Construction of Clause 7.4(a) unaided by extrinsic material
68 It is convenient to consider first, as the parties did in their submissions, the construction of Clause 7.4(a) without regard to the evidence of the particular extrinsic circumstances that TMNC asserts, and Optus Vision denies, is available to assist in construction. I recognise that identification of ambiguity in the terms of an agreement is not a necessary precursor to the examination of surrounding circumstances (see the decision of this Court in Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407 at [14] - [18] per Allsop P and [239] - [305] per Campbell JA examining the relevant authorities). However here it is convenient to put the extrinsic evidence that TMNC relies upon aside at this stage because the terms of the CSA provide ample context to enable consideration of the meaning of the expression "the Optus Vision retail price for the Movie Channels" and because, as appears below, I have in any event found that that evidence of extrinsic circumstances, even if available to be used for the purposes of construction, would not assist in discerning the meaning of the relevant expression.
69 The dispute between the parties turns on the meaning of the expression "the Optus Vision retail price for the Movie Channels" where it appears in Clause 7.4(a) of the CSA, first in relation to Unbundled Subscribers and secondly in relation to Bundled Subscribers. Neither party suggested that the expression as a whole, or the component "retail price", had a special trade or industry meaning. The meaning of the relevant expression where used in the CSA is accordingly to be ascertained by considering, in the context of the CSA and any surrounding circumstances or other extrinsic evidence to which recourse is permitted, the meaning in ordinary parlance of the words used.
70 The issue in respect of Unbundled Subscribers is whether the words "retail price for the Movie Channels" refer to the tier price (because that is the price which an existing subscriber to the Basic Package would have to pay to obtain access to the Movie Channels) or to the total of the prices of the Basic Package and tier (because a person cannot obtain access to the Movie Channels without subscribing for the Basic Package as well as for the tier on which they are placed).
71 The CSA is a commercial contract and is therefore to be "given a businesslike interpretation" (McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; (2000) 203 CLR 579 at [22] per Gleeson CJ; CGU Insurance Ltd v Porthouse [2008] HCA 30; (2008) 235 CLR 103 at [43]). As was said by Barwick CJ in The Council of the Upper Hunter County District v Australian Chilling and Freezing Co Ltd [1968] HCA 8; (1967-1968) 118 CLR 429 "no narrow or pedantic approach is warranted" in relation to the construction of commercial contracts (at 437). The meaning of the words of a contract "is to be determined by what a reasonable person would have understood them to mean" (Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 at [40]).
72 TMNC's construction does not in my view reflect a commonsense or businesslike approach to the meaning of the relevant expression. According to TMNC the price of the Basic Package must be considered to be part of the retail price of the Movie Channels because one cannot subscribe to the latter without subscribing to the former. However, as the primary judge pointed out (Judgment [79] referred to in [23] above), if this argument were taken to its logical conclusion, it would lead to the inclusion in the retail price of the Movie Channels of the installation charges necessary to be incurred in order to subscribe to Optus Vision pay television. The same may be said of the cost of any set-top box that it might be necessary for a subscriber to acquire for the same purpose. Yet in the ordinary case the incurring of all of these costs had the potential to lead to the acquisition of a range of benefits extending well beyond access to the three Movie Channels. At the date of the CSA, subscription to the Basic Package, for example, gave access to some 22 different channels including "Sky News Australia", "CNN International", "Disney" and many others. TMNC's construction requires the benefit ordinarily to be derived from these services effectively to be ignored and the cost of access to the 22 Basic Package channels to be characterised simply as part of the price of accessing the quite distinct Movie Channels. The task of construing the subject expression does not in my view call for a rigid or legalistic analysis of the pre-conditions which are essential to obtaining the services required. Rather it calls for a commonsense, commercial consideration of what reasonable people in the position of the parties to the CSA would fairly have understood to be the retail price of the Movie Channels.
73 Commonsense suggests that when a person buys a particular product, but needs to buy other products in order to acquire that product, the price of the particular product should ordinarily be regarded as the price which relates specifically to that product. Despite TMNC's strenuous criticism of it, I consider the restaurant example that the primary judge used (see Judgment [65] quoted in [21] above) to be a useful one to illustrate this point. It would be an unnatural use of language to treat the price of the dessert in this example as the cost of the meal as a whole rather than the additional price paid for dessert.
74 TMNC argued that the example was not useful because the Movie Channels were "premium programming" which might, on their own, lead to the relevant pay television subscription. That may be accepted as a possibility. However, the more usual situation would be, as in the restaurant example, one where the acquirer of services sees benefit in obtaining a number, and perhaps all, of the various different services or products acquired: the Basic Package, Movie Channels and sports channels in the pay television context and entrée, main course and dessert in the restaurant example. Preferences will undoubtedly vary between individuals but ascertainment of the meaning of the relevant expression is not assisted by extreme examples in preference to those relating to more common situations.
75 TMNC's construction would lead in the restaurant example to the incongruous result that not only would the retail price of dessert be the cost of the whole meal but the retail prices of the entrée and main course would each be the same figure. Yet the cost of the three courses taken together would simply be the amount charged for the meal and not three times that figure. TMNC's construction fails to take account of the fact that in the case of pay television, and in the case of a restaurant, each of the services or products provided will typically be of some benefit to the consumer. The price subscribers pay for the Basic Package, Movie Channels and sports channels is for all these products and not the Movie Channels alone.
76 TMNC was critical of the primary judge for considering what a reasonable subscriber would regard as the retail price of the Movie Channels. It was not in my view irrelevant or unhelpful for the judge to undertake that inquiry. Whilst the ultimate question is what reasonable people in the position of the parties to the CSA would have considered was the relevant retail price (see Toll v Alphapharm at [40]; see above at [71]), the fact that the price in issue is a "retail" one means that consideration is required of the arrangements between Optus Vision and its subscribers and therefore inevitably, as at least one factor in determining the meaning of the relevant expression, of what the subscriber would regard as the price which he or she was required to pay to obtain access to the Movie Channels.
77 As the primary judge pointed out, it is possible to multiply examples "ad nauseam" (Judgment [65] quoted at [21] above). One more may however be useful. A bread manufacturer is most unlikely to regard the retail price of a slice of bread as equivalent to that of a loaf. Likewise, from the perspective of a consumer, it would not accord with commonsense to describe the cost of a slice of bread as equivalent to the cost of a loaf simply because a slice could only be purchased by purchasing a whole loaf.
78 Another factor weighing against TMNC's construction is that, as is apparent from the form of declarations which it sought (see [20] above), its construction requires the expression "retail price for the Movie Channels" to be read as "the retail price for the package (including a basic tier and any premium tier of programme) that must be purchased to access the Movie Channels". Optus Vision rightly pointed out that Clause 4.8 of the CSA (see [12] above) demonstrates that, unsurprisingly, the parties were familiar with the concept of packaging of services. If they had wanted to refer to a package of which the Movie Channels formed a part, rather than simply the Movie Channels, it would have been natural for them to use the word "package" or some similar expression in Clause 7.4. Instead they used an expression which focussed directly on the Movie Channels themselves and which did not suggest that the way in which the Movie Channels were packaged was relevant.
79 It might be said in response to this point that the parties could equally have been expected to use the word "tier" in Clause 7.4, if that was what they intended, because that word is also used in Clause 4.8. However, this could in fact be regarded as an argument in favour of construing the reference to "the retail price for the Movie Channels" as a reference to what was described at the hearing of the appeal as the "disaggregated tier price" of the Movie Channels, that is, the price of the Movie Channels component of the tier which comprised the Movie Channels and sports channels. Optus Vision did not however contend, either at first instance or on appeal, that the relevant retail price was this disaggregated price. It said that it was unnecessary in the context of the present dispute for it to put such an argument because the disaggregated price could not exceed the full tier price (and presumably would be considerably less) and that even if the tier price were regarded as the relevant retail price, TMNC had been fully paid that to which it was entitled under the CSA, with the consequence that TMNC must fail in its claim. Thus, on these assumptions, which were not disputed by TMNC, Optus Vision said that consideration of whether "the retail price for the Movie Channels" was a lesser price than the tier price did not arise in the proceedings. Optus Vision said that this was why the primary judge spoke in terms of "the retail price for the Movie Channels" being "no more than" the price of the tier (see Judgment [64] quoted in [21] above).
80 TMNC asserted in its Written Submissions in Reply ([9]) that it would in any event have been "impossible" to disaggregate the tier price to identify the retail price of the Movie Channels alone. Whether this was so was not explored in the evidence or argument and accordingly does not arise for determination. I do however note that not infrequently the courts are required to undertake tasks of considerable difficulty and complexity (see for example the references in The Council of the Upper Hunter County District at 436-7 and 439 to the difficulty of determining the denotation of the expression "supplier's costs" in the context of that case) and that courts rarely, if at all, conclude that it is impossible to apply a contractual provision.
81 If, as is in fact the case because of the way these proceedings were conducted at first instance and on appeal, it is not open to this Court to conclude that "the retail price for the Movie Channels" was the disaggregated tier price of the Movie Channels, that retail price must in my view, as Optus Vision submitted, be regarded as being the closest approximation to the disaggregated price that it is possible to identify. That approximation is the price charged to a subscriber for subscribing to the tier upon which the Movie Channels and sports channels were to be found. It is unnecessary in these circumstances to read into Clause 7.4 the word "tier" because the relevant retail price is the closest approximation to the price of the Movie Channels alone which can be identified on the facts of this case. Accordingly the fact that the word "tier" appears in Clause 4.8 but not in Clause 7.4 is not in my view of any particular significance.
82 A circumstance which is in any event in favour of the relevant price being the tier price rather than a disaggregated tier price is the fact that the price under consideration is a "retail" price, a term which arguably brings into account the knowledge and perceptions of the consumer. It can fairly be argued that a price cannot be a "retail price" unless the persons who are paying it know what it is. On this basis, the retail price of the Movie Channels could not be a notional disaggregated price of the relevant components of the tier but must be the cost of subscribing to the tier, that being, unlike any disaggregated tier prices, a price of which subscribers were aware.
83 On appeal, TMNC referred on a number of occasions to a new pay television subscriber who wanted the Movie Channels being able to subscribe to a "Deluxe Package" which included access to the Basic Package channels and to the Movie Channels and sports channels. Optus Vision complained that this reflected a shift in TMNC's arguments from what they had been at first instance and that TMNC had not proved that such a product was presented to prospective subscribers. I do not however consider this to be a point of significance because whether prospective subscribers were presented with the opportunity to purchase such a Deluxe Package or not, it would have been clear to them, at least by a simple process of deduction of the advertised price of the Basic Package from the Deluxe Package price, what was the additional cost of subscribing for the tier containing the Movie Channels and sports channels.
84 TMNC further submitted that Optus Vision's construction did not cater for a situation in which access to the Movie Channels comprised part of the Basic Package. Optus Vision responded, correctly in my view, that it was a consequence of its arguments that, if it included the Movie Channels in the Basic Package, the Basic Package price would be "the retail price for the Movie Channels". As such, Optus Vision's argument did therefore cater for the situation that TMNC postulated.
85 TMNC also submitted that on Optus Vision's construction it would have been easy for Optus Vision to prevent Clause 7.4 operating so as to entitle TMNC to an increased licence fee. It said that to avoid an increased licence fee Optus Vision could simply have adjusted its packaging from time to time. I do not agree that this is a factor weighing against Optus Vision's construction. The most that Optus Vision could have done to minimise or negate the operation of Clause 7.4 would have been to put the Movie Channels on a tier of their own without a requirement for a subscriber to the tier to subscribe also to the Basic Package or any other service. If this occurred the resulting price of the tier (which would have comprised the Movie Channels only) would clearly and naturally have been "the retail price for the Movie Channels". I do not see how it could be argued that such a result would mean that Clause 7.4 had an uncommercial or unintended operation. Depending upon the factual situation at the date of the CSA, Clause 4.8 (quoted in [12] above) might have prevented Optus Vision from taking this course but that is not a matter which arises for determination on the present appeal. What is presently important is that that course, that is, the Movie Channels being available for subscription without the need to subscribe to any other services, would not have conflicted with the sensible operation of Clause 7.4.
86 TMNC also submitted that for two further reasons (see [34], [35] above) Optus Vision's construction did not give Clause 7.4 "a sensible commercial operation". Optus Vision's primary response to these submissions, that they ignored the prospect of changes from time to time in Optus Vision's packaging, was in my view an effective one. If the Movie Channels had been packaged with other valuable services as well as, or instead of, sports channels, the benchmark for the operation of Clause 7.4 ($46.90 in respect of Unbundled Subscribers) might readily have been achieved. Indeed, as Optus Vision pointed out, not long after the inception of the CSA, Optus Vision included the Movie Channels in its Basic Package resulting in the "retail price for the Movie Channels", according to Optus Vision's construction, being at that time $37.95. In these circumstances, it cannot be said that if Optus Vision's construction is correct, the benchmarks in Clause 7.4 were unattainable in any commercially realistic circumstances.
87 The submissions of TMNC as to lack of commercial reality would have had more substance if Optus Vision had contended that the relevant price was a disaggregated tier price. In such an event, the fact that the CPS of $7.15 used in the calculation of the Licence Fee payable by Optus Vision to TMNC under Clause 7.1 of the CSA (see [12] above), being what TMNC described as the "wholesale price", was only a small proportion of the retail price referred to in Clause 7.4 ($46.90 for Unbundled Subscribers) may have seemed incongruous. It would have suggested that the cost to Optus Vision of obtaining access to the Movie Channels (the "wholesale price") was only a small fraction of the price which it may have been able to obtain from subscribers for giving access to them (the "retail price"). However where the price contended for is not a disaggregated price but a tier price and the price of the package in which the Movie Channels are placed is therefore what is relevant, no satisfactory comparison can be made between the "wholesale price" and the "retail price" because the latter may have included (and on the facts here, did include) the price of significant services apart from the Movie Channels.
88 In response to TMNC's arguments as to lack of commercial reality in Optus Vision's construction, it is important also to bear in mind that Clause 7.4(a) did not provide for a simple escalation of the "wholesale price" of $7.15 by an amount corresponding to an increase in the retail price of the Movie Channels. Rather, it provided that once the specified benchmarks were exceeded TMNC was to receive what was effectively 60 percent of the revenue in excess of the benchmark. Thus if TMNC's construction were correct and the benchmark for Unbundled Subscribers had been exceeded, TMNC would have been entitled to receive 60 percent of the amount by which the total revenue in respect of the Basic Package and the Movie Channels/sports channels tier exceeded $46.90, notwithstanding that TMNC did not supply to Optus Vision any of the channels forming part of the Basic Package or any of the sports channels. Such a provision is not a conventional, inflation-related, escalation provision. It would be surprising if a provision such as this, entitling one party to revenue for which, at least in a direct sense, it had not been responsible for the other party deriving, arose other than in exceptional, clearly defined circumstances.
89 It is also relevant that Clause 7.4(b) of the CSA provided for a Consumer Price Index ("CPI") increase to the "wholesale price" of $7.15. The fact that this clause was expressed not to operate in the original term, when the average monthly number of subscribers was less than the Minimum Guaranteed Numbers of Subscribers, does not detract from the fact that the CSA did contain in Clause 7.4(b) a CPI escalation provision. This provides support for the view that Clause 7.4(a) was of an exceptional nature and not necessarily intended to be triggered in the ordinary course of events.