|
|
Home
| Databases
| WorldLII
| Search
| Feedback
High Court of New Zealand Decisions |
Last Updated: 14 September 2018
|
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
|
|
CIV 2015-404-2903
[2018] NZHC 2167 |
|
BETWEEN
|
THE PHONE COMPANY LIMITED
Plaintiff
|
|
AND
|
M2 NZ LIMITED
First Defendant
M2 TELECOMMUNICATIONS PTY LIMITED
Second Defendant
|
|
Hearing:
|
15 February 2018
|
|
Appearances:
|
D W Grove for Plaintiff
J Marcetic and R M Jones for Defendants
|
|
Judgment:
|
22 August 2018
|
JUDGMENT OF PETERS J
This judgment was delivered by Justice Peters on 22 August 2018 at 4.45 pm pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar Date: ...................................
Solicitors: Foy & Halse, Auckland
Chapman Tripp, Auckland
Counsel: D W Grove, Auckland
THE PHONE COMPANY LTD v M2 NZ LTD [2018] NZHC 2167 [22 August 2018]
[1] The plaintiff (“TPC”) and the defendants (together “M2”) seek determination of a preliminary question concerning the construction of a provision of an agreement dated 4 December 2006 (“termination agreement”).1
[2] M2 is an Australian telecommunications business.2 In or about the early 2000s, M2 was seeking to establish a presence in New Zealand. The evidence of Mr Bryan Holmes of TPC is that, having failed in its first attempt to establish here, M2 then approached him to assist.3 Mr Holmes’ evidence is that he and Mr Vaughan Bowen, the managing director/CEO of M2, discussed what would be required to establish M2’s presence here and this led to their Heads of Agreement (“HoA”).
[3] The HoA is a letter from M2 to TPC dated 14 December 2005, signed by Mr Bowen and Mr Holmes for their respective companies. The HoA included provisions regarding the services that TPC would render to M2 and how TPC would be remunerated for doing so.4
[4] In December 2006, the parties agreed to terminate the HoA and to “settle all outstanding claims”.5 The terms on which they did so are recorded in a letter from M2 to TPC dated 4 December 2006, ie the termination agreement, again signed by Mr Bowen and Mr Holmes. Amongst other things, this agreement provided that M2 would pay two commissions to TPC in perpetuity.
[5] Five years after the termination agreement, in May 2012, the parties executed what is referred to as the “variation agreement”. This appears to have been the only agreement between the parties that was drafted by a lawyer.
2 Affidavit of V G Bowen dated 6 July 2016 at [8].
3 Affidavit of B C Holmes sworn 25 July 2017 at [24].
4 At [12].
5 There is no evidence of the nature of those claims.
[6] The variation agreement added a provision to the termination agreement, giving each party the option of bringing the ongoing payment of commissions to an end, by M2 paying TPC a lump sum calculated according to an agreed formula.
[7] TPC exercised this option in July 2012, and was paid out according to the formula.
[8] By its proceedings, TPC seeks to set aside the variation agreement and to have the termination agreement reinstated. TPC’s case is that it was induced to enter into the variation agreement as a result of misrepresentations made to it by M2. If TPC were to succeed, its receipt of commissions under the termination agreement would be reinstated.
[9] In mid-2016, M2 made a largely unsuccessful application to strike out TPC’s proceeding or for summary judgment on its defence.6
[10] M2 then applied to have the preliminary question determined. This application was subsequently overtaken by a consent memorandum seeking the determination of the preliminary question. Hence this judgment. The question to be decided relates to the basis on which one of the commissions due under the termination agreement is to be calculated, if the termination agreement is reinstated as a result of the proceedings.
[11] In particular, the question is whether clause (f) of the termination agreement provides for the commission in dispute to be calculated on revenue (or “Net Receipts” as it is referred to in the termination agreement) derived from all M2 “mobile phone services customers” (“mps customers”) or only such customers whose services are delivered on the Vodafone network. TPC says the former, M2 the latter. The issue is significant because in 2015 and as a result of its acquisition of CallPlus, M2 acquired customers carried on the Spark mobile network.7 These were M2’s first customers on the Spark mobile network.
6 The Phone Company Ltd v M2 NZ Ltd [2016] NZHC 2283.
7 Affidavit of V G Bowen dated 9 October 2017 at [14].
[12] There is no dispute about the principles of construction to be applied. In Vector Gas Ltd v Bay of Plenty Energy Ltd, Tipping J said (citations omitted):8
[19] The ultimate objective in a contract interpretation dispute is to establish the meaning the parties intended their words to bear. In order to be admissible, extrinsic evidence must be relevant to that question. The language used by the parties, appropriately interpreted, is the only source of their intended meaning. ... The necessary inquiry therefore concerns what a reasonable and properly informed third party would consider the parties intended the words of their contract to mean. The court embodies that person. To be properly informed the court must be aware of the commercial or other context in which the contract was made and of all the facts and circumstances known to and likely to be operating on the parties’ minds. Evidence is not relevant if it does no more than tend to prove what individual parties subjectively intended or understood their words to mean, or what their negotiating stance was at any particular time.
[13] TPC’s responsibilities under the HoA were, first, to “establish the necessary operational ingredients to enable Customers to be supplied the Services in New Zealand and to establish a Dealer network” and, secondly, to take all necessary steps to have an agreement between “Balance Communications” (“Balance”) and Telecom novated to M2.
[14] Balance was Mr Holmes’ company and it had recently entered into an agreement with Telecom that would enable Balance to distribute or sell landline services.9 Mr Holmes’ evidence is that this was the second only such agreement in New Zealand at the time.
[15] M2 was to remunerate TPC by paying a monthly consultancy fee, which appears to have related to the novation, and by paying two commissions:
(a) two per cent of the Net Receipts, as defined in the HoA, “of all Customers procured by Dealers ... identified and secured by TPC”;10 and
8 Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR 444.
9 Affidavit of B C Holmes, above n 3, at [26] and [32].
10 Heads of Agreement dated 14 December 2005.
(b) nine per cent of Net Receipts derived from “Customers secured by TPC directly”.11 There was scope for this commission to be reduced depending on the margin that M2 received, a matter which is immaterial for present purposes.
[16] Both commissions were to remain payable to TPC whilst the customer remained an “active Customer of M2”.
[17] The definition of Net Receipts in the HoA, which is substantially different from the definition in the termination agreement, is as follows:
Net Receipts refers to the revenues received from eligible Customers, exclusive of any applicable taxes, statutory charges and line rental income (line services & equipment) received by M2.
[18] The HoA also provided that it did not “attempt to be an exhaustive account of all the elements of the Alliance”, and that both parties agreed to “operate co- operatively in good faith”. Also, the HoA was not for a fixed term and it contained no termination provisions.
[19] Following the HoA, TPC completed the novation of the Balance/Telecom agreement thereby enabling M2 to provide landline and broadband services. TPC also negotiated a Mobile Virtual Network Operator Agreement (“MVNO”) between M2 and Vodafone. An MVNO allows a company to provide:12
30. mobile phone services to its end users, invoice them under its own
brand, own the relationship with the customer and collect payments for services directly from those customers, without having a physical mobile phone network. In essence, an MVNO piggybacks on an existing mobile phone network and basically purchases wholesale air time and re-sells that to customers. On behalf of M2, I negotiated the first MVNO in New Zealand between M2 and Vodafone.
[20] TPC also secured four dealers to represent M2 and to sell M2’s products or services into the marketplace and a toll-calling contract between M2 and CallPlus.
11 Termination Agreement dated 4 December 2006.
12 Affidavit of B C Holmes, above n 3, at [30] and [31].
[21] The gist of Mr Holmes’ evidence is that these achievements reflected the lengthy discussions that he and Mr Bowen had prior to the HoA, and the prerequisites Mr Bowen had identified if M2 was to operate in New Zealand. Mr Holmes’ evidence is that M2 was only able to establish itself in New Zealand because of the novation of the landline agreement with Telecom, the MVNO to which I have referred, and the securing of the dealers. This point is important because M2 submits that its preferred construction of clause (f) reflects an intention that TPC should only receive ongoing commission in respect of its actual achievements, a submission that TPC rejects.
[22] M2 decided to manage its own arrangements shortly after the MVNO was finalised, and the parties entered into the termination agreement. There is no evidence before me as to how this agreement was prepared or negotiated. I simply have the document itself.
[23] The termination agreement provided that it contained the terms on which the parties had agreed to terminate the HoA, “the unexecuted letter of appointment as a consultant dated 1 September 2006 and numerous email exchanges and verbal discussions up to and including [4 December 2006]” and to “settle all outstanding claims”. I have no evidence of these other documents or claims.
[24] The important clauses for present purposes are:
(e) TPC is entitled to receive a commission in perpetuity of two percent (2%) of the Net Receipts* from all customers contracted to M2, or its related or subsidiary companies, (whether orally or in writing) by the following dealers: ...
If M2, at its sole discretion secures a Phone & Fly dealership agreement with [Dealer] on or before 30 June 2007, M2 agrees to include the Net Receipts from customers contracted to M2 ... by this dealer in the amounts payable in accordance with this paragraph (e).
...
(f) TPC is entitled to receive an additional commission in perpetuity equal to one percent (1%) of Net Receipts arising from mobile phone services customers (“end users”) of M2 (or its related or subsidiary companies), including customers of M2 procured by any M2 contractor, dealer or agent in New Zealand when the Vodafone NZ mobile network is used to deliver the mobile services. For the avoidance of doubt, the Net Receipts used to calculate the commission
set out in paragraph (e) will not be included in determining the commissions payable in accordance with this paragraph and no commission is payable to TPC in accordance with this paragraph for customers which may be procured via such wholesale arrangements and/or licensing arrangements, as are described below, which M2 may enter into with third parties in New Zealand with respect to mobile services. Wholesale arrangements are distribution models whereby M2 enters into a commercial wholesale arrangement to supply mobile or other services to a party for the purpose of that party on-selling the services to its own customers. Licensing arrangements are licensing models that are materially consistent with Attachment B to this letter of agreement.
(g) For avoidance of doubt, the payments to TPC described in paragraphs “(e)” and “(f)” above include those from all customers which are contracted either prior to or after the date that this letter is duly executed by Bryan Holmes on behalf of TPC and are made indefinitely for each customer whilst M2, or its related or subsidiary companies, receives Net Receipts in relation to that customer.
...
* In this letter of agreement “Net Receipts” means all the revenues received directly or indirectly by M2, or its related or subsidiary companies, from customers mentioned in paragraphs (e) and (f) of this document for telecommunications services, exclusive of any applicable taxes, statutory charges, fixed line rental income, any services categorised as a Telecom Smart Phone service and any equipment charges received by M2.
[25] The termination agreement also included provisions requiring M2 to secure TPC’s entitlements if M2 sold “any or all of the customers (that are relevant to any commission under this letter) ...”; that TPC could assign its rights to receive payments; and that M2 would pay the commission referred to in clause (e) in respect of any customer procured by any successor, assignee, transferee or “replacement” of the identified dealers.13
[26] The preliminary question to be answered is:
Should clause (f) of the [termination agreement] be interpreted to provide for a perpetual commission right in favour of [TPC] amounting to:
13 I have considered whether anything might turn on the words “any or all of the customers (that are relevant to any commission under this letter) ...”. I have decided not, as they may be a reference to customers procured by wholesale or licence arrangements as referred to in clause (f) of the termination agreement.
A: 1% of Net Receipts arising from mobile phone services customers of M2 (or its related or subsidiary companies) including customers procured by any M2 contractor, dealer or agent in New Zealand when the Vodafone NZ mobile network is used to deliver the mobile services, exclusive of:
- Net Receipts used to calculate commissions under paragraph (e) of the [termination agreement]; and
- Wholesale and licensing arrangements as are described in clause (f) of the [termination agreement];
OR
B: 1% of all revenues received directly and indirectly by M2, (or its related or subsidiary companies), for telecommunication services (exclusive of any applicable taxes, statutory charges, fixed line rental income, any services categorised as a Telecom Smart Phone service or any equipment charges received by M2) arising from Mobile Phone Services Customers (“End Users”) of M2 (or its related or subsidiary companies), including customers of M2 procured by any M2 contractor, dealer or agent in New Zealand when the Vodafone NZ Mobile Network is used to deliver the mobile services, and exclusive of:
- Net Receipts used to calculate commissions under paragraph (e) of the [termination agreement]; and
- Wholesale and licensing arrangements as are described in clause (f) of the [termination agreement].
[27] M2 submits the answer is “A”, and TPC “B”. Formulation A (deliberately) omits the comma before “including”, the intention being to highlight M2’s preferred construction that the commission is to be calculated only on Net Receipts arising from mps customers of M2 whose services are delivered on the Vodafone network.
[28] Counsel for M2 submits that there was good reason for the parties to confine TPC’s commission to Net Receipts from mps customers carried on the Vodafone network because doing so reflected TPC’s actual achievements – an MVNO with Vodafone – and because at the time the termination agreement was executed all M2’s mps customers were carried on the Vodafone network.
[29] Counsel for M2 also submits that there is no good reason for the parties to have referred to the Vodafone network only in the context of “customers procured by any
M2 contractor ... in New Zealand”. Accordingly, counsel submits that the parties must have intended the reference to the Vodafone network to relate to all “mobile phone services customers”. Failing that, counsel submits the reference to the Vodafone network would be redundant.
[30] M2 also submits that, when the parties were negotiating the variation agreement, TPC did not respond to M2’s advice that TPC’s entitlement to commission depended on the continuation of M2’s agreement with Vodafone. I do not consider there is anything in this point. Quite aside from the fact that this would constitute post-contractual conduct, or rather silence, Mr Holmes’ response is that his silence reflected the prevailing reality. If M2’s agreement with Vodafone had ended, M2 would not then have been able to deliver mobile phone services. There would then be no mobile phone services, no mps customers, no Net Receipts from mps customers, and so no commissions under clause (f).
[31] TPC submits that a literal reading of clause (f) favours its position. I accept that submission, because of the comma before “including”. On its face, clause (f) provides for the commission to be calculated on Net Receipts from all M2 “mobile phone services customers”, and then includes a subset of customers procured by M2 contractors etc and carried on the Vodafone network.
[32] TPC also relies on two aspects of the definition of Net Receipts in the termination agreement. For ease of reference, the definition is:
... “Net Receipts” means all the revenues received directly or indirectly by M2, or its related or subsidiary companies, from customers mentioned in paragraphs (e) and (f) of this document for telecommunications services, exclusive of any applicable taxes, statutory charges, fixed line rental income, any services categorised as a Telecom Smart Phone service and any equipment charges received by M2.
[33] Counsel for TPC relies first on the reference to “services categorised as a Telecom Smart Phone service”. He submits that these words are superfluous on M2’s construction of clause (f), ie there would be no need to refer to, let alone exclude,
revenue derived from “services categorised as a Telecom Smart Phone service” if the relevant customer base is only that carried on the Vodafone network.
[34] Secondly, counsel for TPC submits that the reference to “telecommunications services” in the definition is material. I agree with counsel to the extent that the revenue included in Net Receipts is not confined to that derived from the provision of mobile phone services. I do not consider the reference to telecommunications services goes any further than that, or assists with the construction of clause (f).
[35] Likewise, counsel for TPC’s submission based on clause (g), quoted in [24] above, and its reference to “all customers...contracted either prior to or after” the termination agreement. I agree that the effect of clause (g) is to include subsequent customers within clauses (e) or (f) but, again, I am not persuaded clause (g) adds anything to the construction of clause (f).
[36] As I have indicated, TPC rejects the submission for M2 referred to in [28] above. Rather, it credits itself as responsible for M2’s success in establishing in New Zealand. As a result, TPC does not accept that there is any good reason to confine the commission due under clause (f) to mps customers on the Vodafone network only.
[37] Lastly, Mr Holmes’ undisputed evidence is that M2 drafted the termination agreement.14 Given that, TPC submits that any ambiguity in clause (f) must be resolved in its favour on the basis of contra proferentem.
[38] I have reservations about answering the preliminary question because the evidence before me does not address some matters which could be significant. It may be, however, that the sheer passage of time has meant such evidence as might have assisted is no longer available.
14 Affidavit of B C Holmes sworn 16 November 2017 at [5].
[39] However, doing the best I can on the basis of the information and evidence I do have, I have concluded that TPC’s construction is to be preferred for the reason in
[31] above, namely that a literal reading of clause (f) favours TPC.
[40] Counsel for TPC referred me to the Supreme Court’s decision in Firm PI 1 Ltd v Zurich Australian Insurance Ltd:15
[63] While context is a necessary element of the interpretive process and the focus is on interpreting the document rather than particular words, the text remains centrally important. If the language at issue, construed in the context of the contract as a whole, has an ordinary and natural meaning, that will be a powerful, albeit not conclusive, indicator of what the parties meant. But the wider context may point to some interpretation other than the most obvious one and may also assist in determining the meaning intended in cases of ambiguity or uncertainty.
[41] In my view, the ordinary and natural meaning of clause (f), with the comma after “companies)” and before “including”, is that the commission is to be calculated on Net Receipts deriving from all M2 mps customers, regardless of the network on which their services are delivered. The position would be different if there was another comma after “New Zealand” and before “when”. I add that I have considered the termination agreement as a whole with a view to ascertaining whether whoever drafted the document may have followed a particular practice with punctuation. I have not, however, been able to determine that he or she did so.16
[42] I have not placed any weight on the reference in the definition of Net Receipts to the phrase “any services categorised as a Telecom Smart Phone service”. Plainly the parties made a deliberate decision to include a new definition of Net Receipts. As counsel for M2 submits, however, the definition applied to both clauses (e) and (f). It may be that parts of the definition were more apt in the context of clause (e) than clause (f). There is no evidence on the point, so it is not possible to say. Nor is there any information available regarding the forms of revenue that M2 received, or expected to receive, as at the date of the termination agreement; the services that were or might have been categorised as a Telecom Smart Phone service; whether such
would inevitably be carried on the Telecom mobile network and so on. Absent such evidence, I do not consider it appropriate to infer that the reference to Telecom in the definition of Net Receipts is material to the issue I have to determine.
[43] Equally, however, I am not persuaded by the submission of M2 referred to in
[28] above. If anything, TPC’s submissions are more compelling on this point.
[44] In my view, M2’s best submission is that referred to in [29] above and the apparent absence of any reason to refer to the Vodafone network only in the context of those M2 customers procured by an M2 contractor, dealer or agent. As counsel for M2 submitted, if no reason did exist, then either the reference to Vodafone serves the purpose proposed by M2 or it is redundant. As a general rule, it is preferable to attribute a meaning or effect to all the words in a bespoke agreement, such as the termination agreement.17
[45] The difficulty is, however, that the evidence that the parties have adduced does not address whether or not there was a reason to refer to the Vodafone network in the context of customers procured by an M2 contractor, dealer or agent. There is no evidence as to the nature of those customers or those contractors etc. In this regard, this otherwise compelling submission for M2 faces the same difficulty as TPC’s submission as to the importance of the reference to “any services categorised as a Telecom Smart Phone service” in the definition of Net Receipts.
[46] Given these matters, in my view the literal reading of clause (f) must prevail. Hence the decision I have reached.
[47] Lastly, for the reason given in [37] above, I would have determined the preliminary question in favour of TPC if I had considered clause (f) ambiguous.18
17 Lewison, above n 16, at [7.03].
[48] The answer to the preliminary question is that clause (f) of the termination agreement provides for TPC to be paid in perpetuity the commission described in formulation B referred to in [26] above, that is the preliminary question is answered in TPC’s favour.
[49] In the absence of submissions to the contrary, M2 is to pay TPC’s costs on a 2B basis, and all reasonable disbursements.
Peters J
NZLII:
Copyright Policy
|
Disclaimers
|
Privacy Policy
|
Feedback
URL: http://www.nzlii.org/nz/cases/NZHC/2018/2167.html