JUDGMENT
The proceedings
1 The proceedings before the court involve a close contest as to the proper construction of a Channel Supply Agreement [CSA] entered into between The Movie Network Channels [TMNC] and Optus Vision on 25 August 1999. The agreement is still on foot.
2 The CSA provides for the supply by TMNC to Optus Vision of three pay TV channels containing movie content for use on Optus Vision's pay TV service.
3 The dispute fundamentally concerns the meaning of the words 'Optus Vision retail price for the Movie Channels'.
4 The clause in question affects the calculation of the licence fee payable by Optus Vision pursuant to the agreement. TMNC's claim excluding interest is for a sum exceeding $355,310.717. With the addition of an interest component the amount claimed is closer to half a billion dollars.
5 TMNC contends that an escalation clause was triggered in 2002, pursuant to which the monthly licence fee rose. Optus Vision's response is that TMNC misconstrues the escalation clause and the clause has never been triggered.
6 A particular feature of the proceedings concerns TMNC's endeavour to invoke an exception to the parole evidence rule: TMNC seeks to have the Court admit a particular conversation said to have taken place during the suite of anterior negotiations ultimately leading to execution of the CSA [cf the observations by Mason J in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA24; (1982) 149 CLR 337at 351 to the effect that where words in a contract are susceptible of more than one meaning extrinsic evidence is admissible to show the facts which the negotiating parties had in their mind, and [at 352] where it is made plain that prior negotiations which tend to establish objective background facts which were known to both parties and the subject matter of the contract are admissible].
7 TMNC originally pleaded a construction case and in the alternative sought rectification of the CSA. Later in the piece the rectification case was abandoned. Finally on the third day of the final hearing TMNC sought to plead in the alternative, yet another version of its construction case [in effect re-introducing into the pleadings, a construction case which it had advanced very early in the life of the proceedings but had then withdrawn].
Background
8 TMNC has, with effect from 1 April 1999, licensed the Movie Channels to Optus Vision for distribution to subscribers to what was variously described as Optus Vision or Optus Television (the Optus subscription service). Subscribers to the Optus subscription service could, at various times relevant to the proceedings, subscribe to the subscription service alone or in conjunction with other services provided by its related corporations, such as local area telephony (LAT) or high speed data internet access (HSD). These became known as "unbundled" and "bundled" services respectively. See the definitions of these terms.
9 It has always been necessary for the consumer to subscribe to other subscription television channels in order to access the Movie Channels. At no time has it been possible for a subscriber to obtain access to the Movie Channels alone in any subscription to the Optus subscription service. As at August 1999, when the parties entered into the CSA, and at almost all times during the life of the CSA it was necessary for a subscriber who wanted to access the Movie Channels to do so by purchasing a tier in addition to the basic package. For "bundled" subscribers, in order to obtain the benefits held out by Optus Vision as accruing with a subscription to a bundled service, it was necessary to take both the Optus subscription service and another service or services being LAT and/or HSD.
10 Optus Vision was a wholly owned subsidiary of Cable & Wireless Optus Pty Limited (CWO) [For convenience the references herein to CWO usually do not distinguish between precise related corporate entities. However the CSA precisely identified the parties and took care to distinguish between Optus Vision and its related bodies corporate: see for example the definition of "Bundled Subscriber"].
11 TMNC was incorporated on 19 August 1999 in order to manage a joint venture on behalf of four entities each of which came to be represented among TMNC's shareholders: Warner Bros. International Distribution Inc (Warner Bros), Buena Vista International Television (Disney), MGM Worldwide Television Group (MGM) and Roadshow Television (Roadshow) (together the Studios).
12 Each of the Studios had licensed premium motion picture content to MovieVision, a wholly owned subsidiary of Optus Vision, from about 1995 to 1999. MovieVision packaged and licensed premium movie channels to Optus Vision for distribution by Optus Vision to its subscribers. Each of the Studios licensed its premium motion picture content to MovieVision for this purpose.
13 From 1995 to 1999, Optus Vision paid MovieVision a licence fee calculated by reference to two variables: the number of subscribers and a licence fee per subscriber (known as a Charge Per Subscriber or CPS). It is common in subscription television worldwide for licences to follow this formula. Similarly it is common that licences for premium content include payment for a minimum number of subscribers irrespective of whether that number of subscribers has been reached - this is usually described as a minimum guarantee. See the definitions in the CSA at clause 8.1. The CPS payable by Optus Vision was $8.03 per month.
14 By late 1998/early 1999, CWO had formed the view that it could not sustain the Optus Vision business while it was incurring such high costs and it sought to renegotiate its supply contracts, including in respect of the Movie Channels.
15 In 1999, an Austar subscriber had to pay $46.90 per month to subscribe either to the Movie Channels or to the Showtime Channels and in doing so, he or she had to purchase a basic package of subscription programming and supplement it with a premium movie service. This was known as a "buy through". "Bundled" subscribers received a substantial discount on the Optus Vision price (of $10.00, the monthly subscription being $29.95 for the pay television services). CWO charged an access fee for LAT of $10.95. The amount of $10.95 was the lowest monthly service for telephony available at the time. It was a price charged by Optus Networks that was available to anybody, whether or not they subscribed for a pay television service with Optus Vision. The consumer was required to pay a minimum of $40.90 for the bundle of services.
16 It was not possible in 1999 for an Optus Vision subscriber to subscribe to the Movie Channels alone. Indeed, it has never been possible to subscribe to the Movie Channels alone. There has always been a requirement to subscribe at least to a "basic" package of programming, together with whatever other programming is located on the same tier as the Movie Channels. Obviously, in the case of Bundled Subscribers, a consumer must also pay for a suite of services, which may include LAT and/or HSD.
17 CWO generated a number of marketing plans which all expressed the same basic strategy: pay television would be marketed at a discount to its regular, unbundled price provided subscribers also subscribed to LAT and/or HSD. For a pay television subscriber to obtain a Deluxe package (i.e. a package of basic and premium channels that included the Movie Channels) in July and August 1999 would cost him or her $39.95 per month. To obtain a Deluxe package together with access to LAT at that time cost $40.90.
18 It was relevantly in these circumstances that the parties entered the CSA. The CSA was largely a renegotiation of the licence arrangements that had been initially negotiated in 1995. CWO had realised that it could not afford to pay the agreed licence fees. It approached the Studios seeking relief from the ongoing cost of those fees. CWO was at that time embarking on an ambitious attempt to grow its LAT and HSD businesses by pricing bundles of services at a discount to the discrete price that each service could be obtained individually. Premium subscription television content was key to this strategy as that was perceived as likely to drive subscription numbers across all of CWO's relevant businesses.