The Movie Network Channels Pty Ltd v Optus Vision Pty Ltd - [2010] NSWCA 111

No judgment structure available for this case.

New South Wales

Court of Appeal

CITATION: The Movie Network Channels Pty Ltd v Optus Vision Pty Ltd [2010] NSWCA 111
This decision has been amended. Please see the end of the judgment for a list of the amendments.

HEARING DATE(S): 25, 26 February 2010; 5 March 2010

JUDGMENT DATE:
19 May 2010

JUDGMENT OF: Macfarlan JA at 1; Young JA at 131; Sackville AJA at 153

DECISION: The appeal is dismissed with costs.

CATCHWORDS: CONTRACT - agreement for provision of movie television channels to pay television operator - meaning of "the Optus Vision retail price for the Movie Channels" - evidence of extrinsic facts - whether mutual knowledge of facts must be actual knowledge - distinction between denotation and connotation

LEGISLATION CITED: Copyright Act 1956 (UK) (repealed)
Copyright Act 1968
Supreme Court Act 1970

CATEGORY: Principal judgment

CASES CITED: Bank of Credit and Commerce International SA v Ali [2002] 1 AC 251
CGU Insurance Ltd v Porthouse [2008] HCA 30; (2008) 235 CLR 103
Chappell & Co Ltd v Nestlé Co Ltd [1960] AC 87
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1981-1982) 149 CLR 337
Coles v Wood [1981] 1 NSWLR 723
Commonwealth v McLaughlin 29 NE (2d) 821,822 (1940) (Mass)
Discount Inter Shopping Co Ltd v Micrometro Ltd [1984] Ch 369
Eastman v The Queen [2000] HCA 29; (2000) 203 CLR 1
Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407
Hope v RCA Photophone of Australia Pty Limited [1937] HCA 90; (1937) 59 CLR 348
Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896; [1998] 1 All ER 98
Kanthal Australia Pty Ltd v Ministry for Industry, Technology and Commerce [1987] FCA 38; (1987) 14 ALD 559
Kuligowski v Metrobus [2004] HCA 34; (2004) 220 CLR 363
Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70; (2001) 210 CLR 181
McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; (2000) 203 CLR 579
Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451
Prenn v Simmonds [1971] 1 WLR 1381; [1971] 3 All ER 237
Ramsay v Pigram [1968] HCA 34; (1967-1968) 118 CLR 271
Reardon Smith Line v Hansen-Tangen [1976] 1 WLR 989; [1976] 3 All ER 570
Roberts & Sons Inc v Kosydar 330 NE (2d) 437 (Ohio) (1975)
Royal Botanic Gardens and Domain Trust v South Sydney City Council [2002] HCA 5; (2002) 76 ALJR 436
The Council of the Upper Hunter County District v Australian Chilling and Freezing Co Ltd [1968] HCA 8; (1967-1968) 118 CLR 429
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165
Zhu v Treasurer of the State of New South Wales [2004] HCA 56; (2004) 218 CLR 530

TEXTS CITED: Hon J J Spigelman AC, "From text to context: Contemporary contractual interpretation" (2007) 81 Australian Law Journal 322
Ritchie's Uniform Civil Procedure NSW (LexisNexis Butterworths)

PARTIES: The Movie Network Channels Pty Ltd (Appellant)
Optus Vision Pty Ltd (Respondent)

FILE NUMBER(S): CA 2009/00298329

COUNSEL: J T Gleeson SC/C A Moore (Appellant)
N C Hutley SC/P J Brereton SC/A Rao (Respondent)

SOLICITORS: Freehills (Appellant)
Baker & McKenzie (Respondent)

LOWER COURT JURISDICTION: Supreme Court - Equity Division

LOWER COURT FILE NUMBER(S): SC 50054/2006

LOWER COURT JUDICIAL OFFICER: Einstein J

LOWER COURT DATE OF DECISION: 20 March 2009

LOWER COURT MEDIUM NEUTRAL CITATION: The Movie Network Channels Pty Ltd v Optus Vision Pty Ltd [2009] NSWSC 157

CA 2009/00298329
SC 50054/2006

MACFARLAN JA
YOUNG JA
SACKVILLE AJA
19 MAY 2010

THE MOVIE NETWORK CHANNELS PTY LTD v OPTUS VISION PTY LTD

Judgment

:

Table of Contents

The first four circumstances [90]

The Austar Agreement [116]
Bundled Subscribers – Clause 7.4(a)(ii) [119]
The Extended Term [128]
Orders [130]

Nature of case and conclusions

2 By a Channel Supply Agreement dated 25 August 1999, the appellant, The Movie Network Channels Pty Ltd (“TMNC”), agreed to provide movie television channels to the respondent, Optus Vision Pty Ltd (“Optus Vision”), for distribution by Optus Vision to subscribers to its pay television service. TMNC was a vehicle incorporated to manage a joint venture whose participants comprised Warner Bros International Distribution Inc, Buena Vista International Television (part of the Disney Group), MGM Worldwide Television Group and Roadshow Television (together referred to as “the Studios”).

3 TMNC brought the present proceedings to resolve a dispute about the licence fee payable to it by Optus Vision under the Channel Supply Agreement (the “CSA”). The dispute centred on the meaning of the expression “the Optus Vision retail price for the Movie Channels” used in the CSA. In essence, Optus Vision contended that this expression referred to the additional price a subscriber to the Basic Package of pay television services provided by Optus Vision was required to pay in order to obtain access to the “tier” of programming on which the Movie Channels (which were packaged with sports channels) were available. On the other hand TMNC contended that the expression referred to the total of the subscription prices for the Basic Package and the Movie Channels/sports channels’ tier as it was not possible to subscribe for the latter without subscribing for the former. For reasons which later appear, I have concluded that Optus Vision’s construction is correct (see [60] to [92], [115] below).

4 A further contention of TMNC was that in respect of persons who subscribed for the Movie Channels (and therefore, necessarily, also the Basic Package) and who also subscribed for other services such as telephony supplied by Optus Vision or one of its related companies (“Bundled Subscribers”), the “Optus Vision retail price for the Movie Channels” comprised the package price for all of those services. Optus Vision contended that in the case of these Bundled Subscribers (as also in the case of “Unbundled Subscribers”, being those who did not subscribe for telephony or other services), the Optus Vision retail price for the Movie Channels was simply the cost to a Basic Package subscriber of obtaining access to the tier comprising the Movie Channels and sports channels. Again I have concluded that Optus Vision’s construction is correct (see [119] to [127] below).

5 I have also expressed my view on a question of construction as to the operation of the CSA in an extended period of its operation (see [128] – [129] below). This question would only have assumed importance if I had considered one or other of TMNC’s primary contentions to be correct.

6 As the conclusions I have reached accord with those of the primary judge, the appeal of TMNC should be dismissed with costs.

Background to Agreement

7 The primary judge, Einstein J, made the following findings as to the background to the making of the CSA. Whilst these findings were not challenged on appeal Optus Vision correctly emphasised that the judge did not make a finding that all of these facts were known to each of the parties, or were notorious, at the time the CSA was made. In particular, Optus Vision pointed out that there was no evidence that TMNC was aware of the commercial motivations of Optus Vision described in [18] of the Judgment:

“8 TMNC has, with effect from 1 April 1999, licensed the Movie Channels to Optus Vision for distribution to subscribers to what was variously described as Optus Vision or Optus Television (the Optus subscription service). Subscribers to the Optus subscription service could, at various times relevant to the proceedings, subscribe to the subscription service alone or in conjunction with other services provided by its related corporations, such as local area telephony (LAT) or high speed data internet access (HSD). These became known as ‘unbundled’ and ‘bundled’ services respectively. See the definitions of these terms [in the CSA, quoted below at [11]].

9 It has always been necessary for the consumer to subscribe to other subscription television channels in order to access the Movie Channels. At no time has it been possible for a subscriber to obtain access to the Movie Channels alone in any subscription to the Optus subscription service. As at August 1999, when the parties entered into the CSA, and at almost all times during the life of the CSA it was necessary for a subscriber who wanted to access the Movie Channels to do so by purchasing a tier in addition to the basic package. For ‘bundled’ subscribers, in order to obtain the benefits held out by Optus Vision as accruing with a subscription to a bundled service, it was necessary to take both the Optus subscription service and another service or services being LAT [local area telephony] and/or HSD [high speed data internet access].

10 Optus Vision was a wholly owned subsidiary of Cable & Wireless Optus Pty Limited (CWO) [[f]or convenience the references herein to CWO usually do not distinguish between precise related corporate entities. However the CSA precisely identified the parties and took care to distinguish between Optus Vision and its related bodies corporate: see for example the definition of ‘Bundled Subscriber[s]’].

11 TMNC was incorporated on 19 August 1999 in order to manage a joint venture on behalf of four entities each of which came to be represented among TMNC's shareholders: Warner Bros. International Distribution Inc (Warner Bros), Buena Vista International Television (Disney), MGM Worldwide Television Group (MGM) and Roadshow Television (Roadshow) (together the Studios).

12 Each of the Studios had licensed premium motion picture content to MovieVision, a wholly owned subsidiary of Optus Vision, from about 1995 to 1999. MovieVision packaged and licensed premium movie channels to Optus Vision for distribution by Optus Vision to its subscribers. Each of the Studios licensed its premium motion picture content to Movie Vision for this purpose.

13 From 1995 to 1999, Optus Vision paid MovieVision a licence fee calculated by reference to two variables: the number of subscribers and a licence fee per subscriber (known as a Charge Per Subscriber or CPS). It is common in subscription television worldwide for licences to follow this formula. Similarly it is common that licences for premium content include payment for a minimum number of subscribers irrespective of whether that number of subscribers has been reached – this is usually described as a minimum guarantee. See the definitions in the CSA at clause 8.1. …

14 By late 1998/early 1999, CWO had formed the view that it could not sustain the Optus Vision business while it was incurring such high costs and it sought to renegotiate its supply contracts, including in respect of the Movie Channels.

15 In 1999, an Austar subscriber had to pay $46.90 per month to subscribe either to the Movie Channels or to the Showtime Channels and in doing so, he or she had to purchase a basic package of subscription programming and supplement it with a premium movie service. This was known as a ‘buy through’. ‘Bundled’ subscribers received a substantial discount on the Optus Vision price (of $10.00, the monthly subscription being $29.95 for the pay television services). CWO charged an access fee for LAT of $10.95. The amount of $10.95 was the lowest monthly service for telephony available at the time. It was a price charged by Optus Networks that was available to anybody, whether or not they subscribed for a pay television service with Optus Vision. The consumer was required to pay a minimum of $40.90 for the bundle of services.

16 It was not possible in 1999 for an Optus Vision subscriber to subscribe to the Movie Channels alone. Indeed, it has never been possible to subscribe to the Movie Channels alone. There has always been a requirement to subscribe at least to a ‘basic’ package of programming, together with whatever other programming is located on the same tier as the Movie Channels. Obviously, in the case of Bundled Subscribers, a consumer must also pay for a suite of services, which may include LAT and/or HSD.

17 CWO generated a number of marketing plans which all expressed the same basic strategy: pay television would be marketed at a discount to its regular, unbundled price provided subscribers also subscribed to LAT and/or HSD. For a pay television subscriber to obtain a Deluxe package (i.e. a package of basic and premium channels that included the Movie Channels) in July and August 1999 would cost him or her $39.95 per month. To obtain a Deluxe package together with access to LAT at that time cost $40.90.

8 Optus Vision also emphasised that it did not accept that TMNC was aware at the date of the CSA of the pay television pricing structure of Optus Vision or of Austar Entertainment Pty Ltd (“Austar”), to whom Optus Vision gave access to the Movie Channels for distribution to Austar subscribers in limited areas.

The Channel Supply Agreement

9 This Agreement was dated 25 August 1999, and was for an original term of six years and three months commencing on an “Effective Date” of 1 April 1999 and terminating on 30 June 2005. It entitled Optus Vision to elect to extend the term for a further four years (the “Extended Term”). If an election was not made by Optus Vision, TMNC was entitled to make such an election. Optus Vision did not so elect but TMNC did do so, with the result that there was an Extended Term of the CSA which expired on 30 June 2009. The CSA provided that where, as occurred, an Extended Term came about as a result of an election by TMNC, unlike the position obtaining during the original term, Optus Vision did not give, for the purposes of Licence Fee calculations, any guarantee of a Minimum Number of Subscribers.

10 By Clause 4.1, TMNC (referred to in the CSA as the “Supplier”) agreed to provide the Movie Channels to Optus Vision. The Movie Channels were to be named “Movie One, Movie Extra and Movie Greats” and, by Clause 4.2, were to be of comparable quality to channels of corresponding names distributed by Optus Vision to its subscribers in the period of approximately two years preceding the date of the Agreement. The channels had been supplied to a related company of Optus Vision in that period by the Studios.

11 The following definitions set out in Clause 1.1 are of present relevance:

“‘Bundled Subscribers’ means Subscribers who have subscribed for Pay Television with Optus Vision in a package which includes telephony or other services provided by Optus Vision or any of its Related Bodies Corporate.

‘Minimum Guaranteed Numbers of Subscribers’ means the minimum Subscriber numbers specified in Clause 8.1.

‘Subscriber’ means persons who are authorised by Optus Vision to receive at least one of the Movie Channels.

‘Unbundled Subscribers’ means Subscribers that are not Bundled Subscribers”.

12 Clauses 4.8, 7 and 8 relevantly provided as follows:

“4. MOVIE CHANNELS

…

4.8 Optus Vision shall not tier or package the Movie Channels in a manner less favourable to the Supplier than the arrangements as at the date of this Agreement in respect of the Movie Network without the Supplier’s prior written consent which shall not be unreasonably withheld.

7. LICENCE FEE

(a) the Minimum Guarantee; and

(b) the average number of Subscribers for such month (being 50% of the sum of the actual Subscribers on the first and last day of the month) multiplied by A$7.15 which is the Charge Per Subscriber (‘CPS’) as varied pursuant to Clauses 7.2, 7.3 and 7.4 (the ‘Licence Fee’).

…

7.4 The CPS will increase as follows:

(a) in respect of:

(i) Unbundled Subscribers:

(A) before 1 April 2000 there will be no increase to CPS; and

(B) from 1 April 2000 by 60% of the amount that the Optus Vision retail price for the Movie Channels (excluding GST) exceeds $46.90; and

(ii) Bundled Subscribers:

(A) in respect of any shortfall between the number of Unbundled Subscribers and the Minimum Guaranteed Numbers of Subscribers, by 60% of the amount that the Optus Vision retail price for the Movie Channels (excluding GST) from time to time during the Term exceeds $48.00; and

(B) over and above the Minimum Guaranteed Numbers of Subscribers, by 60% of the amount that the Optus Vision retail price for the Movie Channels (excluding GST) from time to time during the term exceeds $46.90; and

(iii) any shortfall between the Minimum Guaranteed Numbers of Subscribers and the aggregate of the actual number of Bundled Subscribers and Unbundled Subscribers by the amount specified in Clause 7.4(a)(ii)(A).

(b) in the event the Consumer Price Index Number (‘CPI’) on 1 April of any year during the Term (‘Review Date’) is above the CPI at the date of this Agreement (‘Base Date’) the amount of A$7.15 referred to in Clause 7.1(b) shall increase by the same proportion the CPI on the Review Date bears to the CPI on the Base Date provided this Clause 7.4(b) shall have no force or effect in respect of any month of the Original Term when the average monthly number of subscribers for such month is less than the Minimum Guaranteed Numbers of Subscribers for such month as specified in Clause 8.1. …

…

8. MINIMUM GUARANTEES

8.1 The Minimum Guarantee during the Original Term shall be the CPS multiplied by the minimum guaranteed numbers of subscribers set out below: [Minimum guaranteed numbers were then specified]

…

8.3 If Optus Vision makes the election referred to in Clause 3.2 [to extend the term of the CSA] the Minimum Guaranteed Numbers of Subscribers during each year of the Extended Term shall be the same as the Year 6 number referred to in Clauses 8.1 for the Original Term, varied as required by Clause 8.2.

8.4 If the Supplier makes the election referred to in Clause 3.2 there are no Minimum Guarantees for any year of the Extended Term.

…

18. AUSTAR

18.1 Optus Vision shall have no objection to the Supplier negotiating with Austar on such terms and conditions as the Suppllier and Austar agree for the Supplier to provide the Movie Channels to Austar and if requested by Austar and the Supplier Optus Vision will agree with Austar to terminate the agreement between Optus Vision, Austar, Optus Networks Pty Limited, ACN 008 570 330 and UIH Asia Pacific Communications, Inc., a copy of which is exhibited to Optus Vision and the Supplier at the time of execution of this Agreement and initialled by them for identification (‘Austar Agreement’) releasing Optus Vision from any liability thereunder at the date of such termination (the ‘Austar Release’).

18.2 Until the date of execution of the Austar Release:

(a) as and from the date of this Agreement the Supplier hereby licences to Optus Vision the Movie Channels to enable Optus Vision to comply with the terms of the Austar Agreement and

(i) as between the parties hereto the exercise of such licence will not result in any breach by Optus Vision of the Austar Agreement and

(ii) Optus Vision will from the Effective Date pay to the Supplier the full amount of all moneys received from Austar as license fees pursuant to the Austar Agreement, without any deductions whatsoever, within ten (10) days of receipt of such funds and

(iii) as between the parties Optus Vision shall bear all costs in relation to the performance by Optus Vision of the Austar Agreement.

(b) without limiting anything elsewhere contained in this Agreement the Supplier will not license any of the Movie Channels or any of the Included Films to Austar.

…”.

The Austar Agreement

13 Clause 18.1 of the CSA, (see [12] above) referred to the exhibiting of the “Austar Agreement” to the CSA. That document was attached to the CSA in an unsigned form. Under it, Optus Vision granted to Austar the non-exclusive right to distribute the Movie Channels (described in the Agreement as the “MovieVision Services”) in certain regions of Australia.

14 Under the heading “Packaging”, Clause 4 of the Austar Agreement relevantly provided as follows:

“After the expiry of the Initial Period, Licensee [that is, Austar] must offer the MovieVision Services as a competing tier to the PMP movie channels …”

15 The “Initial Period” in this provision had been earlier defined as the period from the Commencement Date to 28 February 1999. The parties to the appeal accepted that the “PMP movie channels” referred to in Clause 4 were movie channels offered by the competing Foxtel Cable Television Network.

16 Clauses 7, 8 and 9 of the Austar Agreement provided as follows:

“7. Wholesale Price

For the Initial Period, the wholesale price for the MovieVision Services will be nil.

For the period commencing after the Initial Period and expiring on 30 September 1999 (the ‘Second Period’), the wholesale price will be the greater of:

(a) 50% of the Licence Fee (defined in [Clause] 8 below) per subscriber per month; and

(b) 33.5% (for MDS systems) and 32.6% (for DTH and cable systems) of the Retail Price (defined in [Clause] 9 below) for the MovieVision Services per subscriber per month.

For the period commencing after the Second Period and expiring on 31 December 2000 (the ‘Third Period’), the wholesale price will be the greater of:

(a) the Licence Fee (defined in [Clause] 8 below) per subscriber per month; and

(b) 60% of the Retail Price (defined in [Clause] 9 below) for the MovieVision Services per subscriber per month.

For the period commencing after the Third Period, the wholesale price will be the greater of:

(a) the Licence Fee (defined in [Clause] 8 below) per subscriber per month; and

(b) 50% of the Retail Price (defined in [Clause] 9 below) for the MovieVision Services per subscriber per month.

Within 30 days from the end of each month, Licensees will pay to Licensor an amount equal to the average monthly subscribers to the MovieVision Services for that month multiplied by the relevant wholesale price.

8. Licence Fee

Means:

(a) for the premiere premium MovieVision Service, $6.00; and

(b) for the 3 MovieVision Services, $7.15,

increasing annually by the annual increase in CPI with the first increase on 1 January 2000.

9. Retail Price

For the Initial Period, Licensee will provide the MovieVision Services to all its subscribers free of charge.

After the expiry of the Initial Period, the MovieVision Service will be offered by Licensee to its subscribers as a competing tier to the PMP movie channels at a retail price that is no less favourable to its subscribers than the retail price for the PMP movie channels”.

Extrinsic material relied upon by TMNC

17 In its Written Submissions in Reply on the appeal ([25]) TMNC identified the extrinsic material that it relied upon to support its contentions about the meaning of the expression “retail price for the Movie Channels”. It identified the “four facts” set out in [8] - [11] of its Written Submissions in Chief and “if for some reason these facts are insufficient” then the “three further facts” identified at [32] of those submissions.

18 The relevant paragraphs of TMNC’s Written Submissions in Chief were as follows:

“8. At all relevant times, it has been necessary for an Optus Vision subscriber, in order to have access to the Movie Channels, to subscribe to other channels. [Judgment [9]].

9. At the date of the [CSA], Optus Vision was charging $19.95 for the Basic Package, which did not include the Movie Channels. In order to obtain the Movie Channels, it was necessary to subscribe to a ‘Deluxe Package’ for $39.95 which comprised the Basic Package and a tier consisting of the three Movie Channels and four sports channels. [Judgment [9] and [17] and Optus Vision pay television rate schedules].

10. At the date of the [CSA], if the Optus Vision customer also took Optus telephony, then the price of the pay television part of the package reduced: to $14.95 for the Basic Package, and $29.95 for the Deluxe Package. However, such a customer also had to pay for telephony, which cost $10.95, and therefore the price of the ‘bundle’ consisting of telephony and the Deluxe Package was $40.90. The price of a bundle consisting of telephony and the Basic Package was $25.90. [Judgment [15]-[17] and Optus Vision pay television rate schedules].

11. At the date of the [CSA], there was no separate price for an Optus Vision subscriber to subscribe to the Movie Channels alone. There was a price for the Deluxe Package of $39.95, or $40.90 for the Deluxe Package with telephony. [Judgment [16]-[17]].

…

32. The surrounding circumstances further include:

(a) that the CPS figure of $7.15 was a renegotiated, lower price;

(b) that there was discussion at the meeting in March 1999 of the CPS increasing if the Optus Vision retail price reached the level of the current Austar retail price, which was identified in the meeting as $48, subject to it being checked (it was actually $46.90 at the time); and

(c) that at the date of the [CSA], Austar was charging $46.90 for its Basic Package of programming plus a tier comprising the three Movie Channels, and the price of the Basic Package alone was $35.95”.

The Judgment at first instance

“Retail price for the Movie Channels”: Clause 7.4(a)

19 The primary judge identified the fundamental issue between the parties as being what meaning should be ascribed to the expression “the Optus Vision retail price for the Movie Channels”. This expression and its meaning were critical in the determination of the Licence Fee payable by Optus Vision pursuant to Clause 7 of the CSA (Judgment [3]).

20 He referred later to the declarations sought by TMNC in the final form of its summons. In respect of Unbundled Subscribers, the primary declaration sought was that the critical expression meant “the retail price for the package (including a basic tier and any premium tier of programming) that must be purchased to access the Movie Channels” and in respect of Bundled Subscribers meant “the retail price for the package (including a basic tier and any premium tier of programming together with telephony or such other service with which the programming is bundled) that must be purchased to access the movie channels” (Judgment [23]). The alternative declaration sought was in similar terms save that, in respect of Bundled Subscribers, the relevant price was not asserted to include “telephony or such other service with which the programming is bundled” (ibid). These declarations contrasted with Optus Vision’s contentions in the proceedings that the relevant price was that which a subscriber to the Basic Package needed to pay to obtain access to the tier which included the Movie Channels.

21 The judge took the view that TMNC’s construction did not reflect “an ordinary reading of the words” of the expression (Judgment [63]). He stated his conclusions in relation to Clause 7.4(a)(i), which deals with Unbundled Subscribers, as follows:

“64 A reasonable person subscribing to a basic package plus a tier comprising the Movie Channels would not consider that the retail price for the Movie Channels was the price of the whole package, including the price of basic and the price of the tier. Rather, he or she would conclude that the retail price was no more than the price of the tier that comprised the Movie Channels. If the tier comprised just the Movie Channels, the retail price would be the price of the tier. If the tier comprised Movie Channels and other channels, the retail price would be (no more than) the price of the tier.

ad nauseam

Suppose a restaurant offered 2 fixed menus, one comprising just two courses (entrée and main) for $20 and the second comprising 3 courses (entrée, main and dessert) for $25. Dessert was not sold separately. If a diner were asked to identify the retail price of dessert, the answer would naturally be $5. No-one would suggest the price of dessert was $25. And even if the 3 course option included coffee too, any diner in this situation would still say that the price of the dessert was $5, or perhaps some portion of $5. That is because $5 was the extra price you had to pay if you wanted dessert.

22 The judge also rejected TMNC’s construction of Clause 7.4(a)(ii), which concerned Bundled Subscribers. His reasoning included the following:

“67 The difficulties with TMNC's primary construction become even more apparent when one turns to the position of Bundled Subscribers, within clause 7.4(a)(ii). It is here that TMNC's deletion, of the word ‘Optus Vision’ is critical. With the words ‘Optus Vision’ included in clause 7.4(a), as it is, it is misconceived to suggest that … ‘the Optus Vision retail price for the Movie Channels’ could include an amount that was paid by a person for services (such as telephony) supplied by a company other than Optus Vision.

68 Optus Vision never supplied or charged anyone for telephony or internet. Consumers were offered discounts of one kind or another to his or her pay TV pricing (such as lower monthly charges or free installation) if he or she purchased telephony from a company related to Optus Vision. Between April and August 1999, a person who subscribed to local telephony from Optus Networks in addition to pay television from Optus Vision was offered free installation of the television service as well as a discounted monthly charge compared to a person who only subscribed to pay television alone: … But the consumers were always charged separately for pay TV and telephony: see Langshaw [49] to [53]. Yet TMNC seeks in these proceedings to identify the retail price by adding the pay TV price to the telephony price.

69 Although TMNC contended that it was clear that the parties would at the time of entering into the CSA, have contemplated bringing to bear the access price of telephony in determining the Bundled price, the parties’ failure to make any express provision in this regard poses special difficulties for the Court in drawing the inference pursued by TMNC. Where, one may rhetorically ask, is the Court to find precision in terms of how the access price of telephony in determining the Bundled price is to be found.

…

72 As the defendants have contended it is also appropriate to note the use of the words ‘Optus Vision or any of its Related Bodies Corporate’ in the opening words, in contradistinction with the words ‘Optus Vision’ in [7.4(a)(ii)] (A). This too directs the inquiry specifically to the retail price of the Movie Channels rather than the retail price of all of the elements of a package including other services.

73 I further accept that some importance requires to be paid to the use of the word ‘package’ as part of the definition of Bundled Subscriber and the absence of that word in the phrase ‘retail price of the Movie Channels’ in clause 7.4(a).

74 TMNC seeks to inject the word package into the clause at a place where the parties would have included it for themselves if they had thought it to be appropriate.

75 TMNC has another problem in that it has to deal with the fact that on its case there are many different packages comprising the Movie Channels, with many different price points.

23 His Honour also derived some assistance from the fact that the definition of “Bundled Subscribers” (see [11] above) referred to persons who were authorised by Optus Vision to receive at least one of the Movie Channels. He considered that this was a “strong indication that the clause [was] concerned with the retail price of obtaining the authority to receive the Movie Channels, and not some more general concern with the acquisition of services other than the Movie Channels” (Judgment [71]). The judge took the view that TMNC’s contention that the relevant price was the lowest price that must be paid to access the Movie Channels was founded upon an assumption that the “reference point” must be for a new subscriber because “a person already subscribing to basic would not consider the retail price for the Movie Channels to include the price he or she already pays for basic” (Judgment [79]). He then queried why the reference point should be for a new subscriber and said that “if it is a new subscriber, no explanation is provided as to why the installation charges should be excluded from the calculation. Those costs must be paid by a new customer in order to access the Movie Channels” (Judgment [79]).

The Austar Agreement

24 The primary judge found support in the terms of the Austar Agreement which was exhibited to the CSA for his construction of “the retail price for the Movie Channels”. He said in this regard:

Q. You noticed, didn't you, when you read it, that this agreement [that is the Austar Agreement] used the phrase ‘the retail price for the MovieVision Services’?
A. Yes…

Q. In that agreement, the reference to ‘the retail price for the movies or MovieVision services’ was a reference to a tier price, wasn't it?
A. It appears to be so, yes.

36 I accept as correct [Optus Vision’s] proposition that the Austar Agreement is not merely evidence of the factual matrix. That is because the document is exhibited to the CSA. Indeed it appears to provide a valuable reference point for the construction of the words ‘retail price for the Movie Channels’ as used in clause 7.4(a) of the CSA. In the context of the Austar Agreement, the words ‘retail price for the MovieVision Services’ are used to refer to the price of the tier that included the MovieVision Services. The MovieVision Services were the same channels that came to comprise the Movie Channels in the CSA. The Austar Agreement also uses the expression ‘retail price for the PMP movie channels’ in circumstances that one may clearly infer involved a reference to a tier price.

The Meeting of 25 and 26 March 1999

25 TMNC adduced evidence of a meeting which occurred on 25 and 26 March 1999 between representatives of certain of the Studios (TMNC itself not having been incorporated until 19 August 1999) and representatives of Optus Vision. The judge recorded that TMNC contended that the following propositions could be derived from the evidence of TMNC’s managing director, Mr Dudley Smith:

26 The primary judge’s conclusions as to the effect of what was a significant amount of evidence concerning this meeting were not challenged on appeal. They were as follows:

“43 The first [problem confronting TMNC] concerns the fact [that] the March meeting took place at a very early stage of the material negotiations. As [Optus Vision has] submitted prior to any reliance being able to be placed on any discussion about the escalation clause at the March meeting, one has to have regard to what happened after that discussion. In short the evidence bears out the following matters:
i. A draft memorandum of understanding was circulated on 29 March 1999: … which included language that is very similar to the final language in the CSA (… clause 8.2).

ii. Mr Miele received legal advice from Australian lawyers to change the language to refer to ‘any package of programming including the Movie Channels’ … .

iii. A non-binding memorandum of understanding was signed on 11 June 1999 … (note clause 20.3).

iv. That document referred to ‘any package of subscription television programming which includes the Movie Channels’ (clause 8.2 … ).

v. On 7 July 1999, Clayton Utz for Optus Vision propounded a draft of the CSA that reverted to the language of an early draft of the memorandum of understanding – deleting the reference to ‘any package of subscription television programming which includes the Movie Channels’ (which is the wording that TMNC seeks to reintroduce by means of construction) and changing the $46.90 to $60 … .

vi. Mr Dudley Smith saw that Optus Vision wanted to negotiate about the terms of the clause, and that is what occurred over the succeeding months: … .

vii. Proposals went backwards and forwards in relation to the clause and the figure to be inserted into it: … .

viii. The parties returned to $46.90 after protracted negotiations where parties put forward different figures: … .

ix. Besides the figure of $46.90, the figure of $48 was inserted into the clause.

x. There is no evidence of how that came about and it undermines any particular significance that can be placed on $46.90.

xi. A plausible explanation is that Optus Vision negotiated a higher rate for Bundled Subscribers because it was intending to attract large numbers of Bundled Subscribers and so should receive a kind of volume discount.

xii. Moreover, clause 7.4(a) was just one of many clauses and cannot reasonably be considered in isolation…. .

xiii. Having regard to that history, to suggest that anything was ‘agreed’ at the March meeting does not withstand scrutiny.

xiv. The figure of $46.90 may well have found its origin in the Austar pricing at that time.

xv. So too the figure of 60% may well have come from the Austar Agreement.

xvi. But in March 1999 there was evidently confusion about the way the Austar Agreement worked.

xvii. The figures of $46.90 and 60% found [their] way into the CSA, but not before there was extensive negotiation about the price and the wording of the clause.

The Extended Term

27 As it was TMNC, and not Optus Vision, which elected to extend the term of the CSA, no Minimum Guarantees were applicable during the Extended Term (see Clause 8.4 quoted in [12] above). There was an issue as to whether in these circumstances Clause 7.4(a)(ii) (see [12] above) could operate. Optus Vision argued that it could not operate where there were no Minimum Guaranteed Numbers of Subscribers because there could in that situation be no “shortfall” as contemplated by the subclause between “the number of Unbundled Subscribers and Minimum Guaranteed Numbers of Subscribers”. TMNC argued to the contrary, contending that where there were no Minimum Guaranteed Numbers, the number was to be treated as zero.

28 The primary judge accepted Optus Vision’s argument, holding that where there were no Minimum Guaranteed Numbers it was “nonsensical to speak of ‘any shortfall between the number of Unbundled Subscribers and the Minimum Guarantee’” (Judgment [89]).

The Appellant’s Submissions

29 The appellant posed the issues to be determined on the appeal as follows:

“1. Is the phrase ‘the Optus Vision retail price for the Movie Channels’ to be given meaning by reference to:

(a) an actual price which a consumer faces and pays; or

(b) a notional price which nobody faces or pays, but is derived by subtracting the price for the basic package of programming from the price of a package of programming including the tier which contains the Movie Channels (and other channels)?

2. If the answer to (1)(a) is ‘Yes’, how is this phrase to be further applied in the context of Bundled Subscribers?

(a) contractual referential material; or

(b) factual matrix material?”

Construction of Clause 7.4(a) unaided by extrinsic material

30 TMNC submitted first that it did not matter that the consumer might get more than one thing for the retail price he or she paid, because products and services were often bundled together. It asserted that if the meaning for which it contended were adopted “the retail price” was “an actual price that is paid or payable by a consumer to acquire something” (Written Submissions [18]) whereas the meaning for which Optus Vision contended involved the “retail price” being a notional price “derived by deducting the amount payable for the Basic Package from the amount payable for a total package including movies, and then possibly adjusting the amount further in some (undetermined) way to accommodate the circumstance that the amount so derived may otherwise be an amount in respect of the Movie Channels plus other channels” (Written Submissions [21]).

31 Secondly, TMNC submitted that it was wrong to construe the contract by reference to the perspective of a reasonable subscriber, as it said the primary judge did. It submitted that the correct perspective was that of the parties to the agreement.

32 Thirdly, it submitted that Optus Vision’s construction did not accommodate a situation where the Movie Channels were placed not in a tier but in the Basic Package.

33 Fourthly, TMNC criticised the use by the primary judge of the restaurant example (Judgment [65] quoted in [21] above) by saying that dessert in that context “might be considered to be an afterthought” whereas the primary judge had “found that the Movie Channels were premium programming: ie, the sort of desirable programming which might entice a potential subscriber to subscribe to pay television” (Written Submissions [31]).

34 Fifthly, it pointed to the fact that the charge per subscriber under Clause 7.1 (see [12] above) was $7.15 and that “if the ‘Optus Vision retail price for the Movie Channels’ means the notional retail price for the Movie Channels by themselves, then the rate increase occurs only when the retail price ($46.90 for an Unbundled Subscriber – Clause 7.4(a)(i)(B)) is some 650% of the wholesale price ($7.15), which on any view is a curiously generous margin and one unlikely to ever be achieved, and which on Optus Vision’s construction has still not been achieved 10 years later” (Written Submissions [26(c)]). It said that, as a result, Optus Vision’s construction did not give the Clause “a sensible commercial operation”.

35 In its Written Submissions in Reply, TMNC contended that if Optus Vision’s construction were correct, the “retail price for the Movie Channels” would have to more than double to reach the threshold of $46.90 ([13]). This was so because the “tier” price at the date of the CSA was $20, being the difference between $39.95 per month for the Deluxe Package and $19.95 for the Basic Package. It said that this “would be far in excess of any likely inflation (or any other cause for price increase) that the parties could have contemplated over the term of the Agreement”. In the case of Bundled Subscribers, it was said that the tier price would have to “more than triple”.

36 In its Written Submissions in Reply and also in its oral arguments, TMNC contended that “Optus Vision could simply avoid triggering any increase in the CPS by separating out the Movie Channels from the other channels in the tier, being the sports channels” ([16]) and that the Court would be slow to adopt a construction which would permit Optus Vision so easily to avoid a CPS increase being triggered.

The use of extrinsic evidence

37 TMNC submitted that the appropriateness of its construction would be confirmed if the Court concluded, as it submitted the Court should, that the four facts referred to in [18] above were surrounding circumstances of which the parties were aware at the date of the CSA and which were thus able to be taken into account on the question of construction. That is, the facts were said to be more than simply objective circumstances existing during the currency of the CSA relevant to the application of the CSA during that period. They were said to be facts known to the parties at the date of the CSA forming part of the background against which the meaning of the CSA was to be ascertained. The facts were said to demonstrate that access to the Movie Channels could only be obtained by subscribing to the Basic Package and to the tier consisting of both the Movie Channels and four sports channels. This, TMNC said, constituted a “Deluxe Package” available for $39.95. If the subscriber took a Bundled Package consisting of telephony and the Deluxe Package it was said that the price was $40.90. TMNC submitted that it was significant that these two figures were 85 percent of the trigger points for the increases provided for in Clause 7.4(a), namely $46.90 for an Unbundled Subscriber and $48 for a Bundled Subscriber. It submitted that “the price increase necessary to trigger an increase in the CPS is therefore one which might readily be contemplated to occur within the terms of the Agreement” (Written Submissions [28]).

38 If it were necessary, TMNC called in aid the three further aspects of the surrounding circumstances set out in [18] above which it said made clear that the relevant price was intended to be that payable for the overall package of programming including the Basic Package.

Bases for recourse to extrinsic evidence

39 TMNC sought to justify recourse being had to the extrinsic material referred to above on two alternative bases.

40 First, TMNC submitted that for the purposes of applying Clause 4.8 of the CSA (see [12] above), it would be necessary for the parties to be familiar with the tiers, packaging and pricing of Optus Vision at the date of the agreement and that those matters should therefore be taken to have been “known or readily ascertainable by each party”.

41 Secondly, TMNC submitted that authority, and in particular the decision of the High Court in Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70; (2001) 210 CLR 181, authorised recourse to the extrinsic evidence. It relied upon the following observations of Gleeson CJ, Gummow and Hayne JJ in Maggbury:

“11 Interpretation of a written contract involves, as Lord Hoffmann has put it : ‘the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract’. That knowledge may include matters of law, as in this case where the obtaining of intellectual property protection was of central importance to the commercial development of Mr Allen's ironing board” (at [11], citations omitted).

42 The dictum of Lord Hoffmann quoted by their Honours was taken from Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 912; [1998] 1 All ER 98 at 114. Their Honours also referred to the remarks of Mason J in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1981-1982) 149 CLR 337 at 350-352 and those of Lord Bingham of Cornhill in Bank of Credit and Commerce International SA v Ali [2002] 1 AC 251 at 259.

43 TMNC submitted that the evidence of the meeting of 25 and 26 March 1999 (as to which see [25] – [26] above) demonstrated, first, “that Optus Vision was seeking to negotiate a lower CPS with the Movie Studios” (Written Submissions [44]) and, secondly, that the “source and nature of the price point of $46.90 in Clause 7.4(a)” was the then current Austar retail price (Written Submissions [45]). This had potential significance because the primary judge found (Judgment [15]: see [7] above) that this price was the total price which a new subscriber would have to pay to obtain access to the Movie Channels (described in the Austar Agreement as the “MovieVision Services”). That is, it was the total cost of a Basic Package and the MovieVision Series, subscription to the former being a prerequisite to subscription to the latter. Thus, TMNC argued, it should be inferred that the parties to the CSA intended the “retail price for the Movie Channels” to be the total package price, including the cost of subscription to the Basic Package, because the benchmark considered in Licence Fee increase calculations was a figure derived in that way.

The Austar Agreement

44 TMNC submitted that, contrary to the view taken by the primary judge (Judgment [37] quoted in [24] above) the use of the expression “retail price” in the Austar Agreement was not a factor of any weight in the construction of the CSA. TMNC said, first, that the attachment of the Austar Agreement to the CSA was for a limited purpose and did not suggest that the two agreements were designed to be read together in a consistent way.

45 Secondly, it said that Clause 7 of the Austar Agreement was “designed to calculate an additional fee (on top of a base fee) as a percentage of the relevant retail price” whereas in the CSA the percentage of sixty percent was not applied to the “retail price” but “to the amount by which the retail price was exceeded” (Written Submissions [47]).

46 Thirdly, TMNC submitted that the fact that Clause 7 of the Austar Agreement referred to the retail price as being “defined in [Clause] 9 below” suggested that the expression “retail price” was being used in a special sense which required definition.

Bundled Subscribers: Clause 7.4(a)(ii)

47 TMNC noted that in the case of a Bundled Subscriber, the package might include services supplied by Related Bodies Corporate and that in these circumstances “it is apparent that the reference to ‘Optus Vision’ in Clause 7.4(a)(ii) is a shorthand [reference to] Optus Vision or its Related Bodies Corporate” (Written Submissions [49]).

48 In the alternative, TMNC submitted that the relevant retail price was to be understood in the sense identified in the alternative declaration referred to in [20] above.

The Extended Term

49 TMNC submitted that because there were no Minimum Guarantees in the Extended Term, the Minimum Guaranteed Number of Subscribers was zero and that Clause 7.4(a)(ii)(B) therefore applied to all Bundled Subscribers.

The Respondent’s Submissions

Construction of Clause 7.4(a) unaided by extrinsic material

50 Optus Vision submitted that TMNC did not squarely acknowledge that its construction “[did] not involve looking at an actual price but rather at the lowest price that a new subscriber would have to pay (excluding installation and like charges)” (Written Submissions [12]) and that words such as “notional” and “derived” used by TMNC to characterise the price identified by Optus Vision were not of any significant assistance in construing Clause 7.4(a).

51 Optus Vision recognised that if the Movie Channels were in the Basic Package, the retail price would be the price of the Basic Package. It submitted however that where the Movie Channels were on a tier (whether or not with other channels), the relevant price was the price of the tier, that is, the incremental amount to be paid to obtain the Movie Channels.

52 Optus Vision said it was sufficient in the present case for it to rely in this way on the tier price and, because it would not make any difference to the outcome of the proceedings, it was unnecessary for it to contend that the relevant “retail price” was in fact a lesser price than the tier price, being that part of the tier price which represented the price of the Movie Channels, as distinct from other Channels on that tier. Optus Vision said that this approach was reflected in the primary judge’s reference to the retail price of the Movie Channels being “no more than” the price of the tier (Judgment [64] quoted in [21] above]).

53 Optus Vision further submitted that the prospect of the Charge Per Subscriber increasing by reason of the operation of Clause 7.4(a) was a realistic one when it was appreciated that Optus Vision’s packaging might change significantly from time to time, for example, by placing the Movie Channels in the Basic Package. Optus Vision pointed out that “the threshold found in Clause 7.4 was nearly broken as early as October 1999 when the Movie Channels were placed in the Basic Package” (Written Submissions [18]), the package price then being $37.95.

54 It submitted also that it was potentially misleading to describe the amount of $7.15 as the wholesale price per subscriber payable for the Movie Channels because that was “a total fee that was to be paid including by reference to the Minimum Guarantee, which involved payment calculated by reference to notional subscribers. If one were to divide the actual fee paid by the actual number of subscribers, the ‘wholesale’ price per actual subscriber greatly exceeded $7.15” (Written Submissions [19]). This submission reflected the fact that during the original term the actual number of subscribers fell well short of the number guaranteed.

The use of extrinsic material

55 Optus Vision submitted that TMNC had erroneously suggested that pay television and telephony services could be obtained at a Bundled Price of $40.90. In fact, Optus Vision said, consumers were simply offered a lower price for pay television if they also subscribed for telephony, they being charged separately for telephony.

56 Further, it said that in any event it was not correct to say that pay television and telephony could be obtained for a Bundled Price of $40.90. This was because that amount was simply the addition of the discounted pay television price of $29.95 and the lowest monthly price ($10.95) payable for telephony. The price for telephony however depended upon what services the customer obtained and a considerably greater price could be paid by customers.

57 Optus Vision responded to TMNC’s “85 percent ratio” argument (see [37] above) by saying, first, that the argument was dependent upon the erroneous assumption that $40.90 was “the” price that a Bundled Subscriber had to pay to obtain the Movie Channels. Secondly, Optus Vision argued that this argument had not been put at first instance and that, if it had been put, the asserted relationship between the relevant prices and the trigger points “would have been a fertile ground for cross-examination” (Written Submissions [26]). As it was, no witness gave evidence of knowledge of the ratio or, much less, of it having any significance.

Bases for recourse to extrinsic material

58 In response to TMNC’s reliance on Clause 4.8 (see [40] above), Optus Vision submitted that there was no evidence that the existing tiers, packages or pricing were known to TMNC and that there was no basis for concluding that they should or would have been known at any point prior to the occasion, if it had ever occurred, after entry into the CSA, when Clause 4.8 came to be applied.

59 As to TMNC’s reliance upon the decision in Maggbury (see [41] above), Optus Vision submitted that the High Court should not be understood to have intended, by implication, to have “overruled the classic statement of principle” of Mason J in Codelfa to the effect that circumstances can only be taken into account when construing the terms of a contract if they were known to both parties or were “notorious”. It submitted that the reference in Maggbury to background knowledge that “would reasonably have been available to the parties” should be understood as being limited to facts which were “notorious” as “[t]hese days … anything on the internet is reasonably available to just about everybody” (Written Submissions [36]).

60 As to TMNC’s reliance upon evidence of the meeting of 25 and 26 March 1999 (see [43] above), Optus Vision pointed out that the primary judge found that the principal evidence, being that of Mr Dudley Smith, was “too uncertain to be relied upon” (Judgment [44]) and that he found that it was open to him to infer that “the parties were relevantly confused or at cross-purposes” about how the Austar Agreement worked (Judgment [47]). It also pointed out that the primary judge found that “‘extensive negotiation about the price and wording of the clause’” intervened between the meeting and the making of the CSA (Written Submissions [39] quoting Judgment at [43xvii] – see [26] above).

61 Further, Optus Vision submitted that the mere fact that Austar sold a package of programming (Basic Package plus a tier including the Movie Channels) for $46.90 was of no relevance unless it were shown, which it could not be, that the parties to the CSA intended that the $46.90 specified in the CSA would reflect the price of the Basic Package plus tier, as was the case in the Austar Agreement (Written Submissions [40]).

62 Optus Vision also relied upon the fact that TMNC was not incorporated until after the March meeting and that no person who subsequently became an officer of TMNC attended the meeting.

The Austar Agreement

63 Optus Vision submitted that the primary judge was correct in regarding it as significant that the Austar Agreement used the expression “Retail Price … for the MovieVision Services” to refer to the price of the tier containing the MovieVision Services (Judgment [37] quoted at [24]).

Bundled subscribers – Clause 7.4(a)(ii)

64 Optus Vision relied upon the fact that in the CSA “Optus Vision” was a defined term, as was “Related Body Corporate”. It submitted that it was erroneous to read “Optus Vision” as incorporating a reference to Related Bodies Corporate and that to do so would be inconsistent with the definition that the parties had chosen to include in the CSA. The “definition” of “Optus Vision” to which it referred was not contained in the definition clause (see [11] above) but in the description of the parties at the commencement of the CSA.

65 It repeated in this context the submission referred to above (see [56]) that it was erroneous of TMNC to suggest that there was at the date of the CSA a Bundled Price of $40.90 for pay television and telephony. It is convenient to note here that in its Written Submissions in Reply, TMNC contended that this submission was inconsistent with the primary judge’s references in paragraphs [15] and [17] of his Judgment (see [7] above) to the Bundled Package comprising the Basic Package, the Movie Channels and sports channels tier and telephony being available for $40.90. TMNC also pointed to Optus Vision’s Rates Sheet which was to the same effect.

The Extended Term

66 Optus Vision first pointed out that the issue about the Extended Term would only arise if TMNC were successful in its other contentions on the appeal. Secondly, it submitted that in any event it was plain “that where there were no Minimum Guarantees for any year of the Extended Term”, there was no scope for the operation of Clause 7.4(a)(ii) “because the whole clause depended on the existence of Minimum Guaranteed Numbers of Subscribers” (Written Submissions [57]). This reflected the conclusion of the primary judge (see [28] above).

67 I now turn to consider and resolve the issues presented by the parties’ submissions.

Construction of Clause 7.4(a) unaided by extrinsic material

68 It is convenient to consider first, as the parties did in their submissions, the construction of Clause 7.4(a) without regard to the evidence of the particular extrinsic circumstances that TMNC asserts, and Optus Vision denies, is available to assist in construction. I recognise that identification of ambiguity in the terms of an agreement is not a necessary precursor to the examination of surrounding circumstances (see the decision of this Court in Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407 at [14] – [18] per Allsop P and [239] – [305] per Campbell JA examining the relevant authorities). However here it is convenient to put the extrinsic evidence that TMNC relies upon aside at this stage because the terms of the CSA provide ample context to enable consideration of the meaning of the expression “the Optus Vision retail price for the Movie Channels” and because, as appears below, I have in any event found that that evidence of extrinsic circumstances, even if available to be used for the purposes of construction, would not assist in discerning the meaning of the relevant expression.

69 The dispute between the parties turns on the meaning of the expression “the Optus Vision retail price for the Movie Channels” where it appears in Clause 7.4(a) of the CSA, first in relation to Unbundled Subscribers and secondly in relation to Bundled Subscribers. Neither party suggested that the expression as a whole, or the component “retail price”, had a special trade or industry meaning. The meaning of the relevant expression where used in the CSA is accordingly to be ascertained by considering, in the context of the CSA and any surrounding circumstances or other extrinsic evidence to which recourse is permitted, the meaning in ordinary parlance of the words used.

70 The issue in respect of Unbundled Subscribers is whether the words “retail price for the Movie Channels” refer to the tier price (because that is the price which an existing subscriber to the Basic Package would have to pay to obtain access to the Movie Channels) or to the total of the prices of the Basic Package and tier (because a person cannot obtain access to the Movie Channels without subscribing for the Basic Package as well as for the tier on which they are placed).

71 The CSA is a commercial contract and is therefore to be “given a businesslike interpretation” (McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; (2000) 203 CLR 579 at [22] per Gleeson CJ; CGU Insurance Ltd v Porthouse [2008] HCA 30; (2008) 235 CLR 103 at [43]). As was said by Barwick CJ in The Council of theUpper Hunter County District v Australian Chilling and Freezing Co Ltd [1968] HCA 8; (1967-1968) 118 CLR 429 “no narrow or pedantic approach is warranted” in relation to the construction of commercial contracts (at 437). The meaning of the words of a contract “is to be determined by what a reasonable person would have understood them to mean” (Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 at [40]).

72 TMNC’s construction does not in my view reflect a commonsense or businesslike approach to the meaning of the relevant expression. According to TMNC the price of the Basic Package must be considered to be part of the retail price of the Movie Channels because one cannot subscribe to the latter without subscribing to the former. However, as the primary judge pointed out (Judgment [79] referred to in [23] above), if this argument were taken to its logical conclusion, it would lead to the inclusion in the retail price of the Movie Channels of the installation charges necessary to be incurred in order to subscribe to Optus Vision pay television. The same may be said of the cost of any set-top box that it might be necessary for a subscriber to acquire for the same purpose. Yet in the ordinary case the incurring of all of these costs had the potential to lead to the acquisition of a range of benefits extending well beyond access to the three Movie Channels. At the date of the CSA, subscription to the Basic Package, for example, gave access to some 22 different channels including “Sky News Australia”, “CNN International”, “Disney” and many others. TMNC’s construction requires the benefit ordinarily to be derived from these services effectively to be ignored and the cost of access to the 22 Basic Package channels to be characterised simply as part of the price of accessing the quite distinct Movie Channels. The task of construing the subject expression does not in my view call for a rigid or legalistic analysis of the pre-conditions which are essential to obtaining the services required. Rather it calls for a commonsense, commercial consideration of what reasonable people in the position of the parties to the CSA would fairly have understood to be the retail price of the Movie Channels.

73 Commonsense suggests that when a person buys a particular product, but needs to buy other products in order to acquire that product, the price of the particular product should ordinarily be regarded as the price which relates specifically to that product. Despite TMNC’s strenuous criticism of it, I consider the restaurant example that the primary judge used (see Judgment [65] quoted in [21] above) to be a useful one to illustrate this point. It would be an unnatural use of language to treat the price of the dessert in this example as the cost of the meal as a whole rather than the additional price paid for dessert.

74 TMNC argued that the example was not useful because the Movie Channels were “premium programming” which might, on their own, lead to the relevant pay television subscription. That may be accepted as a possibility. However, the more usual situation would be, as in the restaurant example, one where the acquirer of services sees benefit in obtaining a number, and perhaps all, of the various different services or products acquired: the Basic Package, Movie Channels and sports channels in the pay television context and entrée, main course and dessert in the restaurant example. Preferences will undoubtedly vary between individuals but ascertainment of the meaning of the relevant expression is not assisted by extreme examples in preference to those relating to more common situations.

75 TMNC’s construction would lead in the restaurant example to the incongruous result that not only would the retail price of dessert be the cost of the whole meal but the retail prices of the entrée and main course would each be the same figure. Yet the cost of the three courses taken together would simply be the amount charged for the meal and not three times that figure. TMNC’s construction fails to take account of the fact that in the case of pay television, and in the case of a restaurant, each of the services or products provided will typically be of some benefit to the consumer. The price subscribers pay for the Basic Package, Movie Channels and sports channels is for all these products and not the Movie Channels alone.

76 TMNC was critical of the primary judge for considering what a reasonable subscriber would regard as the retail price of the Movie Channels. It was not in my view irrelevant or unhelpful for the judge to undertake that inquiry. Whilst the ultimate question is what reasonable people in the position of the parties to the CSA would have considered was the relevant retail price (see Toll v Alphapharm at [40]; see above at [71]), the fact that the price in issue is a “retail” one means that consideration is required of the arrangements between Optus Vision and its subscribers and therefore inevitably, as at least one factor in determining the meaning of the relevant expression, of what the subscriber would regard as the price which he or she was required to pay to obtain access to the Movie Channels.

77 As the primary judge pointed out, it is possible to multiply examples “ad nauseam” (Judgment [65] quoted at [21] above). One more may however be useful. A bread manufacturer is most unlikely to regard the retail price of a slice of bread as equivalent to that of a loaf. Likewise, from the perspective of a consumer, it would not accord with commonsense to describe the cost of a slice of bread as equivalent to the cost of a loaf simply because a slice could only be purchased by purchasing a whole loaf.

78 Another factor weighing against TMNC’s construction is that, as is apparent from the form of declarations which it sought (see [20] above), its construction requires the expression “retail price for the Movie Channels” to be read as “the retail price for the package (including a basic tier and any premium tier of programme) that must be purchased to access the Movie Channels”. Optus Vision rightly pointed out that Clause 4.8 of the CSA (see [12] above) demonstrates that, unsurprisingly, the parties were familiar with the concept of packaging of services. If they had wanted to refer to a package of which the Movie Channels formed a part, rather than simply the Movie Channels, it would have been natural for them to use the word “package” or some similar expression in Clause 7.4. Instead they used an expression which focussed directly on the Movie Channels themselves and which did not suggest that the way in which the Movie Channels were packaged was relevant.

79 It might be said in response to this point that the parties could equally have been expected to use the word “tier” in Clause 7.4, if that was what they intended, because that word is also used in Clause 4.8. However, this could in fact be regarded as an argument in favour of construing the reference to “the retail price for the Movie Channels” as a reference to what was described at the hearing of the appeal as the “disaggregated tier price” of the Movie Channels, that is, the price of the Movie Channels component of the tier which comprised the Movie Channels and sports channels. Optus Vision did not however contend, either at first instance or on appeal, that the relevant retail price was this disaggregated price. It said that it was unnecessary in the context of the present dispute for it to put such an argument because the disaggregated price could not exceed the full tier price (and presumably would be considerably less) and that even if the tier price were regarded as the relevant retail price, TMNC had been fully paid that to which it was entitled under the CSA, with the consequence that TMNC must fail in its claim. Thus, on these assumptions, which were not disputed by TMNC, Optus Vision said that consideration of whether “the retail price for the Movie Channels” was a lesser price than the tier price did not arise in the proceedings. Optus Vision said that this was why the primary judge spoke in terms of “the retail price for the Movie Channels” being “no more than” the price of the tier (see Judgment [64] quoted in [21] above).

80 TMNC asserted in its Written Submissions in Reply ([9]) that it would in any event have been “impossible” to disaggregate the tier price to identify the retail price of the Movie Channels alone. Whether this was so was not explored in the evidence or argument and accordingly does not arise for determination. I do however note that not infrequently the courts are required to undertake tasks of considerable difficulty and complexity (see for example the references in The Council of the Upper Hunter County District at 436-7 and 439 to the difficulty of determining the denotation of the expression “supplier’s costs” in the context of that case) and that courts rarely, if at all, conclude that it is impossible to apply a contractual provision.

81 If, as is in fact the case because of the way these proceedings were conducted at first instance and on appeal, it is not open to this Court to conclude that “the retail price for the Movie Channels” was the disaggregated tier price of the Movie Channels, that retail price must in my view, as Optus Vision submitted, be regarded as being the closest approximation to the disaggregated price that it is possible to identify. That approximation is the price charged to a subscriber for subscribing to the tier upon which the Movie Channels and sports channels were to be found. It is unnecessary in these circumstances to read into Clause 7.4 the word “tier” because the relevant retail price is the closest approximation to the price of the Movie Channels alone which can be identified on the facts of this case. Accordingly the fact that the word “tier” appears in Clause 4.8 but not in Clause 7.4 is not in my view of any particular significance.

82 A circumstance which is in any event in favour of the relevant price being the tier price rather than a disaggregated tier price is the fact that the price under consideration is a “retail” price, a term which arguably brings into account the knowledge and perceptions of the consumer. It can fairly be argued that a price cannot be a “retail price” unless the persons who are paying it know what it is. On this basis, the retail price of the Movie Channels could not be a notional disaggregated price of the relevant components of the tier but must be the cost of subscribing to the tier, that being, unlike any disaggregated tier prices, a price of which subscribers were aware.

83 On appeal, TMNC referred on a number of occasions to a new pay television subscriber who wanted the Movie Channels being able to subscribe to a “Deluxe Package” which included access to the Basic Package channels and to the Movie Channels and sports channels. Optus Vision complained that this reflected a shift in TMNC’s arguments from what they had been at first instance and that TMNC had not proved that such a product was presented to prospective subscribers. I do not however consider this to be a point of significance because whether prospective subscribers were presented with the opportunity to purchase such a Deluxe Package or not, it would have been clear to them, at least by a simple process of deduction of the advertised price of the Basic Package from the Deluxe Package price, what was the additional cost of subscribing for the tier containing the Movie Channels and sports channels.

84 TMNC further submitted that Optus Vision’s construction did not cater for a situation in which access to the Movie Channels comprised part of the Basic Package. Optus Vision responded, correctly in my view, that it was a consequence of its arguments that, if it included the Movie Channels in the Basic Package, the Basic Package price would be “the retail price for the Movie Channels”. As such, Optus Vision’s argument did therefore cater for the situation that TMNC postulated.

85 TMNC also submitted that on Optus Vision’s construction it would have been easy for Optus Vision to prevent Clause 7.4 operating so as to entitle TMNC to an increased licence fee. It said that to avoid an increased licence fee Optus Vision could simply have adjusted its packaging from time to time. I do not agree that this is a factor weighing against Optus Vision’s construction. The most that Optus Vision could have done to minimise or negate the operation of Clause 7.4 would have been to put the Movie Channels on a tier of their own without a requirement for a subscriber to the tier to subscribe also to the Basic Package or any other service. If this occurred the resulting price of the tier (which would have comprised the Movie Channels only) would clearly and naturally have been “the retail price for the Movie Channels”. I do not see how it could be argued that such a result would mean that Clause 7.4 had an uncommercial or unintended operation. Depending upon the factual situation at the date of the CSA, Clause 4.8 (quoted in [12] above) might have prevented Optus Vision from taking this course but that is not a matter which arises for determination on the present appeal. What is presently important is that that course, that is, the Movie Channels being available for subscription without the need to subscribe to any other services, would not have conflicted with the sensible operation of Clause 7.4.

86 TMNC also submitted that for two further reasons (see [34], [35] above) Optus Vision’s construction did not give Clause 7.4 “a sensible commercial operation”. Optus Vision’s primary response to these submissions, that they ignored the prospect of changes from time to time in Optus Vision’s packaging, was in my view an effective one. If the Movie Channels had been packaged with other valuable services as well as, or instead of, sports channels, the benchmark for the operation of Clause 7.4 ($46.90 in respect of Unbundled Subscribers) might readily have been achieved. Indeed, as Optus Vision pointed out, not long after the inception of the CSA, Optus Vision included the Movie Channels in its Basic Package resulting in the “retail price for the Movie Channels”, according to Optus Vision’s construction, being at that time $37.95. In these circumstances, it cannot be said that if Optus Vision’s construction is correct, the benchmarks in Clause 7.4 were unattainable in any commercially realistic circumstances.

87 The submissions of TMNC as to lack of commercial reality would have had more substance if Optus Vision had contended that the relevant price was a disaggregated tier price. In such an event, the fact that the CPS of $7.15 used in the calculation of the Licence Fee payable by Optus Vision to TMNC under Clause 7.1 of the CSA (see [12] above), being what TMNC described as the “wholesale price”, was only a small proportion of the retail price referred to in Clause 7.4 ($46.90 for Unbundled Subscribers) may have seemed incongruous. It would have suggested that the cost to Optus Vision of obtaining access to the Movie Channels (the “wholesale price”) was only a small fraction of the price which it may have been able to obtain from subscribers for giving access to them (the “retail price”). However where the price contended for is not a disaggregated price but a tier price and the price of the package in which the Movie Channels are placed is therefore what is relevant, no satisfactory comparison can be made between the “wholesale price” and the “retail price” because the latter may have included (and on the facts here, did include) the price of significant services apart from the Movie Channels.

111 For the reasons I have given in [97] – [106] above, for this third “fact” to be available on the question of construction, it would have had to have been shown that the parties had actual knowledge of it, albeit that such actual knowledge could have been established by a process of inference. TMNC did not show this. Knowledge of the fact might have been “reasonably available” in the sense that if TMNC (or Optus Vision) had wanted to acquire the knowledge it presumably could have done so. However I do not consider that there is any basis for considering the knowledge to be “notorious” such that it could be inferred, without any other evidence, that both parties had the knowledge.

112 Even if TMNC could have shown, first, that the Austar package price was the source of the figure apparently mentioned at the March meeting, secondly, that the source of the figure continued to have relevance at the time of the CSA notwithstanding the extensive intervening negotiations and, thirdly, that the parties both knew that the price was a package price for the Basic Package plus a Movie Channels tier, I still would not have adopted TMNC’s construction of the expression “retail price of the Movie Channels”.

113 The various considerations to which I referred in [68] – [89] above are to my mind too strong to be negated by what I would regard as a factor pointing only weakly in favour of TMNC’s construction. The facts, first that “the retail price for the Movie Channels” would, on Optus Vision’s construction, extend to the price of the Basic Package if the Movie Channels were placed in it, and secondly that the escalation provision in Clause 7.4(a) was not a conventional, inflation-related escalation clause (see [89] above) are of particular significance in this respect.

114 I add in conclusion in relation to the evidence concerning the March meeting that TMNC’s difficulties were compounded by the fact that TMNC was not incorporated until some time after the March meeting and that not all of the studios that became shareholders of TMNC were represented at the March meeting. I agree with the primary judge ([54] - [59] of his Judgment) that TMNC did not establish a means of overcoming this hurdle and that the Court could not therefore conclude that any knowledge acquired at, or shown to have been demonstrated by those participating in, the March meeting was knowledge of TMNC.

115 For these reasons, I do not consider that the extrinsic evidence that TMNC relied upon is of assistance to it. I accordingly maintain the view I expressed earlier as to the correct construction of the relevant expression (see [72] above).

The Austar Agreement

116 A copy of the Austar Agreement (see [13] – [16] above) was exhibited to the CSA. Accordingly it was in my view part of the CSA and is for that reason available to be taken into account in construing the CSA. It was not evidence extrinsic to the CSA but, if it had been, the fact that in the body of the CSA the parties acknowledged the Austar Agreement’s existence and identified it, would have been sufficient to warrant an inference being drawn of the parties’ mutual knowledge of it and thereby render it available to be used in construing the CSA.

117 I agree with the primary judge’s view (Judgment [36] – [37] quoted in [24] above) that the terms of the Austar Agreement assisted Optus Vision’s case. As the judge said, the expression “Retail Price … for the MovieVision Services” was used in the Austrar Agreement to refer to the price of the tier upon which the MovieVision Services were placed. This supports the view that the parties would have used the similar expression (“retail price for the Movie Channels”) in the body of the CSA in a similar sense and thus have likewise intended to refer to a tier price, and not to the sum of tier price plus the price of the Basic Package. It is true, as TMNC pointed out (see [44] above) that the Austar Agreement was exhibited to the CSA for a limited purpose and that the Austar Agreement provided for a different calculation of remuneration than in the CSA. However, the way in which the expression “retail price” was used in the Austar Agreement remains a significant factor favouring Optus Vision’s construction of the CSA.

118 Its significance is weakened somewhat because, although it was the fact (see Judgment [15] quoted in [7] above), it does not appear clearly from the Austar Agreement itself that the MovieVision tier stood above a Basic Package, in the sense that a subscription to the latter was a pre-requisite to an entitlement to subscribe to the former. It seems to me however that the use in the Austar Agreement of the word “tier” in relation to the MovieVision Services suggests that there was some such requirement and I consider that the Austar Agreement can fairly be understood as on its face, treating the tier price, rather than a Basic Package plus tier price, as the “retail price” for the MovieVision services. As the agreement was exhibited to the CSA, the parties to the CSA can be taken to have understood this.

Bundled Subscribers – Clause 7.4(a)(ii)

119 Clause 7.4(a)(ii) (see [12] above) related to Bundled Subscribers. The CSA defined these as being subscribers who had “subscribed for Pay Television with Optus Vision in a Package which include[d] telephony or other services provided by Optus Vision or any of its Related Bodies Corporate” (see above at [11]). TMNC’s contention was that in the case of such subscribers “the Optus Vision retail price for the Movie Channels” included first the cost of subscribing for the tier upon which the Movie Channels (together with sports channels) were placed, secondly the cost of the Basic Package the subscription to which was an essential pre-requisite to subscription to the Movie Channels tier and thirdly the cost of telephony (or other relevant services) provided to such subscribers.

120 If the view I have taken of the meaning of “the Optus Vision retail price for the Movie Channels” where it is used in relation to Unbundled Subscribers is correct, the same meaning is in my view applicable to the expression where used in the context of Bundled Subscribers. I can see no reason why the parties would have included the cost of the Basic Package in “the Optus Vision retail price of the Movie Channels” in the case of Bundled Subscribers if they did not do so in the case of Unbundled Subscribers. There is nothing in the CSA that suggests that any such distinction should be drawn between types of subscribers. Further, the rationale for not regarding the price of the Basic Package as included in “the retail price for the Movie Channels” applies equally in relation to the price of telephony and other services. For the reasons given earlier (see [68] – [89] above) the “Optus Vision retail price for the Movie Channels” is thus in relation to Bundled Subscribers also, no more than the price of the tier on which the Movie Channels (along with sports channels) are placed.

121 TMNC’s contention that in the case of Bundled Subscribers the price of telephony or other services forms part of the “retail price for the Movie Channels” is in my view in fact weaker than its argument that the Basic Package price is included in the “Optus Vision retail price for the Movie Channels”. I have formed this view for several reasons.

122 First, unlike the position in relation to the Basic Package, there is no price that can be identified as a cost that must to be incurred as a pre-requisite to the entitlement to subscribe to the Movie Channels tier. Subscription to telephony or other services was not a pre-requisite to subscription for the Movie Channels/sports channels tier. Further, TMNC points to the amount of $10.95 which it said was the lowest cost of a monthly telephony service (see Judgment [15] quoted in [7] above). However payment of this amount did no more than enable telephone calls to be made. It did not cover the cost of any calls. Separate charges were made for these. As such, because call charges could have been expected to be incurred (presumably in sharply varying amounts), the figure of $10.95 was not a realistic reflection of the cost of the telephony service. The position differed in relation to the price of subscription to the tier upon which the Movie Channels were placed. Payment of that price entitled a subscriber to access the Movie Channels without having to pay any additional usage charges.

123 Secondly, the package for which Bundled Subscribers subscribed might have included “other services” rather than telephony (see the definition of Bundled Subscribers – [11] above). The cost of these might have been more, or less, than the amount of $10.95 said to be the relevant price for telephony. In these circumstances it could not be said that the amount of $10.95 had any universal application as the price paid for telephony or other services by Bundled Subscribers such that its inclusion as an element of the “Optus Vision retail price for the Movie Channels” was warranted.

124 Thirdly, Clause 7.4(a) refers to the “Optus Vision retail price for the Movie Channels” whereas the definition of “Bundled Subscribers” contemplated the inclusion, in the bundle for these subscribers, of telephony or other services that Optus Vision “or any of its Related Bodies Corporate” provided. The primary judge found that Optus Vision did not supply telephony services (see [68] of his Judgment quoted in [22] above). Some discussion occurred on the appeal as to whether this finding was correct but TMNC ultimately conceded that it was, although it made the point that Optus Vision had an agency role in that supply. An agency role in the supply of telephony would not in my view of itself qualify Optus Vision as a supplier of telephony services for the purposes of the provisions under discussion.

125 Against this factual background, the proposition that the price charged for telephony formed part of the “Optus Vision retail price for the Movie Channels” is difficult to accept: at least telephony, and perhaps other services, were supplied by related corporations rather than “Optus Vision”.

126 TMNC sought to overcome this difficulty by submitting that the words “Optus Vision” in Clause 7.4(a)(ii) were a shorthand reference to “Optus Vision or its Related Bodies Corporate” (see [47] above). However, “Optus Vision” was expressly identified at the commencement of the CSA as Optus Vision Pty Ltd and I can see no basis for concluding that that definition was inapplicable to the term “Optus Vision” where used in Clause 7.4(a).

127 TMNC’s alternative approach in respect of Bundled Subscribers (see [48] above) involved first an acceptance that the price of telephony and other services did not form part of “the retail price for the Movie Channels” in relation to Bundled Subscribers, and secondly a contention that nevertheless, as in the case of Unbundled Subscribers, the cost to subscribers of the Basic Package was included in that price. However, for reasons I have given in [68] – [89] above, I do not consider this to be the correct construction of the relevant phrase.

The Extended Term

128 The issue in relation to the Extended Term was whether Clause 7.4(a)(ii) could apply in the Extended Term when, because the term of the CSA had been extended by TMNC rather than Optus Vision (see [9] above), there was no Minimum Guaranteed Number of Subscribers. In light of my conclusion on the issues with which I have already dealt, the determination of this issue does not affect the rights of the parties. Optus Vision is entitled to succeed on the appeal even if this point is decided against it. Nevertheless, I express my view on the point as follows.

129 I do not agree with Optus Vision’s submission that the subclause cannot operate where there is no Minimum Guaranteed Numbers of Subscribers. In my view, which is contrary to that of the primary judge (see [28] above), if there are no Minimum Guaranteed Numbers of Subscribers, the shortfall “between the number of Unbundled Subscribers and the Minimum Guaranteed Numbers of Subscribers” (Clause 7.4(a)(ii)(A) – see [12] above) is zero. This construction permits subclause (B) to operate according to its terms even where there is no Minimum Guaranteed Number of Subscribers. The contrary view would render subclause (B) sterile in that situation. I can see no logical reason why the parties would have intended that to occur. A sensible businesslike interpretation of the provision (see [71] above) in my view requires the shortfall in question to be treated as zero. I consider that that is one of the available interpretations of the words used. As it is the one which gives the contractual provision efficacy in a situation in which there is no apparent reason why it would not have been intended to operate, it should be preferred over one which does not. As was indicated in the plurality judgment in Zhu, a commercial agreement should be construed “so as to avoid it making commercial nonsense or working commercial inconvenience” (at [82]). In my view this principle extends to requiring a court to prefer a construction which is open on the language of an agreement and which permits its operation in circumstances in which it appears to have been intended to operate, over a construction which is open but does not permit that.

Orders

130 As TMNC has failed to establish that the primary judge erred in his construction of the expression “the Optus Vision retail price for the Movie Channels” in relation to either Unbundled or Bundled Subscribers, its appeal should be dismissed with costs.

131 YOUNG JA: I agree with Macfarlan JA, however, I wish to add a few comments dealing with some of the additional considerations which have reinforced for me the result which his Honour reached.

132 The key phrase is “the Optus Vision retail price for the Movie Channels”.

133 The problem comes about because it is not instantly apparent what is the “price” for an item if that item may only be purchased along with other items.

134 Despite the recent penchant for marketeers to proclaim “Buy one and get one free!” there has been little consideration by the courts as to the impact of that sales strategy on the determination of the individual price for each of the items sold.

135 The classic case is the decision of the House of Lords in Chappell& Co Ltd v Nestlé Co Ltd [1960] AC 87. That case concerned copyright of a musical work which Nestlé were providing to consumers for 15p plus the wrappers of three of its 5p chocolate bars. Under s 8 of the Copyright Act 1956 (UK) (now repealed and not replaced, but the equivalent may be found in the Australian Copyright Act 1968 (Cth) s 55(6)(b)) there was no breach of copyright in a musical work if the user of the work gave advance notice and paid 6.25% of the ordinary retail selling price of its record. The question for the English courts was “What was the ordinary retail selling price?” in the circumstances.

136 Upjohn J, at first instance, held that there was no retail sale and thus s 8 was inapplicable. This was reversed by the Court of Appeal (see [1958] Ch 529) on the basis that there was a retail sale as there was a sale to the consumer and that, the retail selling price was 15p, the wrappers merely indicating the class of people to whom Nestlé was willing to sell.

137 The House of Lords by 3/2, reversed the Court of Appeal’s decision. Of the three Lords in the majority, two held that the wrappers were part of the consideration for the transaction, the section only applied where there was a consideration in money, so that there was no ordinary retail selling price. Thus the section allowing a compulsory license did not apply.

138 The third Lord in the majority, Lord Reid, reached the same conclusion, but also appeared to consider that there was no ordinary retail sale and so no ordinary retail selling price.

139 The only other reported case that I have discovered on the use of the phrase “ordinary retail selling price” (or the Australian equivalent “retail selling price of the record”) in copyright law is Discount Inter Shopping Co Ltd v Micrometro Ltd [1984] Ch 369 where Vinelott J held that the person liable to pay the compulsory licence fee could not deduct the cost of packing and postage from the amount that it received from the consumer in calculating the retail price.

140 In Kanthal Australia Pty Ltd v Ministry for Industry, Technology and Commerce [1987] FCA 38; (1987) 14 ALD 559, a case involving the calculating of customs anti-dumping tariff, Davies J of the Federal Court said that where the situation is that goods are sold for different prices to different buyers depending on the volume of sales or other factors, one does not look at the range of prices, nor necessarily take the lowest price, but one looks to see if there is some basic figure disclosed in the evidence from which adjustments are made.

141 While the above is instructive up to a point, it does not provide vital assistance to the decision in the instant case.

142 First, in contradistinction to the Nestlé case, the present is not a sale of goods, so that one is not concerned with the precise definition of sale nor whether the legislation restricts “price” to consideration in money.

143 However, it must be borne in mind that whilst for many purposes the concepts of price, value and consideration for a transaction are virtually synonymous, there is a distinction which may sometimes be of significance.

144 Again, there is authority in the USA for the proposition that an indirect advantage to a person, for instance in the chance of attaining a larger attendance at its cinema is not properly described as part of the price, Commonwealth v McLaughlin 29 NE (2d) 821,822 (1940) (Mass).

145 Whilst considering American authority, an Ohio case, Roberts & Sons Inc v Kosydar 330 NE (2d) 437 (Ohio) (1975) held that where, on “conversion” of a partnership into a limited company, the assets were transferred to the company in consideration of the issue of shares, no sales tax was payable on the transfer of the motor vehicles which were among the partnership assets as there was no price paid for the vehicles. This suggests the proposition that where one can only acquire X by also acquiring Y there is no price attributable to X.

146 Thus, when I turn to the appellant’s submissions set out in [29] of Macfarlan JA’s reasons, that there are only two possible constructions of the phrase “the Optus Vision retail price for the Movie Channels” I have an intellectual difficulty. There are at least three other possibilities: viz (a) that there is no Optus Vision retail price; (b) that that price is what a valuer would assess as the retail price for the movies alone, the sort of concept referred to as the “disaggregated tier price” in the principal judgment; or (c) what a reasonable consumer would assess as being the price he or she would need to pay to secure the right to view the movies.

147 The second and third of these possibilities might be the retail price, but not the “Optus Vision retail price”. The first possibility is in accordance with the learning analysed above.

148 However, courts must be careful not to take the view that they are far more knowledgeable than the litigants and to impose a solution that was not part of the argument. The litigants are entitled to an adjudication on the case they present.

149 Furthermore, there is a strong argument that to take what might be the technically correct view on the words used in their normal context that there would be no retail price for the movie channels when they were packaged with other services would not be in accord with the intention of the parties as manifested in the remainder of the documentation.

150 Thus, I am compelled to choose only between the two views put by the parties.

151 On that basis, for the reasons given by Macfarlan JA, the respondent’s proposition is superior and should be accepted.

152 Thus, I agree that the appeal should be dismissed with costs.

: I agree with the orders proposed by Macfarlan JA. I agree generally with his Honour’s reasons, but I wish to add some observations of my own explaining the conclusion I have reached.

The Question of Construction

154 The question of construction arises in the present case because the parties chose to enter the Channel Supply Agreement of 25 August 1999 (“CSA”) without defining an expression of obvious importance, namely “the Optus Vision retail price for the Movie Channels”. The meaning of that undefined expression is critical to the operation of cl 7.4 of the CSA which specifies the circumstances in which the Charge Per Subscriber (“CPS”) will increase and the amount of any increase.

155 The respondent (“Optus Vision”) maintains that, since it is the appellant (“TMNC”) which is claiming declaratory relief, TMNC must establish that its construction of cl 7.4 of the CSA is correct. As Macfarlan JA has pointed out, Mr Hutley SC, who appeared with Mr Brereton SC and Ms Rao for Optus Vision, submitted that Optus Vision does not have to establish that a particular alternative construction of cl 7.4 is correct in order to defeat TMNC’s claim for relief. According to Mr Hutley, Optus Vision can defeat TMNC’s claim by advancing two or more alternative constructions of cl 7.4 without necessarily choosing between them, so long as one or more of the alternatives is more likely to be correct than TMNC’s preferred interpretation. On this basis, Mr Hutley argued that the expression “the Optus Vision retail price for the Movie Channels” means the additional price payable by a subscriber to the Basic Package of pay television services provided by Optus Vision to obtain access to a tier that includes the Movie Channels. However, Mr Hutley indicated that he wished to leave open the possibility that the expression means the “disaggregated tier price” of the Movie channels, although he did not develop that argument. He contended that Optus Vision can successfully resist TMNC’s claim that the “Optus Vision retail price for the Movie Channels” by showing that the retail price cannot exceed the price payable by an existing subscriber for a tier containing the Movie Channels.

156 It is no doubt correct that TMNC must establish that its construction of the CSA is correct in order to obtain declaratory relief. It is less clear that Optus Vision can defeat TMNC’s claim by contending that two or more alternative constructions of the CSA are more likely to be correct, without identifying which of them is in fact the correct construction of the CSA.

157 In this respect, it is necessary to take into account s 63 of the Supreme Court Act 1970 (“SC Act”), which provides as follows:

“The Court shall grant, either absolutely or on terms, all such remedies as any party may appear to be entitled to in respect of any legal or equitable claim brought forward in the proceedings so that, as far as possible, all matters in controversy between the parties may be completely and finally determined, and all multiplicity of legal proceedings concerning any of those matters avoided.”

Coles v Wood

fundamental to the efficient, economical and rational administration of the Supreme Court

158 If Optus Vision can defeat TMNC’s claim for declaratory relief without identifying which of its alternative constructions of cl 7.4 of the CSA is correct, there is a risk of multiplicity of proceedings between the parties. The risk comes about because, even if Optus Vision succeeds in resisting TMNC’s claim for declaratory relief, the Court will not necessarily have conclusively determined the correct construction of cl 7.4 of the CSA. On this hypothesis, TMNC’s claim will be dismissed but the proceedings will not create an issue estoppel between the parties as to the correct construction of cl 7.4. It follows that if a further dispute arises as to the construction of cl 7.4 (or the present dispute continues), one or other of the parties can institute fresh proceedings to resolve the outstanding questions of construction. The parties would then be free to debate the merits of the remaining alternatives without being bound by anything said in the earlier proceedings (other than the rejection of TMNC’s construction of cl 7.4).

159 It is difficult to see how this would advance the statutory objective of determining all matters in controversy between the parties and avoiding a multiplicity of legal proceedings concerning any of those matters. Accordingly, I think that Optus Vision should not be permitted the luxury of reserving its position on the correct construction of cl 7.4 of the CSA.

160 Optus Vision has not filed a cross-claim in the proceedings. It is not necessary to determine whether, in the absence of a cross-claim, the Court can make orders reflecting the proper construction of cl 7.4, assuming that it rejects TMNC’s submissions: cf Ritchie’s Uniform Civil Procedure (NSW), at [SCA s 63.5]. The Court will comply with s 63 of the SC Act, in my opinion, if it states specifically that TMNC’s claim fails because Optus Vision’s preferred construction of cl 7.4 of the CSA is correct. The Court would then have directly resolved the issue of construction in the course of resolving the rights and obligations of the parties. Consequently, although the requirements for the creation of an issue estoppel are “strict” (Kuligowski v Metrobus [2004] HCA 34; 220 CLR 363, at 379 [40], per curiam), it would seem that an issue estoppel between the parties and their privies would be created: Ramsay v Pigram [1968] HCA 34; 118 CLR 271, at 276, per Barwick CJ.

Extrinsic Circumstances

161 The parties spent a great deal of time analysing extrinsic circumstances which were said, particularly by TMNC, to assist in construing the key expression in cl 7.4. Clearly some circumstances, such as the pricing structure adopted by the respondent (“Optus Vision”) at the time the CSA was executed may be important in construing the CSA, including cl 7.4. Apart from anything else, cl 4.8 of the CSA specifically provides that Optus Vision is not to:

than the arrangements as at the date of this Agreement

tiering

packaging

162 However, for the reasons given by Macfarlan JA, many of the extrinsic matters relied on by TMNC are of little or no assistance in construing cl 7.4 of the CSA. In particular, despite TMNC’s submissions, no particular significance should be attached to the figure of $46.90 simply because it happened to match Austar’s retail price for a Basic Package plus a tier containing Movie Channels. The primary Judge’s factual findings militate against attributing particular significance to this figure.

Factors Supporting Optus Vision’s Preferred Construction

163 Macfarlan JA has identified a number of matters supporting Optus Vision’s preferred construction of cl 7.4. In my opinion, two particular factors support the conclusion that, as between Optus Vision’s preferred construction of cl 7.4 of the CSA and the construction advanced by TMNC, the former better reflects the intentions of the parties to the CSA, objectively assessed.

164 The first is that the CSA contains provisions indicating that subscribers would gain access to the Movie Channels by subscribing to a tier and that cl 7.4 is concerned with the price of a subscription to that tier. The primary Judge pointed (at [71]) to the definition of “Subscriber” (“persons who are authorised to receive at least one of the Movie Channels”) as providing one indication. In my opinion, other provisions in the CSA also support Optus Vision’s construction of cl 7.4.

165 The CSA explicitly refers to the concept of a “tier”. Clause 1.1 defines “Competing Channel” to mean:

“(a) a premium tier (i.e. sold a la carte) movie service [that meets certain conditions]; or

(b) a basic tier movie service [that meets certain conditions].”

166 The definition of “Competing Channel” is relevant to the operation of cl 12 of the CSA which is headed “RECIPROCAL RIGHTS”. Clause 12.2 prevents TMNC from authorising the Movie Channels to be carried on another platform that carries Competing Channels, unless Optus Vision has been offered the right to carry such Competing Channels upon terms which, subject to certain exceptions, are no less favourable to Optus than the terms upon which the Movie Channels are offered by TMNC to that other platform.

167 The definition of “Competing Channels” in the CSA implies that Movie Channels will or can be sold to subscribers on a “premium tier” or on a “basic tier movie service”. Neither of these terms is defined in the CSA, except that a premium tier is said to be sold “a la carte”, from which it can be inferred that Optus Vision or any competing pay television supplier might sell the Movie Channels (individually or collectively) to subscribers separately from any other pay television offering. It also can be inferred that the expression “basic tier movie service” refers to the first tier offered to subscribers, over and above the basic package, which includes Movie Channels and other content. The definition of “Competing Channels” therefore also implies that Movie Channels can be sold to subscribers on a tier which combines the Movie Channels with other content.

168 Clause 4.8, to which I have already referred, implies that Optus Vision can “tier” the Movie Channels and that, unless constrained by the CSA, can do so in a manner that is less favourable to TMNC than the arrangements in place at the date of the CSA. One way in which Optus Vision could “tier” the Movie Channels in a manner disadvantageous to TMNC is to price the tier on which the Movie Channels are available at a level that reduces the take-up rate of subscribers. It follows that cl 4.8 contemplates that Optus Vision might offer the Movie Channels to subscribers on a tier (with or without other content) and that subscribers will be required to pay a subscription for that tier if they wish to receive it.

169 In addition to these matters, the Austar Term Sheet, which is exhibited to the CSA, clearly contemplates that movie channels will be offered by Austar to subscribers on a tier. Clause 9 of the Austar Term Sheet, for example, is headed “Retail Price”. It provides that after the expiry of the “Initial Period”:

“the MovieVision Services will be offered by [Austar Entertainment Pty Ltd] to its subscribers as a competing tier to the PMP channels at a retail price that is no less favourable to its subscribers than the retail price for the PMP movie channels.”

170 Clause 9 of the Austar Term Sheet is clearly drafted on the assumption that subscribers will be able to subscribe to a tier including movie channels and that the price paid by the subscribers for that tier will be the retail price.

171 These provisions seem to me to support the conclusion that “the Optus Vision retail price for the Movie Channels”, for the purposes of cl 7.4 of the CSA, means the additional price paid by a subscriber to the Basic Package to obtain access to a tier that includes the Movie Channels. The terms of the CSA, particularly when read with the Austar Term Sheet, contemplate that the Movie Channels will be available to subscribers on a tier and that subscribers will pay an ascertainable price for that tier. The tier may comprise only the Movie Channels (or some of them) or may include other content. But the price paid by subscribers for that tier is the retail price with which cl 7.4 of the CSA is concerned.

172 There is nothing in the language of cl 7.4, or for that matter in the other provisions of the CSA, which affirmatively suggests that the parties intended “the Optus Vision retail price for the Movie Channels” to mean the total price that a new subscriber would have to pay to gain access to the Movie Channels, including the price of the basic package. In particular, there is nothing to negate the inference from the provisions to which I have referred that the parties contemplated that the Movie Channels would be supplied to subscribers on a tier and that, where this occurs, cl 7.4 is intended to refer to the price paid by subscribers for that tier.

173 The second factor supporting Optus Vision’s preferred construction of cl 7.4 is that Optus Vision, at the date of the CSA, supplied the Movie Channels on a tier and charged subscribers a fee to access that tier. The arrangements in place at the date of the CSA can be taken into account because they are specifically referred to in cl 4.8 of the CSA. In any event, it can be readily inferred that both parties were well aware of the arrangements. Optus Vision put the arrangements in place. The arrangements were widely advertised to subscribers and potential subscribers. It is hardly to be supposed that TMNC was unaware of how Optus Vision was marketing the Movie Channels at the date of the CSA.

174 Under the arrangements in place at the date of the CSA, an existing subscriber to Optus Vision’s “Basic Package” had to pay an additional amount to gain access to the “Deluxe” package. The “Deluxe” package covered the Basic Package and a tier incorporating the Movie Channels and three sports channels. The additional cost to existing subscribers ($20 per month for unbundled subscribers), as I have already noted, was publicly advertised.

175 New subscribers wishing to access the Movie Channels had to subscribe to the Deluxe package. While they had to pay a single amount ($39.95 per month for unbundled subscribers), the portion of this subscription attributable to the tier including the Movie Channels was readily ascertainable from Optus Vision’s advertised prices ($20 per month for unbundled subscribers). As the primary Judge pointed out, an objective observer would have no difficulty in determining that the retail price for the tier containing the Movie Channels was $20 per month for unbundled subscribers.

176 In view of the arrangements in place at the date the CSA came into force, I do not think it correct to characterise Optus Vision’s construction of cl 7.4 as producing a “notional price which nobody faces or pays”. A construction which focuses on the cost of a tier, the content of which includes the Movie Channels, produces a “retail price” that would immediately be recognised by any objective observer, including subscribers or potential subscribers to the Optus Vision pay television service.

177 As Mr Gleeson SC, who appeared with Mr Moore for TMNC, pointed out, it is consistent with the terms of the CSA for Optus Vision to include the Movie Channels in the subscription to the Basic Package, rather than to require subscribers wishing to have access to the Movie Channels to subscribe to a tier in addition to the Basic Package. Indeed, that is what happened for a short time. However, I see no difficulty in these circumstances in regarding the retail price for the Movie Channels as the price payable by subscribers for the Basic Package. The only way in any subscriber, existing or new, can gain access to the Movie Channels is by subscribing to the Basic Package. The subscription so paid is aptly described as “the Optus Vision Retail Price for the Movie Channels”.

Conclusion

178 It is for these reasons that I agree with the orders proposed by Macfarlan JA.

**********

19/05/2010 - Minor errors corrected. - Paragraph(s) [102] and [104]

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Citations

The Movie Network Channels Pty Ltd v Optus Vision Pty Ltd [2010] NSWCA 111

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CITATION:	The Movie Network Channels Pty Ltd v Optus Vision Pty Ltd [2010] NSWCA 111 This decision has been amended. Please see the end of the judgment for a list of the amendments.
HEARING DATE(S):	25, 26 February 2010; 5 March 2010
JUDGMENT DATE:	19 May 2010
JUDGMENT OF:	Macfarlan JA at 1; Young JA at 131; Sackville AJA at 153
DECISION:	The appeal is dismissed with costs.
CATCHWORDS:	CONTRACT - agreement for provision of movie television channels to pay television operator - meaning of "the Optus Vision retail price for the Movie Channels" - evidence of extrinsic facts - whether mutual knowledge of facts must be actual knowledge - distinction between denotation and connotation
LEGISLATION CITED:	Copyright Act 1956 (UK) (repealed) Copyright Act 1968 Supreme Court Act 1970
CATEGORY:	Principal judgment
CASES CITED:	Bank of Credit and Commerce International SA v Ali [2002] 1 AC 251 CGU Insurance Ltd v Porthouse [2008] HCA 30; (2008) 235 CLR 103 Chappell & Co Ltd v Nestlé Co Ltd [1960] AC 87 Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1981-1982) 149 CLR 337 Coles v Wood [1981] 1 NSWLR 723 Commonwealth v McLaughlin 29 NE (2d) 821,822 (1940) (Mass) Discount Inter Shopping Co Ltd v Micrometro Ltd [1984] Ch 369 Eastman v The Queen [2000] HCA 29; (2000) 203 CLR 1 Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407 Hope v RCA Photophone of Australia Pty Limited [1937] HCA 90; (1937) 59 CLR 348 Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896; [1998] 1 All ER 98 Kanthal Australia Pty Ltd v Ministry for Industry, Technology and Commerce [1987] FCA 38; (1987) 14 ALD 559 Kuligowski v Metrobus [2004] HCA 34; (2004) 220 CLR 363 Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70; (2001) 210 CLR 181 McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; (2000) 203 CLR 579 Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451 Prenn v Simmonds [1971] 1 WLR 1381; [1971] 3 All ER 237 Ramsay v Pigram [1968] HCA 34; (1967-1968) 118 CLR 271 Reardon Smith Line v Hansen-Tangen [1976] 1 WLR 989; [1976] 3 All ER 570 Roberts & Sons Inc v Kosydar 330 NE (2d) 437 (Ohio) (1975) Royal Botanic Gardens and Domain Trust v South Sydney City Council [2002] HCA 5; (2002) 76 ALJR 436 The Council of the Upper Hunter County District v Australian Chilling and Freezing Co Ltd [1968] HCA 8; (1967-1968) 118 CLR 429 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 Zhu v Treasurer of the State of New South Wales [2004] HCA 56; (2004) 218 CLR 530
TEXTS CITED:	Hon J J Spigelman AC, "From text to context: Contemporary contractual interpretation" (2007) 81 Australian Law Journal 322 Ritchie's Uniform Civil Procedure NSW (LexisNexis Butterworths)
PARTIES:	The Movie Network Channels Pty Ltd (Appellant) Optus Vision Pty Ltd (Respondent)
FILE NUMBER(S):	CA 2009/00298329
COUNSEL:	J T Gleeson SC/C A Moore (Appellant) N C Hutley SC/P J Brereton SC/A Rao (Respondent)
SOLICITORS:	Freehills (Appellant) Baker & McKenzie (Respondent)
LOWER COURT JURISDICTION:	Supreme Court - Equity Division
LOWER COURT FILE NUMBER(S):	SC 50054/2006
LOWER COURT JUDICIAL OFFICER:	Einstein J
LOWER COURT DATE OF DECISION:	20 March 2009
LOWER COURT MEDIUM NEUTRAL CITATION:	The Movie Network Channels Pty Ltd v Optus Vision Pty Ltd [2009] NSWSC 157