TERRAVISION PTY LTD -v- BLACK BOX CONTROL PTY LTD [No 3] [2016] WASC 95 (30 March 2016)

Last Updated: 30 March 2016

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION : TERRAVISION PTY LTD -v- BLACK BOX CONTROL PTY LTD [No 3] [2016] WASC 95

CORAM : LE MIERE J

HEARD : 18 AUGUST 2015

DELIVERED : 30 MARCH 2016

FILE NO/S : CIV 2103 of 2012

BETWEEN : TERRAVISION PTY LTD

Plaintiff

AND

BLACK BOX CONTROL PTY LTD

Defendant

Catchwords:

Contracts - Pre­trial questions answered - Contractual construction - Contractual language ambiguous - Turns on own facts

Legislation:

Supreme Court Rules 1971 (WA), O 32 r 4

Result:

Answers given

Category: B

Representation:

Counsel:

Plaintiff : Ms K J Levy

Defendant : Mr P Mendelow

Solicitors:

Plaintiff : Danaghers Commercial and Corporate Lawyers

Defendant : Bowen Buchbinder Vilensky

Case(s) referred to in judgment(s):

1 LE MIERE J: The plaintiff, TerraVision Pty Ltd (TerraVision), is a software and electronics research and development company. It develops and supplies software systems to provide data for the location of vessels, vehicles and other assets as well as data relating to the operation of those vessels, vehicles and assets. It holds intellectual property rights including the copyright and software source code in certain software (TerraVision software) and materials and physical items that are utilised by TerraVision software (TerraVision hardware).

2 The defendant, Black Box Control Pty Ltd (Black Box), is a company that provides hardware and software systems for the transmission of information concerning the location of and other information about vehicles and mobile assets and access to that information in a useful form. In supplying services to its customers it uses TerraVision products pursuant to a licence agreement with TerraVision made on 13 June 2006 (2006 Agreement).

3 The 2006 Agreement provides that, subject to certain qualifications, Black Box has the exclusive right to provide products or services that include or use TerraVision products for vehicle and mobile asset tracking. Clause 9.5 of the 2006 Agreement provides that Black Box may provide tracking services that do not include TerraVision products providing TerraVision is paid the price shown in the price list annexed to the agreement (Price List) in accordance with cl 10.4. Clause 10, which I will describe in greater detail later in these reasons, sets out obligations of Black Box in relation to sales. Clauses 10.1, 10.2, 10.3 and 10.4 relate to Black Box providing to a customer products or services including TerraVision hardware, TerraVision software, a TerraVision service or tracking services that do not include TerraVision products respectively. The obligations include advising or notifying TerraVision of sales or transactions. Clause 12 sets out obligations of Black Box in relation to paying TerraVision.

4 Differences have arisen between TerraVision and Black Box. The differences principally concern the interpretation of cl 10.4 which provides for Black Box's obligations in relation to the provision to its customers of tracking services that do not include TerraVision products. Clause 10.4(a) provides that Black Box will advise TerraVision of the transaction, that is the sale or service that does not include TerraVision products. Clause 10.4(b) provides that Black Box will invoice the Contracting Party, that is in effect its customer, for the provision of the service and cl 10.4(c) provides that TerraVision will invoice Black Box for the price which is set out in the Price List. TerraVision says that Black Box has not informed or notified it of all of the transactions which it is obliged to give notice of and has not paid TerraVision in respect of the transactions of which it has not given notice.

5 TerraVision says that cl 10.4 requires Black Box to advise it of all transactions between Black Box and a customer that it has not notified or advised TerraVision of pursuant to cl 10.1, cl 10.2 or cl 10.3. Black Box says that a sale or service which it is required to advise TerraVision of is a dealing between Black Box and its customer relating to equipment location services by the use of software not supplied by TerraVision that could otherwise have been supplied by TerraVision or alternatively relating to equipment location services by the use of software not supplied by TerraVision, irrespective of whether or not TerraVision could have supplied such software.

6 A second aspect of the dispute concerns what is to be included within a transaction of which Black Box is required to advise TerraVision pursuant to cl 10.4(a). The issue arises from the practice of Black Box to issue to its customers separate invoices, or invoices with separate line items, relating to products or components of products or services supplied to a customer. TerraVision says that the relevant transaction or dealing includes the whole of the dealing or transaction between Black Box and its customer in relation to the products or services supplied which are together the supply of an integrated landbased vehicle or mobile asset tracking service. Black Box says that each invoice or line item is a separate dealing or transaction for the purposes of the 2006 Agreement.

Separate questions

7 I ordered pursuant to O 32 r 4 of the Supreme Court Rules 1971 (WA) that the following questions be tried separately and before the trial of the action:

(1) What is the meaning of 'Sale Transaction'?

(2) What is the meaning of 'sale or service'?

(3) What is a 'transaction'?

(4) What transactions or dealings fall within the whole of cl 10 of the 2006 Agreement?

Background facts

8 In this case, identifying the commercial purpose and objects of the 2006 Agreement and the content and meaning of cl 10.4 is facilitated by an understanding of the genesis of the 2006 Agreement and the business of, and the relationship between, the parties.

Black Box was a startup company

9 In 2002 Peter Langmead was the managing director of Pocketphone WA Pty Ltd (Pocketphone), a mobile phone dealership selling Telstra mobile phone services. Mark Langford was employed by Telstra between 1993 and 2001. In 2002 Mr Langford was employed by Pocketphone as general manager.

10 The plaintiff, TerraVision, was incorporated in 1993. Peter Clifford was and is its managing director. Andrew Whitton was the general manager of TerraVision from 2001 to 2003. TerraVision developed and supplied tracking solutions to a variety of users, including fishing fleets and fishing authorities, bus services and sugar train operators.

11 In 2002 Langmead, Langford, Clifford and Whitton agreed to establish a new business to be called Black Box Control. The defendant, Black Box, was incorporated in October 2002. Langmead, Langford, Clifford and Whitton were the initial directors and shareholders. Mr Langford was the original managing director. Mr Whitton took over as managing director until he died in 2007. Mr Langmead then took over as managing director. Mr Clifford resigned as a director in February 2012. Mr Langmead and Mr Langford remain directors.

Written agreements between Black Box and TerraVision

12 In 2002 Mr Whitton, who was a chemist and not a lawyer, drafted an agreement between TerraVision and Black Box (2002 Draft Agreement) to provide for Black Box to use TerraVision's products in the provision of tracking services to vehicles. The 2002 Draft Agreement was never executed. A price list was annexed to the 2002 Draft Agreement. The price list was TerraVision's standard price list for the supply of products or services to all of its customers as at 1 June 2002. The price list was later expanded with handwritten amendments. One of the amendments added the item 'TV Lite Software Monthly Fee 20/vehicle'. TV Lite Software was software provided by TerraVision to Black Box for the purposes of enabling Black Box to provide tracking services to its customers. Prior to the 2005 Agreement to which I will shortly refer, TerraVision made available software to Black Box and sold some hardware to Black Box at the prices stated in that amended price list.

13 Between 2002 and 2005 Black Box was developing the services it could offer to the market. Black Box did not employ any staff until Mr Langford commenced employment on 1 September 2005. Prior to that, Black Box operated through its nonexecutive directors. Until 2005 Black Box was developing and testing the solutions or products it would offer to the market. The financial year ending 30 June 2005 was Black Box's first year of operation. It made a loss of about $20,000 on a turnover of about $100,000. Mr Whitton drafted an agreement between TerraVision and Black Box which Black Box and TerraVision executed on 18 April 2005 (2005 Agreement). The 2005 Agreement was prepared by Mr Whitton from the 2002 Draft Agreement. The structure of the documents is the same but there are important differences. The 2002 Draft Agreement provides that Black Box may provide products or services that include or use TerraVision products to commercial truck or van fleets but will not compete with TerraVision in other market sectors and may only use TerraVision products to provide products or services to other market sectors with the express permission of TerraVision (cl 9). The 2002 Draft Agreement provided that for a sale to a customer that includes providing TerraVision software to the customer, Black Box would prepare a licence agreement and arrange for the customer to execute the licence agreement and send it to TerraVision. Black Box would then provide the software to the customer. The 2005 Agreement provides that for the duration of the agreement Black Box has the exclusive right to provide products and services that include or use TerraVision products for vehicle and mobile asset tracking. A new price list in the 2005 Agreement replaces the price list which is an appendix to the 2002 Draft Agreement. A price based on 15% of gross revenue, 15% of net revenue or cost plus 15% replaced the fixed price items in the 2002 Draft Agreement.

14 In 2005 Black Box explored the development of a webbased tracking system with a company called Power Business Systems. The discussions were conducted principally by Mr Whitton and Mr Langford. In May 2005, after the execution of the 2005 Agreement, Mr Clifford discovered that there was a commercial agreement between Black Box and Power Business Systems. At the Black Box directors' meeting on 17 January 2006 Mr Clifford referred to the 2005 Agreement and said that should Black Box develop its own system TerraVision would have no income and no access to the market for two years. Mr Whitton, Mr Langmead and Mr Langford stated that Black Box was not doing any work to build its own system other than the LBS web solution being done by Power Business Systems.

15 In the first half of 2006 Mr Whitton, on behalf of Black Box, and Mr Clifford, on behalf of TerraVision, negotiated a new agreement. The new agreement is the 2006 Agreement. It was executed on and is dated 13 June 2006. The 2006 Agreement was prepared by Mr Whitton based on the 2005 Agreement. Both Agreements have the same structure. Both have the same 14 sections but a new section 'Dealing with Intellectual Property' has been added to the 2006 Agreement and some provisions within the 14 sections have been changed. A new cl 7.7 provides that if notice is given to terminate the agreement, Black Box will cease to pay TerraVision in accordance with cl 10 and instead will pay TerraVision each month of the two year notice period an amount equivalent to the average of the monthly payments made to TerraVision in the six months prior to the date on which the termination notice was served. In cl 10.4 the words 'sale or service' were substituted for the defined term 'Sale Transaction'. The effect of that amendment is to widen the sale or services to which the clause refers rather than confining them to sales or services falling within the definition of Sale Transaction. The price list is changed by deleting the item 'TerraVision Software - 15% of gross revenue' and replacing it with the item 'Black Box services incorporating TerraVision Software - 15% of gross revenue'.

Black Box products

16 The plaintiff describes the product which Black Box provided to a customer at the time the 2006 Agreement was executed as an integrated landbased vehicle and mobile asset tracking services solution. I am not aware whether those precise words appear in any documents produced by Black Box but words to a similar effect are to be found in its business plan, corporate profile and an information memorandum to which I will refer later in these reasons.

17 The plaintiff says that at and prior to the execution of the 2006 Agreement in order for Black Box to provide its product to a customer three clusters (groups of software, hardware and transmission of data) and two segments (land and air) were required. These were the land segment, through the air segment, communications cluster, database cluster and business cluster. The land segment comprised the customer's vehicles and data recording units (IVU's) which collected data. Custom firmware was installed on the IVU's to enable them to communicate, ultimately to the backend system. The custom firmware was written by TerraVision. Located in the land segment were customer vehicles and other mobile assets, IVU's such as Navman, mobile data terminals such as the Navman screen, antennas attached to the vehicles for the transmission of data and wiring looms so that the IVU's and mobile data terminals can access a power source from the vehicle. The through the air segment was the means by which data was transferred from the land segment to the communications cluster. It was essentially a mobile phone connection, at the time using Telstra. If the vehicle operated outside the range of the Telstra network it was possible to fit hardware to connect using a satellite. The communications cluster was a series of software modules that accessed the through the air segment and managed the IVU's in the land segment. TerraVision provided the enabling communication modules that allowed information to be transferred to the communications cluster using the through the air segment. Together, the software modules allow for the transfer of data from the land segment via the through the air segment to the database cluster. The communications cluster ensures that the data is readable by the databases located in the database cluster. The database cluster was at the centre and it was essentially an Oracle database containing tables of organised information such as vehicle details and positional data. The Oracle database was configured using a TerraVision programme which made the database compatible with the TerraVision application. The business cluster is a cluster of programmes and modules, principally TerraVision software and modules, that together provide the functionality of the Black Box product from the customer's perspective. The programmes and modules allow the customer to produce customised reports and to extract information from the database that is useable for the customer's specific purposes.

18 I have based that summary of the Black Box product on the description of the product in the plaintiff's written closing submissions. The description is consistent with the evidence of Mr Clifford. It is consistent with the evidence of Mr Langmead and Mr Langford although they use different words to describe parts of the system. They describe the clusters as the backend system.

19 Without all of the segments and clusters, a Black Box customer could not be provided with the real time tracking and reporting solutions which it was Black Box's business to supply to its customers. Some of the components could be separately delivered. For example, the invehicle units such as the Navman and the antennas and wiring looms could each be separately delivered. None of them contain any TerraVision software. However, none of them are of any value to the customer without all of the components which together make up the tracking services solution.

Black Box's business

20 The business and business model of Black Box did not change between April 2005 and December 2006. The business and business model are reflected in Black Box's business plan of 13 April 2005 (Business Plan), its corporate profile of 2006 (Corporate Profile) and its draft information memorandum of 2006 (Information Memorandum). The Business Plan and the Corporate Profile were drafted principally by Mr Langford. The Business Plan, Corporate Profile and Information Memorandum describe the business and business model of Black Box, the aim of the company, its product, its strengths and differentiators, and its pricing strategy. Those descriptions are consistent with, and confirmed by, the oral evidence of Mr Langmead, Mr Langford and Mr Clifford.

21 Those documents and the oral evidence establish, amongst other things, three characteristics of Black Box's business when the 2006 Agreement was negotiated and executed. First, the product or service supplied by Black Box to its customers was an integrated landbased vehicle and mobile asset tracking services solution, including associated services. That solution comprises a number of components - hardware, firmware, data centre and reporting modules - which together provide a real time tracking and reporting solution that is tailored to the needs of Black Box's customers. Black Box may have sold some hardware units or supplied discrete services on occasion, but that was not its business. Its business was to provide an integrated tracking services solution. In crossexamination Mr Langmead agreed that the mission of Black Box was not to sell individual pieces of hardware, but to provide customer focused solutions and Black Box treated the technology that was used simply as a means to deliver that solution.

22 The second characteristic is that each component of the total tracking solution was integrally dependent upon TerraVision software in order to operate as an integrated tracking solution. This is reflected in the following statements in the Business Plan:

With Black Box having secured an agreement with TerraVision it is in a unique situation whereby it can offer highly personalised solutions and demonstrate the robustness (via TerraVision deployed systems).

and

The distribution plan has a high reliance on external parties. Ensuring that the relationships are managed efficiently and that the channel is well remunerated will be a critical success factor. Strategic alliance with TerraVision is also important, particularly in the short term success of the business. TerraVision's back office servers and staff are vital for operations. An agreement is in place with TerraVision to mitigate the risks as much as possible. TerraVision's income from Black Box is dependent on Black Box's success to grow.

The Information Memorandum stated:

The Black Box back end software is its greatest strength and differentiator. The software is sourced from a local company called TerraVision.

23 The third characteristic is Black Box's pricing strategy. The Business Plan emphasised the importance of charging customers monthly fees rather than outright sales of hardware or software. In relation to the pricing strategy the Business Plan states that the upfront price of tracking hardware is a barrier to entry and the more quickly the prices are reduced the more rapidly the market grows and hence the importance of monthly fee options. In his evidenceinchief Mr Langford describes that there were two ways in which Black Box sold its products, which he describes as the Black Box tracking solution, to customers between April 2005 and June 2008. The first way was that the tracking solution was sold as part of a bundled package. The customer purchased what was referred to as a fully managed service. This meant that the customer could trial the tracking solution at minimal risk and if the customer decided at the end of the trial not to proceed further they would have no ongoing costs and the hardware would be deinstalled from the mobile asset. The hardware component of the bundled package meant that the customer was provided with the appropriate hardware by Black Box. If the hardware failed or required updating, then Black Box would do so at no additional cost to the customer. The tracking service component of the bundled package is to provide the Black Box data centre to capture the data logged by the IVR and pushed to the Black Box data centre, to provide for support staff, licensing of software and the infrastructure in the Black Box data centre. IVR or in vehicle recorder refers to the hardware in the vehicle. The usual fee for a bundled package was $150 per month per mobile asset or IVR. From April 2005 the royalty payable to TerraVision on a bundled package by Black Box was paid on the entire bundled package. There was no division of the bundled package fee into the hardware and tracking service components. The second way in which a customer would be sold a Black Box tracking solution was based on the outright sale of the hardware. When there was an outright sale of the IVR, the customer was provided with a tracking service generally at a cost of $50 per month per IVR. The tracking service fee was to provide the Black Box data centre to capture the data logged by the IVR and pushed to the Black Box data centre, to provide for support staff, licensing of software and the infrastructure in the Black Box data centre. Prior to 2011 for a customer to view the activity of a mobile asset under either the bundled package or outright purchase model, the customer would require the Black Box control centre software package referred to as 'thick client', which included the TerraVision software. The package generally cost around $250 per month. The two ways described by Mr Langford for the supply by Black Box of its products are two pricing mechanisms for providing the same service - an integrated landbased vehicle and mobile asset tracking services solution. The second way described by Mr Langford was not the sale of hardware divorced from the supply of an integrated asset tracking services solution.

Overview of the 2006 Agreement

24 The 2006 Agreement is not merely a licence agreement. The 2006 Agreement does more than confer on Black Box a licence for a fee or royalty to use TerraVision's hardware and software to provide data on the location of vehicles and other data relating to the operation of those vehicles. The agreement recites that Black Box wishes to use TerraVision's products in the provision of tracking, or communication, services and Black Box and TerraVision wish to enter into commercial arrangements that benefit both parties. Those arrangements include that Black Box has the exclusive right to provide products or services that include or use TerraVision products for vehicle and mobile asset tracking and TerraVision may only use its products or services for vehicle and mobile asset tracking in very limited circumstances. Therefore, the benefit which TerraVision receives from its vehicle and mobile asset tracking software is confined to and dependent upon the payments it receives from Black Box under the agreement. The agreement permits Black Box to provide tracking services that do not include TerraVision products. Therefore, in the absence of some provision to address the situation, if Black Box developed its own software or obtained alternative hardware or software from another source, such as Power Business Systems, and provided tracking services to its customers that did not include TerraVision products, TerraVision would not receive any payment from Black Box for vehicle and mobile asset tracking and would not be able to exploit its hardware and software by providing products for vehicle and mobile asset tracking to anyone else. That situation is addressed by cl 9.5 which provides that Black Box may provide tracking services that do not include TerraVision products providing TerraVision is paid the price in accordance with cl 10.4. Therefore, the purpose, or one purpose, of cl 10.4 is to provide for TerraVision to receive payment from Black Box in respect of transactions where Black Box provides tracking services that do not include TerraVision products.

25 The 2006 Agreement consists of 15 sections and an appendix which contains the Price List. The first section contains recitals to the effect that TerraVision owns the copyright of software that is used to provide data on the location of vehicles and data relating to the operation of those vehicles, Black Box wishes to use TerraVision's products in the provision of communication services and Black Box and TerraVision wish to enter into commercial arrangements that benefit both parties.

26 Section 2 contains definitions. I will return to some of these definitions later. Sections 3, 4, 5 and 6 are concerned with Interpretation, General Provisions, Assignment and Waiver respectively. Section 8 provides that the laws of Western Australia govern the interpretation and performance of the Agreement. It is not necessary to refer further to the contents of any of those sections.

27 Section 7 provides for the duration of the agreement. The agreement is for 5 years and renewable thereafter by mutual agreement. Clause 7.3 provides that the agreement may be terminated by either party giving the other party notice that it wishes to terminate the agreement. The date of effect of such termination shall be 2 years after the date of the notice. If notice is given Black Box will cease to pay the price to TerraVision in accordance with cl 10. Instead, Black Box will pay TerraVision each month of the two year notice period an amount equivalent to the average of the monthly payments made to TerraVision in accordance with cl 10 in the six months prior to the date on which the notice of termination is served. Clause 7 also provides for termination where a party does not comply with the terms of the agreement.

28 Section 9 is entitled 'Scope'. The clauses in section 9 provide, with limited exceptions, that for the duration of the agreement Black Box has the exclusive right to provide products or services that include TerraVision Products for vehicle and mobile asset tracking. The exceptions are TerraVision's existing customers, fisheries and tracking services that do not compete with Black Box. TerraVision Products means any one of a range of hardware or software products or services that are listed in the Price List. Clause 9.5 provides that Black Box may provide tracking services that do not include TerraVision Products providing TerraVision is paid the Price in accordance with cl 10.4.

29 Section 10 is headed 'Sales'. Clause 10.1 is entitled 'Hardware Rental or Sales'. It provides for a Sale Transaction to a Contracting Party that includes a TerraVision hardware product. Clause 10.2 is entitled 'Software Licensing'. It provides that for a Sale Transaction to a Contracting Party that includes providing TerraVision software to the Contracting Party Black Box will notify TerraVision of the Sale Transaction, provide the software to the Contracting Party and invoice the Contracting Party. TerraVision will then invoice Black Box for the Price, that is the price in the Price List. Clause 10.3 is entitled 'Onselling of TerraVision Services'. It provides for Sale Transactions to a Contracting Party that includes providing a TerraVision service to the Contracting Party. Sale Transaction, TerraVision Product and Contracting Party Price are defined terms.

30 The dispute between the parties principally concerns cl 10.4. I will set it out in full:

'10.4 Provision of tracking services that do not include TerraVision Products

For sale or service to a Contracting Party that does not include providing a TerraVision hardware product, software or service to the Contracting Party

(a) Black Box will advise TerraVision of the transaction;

(b) Black Box will invoice the Contracting Party for the provision of the service; and

(c) TerraVision will invoice Black Box for the Price.

It is also necessary to set out the Price List which is an appendix to the 2006 Agreement:

Product	Price
Black Box services incorporating TerraVision Software	15% of gross revenue
Black Box services not incorporating a TerraVision Product	15% of gross profit
TerraVision Hardware	Cost plus 15%
TerraVision Services	Cost plus 15%

31 Clause 11 is concerned with TerraVision's obligations. TerraVision grants Black Box a licence to use TerraVision software and agrees to provide Black Box with software, hardware devices and technical support to allow the efficient processing of the Sale Transactions. TerraVision agrees not to compete directly with Black Box except in accordance with the limited provision in cl 9.3.

32 Clause 12 provides for Black Box's obligations. They include, in cl 12.3, Black Box must within 15 days of the end of each month notify TerraVision of the Sales Transactions of the prior month so that the appropriate Price may be calculated in accordance with the Price List. Clause 12.4 is to pay TerraVision the Price within 30 days of receiving an invoice.

33 Clauses 13, 14 and 15 provide for 'Access to Source Code', 'Dealing with Intellectual Property' and Additional Provisions respectively. It is not necessary to say anything more about those clauses at this time.

Pleadings

34 TerraVision's amended further reamended statement of claim is dated 27 March 2015. TerraVision claims three declarations. The first is that pursuant to the terms of the 2006 Agreement Black Box is required to provide to TerraVision information about all Sale Transactions made by Black Box in the preceding month, provide that information in a form that is sufficient to enable TerraVision and Black Box to make certain determinations and Black Box is required to keep its books and records in a form and manner to allow for certain matters to be determined. The second is that Black Box has been in breach of specified obligations under the 2006 Agreement since 13 June 2006. The third is that subject to the issue of a notice in writing to Black Box, TerraVision has the right to terminate the 2006 Agreement by reason of Black Box's breach of the terms of the 2006 Agreement. TerraVision also seeks an order for specific performance of the terms of the 2006 Agreement, damages for breach of the 2006 Agreement and interest.

35 Black Box has filed a further reamended substituted defence in which Black Box denies that TerraVision is entitled to the declarations sought by TerraVision and denies that TerraVision is entitled to the relief of specific performance claimed. Black Box denies that it has breached the 2006 Agreement and denies that TerraVision is entitled to damages.

The issues

36 The dispute between the parties concerns the proper construction of cl 10 of the 2006 Agreement, in the context of the 2006 Agreement as a whole. I have referred to the competing contentions earlier in these reasons. The first aspect of the dispute concerns whether, as TerraVision contends, cl 10.4 requires Black Box to advise TerraVision of all transactions it has entered into with its customers of which it has not advised TerraVision pursuant to cl 10.1, cl 10.2 or cl 10.3. Secondly, the dispute concerns whether the transaction includes the whole of the transaction or dealing between Black Box and its customer in relation to the product or products or service or services supplied or whether each invoice issued by Black Box to a customer, or line item in such an invoice, is a separate transaction or dealing for the purposes of the 2006 Agreement.

Principles of construction

37 In Electricity Generation Corporation v Woodside Energy [2014] HCA 7; (2014) 251 CLR 640 (Electricity Generation) and Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 89 ALJR 990 (Mount Bruce Mining) the High Court reaffirmed that the rights and liabilities of parties under a provision of a contract are determined objectively, by reference to its text, context (the entire text of the contract) and purpose. In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable business person would have understood those terms to mean: Electricity Generation [35]; Mount Bruce Mining [47]. That enquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract: Electricity Generation [35]; Mount Bruce Mining [47].

38 Ordinarily this process of construction is possible by reference to the contract alone. However, sometimes, recourse to events, circumstances and things external to the contract is permissible and necessary. The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning: Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337, 352. The fact that adversaries can formulate and advance materially different constructions of the language of a contract does not itself satisfy the gateway requirement. Having regard to the language of the contract as a whole and what can be gleaned from that source as to the contractual purpose, competing constructions must be reasonably arguable: Technomin Australia Pty Ltd v Xstrata Nickel Australasia Operations Pty Ltd [2014] WASCA 164 [74] (McLure P). Recourse to events, circumstances and things external to the contract may be necessary in identifying the commercial purpose or objects of the contract where that task is facilitated by an understanding 'of the genesis of the transaction, the background, the context [and] the market in which the parties are operating': Electricity Generation [35], Mount Bruce Mining [49]. It may be necessary in determining the proper construction where there is a constructional choice: Mount Bruce Mining [49]. In this case the language of cl 10 of the 2006 Agreement is ambiguous or susceptible of more than one meaning and evidence of surrounding circumstances is admissible to assist in its interpretation. I did not understand either party to argue to the contrary.

39 Each of the events, circumstances and things external to the contract to which recourse may be had is objective. What may be referred to are events, circumstances and things external to the contract which are known to the parties or which assist in identifying the purpose or object of the transaction, which may include its history, background and context and the market in which the parties were operating. What is inadmissible is evidence of the parties' statements and actions reflecting their actual intentions and expectations: Mount Bruce Mining [50].

40 Other principles are relevant in the construction of commercial contracts such as the 2006 Agreement. Unless a contrary intention is indicated in the contract, the court is entitled to approach the task of giving a commercial contract an interpretation on the assumption 'that the parties ... intended to produce a commercial result': Electricity Generation [35]; Mount Bruce Mining [51]. Put another way, a commercial contract should be construed so as to avoid it 'making commercial nonsense or working commercial inconvenience': Electricity Generation [35]; Mount Bruce Mining [51].

41 A heading or marginal note to a clause may be taken into account in construing the clause: Lewison & Hughes 'The Interpretation of Contracts in Australia' [5.13]. In George v Cluning (1979) 28 ALR 57, 61 62 a question arose as to the notice required to exercise an option. Mason J found the clauses of the contract to contain a number of inconsistencies. In determining the interpretation of the relevant provision Mason J placed weight on the heading 'Exercise of Option' which his Honour said indicated that all that follows goes to the mode of exercise of the option.

42 Clause 10 contains the defined terms 'Sale Transaction', 'Contracting Party' and 'TerraVision Products'. The definition of 'Contracting Party' contains the defined term 'TerraVision Product'. The definition of 'Sale Transaction' contains both of the defined terms 'TerraVision Product' and 'Contracting Party'. Where a term is defined by the parties, the court should attempt to construe the contract by reading the words of the definition into the operative text of the contract. In Kelly v The Queen [2004] HCA 12; (2004) 218 CLR 216, 253 [103] McHugh J said that the proper course is to 'read the words of the definition into the substantive enactment and then construe the substantive enactment - in its extended or confined sense - in its context and bearing in mind its purpose and the mischief that it was designed to overcome'. However, where the definition does not fit comfortably into the text, the exercise of construction will need to address any logical or grammatical infelicities that arise and further analysis will be necessary to ascertain its legal meaning: Commissioner of Police v Kennedy [2007] NSWCA 328 [44]; Tovir Investments Pty Ltd v Waverley Council [2014] NSWCA 379 [13]; Alqudsi v Commonwealth [2015] NSWCA 351 [58].

43 There are a number of other principles of construction which facilitate ascertaining the meaning of a written contract. One principle is that in construing a contract all parts of it must be given effect where possible and no part of it should be treated as inoperative or surplus. Another general principle is that the court should not consider any word or sentence as superfluous or insignificant. All words must prima facie be given some meaning and effect. Another principle is that words are assumed to be used consistently. That assumption involves a twofold approach. First, where a word is used consistently in a contract it should be given the same meaning consistently. Secondly, where the draftsperson could have used the same word but chose to use a different word, it is assumed the intention was to change the meaning.

44 All of these cannons or principles of construction are aids to ascertaining the meaning of a written contract. However, they are not rules of law. They are not to be slavishly applied. They are little more than guides to the interpretation of the English language.

Approach to construction of 2006 Agreement

45 The 2006 Agreement follows a common format with recitals, definitions, an interpretation clause and clauses relating to assignment, waiver, duration of the agreement and governing law. The format and some of the clauses are familiar to lawyers. However, the agreement has the hallmarks of a document which has been drafted and progressively amended without ensuring that it remains internally consistent.

46 A difficulty in interpreting the 2006 Agreement arises from the draftsman's use of definitions. The words 'Contracting Party', 'Price', 'TerraVision Product' and 'Sale Transaction' which appear in cl 10 are defined terms. The definition of 'Contracting Party' contains the words TerraVision Product, which, as I have said, is itself a defined term. The definition of Sale Transaction contains the words TerraVision Product and the words Contracting Party, which again are themselves defined terms. To add to the maze of definitions the definition of TerraVision Product is hardware or software products or services that are listed in the Price List.

47 To marry these definitions and the substantive clauses in which they appear is not grammatically straightforward; nor is the resultant meaning immediately obvious. The definition of TerraVision Product in the 2006 Agreement contains an internal contradiction. TerraVision Product includes 'services that are listed in the Price List'. The services listed in the Price List includes 'Black Box services not incorporating a TerraVision Product'. Therefore, if the definition of TerraVision Product is transposed by substituting 'Black Box services not incorporating a TerraVision Product' for the defined term 'TerraVision Product', then a TerraVision Product is at the same time a TerraVision Product and a service that does not include a TerraVision Product. This incoherence extends to the definitions of Contracting Party and Sale Transaction which each incorporate the defined term TerraVision Product.

48 The explanation for this incoherence is that the definition of TerraVision Product in the 2002 Draft Agreement has been retained in the 2005 Agreement and 2006 Agreement even though the products in the attached price lists to which it refers have changed. TerraVision Product was defined in the 2002 Draft Agreement to mean 'any one of a range of hardware or software products that are listed in the Price List'. The price list was the standard TerraVision price list. It listed specific items of TerraVision hardware or software and the price at which each was sold by TerraVision. The definition of TerraVision Product was retained in the 2005 Agreement and the 2006 Agreement notwithstanding that the price list annexed to the 2005 Agreement was changed by removing the TerraVision products specified and including 'Black Box services not incorporating a TerraVision Product' and the price list annexed to the 2006 Agreement was further amended to include 'Black Box services incorporating TerraVision Software'.

49 The use of definitions and cross references produce results which are not readily understandable and the agreement lacks internal coherence. In those circumstances the court must strive to arrive at a construction of the relevant contractual provisions which best gives effect to the intention of the parties ascertained from the text, context and commercial objectives and purpose of the agreement. Some flexibility has to be given to the provisions of the 2006 Agreement where the words 'TerraVision Product', 'Contracting Party' or 'Sale Transaction' appear in order to make sense of those provisions.

50 The definition of TerraVision Product in the 2006 Agreement makes no sense having regard to the items in the Price List. The words TerraVision Product must mean any TerraVision product, that is TerraVision hardware, software or services.

51 Contracting Party is defined to mean a person or company who wishes to rent, purchase or otherwise acquire or use a TerraVision Product or a service that uses a TerraVision Product. The TerraVision Products are the products listed in the Price List. Those products include 'Black Box services not incorporating a TerraVision Product'. That item in the Price List must sensibly refer to Black Box services not incorporating a TerraVision product. A Contracting Party is a person or company who acquires from Black Box 'Black Box services incorporating a TerraVision product' or 'Black Box services not incorporating a TerraVision product'. That is, a Contracting Party bears the ordinary meaning of a person or company who contracts with Black Box to acquire Black Box services.

52 Sale Transaction is defined to mean 'a transaction by Black Box in which a product or service that includes or uses a TerraVision Product is provided to a Contracting Party'. As I have said, a TerraVision Product is one of the products or services that are listed in the Price Lists which includes 'Black Box services not incorporating a TerraVision Product'. The sensible meaning of Sale Transaction to give coherence to the agreement is a transaction by Black Box in which a product or service is provided to a customer.

53 Black Box says that in cl 10.1 a Sale Transaction is a dealing by Black Box in which a hardware product supplied by TerraVision is in turn supplied to a customer of Black Box. I agree.

54 Black Box says that a Sale Transaction in cl 10.2 is confined to a dealing by Black Box in which the TerraVision software is supplied and installed for a customer of Black Box on a computer at the customer's premises. Neither the words of cl 10.2 nor the definition of Sale Transaction provide any basis for that limitation. The commercial purpose of the 2006 Agreement is defeated rather than advanced by such an interpretation. The tracking system solution produced by Black Box at the time of execution of the 2006 Agreement was developed from and dependent upon TerraVision software and systems. The agreement gave to Black Box the exclusive right to sell products or services that include or use TerraVision software. TerraVision was precluded by the agreement from using its software or systems for vehicle tracking solutions except in the limited exceptional circumstances I have referred to. The relevant item in the Price List is 'Black Box services incorporating TerraVision software - 15% of gross revenue'. The price is calculated on the Black Box services which incorporate TerraVision software, not the value of the incorporated TerraVision software. Indeed, the agreement makes no provision for calculating the price or value of TerraVision software apart from the Black Box services into which it is incorporated. It would be unbusinesslike for the parties to give to Black Box a complete discretion to attribute a price or value to the TerraVision software incorporated in Black Box services. Such an intention should not be attributed to businessmen. The Price List refers to Black Box services not IVU's, antennas, wiring looms, communication clusters, database clusters, business clusters or programmes and modules that make up those clusters. As I have said, Black Box's business was to provide an integrated tracking service not separate items of hardware, software or systems broken down into component units. Black Box services refers to the whole of the integrated tracking service provided to a customer.

55 Black Box says that in cl 10.3 Sale Transaction is a dealing in which a service supplied by TerraVision is onsold to a customer of Black Box to enable the customer of Black Box to view the location of its mobile assets. In the context of cl 10.3 a Sale Transaction is a dealing in which a service supplied by TerraVision is onsold to a customer of Black Box but the qualification added by Black Box is not warranted by the text, context or purpose of the clause or the agreement as a whole.

Interpretation of cl 10.1

56 Clause 10.1 is in identical terms to cl 9.1 in the 2002 Draft Agreement and cl 10.1 of the 2005 Agreement. The clause refers to a sale by Black Box to a customer of a service or product which includes a TerraVision hardware product or transaction between Black Box and a customer by which the customer acquires a product or service which includes a TerraVision hardware product. Mr Langford gave evidence that Black Box purchased nine TerraVision hardware units between 2002 and 2004 but they did not perform well. Black Box ceased using TerraVision hardware units and from 2004 onwards used Navman units which it purchased from Navman. It is open to infer, and I do infer, that at the time of the execution of the 2006 Agreement the parties did not contemplate TerraVision supplying hardware to Black Box. It is open to infer, and I do infer, that the draftsman used the 2002 Draft Agreement as a template for drafting the 2005 Agreement and the 2006 Agreement and either neglected to delete cl 10.1 which was otiose or left it in out of an abundance of caution to ensure that no products or services covered by the 2005 Agreement were removed from the coverage of the 2006 Agreement.

Interpretation of cl 10.2

57 Clause 10.2 covers the principal products and services covered by the 2006 Agreement. At the time of execution of the 2006 Agreement the only product or service provided by Black Box was an integrated landbased vehicle and mobile asset tracking services solution. That product or service incorporates TerraVision software. Indeed, TerraVision software was, at the time of execution of the 2006 Agreement, an essential component of the product without which there was no tracking services solution. The words of cl 10.2 are:

For a Sale Transaction to a Contracting Party that includes providing TerraVision software to the Contracting Party:

(a) Black Box will notify TerraVision of the Sale Transaction;

...

(d) TerraVision will invoice Black Box for the Price.

58 I have earlier referred to the defined term Sale Transaction. In cl 10.2 a Sale Transaction is a transaction by Black Box in which Black Box services are provided to a customer. The Sale Transaction of which Black Box is required to notify TerraVision under cl 10.2(a) is the whole of a transaction or series of connected transactions between Black Box and its customer by which Black Box sells or otherwise supplies a Black Box service which includes or uses TerraVision software, such Black Box services comprising in whole or in part the Black Box integrated landbased vehicle and mobile asset tracking services solution.

Clause 10.3

59 The heading of cl 10.3 is 'Onselling of TerraVision services'. The clause provides for a Sale Transaction to a Contracting Party that includes providing a TerraVision service to the Contracting Party. Black Box did not onsell TerraVision services at the time the 2006 Agreement was executed. Like cl 10.1 it is a hangover from the 2002 Draft Agreement which the parties neglected to delete or out of an abundance of caution chose not to delete.

Clause 10.4

60 The heading of cl 10.4 is 'Provision of tracking services that do not include TerraVision Products'. The introductory words and paragraph (a) are:

For a sale or service to a Contracting Party that does not include providing a TerraVision hardware product, software or service to the Contracting Party:

(a) Black Box will advise TerraVision of the transaction.

61 The primary meaning of 'sale' is a transfer of property in goods from a seller to a buyer for a consideration in money called the price. The usual meaning of 'service' is the supplying of any articles, commodities or activities required or demanded. In economics economic output is divided into physical goods and intangible services. These are not discrete categories. There is a continuum with pure service at one end and pure commodity goods at the other end. Many products fall between those two extremes. Hiring goods is providing a service. Giving access to data or online reports is a service. The totality of the activities of Black Box in providing tracking services to customers for a price may properly be described as a sale or service.

62 The heading of cl 10.4 is 'Provision of tracking services that do not include TerraVision Products'. Those words indicate that the sales or services to which cl 10.4 applies are sales or services of tracking services that do not include TerraVision hardware, software or services. Tracking services is not to be understood narrowly. Black Box's business was to provide an integrated landbased vehicle and mobile asset tracking services solution. The 'tracking services' to which cl 10.4 refers is the whole of the tracking services solution Black Box provides to a customer. For example, where Black Box provides an invehicle recorder, antenna, wiring looms, software and services to enable its customer to record and access data about the location of the vehicle and other information relating to the vehicle, the whole of the products and services provided by Black Box to the customer is the sale of tracking services.

63 TerraVision says that cl 10.4 captures any dealings between Black Box and its customers that do not include or use a TerraVision system or part of a TerraVision system, that is do not include or use TerraVision software or hardware or part of TerraVision software. Black Box says that the dealings that fall within cl 10.4 are dealings between Black Box and its customers relating to equipment location services by use of software not supplied by TerraVision that could have been supplied by TerraVision or alternatively whether or not such equipment location services could have been supplied by TerraVision. Black Box says that the effect of the clause is that TerraVision is not to be remunerated for products or services sold by Black Box to its customers that TerraVision does not sell or provide.

64 Black Box places some emphasis on the word 'service' or 'services' appearing in cl 10.4 and in the Price List. For the reasons I have stated earlier, services refers to the whole of the integrated tracking services provided by Black Box to a customer. That includes the hardware, software and systems provided by Black Box to a customer as part of the integrated tracking services. In the usual case that includes all of the hardware and software included in the land segment, through the air segment, communications cluster, database cluster and business cluster provided by Black Box to its customer. The 'transaction' is the whole of the dealing or connected dealings between Black Box and its customer. If Black Box supplies a Navman unit, antenna and wiring looms as well as the software systems required to deliver the integrated tracking solution, the sale or rent of the Navman unit, antenna and wiring looms forms part of the transaction whether they are included on a single invoice or separate invoices or separate line items on one invoice.

65 That construction is consistent with the heading of the subclause 'Provision of tracking services that do not include TerraVision Products'. It is consistent with the introductory words of cl 10.4 which refers to a sale or service to a Contracting Party, that is in effect a customer of Black Box, that does not include providing a TerraVision hardware product, software or service to the customer. It is consistent with cl 9.4 which provides that Black Box may provide tracking services that do not include TerraVision Products, providing that TerraVision is paid the price in accordance with cl 10.4, although TerraVision Products in that clause should be read to mean TerraVision hardware, software or services. It would not otherwise make sense.

66 The construction of cl 10.4 I have set out is consistent with the purpose of cl 10.4. The purpose of cl 9.4 and cl 10.4 disclosed by the 2006 Agreement as a whole is as follows. Black Box has the exclusive right, with limited exceptions, to provide products or services that include or use TerraVision hardware or software. Thus, the only benefit which TerraVision can derive from the use of its hardware or software for vehicle and mobile asset tracking is the fee or royalty it receives from Black Box under the 2006 Agreement. If Black Box provides tracking services to its customers using software other than TerraVision software then TerraVision would receive no fee or royalty from Black Box and would not be able to itself sell tracking services because of Black Box's exclusive right to TerraVision's software. Clause 9.5 and cl 10.4 addresses that situation by providing that if Black Box provides tracking services to a customer that do not use TerraVision software then Black Box must pay a fee to TerraVision. The Price List provides that where Black Box provides services to a customer that incorporates TerraVision software then the fee payable to TerraVision is 15% of gross revenue. Where Black Box provides to a customer services that do not incorporate a TerraVision product then a lesser fee is payable - 15% of gross profit. That ensures that the fee payable to TerraVision does not exceed the profit made by Black Box on each transaction or dealing.

Answers to questions

67 I will now answer the questions ordered to be tried separately.

Question 1 - Sale Transaction

Question 1 is: What is the meaning of Sale Transaction?

Answer: Sale Transaction means the whole of a transaction or series of connected transactions between Black Box and its customer by which Black Box sells or otherwise supplies a Black Box product or service, such Black Box product or service being the whole of a Black Box integrated landbased vehicle and mobile asset tracking services solution provided to a customer or any part of an integrated landbased vehicle and mobile asset tracking services solution provided to a customer.

Question 2 - sale or service

Question 2 is: What is the meaning of sale or service?

Answer: In cl 10.4 sale or service means the whole of a transaction or series of connected transactions between Black Box and its customer by which Black Box provides the whole or a part of an integrated landbased vehicle and mobile asset tracking services solution including associated services.

Question 3

Question 3 is: What is a transaction?

Answer: In cl 10.4(a) 'the transaction' refers to each 'sale or service' in the first line of cl 10.4, that is the whole of a transaction or series of connected transactions between Black Box and its customer by which Black Box provides the whole or a part of an integrated landbased vehicle and mobile asset tracking services solution including associated services.

Question 4

Question 4 is: What transactions or dealings fall within the whole of cl 10 of the 2006 Agreement?

Answer: All of the transactions or series of connected transactions between Black Box and a customer by which Black Box provides the whole or part of an integrated landbased vehicle and mobile asset tracking services solution, including associated services, fall within cl 10 of the 2006 Agreement.