Garrott v Tote Tasmania Pty Ltd & Ors [2009] HCATrans 112 (29 May 2009)

Last Updated: 2 June 2009

[2009] HCATrans 112

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Hobart No H3 of 2009

B e t w e e n -

GEOFFREY ROBERT GARROTT

Applicant

and

TOTE TASMANIA PTY LTD

First Respondent

TASRADIO PTY LTD

Second Respondent

KEVIN JAMES BLYTON

Third Respondent

Application for special leave to appeal

GUMMOW J
HAYNE J

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON FRIDAY, 29 MAY 2009, AT 10.02 AM

Copyright in the High Court of Australia

MR N.J. O’BRYAN, SC: If the Court pleases, I appear with MR C.J. GUNSON for the applicant. (instructed by Mackie Crompton)

MR A.C. ARCHIBALD, QC: May it please the Court, I appear with MR E.W. WOODWARD for the first and second respondents. (instructed by Dobson Mitchell & Allport)

GUMMOW J: There seems to be no appearance for the third respondent.

MR O’BRYAN: He has taken no part in this part of the proceeding, your Honours.

GUMMOW J: Thank you.

MR O’BRYAN: If the Court pleases, I will address the question of construction of clause 1.2 first and principally. Your Honours will find clause 1.2 in a number of places in the application book, perhaps most conveniently in the judgment.

GUMMOW J: At page 42.

MR O’BRYAN: Yes, indeed, your Honour, page 42. This Court has stated in a series of decisions handed down this decade, for example, McCann v Switzerland Insurance, Maggbury v Hafele, Pacific Carriers v BNP Paribas, Toll v Alphapharm and Wilkie v Gordian Runoff, but there are three important elements in any process of contractual construction. Those elements are, first, the text of the language, secondly, the context in which it appears and, thirdly, the object and purpose of the transaction.

It is submitted that in the present case the Full Court erred because it did not apply these orthodox principles laid down by this Court for the construction of contracts to clause 1.2 of the FM licence sale agreement. Instead, the Full Court undertook a more or less instantaneous resolution of the ambiguity which it perceived in clause 1.2, although it never precisely or thoroughly explained what that ambiguity was.

GUMMOW J: You may be right about all this, but what do you say about Mr Archibald’s third point in paragraph 5 on page 97? Even if not obliged to have done so, “TAB did in fact act in good faith,” et cetera.

MR O’BRYAN: Your Honour, I am not addressing the question of - - -

GUMMOW J: I know you are not. Unless you satisfy us about that point, you are not going to get special leave.

MR O’BRYAN: Your Honour, we would submit that the Court should be - - -

GUMMOW J: What is the utility of embarking upon this question if a case could then be resolved in accordance with the third point made on page 97?

MR O’BRYAN: It could not be thus resolved, your Honour, because if there was no occasion for the exercise of the right given to TAB under clause 1.2 because the subject matter of the purported exercise of the right did not exist, namely, there was no legitimate objection on the basis of service standards, which is it is submitted was the sole purview of clause 1.2, then no occasion arose as a matter of law for the exercise by the TAB of the right there given. That is the fundamental point on the application and on the appeal.

GUMMOW J: That is purely a question of construction of one clause in one contract.

MR O’BRYAN: Yes, it is.

GUMMOW J: We do not ordinarily grant special leave in such matters unless they can be elevated to indicate some matter of general importance.

MR O’BRYAN: Your Honour, it is a case very similar to one decided by this Court only a couple of weeks prior to this decision in the Agricultural and Rural Finance Case where this Court was satisfied in late December 2008 that the New South Wales Court of Appeal had misconstrued that financing contract by misunderstanding the meaning of the word “promptly” and reversed that decision. This case is, we would submit, in pari materia to that. There has been a misconstruction. There has been a clear error of law by the failure to apply the basic principles of contractual construction this Court has laid down. Not one of this Court’s recent decisions in this area was cited and nor did the Full Court apply what we would submit is an orthodox process of contractual reasoning.

That can be seen most clearly, we submit, when you look at the process of reasoning, which is very brief indeed, contained in paragraph 27 of the judgment. Just to emphasise, your Honours, the nub of the point, clause 1.2 plainly identifies in the first sentence that the subject matter of the licence which the condition precedent addressed itself to was a licence which allowed TAB or Tasradio to provide a broadcast program, including racing, to a standard acceptable to TAB. The second sentence immediately identifies the same licence in its opening words:

TAB and Tasradio shall use their best endeavours to obtain such a licence -

and then goes on to talk about the decision which TAB and Tasradio must make within 30 days. It talks of the terms and the acceptability of the terms. In a nutshell, your Honours, we submit that the proper process of construction by reference to terms, context and the object and purpose would not have resulted in paragraph 27 of the judgment on page 47 which is the sole repository of all of the reasoning of the Full Court on this very important question of construction and it is submitted to be plainly in error. The Court said, “Clause 1.2 is hardly a model of clarity”.

GUMMOW J: Do you agree with that?

MR O’BRYAN: To an extent, your Honours, we do, although it is not as bad as many provisions of many commercial contracts that come before the courts every day. Properly understood, it can easily, we submit, be construed and ought to have been construed as limited to questions of service standards, for the reasons I will come to. Their Honours then said:

The first sentence states that the broadcast program allowed by the licence is to be to a standard acceptable to TAB.

That is not, we would submit, an entirely accurate rendition of the first sentence but it will do for present purposes. Their Honours then said:

The second sentence contemplates that both TAB and Tasradio are to decide, not the acceptability of the standard of a broadcast permitted by a licence, but rather the acceptability of the terms upon which the Authority will grant a licence.

We submit that that simply does not follow from the language of the second sentence at all. The second sentence plainly identifies in its opening clause:

TAB and Tasradio shall use their best endeavours to obtain such a licence -

the very licence and the reference to service standards which is referred to in the first sentence, and nothing else. What the Full Court has done, in effect, is to reverse the order of the sentences and the meaning of clause 1.2 which plainly departs from what we would submit is a quite narrow focus in the opening sentence, the narrow focus being upon service standards, and then has said, because of the more expansive language at the end of the second sentence, the narrow focus is broadened out to, in effect, anything in the licence which the TAB or Tasradio considers to be unacceptable. There is no occasion, we submit, for that reading.

GUMMOW J: You have been addressing us on ground 1 of your proposed grounds of appeal, have you not, at page 49?

MR O’BRYAN: Yes, that is quite so, your Honour. We accept that unless the Court is convinced that ground 1 has merit and is worthy of the appeal, it is most unlikely that the other grounds will attract a grant of special leave and that is why I am focusing upon ground 1.

GUMMOW J: Very well.

MR O’BRYAN: And also because it is a short point, we submit it is a very strong point, we submit the error below is very clear and the failure to address the court’s reasoning in connection with contractual construction is very clear and, of course, it is dispositive at the outcome. Finally, in relation to paragraph 27, their Honours then turn in the next sentence to immediately “resolve the ambiguity”, as they put it:

by preferring the view that the parties intended to confer a power of decision upon TAB and that the subject matter of that power was the acceptability of the terms of the licence, including its tenure.

We submit, properly read, that goes well beyond the language of clause 1.2 and that there is no basis, we would submit, when text, context, purpose and object are understood, to reach that conclusion. We submit that, properly understood, the language of clause 1.2 did not give TAB or Tasradio a broad and general discretion to consider whether they were or were not satisfied about the terms of the licence offered to them at large and that the only terms in respect of which the required level of satisfaction needed to be achieved were those terms which concerned the standard of the services they could provide.

That was not an abstract concept, your Honours, as you can see when you look at some of the matters discussed by Justice Slicer at trial and which appear in his judgment, particularly in paragraph 16 on page 6 of the application book. You will see in paragraph 16 on page 6 the terms in which in July 1992 Tote Tasmania applied for the grant of a limited licence. You can see in the language of that application a number of matters addressing the very question of service standards which was in the parties’ minds at that time and you will see other references to service standards which were in issue below, your Honours, in paragraph 22 on page 8 where Justice Slicer quoted at length from a memorandum which was sent to the broadcasting company on 18 November 1992 and which described various aspects of the service standards which would apply to the narrowcasting service which was proposed. So the service standards question was very much in the minds of those who were involved in the drafting of the contract.

In relation to context, your Honours, we submit there are two aspects of the context in which this agreement was entered into which are of critical significance and to which the Full Court paid no attention in its construction of clause 1.2 which appears in paragraph 27 of the agreement. The first element of context was that clause 1.2, of course, formed part of a contract which was closely connected with another contract in what was, in effect, a single transaction. As your Honours will recall, the applicant and his then partner, the third respondent, were both vendors of their shares in Hunter Broadcasters which would allow the broadcasting company to become a wholly owned subsidiary of TAB and they were the purchasers of the FM licence and the assets. The two contracts were very closely connected, as was recognised both at trial and on appeal. Indeed, of course, clause 1.1 of the FM purchase contract itself made that contract conditional upon the completion of the sale agreement. So the two transactions were very closely interlinked.

There is, your Honours, a more fulsome summary of the transactions in Justice Slicer’s judgment. But it is important, we submit, to bear in mind that in that context the sale and the purchase, of course, were for exactly the same price, $250,000 in each case. In other words, the commercial separation which was to be involved in this case was, in effect, a swap of the shares of the applicant and third respondent in the company for the FM assets which of course were no longer required by Tasradio for the purpose of its narrowcasting service of racing. As I have mentioned, the FM licence agreement was conditional upon two things.

We would submit, looked at in that commercial context which the Full Court did not pay any attention to in paragraph 27, which is the only place in which the construction question was addressed, it would be very odd commercially to assume that the applicant and third respondent would agree to sell all their shares in the underlying company free and clear without a reasonable measure of certainty that the vendors of the relevant assets, the FM licence and the FM equipment, TAB and Tasradio would deliver on the promises they had made to sell that licence and equipment to them.

It is understandable, we submit, contextually that Mr Garrott would agree to make that contract conditional upon TAB or Tasradio obtaining the narrowcasting licence which ensured an appropriate standard of broadcasting could be achieved because, of course, they had themselves personally been involved in broadcasting from that station for several years and were well aware of the service standards of the relevant equipment. It was existing equipment, it was already broadcasting in Hobart and they could have a fair measure of comfort approaching practical certainty that the service standards, whatever they may be, imposed by the ABA in respect of the new licence would be met.

It is most unlikely, we would submit, when that context is regarded, that they would be seen to have intended to give up their rights in respect of this subject matter at the whim, as it were, of TAB or Tasradio making a decision that the terms of the licence were unacceptable to them for reasons which were, as the Full Court found, for practical purposes, unreviewable at law. We submit that in that context the reading which the Full Court gave to clause 1.2 should be rejected.

There is also, finally, an important aspect of the legal context in which these matters arose. We submit that the reason why the Full Court probably overlooked the legal context is due to an error, albeit a minor error, which appears in paragraph 8 of the judgment. In paragraph 8 on application book 43 at the end of the paragraph their Honours said:

It was the grant of a transmitter licence that was the subject matter of cl 1.2 –

That is simply not correct, as can be seen readily by observing the provisions of the two Acts that governed the situation which are on pages 1 and 2 of the authorities book. On page 1 of the authorities book it is section 34 of the Broadcasting Services Act 1992. The parties agree that the relevant provision was section 34(1)(d) which applied to broadcasting services which were available but where there had not been either the commencement or completion of planning and allocation. In those circumstances, which were applicable in the case of the licence in question, as the main subject of the subsection then says:

the ABA may decide that the part or parts of the radiofrequency spectrum concerned is or are available for allocation, for a period specified by the ABA –

Those are important words in the context, we would submit. Then (f) is relevant, “to providers of”, relevantly, “open narrowcasting services”, which of course are the services Tasradio wanted to provide. In other words, your Honours, it was inherent in the legal regime which was applicable to the grant of the open narrowcasting licence that there would be limited tenure. That was inevitably so because of the obligation, in effect, placed upon the ABA by section 34(1) to state the period for which that licence would be granted.

In those circumstances, your Honours, we submit it is almost inconceivable that the applicant and the third respondent, the principals of Hunter, would have agreed open-endedly to give Tasradio or TAB the right to, in effect, rescind this contract and not to perform their part of the bargain in relation to the purchase and sale contracts, or at least in relation to the sale aspect of it, merely because they formed the view that the tenure was unacceptable to them because that left them completely beholden to the whim of TAB or Tasradio whatever may come.

The radio communications provisions your Honours will see on the next page and, as you will see throughout those provisions, the relevant decision was not a decision of the ABA in respect of transmitter licences but a decision of the Minister and is inapposite to the language of clause 1.2 which is obviously, we would submit, directed to the terms of the broadcasting licence to which section 34 of the Act was relevant.

In connection with the object and purpose of the transaction, your Honours, it is important, of course, to bear in mind in this context that there was a commercial separation or divorce transaction occurring here. There was a purchase and sale transaction expected to occur practically simultaneously for exactly the same consideration and that the effect of the decision below is that the give and take which was inherent in the two contracts has resulted in the applicant or the third respondent doing all the giving because, of course, they sold the shares, as they had to, but not receiving the other part of the bargain. Highly improbable, we would submit, that the reasoning which the Full Court applied in paragraph 27 could be supported in those circumstances in the breadth and generality in which it applied.

As we concede, unless the Court is with us in relation to ground 1, this case is not an appropriate vehicle for considering broader questions in relation to the matters of good faith and the like. It is also, having regard to the factual findings reached by the Full court below, not a case in which it will be an appropriate vehicle to consider the circumstances in which a board of common membership as between parent and subsidiary companies may make decisions binding upon both, even though only one meeting is held and a meeting which is entitled a meeting of the subsidiary company.

Thus, we place our eggs in the one basket of the construction of clause 1.2 which, we submit, contains clear and obvious errors, will be dispositive of the appeal, has resulted in significant injustice to the applicant and will result in a short appeal, probably not much longer than the application for leave, your Honours, but, nevertheless, a case as important as that which was decided by this Court only a few weeks before the Full Court’s decision last year. If the Court pleases.

GUMMOW J: Thank you, Mr O’Bryan. Yes, Mr Archibald. What do you say about the point made about the misidentification of statutory provisions by the Full Court?

MR ARCHIBALD: It is not a misidentification, your Honours. These transactions occurred during a period of transition between two regimes. Matters which were conducted under the Broadcasting Services Act fed into what occurred under the Radio Communications Act. This process was essentially the subject of the pleading which I think commences at about paragraph 6, line 12 on page 78 of the application book through to the end of that paragraph on page 79. These matters were not in controversy either at first instance or on appeal. The effect can be seen substantially in subparagraph h on page 79. So the application under the Broadcasting Act for the provision of a licence for a service was taken to be an application under the Radio Communications Act for a transmitter licence. So the Full Court is correct in its succinct statement as to the effect of the application.

GUMMOW J: We do not need to hear you any further, Mr Archibald. Mr O’Bryan.

MR O’BRYAN: Your Honours, just on the latter point, the effect of the transitional provisions was simply to make that application also an application under the Radiocommunications Act. It does not lead to the conclusion, we submit, which the Full Court drew, that is to say, that only the Radiocommunications Act was relevant. It plainly was not, we submit. Both Acts were relevant, had to be complied with. The transitional provisions simply mean that you enlivened both jurisdictions, as it were, simultaneously by your application, that is all. If the Court pleases.

GUMMOW J: Thank you. The issues between the parties depend upon the construction of a particular provision of a unique contract. If special leave to appeal were to be granted no point of general principle would fall for consideration in this Court. Further, we are not persuaded that it is in the interests of justice generally, or in this particular case, that there be a grant of special leave. Special leave is refused with costs.

AT 10.25 AM THE MATTER WAS CONCLUDED