Primus Telecommunications Pty Ltd v Kooee Communications Pty Ltd

[2012] HCATrans 66

[2012] HCATrans 066

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Melbourne  No M138 of 2011

B e t w e e n -

PRIMUS TELECOMMUNICATIONS PTY LTD (ACN 071 191 396)

Applicant

and

KOOEE COMMUNICATIONS PTY LTD (ACN 001 341 331)

Respondent

Application for special leave to appeal

HAYNE J
KIEFEL J

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON FRIDAY, 9 MARCH 2012, AT 10.28 AM

Copyright in the High Court of Australia

MR R.M. GARRATT, QC:   If the Court please, I appear with my learned friend, MR D.A. PRIESTLEY, for the applicant.  (instructed by Browne & Co Solicitors & Consultants)

MR N.C. HUTLEY, SC:   If your Honours please, I appear with my learned friend, MR J.G. DUNCAN, for the respondent.  (instructed by Aleco Vrisakis)

HAYNE J:   Yes.  Yes, Mr Garratt.

MR GARRATT:   At trial there were two competing hypotheses in this case; either the DigiPlus offer by B Digital was sham and telephony services were not available to Kooee on a basis that gave Kooee 18 per cent of the gross revenue or the DigiPlus offer was genuine.  In respect of the sham hypothesis, there was a fallback position; if the initial offer was genuine, supply on those terms ceased to be available by at least the end of November 2004.  If the offer was genuine, there was no misleading conduct, no reliance and no loss.  The trial judge found for hypothesis one.  He said, “the true position was that B Digital was not at any time prepared to proceed with the offer” of supply on 18 per cent terms which was not capable of being executed.

HAYNE J:   What paragraph is that?

MR GARRATT:   That is at paragraph 48 and 49 of the judgment below at application book 18.  Accordingly, he said, the offer had been “misleading and deceptive”.  This conclusion necessarily entailed rejecting the evidence to the contrary of the only lay witness called by Kooee, its chief executive officer, Mr Simmons.  In cross‑examination it was put to him the DigiPlus offer was not a genuine offer and that it was a contrivance, and the repetition of that evidence at trial to the Full Court is to be seen at application book 178.

HAYNE J:   Just before you part from paragraph 49 of the trial judge, is the reasoning that is there displayed “terms on offer were not capable of being executed” therefore “not a genuine offer.”  Is that what is being said?

MR GARRATT:   No.  We would say it encompasses more than that.

HAYNE J:   How?

MR GARRATT:   If one takes into account the earlier proposition in paragraph 48 that B Digital “was not prepared at any time to proceed with the offer”.  So not only was it not capable of being executed, there was no intent or willingness to proceed with it.  Mr Simmons’ evidence in relation to the sham offer was most unsatisfactory.  He could not give a satisfactory account of Mr Kotzohambos’, the person he was dealing with, supposed involvement in its preparation.  He claimed that either Pitt Capital or Baker & McKenzie were involved in the drafting but could not understand the follow up question, he said, whether Pitt Capital was involved in the drafting.  His evasion was such as to induce the trial judge to ask what the difficulty was in answering the question.  This evidence was repeated to the Full Court, and one sees that at application book pages 176 to 177.

HAYNE J:   But does the trial judge make any finding about the credibility of the witness concerned?

MR GARRATT:   Not in those terms.

HAYNE J:   Or at all?

MR GARRATT:   We would say it is necessarily implicit in his finding that there was no intention at any time to proceed with an offer, that he is rejecting the only evidence given in support of it, which was by the only lay witness, that ‑ ‑ ‑

KIEFEL J:   Well, that is the inference his Honour draws, that it was not prepared to proceed.  Where are the facts from which the inference is drawn?

MR GARRATT:   The only evidence given in support of the offer was from Mr Simmons and he could not account for its preparation in any adequate way.  His evidence was that he had in fact drafted the offer of DigiPlus.  He had said that Mr Kotzohambos was involved but could not point to any communication with him.  He had said that Pitt Capital was involved but could not explain how and when or why.  He had been evasive.  He was then challenged that this was a contrivance and not genuine.  He at first evaded that question and then he partially admitted that it was an evasion.

So, there was ample material, in our submission, for the trial judge to reach the conclusion that he did, and the question for the Full Court was simply, was there material on which the trial judge could have reached that conclusion?  It is not correct to say, as the Full Court did, that Primus did not suggest that Mr Simmons’ evidence should not be accepted.  That evidence was necessarily challenged to the extent that it supported the hypothesis that the DigiPlus offer was genuine.

HAYNE J:   Was it submitted to the Full Court that this was a case which – or the factual determinations in which depended upon assessment of witnesses?

MR GARRATT:   Yes.  It was said the offer was not genuine and one had to see and hear the witnesses.

HAYNE J:   That is a rather different proposition, I think, Mr Garratt, that the offer was not genuine, is it not?

MR GARRATT:   It was said, your Honour, that one had to have seen the witnesses and the evidence of Mr Simmons was unsatisfactory.  That is a direct attack on that evidence given in support of the offer being genuine.  It was the only evidence in support of it.

KIEFEL J:   But, in a way, you are saying then that the case was something rather more than misleading and deceptive conduct in what was conveyed by the representation of the offer.  You are saying that the case was necessarily one which depended upon the subjective intention of one of the officers of the company.

MR GARRATT:   In part, but it was based also on objective matters because the offer came into being as a result of what Mr Simmons did and said he had done in conjunction with Mr Kotzohambos.

KIEFEL J:   But how is that relevant to a misleading and deceptive conduct case?

MR GARRATT:   Well, the question really was whether the offer was a genuine offer or not and the evidence indicated that it was not.  So conveying that offer subjectively had to be misleading in the circumstances of this case.

HAYNE J:   Do we find in the Full Court any direct either recording of dealing with the proposition that the offer was a sham?

MR GARRATT:   Yes.

HAYNE J:   Where?

MR GARRATT:   The Full Court begins that treatment under – in the Full Court the court deals first with uncontested matters and then deals with disputed facts, beginning at application book 59, and one sees, in paragraph 64, the court identifying six matters that were advanced in relation to the offer not being genuine.  You will see that conclusion being addressed in paragraph 65 and following.  There was a treatment over many pages that followed of that proposition, but it is treated, as the Full Court itself says, on the basis that there was no challenge to the evidence of Mr Simmons and that simply is not correct.

KIEFEL J:   In that regard, what do you say about paragraph 84 of the Full Court judgment?

MR GARRATT:   It is simply not so.  It is simply not correct, and if I can take your Honour to the transcript of the application hearing.  It is in several places, but if one goes to application book 120 at line 45:

Ultimately there was a fairly simple sequence of events . . . You have, or will have, the total evidence.  You will see that in most cases it comes down to a simple, “Do I accept that or not?” consequence.  And so this court will, as far as the documents and the transcript are concerned, be in the same position as the trial judge.  You will not, of course, be in the same position as the trial judge in terms of having seen Mr Simmons give his evidence.  But, when you see the evidence on the transcript, you will be in no doubt, it will be our submission, that he could frankly not give satisfactory explanations –

Then at 122 at line 24:

GILMOUR J:   You’re not suggesting that there’s any evidence that the offer when it was made wasn’t genuine?

MR GARRATT:   Absolutely we are, and I will take you to it. 

Now, accordingly, the statement that Mr Simmons’ evidence should not be accepted simply was not a correct basis upon which to resolve the appeal.  It demonstrates the erroneous basis upon which the Full Court proceeded.

HAYNE J:   Did your side submit to the Full Court that the only proper order in the appeal was to remit it for further hearing if the appeal was allowed?

MR GARRATT:   No, we said the appeal should be dismissed because there was evidence ‑ ‑ ‑

HAYNE J:   I understand that, but was the question of remitter for retrial ever raised?

MR GARRATT:   Was it raised?  No.

HAYNE J:   How is that consistent with the propositions you now advance?

MR GARRATT:   Entirely, your Honour.  We had the benefit of the judgment.  The judgment expressed conclusions.  The reasons were sparse.  We were not wanting to upset the judgment.  We were content with it.  It was for the respondent to ask for further reasons if it was dissatisfied, either before judgment was entered at first instance or in the appeal by way of remitter or rehearing.

KIEFEL J:   The practice of asking for further findings seems to be one that is lost these days.  People just do not do it.

MR GARRATT:   Well, one does not encounter it often, but it is there and it is known that one can always ask a judge before judgment is entered for an explanation or further clarification of this or that finding.  The respondent did not do that.  The respondent called only one witness and was prepared only to call one witness to run its case with.  It did not call any of the Baker & McKenzie people or the Pitt Capital people or Mr Kotzohambos or anyone else.  They ran only with Mr Simmons.  They did not want a rehearing or a retrial.  They wanted the chance simply of rerunning their hypothesis before the Full Court. 

But the problem with that course is that the trial had necessarily entailed a choice between two hypotheses.  One is to a sham which the trial judge had upheld and, necessarily, that meant rejecting Mr Simmons’ evidence to the extent that it supported the notion that the offer was genuine and, therefore, the special leave question arises; to what extent can an appellate court, where the reasons below are inadequate but the issue involved issues of credit and resolution of conflicting evidence, to what extent can an appellate court engaged in a rehearing simply disregard credit issues?  It cannot, in our submission.

HAYNE J:   We have trawled through the principles more than once in recent years, Mr Garratt.  If there is a leave point, it is a visitation case, I would have thought.  It is either visitation or it is nothing, I would have thought.  The principles are well established, are they not?

MR GARRATT:   Well, at one level, yes, but, I must say, I am not aware in recent times, at least, of this Court engaging in that analysis or applying those principles in the context of inadequate reasons of a trial judge and what should happen in those circumstances.  In our submission, the proper principle is that the Full Court should simply have asked, was there evidence on which the trial judge could have reached that conclusion.  If there was, the appeal is dismissed.

HAYNE J:   That seems to rather cut down Fox v Percy, I would have thought, but there we are.  Perhaps I am mistaken.

MR GARRATT:   In a case of this kind, your Honour.  The issue of reliance that the Full Court identified was analysed on the basis that the offer was genuine.  They do not analysis that question on the premise that the offer was a sham.  In our submission, there was ample material to justify the conclusion of reliance.  Here Kooee needed two things which it could not get by working the agreement lawfully.  One, it needed to have the VSPA terminated, and one sees the Full Court reciting the evidence elsewhere that it was critical to the purchase proposal, that is the purchase of Kooee by B Digital, that the VSPA be brought to an end.  By no operation of the VSPA would serving a legitimate offer have brought it to an end.

The other thing that Kooee needed in order to proceed with its merger was an orderly transfer of customers, a voluntary, co‑operative, orderly transfer of customers, because otherwise its value was greatly implicated by the uncertainty.  It achieved that.  The Full Court said, well, it could have got information under the VSPA.  It could have, but it could not have got an orderly migration before the end of the VSPA and it must always have risked a disorderly migration or disputation, which would of course prevented the takeover happening, as was contemplated.  So there were real advantages sought to be achieved by the deception.  One can readily conclude that those advantages were achieved by inducing Primus to act in a way that it was not otherwise obliged to act.

KIEFEL J:   What do you say about the argument put against you that there is no utility in a grant of special leave given the findings of the Full Court in relation to reliance?

MR GARRATT:   We say, your Honour, that that is not so because the findings of the Full Court are premised only on the offer being valid.  The Full Court does not investigate the proposition accepted by the trial judge, if the offer is a sham and intended to induce what it ultimately induced, can it be said there was no reliance.  There plainly was, in our submission, because the offer was made in order to induce Primus to do something it did not have to do.  The other ground of inutility that is advanced is said to be in relation to damages issues. 

The Full Court revisited three issues of inference in relation to damages, but what is plain, especially if the appeal is succeed, is that component of the damages which was not under challenge would be restored in any event, which would be a judgment of the order of about $1 million.  As to the other three components, they are simply matters of inference from undisputed facts.  For those reasons we say there ought be a grant of special leave on this occasion.  The application, if granted, would lead to an appeal which would be useful.  If the Court pleases.

HAYNE J:   Yes, Mr Hutley.

MR HUTLEY:   As your Honours are aware, the claim under section 52 is formulated on four bases.  The four bases are identified in the judgment of the court at application book 37 in paragraph 3.  The courts turn to the first, (1) and (2), at paragraph 63, and I will come to that in a little while, at application book 59, to the third which is, in effect, as we understand it, the second point in the special leave application, at application book 74, paragraph 100 and, the fourth, at judgment 111, application book 80, which is really an aspect of the first and really suffered the same fate as the second for reasons. 

Now, the court, as your Honours know, rejected each element of the case, and we will return to the detail of that in a little while, but it is necessary firstly to say something about the issue of the reliance which is at judgment 116, application book 81, if I can take your Honours there for a moment.  The important point to note is that they disposed of this point, that is, found that there was no reliance, for the essentially simple reason is that the relevant decision‑maker was not called.  That was Mr Wilson.  He was the CEO.  The sole causation case, as your Honours know, was entering into the separation deed.  All the conduct which was said to be misleading resulted in the entering into the separation deed.  Mr Wilson was the managing director.  He had the decision‑making power to do it and there were many reasons why, as the court adverted to, he might well do it. 

One, particularly, as your Honours know from the judgment, one of the reasons this issue arose as to whether the offer, the purchase offer, should be made was whether, in the event of a takeover by DigiPlus, there would be a requirement where one would still be bound by the clause as to accessing one services from third parties.  It was common ground by the time of the trial that if there was a takeover, such access, such provision, would not apply to, as it were, intragroup supply. 

For all one knows, Mr Wilson took the view that none of this mattered at all because in the event of a takeover, because of his view as to the true construction of the agreement, there was nothing they could do to stop the supply of DigiPlus to Kooee.  So it is not correct to say, as my learned friend advanced, that the reliance point was tied up with the antecedent question of, as he characterises it.....it was completely distinct and that is why their Honours addressed it.  That is what removes the utility of the..... 

Unless your Honours entertain a grant of leave in respect of ground 1(e) which I think your Honours will find in the draft application book at page 94, which is the causation point, the appeal will be utterly futile and no ground has been advanced as to why your Honours would grant special leave about, essentially, what is a factual conclusion about the absence of the critical decision‑making in respect of the transaction and we say that that, with respect, would be the end of it concerning your Honours.  That is the first point. 

Could we then turn to the issues of substance antecedent to that, namely, the special leave questions.  As to the first question, we submit that the appeal before the Full Court was approached by both parties on the basis that the Full Court was perfectly capable and should dispose of the appeal by substituting its judgment for that of the trial judge.  In the entire transcript of my learned friend, which we have set out in the application book commencing at page 126 – sorry, the full transcripts commence at page 140 which goes for some 54 pages – together with the outline of submissions of our learned friends, which your Honours will see at application book 126 to 139, there is not one suggestion that the Full Court could not determine this issue.

The whole debate – and I am not going to trouble your Honour with it and it really has not been gainsaid by our learned friends – precipitated on the basis that the Full Court was fully seized of the matter and should deal with it.  The procedural history of this case has been somewhat unfortunate.  There have been battles in the Supreme Court, and your Honours no doubt are apprised of it, hardly surprising that parties would take the view that they would want to, at a certain point, bring the matter to an end.  It was so advanced to the Full Court.  The Full Court dealing with the detail of the matter, and particularly the statement at paragraph 84 which we submit was fully supportable by what transpired, and I will come to that in a moment, but taken and accepted by both parties that the matter should be dealt with, certainly by our learned friends, and by us, we wanted the matter resolved. 

Now, essentially, if your Honours were to grant special leave, the special leave would be – the first issue about error would take – the Court would be involved in trawling through the transcript to see whether the Full Court acted properly in acting on the basis of what transpired before it or whether a few sort of shadows passing over the horizon, which my learned friend picks out from the whole transcript, is such that the Full Court should have divined that they really, in effect, were wasting their time in considering this detail.  Once one passed the question that his Honour necessarily made a credit finding at first instance, if your Honours are going to interfere with it, that is a critical finding, there must be a new trial.

Now, your Honours, everyone has been in many appeals where that is, in effect, the beginning and ending of the debate.  If you are to challenge it, you have got to overcome the credit finding and if you do, it has got to go back and not once, over two days, was this ever mentioned.  In our respectful submission, it was not mentioned because that is the way the parties sensibly decided to conduct the appeal.  Now, there is regret, no doubt, that that has not worked to one party’s advantage, but the simple fact is that that is how it was conducted. 

I will not take your Honours through paragraphs 72 to 84 at application book 63 to 69 where the Full Court dealt in detail with the matters that they identified at paragraph 64 as being the six matters advanced by our learned friends as supporting the conclusion that the matters advanced in 63 were supportable, and it is important to take up an observation of your Honour Justice Kiefel to look at 63.  Paragraph 63 is expressed in terms of misleading and deceptive conduct, namely, that the “offer was not in fact available to Kooee”.  Now, that was a proposition of fact about the offer and everything which had been said by the trial judge at first instance, at paragraphs 48 and 49 at application book, I think, 18 to which your Honours were taken, was consistent really with a case being maintained.  Not that there was a fraud, but simply that there was misleading and deceptive conduct by the fact that an offer was available.

Now, one of the oddities of this is on no view was DigiPlus an offer which could be accepted by Kooee because it was subject to board approval.  It was conditional on any view.  But nothing in those formulations were token or necessitated fraud.  The matters adverted to by our learned friends in the six points in paragraph 64 were all objectively able to be dealt with without a determination one way or the other of Mr Simmons’ credit and it passes belief, in our respectful submission, if the heart of this case was – there was a seventh point – Mr Simmons was lying to the court when he advanced what he said that her Honour would not have been aware of that in clear terms. 

In fact, those six points, five of them come from a recitation by her Honour at the very end of the transcript – I am sorry, the joint judgment, I do apologise.  I was confusing Justice Jagot.  Justice Jagot asked my learned friend at page 181at about line 35, were they the entirety of the reasons advanced and my learned friend said “No, there was other reasons.”  They were never exposed.  Her Honour divined and her Honour set out five.  Her Honour divined the sixth, which was clearly developed by our learned friends.  But nowhere does anyone put in clear terms that this case was simply dealt with and a new trial was required because Mr Simmons was lying. 

Now, can I go shortly to the pages to which in our learned friends’ written submissions our learned friends had adverted to a number of passages where they say they laid down their case.  The first, as we understand it, is page 140 in the application book at lines 20 to 30.  Now, that was an observation, with respect, as to the difference of position between what was occurring in the appellate court and at first instance as a

matter of, in our respectful submission, theory.  One did not descend at any point thereafter into the details of the implications of it and, in one sense, true it is. 

One of the points that your Honours will have seen from paragraph 7 is that this case had a slight oddity – well, not a slight oddity, an unfortunate aspect, that whilst the trial judge had made findings, ultimate conclusions, he had really not made any findings of fact which would support those conclusions rather than setting out a series of submissions or contentions from the various parties.  It was against that background that the Full Court was perfectly entitled to take what Mr Garratt said at that paragraph, the line I took you to.  The next part of the transcript our learned friends referred to is lines 50 to 60 on that page, and it says:

But, when you see the evidence on the transcript, you will be in no doubt, it will be our submission, that he could frankly not give satisfactory explanations for key matters about the genuineness of the offer, for example.

That is not inconsistent with him being believed if the genuineness of the offer is a question of whether the offer exists or not and is capable of being accepted.  That is perfectly consistent with an honest person dealing with an inability to meet the points that our learned friends were advancing to support their contention.  The next transcript page is page 145, your Honours, and the relevant passage is said to be lines 53 to 58, in a sense, the last statement by my learned friend.  That is merely a contention supporting their case as to the genuineness and “genuineness” of course is an ambiguous phrase.  An offer may not be genuine because it is a fraud.  It may not be genuine in the context of this case because in form it is not truly an offer and therefore not within the terms of the arrangement, but it entails in no way a necessity for dishonesty. 

At 146, which I think is the last one they referred to, application book 146, lines 24 to 30, starting with the observation of Justice Gilmour, “You’re not suggesting that there was any”, et cetera, is to the same effect.  Thus, we say what transpired before the Full Court – and your Honour, we say the same can be said of 53 to 58.  That is what we say about the matters, as it were, the little points along the way that our learned friends referred to, to say that the Full Court completely misconceived their role.  But again we make this point.  The slightness of what your Honours have been taken to demonstrates how clear it was that the parties conducted themselves in the way that we submit.  Your Honours, I think I have said all.

HAYNE J:   Yes, thank you, Mr Hutley.  Yes, Mr Garratt.

MR GARRATT:   Your Honour, two points.  My learned friend said Mr Wilson was not called, and he was not, and it is said it is therefore conceivable that he had formed the view that the takeover would proceed in any event.  If I could take your Honours to the Full Court’s reasons at paragraph 30.  At paragraph 30 you will see set out part of the advice that Pitt Capital gave to Kooee.  It is in the small print:

...a purchaser needs to be satisfied it is able to acquire Kooee unencumbered by the Primus agreement –

That was the critical fact for this takeover to proceed.  A genuine offer under the VSPA, a proper offer, would not bring the VSPA to an end.  The VSPA had to be brought to an end, however, and so that was done by presenting and offer which was ‑ ‑ ‑

HAYNE J:   What do you mean a genuine offer would not bring to an end?  A genuine offer accepted would not bring it to an end.

MR GARRATT:   Or refused.  The VSPA ran its term.  It was due to run until August 2005 and if Kooee made a purchase offer that it could get telephony services elsewhere that Primus could not match, then it, that is Kooee, could get those services elsewhere, but the VSPA continued until August 2005, and if there was then some alteration in telephony services in the meantime, its regime still applied.  Now, as Pitt Capital said, a purchaser needs to be certain that the VSPA is got rid of, and that is what this offer did.  It presented a DigiPlus offer which was too high for Primus to match.  It presented it backed up by a letter from DigiPlus to show that it was supposedly genuine when it was not.

Now, if Primus could not match, then Primus may as well bring a matching offer for supply of all the telephony services that Kooee was getting, then Primus was put in the position, then it may as well agree to an ordinary transfer and that is what happened.  In other words, the takeover was procured by the deception.  It could not have happened otherwise.  So Mr Wilson forming a view that the takeover is going to proceed and therefore we may as well go to the separation deed, is utterly consistent, in fact entirely consistent, with the deception having worked. 

The other point my learned friend made was that he contended that the whole of the appeal was conducted on the basis that the Full Court could resolve the matter.  Of course the Full Court had to resolve the appeal that was before it.

HAYNE J:   That is not what Mr Hutley was saying.  Mr Hutley was saying that this was the last curial stop.

MR GARRATT:   Yes, and he was appealing, I mean his side was appealing, and the question was, what did they want from the menu of possibilities?  Did they want to have the matter remitted either to a new judge?  Did they want the matter remitted to the existing judge for better reasons, or did they want to fight on the existing material?  They chose that course pointing to what we said at the end of them having run their case, cannot, in our submission, change the situation. 

We had made it plain that as far as the Full Court was concerned, if this appeal was being determined, as it was, on those allegations, there was evidence to support what the trial judge had done and that was the only question and we said that at the outset.  The overall submission is that the question here is, was there material upon which the trial judge could have reached that conclusion, and we said it was.  The Full Court does not say that there was no material there upon which the trial judge could have reached his conclusion.  If the Court pleases.

HAYNE J:   Yes, thank you, Mr Garratt.

We are not persuaded that the applicant would enjoy sufficient prospects of succeeding in disturbing the actual orders made by the Full Court of the Federal Court of Australia in this matter to warrant a grant of special leave.  Special leave to appeal is refused with costs.

AT 11.05 AM THE MATTER WAS CONCLUDED