Mobileworld Operating Pty Ltd v Telstra Corporation Limited
[2006] VSC 164
•2 May 2006
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL LIST
No. 2105 of 2005
| MOBILEWORLD OPERATING PTY LTD (ACN 090 451 433) | Plaintiff |
| v | |
| TELSTRA CORPORATION LIMITED (ACN 051 775 556) | Defendant |
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JUDGE: | Whelan J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 16 March 2006, 6 April 2006 | |
DATE OF JUDGMENT: | 2 May 2006 | |
CASE MAY BE CITED AS: | Mobileworld Operating P/L v Telstra Corporation Ltd | |
MEDIUM NEUTRAL CITATION: | [2006] VSC 164 | |
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CONTRACT – Construction of agreement – Instruction or order given by defendant not in accordance with agreement: Unique Lifestyle Investments Pty Ltd v Robertson and Anor [2005] VSC 347; Anberton Pty Ltd v Buller Ski Lifts Pty Ltd [2006] VSC 106 at [40] – [47].
DECLARATIONS – whether matter hypothetical – principles applicable – appropriate for declarations on claim but not counterclaim: Bass v Permanent Trustee Company Ltd (1999) 198 CLR 334 at 357; Russian Commercial and Industrial Bank v British Bank for Foreign Trade Ltd [1921] 2 AC 438 at 448; Forster v Jododex Australia Pty Ltd (1972) 127 CLR 421 at 437; University of New South Wales v Moorhouse (1975) 133 CLR 1 at 9–10; The Commonwealth v Sterling Nicholas Duty Free Pty Ltd (1972) 126 CLR 297 at 305.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr J. E. Middleton Q.C. with Mr S. Anderson S.C. | Corrs Chambers Westgarth |
| For the Defendant | Mr M.D. Wyles with Mr A. T. Strahan | Mallesons Stephen Jaques |
TABLE OF CONTENTS
Introduction................................................................................................................................... 1
The Dealership Agreement.......................................................................................................... 2
The relevant conduct by Telstra.................................................................................................. 7
Evidence of the “matrix” of fact................................................................................................ 10
Construction issue: the parties’ contentions........................................................................... 13
Construction issue: legal principles......................................................................................... 14
Construction issue: ambit of sub-clause 4.1(j)......................................................................... 14
Analysis of the existing dispute and application of sub-clause 4.1(j) and 4.1(p)............... 18
Relevance of “matrix” evidence................................................................................................ 20
The declaration remedy – The Dealer's claim and Telstra's counterclaim......................... 20
Conclusion.................................................................................................................................... 25
HIS HONOUR:
Introduction
The plaintiff, Mobileworld Operating Pty Ltd (“the Dealer”), carries on business, amongst other things, as a commission representative for the defendant, Telstra Corporation Limited (“Telstra”), in relation to mobile phone connections. The Dealer conducts business under or by reference to the names “Crazy John’s” and “Mobileworld”.
Telstra and the Dealer are parties to an agreement entitled “GSM/CDMA Mobilenet Dealership Agreement” which is dated 10 January 2003 (“the Dealership Agreement”).
In mid-2005 Telstra asserted to the Dealer that if it opened new stores without seeking Telstra’s approval in accordance with what was described as “Telstra’s Channel Location Policy” then it would be in breach of its contractual obligations in the Dealership Agreement. The Dealer did not accept that that was so, and on 11 October 2005 issued this proceeding. The relief then sought was a declaration that it was not required by the terms of the Dealership Agreement to obtain Telstra’s consent to open and operate new retail premises.
There is a proceeding pending in the Federal Court which concerns a number of disputes in relation to the Dealership Agreement. In this proceeding the Dealer progressively narrowed the ambit of its claim, and the evidence upon which it proposed to rely, in order to eliminate any overlap with the Federal Court proceeding and resist an application by Telstra that this proceeding be transferred. I finally ruled on that transfer application on 16 March 2006, and immediately proceeded with the trial of this proceeding, in accordance with an indication I had previously given to Telstra that that course might be followed. The matter was not concluded on 16 March 2006 and the hearing was resumed and was concluded on 6 April 2006.
Shortly prior to the hearing on 16 March 2006 Telstra revised its position. By a facsimile transmission of 14 March 2006 to the Dealer it withdrew the Telstra Channel Location Policy, at least in so far as it applied to the Dealer. It then purported to give an order or instruction pursuant to a provision of the Dealership Agreement requiring the Dealer to undertake a notice procedure in relation to proposed new premises. The letter also stated that after compliance with that procedure Telstra might issue an instruction not to open proposed new retail premises.
In response to this development the Dealer amended its statement of claim so that it now seeks, amongst other relief, a declaration that it is not required by the terms of the Dealership Agreement to obtain Telstra’s consent to open and operate new retail premises or to obey any order or instruction from Telstra not to open or operate new retail premises. In its submissions the Dealer contended that the instruction or order in the letter of 14 March 2006 was not one permitted by the Dealership Agreement but that if I found to the contrary, it would comply with it.
Telstra contends that given the terms of its 14 March 2006 letter there is presently no dispute capable of determination by a declaration and that the relief sought should be refused on that ground.
The Dealership Agreement
Whilst there was some evidence led in the trial and a number of documents were tendered, the present dispute is essentially an issue of construction of the agreement.
Telstra says that the letters it has written were written pursuant to the terms of the agreement. In particular it relies upon two provisions of clause 4. Relevantly, the provisions are as follows:
“4.1 The Dealer will, during the term of this Agreement:
. . .
(j)act lawfully, loyally and in good faith to Telstra and obey its orders and instructions and, in the absence of any such orders and instructions in relation to any particular matter, act in such manner as it reasonably considers to be most beneficial to Telstra’s interests.
. . .
(p)comply with such marketing, administrative and practical procedures as are provided by Telstra to the Dealer from time to time including, but not limited to, any procedures or instructions specified by Telstra in relation to the allocation, reservation and grant of public telephone numbers or procedures or instructions required to ensure that Telstra’s privacy obligations are complied with . . .”
The focus of argument is upon the ambit of the words in sub-clause 4.1 (j) to the effect that the Dealer must “obey its orders and instructions”. Both the Dealer and Telstra rely upon other provisions of the Dealership Agreement in support of the constructions for which they respectively contend. They each also rely upon matters said to constitute the “matrix of fact”.
It is necessary to outline the provisions of the Dealership Agreement.
The agreement recites that Telstra is the holder of a carrier licence under the Telecommunications Act 1997 (Cth) and supplies a public mobile telecommunications service to the public generally in Australia. It recites that the parties have agreed that the Dealer will be appointed by Telstra “to promote the sale of, and extend the demand for, the Nominated Mobile Service in the Territory”. The “Nominated Mobile Service” is defined by reference to certain technical descriptions and the “Territory” is defined as Australia.
Clause 2.1 of the agreement provides for the appointment by Telstra of the Dealer “as a commission representative for Telstra in the Territory to promote the sale of, and extend the demand for, the Nominated Mobile Service in the Territory and the Dealer agrees to act in that capacity”.
Under clause 2.2 the Dealer accepts and acknowledges that its appointment is non- exclusive and that Telstra may appoint any other person in or outside the Territory in any capacity to promote the sale of, and to extend the demand for, the mobile service, and may itself promote the sale of, and extend the demand for, the mobile service in or outside the Territory.
Under clause 2.3 the appointment of the Dealer is said to confer on the Dealer “the right and obligation . . . to promote the sale of, and extend the demand for, the Nominated Mobile Service in the Territory”.
Clause 3.1 provides that the Dealer is an independent contractor and, subject to one specified exception, is not the agent, joint venturer, partner or employee of Telstra. The exception is provided for in clause 3.2 which provides that the Dealer is the agent of Telstra for the sole purpose of receiving completed Application Forms. The expression “Application Form” is dealt with by specific provisions to which I will refer.
Clause 4 is entitled “Dealer’s Obligations”. I have already referred to the obligations provided for in sub-clauses 4.1 (j) and (p). Pursuant to clause 4.1, the Dealer is also under other obligations, including the following:
●at all times to use its best endeavours to promote and extend the demand for the Nominated Mobile Service and the good-will of Telstra within the Territory (4.1 (a))
●to procure customers to purchase the Nominated Mobile Service (4.1(b))
●to provide and maintain suitable facilities and resources to adequately promote the sale of, and extend the demand for, the Nominated Mobile Service including “suitable retail premises from which the Business is conducted” (4.1(c))
●to develop and carry on satisfactory promotional programmes (4.1(d))
●to train its sales force to promote the sale of, and extend the demand for, the Nominated Mobile Service (4.1(e))
●to uphold and enhance the reputation of the mobile service (4.1(h))
●to furnish to Telstra such reports as Telstra requires in connection with its obligations (4.1(i))
●to permit persons authorised by Telstra to inspect and take copies of records (4.1(k))
●to use best endeavours to maximise the number of Connections (as defined) for the Nominated Mobile Service within the Territory (4.1(l))
●to comply with all procedures and instructions specified by Telstra from time to time in relation to customers who originate from outside Australia (4.1(t)).
Clause 4.4 sets out provisions in relation to Application Forms. This is important as the Dealer’s revenue is calculated by reference, amongst other things, to billings on connections arranged or procured by the Dealer.
Clause 4.8 provides for the possibility of the introduction of “voice signature” contracts with the consequence that clause 3.2 (agency re Application Forms) and clause 4.4 (detailed provisions re Application Forms) may not be appropriate. It then provides that Telstra may unilaterally amend clauses 3.2 and 4.4 so as to provide for such contracts provided that any such amendments “must not in any way . . . deprive the Dealer substantially of any benefits accruing to it pursuant to this agreement; or . . . impose any additional substantive obligations on the Dealer”.
Under clause 4.5 the Dealer is required to maintain sufficient staff and sales force to fulfil its obligations. Clause 4.5 (c) provides that the Dealer will from 12 months after the commencement of the agreement “operate at least 12 retail outlets in New South Wales”.
Pursuant to clause 4.6, the Dealer is prohibited from promoting Telstra’s service in any manner or on any terms “not expressly permitted” by the agreement, and is prohibited from promoting any other public mobile telecommunications service.
Provisions concerning remuneration are set out in clause 7 and in schedule 5. I was told in the course of the hearing that these provisions are confidential. It is unnecessary to refer to them, save to say that the Dealer’s revenue is, with certain qualifications, increased as the number of Connections which it arranges or procures increases.
There is provision in clause 7A for the Dealer to insist upon an audit of certain of Telstra’s records.
Termination is dealt with in clause 8, and intellectual property rights are dealt with in clause 9. There is an entire agreement provision in clause 11 and a provision that no provision of the agreement can be waived or varied except in writing in clause 13.
In addition to the provisions concerning instructions in sub-clauses 4.1 (j) and 4.1(p) which I have quoted above, there are a number of other provisions dealing with instructions or similar matters in the Dealership Agreement. Sub-clause 4.1(q) provides for instructions in relation to the display of marketing material. Sub-clause 4.1(r) provides for instructions in relation to the use by the Dealer of the term “Telstra MobileNet Premium Dealer”. Sub-clause 4.1(t), to which I have already referred, provides for procedures and instructions in relation to customers from overseas. Clause 5 contains provisions under which Telstra can give specifications, set requirements, or give instructions in relation to the use of certain equipment. Clause 6.2 provides for Telstra to give directions or instructions in relation to the disposal of a “MobileNet Access Card”. Sub-clause 7.1(e) and schedule 7 provide for Telstra to set requirements with which the Dealer must comply in relation to privacy issues concerning Customer Information (as defined).
There are only two provisions which expressly deal with the issue of the Dealer’s retail premises. They are the provisions to which I have already referred concerning “suitable retail premises” in sub-clause 4.1(c), and the obligation to maintain 12 retail outlets in New South Wales in sub-clause 4.5(c).
The relationship created by the Dealership Agreement contains an inherent source of tension.
On the one hand, the Dealer is a “commission representative” with a non-exclusive right to promote sales within the whole of Australia as an independent contractor. This aspect of the relationship was particularly emphasised in argument by counsel for the Dealer.
On the other hand, the Dealer’s obligation is to promote and extend demand for the service as a whole and it is subject to a variety of detailed reporting and other controls. This aspect of the relationship was particularly emphasised in argument by counsel for Telstra.
The relevant conduct by Telstra
Telstra maintains that there is no existing dispute which is a proper basis for the declarations sought. It was submitted in this respect that there is no evidence of any existing dispute in relation to any specific proposed store.
In the light of this submission it is necessary to set out Telstra’s correspondence upon the basis of which the Dealer submits that there is a relevant dispute capable of resolution in this proceeding.
By a letter of 30 May 2005 from Telstra to the Dealer, Telstra addressed previous correspondence and discussions regarding a proposal by the Dealer to open a Crazy John’s store in Shepparton. The letter included the following passages:
“For the proposed Shepparton store opening, Mobileworld did not submit to Telstra a formal request in writing prior to commencing preparations for the store opening. This is a requirement of your various dealership agreements and Telstra’s Channel Location Policy provided to you dated 17 June 2003. Telstra requires Mobileworld to adhere to this process for all future expansions of any point of presence.
Telstra’s dealership agreements and Channel Location Policy require all dealers to apply to Telstra for approval prior to undertaking any business expansion including any proposal to open a new dealership store. The process is designed to ensure a unified and co-ordinated approach to the management of Telstra distribution channels, both internal and external. The process also ensures transparency and fairness to all of Telstra’s channel participants.
Any proposal by a dealer is given timely consideration and reduces the risk of resources being committed to any proposal that may not ultimately be approved. As stated in the policy, Telstra is committed to working with dealers to determine the most appropriate location for Telstra-approved stores, however it is ultimately within Telstra’s discretion to decide where its products and services will be sold to customers.
. . . Based on discussions we believe Mobileworld intends to open other stores within regional Victoria and other parts of Australia. We have not received any formal written requests or applications for such openings and so in accordance with our agreements and Channels Location Policy those expansions are currently not approved. Therefore, Telstra suggests any further expansion plans for other sites should be halted, until a formal submission is made, the due processes followed and a formal decision advised by Telstra.”
By a letter of 30 September 2005 to the Dealer, Telstra addressed proposals to open new stores in locations in Queensland and Western Australia. That letter included the following passages:
“Crazy John’s has not sought Telstra’s prior approval to open these stores in accordance with Telstra’s Store Location Policy, or at all. Accordingly, if Crazy John’s were to open those new stores, it would be in breach of the contractual obligations set out in its dealership agreements that require such an approval. In response to your request, we previously have detailed the relevant provisions of these agreements.
. . .
Accordingly, if Crazy John’s commences operating a new store in Helensvale and/or Midland without seeking and obtaining Telstra’s prior approval under the relevant agreements:
●Crazy John’s will be acting in breach of its contractual obligations under its prepaid and postpaid mobile dealership agreements, its BigPond Dealership Agreement and its Retail Channel Agreements; and
●Crazy John’s will not be promoting and selling Telstra’s connections, products and services at this store with Telstra’s authority and under and in accordance with the terms of those agreements.
Telstra has not determined what action it may take if Crazy John’s were to open the above stores. We note however that such actions could include limiting or suspending the services supplied (and remuneration provided) by Telstra in relation to such store locations.
Telstra reiterates that if Crazy John’s intends to open any new stores, Telstra requires Crazy John’s to seek and obtain Telstra’s prior approval and authorisation under the relevant agreements.
Telstra reserves all of its rights in relation to these matters.”
The letter of 14 March 2006 to the Dealer from Telstra contained the heading “New retail premises opening process”. It defined the Dealership Agreement as the “2003 Agreement”. It contained the following passages:
“With immediate effect, Telstra withdraws its order and instruction which it gave to you by promulgation of the Telstra Channel Location Policy dated 17 June 2003 (“TCLP”). For the avoidance of doubt, the TCLP immediately ceases to apply to Crazy John’s from the date of this letter.
Pursuant to clause 4.1 (j) of the 2003 Agreement, Telstra hereby orders and instructs Crazy John’s to comply with the process set out below in relation to any proposed new retail premises of Crazy John’s from which Crazy John’s wishes to promote the sale of Telstra’s mobile services.”
The letter then set out a process for the provision of written prior notice of any proposed new retail premises, which notice must contain specified details including “a business case identifying the financial, marketing, business and operational analysis in relation to the proposed new retail premises”, and “any other information Telstra reasonably requires”.
The letter then contained the following passage:
“Telstra will review each new premises notices and will provide Crazy John’s with any relevant feedback within the 45 day period referred to above or, if a new premises notice is given by Crazy John’s within a shorter period of time before the Crazy John’s commitment, as soon as it is reasonably practicable for Telstra to provide such feedback (which may be before or after Crazy John’s commits to the new retail premises). The feedback may include an instruction by Telstra that Crazy John’s is not to open the proposed new retail premises, promote the sale of Telstra mobile services from the proposed new retail premises, or an instruction that the proposed new retail premises may only be opened or operated by Crazy John’s on specified conditions.”
It is difficult to resist the conclusion that the letter of 14 March 2006 was written with this pending proceeding in mind.
I was told in the course of an earlier directions hearing that Telstra has given the Dealer a termination notice pursuant to the terms of the Dealership Agreement as a consequence of which the dealership will terminate on 30 June 2007. The imminent termination of the arrangement was one of the reasons why I encouraged the parties to confine the dispute as much as possible and to seek to determine it as soon as possible. Telstra now submits that the previous dispute has been overtaken by events and that any issue between the parties is hypothetical.
Evidence of the “matrix” of fact
Documentary evidence was tendered by both sides and Telstra tendered extracts from three witness statements of Telstra officers to establish the “matrix of fact” existing when the Dealership Agreement was executed.
The documentary evidence was the following:
(a)Mobilenet dealership agreement dated 7 October 1991. This was the first agreement between the parties or their predecessors. Telstra relied on this agreement as being the first of the series of dealership agreements between the parties, all of which contain an obligation in some form to follow instructions. The obligation in this first of the agreements is contained in clause 4.4 (c) which relevantly provides that the dealer must at all times “follow all written instructions of Telecom in respect of the fulfilment by the dealer of its obligations under this agreement”.
(b)Agreement between Telstra and Mobileworld Communications (Aust) Pty Ltd dated 15 January 1999. This agreement contained a provision in the same terms as sub-clause 4.1(j) of the Dealership Agreement. Telstra relied upon the presence of such a term throughout the series of dealership agreements between the parties or their related entities.
(c)Dealership agreement between Telstra and the Dealer and others dated 2 December 1999. This agreement also contained a provision in the same terms as sub-clause 4.1(j) of the Dealership Agreement.
(d)Prepaid product agreement terms and conditions dated 15 December 1999. No reference was made to this agreement in the final submissions.
(e)Deed of variation dated 7 February 2001. This deed varied the dealership agreement dated 2 December 1999. The Dealer relied upon the terms of this deed. The deed provided for additional incentives to the Dealer described in schedule 9 as a “New Store Funding Program”. Under these provisions Telstra agreed to reimburse the Dealer certain expenses in relation to the establishment of certain “New Stores”. A “New Store” was defined as a store “which has been approved by Telstra in accordance with its usual procedures for such matters, as advised to the Dealer from time to time”. Counsel for the Dealer relied on this provision as showing that when the parties intended that there should be Telstra approval of new stores they provided for it expressly, and also as showing that the parties contemplated that there might be new stores which were not approved and accordingly which would not qualify for the New Store Funding Program. Counsel for Telstra submitted that the provisions were of no assistance as they were specific to a particular special incentive programme which was to be permanently provided for pursuant to the deed. No one suggested that a requirement for Telstra approval of new stores was a permanent feature of the Dealership Agreement in issue before me. Absent an instruction or order, there is no requirement in the Dealership Agreement to obtain Telstra’s approval of a new store. Accordingly, Telstra’s counsel submitted, the deed provisions are of no assistance.
(f)Channel agreement dated 24 April 2001. No reference was made to this agreement by either party in final submissions.
(g)BigPond dealer agreement dated 1 January 2002 (“the BigPond Dealer Agreement”). Under this agreement Telstra appointed the Dealer as the non-exclusive distributor of specified internet products. Clause 2 of the agreement contains the following provisions:
“2.1Telstra appoints the Dealer as a non-exclusive distributor of the Products in the Territory.
2.2The Dealer may only sell the Products to customers from the individual premises specified in Schedule 2 or otherwise agreed in writing between the parties.”
Schedule 2 contains a list of premises. Counsel for the Dealer relied on this agreement as being another indication that where the parties intended that Telstra should approve the premises from which business is to be conducted the agreement expressly so provided. Counsel for Telstra’s response was essentially the same as that given in relation to the similar submission based upon the deed of variation. In addition, counsel for Telstra pointed to the fact that the nature of the appointment under the BigPond Dealer Agreement is different to that under the Dealership Agreement. Under the BigPond Dealer Agreement the Dealer is a distributor of the products. Under the Dealership Agreement it is a commission agent authorised to accept applications, it does not sell products.
(h)Dealership agreement dated 22 February 2002. This agreement contained a provision in the same terms as sub-clause 4.1(j).
(i)A series of e-mails forming part of the negotiations between the parties in relation to the terms of the Dealership Agreement and 10 prior drafts of that agreement. A submission on Telstra’s behalf was foreshadowed that it would contend that the first draft of the Dealership Agreement was prepared by the legal advisors of the Dealer. No such submission was made in the final oral submissions. In any event, the material tendered shows that the process was essentially one in which amendments to the prior dealership agreement were negotiated. The negotiation material tendered also shows that sub-clause 4.1(j) in the Dealership Agreement was not the subject of any specific negotiation prior to the execution of that agreement. Telstra relied on this together with the fact that the same term had existed in prior agreements since 1999, and what was submitted to be a relevantly similar term since 1991.
Telstra also tendered extracts from three witness statements. These extracts were tendered without objection and counsel for the Dealer did not seek to cross-examine.
The witness statements were from two Telstra employees, Rowan James Bardwell who is now “Telstra Business Development Manager (Handset Sales)”, but was between May 2003 and late September 2005 the “Telstra National Account Manager for Mobileworld Operating Pty Ltd”, and two statements of Stephen Scott Eyears who is now “Lead, Indirect Dealer Channel, Customer Sales and Services in the Telstra Consumer and Marketing Group”
The substance of the evidence relied upon was that since 1993 Telstra has had in place a system under which dealers need to obtain a “dealer code” prior to opening a new store. Telstra’s system has required development of a “commercial case” before a new dealer code would be issued. The “commercial case” is developed by Telstra officers in “conjunction with” the relevant dealer. The issue of a new dealer code is then considered by a committee within Telstra which can recommend approval or recommend against approval. Whilst the committee was “restructured” in 2004, the process by which dealers apply for a “dealer code” has been in place since 1993.
Construction issue: the parties’ contentions
Telstra’s letter of 14 March 2006, which constitutes the order or instruction said to be now operative, relies only on sub-clause 4.1(j). In the hearing before me Telstra also relied upon sub-clause 4.1(p). The focus of attention, and the principal construction issue raised in the proceeding, concerned sub-clause 4.1(j).
At first, Telstra contended that sub-clause 4.1(j) provides for orders or instructions on any subject with the only limitation being capriciousness, bad faith and the like. In argument, it seemed to me that counsel for Telstra conceded that such an approach was too wide.
The construction for which Telstra eventually contended was that the sub-clause provides for orders or instructions on any subject provided they are consistent with the express terms of the Dealership Agreement.
Counsel for the Dealer contended for a more limited construction of sub-clause 4.1(j). Initially it was suggested that the instructions or orders are to be confined to operational matters. In the course of argument, the Dealer’s counsel contended the correct construction was that sub-clause 4.1(j) provides for orders or instructions of an operational nature which fill out or give meaning to other obligations in clause 4.
Other more narrow constructions might be suggested. It might be suggested that the orders or instructions referred to are the orders or instructions otherwise expressly provided for in the Dealership Agreement and/or that the orders or instructions referred to must be confined to issues of lawfulness, loyalty or good faith. The Dealer did not contend for these narrower constructions.
Construction issue: legal principles
A number of authorities were cited on the legal principles to be applied in construing the Dealership Agreement. The applicable principles have been summarized by Dodds-Streeton J in two recent decisions.[1]
[1]Unique Lifestyle Investments Pty Ltd v Robertson and Anor [2005] VSC 347 and Anberton Pty Ltd v Buller Ski Lifts Pty Ltd [2006] VSC 106 at [40] – [47].
There was no controversy as to the principles to be applied. Relevantly they are:
(a)In the absence of ambiguity, the language of the agreement, construed in its total context, must be given its usual every day meaning.
(b)Where there is ambiguity, it is permissible to have regard to extrinsic evidence.
(c)The law generally favours a commercially sensible construction.
(d)While evidence of each party’s subjective intention is inadmissible, evidence of the objective background facts notorious or known to the parties (including purposes and assumptions on which the parties have concurred in negotiations) is admissible.
Construction issue: ambit of sub-clause 4.1(j)
Read in isolation, sub-clause 4.1(j) might be capable of bearing a range of meanings. Those contended for by the parties, or suggested by me, are the following:
(a)It merely records an obligation to obey instructions or orders otherwise provided for in the agreement.
(b)It provides for instructions or orders only as to matters of lawfulness, loyalty or good faith.
(c)It provides for instructions or orders confined to operational matters.
(d)It provides for instructions or orders of an operational nature which fill out or give meaning to other obligations in clause 4.
(e)It provides for instructions or orders on any subject provided they are consistent with the express terms of the Dealership Agreement.
(f)It provides for instructions or orders on any subject, the only limitations being capriciousness, bad faith and the like.
No party contended for (a) or (b). The Dealer began with (c) and ended with (d). Telstra began with (f) and, it seems to me, ended at (e).
Construction (f) is too wide. If such an approach were adopted, Telstra could give an instruction having the effect of varying the remuneration arrangements in clause 7 and schedule 5, or could instruct the Dealer to cease business. This cannot be correct.
Construction (c) became subsumed in construction (d) in the course of the Dealer’s submissions.
Construction (d), the one contended for by the Dealer, amounts in my view to a re-writing of the sub-clause. The words of sub-clause 4.1(j) are not limited to issues of an “operational” nature however that might be defined, or to matters dealt with in clause 4. If that construction were to be adopted then, as was submitted by counsel for Telstra, the court would be re-writing the sub-clause or implying limitations into the clause which the words themselves do not express in circumstances where the requirements for the implication of terms have not been established.
Construction (e), the one eventually contended for by Telstra, seems to me to be still too wide. One of the principal objects of the contract is the conduct by the Dealer, as an independent contractor with its own staff and premises, of its own business within the entire territory of Australia. This object is particularly reflected in the Dealer’s status as a commission representative in clause 2.1(b), the fact that the Dealer is non-exclusive and will compete with other Dealers and with Telstra itself as provided for in clause 2.2, the right and obligation which the Dealer has to promote the sale of the mobile service throughout the whole of Australia as provided for in clause 2.3, and the Dealer’s status as an independent contractor as provided for in clause 3. The express provisions in the agreement dealing with premises also emphasise the Dealer’s independence. Clause 4.1(c) provides that the Dealer must have “suitable retail premises” but imposes no obligations on the Dealer concerning the facilities or resources which the Dealer must bring to bear, other than that they must be suitable to “adequately promote” the mobile service within Australia. Clause 4.5(c) requires the Dealer to operate at least 12 retail outlets in New South Wales but the agreement otherwise does not expressly regulate the number or location of the Dealer’s retail premises within the “Territory”, which is the whole of Australia.
Clause 4.8 dealing with Telstra’s power to unilaterally amend the agreement so as to provide for “voice signature” contracts is of significance. Clause 4.8 provides that such unilateral amendments must not deprive the Dealer substantially of any benefits accruing to it under the agreement or impose any additional substantive obligations on the Dealer. In my view it cannot be that a consequence Telstra cannot produce if amending unilaterally, could be produced by an instruction or order.
Telstra’s counsel particularly relied upon the obligation which the Dealer has in clauses 2.1 and 2.3 to promote the sale of, and extend the demand for, the mobile service as a whole, being Telstra’s entire service not just that aspect of the service referable to the Dealer’s own activities. In this respect Telstra also relied upon the latter words of sub-clause 4.1(j) whereby the Dealer is required to act in the manner it reasonably considers to be most beneficial to Telstra’s interests, and upon the detailed reporting and other obligations of the Dealer under the agreement.
The Dealer’s obligation is to promote the service as a whole and act in the manner most beneficial to Telstra’s interest, but this cannot mean that the Dealer is not permitted to act in its own interest. The very general terms of this broad obligation must be read consistently with the specific and express terms pursuant to which the Dealer is a commission representative operating an independent business.
The agreement should be construed in a commercially sensible manner.
In order to construe sub-clause 4.1(j) in a commercially sensible manner in the context of the Dealership Agreement as a whole, the instructions and orders referred to must be instructions and orders, not about any subject, but about obligations which the Dealer has under the Dealership Agreement. They must fill out or give meaning to that which the Dealer has agreed to do.
Further, in order to be consistent with the express terms of the Dealership Agreement, an instruction or order cannot deprive the Dealer substantially of benefits otherwise expressly provided for, or impose on the Dealer a substantive obligation not otherwise provided for. I cannot accept that what Telstra has “given” the Dealer by express and specific terms can be unilaterally “taken away” by orders or instructions under the general words of sub-clause 4.1(j).
My conclusion is that the correct construction of sub-clause 4.1(j) is that it provides for orders or instructions which fill out or give meaning to the obligations of the Dealer under the Dealership Agreement, but which do not deprive the Dealer substantially of any benefits accruing to it as expressly provided for in the agreement, or impose any additional substantive obligation on the Dealer.
Analysis of the existing dispute and application of sub-clause 4.1(j) and 4.1(p)
The requirements which the relevant letters seek to impose, or to which they refer, do not fall under sub-clause 4.1(p). They are not properly characterised as marketing, administrative or practical procedures. No oral submission was made by Telstra in support of the proposition that Telstra’s conduct was properly undertaken pursuant to sub-clause 4.1(p).
Telstra’s requirement that all new premises be approved pursuant to a specified Telstra policy as set out in the letters of 30 May 2005 and 30 September 2005 was unqualified. It seems to me that these letters were founded upon an assumption that Telstra could properly prohibit the opening of new premises for any reason that commended itself to Telstra. That was indeed the substance of Telstra’s construction of the Dealership Agreement as originally put to me.
The letter of 14 March 2006 purports to withdraw the prior requirements and to impose upon the Dealer an obligation to give Telstra prior written notice in relation to proposed new retail premises and to set out specified details in that notice including a “business case” and “any other information Telstra reasonably requires”. More significantly, the letter then advises the Dealer that Telstra’s response to the notification may include an instruction that the Dealer is not to open the proposed new retail premises or an instruction that the proposed new retail premises may only be opened on specified conditions.
It seems to me that Telstra still asserts a contractual entitlement to impose upon the Dealer an obligation to comply with a procedure specified unilaterally by it before opening new retail premises, and an obligation not to open those premises if Telstra does not approve of them and instructs the Dealer accordingly.
Counsel for Telstra submitted that the instruction or order in the 14 March 2006 letter did give meaning to or fill out existing obligations in the Dealership Agreement because of the Dealer’s existing obligations to promote the service as a whole and to act in the manner most beneficial to Telstra’s interests. Reference was made to clauses 2.1, 2.2, 2.3, 4.1 and 4.6. Telstra’s submission also referred to the fact that promotion of the service as a whole, and Telstra’s best interests, might be advanced by regulation of the nature and extent of competition between the retail premises of different dealers and its own retail premises.
Do Telstra’s instructions fill out or give meaning to existing obligations? Do they deprive the Dealer substantially of benefits under the agreement? Do they impose additional substantive obligations on the Dealer?
Telstra’s submission that its instructions fill out the obligation to promote the service as a whole, could only be accepted if there was evidence establishing a relationship between the instructions and the obligation. No such evidence was led. It might be assumed that Telstra at least sees the instruction as being in its best interests. Again, however, this issue was not the subject of any evidence.
When consideration turns to the other questions raised, the position seems to me to be clear.
The Dealership Agreement gives the Dealer the right to promote the mobile service throughout Australia as an independent contractor. It does not regulate the number or location of the Dealer’s retail premises, save for the requirement that there be 12 premises in New South Wales after the first 12 months. It requires only that they be suitable to adequately promote the service. The Dealer exercises its right to promote the service by operating its own business as an independent contractor with its own staff and other resources.
In my view the regime Telstra has sought to impose, in each of its two manifestations, would, if valid, substantially deprive the Dealer of an important aspect of its independence, being its ability to finally decide on the location of its retail premises. Telstra’s purported instructions detract from the benefits the Dealer has as an independent contractor as they reduce the Dealer’s capacity for independent planning and action on an important issue.
Telstra’s counsel accepted that absent an instruction or order the Dealer is under no obligation to obtain Telstra’s approval before opening a new store. Telstra now maintains that it can, by an instruction, require notice in a specified form of any proposed new premises, and it can then, by a further instruction, prohibit the opening or impose conditions on it. If valid, this regime would constitute a substantial new obligation imposed on the Dealer.
My conclusion is that neither the letters in 2005, nor the letter of 14 March 2006, are valid instructions or orders in accordance with sub-clauses 4.1(j) or 4.1(p), and the Dealer did not, and does not, have to comply with them.
Relevance of “matrix” evidence
In my view this is a case of generality, requiring construction of the relevant provisions in the context of the agreement, not ambiguity. The extrinsic material is accordingly only of assistance in providing a factual background.
If I am wrong, and this is a case of ambiguity, it seems to me that the extrinsic material is of some assistance in that it demonstrates that approval or specification of retail premises is an important issue upon which the parties have negotiated express terms where they saw that to be necessary. It is most unlikely, it seems to me, that their mutual intention would have been that the regulation of such an issue was to be left to the unilateral discretion of Telstra through the use of instructions or orders under sub-clause 4.1(j).
The fact that sub-clause 4.1(j) has been present in predecessor agreement between these parties and that it was not the subject of specific negotiation in the Dealership Agreement does not seem to me to assist.
The declaration remedy – The Dealer's claim and Telstra's counterclaim
Telstra submitted that the declarations sought by the Dealer ought not to be granted as they would constitute advisory opinions about an event which may never happen, there being no instruction by Telstra at present that the Dealer is not to open any specific store. Telstra also submitted that the factual basis for the declaration was hypothetical.
The relevant relief which the Dealer seeks is as follows:
“A.A declaration that the plaintiff is not required by the terms of the Dealership Agreement to obtain the defendant’s consent to open and operate new retail premises or to obey any order or instruction from the defendant to not open or operate new retail premises.
AA.A declaration that pursuant clause 4.1(j), further or alternatively clause 4.1(p) of the 2003 Agreement the defendant is not entitled to give the plaintiff a direction or instruction requiring the plaintiff to seek and obtain the approval of the defendant to open new retail premises from which the plaintiff wishes to conduct business.
BB.A declaration that the plaintiff will not be in breach of clause 4.1(j), further or alternatively clause 4.1(p) of the 2003 Agreement if it opens new retail premises without the defendant’s prior approval or without giving the defendant prior notice.
CC.A declaration that pursuant to clause 4.1(j), further or alternatively clause 4.1(p) of the 2003 Agreement, the defendant is not entitled to control, by granting or refusing its permission, the location of retail premises from which the plaintiff conducts business.”
The declarations in AA, BB and CC reflect the converse of declarations sought by Telstra in its counterclaim prior to its amendment, to which I refer below.
A number of authorities were relied upon or cited by counsel for the parties in this context. The relevant principles seem to me to be the following:
(a)A court should not give a declaratory judgment unless it is based on facts found or agreed.
Bass v Permanent Trustee Co Ltd[2] ("Bass").
[2](1999) 198 CLR 334 at 357
(b)The essential elements of a controversy fit for judicial settlement by declaration are that the question must be real and not theoretical, that the person raising it must have a real interest to raise it, and that there must be a proper contradictor with a true interest to oppose the declaration sought.
Russian Commercial and Industrial Bank v British Bank for Foreign Trade Ltd[3].
[3][1921] 2 AC 438 at 448
Forster v Jododex Australia Pty Ltd[4].
University of New South Wales v Moorhouse[5].
Bass[6].
(c)The court may, in an appropriate case, declare conduct which has not yet taken place not to be in breach of contract or the law.
The Commonwealth v Sterling Nicholas Duty Free Pty Ltd[7].
Bass[8].
[4](1972) 127 CLR 421 at 437
[5](1975) 133 CLR 1 at 9–10
[6](1999) 198 CLR 334 at 355-357
[7](1972) 126 CLR 297 at 305
[8](1999) 198 CLR 334 at 356
The Dealer has established the fact that Telstra has, by its letters in 2005 and by its letter of 14 March 2006, asserted a contractual entitlement to exercise final control over new premises which the Dealer proposes to open. There is nothing hypothetical about that aspect of the dispute.
The argument as to whether Telstra can validly insist on these requirements and as to whether the Dealer will be in breach of contract if it ignores them is real and not theoretical. The Dealer has a real interest to raise the issue. Telstra has vigorously contested the point.
Declaratory relief should be granted. It should be to the effect that Telstra’s instructions given or referred to in its 2005 letters, and given in its letter of 14 March 2006, were, and are, not given in accordance with the Dealership Agreement and the Dealer would not have been, and will not be, in breach of contract if it ignores them.
The instructions given or referred to in the 2005 letters remain relevant and remain a proper subject for a declaration. It seems that these letters sought, in substance, to impose as a contractual obligation the manner in which Telstra’s “dealer code” application system generally works in practice. On the evidence before me, Telstra still employs this system. Whilst it has withdrawn the “TCLP” for the Dealer, it does not concede that its attempt to impose it was not justified by the agreement, and it is a necessary conclusion from its submissions that it considers it could re-impose it whenever it sees fit.
Telstra’s amended defence and counterclaim relevantly seeks the following relief (I have left in the paragraphs deleted by amendment to demonstrate why AA, BB and CC of the Dealer’s claim to relief are in the terms which they are):
“
A. A declaration that pursuant clause 4.1(j) further or alternatively clause 4.1(p) of the 2003 Agreement Telstra is entitled to give Crazy John’s a direction or instruction requiring Crazy John’s to seek and obtain the approval of Telstra to open new retail premises from which Crazy John’s wishes to conduct business.
B.A declaration that Crazy John’s will be in breach of clause 4.1(j), further or alternatively, clause 4.1(p) of the 2003 Agreement if it opens new retail premises without Telstra’s prior approval.
C.A declaration that pursuant to clause 4.1(j), further or alternatively clause 4.1(p) of the 2003 Agreement, Telstra is entitled to control, by granting or refusing its permission, the location of retail premises from which Crazy John’s conducts business.A.A declaration that pursuant to clause 2.2 of the Big Pond Agreement Crazy John’s requires the written agreement of Telstra to sell the Big Pond products to customers from premises not specified in Schedule 2 of the Big Pond Agreement.
B.A declaration that by reason of the terms of the 2003 Agreement, at all material times in determining where to locate and open new retail premises for the purpose of promoting the sale of or extending the demand for Telstra’s Mobile Services, Crazy John’s –
(a)is required to have regard to, and only have regard to, how best to promote the sale of and extend the demand for Telstra’s Mobile Service under and during the term of the 2003 Agreement;
(b)cannot have regard to the use of the proposed new retail premises by Crazy John’s, to supply mobile telephone services in competition with Telstra, or to pursue business and commercial ends not in the best interests of Telstra, either during or after the term of the 2003 Agreement.”
In final submissions Telstra put forward a revised version of B in these terms:
“A declaration that by reason of the terms of the 2003 Agreement, at all material times in determining where to locate and open new retail premises for the purpose of promoting the sale of or extending the demand for Telstra’s Mobile Services, Crazy John’s –
(a)is required to have regard to, and only have regard to, how best to promote the sale of and extend the demand for Telstra’s Mobile Service under and during the term of the 2003 Agreement;
(b)must select proposed store locations based on what it reasonably considers to be most beneficial to Telstra’s interests;
(c)must not select store locations based on its own interests, where its own interests would conflict with those of Telstra;
(d)cannot have regard to the use of the proposed new retail premises by Crazy John’s to supply mobile telephone services in competition with Telstra, or to pursue business and commercial ends not in the best interests of Telstra, either during or after the term of the 2003 Agreement.”
Telstra has not established that there is any existing dispute as to any of the matters which are the subject of the declarations it seeks. The Dealer itself asserted the correctness of the matter set out in A, as part of its case as to the matrix of fact. The declaration in B, in both its forms, amounts to a re-formulation of the contractual provisions in what is, at least on the material before me, a factual vacuum. There may be some issue underlying this claim, but it is not revealed by the evidence before me. There has been no relevant controversy revealed before me on any of these matters, either in the evidence or in argument.
The relief claimed by Telstra should not be granted.
Conclusion
In conclusion, the Dealer should be granted declaratory relief, but the declaration should be confined to the factual basis established in relation to it, being Telstra’s two letters in 2005 and the letter of 14 March 2006. I will hear the parties on the form of that declaration.
Telstra’s counterclaim will be dismissed.
I will also hear the parties on any further orders required to give effect to these reasons and upon the issue of costs.
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