Garrott and Blyton v Tote Tasmania Pty Ltd
[2007] TASSC 101
•17 December 2007
[2007] TASSC 101
CITATION: Garrott and Blyton v Tote Tasmania Pty Ltd[2007] TASSC 101
PARTIES: GARROTT, Geoffrey Robert
BLYTON, Kevin James
v
TOTE TASMANIA PTY LTD (ACN 095 972 106)
TASRADIO PTY LTD
TITLE OF COURT: SUPREME COURT OF TASMANIA
JURISDICTION: ORIGINAL
FILE NO/S: 241/1993
855/1998
DELIVERED ON: 17 December 2007
DELIVERED AT: Hobart
HEARING DATES: 1 – 10 October 2007
JUDGMENT OF: Slicer J
CATCHWORDS:
Contracts - General contractual principles – Construction and interpretation of contracts – Implied terms – Generally – Business efficacy – Terms implied by law.
Ansett Transport Industries (Operations) Pty Ltd v The Commonwealth (1977) 139 CLR 54; Codelfa Construction Pty Ltd v State Rail Authority NSW (1981 – 1982) 149 CLR 337, applied.
Renard v Minister for Public Works (1992) 26 NSWLR 234, National Mutual Life Association of Australasia Limited v Chris Poulson Insurance Agencies Pty Ltd (No 5) 31/1998, followed.
Aust Dig Contracts [105]
Contracts - General contractual principles – Construction and interpretation of contracts – Implied terms – Implication of mutual obligation.
Aust Dig Contracts [106]
Contracts – General contractual principles – Construction and interpretation of contracts – Other matters.
Aust Dig Contracts [120]
REPRESENTATION:
Counsel:
Plaintiffs: G Hevey and C J Gunson
Defendants: E Woodward and A B Walker
Solicitors:
Plaintiffs: Mackie Crompton
Defendants: Dobson Mitchell & Allport
Judgment Number: [2007] TASSC 101
Number of Paragraphs: 75
Serial No 101/2007
File Nos 241/1993855/1998
GEOFFREY ROBERT GARROTT and KEVIN JAMES BLYTON v TOTE TASMANIA PTY LTD (ACN 095 972 106) and TASRADIO PTY LTD
REASONS FOR JUDGMENT SLICER J
17 December 2007
The plaintiffs ("Garrott") and ("Blyton") are former directors of the second defendant ("Tasradio") which was relevantly the owner and operator of radio stations in Tasmania which included 7HT and 7EX. The first defendant ("Tote Tasmania"), originally a body corporate created by the Racing and Gaming Act 1952, became a government business enterprise on 1 July 1995 following the enactment of the Government Business Enterprises Act 1995, s6. It was incorporated under the Corporations Law on 5 March 2001, pursuant to the Tote Tasmania Act 2000, with all existing property vested in it and remaining entitled to, or responsible for, the maintenance of legal proceedings and any contractual rights or obligations possessed by its statutory predecessors (Tote Tasmania (Transitional and Consequential Provisions) Act 2000, ss4, 6, 8 and 14). Parliamentary responsibility for the first defendant at the relevant time was entrusted to the Minister for Racing and Gaming ("the State Minister").
The shareholders of Tasradio between June 1991 and 18 December 1992 were Tote Tasmania and Hunter Broadcasters Pty Ltd, a company effectively owned and controlled by the plaintiffs ("Hunter"). The radio licences (AM and FM) were issued by the Australian Broadcasting Authority ("the Authority"), or its predecessor, the Commonwealth Department of Transport and Communications ("the Department"), established under the Broadcasting Act 1942 (Cth). Some of the powers of the Authority were exercised by the Australian Broadcasting Tribunal ("the Tribunal"), although it had not been appointed until late in the course of the dealings between the parties Broadcasting Services (Transitional Provisions and Consequential Amendment) Act 1992 (Cth).
An interlocutory order, made by the Master, directed that the issues of liability or entitlement and damages be separated. These proceedings, based on amended pleadings, are defined by a number of questions formulated by the parties. Some of those questions were withdrawn by agreement of the parties during the course of the hearing.
This action concerns the terms of an agreement made on 18 December 1992 between the plaintiffs and both defendants ("the agreement"). On that day, by a preceding and separate agreement, Hunter had sold its interest in Tasradio to Tote Tasmania ("the Hunter Agreement"). The plaintiff claims entitlement for damages for the repudiation of the Agreement. Separate actions were commenced which were consolidated on 15 March 1999.
General background and history of proceedings
A licence to transmit radio signals can be equated to permitted use of a public resource. In Australia, that resource was regulated by a Commonwealth department. Until the 1960s, most of the world's radio broadcasting stations, public and commercial, transmitted on medium frequency (AM). A frequency for the purpose of radio transmitting is the measurement of a wave which corresponds with the number of complete waves or cycles per second. The symbol of that unit of frequency is Hz, named after the physicist Heinrich Hertz, the first person to broadcast and receive radio waves. The stations 7HT and 7EX had historically transmitted on the AM frequency. In the 1960s, stations in the United States began to transmit using a frequency modulation system (FM). FM altered the frequency in a systematic way, modulating the frequency by an amount proportional to the signal amplitude. The signal is demodulated in the radio receiver to give a copy of the original signal. Australia commenced the commercial regulation of frequency modulation in the late 1970s. In 1988, 133 commercial radio stations were transmitting on the AM frequency as against 9 on FM (Australian Year Book 1988, 655). There are advantages and disadvantages inherent to both systems. AM transmission covers a greater area. FM use and its attendant technology permits better reproduction of music, but restricts the reception area according to the location of the transmitter. On 25 June 1990, the Federal Minister had offered the owners of 7HO and 7HT the opportunity to convert their respective transmission frequencies from the AM to the FM band.
Tote Tasmania was responsible for sections of the racing industry. Its statutory requirements included the promotion of the industry, the publication or transmission of racing events and matters of interest specific to followers of racing. It also contributed significantly to public revenue and the operation of racing clubs.
The radio stations 7HT and 7EX had historically been the "racing" stations, although each was the holder of a general licence. The general stations provided broadcasts of the named racing events, previous results and specialist news and interests. Tote Tasmania provided, through an advertising or service scheme, income to Tasradio for those stations. By 1990 – 1991, each station required approximately $1.2m to $1.3m per year to meet operating costs. The ratings of 7HT for the southern market had fallen from 40 per cent to 7 per cent during the period 1983 – 1990, while comparable figures for the northern station 7EX for 1985 – 1990 showed a decline from 24 percent to 9 per cent. During that time, the Hobart competitor, 7HO, had moved to FM transmission, but retained a market share of 26 per cent from its 1983 figure of 30 per cent. In November 1990, 7HO converted to FM transmission and a new company, 7TTT, entered the market and by 1991 had captured 25 per cent of the listening audience. The decline in audience was attributable to the more limited appeal or demand for the significant emphasis on the racing service. Hunter had other interests in broadcasting. Blyton had long been involved in the management of commercial radio.
In June 1991, Tote Tasmania and Hunter purchased all the shares in Tasradio. The operating losses of Tasradio for 1990 had been $608,000, rising to $1.245m in 1991, adjusted for losses on sales of property, plant and equipment, to an operating loss of $239,758. Those figures are relevant to the purchase price of the shares purchased in June 1991 and sold in December 1992. There was a synergy of interest for the acquisition. Tote Tasmania required access to commercial radio on the AM band to promote and record racing in Tasmania. The only commercial AM operating band in southern Tasmania was 7HT.
The previous owner of 7HT and 7EX had advised Tote Tasmania that it was not prepared to continue broadcasting racing under their existing agreement. Options open to Tote Tasmania were limited to negotiating a fresh agreement for both 7EX and 7HT, or become involved, directly or indirectly, in the broadcasting industry itself. The purchase price for the shares was $800,000 to be paid equally by Hunter and Tote Tasmania.
Terms of relationship
Before the transfer had been executed, Tote Tasmania and Hunter entered into a written agreement dated 17 June 1991 which provided for the terms of the relationship as between themselves. It provided for equal contributions and share entitlement towards the purchase price, mutual indemnity and prohibition against assignment without the consent of the other. The parties acknowledged that:
"… it shall be Tasradio policy to substantially expand and enhance racing broadcasts and the services for the TAB including night broadcasts."
Tote Tasmania was to pay $300,000 on 1 July 1991 to Tasradio as a "once only non refundable payment in consideration of the agreement to enter into the renewed racing contract". That contract was to operate for a term of five years with an option to Tote Tasmania for a further five year period for an initial annual fee of $1.2m. Each party was entitled to appoint two directors, with Hunter given the right of nomination of the Chairman of Directors and Managing Director. The Chairman was to be given a casting vote in the event of an equally divided Board. Specific to the outcome of the relationship are the following terms:
"7 Commitment to Tasradio
In the event of successful completion of the agreement for purchase the parties hereto shall use their best endeavours to ensure that Tasradio successfully conducts its business and each party agrees:
(a)Not to unreasonably delay any action, approval, direction or decision which is required of the party; and
(b)Make approvals or decisions that are required of the party in good faith and in the best interests of Tasradio and the conduct of the business of Tasradio.
…
11…
(b)Shares are only transferred pursuant to the Articles of Association and shall not be transferred within five years of the Completion Date unless with the consent of the other party first obtained in writing, which consent may be refused for whatever reason;
…
(f)The Articles of Association of Tasradio shall be amended as follows:
(i) Deletion of article 33; and
(ii) by insertion of the following article:
'33 (a) Except as hereinafter provided no shares in the company shall be transferred unless and until the rights of pre-emption hereinafter conferred have been exhausted.'
…
15Option to Hunter
If the parties hereto are unable to make a decision on a fundamental issue then Hunter may cause at its option at anytime within two years of the Completion Date, by giving not less than thirty days written notice and not more than sixty days written notice, the TAB to purchase all the issued shares held by Hunter in Tasradio (free from encumbrances) at a purchase price of $400,00.00.
16 Option to TAB
In the event of a substantive dispute between the parties hereto at anytime within five years of the Completion Date upon the issue of future funding for Tasradio then TAB may at its option cause, by giving not less than thirty days written notice and not more than sixty days written notice, Hunter to sell to TAB all the issued shares held by Hunter in Tasradio (free from encumbrances) at a purchase price of $400,000.00 plus 20% per annum for each year or part thereof (appropriately apportioned) from the Completion Date."
Blyton was appointed as Managing Director of Tasradio. On 9 July 1992, the service agreement, effective from 9 August 1991, was extended to 8 August 1996.
The contractual relationship came to an end upon the sale of the Hunter shares to Tote Tasmania on 18 December 1992. The purchase price for those shares was $250,000. The plaintiffs, as at the date of that sale, had an effective right of veto over any sale, both as "controllers" of Hunter and directors of Tasradio.
Regulatory scheme
The regulatory system originally adopted in Australia was based on the grant of a general licence. Commercial radio could develop its audience and advertising revenue according to the dictates of the "market", subject to certain "public interest" requirements governing content. Commercial radio was attracted to the use of the FM frequency because of the fidelity of music reproduction. The Commonwealth developed a public policy based on the development of FM broadcasting, the transference of AM transmitting to non-commercial or specialist broadcasting, and regional use of FM transmission restricted by amplitude or transmitting distance. The policy also provided for transfer and/or "drop down" rights or opportunities to entities moving from AM to FM transmission. The Commonwealth retained its power to limit the range of transmission through complementary, but separate, licensing requirements. Policy was developed over a period of time and consistent with the legislative scheme, detailed implementation and refinement of policy entrusted to a statutory tribunal intended to be fully effective in 1993. The policy was intended to accommodate the commercial interests of existing general licence holders, community or special interest operations, and regulation of the number of entrants and the manner of transfer into the FM arena. Legislation providing for those accommodations and public policy was not finalised until the enactment of the Broadcasting Services Act 1992 (Cth) and the necessary concomitant legislation in the same year. Previous amendments to the Broadcasting Act 1942 (Cth) made primarily between 1986 – 1988, facilitated or prepared for that process of change. The nature of, and processes necessary for, that change were known in general terms to the parties at the time of the agreement of June 1991. Some of the policy was developed and/or articulated through discussion or options papers through officers of the Department.
On 30 July 1991, Tasradio wrote to the Department seeking conversion of the 7HT frequency to the FM band and the assistance of the Department in the event of "facility" delay, and acknowledging the Department's interest in the existing AM transmitting facility. There seemed to be a delay in bureaucratic progress or policy decision-making processes, while an option of "limited licences", the forerunner of the eventual narrow band licence, was considered. The evidence of Colin Knowles, the then general planning manager of the Department, and a witness in these proceedings, confirms that limited licences were issued in the period 1990 – 1992. Hunter, also the operator of broadcasting stations 2NX and 2NM, certainly referred in its letter of 24 March 1992 to Tote Tasmania to the term "Limited Licences". The minutes of Tasradio dated 30 April 1992 record a proposed meeting with Knowles, planned for 5 June 1992. There was at least a telephone discussion between Blyton, as Managing Director of Tasradio and Knowles on 17 June, which, in turn, had followed technical discussions between the Hobart station and the Department about equipment specifications. A file note indicates that Knowles told Blyton that 7HT was required to be "on air by 1 Oct 92 if [it] is not to lose its right to convert to FM". On 17 June, Blyton wrote to Knowles confirming that "7HT Hobart wishes to convert to the FM Band as soon as possible".
On 19 June, Blyton wrote to the Department, confirming a conversation with another departmental officer, Greeney, that Tasradio wished "to set the conversion date for 7HT at the 1st September 1992." On 8 July 1992, the Department wrote to Tasradio, advising of the proposed frequency for the 7XXX service (an eventual call sign not yet nominated) and enclosing the proposed technical specifications, which, in turn, contained general information and proposed draft conditions, relevantly stating:
"Proposed final specifications following the Australian Broadcasting Tribunal offer of the grant of a licence and lodgement of a detailed planning proposal, acceptable to the Department, by the successful applicant.
…
Proposals for new public services prepared by the sponsor of the service in consultation with the Department.
Draft specifications, service area and coverage map circulated before applications for the service are invited.
Final specifications developed following the offer of the grant of a licence.
…
New specifications for existing stations based on planning proposals submitted by licensees or developed by the Department (eg frequency changes).
…
background
The commercial FM service is proposed to be established on the existing National site at Mt Wellington. The service area is the same as that for the existing commercial AM service 7HT Hobart.
The commercial FM service will share the existing National FM antenna at Mt Wellington with the existing National FM services, and the other existing commercial FM services, in Hobart. As such, the antenna pattern, beam tilt and null fill for the proposed service will be the same as that of the existing services."
The allocation of the call sign of 7XXX was approved by the Federal Minister's delegate on 22 July. On 27 July, Tote Tasmania applied in statutory or administrative form for the grant of a limited licence:
"… to provide a full broadcast service of race descriptions, TAB dividends and general racing information to the general public of Hobart.
stating:
"The service would only operate while race meetings were in progress and NO commercial or sponsorship announcements could be broadcast.
Programming would include broadcasts of all race meetings covered by the TAB and sourced from race courses around Australia and co-ordinated into a broadcast service in Hobart."
and intending to use:
"… transmitter and studio facilities of Hobart Broadcasters, Tasradio Pty Limited.
…
the present AM transmissions facilities of Hobart AM Station 7HT which will be available following its conversion to FM in September 1992."
The application was registered and processed.
On 28 July, the then Chairman of Tote Tasmania, Graham Woodward, presented a "five year staged plan" to the Department which included the "Re-issue of AM Specification to TAB as 'Limited Licence'" following conversion of 7HT to the FM band "in the second half of 1993."
The Department advised Tasradio, by letter dated 8 August, of certain technical, financial and procedural requirements which included that "the change to the licence warrant should be completed by 18 September and payment of the conversion fee by 1 October 1992."
That time constraint was relied upon by the plaintiffs to set the context for the agreement of sale of shares and purchase of a licence in December of that year. Licence warrant documents and the licensees' agreement to variation of some technical conditions were sent by the Department to Tasradio on 2 September 1992, with copies forwarded to the Acting Chairman of the newly created Tribunal. On 7 September, Knowles, as delegate to the Minister, formally modified the "licence warrant" for the commercial radio service held by Tasradio, and on 9 September, advised Blyton that the requisite licence fee had been determined at $114,481. That figure was subsequently incorporated into the terms and calculations of the December agreement. On 9 September, the Department advised Tasradio that the FM access fee for conversion had been assessed as $114,481.81 and was to be paid within 28 days. On 17 September, Woodward, as Chairman of Tote Tasmania, wrote to Knowles following an earlier meeting with Blyton. He referred to the delay in implementing the "Narrowcast Licence" and advised, consistent with the timeframe referred to in the 8 August communication, that Tote Tasmania would set out its proposal on 1 October, once the new legislation was in operation. There had been differences between Tasradio and the Department over the "operating contribution" required for the use of the Mt Wellington transmission tower, evidenced in an intra-departmental memo of 22 September, but which included the notation "In addition the TAB wants the AM Channel ASP so I don't think it will take too long to fix". The relevant portion of the Act had come into force on 1 October 1992. On 8 October, Woodward wrote to the Department, stating:
"As you would be aware the Totalizator Agency Board (Tasmania) has been working with your office for the establishment of the above service. Please find attached copies of our previous letters and completed application form under the Broadcasting Act (1942).
We were advised by your office that because of our plan to use the AM frequency and transmission facilities of 7HT Hobart once they convert to the FM Band it was expected that our application could be processed quickly.
Can you please advise what is the current position regarding our application.
The Totalizator Agency Board (Tasmania) looks forward to working with your Authority in establishing this service."
On 19 October 1992, the Authority issued a guide for "Service Providers Under Class Licences … as a reference for persons who intend providing a service under a class licence or those who currently provide broadcasting services …". The guidelines relevantly provided:
"The ABA has determined, by notice in the Government Gazette of 5 October 1992, a class licence for the provision of each of the five following services:
…
d)open narrowcasting radio services; and
…
Section 18 of the Act defines open narrowcasting services as broadcasting services:
(a)whose reception is limited:
i) by being targeted to special interest groups; or
ii) by being intended only for limited locations, for example, arenas or business premises; or
iii) by being provided during a limited period to cover a special event; or
…
Open narrowcasting services are similar to subscription narrowcasting services, except they are provided free to those with appropriate reception equipment.
…
(d)the duration and frequency of the provision of those services including whether those services are provided for a set period only; and
…
Allocation of radiofrequency spectrum by the ABA
…
The Minister for Transport and Communications has assigned the broadcasting services bands to the ABA for planning broadcasting services. Service providers who wish to use the broadcasting services bands should apply to the ABA for a transmitter licence. Under section 34 of the Act the ABA may decide that parts of the radiofrequency spectrum are available for allocation to providers of subscription broadcasting services, subscription narrowcasting services or open narrowcasting services for a specified period.
In making its decision, the ABA will have regard to:
(a)the possible future demand for the use of that part of the radiofrequency spectrum; and
(b)such other matters as the ABA considers relevant."
It has been necessary to set out the above in detail to provide the context for the subsequent dealings of the parties and to show that policy implementation was an evolving process, in part to be determined by experience and the approach which might be taken by the yet to be constituted Tribunal and the Authority. The initiating formal approach was made by Hunter on 29 October and the process of evolutionary development reflected in a Planning Seminar Address given by Tim O'Keefe, a member of the Australian Broadcasting Authority on 17 November 1992. On 18 November, the Department wrote:
"I refer to your letter of 2 November. The limited licences under the now repealed Broadcasting Act come within the definition of Narrowcast services. Broadcasting Services Bands Spectrum for such services is made available in accordance with the procedures set out in s54 of the Broadcasting Services Act. This requires the ABA to decide to release the broadcasting channel for uses other than National, Commercial or Community broadcasting and to determine the period for which this spectrum will be made available before it returns to the ABA for reconsideration.
Your application for release of the frequency to be vacated by 7HT Hobart was to have been considered by the ABA at its November meeting. We did not achieve that because the ABA has been considering its position generally about the nature of narrowcast services. The first release of spectrum for narrowcast applications was for low power information services. The ABA has yet to consider release of wide coverage channels. The Chairman is anxious to see services like yours proceed quickly and we are now trying to establish the procedures to make this occur with minimal administrative burden on ourselves and applicants. I hope we can resolve all of this by mid December and provide you with the answer you seek."
The licence, the terms of which were formally notified to Tote Tasmania in January 1993, was for a period of 12 months. Tote Tasmania maintains that the limited term was the cause for its notifying the plaintiffs that it could not, commensurate with its own statutory obligations and the terms of the December agreement, continue with the sale of the FM licence. The plaintiffs contend that the 12 month limitation was but a procedural and evolutionary step in the application of policy and the legislation, and that there could have been no doubt but that any licence would be, but for significant compliance breaches, permanent, or at least, long term. Central to those issues is what was known or understood by the respective Boards of Hunter and Tote Tasmania as at 18 December 1992.
National policy and Tote Tasmania
Before the outline and development of policy as seen and understood by the parties is further stated and considered, it is first necessary to digress and set out the evidence received on this hearing concerning the factors influencing national policy in the development and implementation of the legislative scheme. The role and structure of Tote Tasmania were, in general terms, similar to totalizator boards operating in other States. Woodward, or the General Manager, Morse, attended national meetings of those organisations which shared a common interest in, and need for, the public broadcasting directed to persons, providers and consumers involved directly or indirectly in the racing industry. Those organisations were also interested in any grant or renewal of special or narrowcast licences and the need for certainty and continuity. It would seem from the evidence that the Totalizator Agency Board of New South Wales was responsible for the co-ordination of the positions and requirements of the various agencies and making their collective views known to government. A consultant, Richard J Rowe and Associates Pty Ltd, was engaged in the formulation and representation of those interests to government. The consultant, in turn, reported to Mr A J Windross, the General Manager of the New South Wales Board who, in turn, circulated the relevant material, information and reports to the other agencies, which included Tote Tasmania. The Court accepts that the evidence of correspondence, reports and policy documents to and from Windross and admitted at this hearing, was circulated to, and known by, either Woodward as Chairman, or Mr A Morse as General Manager of the Tasmanian Board, at the relevant times, in particular during the period August to November 1992. That material includes references to meetings with senior departmental officers and parliamentary representatives and representations to the FederalMinister. In particular, the plaintiffs rely on:
(1) the material and opinions in reports from the consultant of 20 August:
"No matter which licensing option TABs pursue in advance of October 1, subsequent to that date all TAB RADIO services will be provided pursuant to a Part 8 open narrowcasting radio class licence."
…
"Of additional concern would be any widespread return by TABs to an approach in which there is no co-ordination of the project at a national level. You will recall that the clear message from the Government, in the period leading up to the agreement with Minister Beazley, was that all TABs had to 'get their act together' and present a common view to the Government. The fact that this occurred was instrumental in the progress achieved so far."
(2) letter from the Minister, Senator Bob Collins, of 21 August:
"Under the new Act, the planning and licensing of broadcasting services will be the responsibility of the Australian Broadcasting Authority (ABA). Before any new service can commence, however, the ABA, in exercising the planning functions set out in Part 3 of the Act, will need to determine priorities, prepare frequency allotment plans and licence area plans for each market. In performing these functions the ABA must make provision for wide public consultation. Future determination of racing and betting services will therefore be considered in this context."
(3) report from Rowe dated 3 September:
"The Minister's letter also strongly suggests that, notwithstanding the action taken by the Queensland and Tasmanian TABs, it is more than probable that only the Northern Territory limited licence applications will be finalised prior to October 1. It would be helpful to other TABs if Queensland and Tasmania were to advise what they intend to do under these circumstances.
The final paragraph of the Minister's letter is somewhat confusing, and of serious concern. It appears to have been drafted by someone, presumably not the Minister himself, who has very little working knowledge of the provisions of the Broadcasting Services Act. It certainly appears to be inconsistent with what I was told by Mr Peter Field of the Department as reported to you in my letter dated August 20, 1992.
The nub of the issue appears now to be whether the proposed 'class licence' services, which will include TAB RADIO services, are able to proceed only subsequent to the implementation of the proposed planning processes of the Australian Broadcasting Authority, which are extraordinarily convoluted and likely to be very time-consuming. If this is so, it would seem to be quite contrary to the object of having 'class licences', as a means of overcoming these delays in relation to the provision of program services of narrow appeal directed at defined audiences. It would also seem to be inconsistent with the provisions of s13 in the transitional legislation, which I drew to your attention in my August 20 letter."
(4) letter from the Department to Windross 23 September:
"I am sure that you will appreciate that the advent of the Broadcasting Services Act will entail a settling in period. However once the initial 'newness' is overcome, licensing of new services will become a quicker, more efficient process."
(5) report and advice from Rowe 28 September, which includes the following opinions:
"Under these circumstances, I cannot see how 'Consideration of all State and Territory TAB interest' in providing TAB Radio services in regional markets under the 'class licence' narrowcast concept can be part of the ABA's planning process. It rather would seem to be a matter of TABs securing frequencies as part of the 'drop through' spectrum, operating as a 'class licence' and considering their subsequent licensing options as each regional market is dealt with by the ABA. At this point I cannot envisage many services being subject to frequency pre-emption. In those markets where it may be considered more likely, the option of securing a broadcasting bands licence may need to be looked at more seriously.
…
Which leads me to raise with you once again the potential need for co-ordination of the establishment of TAB Radio 'class licence' narrowcast services at the national level. While it may be that no planning or licensing action by either the ABA or the Department is required for the operation of a 'class licence', it will still be necessary to secure a technology licence from the Department before a service can commence."
Policy statements and developments November 1992
On 17 November a member of the Australian Broadcasting Authority, Mr Tim O'Keefe, delivered an address to a Planning Seminar in Sydney. The address was printed and circulated and was provided to the Tote Tasmania Board as a board paper for its meeting on 25 November. The address included:
"Two other characteristics that differentiate free to air broadcasting services from narrowcast services are that each individual commercial broadcasting service is licensed and the service has secure tenure on the broadcasting spectrum as long as it abides by the conditions on its licence.
…
Narrowcast services have limited tenure on frequencies. Mainstream broadcasting services have priority over narrowcasters in the use of frequencies. However this does not prevent the ABA making frequencies available for narrowcasting services for a longer period of time, if having prepared a licence area plan there is no immediate mainstream broadcasting use for the available frequencies. This may be the case in regional areas, where there are more frequencies available.
…
A community broadcasting licence comes with guaranteed access to the spectrum indefinitely, but the service can not operate for profit. However, with a narrowcast service, profits can be generated and there is very little regulation. But, there is no guarantee of continued access to the broadcasting spectrum. Which is the preferred option for the operator? How difficult might it be to remove the service from the spectrum upon the expiry of its transmission licence if there is a significant amount of public interest involved? These are interesting questions that have yet to be considered.
…
The authority has a discretion to allow frequencies to be available for allocation for providers of open narrowcasting services while the ABA has not commenced or completed planning and allocation processes.
The tenure on these frequencies may be limited until the planning process has been completed. Where there is a scarcity of frequencies and conflicting demands from potential narrowcast providers - which is potentially a problem in the capital cities - we may consider shorter than 12 month transmitter licences to ensure a fair allocation of a limited availability of frequencies.
If the planning process has been completed and there is available spectrum for use of narrowcast services, the ABA may be able to give a narrowcast service longer than one year tenure on a frequency. If the demand for these frequencies exceed supply, the Minister may determine a price-based allocation system for the allocation of transmitter licences under the Radcom Act. Even though a price is paid for the use of the spectrum, a narrowcast service still does not have the same secure tenure of a free to air broadcasting service. However we are required to give potential bidders for the frequency a definite period which would be available for open narrowcast services."
The evidence does not establish that notes prepared by the Australian Broadcasting Authority dated 2 November were placed before the Board and accordingly their contents will not be taken into account.
On 21 December 1992, three days after the signing of the agreement, the Australian Broadcasting Authority issued a public statement, which included the terms:
"The racing industry and punters in Queensland, New South Wales and Tasmania, will soon have more specialist services dedicated to racing, the Australian Broadcasting Authority (ABA) announced today.
The ABA has released frequencies in the AM and FM bands until 31 December, 1993, in response to proposals from TABs in each state about specialist channels for racing and betting information.
'Where channels are not immediately needed for other broadcastings services, the ABA can release that part of the spectrum,' said ABA Chairman, Mr Brian Johns.
The ABA will now be able to allocate transmitter licences to existing TAB applicants and consider new applications for racing services.
Channels released today for use are:
The AM channels in Wollongong and Newcastle, previously used by 2WL and 2NX, will carry services in New South Wales,
The AM channel currently used by 7HT in Hobart will be taken up for Tasmanian racing services when 7HT moves to the FM band (the timing of 7HT's move to the FM band is in the hands of the station),
…
Services under class licences are able to broadcast ads subject to any applicable conditions and can be required to observe licence conditions and codes of practice."
The terms of that statement are not directly relevant to the interpretation of the agreement of 18 December but, given the claim of "good faith", are relevant to consideration of the secondary claim that the decision of the Board of Tote Tasmania to withdraw from the agreement was more a rejection of the receipt of a "better" offer by 7HO than genuine concern about the limitation of time. The plaintiffs' claim is that the term "until 31 December 1993" did not excite concern by any member of the Board or its officers until after the 7HO offer made by letter dated 11 January. On that day, Morse, as General Manager, wrote to the Authority, asking for confirmation of the licence issue. On 12 January, Knowles wrote on behalf of the Authority, advising:
"I refer to your application for a transmitter licence to provide a racing service in Hobart.
I am pleased to advise that the Australian Broadcasting Authority (ABA) has recently released the AM frequency 1080kHz, for open narrowcasting purposes. The frequency has been released on an interim basis until 31 December 1993 when its allocation may be reviewed.
As you are aware, commercial radio station 7HT is presently operating on this frequency. When 7HT converts to the FM band later this year, the ABA will be in a position to process your application for the above service.
A copy of the Schedule of Transmitter Fees is enclosed for your information. Your advice on the proposed date of conversion of 7HT would be appreciated."
That statement accurately reflected the policy and administrative position as of 18 December 1992.
Relationship between the parties June 1991 – December 1992
The agreement between Hunter and Tote Tasmania of 17 June contained a "best endeavours" and "good faith" clause in cl 7, which states:
"7 Commitment to Tasradio
In the event of successful completion of the agreement for purchase the parties hereto shall use their best endeavours to ensure that Tasradio successfully conducts its business and each party agrees:
(a)Not to unreasonably delay any action, approval, direction or decision which is required of the party; and
(b)Make approvals or decisions that are required of the party in good faith and in the best interests of Tasradio and the conduct of the business of Tasradio."
Shares could not be transferred within five years without the consent of the other party and the parties further agreed to:
"… cause Tasradio to enter into a new racing contract upon the following terms
(a)A term of five years commencing on the 9th day of August 1991 with an option to the TAB to extend the same for a further five year term;
(b)The TAB shall pay a racing broadcast fee to Tasradio during the first year of the renewed racing contract in the sum of $1,200,000.00 payable by way of equal monthly sums of $100,000.00 on the 1st day of each month but with the first payment to be made on the 9th day of August 1991."
Clause 16 provided for the grant of an option in the terms:
"16 Option to TAB
In the event of a substantive dispute between the parties hereto at anytime within five years of the Completion Date upon the issue of future funding for Tasradio then TAB may at its option cause, by giving not less than thirty days written notice and not more than sixty days written notice, Hunter to sell to TAB all the issued shares held by Hunter in Tasradio (free from encumbrances) at a purchase price of $400,000.00 plus 20% per annum for each year or part thereof (appropriately apportioned) from the Completion Date."
On 9 July 1992, Tote Tasmania and Tasradio executed an agreement providing for the public broadcasting service by the stations 7EX and 7HT for a period of five years said to have commenced as and from August of the previous year. The minutes of the respective Boards relevantly show:
"Date | Tasradio | Tote Tasmania |
| 29 October 1991 | Continuing losses but improvement in advertising revenue. Proposal to introduce limited licence for TAB. | |
| 30 April 1992 | Trading losses 7HT 104,536 7EX 79,191 Proposal for introduction of $75,000 per shareholder Need for income of $60 - $70,000 over TAB receipts | |
| 3 July 1992 | Revenue loss of 7HT of $20,000 per month. Decision to apply for 'limited licence' in name of 'TAB' and required date of 1 September 1992 for FM conversion process. Requirement for further capital injection by shareholders and ongoing deficit. Consideration of directional options to be undertaken by Garrott and Blyton and discussions with Woodward and Samson about Tote preferences. | |
| 6 July | Tote approved of: Approval of action by Tasradio to seek two limited broadcasting licences on behalf of TAB. | |
| 11 August | Appointment of Morse as General Manager. Consideration of papers prepared by Garrott and approval for seeking support of State Minister relative to limited licence application for 7SD. | |
| 14 August 1992 | Report of progress in obtaining limited licence. Consideration of detailed options set out in Blyton's letter dated 13 August. | |
| 25 August | Report by Woodward of his successful meeting with Blyton in Canberra Advise and advice that Narrowcast Licence would be made available. Resolution to 'negotiate to sell the existing stations once Narrowcast licences are in place'. |
| 8 September | Report on concerns about liability as loan of payment to Tasradio. Resolution 'that the objective of the TAB is to finish up with two narrowcast licences for race broadcasts and a guaranteed race broadcast service without involvement in commercial radio'. The Chairman and Mr J Tomlinson to negotiate along these lines with Tasradio Pty Ltd |
| 11 September | Advice – consideration of grant of FM licence. Cost and shareholder contribution – delay in FM launch 'until a limited licence for raising was ready for broadcasting.' |
| 6 October | No minutes tendered but meeting discussed material circulated in Bulletin 205 relating to a draft agreement with Hunter, loans and general financial arrangements and/or proposals and leading to formal application for the grant of a Narrowcast radio licence for Launceston. |
| 10 November | Report on meeting between Woodward, Blyton and Garrott. Approval of action by Chairman relating to notice by Hunter of intention to disperse of its shares in Tasradio, request for share evaluation legal advice and request to Rowe for advice on future of Tasradio." |
Separate consideration will be given to negotiations between Hunter, Tasradio and Tote Tasmania leading up to the December agreement. But the evidence of the relationship between the parties between July 1991 and November 1992 establishes:
(1)Tote Tasmania entered into the business of commercial radio because of its statutory and viability requirements to deliver racing news and results to the general community.
(2)7HT and 7EX were loss-making assets.
(3)While there might have been some synergy of interest between Hunter and Tote Tasmania, those interests required different directions. Hunter was interested in general broadcasting whose future lay with the FM band, while Tote Tasmania was focused on a "product" best served by the existing AM frequency with its greater geographic range and lesser operating costs.
(4)The exercise had proved expensive for Tote Tasmania.
(5)It was in the material interests of Hunter and Tote Tasmania that the licence services and operations be separated.
(6)Knowledge had by Hunter through Garrott and Blyton was equally possessed by Tote Tasmania through its directors appointed to Tasradio, and in particular through Woodward.
(7)Both parties were subject to time constraints required by the Department or Authority, the timing of the legislation, the development and application of policy through a regulatory body and the stated evolutionary process.
Most of the evidence thus far considered is non-contentious. It is not necessary to consider the differences in the evidence given on the hearing in detail between Garrott and Woodward which are more ones of recollections and nuance made readily understandable by the passage of time. Insight can be gained through correspondence between Woodward and the State Minister in October 1992 and the various reports from R J Rowe to the Totalizator Board of New South Wales and other papers presented to the Board of Tote Tasmania at its meeting on 10 November.
Negotiations
The respective Boards and, in particular, the respective Chairs and executive officers, were experienced in commerce, administration and regulatory regimes. They had access to expert legal and financial advice. They are to be regarded as having equal bargaining power. On 29 October following a meeting between Blyton, Garrott and Woodward, Hunter gave notice of "its intention to dispose of its shares in Tasradio Pty Ltd". It is likely that it was Woodward who first suggested that cl 16 of the original agreement be used as a vehicle to initiate separation of the various entities. The notice included the suggested method of transfer and concurrent proposals for each party:
"You suggested that, from the Board's point of view, the change would be more comfortable if the Hobart FM licence and studio equipment was taken over by Hunter or an approved purchaser, at a suitable price.
As these items cannot be acquired until a Special Narrowcast Licence is granted and operating, the share sale transaction can be implemented, subject to the following firm offer:-
1That a substantial purchaser of the FM licence and Studio Equipment enters into a contract to purchase these items for $350,000.
2This contract is finalized within three months of the commencement of broadcasting from the Special Narrowcast Licence in Hobart.
3The purchaser agrees to pay for one-half of the rental of the New Town Studios, until the completion of the lease.
While Hunter Broadcasters Pty Ltd has given notice under the contract, it would like to co-operate in any way reasonable to ensure that a full racing broadcast is available in the future, with minimum encumberments and maximum simplicity."
On 18 November 1992 Mr Rowe met with the Board of Tote Tasmania and the minutes show that he outlined the regulatory regime and its future direction. The minutes of that special meeting record:
(1)That the Chairman outlined the situation facing Tote Tasmania as a shareholder of Tasradio.
(2)The aim of the exercise was to permit Tote Tasmania to provide race broadcasts "at the lowest possible cost".
(3)The outlining of general possibilities or options which included (presumably following the briefing options provided by the consultant):
"4The cleanest and simplest way to continue the TAB service is to operate an open class service (narrowcast service) for the whole of Tasmania.
To operate an open narrowcast service it is necessary to:-
(i)Obtain a prior opinion from the Broadcasting Authority that the proposed service is a narrowcast service. The opinion must be supplied within 45 days of the application. However, the Authority may request further information within 30 days in which case the 45 day term is extended. (The Northern Territory case establishes that a TAB information service is a narrowcast service). A ruling stands for 5 years.
(ii)Having established that the service is a narrowcast service it is then necessary to apply for a technology licence which allocates a frequency. No time limit is specified for the allocation of a technology licence. This could present problems.
(iii)A common frequency for the whole of Tasmania could only be FM.
4 [sic]It should not be assumed that the granting of a FM licence to 7HT will result in the automatic release of the AM licence to TAB as a narrowcast licence.
5Mr Rowe estimated that a narrowcast licence for Northern Tasmania would not be granted under 2 years.
6There would be definite problems in providing adequate cover to clientele with any operation outside of the normal broadcast band.
Mr Rowe suggested that the best option was for TAB to buy out Hunter Broadcasters Pty Ltd. This would provide 2 stations to service the Hobart and Launceston areas. Immediate moves should be made to reduce losses and the operation should be converted to a TAB information service. He estimated that the cost of operating a TAB information service should not exceed the annual broadcast service fee currently paid to Tasradio Pty Ltd by the Board."
At that meeting the Board resolved to defer the offer made by Hunter pending the receipt of an opinion from the Solicitor-General and to seek approval:
"… from Hunter Broadcasters Pty Ltd to its request for Mr S Hernyk of Price Waterhouse to place a value on the shares in Tasradio Pty Ltd."
The option for the transfer of shares had previously been discussed by Blyton and Woodward. Garrott believed that it had been Woodward who suggested that recourse be had to the terms of the agreement of 17 June 1991, cl 16 (option to Hunter unable to reach agreement in fundamental issue). Woodward has a different recollection, but it matters not since both parties proceeded on the basis that each had consented to the transfer. A fundamental issue, if one was required, was the reluctance of Tote Tasmania to commit further and perhaps open-ended capital or operating expenses to Tasradio.
On 25 November the Board met to consider the proposal. It was provided with extensive material, and the minutes disclose a wide-ranging consideration of the Hunter offer and other options. It referred a draft reply to Hunter to its solicitors and resolved, presumably as part of a possible bargaining process, not to disclose to Tasradio that it had agreed to extend the $30,000 per month prepayment arrangement until 31 January 1993. It resolved:
"That the Board authorises the Chairman and Mr J E Tomlinson to meet with representatives of Hunter Broadcasters Pty Ltd to:-
(a)offer to purchase the whole of the shares held in Tasradio Pty Ltd by Hunter Broadcasters Pty Ltd for the sum of $200,000 provided that –
(i)a narrowcast licence for Hobart is granted at the 1080 frequency and
(ii)Hunter Broadcasters Pty Ltd agree to purchase the FM licence and FM equipment from Tasradio Pty Ltd at a price of $350,000, or
alternatively, if a narrowcast licence is not granted at the 1080 frequency –
(b)offer to purchase the whole of the shares held in Tasradio Pty Ltd by Hunter Broadcasters Pty Ltd for the sum of $150,000."
On 1 December, the Board received a valuation report from Price Waterhouse providing an estimate for the value of 50 per cent of the shares in Tasradio as being in the range of $110,000 to $120,000. However, on the same day, Price Waterhouse revised the share price valuation from $99.52 per share to $73.06 per share. The variation was made on the basis of the differing figures for the loss incurred to 31 October from $128,663 to $194,814. On 8 December, the Board considered the draft agreement for the sale of the shares and the FM licence and equipment, and resolved to record its previous resolution and ratified its offer to Hunter to:
"1purchase all of Hunter Broadcasters Pty Ltd's shares in Tasradio Pty Ltd for the price of $250,000.
2approve the payment of a consultancy fee of $30,000 to Hunter Broadcasters Pty Ltd by Tasradio Pty Ltd in return for Mr K Blyton restructuring radio stations 7HT and 7EX in a manner approved by the Totalizator Agency Board.
3approve the payment by Tasradio Pty Ltd of interest due on loans made to Tasradio by Hunter Broadcasters Pty Ltd. The interest to be calculated in accordance with the terms of the Agreement between Totalizator Agency Board and Hunter Broadcasters Pty Ltd.
4approve the sale by Tasradio Pty Ltd to Hunter Broadcasters Pty Ltd, or their nominee, of the FM licence and the associated new equipment for the price of $250,000. This sale is to be conditional upon the granting of a narrowcast licence to the TAB by the Australian Broadcasting Authority."
On 9 December, Blyton wrote to Woodward advising him of the contents of a telephone conversation he had with Knowles on the previous day, in particular:
"It appears the Commercial Radio Industry has been quite successful in lobbying the Federal Government to apply heavy pressure upon the Authority to ensure that Limited Licences do not become pseudo commercial radio stations and get out of control.
From the point of a commercial radio operator I must say I am glad of this.
What it means for Racing Limited Licences is that Colin Knowles believes the Department will impose strict and stringent rules on what you will be able to do with the Limited Licence. In essence you will be restricted wholly and solely to the provision of race descriptions and race information.
From his telephone conversation yesterday, you will not be allowed to run any programme unless it is primarily the provision of race broadcasts or race information. I quizzed him in some detail so that we may be prepared in what we do and it is now highly likely that you will be unable to run or operate outside all normal race coverage times unless you are providing a dedicated race information programme.
Accordingly, you will not be allowed to broadcast a Breakfast or Morning Session in Hobart unless, of course, you are covering racing. This means that you will still be able to have programmes like Three-Way Turf Talk. It does however mean that you will have to let Hobart sit off-air until your racing programmes commence each day."
On 13 December at 7.15pm, the Board met to consider the draft agreement for sale and agreed to a number of amendments with respect to those drafts. On 18 December, it again met and resolved:
"(i)That the Totalizator Agency Board approves the purchase of 1,250 shares in Tasradio Pty Ltd from Hunter Broadcasters Pty Ltd for the price of $250,000.
(ii)That the Common Seal of the Totalizator Agency Board be affixed to the Agreement between Totalizator Agency Board, Hunter Broadcasters Pty Ltd (ACN 000 116 352), Tasradio Pty Ltd (ACN 009 477 098) and Kevin Blyton.
(iii)That the common seal of the Totalizator Agency Board be affixed to the Share Transfer certificate for the shares purchased from Hunter Broadcasters Pty Ltd.
(iv)That the Common Seal of the Totalizator Agency Board be affixed to the Agreement between Totalizator Agency Board, Tasradio Pty Ltd (ACN 009 477 098), Geoffrey Robert Garrott and Kevin Blyton.
(v)That the Board authorises the General Manager to advance funds to Tasradio Pty Ltd to cover the day to day operating costs of radio stations 7HT and 7EX."
On the same day at a subsequent meeting of Tasradio, its Board accepted the resignation of Garrott and Blyton as directors and replaced them with Kevin Pearce and Douglas McKillop, nominees of Tote Tasmania, and approved the transfer of the 1,250 shares from Hunter to Tote Tasmania. The new Board then appointed Blyton as its General Manager until 31 December, agreed to the repayment of accumulated loans to Hunter and resolved:
"That the Agreement between Totalizator Agency Board, Tasradio Pty Ltd (ACN 009 477 098), and Geoffrey Robert Garrott and Kevin Blyton for the sale of FM licence and associated assets be approved and executed."
The Agreements
The agreement for the sale of the shares was between Tote Tasmania, Hunter, Tasradio and Blyton as "Manager". The purchase price for the shares was the payment of the sum of $250,000. Other clauses related to a loan repayment, retirement of directors, and the like, which included:
"6As soon as practicable after the signing hereof Hunter shall arrange for the Manager to undertake the work set out in clause 7.
7.1The Manager shall at the request of Hunter and as part of the consideration for Hunter and TAB entering into this Agreement act as a consultant to TAB to
A (1) examine the staff and establishment of Tasradio,
(2)examine Tasradio's use of landlines,
(3)examine the overall level of operating costs and efficiency of Tasradio,
B with a view to recommending in writing to the Board of TAB courses of action ('the plan of action') which will:-
C (1) reduce Tasradio's present losses,
(2)place Tasradio on an acceptable commercial operating basis, and
(3)reduce staff and establishment costs to comply with (1) and (2)."
The work required to be undertaken by the Manager was to be completed on or before 8 January 1993. The second agreement was between Tote Tasmania, Tasradio and Garrott and Blyton. That agreement provided for the sale by Tasradio of the FM licence and certain equipment as associated assets. The purchase price of $250,000 was apportioned as:
"(a)for the FM Licence $114,000, and
(b)for the Associated Assets $136,000."
The sum of $114,000 was that required by the Authority as the "entry fee" in its assessment provided on 9 September. The parties acknowledged that negotiations leading up to the agreement had been conducted on the basis that the costs to Tasradio of acquiring the licence and associated assets had been $294,715 and the purchasers agreed to indemnify Tasradio for any additional costs. The agreement was expressed to be subject to conditions precedent which provided:
"1.1It is a condition precedent to the completion of this Agreement that the parties to the Agreement described in the First Schedule shall have completed the Share Sale Agreement referred to in that Schedule in all respects on or before 31 January 1993.
1.2It is also a condition precedent to completion of this Agreement that the Australian Broadcasting Authority ('ABA') shall have granted to TAB or Tasradio a licence for an Open Narrow Casting Serving ('the Narrowcast Service') which allows TAB or Tasradio to provide a broadcast programme, which includes racing, to a standard acceptable to TAB. TAB and Tasradio shall use their best endeavours to obtain such a licence and shall make a decision within thirty (30) days of the date upon which they receive notification of the terms upon which ABA will grant such a licence as to whether or not those terms are acceptable to them."
The defendants claim that the grant of the licence for only a guaranteed period of 12 months entitled them to decide, consistent with the terms of cl 1.2, that the terms of the grant of that licence were not acceptable, causing the agreement to fail or come to an end. The plaintiffs contend that all parties were aware of the transitional nature of the initial grant, that extension or permanency was automatic, and that the grant was, in all respects, "to a standard, acceptable to TAB", and the terms were, in all respects, acceptable or, at least, ought to have been acceptable to them.
The outcome of the two agreements was that Tote Tasmania retained ownership of 7EX, certain equipment and, subject to issue, a broadcast licence on the AM frequency with a limited content entitlement and identifiable equipment. Garrott and Blyton obtained an FM licence and the 7HT identity which, at that time, remained a "loss making" venture.
Repudiation
On 18 December 1992, Tote Tasmania issued a press release announcing the imminent approval of a narrowcast service, an announcement repeated by the Authority on 21 December. On 11 January the Managing Director of Commercial Broadcasters Pty Ltd made an offer to Tote Tasmania to purchase the "commercial broadcasting licence of radio station 7HT" for the sum of $500,000, which was to include "any one off fee payable … in respect of the right to convert the licence of 7HT from … AM … to FM" (the sum assessed at $114,000 previously referred to). A separate offer was made for the purchase of equipment to facilitate conversion. The written offer addressed to Woodward followed "recent discussions" between the Managing Director and (presumably) Morse, as General Manager of Tote Tasmania. In a separate letter of the same date, an offer was made to provide services "to facilitate the operation of … [the] … open narrowcast racing service" which included "complete studio facilities and total operational requirements". Morse wrote to the Authority on 11 January requesting confirmation of the licence issue. The Authority, through Knowles, replied on 12 January confirming the release of the AM frequency 1080 kHz for open narrowcasting purposes on an interim basis until 31 December 1993 when its allocation may be reviewed and advising that when 7HT converted to FM, the "ABA" would be in a position to process the application. On 19 January Commercial Broadcasters again wrote to Morse requesting a reply to its offer, at least in principle, by close of business on 26 January. An initial memo to members of the Tote Tasmania Board of 19 January advised of the offer and advised, perhaps incorrectly, of the necessity for a reply by 22 January. The memo from Morse included:
"3.4It is not clear to the writer if the matter of tenure and allocation of spectrum are of paramount importance, we probably need advice from the ABA on these matters."
On 26 January, the Board met to discuss the offer made by Commercial Broadcasters, the grant of the FM licence, and to ratify decisions taken at an earlier meeting held on 7 January. The minutes relevantly state:
"The Chairman referred to a letter from Mr Colin Knowles of the ABA dated 12 January, 1993. The letter advised that the ABA had released the 1080 AM frequency for open narrowcasting purposes on an interim basis until 31 December, 1993 when its allocation may be reviewed.
Mr Morse reported that he had spoken with Mr Knowles who advised that it was most unlikely that the frequency would not be available beyond 31 December, 1993. However, if extreme pressure was brought to bear over an extended period of time the ABA could be forced to call for expressions of interest. Mr Knowles also advised that the narrowcast can be put on hold without any risk.
…
The Chairman and Mr Morse advised that the Narrowcast licence would be issued without formal notice of precise terms and conditions.
The Directors agreed that in the absence of a firm guarantee from the ABA that the 1080 frequency will be available for the Narrowcast service for an extended period beyond 31 December, 1993 the terms were not acceptable.
It was resolved that the agreement for the sale of the FM licence and associated equipment to Geoffrey Robert Garrott and Kevin Blyton should not proceed.
Ms Heckscher to write to Mr P Kimber, Solicitor for Messrs Garrott and Blyton, advising of this decision.
hofm offer
It was resolved that the company was not in a position to accept the offer from HOFM at this time. The decision may be reviewed if circumstances change in the future.
am licences
It was resolved that the company will continue to operate two AM licences for a period up to one year. The position to be reviewed in December, 1993."
There is a difference between the recollection of Woodward as to the details of the discussion of that meeting and the précis or note of that meeting prepared by Ms Heckscher, the Board's solicitor who attended that meeting. Where there is a difference, I prefer to accept the terms of the note and its import. The note reads:
"Reasonably lengthy discussion about the concerns that the TAB have that they weren't given full information at the time of entering into the agreement for the sale of the FM licence to Garrot and Blyton. They did get their own independent report and relied on the information but the FM licence really wasn't worth a great deal. They now believe it is worth a great deal more.
Generally extracting from them procedures in relation to open Narrowcast licences. Eventually understood from that Narrowcast licences are not issued with conditions attached except for the duration of the licence, and that they are issued for a period of 12 months. You can apparently lodge a request for an opinion asking certain questions and basically the answers to those question [sic] will in a way set the conditions upon which the licence can be used. It appears that they have in actual fact strictly speaking applied for the licence and have had the response from the ABA in the ABA's letter of the 12th January. Basically this says that the Narrowcast licence has been granted on an interim basis only until 31st December 1993. It seems that the Narrowcast licence is granted on an interim basis until the FM licence is transferred. Even if not granted on an interim basis, it would still be granted apparently for only 12 month periods.
General view of the TAB is that they would not be happy to give up an FM licence with only a 12 month Narrowcast licence and no guarantee of its renewability. Advising them that we should therefore respond to Garrot and Blyton advising them that the terms of issue of the Narrowcast licence are unacceptable.
Generally discussing the provisions of the conditions precedent contained in the contract – they are likely to get some argument from Garrot and Blyton anyway. They may want to deal with the licence later on in the picture either by leasing or selling or otherwise. Important thing now is to terminate the contract with Garrot and Blyton.
There are a number of things they want to clear up before we send the letter to Garrot and Blyton – basically another invoice has turned up for some $40,000.00 for equipment associated with the FM appointment. Checking through the contract and advising them that if that amount had not been included in the basis upon which the price for the FM associated equipment had been calculated, then that $40,000.00 could be added to the price. They want to see if they can find out what it was for whether it was included with the original calculation and if there are any other unpaid amounts floating around."
The last topic has little bearing on this matter, it was after all covered in the indemnity provision, except to show that the Board was concerned with enhancing its economic position. The minute accurately reflects the position that the advice from Knowles was:
"The Chairman referred to a letter from Mr Colin Knowles of the ABA dated 12 January, 1993. The letter advised that the ABA had released the 1080 AM frequency for open narrowcasting purposes on an interim basis until 31 December, 1993 when its allocation may be reviewed.
Mr Morse reported that he had spoken with Mr Knowles who advised it was most unlikely that the frequency would not be available beyond 31 December 1993. However, if extreme pressure was brought to bear over an extended period of time the ABA could be forced to call for expressions of interest. Mr Knowles also advised that the narrowcast can be put on hold without any risk."
The Board was advised that the narrowcast licence would be issued without formal notice of precise terms and conditions. The minutes noted that:
"The Chairman and Mr Morse advised that the Narrowcast licence would be issued without formal notice of precise terms and conditions.
The Directors agreed that in the absence of a firm guarantee from the ABA that the 1080 frequency will be available for the Narrowcast service for an extended period beyond 31 December, 1993 the terms were not acceptable.
It was resolved that the agreement for the sale of the FM licence and associated equipment to Geoffrey Robert Garrott and Kevin Blyton should not proceed.
Ms Heckscher to write to Mr P Kimber, Solicitor for Messrs Garrott and Blyton, advising of this decision."
On 27 January, Hunter provided an invoice for the equipment supplied in the FM conversion for $129,800, and confirmation of the licence fee of $114,481.81.
On 4 February 1993, the defendants' solicitors advised the plaintiffs that the terms of the grant of licence were not acceptable and that the contract had come to an end.
Construction of agreement
Clause 1.2 imposes a condition that the Authority shall have granted a narrowcast licence to either Tote Tasmania or Tasradio to "provide a broadcast programme which includes racing, to a standard acceptable to TAB". The plaintiffs had purchased the licence from Tasradio which had no right to determine any "acceptable standard". There is no evidence which suggests that the licence granted inhibited in any way the standards or content requirements of the Tote agency.
The defendants were required to use their "best endeavours" to obtain "such a licence", ie, one which met a standard acceptable to the special interest holder, namely the servicing of the racing industry. The defendants were not required to obtain "any" narrowcast licence, but one which accommodated their needs and interests. The defendants retained their existing commercial licence for 7EX, and Tasradio was divesting itself of the FM licence only. It retained, at least until conversion, its AM frequency and the right to continue with broadcasting on that frequency, albeit with a content confined to its special interest, the racing industry. Had the licence as issued prohibited the broadcasting of live racing prevented transmission during certain times which precluded the dissemination of appropriate material at required times, or limited the geographic area which could be reached because of permitted transmission power or like provisions, then cl 1.2 would have taken effect. But no such restrictions or inhibitions were imposed.
The requirement to use "best endeavours to obtain such a licence" refers to the standard of the licence, ie, whether it was the type and nature which was contemplated by the parties as of the date of the agreement. The standard was to be determined by the Board of Tote Tasmania alone. Although it controlled the Board of Tasradio following the sale of the shares and resignation of two of the directors, it was required to consider "standard", separate from "technical", and similar matters within the province of Tasradio. The "best endeavours" clause on the other hand, applied to both Tasradio and Tote Tasmania. Each was required to "make a decision" on the terms, a matter different from an "acceptable standard". The obligation extended beyond an endeavour to obtain any "narrowcast" licence. The type and nature was as contemplated nationally by statutory agencies engaged in the racing industry and had been clearly identified in the exchanges between those agencies (in particular, New South Wales), the Department, its successors, the Authority, and the Minister.
The second requirement was acceptance of the terms of the licence issued. The Board was aware that no "terms" had been specified other than the "tenure". The defendants, since both were required to accept those terms, were not concerned with those omissions. Tenure was the only claimed basis for concern. That tenure must be viewed at least as a "term" to be defined or interpreted in the light of the statutory and regulatory scheme as understood and accepted by the parties as of 18 December 1992. The allocation of "limited tenure" of 12 months as a transitional mechanism was known to both defendants before and as at 18 December 1992. That finding does not necessarily resolve or dispose of the issue of interpretation, but had it been raised for the first time and in the absence of the known development of a regulatory regime, its January disclosure might have been definitive. It is first necessary to consider the question of implied terms said here to include business efficacy.
Implied terms
The agreement of 18 December cannot be considered in isolation. It was a commercial transaction designed to resolve a difficult situation. Tote Tasmania did not wish to be "saddled" with the loss making component of a broadcasting station which had lost its market and inhibited its performance of duty to the racing industry and public. Garrott and Blyton, as the controllers of Hunter, did not wish to have the requirements of "racing" broadcasting burden any opportunity to convert 7HT into a viable business competing in the general market. Assuming that Garrott and Blyton saw an opportunity to develop a profitable venture using the FM licence, the reality was that it would take time to "turn the station around". Assuming that they foresaw an opportunity to "onsell" the licence, together with equipment, they were still required to wait until Tasradio was able to deliver the FM band following the conversion of the racing service to the AM frequency. It did not follow that Garrott and Blyton were entering into an immediate and risk-free venture.
There are three other matters of commercial reality. Hunter was entitled, subject to certain contractual inhibitions, to receive the sum of $400,000 for its shares in Tasradio. While it is true that the losses incurred by stations 7HT and 7EX reduced the value of the company, Hunter remained entitled to the higher price. Secondly, Hunter was selling its interest in Tasradio which included two radio stations (three if 7SD is included), a potential FM licence in Launceston, and a narrowcast AM licence. It did so in the knowledge that its two controllers or directors would receive an FM licence, provided that they resigned from Tasradio. The third matter of commercial reality is that the price of $250,000 to be paid included a fee payable to the Government ($114,000) for the grant of the licence, rather than any form of appreciation of capital or value. The assessment for the figure payable for "associated assets" related to equipment not necessary for the specific requirements of AM broadcasting. There remained a possibility that the operator of the FM station would maintain, as a paid service, broadcasting resources such as equipment and administrative and technical facilities for Tote Tasmania. Tote Tasmania received a sum of money equal to what it paid for the balance of the interest representing more than one half of the existing assets and licence entitlements of Tasradio. It divested itself of future operation expenses required of a general broadcasting licence in return for the right to broadcast its specialised program at a reduced cost and deal separately with the problems associated with 7EX.
None of the above ought obscure the question of the construction of the agreement. The word "terms" includes tenure, a matter subject to acceptance by both Tasradio and Tote Tasmania. If the Court had concluded that the 12 month period stated in the licence had taken the Board by surprise, had not been the subject of earlier planning and understanding, and was accepted by the Authority, Tasradio and Tote Tasmania as simply part of the transitional process and extension, subject only to matters such as fraud, misconduct and the like, as but a procedural formality, the questions of implied terms, best endeavours and commercial efficacy would be of little import. The finding of the Court, to be later stated, is that both defendants knew through their officers and Boards that the special licence, once issued, would be, subject to minor variations, extended into the foreseeable future. The significance of the commercial dealings and efficacy is that the dealings required good faith and best endeavours. Hunter was selling its shares and its directors resigned before the purchase agreement with the plaintiffs was to be signed. The plaintiffs resigned and gave up the power of veto over future decisions as to "acceptability of terms". The provision governing "a decision within 30 days … as to whether or not the terms were acceptable" must be interpreted in the light of the contract as a whole and given a meaning which does not contradict any express term of the contract.
The plaintiffs, in their amended statement of claim, par14, allege:
"14There were implied terms of the agreement, in law or alternatively in fact, that in relation to clause 1.2 of the agreement, the Totalizator Agency Board and the second defendant would:
a act in good faith;
b act honestly and reasonably in determining whether or not the terms of the grant of the licence referred to were acceptable to them;
c make reasonable inquiries and otherwise act reasonably in establishing the nature and extent of the terms of the grant of the licence referred to;
d use their best endeavours to obtain the licence on terms acceptable to them.
particulars of implication by law
The contract contained a condition precedent to completion (clause 1.2) and was of such a nature that the terms would be implied as universal terms, or as terms generic to the class of contract.
particulars of implication by fact
(i) they are reasonable and equitable;
(ii) they are necessary to give business efficacy to the contract;
(iii) they are self-evident;
(iv) they are capable of clear expression;
(v) they do not contradict any express term of the contract."
The "best endeavours" clause in the agreement required both defendants to act in good faith in the obtaining of a licence acceptable to Tote Tasmania. But the provision can help colour or flavour the word "acceptable" in the overall context of the agreement (K & S Lake City Freighters Pty Ltd v Gordon & Gotch Ltd (1985) 157 CLR 309; CIC Insurance Limited v Bankstown Football Club Limited (1997) 187 CLR 384). Whilst the plaintiffs and the defendants could not be said to be in a fiduciary relationship (Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41), the term "acceptable" ought be interpreted in a manner consistent with the contract as a whole (Ansett Transport Industries (Operations) Pty Ltd v The Commonwealth (1977) 139 CLR 54, National Mutual Life Association of Australasia Limited v Chris Poulson Insurance Agencies Pty Ltd (No 5) 31/1998).
The term "acceptable" ought not be capricious, arbitrary or extend to a decision made in bad faith. It ought be interpreted in the sense of being reasonable and necessary to provide business efficacy, and its meaning given as a legal incident to this contract (Codelfa Construction Pty Ltd v State Rail Authority NSW (1981 – 1982) 149 CLR 337.
Here the defendants were each required to consider the terms of the licence reasonably and honestly (Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234). Even accepting that members of the Board, who might not have fully absorbed all of the material supplied to them over the preceding three months, had concerns about the sparse terms of the letter of 12 January, it was incumbent on the respective Boards to make further inquiry of the Authority of the operation of the scheme and the likelihood and, I would interpolate, or certainty that but for the misconduct on the part of the licence holder, of renewal beyond December 1993.
The defendants were required to perform mutually co-operative acts with the plaintiffs and not to determine "unacceptability" without further inquiry or action (Electronic Industries Ltd v David Jones Ltd (1954) 91 CLR 288) and to co-operate with each other and the plaintiffs, and in particular, Blyton, for that purpose (Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226). In that regard, account should be taken of the commercial strength and interests of Tote Tasmania, its power and role as a statutory agency with responsibility to a Minister and the national agreements or understanding reached between totalizator boards throughout Australia, the Authority and the relevant federal Ministers (Esso Australia Resources Pty Ltd v Southern Pacific Petroleum NL [2005] VSCA 228).
The internal memorandum dated 19 January from Morse to Board members does not suggest alarm as to renewal. The note included the statement:
"It is not clear to the writer if the matter of tenure and allocation of spectrum are of paramount importance, we probably need advice from the ABA on these matters."
No such advice was sought. The minutes recording the advice of Knowles that "it was most unlikely that the frequency would not be available beyond 31 December 1993" is a more accurate reflection of the regulatory process than a statement of uncertainty.
It is not necessary at this remove, to make findings as to the integrity of the officers or Board members of the defendants as at 26 January 1993. It is sufficient to state the conclusion that they did not determine "acceptability" of the terms in a manner required by the contract. It is probable that they were beguiled by the term of the offer made by Commercial Broadcasters. It is probable that the discussion between Morse and Commercial Broadcasters had suggested a better commercial option. The minute reflecting the latter offer did not firmly preclude any further consideration before December 1993. There was no further attempt to obtain a more detailed reply from the Authority. There might have been discussion about potential implications of the December renewal but I would prefer, as an accurate account of the discussion, the file note dated 4 February 1993 of the solicitor, to the recollection, some 14 years later, of the Chairman. That note suggests commercial advantage and a sense that Blyton, in particular, had not made a full and proper disclosure of the correct state of affairs as of December. That belief was hasty and at least warranted further inquiry and consideration.
Notification
The plaintiffs contend that effective notice of the standard and terms of the licence was given to Tote Tasmania and Tasradio on 21 December 1992, the date on which the ABA issued its news release. Woodward concedes that he probably saw that release before Christmas 1992. Tote Tasmania had issued its own press release on 18 December, in anticipation of the decision of the Authority. It would appear from the statement reported in the Mercury newspaper on 23 December (Ex P299), that the officers of Tote Tasmania welcomed the new arrangement. The plaintiffs argued that the decisions made by Tasradio and Tote Tasmania on 26 January 1993 are outside the 30 day period since notice was provided to the defendants on 21 December. Woodward in his evidence stated that the Board of Tote Tasmania had met on 6 January 1993 and determined that the terms were not satisfactory and required it to decline to continue with the agreement. Thus it is said the decision was made within the prescribed period. Neither the submission of the plaintiffs nor the evidence given on behalf of the defendants are accepted. Formal notice ought not be provided by press release. A press release might not provide reservations within the grant, conditions not otherwise known to the parties, or be couched in terms sufficient for a general exposition of policy and implementation. It was not sufficient to constitute statutory or binding effect even though the first defendant through Woodward and/or Morse had notice of the press release in this case. In this case formal advice or notification was provided by the Authority in its letter of 12 January 1993. The letter advised that the licence had been granted, even if subject to review in December 1993. That review and/or extension must be considered in the light of the nature of the administrative processes and the scheme as formulated and publicly stated of the provision of radio services for totalizator boards throughout Australia.
The evidence that the Board met and resolved the issue at its meeting on 6 January is belied by the minutes and is not accepted. Woodward's evidence on this point was confused and contradictory. It may have been a product of initial confusion from his re-reading of documentation and the passage of time. Other matters relevant to broadcasting were discussed and those decisions later ratified on 26 January. The letter from Tote Tasmania and the Authority of 11 January would have been unnecessary if the Board had already decided on 6 January that the terms were unacceptable. However, the evidence of the press release, absence of concern before the 7HO letter, and the conduct of the senior officers, Woodward and Morse generally, during the period 21 December and the 7HO discussion has import. It confirms the view that the limited tenure of a licence was simply part of the administrative process, that the Board was properly informed of that process as of 18 December, and the discussion during the January meeting was more about the potential of future economic advantage. Tote Tasmania had never surrendered its AM frequency entitlement. The evidence was that the Authority could only grant the narrowcast licence via the "drop through" spectrum once the frequency allocation plan and licence area plan had been prepared for the southern market. The planning process was ongoing.
A secondary argument advanced, although not specifically pleaded, was that Tasradio at its meeting on 26 January did not properly consider the notice and its terms, but relied on the decision already made by Tote Tasmania. That argument is rejected. Both bodies were required to make a decision, but even if in the unlikely event that only one body properly found the terms to be unacceptable, the condition precedent would have been fulfilled. There were adequate meetings on the part of the respective Boards (Swiss Screens (Australia) Pty Ltd v Burgess (1987) 5 ACLC 1076; Roden v International Gas Applications (1995) 18 ACSR 454). The Board of Tasradio was entitled to adopt as its own the previous decision reached by Tote Tasmania.
Questions
The parties have formulated questions on the issues raised through the pleadings and refined during the course of the trial.
An attempt is made to provide the answers to those questions, dealt with in detail in these reasons, in brief form. If that response does not adequately meet the formulation required by the parties to resolve the issue of liability and provide a sufficient basis for any future determination of damages, counsel may seek further exposition. An example is that of the answer to question 4(a). The answer relates to the separate argument as to the validity of the decision of a board. It does not provide an answer to the terms of cl 1.2. Question 3(a) might be ambiguous. The defendants did use their best endeavours to obtain the licence. It was the acceptability or otherwise of tenure which was the issue. The questions posed and the answers provided are set out below:
"1 (a) Was the first defendant 'made aware' in any sense relevant to the determination of the issues in the proceeding of any or all of the matters set out in paragraph 9 of the amended statement of claim? Yes 2 (a) Are any or all of the terms to the effect below to be implied into the Agreement?
(i) The defendants would act in good faith.
(ii) The defendants would act honestly and reasonably in determining whether or not the terms of the grant of the licence were acceptable to them.
(iii) The defendants would make reasonable enquiries and otherwise act reasonably in establishing the nature and extent of the terms of the grant of the licence referred to.
(iv) The defendants would use their best endeavours to obtain the licence on terms acceptable to them.
(v) The defendants could not rely on clause 1.2 of the Agreement capriciously, arbitrarily or in bad faith.
Yes
Yes
Yes
Yes
Yes
(b) Is the Agreement to be construed so that:
(i) The requirement in clause 1.2 of the Agreement that the defendants use their 'best endeavours' relates only to obtaining 'such a licence'?'
(ii) The decision as to whether or not the terms of the licence were acceptable to the defendants was at their absolute and unfettered discretion?
(iii) The only condition affecting the exercise of that discretion, was that the defendants had only 30 days from the date they received notification of the terms of the licence from the Australian Broadcasting Authority in which to make the decision?
Yes
No
Yes, as decided by the defendants but not necessarily so by the terms of the agreement.
3 (a) By the receipt of the letter, did the defendants satisfy their obligation pursuant to clause 1.2 of the Agreement that they use their best endeavours to obtain the 'licence' (as that expression is to be construed in accordance with paragraph 13 of the amended statement of claim ('Licence'))?
Yes 4 (a) Did the defendants make a decision in accordance with clause 1.2 of the Agreement that the terms upon which the ABA would grant the Licence were not acceptable to them?
(b) If the answer to sub-paragraph (a) of this paragraph is no, by failing to make the decision, did the defendants breach the Agreement and wrongfully terminate and repudiate the Agreement?
(c) If the answer to sub-paragraph (a) of this paragraph is yes, in making that decision, did the defendants otherwise breach the Agreement and wrongfully terminate and repudiate the Agreement?"
Yes, in that each made a valid decision.
Not necessary to answer.
Yes
Counsel are invited to appear and make further submissions as to the above exposition and any necessary ancillary or consequential orders. There remains the need for further pre-trial procedures in connection with the assessment of damages.
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