Optus Networks Pty. Limited v. Gilsan (International) Limited [2006] NSWCA 171

Optus Networks Pty. Limited v. Gilsan (International) Limited [2006] NSWCA 171 - NSWCA 2006 case summary — Zoe

[20]

Wednesday 5 July 2006 OPTUS NETWORKS PTY. LTD. V. GILSAN (INTERNATIONAL) LIMITED Judgment 1 BEAZLEY JA: I agree with Hodgson JA. 2 HODGSON JA: Between about December 1998 and about May 2001, customers in the United States of America spent about US$100 million (about A$133 million) on telephone services for the purpose of accessing "adult entertainment" dispensed in Sydney by a Gibraltar company (Gilsan, the respondent and cross-appellant in this appeal). 3 One reason for the size of the total amount thus generated was that the telephone services were charged at rates referable to the prevailing rate of US$4 per minute for telephone calls between the USA and Vanuatu, a figure greatly in excess of that for telephone calls between the USA and Australia; but although the relevant telephone calls were made to Vanuatu telephone numbers they never in truth reached Vanuatu, but terminated in Sydney, where the "adult entertainment" was dispensed. This is but one of a number of curious features of the commercial transactions underlying the dispute in this case. 4 This amount of about US$100 million was divided between Gilsan and the providers of the telephone services, namely the American originating carriers AT&T (ATT) or its successor Concert Global Network Services Limited (Concert). (I will generally refer to each of them as ATT), the Australian transit carrier (Optus, the appellant in this appeal) and the terminating carrier Telecom Vanuatu Limited (TVL). Over the period in question, Gilsan received about US$30 million of this US$100 million, while TVL received about US$2 million. It appears that Optus received about $US14 million, and ATT retained the balance, about US$54 million. However, ATT claimed that it had overpaid Optus by an amount which would appear to be of the order of US$8 million, and it appears that Optus has refunded that amount, which would reduce its share (subject to these proceedings) to about $US6 million. ATT paid almost nothing to Optus in respect of the period January to May 2001, and the question of how much more, if anything, ATT should pay Optus in respect of that period has been dealt with in a confidential agreement between them; so it is not disclosed how much Optus received from ATT in respect of the period January 2001 to May 2001. 5 The proceedings in the Commercial List from which this appeal is brought concerned a claim by Gilsan against Optus for additional amounts as damages, equitable compensation or an account of profits, on the basis of an agreement made between them on 3 December 1998 (the Optus Agreement). Optus brought a cross-claim in the proceedings, claiming judgment for sums in various currencies, the US dollar equivalent of which totalled about US$2.5 million, mainly in respect of alleged overpayments made by it to Gilsan. (It will be convenient to express all sums of money in terms of US dollars, so any reference to dollars should be taken as a reference to US dollars unless the contrary is indicated.) 6 There was a 14-day hearing before McDougall J in September 2004, concerning a large number of issues agreed between the parties. Those issues were determined in the primary judge's first judgment of 26 November 2004 ([2004] NSWSC 1077). Further issues were contested before the primary judge in December 2004, and they were determined in his second judgment of 11 February 2005 ([2005] NSWSC 38). A further nine issues (the quantum issues) were contested before the primary judge in May 2005, and were determined by his third judgment of 3 June 2005 ([2005] NSWSC 518). 7 The primary judge made orders on 27 July 2005, in which he answered 73 questions concerning issues under the Optus agreement, and gave judgment in favour of Gilsan for US$10,260,044.00 (which would increase Gilsan's share of the US$100 million to about US$40 million, and reduce Optus's share to about minus US$4 million, plus whatever it received confidentially from ATT). 8 Optus has appealed from parts of the first and second judgments, seeking orders varying the answers to 10 questions, setting aside the judgment in favour of Gilsan and giving judgment for Optus in the sum of US$1,307,013.00. 9 Gilsan has cross-appealed from parts of all three judgments, seeking orders varying the answers to 14 questions, and remitting the matter to the Court below for quantification of the amount payable by Optus to Gilsan.

[26]

Second, s.205(a): Whenever, after full opportunity for a hearing, upon a complaint or under an order for investigation and hearing made by the Commission on its own initiative, the Commission shall be of opinion that any charge, classification, regulation, or practice of any carrier or carriers is or will be in violation of [the Act], the Commission is authorized and empowered to determine and prescribe what will be the just and reasonable charge or the maximum or minimum, or maximum and minimum, charge or charges to be thereafter observed, and what classification, regulation, or practice is or will be just, fair, and reasonable, to be thereafter followed. … 17 In its report, the FCC stated that it established "the rate at which a settlement rate agreed to by US international carrier satisfy that carrier's obligation to comply with the 'just and reasonable' requirement of Sections 201 and 205". It gave the date of implementation of the Order as 1 January 1998, and required US carriers to negotiate settlement rates with foreign correspondents in a transition period set out in a schedule that, in its application to Vanuatu, prescribed three years from implementation date. 18 In discussing enforcement of the benchmarks, the FCC said this: 185. Because we have found that settlement rates above the relevant benchmarks after the relevant transition period will not produce just and reasonable rates, we will take appropriate enforcement measures as may be necessary to ensure that U.S. carriers satisfy our benchmark requirements. As an initial measure, we will identify foreign carriers that are reluctant to engage in meaningful progress toward negotiating settlement rates at or below the relevant benchmark. We will convey to the responsible government authorities our concern about continued high settlement rates and the lack of meaningful progress, and seek their support in lowering settlement rates. In our contacts with the responsible government authorities, we will emphasize the need for cooperation in achieving the goal of cost-based rates, enlist their active support in achieving that goal, cite relevant lTU recommendations such as Recommendation D.140, and suggest further discussions that may be necessary.

[33]

The benchmark requirements we adopt in this Order will become effective on January 1, 1998. The transition periods for U.S. carriers to negotiate settlement rates at or below the benchmark rates will begin on that date. However, we will consider, on a case-by-case basis, grandfathering settlement rate agreements that were negotiated prior to the effective date of this Order that do not comply strictly with the benchmark requirements we adopt here. Our standard for grandfathering such agreements will be whether approval of the agreement is in the public interest. We will find an agreement to be in the public interest if it serves the same goals we have set forth in this Order and if it achieves settlement rates at or below the relevant benchmark within a reasonable period of time. We reiterate that if, in the future, there is a multilateral consensus on a substantially equivalent international measure to achieve our goals of a cost-based system of settlements in a timely manner, we will waive enforcement of the benchmark settlement rates. 19 Later in the Order, this appears: 286. … We find that any settlement rates that exceed the relevant benchmark constitute an unjust and unreasonable "charge" or "practice" under Section 201. As a result, we declare settlement rates in excess of the relevant benchmark to be unlawful and not in the public interest. 20 Later again, there is the following passage: 291. We have concluded in this Order that it would be an unjust and unreasonable "practice" or "charge" for a U.S. international carrier to pay settlement rates above the relevant, benchmark rate. The relevant settlement rate benchmark represents the highest presumptively just and reasonable amount a U.S. international carrier can pay its foreign correspondent for handling one minute of an international call under Sections 201 and 205. Thus, we prescribe under Section 205 that U.S. international carriers adhere to the benchmarks we adopt in this Order. As discussed in Section II.B.2. of this Order, we have established procedures whereby any affected party can rebut this presumption by demonstrating that the relevant benchmark fails to allow a carrier to collect its incremental costs for providing international termination services. 21 The body of the Order concludes with the following ordering clauses: 327. Accordingly, IT IS ORDERED that, pursuant to Sections 1, 2, 4(i), 201, 205, 214 and 303(r) of the Communications Act of 1934, as amended, 47 U.S.C. ss 151,152, 154(i), 201, 205, 214, 303(r), the rules, requirements and policies discussed in this Order ARE ADOPTED and Part 43 and 63 of the Commission's Rules, 47 C.F.R. Parts 43 & 63, ARE AMENDED as set forth in Appendix B.

[46]

3.3 Any disputed traffic will be treated separately and shall not be used to delay any settlement procedures already agreed upon. No unbillable and/or uncollectable traffic will be accepted without due evidence, except where specifically agreed. 24 The agreement applied to traffic to all parts of the world, not merely Vanuatu. In its application to traffic to Vanuatu, it had the following effect. Of the 42 cents which would go to Optus under the Tripartite Agreement, ATT retained 32 cents and passed on only 10 cents to Optus. Thus the cascade accounting would proceed as follows: ATT retains $2.11 and pays $1.89 to Optus, and Optus retains 10 cents and pay $1.79 to TVL. However, as we will see, ATT in fact paid Optus at the rate of $2.21 throughout 1998, 1999 and 2000, giving rise to the claimed overpayment of $8 million referred to earlier in this judgment. 25 This confidential agreement illustrates further curious features of the commercial transactions underlying this dispute. It involves a departure from the principles of ITU Recommendation D155, in departing from a 50/50 split between the originating carrier and the terminating carrier after payment of the transit carrier. Further, it seems ATT was to negotiate with other carriers on the basis that Optus, as transit carrier, was entitled to receive 42 cents per hour, and presumably to seek to achieve terms based on that figure; whereas under this confidential agreement, Optus was in fact to receive only 10 cents per hour. If, as would seem to be the case, the amount Optus was to receive was a material factor in these negotiations, the confidential agreement would appear, at first blush, to contemplate that ATT would be misleading those with whom it was negotiating, by suggesting that this amount was 42 cents per hour. However, it may be that the existence of such confidential agreements is notorious, so that the parties with whom ATT negotiated would not in any event take any notice of an assertion that Optus was entitled to receive 42 cents per hour, and so would not be misled by such an assertion. 26 Gilsan enters into the picture in late 1998. It devised a scheme for generating income for provision of adult entertainment, which worked in this way. A person would be offered the adult entertainment on the internet, and if the person took up the offer, a program would be put into effect that would disconnect the person's regular internet connection and dial up a Vanuatu telephone number, so that the customer would be paying for the entertainment at a rate based on the cost of telephone traffic to Vanuatu. As we have seen, in the case of calls from the USA, this involved a TAR of $4.00 per minute. Gilsan would then have an agreement with one or more of the carriers which would return it some significant part of this $4.00. 27 On 24 November 1998, Gilsan entered into the following agreement with TVL: BETWEEN Telecom Vanuatu Limited, Telecom House, PO Box 146, Port Vila, Vanuatu ("PTT")

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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 or SDR0.175 deductible for such traffic. 30 The words "their share of" were added in handwriting to the typed words of the Payment Formula. It is the construction and effect of this Payment Formula that is at the heart of the issues in this case. 31 It is common ground that, under this Payment Formula, in its application to ATT/Optus/TVL traffic, the total accounting rate was $4.00 per minute, and the relevant deduction for Optus was SDR 0.175, which approximates to 25 cents, and can conveniently be treated as 25 cents. What is at issue is whether the deduction for "origination charges", at the inception of the agreement, was $1.79, as provided in the Tripartite Agreement (as Gilsan contends) or $2.11, being the amount which could be retained by ATT under the 1998 confidential agreement (as Optus contends). If the former was correct, Optus should have accounted to Gilsan on the basis that Optus was to receive $2.21 per minute from ATT and pass on $1.96 per minute to Gilsan; while if the latter was correct, Optus should have accounted to Gilsan on the basis that Optus was to receive $1.89 per minute from ATT and pass on $1.64 per minute to Gilsan. 32 One fact found by the primary judge, and not challenged on appeal, was that, prior to entry into this agreement, Gilsan was aware that there were confidential agreements in the industry like that entered into by ATT and Optus, and that the amount payable to Optus by ATT in respect of ATT/Optus/TVL traffic was $1.89 per minute; although, as noted above, ATT was in fact paying Optus at the rate of $2.21 per minute, pursuant to what ATT and Optus later agreed to be a mistake. 33 Although the confidential agreement between ATT and Optus for 1998 ended on 31 December 1998, no similar confidential agreement for 1999 was made until 30 September 1999. The agreement then made, which was expressed to apply from 1 January 1999 to 31 December 1999, was in relevantly similar terms, except for cl.1.5, which was as follows: 1.5 Optus official transit fee to be used by AT&T when negotiating divisions of the accounting rate with distant extraeuropean administrations is 0.35 SDR/US$0.483 per minute which applies to all traffic covered by this agreement. This transit fee can be changed from time to time by Optus by providing thirty (30) days prior written notice to AT&T. 34 The confidential agreement for 1999 ended on 31 December 1999. No similar confidential agreement was made for 2000 until 4 August 2000. In the course of negotiations for that agreement, Tony Collins of Concert (the successor to ATT) sent the following email to Optus on 15 June 2000: Following our discussions last week, I wanted to briefly summarise our position/thoughts on both the current and proposed Transit Buy arrangements via Optus. You will not (sic) that we have proposed the new rate of US$0.08 for our Transit Buy rate via Optus for 2000, however the divisions of revenues associated with the Vanuatu stream may vary, depending on whether Optus maintain the current 1999 STP (US$0.483) or change to your new proposed STP of .44SDR/US$0.61.

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This email picked up the fact that payments had been at the rate of $2.21 per minute instead of the rates provided in the confidential agreements; yet as noted above, payments actually continued at the rate of $2.21 per minute from ATT to Optus in respect of the months July to December 2000, the actual payments being made in March 2001. 35 Also on 15 June 2000, Optus sent an email to Gilsan, in the following terms: As mentioned to keep the traffic for 2000 we have to take an extra two cent drop to US$1.8385 in place of what DP expected US$1.89 so we are down by 5.15 cents. Presume you can live with that to ensure traffic continues. 36 The confidential agreement between ATT and Optus dated 4 August 2000, and expressed to apply from 1 January 2000 to 31 December 2000, was again relevantly similar to previous confidential agreements, except that the Optus confidential rate was 8 cents per minute rather than 10 cents per minute, and cl.1.7 was in the following terms: 1.7 C&W Optus' official transit fee to be used by Concert when negotiating divisions of the accounting rate with distant administrations is 0.44 SDR/US$0.61 per minute which applies to all traffic (except Vanuatu at US0.483) covered by this agreement. This transit fee can be changed from time to time by C&W Optus by providing thirty (30) days prior written notice to Concert. 37 In March 2001, ATT accounted to Optus in respect of the months of July to December 2000, and it accounted and paid for those months at the rate of $2.21 per minute. 38 As mentioned earlier, although the Benchmark Order contemplated that USA carriers would use the three year transition from 1 January 1998 to 1 January 2001 to negotiate with terminating carriers for lower settlement rates, it seems that ATT did little if anything towards negotiating with TVL prior to January 2001. Evidence was led of communications on the Benchmark Order between January 2001 and May 2001, set out in a Schedule to this judgment, the upshot of which was that ATT determined that it would pay TVL at the rate of 19 cents per minute from 1 January 2001. 39 Prior to learning that ATT would be reducing its payments from January 2001 by reason of the Benchmark Order, Optus paid Gilsan over $1.9 million in respect of traffic in January and February 2001. However, on 21 March 2001, Optus sent the following email to Gilsan: After having met with ATT yesterday we have been advised that they will only be declaring the minutes for the Vanuatu traffic at a zero rate from Jan 2001 onwards (pending confirmation from the FCC regarding the reduction in rate for USA originated traffic to Vanuatu). This being the case we will also be declaring the minutes for Vanuatu traffic at zero rate from Jan 2001 and will be putting in place the necessary measures to recoup the payments recently made for the Jan 2001 traffic. If you require further clarification please contact either John Bragg or Samantha Bicknell. 40 A further confidential agreement was made between ATT and Optus on 31 May 2001, for the period 1 January 2001 to 31 December 2001, providing relevantly for an official transit rate of 61 cents per minute and a confidential rate of 8 cents per minute. 41 In about July 2001, ATT accounted to Optus at the rate of 27 cents per minute, made up of 8 cents for Optus and 19 cents for TVL, in respect of the period from January 2001 onwards. 42 The amounts paid by Optus to Gilsan pursuant to the agreement between them were agreed by the parties to be as follows:

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Traffic Total number Total paid Month of minutes Rate paid per minute(US$) % paid (US$) per traffic month A B C D Jan 99 2,805 1.64 100 4,600 Feb 99 5,211 1.64 100 8,546 Mar 99 11,099 1.64 100 18,202 Apr 99 11,049 1.64 100 18,120 May 99 37,887 1.64 100 62,135 Jun 99 52,482 1.64 100 86,070 Jul 99 66,261 1.64 100 108,668 Aug 99 51,301 1.64 100 84,134 Sep 99 53,080 1.64 100 87,051 Oct 99 66,396 1.64 100 108,889 Nov 99 48,376 1.89 100 91,431 Dec 99 43,465 1.64 100 71,283

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Adjustment to reflect reduction in rate to US$1.6085 per minute as per Dance email to Pearson of 19.6.00 (TB Ref 17.110). -$7,978 253,283 minutes x US$0.0315 Jan 00 48,850 1.5885 100 77,598 Feb 00 55,968 1.5885 100 88,905 Mar 00 377,881 1.5885 100 600,264 Apr 00 768,337 1.5885 100 1,220,503 May 00 1,401,867 1.5885 90 2,004,179 Jun 00 2,460,922 1.5885 90 3,518,257 Jul 00 2,684,165 1.5885 90 3,837,416 Aug 00 3,026,817 1.5885 90 4,327,289 Sep 00 2,762,170 1.5885 90 3,948,936 47,257 1.5885 100 75,068 Oct 00 2,666,470 1.5885 90 3,812,119 Nov 00 1,993,330 1.5885 90 2,849,764 Dec 00 2,001,440 1.5885 90 2,861,359

Subtotal 20,744,886 Jan 01 1,167,976 1.5885 75 1,391,497 Feb 01 914,117 1.5885 37.5 544,528 =========================== ============== ============== Total 22,826,979 31,898,835

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EFFECT OF CONFIDENTIAL AGREEMENTS Submissions 54 Mr. Slattery QC for Gilsan submitted that the primary judge was in error in that he found that "their share" in the Payment Formula meant the share of Optus, in particular because anything that could possibly be regarded as the share of Optus had to be arrived at after deducting the originating charges; whereas if "their share" was taken to refer to an amount from which deductions were to be made, as must be the case if it meant the share of Optus, the originating charges were to be deducted from it again, giving rise to a contradiction. 55 Mr. Slattery submitted that this error affected the primary judge's consideration of the question. He submitted that what "their share" meant was Gilsan's share, which was to be determined by making deductions from the total accounting rate in accordance with the Tripartite Agreement: this was an objective criterion, not subject to being arbitrarily reduced by Optus. It was not reasonable to interpret the Payment Formula so that what Gilsan was to receive was subject to the control of Optus: this would be inconsistent with the guarantee of cash flow certainty given by cl.1.5 of the agreement. 56 Mr. Slattery also submitted that the effect of the Tripartite Agreement could not be varied without the participation of TVL, so that the 1999, 2000 and 2001 confidential agreements, purporting to vary the transit charge up by about 6 cents and thereby to reduce TVL's terminating charge by about 3 cents, could not affect anyone apart from ATT and Optus: that is, it could not affect TVL or Gilsan. The primary judge was in error in rejecting this contention on the basis that TVL had bargained away all its rights except for 10 cents, because the TVL/Gilsan agreement related only to Gilsan traffic, whereas the Tripartite Agreement and the confidential agreements applied to all ATT/Optus/TVL traffic. 57 Mr. Slattery submitted that the fact that it could seem commercially unrealistic for Optus to agree to pay out $1.96, as contended by Gilsan, when it received only $1.89, from which it was also supposed to receive 25 cents, was not a weighty consideration. ATT/Optus/TVL traffic was only one aspect of what was dealt with by the Optus/Gilsan agreement, which also dealt with calls through Optus to TVL from other originating carriers in the USA and from originating carriers in other countries. So that the circumstance that Gilsan was found to have known that Optus was receiving only $1.89 from ATT was not a decisive factor.

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Decision 58 In my opinion, although the language of the Payment Formula is loose, the better view is that "their share" refers to Gilsan's share, because otherwise "their share" has to be subject to deductions which include the origination charges, when on any view the share of Optus is one arrived at after deduction of origination charges. What I think the Payment Formula is saying is that Gilsan's share of the total accounting rate is a share which is subject to deductions from the total accounting rate of the specified charges. 59 It seems common ground that the words "and the PTT share" convey that the PTT share (that is, TVL's share) is also to be paid to Gilsan (SP), so it makes sense that the Payment Formula required Optus to pay Gilsan both Gilsan's share ("their share") and TVL's share. This is in fact what happened, because of the application of cascade accounting; although I note that cl.1.2 and Schedule B suggest that Optus should pay TVL direct. 60 However, I do not think any of this materially affects the construction of the Payment Formula. 61 In my opinion, the language and circumstances amply support the primary judge's conclusion to the effect that what was to be paid on by Optus to Gilsan was what Optus was entitled to receive from originating carriers under Optus's agreements with them, less the Optus fee of SDR0.175 (25 cents). In circumstances where, to the knowledge of both parties, the division of total accounting rates was often governed by confidential agreements as well as agreements like the ATT/Optus/TVL Tripartite Agreement, there is no reason to give agreements such as the latter pre-eminent status and to disregard confidential agreements. The circumstance that both parties proceeded on the basis that the relevant payments from ATT to Optus at the time were $1.89 per minute further confirms this approach. 62 Accordingly, the primary judge was correct to hold that "origination … charges" in the Payment Formula extended to all amounts which an originating carrier was entitled to retain out of the total accounting rate according to its agreement or agreements with Optus. 63 On that approach, so long as the confidential agreements were effectual as between ATT and Optus, it may not matter whether or not the Tripartite Agreement was effectually amended: at most, if that agreement was not effectually amended, this could mean that TVL's entitlement to $1.79 per minute was not reduced by the 3 cents or so which would otherwise be consequential on the raising of Optus's official rate by about 6 cents; so that ATT would be obliged by the Tripartite Agreement to continue to pay Optus TVL's $1.79 in addition to the Optus 10 cents or 8 cents, rather than the lesser amount that was required by the confidential agreement. 64 However, as pointed out by the primary judge, in respect of Gilsan traffic TVL had bargained away to Gilsan all but 10 cents, so any claim concerning the 3 cents deficiency would be on behalf of Gilsan; and Gilsan was by the Payment Formula subject to whatever contractual arrangements were made between ATT and Optus, that is to the confidential agreement, which as between ATT and Optus effectively reduced TVL's termination charge by about 3 cents. 65 In any event, in my opinion Gilsan bore the onus of proof on the question whether TVL had or had not consented to its termination charge being reduced by about 3 cents from the original $1.79. Gilsan was claiming it had been underpaid, and in my opinion it had to prove the elements necessary to make out this claim. It was not proved that TVL had not so consented. 66 Accordingly, Gilsan's cross-appeal on this issue fails.

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Decision 69 The question has to be approached having regard to my decision on the previous issue, to the effect that Gilsan's entitlement depended on what Optus was entitled to receive from ATT pursuant to Optus's agreements with ATT. 70 In determining the effect of Optus's agreements with ATT, it is appropriate to have regard to the commercial reality that from March 1998 to May 2001 Optus negotiated only 10 cents per minute, later reducing to 8 cents per minute, in respect of traffic under its confidential agreements with ATT. 71 Against that, however, is the circumstance that until March 2001 ATT actually paid Optus at the rate of 42 cents per minute (plus TVL's termination charge of $1.79 per minute). That payment was later agreed by ATT and Optus to be a mistake, and it was clearly a mistake in respect of the period in each year after the confidential agreement for that year had been entered into. Further, if the payments in the earlier part of each year were not mistakes, it was a mistake not to correct them after the agreements with retrospective effect had been entered into. 72 In my opinion, having regard to the commercial reality of the circumstances, the conduct of the parties in continuing to transact business after the end of each year, until the time that a new confidential agreement was entered into for the following year, did not manifest an intention to return to the rates provided under the Tripartite Agreement, which were plainly far removed from those indicated by current commercial reality. In my opinion, if ATT and Optus had not reached agreement in each year as to the rates to apply throughout the year, but had fallen into dispute as to the terms on which business had been done, the inevitable conclusion would be that their continuing to do business manifested an intention that it be on rates agreed for the previous year unless and until some new rates were agreed. 73 There is some force in the contention that the parties continued to contract in terms providing for definite end dates and no holding over, and that ATT in fact paid at the higher rate; but in my opinion those payments were clearly made by mistake, and the considerations set out in the previous paragraph are the weightier ones. This conclusion is consistent with Brambles and Andar, and the authorities referred to in those cases. 74 So the question of retrospective effect arises only in relation to the relatively small margin by which the amounts payable to Optus were reduced by the agreements of 1999 and 2000. 75 I accept Gilsan's argument that cl.1.5 of the Optus/Gilsan agreement gives Gilsan a right to payment in accordance with contractual arrangements prevailing at the time when that payment is to be made, that is, 45 days after the end of the calendar month in question. Thus the 1999 agreement, made on 30 September 1999, could govern the payment for the month of August 1999, but not for the month of July 1999. The 75% payment in respect of July 1999, which had to be made in mid-September 1999, thus had to be calculated at the 1998 rate. The same applies for the 75% payments in respect of January to June 1999. 76 While I accept that cl.1.5 entitles Gilsan to payment of 75% of its entitlement, calculated on the basis in force at the time payment is required, I do not think it otherwise prevents Gilsan's entitlement being affected retrospectively by the retrospective agreements between ATT and Optus. I have held that the Payment Formula depends upon what Optus is entitled to receive under its contractual arrangements with originating carriers such ATT; and cl.1.6 contemplates that adjustments have to be made for previous months because of shortfalls in what ATT pays Optus. Accordingly, subject to the operation of cl.1.5 and cl.1.6, in my opinion Gilsan's entitlements can be retrospectively affected by agreements between ATT and Optus, at least so long as those agreements are genuine agreements negotiated at arm's length (and there is no suggestion of the contrary here). 77 To the extent, if any, that Optus had in fact paid Gilsan at rates in excess of those required retrospectively by the confidential agreements of 1999 and 2000, a question would arise whether it could recover amounts by which those payments exceeded 75% of the rate retrospectively established by those confidential agreements, either as money had and received or by adjustments authorised by cl.1.6. 78 Mr. Jackman accepted that the excess would not be recoverable as money paid under a mistake of existing fact, but submitted that it would be recoverable for failure of consideration: David Securities Pty. Limited v. Commonwealth Bank of Australia (1992) 175 CLR 353 at 383, Goss v. Chilcott [1996] AC 788 at 798. However, he noted that the primary judge had upheld a change of position defence in the relation to other overpayments: [2004] NSWSC 1077 at [240]-[261]. 79 I am inclined to the view that the Optus/Gilsan contract does show an intention that adjustments to moneys payable in accordance with the correct application of cl.1.5 at the time of that payment are to be those authorised by cl.1.6, so that recovery as money had and received, for example for failure of consideration, is excluded by the agreement; but in any event, I think that the change of position defence would apply to adjustments not in accordance with cl.1.6. However, in my opinion cl.1.6 should not be given a narrow interpretation. I will consider this further when I come to the issue directly concerning cl.1.6. In particular, in my opinion, where ATT has made an overpayment by mistake, and then successfully recovered the amount of the overpayment, this would amount to a "refusal to make payment" of any more than the amount correctly payable in accordance with the retrospective effect of the confidential agreements. Accordingly, subject to any other limitation on cl.1.6 (to be discussed later in this judgment), overpayments by Optus could be recovered. 80 To the extent, if any, that Optus paid Gilsan less than the rates applicable at the time (that is, before retrospective affectation), Gilsan establishes a debt to that extent arising at the date for payment; and the question then would be whether the retrospective reduction of the rates extinguishes that debt. It could be said that Optus could not be better off because it breached cl.1.5 at the time than if it had complied, so that the debt would be extinguished only if payment in accordance with the agreement could have been recouped under cl.1.6. Since it would appear that the overpayment could be recouped under cl.1.6, I do not think it is necessary to pursue this further. 81 Accordingly, Optus's appeal on this issue succeeds.

[83]

175 Evidence of law reports of foreign countries (1) Evidence of the unwritten or common law of a foreign country may be adduced by producing a book containing reports of judgments of courts of the country if the book is or would be used in the courts of the country to inform the courts about the unwritten or common law of the country. (2) Evidence of the interpretation of a statute of a foreign country may be adduced by producing a book containing reports of judgments of courts of the country if the book is or would be used in the courts of the country to inform the courts about the interpretation of the statute. 83 He submitted that the Benchmark Order and its effect were proved by production of the order itself and by the law report of the 1999 decision referred to above. 84 Mr. Jackman submitted that the Benchmark Order in its terms made payments in excess of the benchmarks unlawful, relying particularly on the ordering clauses, and the statement "We declare settlement rates in excess of the relevant benchmark to be unlawful and not in the public interest". 85 Mr. Jackman referred to the principle that Australian law would not enforce performance of a contract contrary to the law of the place of performance: Ralli Brothers v. CIA Naviera Sita y Aznar [1920] 2 KB 287. Mr. Jackman accepted that under the Tripartite Agreement (and also the confidential agreement) payment by ATT to Optus was to be made in Australia (cf. Ralli at 290), where payment of the full contract price was lawful. Accordingly, he accepted that the Benchmark Order did not make the contracts illegal and did not bring about frustration. 86 However, Mr. Jackman submitted that, as found by the primary judge, the "origination charges" referred to in the Payment Formula included all amounts that ATT was lawfully entitled to retain; and the Benchmark Order had the effect that it was unlawful for ATT to pay TVL anything in excess of 19 cents per minute in respect of telephone traffic after 1 January 2001. Accordingly, in respect of that traffic, ATT was lawfully entitled to retain the whole of the total accounting rate, less the 8 cents it agreed to pay Optus and the 19 cents which was the most it could lawfully pay to TVL.

[84]

Decision 87 In some cases, it could be necessary to prove by expert evidence that a book containing reports of judgments is a book which is or could be used in courts of the country concerned, as referred to in s.175 of the Evidence Act; but in the case of volumes of the Federal Reporter containing decisions of the United States Court of Appeals, this Court can take judicial notice that those books would be so used. 88 In my opinion, the Benchmark Order is a regulation within s.174(2) of the Evidence Act, and the 1999 case relied on by Optus establishes that it was validly made. However, this case does not decide whether the Order directly makes certain conduct unlawful, or merely establishes a regime whereby compliance with the standards it sets can be enforced. Accordingly, that is a question which has to be determined by this Court. 89 In some cases, where the procedures under ss.174 and 175 of the Evidence Act are used, there could be a question whether the presumption of continuance applies. For example, if what is proved is taxation legislation for a year prior to the year under consideration in the case, it may be that the Court would not presume that the law was the same in all its details for subsequent years. Here, there is the possibility that the effect of the Benchmark Order was changed after August 1997, or after January 1999 when the case concerning the Benchmark Order was decided. However, the correspondence that is in evidence, including 2001 correspondence from the FCC, suggests that there was no relevant change, and in my opinion the Court should proceed on that basis. 90 The first question then is whether the Benchmark Order made payments in excess of the benchmarks requirements unlawful. The parts of the report relied on by Mr. Jackman do tend to suggest that it does; but on the other hand pars.[185]-[190], and [291], set out above, suggest the contrary. 91 In my opinion, the best indication of the intention disclosed by the Benchmark Order is to be found in the last sentence of par.[190]: what the FCC says there is that, if some other arrangement achieves its goals, "we will waive enforcement of the benchmark settlement rates". Plainly, the FCC is there contemplating that in those circumstances there could continue to be settlements in excess of the benchmark rates, but that it would permit this to happen by waiving enforcement. That presupposes, in my opinion, that the settlements would not be per se unlawful. If the FCC contemplated that the settlements would be unlawful but were to be permitted, then surely it would have to do more than merely waive enforcement: it would have to reverse the effect of the Benchmark Order that made the settlements unlawful. 92 This consideration is confirmed by the preceding discussion of procedures to be adopted for enforcement, starting with identification of foreign carriers that are reluctant to engage in meaningful progress towards negotiating settlement rates, and involving further action only after the foreign carrier has failed to respond to a US carrier's efforts to achieve settlement rates complying with the Order. 93 As far as ATT and TVL are concerned, it appears there was no negotiation by ATT in the years contemplated by the Order for such negotiation, and no preparedness to give anything in the negotiations undertaken in 2001. The policy of the Benchmark Order would appear to contemplate compliance with ITU recommendations, so that reduction of TVL settlement rates should be accompanied by reduction of ATT originating charges; but so far as the evidence goes, ATT did not respond to suggestions to that effect from TVL. It would appear that the pre-conditions set down by the Benchmark Order for enforcement of the benchmarks were not fulfilled by ATT, which simply went ahead and broke its contracts by retaining for itself the whole of the total accounting rate, apart from 8 cents for Optus and 19 cents for TVL. 94 No basis was suggested by ATT in its 2001 correspondence, or by Optus in its submissions to this Court, why ATT should in those circumstances be entitled, to the exclusion of all other interested parties, retain a windfall of about $1.60 per minute, particularly in circumstances where Optus, to whom ATT was contractually bound, had already entered into contractual arrangements which had the effect that TVL would in fact receive no more than 10 cents per minute. I see no justification for the suggestion that ATT should retain this $1.60 per minute, in breach of contractual requirements, rather than complying with those contractual requirements when the ultimate effect would have been that TVL receive no more than 10 cents per minute. 95 Accordingly, in my opinion the Benchmark Order gave no basis on which it could be said that ATT was lawfully entitled to retain more from the total accounting rate than the amount justified by the Tripartite Agreement and the confidential agreements with Optus, both because the Benchmark Order did not itself make it unlawful for ATT to pay TVL in excess of the benchmark settlement rate, and also because the arrangements made by Optus, to whom ATT was contractually bound, already ensured that TVL did not receive in excess of this settlement rate. 96 It was not submitted by Optus that the liability of Optus to Gilsan in respect of the months of January to May 2001 was in any event limited to amounts payable under cl.1.5, because of ATT's refusal to pay at the appropriate rates for telephone traffic in those months. Such a submission could not in any event have succeeded: the onus of proving refusal to pay under cl.1.6 lay on Optus, and Optus did not lead evidence of how much it was paid in respect of those months under the confidential agreement it later made with ATT. 97 Accordingly, the appeal of Optus concerning the Benchmark Order fails.

[87]

Decision 108 I accept that cl.1.6 is different from the usual clawback provision, particularly in that the latter is not limited in its application to 25% or indeed any percentage of payments in respect of any month. The question is whether this omission affects the construction of the phrase "refusing to make payment" (in that it suggests that this is narrower than "underpayment, under-collection or other withholding"), and whether it affects the construction of the words "any particular month". 109 In the first place, in my opinion it is clear that "any particular month" is not limited to the month in respect of which the 25% payment is being made. Although, as submitted for Gilsan, the Optus/Gilsan agreement was not limited to traffic from ATT, it did contemplate just one payment in respect of all traffic in each calendar month. Accordingly, the words in cl.1.6 "deductions" and "payments that have been overpaid" (plural in both cases) suggest that each payment of 25% could be subject to a plurality of deductions arising from refusals to make payment for traffic of a plurality of months. Further, the use of the words "any particular month" rather than "that month" suggests that the reference is not limited to the month in respect of which the 25% is being paid. 110 Next, in my opinion, "refusing to make payment" should not be given a narrow construction. Gilsan is given the right to 75% which cannot be cut down, and cl.1.6 is the only contractual provision which ameliorates the effect of this on Optus. The better view is that Optus has no right to re-claim any part of the 75% on the basis of mistake or want of consideration. In my opinion, when ATT makes a payment in respect of one month and then recoups part of that payment by making a deduction from a payment for a later month, it has thereby put itself in a position of refusing to that extent to make the payment for the traffic of the former month; and in addition, when not paying in full for the traffic of a later month because it has deducted such a clawback, it has also to that extent refused to make payment for the traffic of the later month. On either approach the condition for the application of cl.1.6 is satisfied. 111 Further, I see no reason why an excess of deductions allowable under cl.1.6 over the 25% payable in respect of any one month cannot be carried forward to be applied towards deductions from the 25% payable in respect of a later month. In my opinion, this is entirely in accord with the scheme of the agreement that Gilsan have an assured cash flow to the extent of 75% of the amount payable in respect of each month, unaffected by non-payment or late payment by the original carrier, and that Optus should be able to use the other 25% to make adjustments rendered appropriate by any non-payment by originating carriers. 112 Since the omission of Optus's usual clawback clause is explained by the 75%/25% scheme, I do not think that this omission calls for any narrower construction of cl.1.6. 113 Accordingly, Gilsan's cross-appeal on this point fails.

[121]

Our internal review of the events/discussions (both oral and written) would indicate that due notification was provided to TVL on the necessity for Concert and all other US carriers to settle at the benchmark rate required by the FCC. This is highlighted in the following synopsis provided by Martin Chin of Concert Australia: * Feb 14, 2001 - Martin Chin of Concert met with TVL (Rick Hall) in Sydney Australia. TVL was advised that if the FCC were to impose a benchmark rate for Vanuatu, Concert would have to comply with such an order. Concert did invite Rick Hall to provide an accounting rate reduction proposal for review at Concert HQ. * Concert HQ confirmed that the Benchmark Rate is applicable to Vanuatu in 2001. During calls with Optus and TVL (exact dates not recorded), Concert Australia relayed the message that Concert is required to comply with the Benchmark in regards to Vanuatu. * March 21, 2001 - Martin Chin e-mailed to Optus a clarification of the FCC Benchmark rates, indicating that the Benchmark rate would apply to Vanuatu. This was in response to a query from Optus. * March 28, 2001 - FCC Letter to Vanuatu Telecoms Minister re: Benchmark rate and effective date sent with a copy to TVL. * March 30, 2001 - Concern HQ (Eva Ting) sent letter to Rick Hall in Vanuatu, detailing the FCC Benchmark requirements and rates for Vanuatu. Copy to Optus. * April 11, 2001 - Rick Hall met with Concert (Martin Chin) in Sydney to discuss how to get around the Benchmark Order. Martin stressed very strongly that there was no way to get around the Benchmark rate or the Benchmark effective date. * Martin Chin advised TVL that the official Concert Benchmark Notification will be sent from Concert Route Management and TVL's proposal would not be reviewed, given its non-compliance with the FCC Order. * May 1, 2001 - Concert (Evan Ting) sent letter to TVL with copy to Optus indicating that until agreement at benchmark rate is signed, Concert will settle an interim rate of $0.19 with TVL, effective as of January 1, 2001.

At a glance

Court

Decision date

Before

Source

Judgment (127 paragraphs)

Cases Cited (7)