedule three is to be found on page 198. This is important because, it describes how the actual acquisition cost is derived and it uses the actual March 98 revenues as a working example. The terms capitalised below as are used in the working example. Mobile splits its total overhead costs, i.e., operating expenses, depreciation and provisions between recurring corporate and connection overhead;
· the current percentage split is based on the current resource allocation of the three areas showing, as per the example on page one of two, the total cost to connect overhead calculated at $51.10. [cf page 199 in the right hand column].The cost to connect overhead includes a percentage of administration, annual and long service leave, audit and accounting fees, employee's entertainment, rent, salaries and wages, staff recruitment training and superannuation, telephones; and your Honour will see in the second to right column the percentages in this example which were allocated for the cost to connect;
· so what the annexure then says is the resulting total cost to connect overhead per new subscriber, i.e. 51, is transferred to annexure C on page two of two and is deducted from the gross margin per new subscriber. [cf page 200]. Then it says a narrative has been included to describe what is included in each line item and the second column divides the actual cost by the number of new subscribers in the month. The result is the average actual acquisition cost per new subscriber;
· the third column mirrors the second except it excludes existing Vodafone support. This support ceases on termination of the service provider agreement;
· the resulting gross margin, excluding Vodafone support, is the total cost to connect overhead per new subscriber which will result in the acquisition cost per new subscriber. In this example the actual acquisition cost is $415.03 per new subscriber. How that is derived is seen on the right hand column on page 200; and
· if a target had been set of just one subscriber, the cost to connect of that subscriber would be the total of the overhead in column three, in effect, because it would be divided by one. The new connections here had 4232. Page 199, about point seven, shows that this assumes 4232 connections resulting in the cost per new connection of 46.76. If one had only one new connection the cost per new connection would be 197,870.
Resolving these disparate internal conflicts
650 The basic approach to the proper construction of a written contract has often been stated but it bears repeating.
Objectivity
651 The general test of objectivity is pervasive in the law of contract. Two passages from speeches of Lord Diplock illustrate the point (as Gleeson CJ said in Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 549).
652 In Gissing v Gissing [1971] AC 886, his Lordship said:
'As in so many branches of English Law in which legal rights and obligations depend upon the intentions of the parties to a transaction, the relevant intention of each party is the intention which was reasonably understood by the other party to be manifested by that party's words or conduct notwithstanding that he did not consciously formulate that intention in his own mind or even acted with some different intention which he did not communicate to the other party.'
653 In Ashington Piggeries v Christopher Hill [1972] AC 441 at 502, his Lordship said:
'In each of the instant appeals the dispute is as to what seller promised to the buyer by the words which he used in the contract itself and by his conduct in the course of the negotiations which led up to the contract. What he promised is determined by ascertaining what his words and his conduct would have led the buyer reasonably to believe that he was promising. That is what is meant in the English Law of contract by the common intention of the parties. The test is impersonal. It does not depend upon what the seller himself thought he was promising, if the words and conduct by which he communicated his intention to the seller would have led a reasonable man in the position of the buyer to a different belief as to the promise; nor does it depend upon the actual belief of the buyer himself as to what the seller's promise was, unless that belief would have been shared by a reasonable man in the position of the buyer. The result of the application of this test to the words themselves used in the contract is still "the construction of the contract".'
Matrix of circumstances
654 To my mind it may be regarded as having been clear to both parties at the time entering into the ASP that changing economic or market conditions may lead to changes in both volume and margins.
Commercial contract
655 The court is dealing with a commercial contract. In construing the meaning of a term the Court will strive to give the agreement a commercial, reasonable and rational operation: Australian Broadcasting Commission v Australian Performing Right Association (1972) 129 CLR 99 at 109; Hide & Skin Trading v Oceanic Meat (1990) 20 NSWLR 310.
656 There is abundant authority that "court should be astute to adopt a construction which will preserve the validity of the contract", per Mason J, Meehan v Jones (1982) 149 CLR 571 at 529; Biotechnology Australia Pty Ltd v Pace (1988) 15 NSWLR 130 at 132, per Kirby P. Further the court will strive in dealing with a commercial contract to discern the objective intent of the business relationship or other parameters of such contract in order to give effect to f that which the parties may be seen to have bargained for. But always it is to the words of the contract that the court must attend looking in that regard to the whole of the contract to discern the parties intent. Where mechanical provisions intended to operate over an extended period of time are concerned the court endeavours to follow the mechanics and provisions expressed in the contract in the endeavour to follow, always by looking at the manner in which the matter is expressed, how the parties saw the contract as a working guide to the way forward. As pointed out in Biotechnology at 135, the court will however not be in a position to in effect spell out that which the parties have for themselves failed to agree upon. Nor will court be no position to clarify that which is irremediably obscure. Nor will court accept for itself a discretion which the parties have, by their agreement, reserved to one or other of them. To do so would not be to give effect to the contract but to change it: Kofi-Sunkersette Obu v A Strauss & Co Ltd [1951] AC 243 at 250 ( PC).
Implied terms
657 The above general description of the disparate difficulties in construing the ASP in the face of a number of apparent internal conflicting provisions serves it seems to me to require one to stand back from the agreement in an attempt to discern from the words of the document, what the parties were apparently intent upon achieving in their relationship. That the contract was a long-term contract is obvious. Each of the parties had a clear commercial interest in entering into the ASP. But above and beyond every other consideration they were about setting out a mode in which Mobile could conduct the agency business which it was appointed to conduct. That was intended to be an ongoing business until the ASP was duly terminated according to its terms or according to the respective legal rights of the parties. The business concerned direct marketing. Mobile was prevented from conducting the Mobile Direct Marketing Operation part of its business otherwise than for Vodafone. [ASP clause 2.2] Hence the parties anticipated that over sundry periods of time, advertising of high order would lead to incoming applications for subscriptions to the services being sold.
658 It seems to me that the parties careful attempts to treat with the need to regularly, as each quarter approached, co-operatively work towards agreeing the terms of the business plans which would apply in respect of that quarter [attempts replete with the alternative dispute resolution provisions should these attempts proved unsuccessful], make plain that neither of them intended that at any stage either party would have an entitlement to simply refuse to participate in the production of any form of business plan at all. But by definition Vodafone's case of an entitlement to set the target at nil is predicated upon, proposition or carries as a correlative to the reasoning underpinning that case, just such a proposition. Its case suggests something which sounds illogical, namely that the proper construction of the ASP can be seen to have entitled Mobile, notwithstanding that Vodafone would set a nil target for an ensuing quarter, to nevertheless:
· go ahead and seek as many subscribers as it wished;
· be paid its Acquisition Costs in respect of each of those subscribers.
659 There was of course the express general obligation upon Mobile to carry out its best endeavours to promote the Mobile Services. Let us assume that a call came in from a would-be subscriber during a quarter in respect of which Vodafone had fixed a nil target and had concomitantly, not participated in the preparation of any business plan [for the reason which Mr Bathurst forward as there not being anything which could be included on such a plan]. One wonders in that circumstance just what would or could be the content of Mobile's obligation to carry out its best endeavours to promote the mobile services The construction for which Vodafone contends would seem to suggest that Mobile should either attempt to dissuade that would-be subscriber from subscribing to the service or alternatively, perhaps, that Mobile should endeavour to locate an existing subscriber and persuade that subscriber to churn, so that, in net terms, there would be a nil figure for new subscribers.
660 Likewise it seems to be a particularly awkward approach to the ASP to contemplate that in the face of a nil target determination [and concomitant absence of a business plan], the parties should be seen to have intended that Mobile had carte blanch to sign up as many subscribers as it wished, being paid all of its Actual Acquisition Costs in this regard. Were this to occur then clearly that which Vodafone, with its absolute discretion to determine target levels may be suggested as having bargained for, would be completely outflanked.
661 Certainly I recognise that the problem in rejecting the Vodafone construction to the nil target issue inheres in one or more of a combination of:
· the lack of an express criterion to be used as a yardstick by which to measure the reasonableness of any particular target number as may be put forward; and
· the clarity of the provision within Schedule 1 which expressly recognises that Vodafone may determine, in accordance with clause 18.4, that the target level in respect of new subscribers, would be less than the number of connections comprising either a first level breach or a second level breach.
662 I am less impressed by the Vodafone submission relying upon the proposition than Mobile would [cf clause 17.6 (b)] still be entitled to receive its Actual Acquisition Costs notwithstanding that it may have virtually ignored the target set and simply gone about obtaining as many new subscribers as possible. This is because clause 17.6 (b) is expressly subject to clause 17.7 which latter clause, by subclause (a), obliges Mobile to use its best endeavours to ensure that the Actual Acquisition Cost for a Quarter correspond to the Estimated Acquisition Cost for that quarter as closely as possible. Hence it seems to me that as soon as Mobile would ignore the target in this way and obtain new subscribers at will and proceed to claim the whole of its Actual Acquisition Cost [on the basis that there had been an estimated Acquisition Cost of zero], Vodafone could legitimately assert that Mobile, by breaching clause 17.7 (a), had forfeited any entitlement which it otherwise may have had pursuant to clause 17.6 (b).
663 Clearly one would not expect to obtain and generally cannot obtain any real assistance from decided cases for the reason that this is a contractual issue to be determined as a matter of construction of the ASP. It is interesting however to observe that in The Eastern Extension Ausralasia and China Telegraph Co Ltd v The Commonwealth (1908) 6 CLR 647 a question arose in relation to agreements made between a telegraph company which had laid a telegraph cable between Tasmania and Victoria and the Tasmanian Government to whose rights under the agreements, the Commonwealth had succeeded. The company was given a monopoly of submarine telegraph communication between those States for a fixed period, a scale of charges having been fixed for the transmission of telegrams and it being provided that a particular subsidy should be paid by the Government on an annual basis. It was also provided that the government should have "full power at any time to reduce" the scale of charges for telegrams, that in each year the company should be entitled to take "the whole of the proportion of the moneys collected and receivable by them from all sources in respect of such telegrams," called "message receipts," and that "if, after any such reduction in the scale of charges, the message receipts shall not in any year… by reason of such reduction, or otherwise, amount to the sum of £5600, the Government shall guarantee and pay to the Telegraph Co, the difference between the message receipts and the said sum of £5600" .
664 The Commonwealth, after a previous reduction, purported to abolish the rates altogether. The judgment of Griffith CJ at 663 sets out the plaintiffs contentions in the following terms: