State Mercantile Pty Ltd v Oracle Telecom Pty Ltd

DISTRICT COURT OF QUEENSLAND

CITATION:	State Mercantile Pty Ltd v Oracle Telecom Pty Ltd [2017] QDC 52.
PARTIES:	STATE MERCANTILE PTY LTD (plaintiff) v ORACLE TELECOM PTY LTD (defendant)
FILE NO/S:	BD 3275/2013
DIVISION:
PROCEEDING:	Civil Trial
ORIGINATING COURT:	District Court at Brisbane
DELIVERED ON:	10 March 2017
DELIVERED AT:	Brisbane
HEARING DATE:	21-23 November 2016
JUDGE:	McGill SC DCJ
ORDER:	Judgment that the plaintiff pay the defendant $32,921.98, including $7,833.12 by way of interest.
CATCHWORDS:	CONTRACT – Construction and interpretation – standard form of agreement published on website – whether incorporated in contracts. CONTRACT – Construction and interpretation – provision of telephone services – whether right to transfer services to different provider – whether transfer terminates contract – whether contract repudiated.  CONTRACT – Breach – Damages – loss of benefit of bargain – effect of right in other party to terminate contract or transfer services – contractual early termination fee – whether penalty.  Evidence Act 1977 s 129A Bartercard Ltd v Myallhurst Pty Ltd [2000] QCA 445 – cited. Cavendish Square Holding BD v Makdessi [2015] 3 WLR 1373 – cited. Coghill v Indochine Resources Pty Ltd (No 2) [2015] FCA 30 – cited. DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 – cited. Dasreef Pty Ltd v Hawchar (2011) 85 ALJR 694 – applied. Donovan v TIC Realty Pty Ltd [2011] QCA 90 – cited. Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1915] AC 79 – cited. Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104 – cited. PT Thiess Contractors Indonesia v PT Arutmin Indonesia [2015] QSC 123 – cited. Paciocco v Australia and New Zealand Banking Group Ltd [2016] HCA 28, 90 ALJR 835 – considered. Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17 – distinguished. Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 – cited. Watson v Scott [2015] QCA 267 – applied. Wilton v Farnworth (1948) 76 CLR 646 – cited.
COUNSEL:	A.P.J Collins for the plaintiff S Hogg for the defendant
SOLICITORS:	Burns and Associates for the plaintiff JHK Legal for the defendant

1. The defendant is a retailer of telephone services.  It has in the past provided such services to the plaintiff, it alleges under certain contracts, but in 2012 the relationship broke down.  This occurred after a director of the plaintiff left the plaintiff and moved to a competitor, which was also a customer of the defendant.  There was a dispute between the parties as to the terms of the contract at the time the relationship came to an end, as to the circumstances in which it came to an end, and as to whether the defendant is entitled to any and what payment, the right to which accrued under the contract prior to or upon its coming to an end, or as damages for breach of contract.    At the trial the plaintiff nonsuited its claim against the defendant, which was dismissed on that basis, and the counter-claim proceeded. 

Background

2. The services retailed by the defendant were provided to it by a wholesaler having the business name Telcoinabox.  Under the arrangement with that company, services were provided to customers of the defendant but the records of the charges for such services were maintained by the wholesaler, applying the particular charge rates determined by the defendant.  For that purpose the defendant had some access to the accounting programme maintained by the wholesaler, called the Octane system: p 24.  That system kept track of the usage by the defendant’s customers, and each month provided bills to the customers as if they had been generated by the defendant: p 28.  The bills provided for payment to be made by the customer to a company associated with the wholesaler, but as between the customer and the defendant, on behalf of the defendant: p 29.  The accounting between the defendant and the wholesaler was then a matter for them: p 2-45.  The wholesaler had charge rates which it charged to the defendant for the services provided to the customers, and in addition charged fees for maintaining these accounts and for providing bills to the customer, which were calculated as a percentage of the charges to the customer, totalling 2.5%: p 82. 

3. The parties first began to deal with each other in 2005 after contact was made between Mr O’Farrell, then a director of the plaintiff, and an agent of the defendant.[1]  The defendant did a credit check, and began to supply services on the basis of arrangements made between Mr O’Farrell and Mr O’Shaughnessy, the managing director of the defendant, from time to time: p 17, p 2-84.  The full history of the relationship was not in evidence, but on 13 September 2010 a director of the plaintiff, Mr J Hough, signed a service application form sent to the defendant in respect of a mobile phone service with a particular number, the service having been previously provided by Vodafone: Exhibit 2.  The document provided for a “$49 smart cap plan” for 24 months, and included provision of an Apple iPhone.  On 25 November 2011, the plaintiff signed a service application form for a landline service in the form of a multiline service covering 40 channels and a block of 100 numbers, but maintaining the existing rate plan: Exhibit 1.[2]  This replaced a similar service, but with 10 channels for incoming calls and 30 for outgoing calls, and was provided in response to a request on behalf of the plaintiff for extra capacity: p 19. 

   [1]Exhibits 21, 23; O’Shaughnessy p 17; O’Farrell p 2-82. 

   [2]See also Exhibit 7; O’Shaughnessy pp 22, 23, 29; in fact by mistake the plaintiff was only billed for 30 channels until the relationship broke down, although later the mistake was detected and the defendant was charged more by the wholesaler: p 2-14, 15.  Exhibit 20 passed on this charge. 

4. On 22 February 2012 Mr J Hough signed another service application form in respect of two mobile phone services, to be provided by the defendant to the plaintiff, apparently new services: Exhibit 3.[3]  The form provided for an “$89 connect me cap” plan for each phone, in each case for 24 months, and included the provision of two Apple iPhones.  On 11 April 2012 another director of the plaintiff, Mr M Hough, signed a service application form in respect of a mobile phone service which was apparently a new service: Exhibit 4.  It provided for a “$59 connect me cap” plan for the service, to last for 24 months, and also included the provision of an Apple iPhone. 

   [3]J Hough p 2-108.  These were mobile phones used by him and M Hough. They were previously covered by an agreement made in 2005: Exhibit 23.

5. The services provided to the plaintiff included therefore a number of landline services to its business, and some mobile services, a mobile phone provided to each of the directors of the plaintiff, and in the case of two of them, to their spouses.  In respect of these services, the plaintiff was charged in accordance with rates for particular plans which were published on the defendant’s website.  In relation to the landline services, these were charged by reference to particular rates which were the subject of oral agreements between a director of the plaintiff and the managing director of the defendant: p 23.  He said that once the rates were agreed, he would access the Octane system and put the rates into that system, and that system would then automatically charge those rates for the services provided to the plaintiff: p 24.  A summary of the different rates as charged at the relevant time appears in Exhibit 18.

Proof of Exhibit 14

6. The fact that this accounting system was maintained by the wholesaler meant that the defendant did not itself maintain many records of the arrangements with the plaintiff.  It relied on access to the wholesaler’s record system (p 26); for example, in 2012, after the relationship broke down, the managing director of the defendant was able to access that system and obtain screenshots of the monthly summaries for the plaintiff’s account for each of the last twelve months: p 31.  These screenshots were available to be tendered in evidence, but the defendant’s managing director said that these records were only retained by the wholesaler’s system for two years after they were created, so that they would not now be available from the wholesaler: p 28, p 90.

7. This gave rise to an issue of proof, because the records were generated by the wholesaler’s computer system and had been maintained by the wholesaler as computer-generated business records.  There was however no evidence called from the wholesaler, and presumably it would not now be possible for the wholesaler to produce such information from its computerised records.  It would, I suppose, be possible for someone from the wholesaler to identify the screenshots which were obtained by the defendant’s managing director, and in that way to verify that they were then part of the business records of the company, and make them admissible.[4]  That however strikes me as essentially a meaningless formality. 

   [4]Under the Evidence Act 1977 s 95, or perhaps under s 106.

8. There was no dispute about the accuracy of the billing system maintained by the wholesaler, though there was some issue about the detail of the contractual arrangements between the plaintiff and the defendant, and between the defendant and the wholesaler, neither of which someone who was simply verifying the computerised records of the wholesaler would be likely to be able to give evidence about. In the circumstances it seemed to me that this was a situation which was appropriate for simplified proof in a way which overcame the hearsay rule, pursuant to s 129A of the Evidence Act 1977, a provision inserted by the Civil Proceedings Act 2011.[5] 

   [5]I am not aware of any authority on the operation of that section. Section 129A replaced the former UCPR r 394, as to which see Donovan v TIC Realty Pty Ltd [2011] QCA 90 at [32], which confirmed that that rule excluded the best evidence rule. This applied only to the screenshots from the Octane system; Mr O-Shaughnessy’s evidence proved the other documents.

Background continued

9. Each month the wholesaler would produce a bill for the plaintiff, which was sent as a PDF attachment to an email to the defendant: p 70, p 84.  The managing director would review the bill, I suspect essentially to make sure that it was broadly consistent with the previous bills so that it did not contain any unpleasant surprises for the client, and then forward it by email to the plaintiff.  Examples became Exhibits 15, 16 and 24, though they are only the first two pages of each bill; the full bill ran to some hundreds of pages, and contained details of each call charged to the plaintiff: p 85.  A summary of the last twelve normal monthly bills before the relationship came to an end, together with the applicable screenshots from the computer program, a corresponding excel spreadsheet which was able to produce a total and add GST (p 31) and a summary sheet, produced by the defendant’s managing director (p 32), became Exhibit 14.    

10. These screenshots, and the corresponding documents based on them, also included the charges to the defendant by the wholesaler calculated from the usage made of the service by the plaintiff (p 81), and a discount which was allowed to the plaintiff under its arrangement with the defendant: p 84.  The amounts charged to the plaintiff and to the defendant were then tabulated in the managing director’s document, together with the fees paid to the wholesaler as mentioned earlier (p 82), to produce a figure for the average profit that the defendant made from the plaintiff each month during the twelve months before the relationship broke down. 

11. Problems arose between the parties as a consequence of the departure of Mr O’Farrell.  In February 2012 he left the plaintiff and soon after began to work for a competitor of it.[6]  Before he left the plaintiff, he had the mobile phone he used transferred to his personal account.[7]  The defendant was not aware that Mr O’Farrell had left the plaintiff until Mr O’Shaughnessy was told on 15 February 2012: p 43. 

    [6]O’Farrell p 2-86.  That business had been a customer of the defendant since early 2011: O’Shaughnessy p 45. 

    [7]O’Shaughnessy p 44 (who gave the date as 19 January 2012); O’Farrell p 2-85: he said he had had that number before he joined the plaintiff and it was later transferred to the plaintiff’s account. 

12. Mr J Hough said that after Mr O’Farrell had left he saw that the phone bill no longer included Mr O’Farrell’s mobile number: p 2-101.  As a result he called Mr O’Shaughnessy and told him that that was unacceptable, and that the mobile number which had been used by Mr O’Farrell was to be transferred back to the plaintiff, and also that incoming calls on that number were to be diverted to his mobile number: p 2-101, p 2-117.  He conceded that Mr O’Shaughnessy mentioned getting something in writing during the conversation: pp 2-102.  Mr Hough said that he sent an email the same day (Exhibit 5, document 2) which covered the matters referred to in his conversation, though it also sought an “outbound restriction on the account” (presumably the number) pending return of the phone, and an up-to-date call record for that number.  That email was sent to an email address ending with “.com.au” which was not the email address used by Mr O’Shaughnessy, which ended with “.com”.  Mr O’Shaughnessy said that he did not receive that email: p 43.  Mr Hough said that the URL for the defendant’s website ended in “.com.au”, and that the email he sent did not “bounce”: p 2-102.  I have not checked the website, which is not in evidence, but the email address given for the defendant on a range of documents in evidence emanating from the defendant always ends with the letters “.com”.

13. Mr O’Shaughnessy said that the conversation he had was reflected in the email that he sent on 15 February, particularly in the first, third and fourth paragraphs: document 3.[8]  That email advised that, because of the prospect of some issues between the plaintiff and Mr O’Farrell, the defendant wanted a written request from the plaintiff for various things including the reinstatement of the number to the plaintiff’s account, that the number was to be diverted to the plaintiff’s office number and anything else they wanted.  This email, which makes no mention of the email from Mr J Hough, was received by him, since the following day he sent an email enclosing a letter on the plaintiff’s letterhead advising that Mr O’Farrell had resigned, that Mr Hough and his brother remained as directors, and that the mobile number in question was to be transferred back to the plaintiff’s account: document 5.  Nothing was said in that letter about diverting the incoming calls, or otherwise dealing with the phone.  Mr O’Shaughnessy said that he gave effect to the request contained in that letter, and the number was placed back on the plaintiff’s account.  He said that the incoming calls were not diverted, as there was no request to do so in that letter.  He sent an email on the same day to Mr Hough confirming that the mobile number had been transferred back to the plaintiff’s account, and attaching a list of unbilled calls thus far in the month: document 5.

    [8]Exhibit 5 was a bundle of 36 documents tendered by agreement.  I shall refer to them just as “document x”.

14. Mr O’Farrell used a “call forward” facility on the mobile phone to redirect incoming calls to another mobile phone he had, presumably used for his work with the new employer: p 2-86.  This was not something the defendant was aware of until it received an email in July 2012 querying a string of charges for diversion in relation to Mr O’Farrell’s phone.  It appears the plaintiff thought that this had been put in place through the defendant, but I accept Mr O’Shaughnessy’s evidence that the defendant had nothing to do with this, and that it was something Mr O’Farrell did using the handset, taking advantage of a service made available generally to customers of phone services: p 46.[9] 

    [9]I have made use of such a service myself, to divert a landline service to a mobile phone, following instructions in a telephone book.  It requires no technical expertise. 

15. Mr J Hough also said that at some stage, he did not specify when, he contacted Mr O’Shaughnessy and asked him how he could gain access to voicemail messages left on the number of Mr O’Farrell’s mobile.[10]  He said he was given a code number which could be used to access them, though his attempts to do so were unsuccessful: p 2-102.  Mr O’Shaughnessy agreed that such a request was made of him, but he said that his reply was that access to the voicemails would require a pin number which they did not know: p 47.  He said that he was asked to reset the pin number, but replied that that would not help, as the new pin number would be sent directly to the handset, and hence to Mr O’Farrell.  He said he then suggested that he transfer the number to a different SIM card which he would send to Mr Hough, which Mr Hough could then use to obtain a new pin number for the account, and in that way obtain access to the voicemail messages.  This would also have the effect that the SIM card in Mr O’Farrell’s phone would cease to function.[11]  He said he did this and sent the new SIM card by post to the plaintiff, though he conceded he did not have a copy of a covering letter which accompanied it, or any contemporaneous email confirming that that step had been taken.[12]  Neither of the witnesses gave a date for this conversation, but evidently it was 17 February 2012; this matter was not referred to in the emails before that date.  The plaintiff’s witnesses said that no such SIM card was ever received by them.[13]  Mr J Hough said that after a pin number was given, and failed to work, he did nothing more about it. 

    [10]This was to see if any of the plaintiff’s clients had attempted to contact O’Farrell: p 2-120. 

    [11]There was no evidence that this would prevent the call diversion Mr O’Farrell had put in place from functioning. 

    [12]He did refer to the taking of that step subsequently, on 5 July 2012: documents 12, 15.

    [13]J Hough p 2-107, where he also denied any discussion about such a card.  M Hough p 3-27, p 3-46. 

16. At the beginning of July the monthly bill for the plaintiff was sent to the defendant, and it was forwarded to the plaintiff on 5 July 2012 under cover of an email explaining that the bill was a little higher because it included installation charges relating to the relocation of the plaintiff’s office, which involved reinstalling the multiline services: document 7.  This was sent to Mr M Hough, who looked after the administration side of the plaintiff’s business, and he said that as a result of this email he had looked at the bill, and noticed that there were still charges for calls on Mr O’Farrell’s mobile number (p 3-43), which of course was then back on the plaintiff’s account.  He looked more closely at the bill, and discovered that it included charges for a number of what looked like calls all to the one mobile number.  This in fact was a list of diverted calls. 

17. As a result on 5 July 2012 Mr M Hough sent Mr O’Shaughnessy an email saying “can you explain this” followed by the list of the charges call by call, which he cut and pasted from the details in the invoice: p 3-42; document 8.  The effect of this was that the diversion put in place by Mr O’Farrell was still operating, and calls were being diverted, presumably to his then current mobile number.  This would not have been affected by the former SIM card being disabled, as presumably he stopped using the old mobile phone after he redirected calls to his new mobile number.

18. Mr M Hough was very unhappy about the situation when he found that these calls were being diverted to a different number: p 3-43.  He said that he believed that incoming calls on what had been Mr O’Farrell’s mobile number were being diverted to Mr J Hough’s mobile (p 3-45), though he appears to have been unaware that he had not received any calls which were obviously diverted calls.[14]  Both said that Mr O’Farrell had been the main marketing person for their business, so that clients of the business would have rung him rather than anyone else, and in that way his mobile number was particularly important in terms of the plaintiff’s business receiving work: p 3-26, p 3-37.  Mr M Hough said that after Mr O’Farrell’s departure the plaintiff went to some trouble to advise customers of a new number to call, and that this may have masked the fact that calls were not being diverted: p 3-46.  He had not previously noticed that diversion charges were appearing in the monthly bills, though given the size of the bills that is understandable. 

    [14]That must have been the situation because there was no such diversion ever put in place.

19. In any event, a few minutes later Mr M Hough sent another email to Mr O’Shaughnessy asking to be sent a copy of any contracts the plaintiff had with the defendant: document 9.  Mr O’Shaughnessy explained how the diversion had occurred without their knowledge or involvement and said that he would speak to Optus about getting it removed: document 10.  Mr M Hough then asked to see the numbers that were diverted for all the months since the phone was disconnected: document 11.  In reply Mr O’Shaughnessy said that he was going through the bills and getting the records, that he had submitted the diversion removal to Optus, and asked if the number was to be permanently disconnected: document 12.  In reply Mr Hough said that he did want that and would talk about the matter on Monday: document 13.  Mr O’Shaughnessy emailed back that he would do this immediately, and that the records indicated that the diversion was put on back in February: document 14.  Later that same evening Mr O’Shaughnessy sent Mr Hough an email to say that the diversion started on 16 February, and listing all calls diverted between then and 26 June, some 175 calls: document 15.  The information would however have been of no use to the plaintiff, as the number calling in was not recorded.

20. Overall it seems to me that the defendant was really acting quite helpfully to the plaintiff in the situation it found itself in with Mr O’Farrell’s departure, but despite this the directors of the plaintiff remained hostile to the defendant.  A letter was sent advising that the plaintiff was seeking an alternative supply of telephone services, enquiring about “break fees” and inviting a quote to keep the services.[15]  The defendant attempted to resolve the situation with a conciliatory letter (document 18), but to no avail and the plaintiff arranged for another supplier to take over the landline services, with the result that on 19 July 2012 those services were transferred to the other supplier by the wholesaler.[16]    

    [15]Document 17.  It also sought an explanation of how O’Farrell had “had our number illegally diverted to his phone,” which had already been provided at least once, and revealed no illegality. 

    [16]Documents 19, 20.  This was without notice to the defendant: O’Shaughnessy p 49.

21. In this situation, Mr O’Shaughnessy, evidently concluding that the plaintiff was a lost cause, prepared two invoices to send to it.[17]  One of these was to cover the services provided during the period between the last invoice and the time when the services were transferred away from the defendant (p 50), and one was to cover the various termination fees which Mr O’Shaughnessy believed were payable under the defendant’s standard form of agreement.  The latter invoices assumed that all services including the mobile phones were being moved to the new supplier, though the advices from the wholesaler had not referred specifically to the mobile services: p 61.  Unlike the earlier invoices, which had been prepared by the wholesaler and sent to the defendant in electronic format, these invoices were prepared by the defendant using MYOB computer software, which produced hard copies.  Mr O’Shaughnessy said that these were then posted to the defendant’s address on 20 July 2012: p 50, p 62.  They were not returned to the defendant by the Post Office: p 51.  Nevertheless, each Mr Hough maintained that they had never been received by the plaintiff.[18] 

    [17]O’Shaughnessy pp 50, 51.  The invoices he prepared then were Exhibit 8 (invoice 613) and Exhibit 12 (invoice 616): p 50, p 61.  Both were later replaced with different invoices, one with the same number, and to add to the confusion, the replacement invoice 616 (Exhibit 9), was initially identified as the original invoice 616: see p 51, p 61. 

    [18]Mr M Hough p 3-33; Mr J Hough p 2-105.  The address on the invoices was their office address, and mail for the plaintiff could be delivered there: p 2-119. 

22. Invoice 613, for $61,772.25, was the invoice created to cover the termination fees: Exhibit 12.  Invoice 616, for $27,492.86, was for services between the previous invoice and the time when the services were transferred away from the defendant: p 63; Exhibit 8.  The plaintiff had been paying the defendant’s invoices by direct debit since 2007, and at this time that authority (Exhibit 22) was still in place: p 42.  Relying on that authority, on 26 July 2012 the defendant debited the plaintiff’s bank account with the total of invoices of 613 and 616, $89,265.11.  The same day the plaintiff’s solicitors sent by email a letter asserting that this had occurred without authority and with no lawful entitlement to the money and demanded that it be repaid otherwise proceedings would be brought against the defendant: document 21.  It appears however that in fact the plaintiff’s bank reversed the transaction after being contacted by Mr M Hough of the plaintiff directly: document 22. 

23. Mr O’Shaughnessy said that Mr M Hough called him on his mobile and stated that they had stolen money from his bank account, that he did not owe us a cent and would not pay us another cent: p 54.  Mr O’Shaughnessy said that he asked him to clarify that he would thereafter not pay him anything, and said that Mr Hough replied that that was correct, and hung up: p 54.  In those circumstances, Mr O’Shaughnessy suspended the operation of the mobile phone services still on the plaintiff’s account.  He said that he did this because he believed the defendant was not going to get paid for any further use the plaintiff made of those services: p 55.  Mr Hough denied part of this version, but agreed he said that Mr O’Shaughnessy had stolen money from his account: p 3-51, 52.  He denied he said he would not pay the defendant another cent (p 3-32, p 3-52), but in fact after that the plaintiff did not do so: p 3-59. 

24. Mr O’Shaughnessy explained that the mobile services were suspended rather than disconnected, because in the latter situation the numbers were released and would be available to provide to others, whereas the suspension still retained the numbers, so that the process could be reversed: p 54.  He said that the suspension occurred on a Friday evening (p 55) and 27 July 2012 was a Friday.  This involved mobile phones of both the directors and both their wives, and, unsurprisingly, they were very angry about this.[19]  On 30 July 2012, the following Monday, Mr M Hough sent an email demanding that the phones be reconnected (document 23) and he telephoned the defendant’s office that day, trying to speak to Mr O’Shaughnessy; he admitted shouting at the office staff when he was not put through: p 3-53.  He contacted the plaintiff’s solicitors who sent an email that day to the defendant demanding that the mobile telephone service be reinstated: document 25. 

    [19]M Hough p 3-30; J Hough p 2-106. 

25. Mr O’Shaughnessy sent an email enquiring whether the mobile contract was to remain on foot (document 26), which provoked a further demand that the mobile services be reconnected: document 27.  Mr O’Shaughnessy replied, drawing attention to the fact that the email did not address the point that he had raised about the mobile contract, but saying that the mobile services would be reconnected on the basis that the contract for those services was still on foot (document 28) and also advised that the defendant would re-invoice for all amounts outstanding.  In response, Mr M Hough emailed: document 29:

“We look forward to you reconnecting our mobiles, and receipt of your invoices”.

26. Later on 30 July 2012 the mobiles and two wireless USB services were reconnected: document 30.   On the following day, 31 July 2012, an amended invoice was prepared which did not include early termination fees in respect of the mobile services, and which reduced the amount sought to $58,794.12, and provided some detail as to how the termination fees sought were calculated: Exhibit 9.  This invoice was also numbered 613, and still dated 19 July 2012, and was sent under cover of an email document 33. 

27. That email also advised that invoice 616 for unbilled charges to 20 July had been reversed and could be disregarded, but that an account for all services up to 27 July 2012 would be issued shortly in the usual way.  By the time that email was sent however, the plaintiff had already transferred all mobile services to the other provider (document 34), essentially as soon as the mobile phones were reconnected.[20]  On 31 July 2012 as well, an invoice was issued, apparently from the defendant but presumably by the Octane system, for $25,118.86, for charges arising since the cut off day for the previous monthly invoice issued on 28 June 2012.[21]  On 2 August 2012, the defendant emailed to the plaintiff an invoice for the early termination fees for the mobile services, in the sum of $5,505.14: Exhibit 10.[22] Confusingly, this invoice, dated 31 July 2012, was also numbered 616.

    [20]M Hough pp 3-33.

    [21]The front page of this bill is Exhibit 17, while a copy of the first 9 pages became Exhibit 20; the whole bill ran to 715 pages, and (fortunately) was not put in evidence.

    [22]Sent under cover of the email document 36. 

Terms of the contract

28. The defendant had a standard form of agreement which was said to be available on its website; a copy of the version current from 24 November 2010 became Exhibit 6.  The agreement was apparently drawn up by the wholesaler Telcoinabox for use by suppliers such as the defendant: p 18.  The various application forms signed on behalf of the plaintiff referred to and incorporated the standard form, and the trial proceeded on the basis, which I think is correct, that these terms were incorporated in the contracts between the parties made after that date.  The agreement provides expressly in cl 1.2 that agreements to provide particular services and equipment arise from the acceptance of application forms signed by the customer.  It was also provided they incorporate, among other things, the rate sheet: cl 1.3.3. 

29. By the standard terms, the defendant agreed to provide the services and equipment nominated or agreed subsequently to be provided: cl 2.  The customer was to pay the charges at the relevant rates as notified from time to time: cl 3.1.  The clause went on to indicate that the customer would usually be invoiced monthly, being charged in advance for periodic charges and connection of service fees, and in arrears for usage charges.  All charges were due and payable by the due date shown on the invoice: cl 3.4.  Clause 3.11 provided that data recorded by the defendant and the defendant’s supplier was to be evidence of the amounts payable unless shown to be incorrect.  Clause 5 provided that the agreement would continue for the fixed term of the contract or until it was terminated in accordance with cl 12.  If the service was not cancelled at the end of a fixed term it would continue on a month-to-month basis.  Clause 19.9 provided:

“Any notice, demand, consent or other communication required to be given to either of us must be delivered personally or sent by prepaid mail, email or by facsimile to the address of the other last notified.”

30. Clause 12 then dealt with termination, suspension or cancellation.  Clause 12.1 permitted the defendant to terminate, suspend, limit or cancel the provision of any service or package by notice in writing in certain circumstances, and cl 12.2 permitted the defendant to suspend, limit or terminate the provision of any service or package without liability, if there was no minimum term in place, by giving 30 days’ notice in writing.  The clause continued, so far as is relevant:

“12.3You may terminate this SFOA or cancel the provision of any Service or Package by giving us 30 days notice in writing.

12.4On termination of this SFOA under clause 12.1 or clause 12.3:

12.4.1You must:

12.4.1.1pay all charges incurred by you under this SFOA up to the time of termination which will become immediately due and owing upon termination;

…

12.4.1.6pay the applicable early termination fee (if any) to us.

12.4.2If there is credit remaining on your account at the time of termination, we will, at our option, deduct the credit off any amount you us under clause 12.4.1 or pay you the credit or if the credit exceeds any amount you owe us, we will refund by cheque or EFT.”

31. The only other part of this clause I need refer to is cl 12.6, which provided:

“We may, without liability, suspend the provision of any Service or Package for a reasonable period for operational reasons.”

32. Reference was also made at the trial to the terms of cl 7 which are as follows:

“7.1If you (or a supplier acting with your authority) ask us to transfer any of the services to another supplier, then you remain liable to us for any amount payable in relation to the supply of the services up to the date on which we transfer those services to another supplier.  You will immediately pay us that amount on receipt of our invoice.

7.2The provision of services ceases on the date on which we transfer your services to another supplier.

7.3We will endeavour to invoice you for services which you transfer to another supplier and in relation to which you have incurred charges, within the next normal billing period.  If after that we become aware of other proper charges (including fees payable to any other supplier) for those services up to the date of transfer, or we resolve any disputes so that any liability relating to those services is quantified, then you will immediately pay us all such amounts on receipt of our invoice.

7.4We will not accept liability for any amounts owing by you to a supplier or other person.  You indemnify us against any claim made by a supplier or other person against us in relation to any such amounts.

7.5We will credit you with any amount credited to us by another supplier for those services provided up to the date of transfer.”

33. I should also mention that cl 20.1.15 defined “early termination fee” as follows:  “means the fee payable by you if the contract with you is terminated before its Minimum Term has expired, the calculation of which is set out in Annexure A.”  The last page of the exhibit is Annexure A, a list of early termination fees.  The relevant products are mobile service, for which the specified fee was “minimum monthly commitment per service x months remaining in contract” and business phone services excluding Telstra ISDN, for which the relevant fee was “minimum monthly commitment per line or channel x months remaining in contract”. 

The pleadings

34. An amended counter-claim was filed by leave on the first day of the trial, but no amended answer in response was filed at any time on behalf of the plaintiff.  The last answer was that filed (with an amended reply) on 16 November 2016, and I shall treat that as the effective pleading.  The authority of Mr O’Farrell to enter into agreements on behalf of the plaintiff was not admitted on the pleading, but that he had such authority was admitted by Mr J Hough: p 2-117.  Further, Mr M Hough said that when the rates which the plaintiff would pay for the landline telephone services were being negotiated, he was with Mr O’Farrell, listening in on the conversation: p 3-38.  

35. Paragraph 6 of the counter-claim is proved except for the date of the previous standard form agreement, which I consider irrelevant.   I accept that Mr M Hough signed the service application form dated 25 November 2011, Exhibit 1.  Although he said that he only saw the one page that he signed, he knew what he was signing, that particular page refers, just below his signature, to the standard form of agreement available on the defendant’s website, and it is obvious looking at that page that there is more to the agreement than what is on that page.  His position is the same as that of anyone else who signs a document without reading it, and the plaintiff is bound by the terms of the contract made by the acceptance of that application form.[23]  The standard form of agreement Exhibit 6 was incorporated in the contract by reference.[24] 

    [23]Wilton v Farnworth (1948) 76 CLR 646 at 649; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at [57].

    [24]Cheshire and Fifoot's Law of Contract (9th Australian Edition, 2008) para 10-27.  They would in any event have been incorporated by the Telecommunications Act 1997 (Cth), s 479(2)(b).

36. Paragraph 10 of the counter-claim is made out, but not paragraph 11, since the agreement on its face related only to the provision of the multi-line 40 channel service, for which a three year contract was entered into.  The agreements following the application forms Exhibits 3 and 4 were also covered by the standard form of agreement, Exhibit 6.  On the other hand, Exhibits 2 and 23 were signed prior to that date, and presumably applied an earlier version of the standard terms and conditions.  I do not know what the earlier version stated. 

37. The November 2010 version provided for amendment to the form of agreement in cl 2.4, where the variation took effect on notice if the variation was likely to benefit or have a neutral or minor detrimental impact on the customer, and otherwise required 21 days notice, with a right to terminate within 42 days of the date of the notice, on payment of certain amounts but not including any termination fee: cl 2.4.3.  Whether the earlier version of the agreement was in the same terms I do not know, but this does not suggest that it was likely that the earlier version provided that publication of a new standard form of agreement on the defendant’s website would itself be sufficient to substitute that set of terms and conditions.  Hence it is only those services provided under contracts made after 24 November 2010 that incorporate the terms in Exhibit 6.  Those terms are as set out in paragraph 12 and 13 of the counter-claim. 

Termination

38. The next issue is as to the termination of the agreements, specifically the termination of the multi-line service.  The defendant pleaded that the agreement was terminated by the plaintiff without notice on or about 19 July 2012: para 18.  In response, the plaintiff alleged that it gave notice terminating the agreement by an email on 12 July 2012: document 17.  That email was not notice of termination for the purpose of cl 12.3 of the agreement, because it did not provide 30 days’ notice of termination or cancellation.  The email did not state that the current agreement was to be cancelled, and did not specify that this was to occur after 30 days; rather it suggested that the plaintiff was considering seriously cancelling the agreement, but that one option open to it, which it was on the face of it willing to consider, was an amendment to the contract which would enable the defendant to keep it.  Document 17 was not notice for the purpose of cl 12.3. 

39. In my opinion, what actually happened is that, in relation to the landline services, the plaintiff simply procured the transfer of these services to another service provider without notice.  This gives rise to an issue about the effect of cl 7 of the agreement, because it was submitted for the plaintiff that under that clause, the plaintiff had a right to effect such a transfer. 

40. Clause 7 does not expressly compel the defendant to act on a request to transfer a service. Nevertheless, I consider that the correct interpretation of cl 7 is that it does confer such a right. There are three reasons for this conclusion. The first is that the wording of cl 7.3 implies that the transfer is something which may be done by the customer, suggesting that the customer has a right to effect such a transfer. The second is that, if the correct interpretation of cl 7 were simply that the customer had a right to request a transfer but there was no obligation on the defendant to provide it, and that depended on whether the defendant was prepared to agree to do so, there would be no point in putting cl 7 in the agreement in the first place, since the same position would apply without it. Finally, there is the consideration that telephone users have a right to transfer numbers to a different service provider, so that in effect they can keep the same number when moving from one service provider to another, under the Telecommunications Numbering Plan 1997 established by the Australian Communication and Media Authority pursuant to the Telecommunications Act 1997 (Cth), s 455.[25]  The interpretation of cl 7 as providing a right to transfer services would be consistent with the existence of a statutory right to the transfer numbers.

    [25]That was the plan in force at the time; there is now a replacement plan dated 2015. By s 455(5)(d), the numbering plan may set out rules about the portability of allocated numbers. The ACMA refers to this process as “porting”.

41. Accepting that cl 7 gives a right to transfer, the difficulty in interpreting the agreement is to work out the correct relationship between cl 7 and cl 12.  This is because neither clause makes any reference to the existence of the other.  Clause 7 does not indicate what effect the transfer of services to another supplier has on any contract in relation to the supply of such services, while cl 12 says nothing about the transfer of services to another supplier in the event of the contract being terminated by notice.  Clause 7 is not listed in cl 12.10among the provisions of the contract that survive termination of the agreement.  It would have been much clearer if the agreement had provided expressly how these clauses work together, but in the absence of such a provision it is necessary for me to interpret the agreement in accordance with the ordinary rules of construction of a commercial contract. 

42. There is a useful summary of the rules applicable to the interpretation of a commercial contract in the judgment of McMurdo P in Watson v Scott [2015] QCA 267 at [30]. The paragraph is too long conveniently to quote, and I believe it is unnecessary to do so; I respectfully accept it as a correct statement of the law, and am seeking to apply it in the interpretation of the standard form of agreement. The only additional thing that I would say is that, to the cases cited by her Honour, there may be added what was said by three Justices of the High Court in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104 at [46]-[52]. I do not regard what was said in this High Court judgment as inconsistent with anything said by her Honour.

43. Applying that approach, I consider that the position is simply that clauses 7 and 12 deal with two different things: cl 7 is concerned with the right to transfer services to another provider, and cl 12 is concerned with termination of the contract.  This would be consistent with the fact that no reference is made in either clause to the operation of the other, and would on the face of it provide a practical way of dealing with the situation.  Under cl 12.1 there is a right in the defendant to terminate without notice in certain circumstances, but in those circumstances it would be understandable that such a right would supersede a contractual right to transfer services to another supplier.  Otherwise, a reasonable period of notice is provided for termination of the agreement by either party, and that would give the customer the opportunity to make arrangements to transfer existing services to another supplier.  If no such transfer is effected, the services would cease to be supplied, so that there would be no ongoing user charges after the 30 day period of notice expired.  If there is such a transfer, user charges cease upon the transfer taking effect, but there is an express obligation to continue to pay them up until that time. 

44. I cannot find any express provision of the contract which is directly inconsistent with this interpretation of it, it strikes me as a commercial and business-like interpretation, and one which is most consistent with the omission of any specific provision dealing with the point.  It follows that cl 7 does not provide, in effect, an alternative means by which the contract may be terminated.  This was in substance the argument advanced on behalf of the plaintiff: under cl 7 the plaintiff had a right to transfer the services to another supplier and if that right was exercised the only thing the plaintiff had to pay was the user charges up to the date of transfer.  That interpretation would effectively destroy the commercial value of a term contract for the provision of such services, because it would enable any customer to move to another supplier at any time without any adverse consequences.  The existence of such a right is inconsistent with the structure of the contract otherwise, which contemplates that it operated for a minimum term and that termination of the contract prior to the expiry of that minimum term involves some payment of early termination fees by the customer.  Hence, the proposition that cl 7 gives an entitlement in effect to walk away from the contract without penalty at any time is inconsistent with the terms of the contract as a whole.  Accordingly, I reject the interpretation contended for by the plaintiff. 

45. The matter is slightly complicated by the fact that it seems that in practice the wholesaler did not comply with the mechanism in cl 7.1, but simply transferred the services to the other supplier unilaterally.  Neither party gave notice under any provision of cl 12 terminating the contract.  The defendant pleaded in paras 18A-D that the correct characterisation of what occurred was that, by unilaterally transferring the services without notice, the plaintiff had repudiated the contract, entitling the defendant to terminate it at common law. 

46. In response to this, the plaintiff alleged that the defendant was aware that the transfers occurred, which was true in the sense that the wholesaler advised it of the fact of the transfers, but not in my opinion of relevance, and that the defendant was also well aware of why the agreement was terminated and the services transferred, which may or may not have been true but has nothing to do with any entitlement to terminate the contract.  The plaintiff denied that the termination of services amounted to repudiation of the agreement in circumstances where there was a contractual right to transfer the services under the agreement, and there is force in that proposition.  If there is a right to transfer the services under the contract, the exercise of that right cannot amount to repudiation of the contract, even if the transfer leaves the contract with little to do.    

Other matters raised in the Answer

47. In case the point should become relevant elsewhere, I should make a few other findings about matters raised in the Answer.  In paragraph 21 the facts alleged in (a) and (b) are proved, as was the fact that Mr O’Farrell used mobile phone number 0403 887 723.  Whether the right to use a particular phone number is a form of property is potentially a complex question, which I prefer to lease to elsewhere.  All I am prepared to find is that, at times, that number appeared on the invoices sent to and paid by the plaintiff.  The only evidence touching on para (d), from Mr O’Farrell (p 2-9), was to the contrary, so that is not proved, nor was (e), about which there was no evidence.  Paragraph 22 was proved, as was para 23(b) and (c), but 23(a) was proved only in relation to paras 21(a) and so much of (c) as I am prepared to find, and para 22.  As to para 24, there is no evidence as to the plaintiff’s state of knowledge of the facts alleged in paras 22 or 23, or such of them as have been proved, and I am not prepared to make such a finding.  It follows that I do not find para 24(b) proved, and there was no evidence to support para 24(c).[26]   

    [26]If the plaintiff’s witnesses had given such evidence, I would have regarded such an attitude as irrational. 

48. With regard to para 25, (a) is made out but there was no evidence to support (ab).  I find that there was an oral request to divert calls for his mobile phone to the office phone, and to transfer the number to the plaintiff’s account which had the effect that the plaintiff was responsible for charges for that mobile number, but otherwise (b) and (c) are not proved.  Further, Mr O’Shaughnessy sought written instructions for what was to be done, and only the latter was confirmed in writing.  In those circumstances, paras 26 and 27(a) are not made out.  There was no obligation under the standard form of agreement for the defendant to act in good faith, nor was one shown to exist under any other applicable set of terms and conditions, nor did any such duty arise on the facts proved.  Para 27(b), (c) and (d) are not made out.

49. With regard to para 28, I accept that the defendant did not act in the various ways in which it is alleged that it failed to act, but there was no breach of duty, or other breach of contract, which occurred by any such failure.  It follows that para 28A was not made out; indeed, the only evidence was that the defendant was not aware of the association between Mr O’Farrell and the competitor until some time later.[27]  I also find that at no time prior to 5 July 2012 was Mr O’Shaughnessy aware of the diversion Mr O’Farrell had put on the mobile number, and that soon after 15 February 2012 he believed the plaintiff had control of that number because it had been transferred to a new SIM card which he had sent to the plaintiff.  In those circumstances, there was no repudiation of the contract by the defendant as alleged in para 29(b), and the plaintiff was not entitled to terminate the contract on that basis. 

    [27]O’Shaughnessy p 2-26, which evidence I accept.

50. Paragraph 30 is proved by Exhibit 25.  Paragraph 31 is not proved; there was an agreement as to payment by direct debit between the plaintiff and the defendant, but it was in the terms of Exhibit 22, which are not reflected in this paragraph.  Paragraph 32 is proved, as is para 33(b); the balance of para 33 was not proved.  It follows that there was no breach of the contract between the parties as alleged in para 34, and hence no repudiation of the contract as alleged in para 35. 

51. Paragraphs 36 to 42 go on to allege that, if the contract between the parties had not previously been terminated, the defendant, by disconnecting the mobile phones used by the directors and their wives, repudiated the contract.  In the circumstances it is sufficient to say that, on the findings I have made and the view I take of the matter, the contract had been repudiated by the plaintiff before any disconnection or suspension of the mobile phone services occurred, so this was an acceptance by the defendant of the plaintiff’s repudiation.  Finally the plaintiff alleged a repudiation by the defendant by the cumulative effect of the conduct pleaded in paragraphs 21 to 42.  Since those individual allegations were generally not made out, their cumulative effect cannot amount to a repudiation of the contract. 

Payment for services used

52. The defendant’s claim falls into two categories.  Paragraph 19 alleges that there is an amount of $25,118.86 owing in respect of services rendered by the defendant to the plaintiff prior to the dates on which the respective services were transferred away.  Under cl 7 of the agreement, these amounts are payable.  Paragraph 16 of the answer pleads to this allegation in the following terms:

“The plaintiff denies the allegations contained in paragraph 19 of the counterclaim by reason that the plaintiff denies the sum of $25,118.86 was due and owing as at the date of termination.”

53. I am doubtful whether that complies with UCPR r 166(4), and the effect of para 16 may be that the plaintiff is taken to have admitted the allegation. Unfortunately, the terms of para 19 do not properly reflect cl 7 of the agreement, under which amounts payable for the supply of services up to the date of transfer become payable “on receipt of our invoice”. Clause 3.11, which is one of the clauses which does survive after the termination of the agreement, means that prima facie the invoice is correct, but it is open to the defendant to show otherwise, and there was some cross-examination directed to showing that there were some charges recorded in that invoice, Exhibit 20, which appeared to relate to the provision of service for a period after termination, either in whole or in part.

54. Some of these related to mobile services and Mr O’Shaughnessy said that, in respect of a mobile service provided under a plan involving a standard monthly fee which covered access and a certain amount of usage, the monthly fees were not credited on a pro rata basis if the service was transferred away: p 61.  The detail of the charges and credits in relation to mobile services in the invoice, Exhibit 20, is somewhat difficult to follow at times, but I note that in the summary of the charges on p 1, the net effect of all charges in respect of mobile services comes to a credit of 78 cents.  It appears therefore that no amount was in fact included in this bill by way of a charge for any mobile services, so the plaintiff cannot complain that it is being charged for mobile services in respect of a period after mobile services were transferred, on 31 July 2012.[28]  This was more than a month after the previous regular monthly invoice had been sent out, which was paid. 

    [28]It means to me that if anything this invoice was too generous to the plaintiff in this respect. 

55. With regard to the landline services, there are five entries in the invoice Exhibit 20 which on their face impose service or other periodic charges by references to periods after the transfer.  There were also two such charges identified for the inbound services (ie 1300 numbers) and two for internet services, but again for the invoice overall there was a credit for internet services.  Other significant credits were included in the invoice.  For example, the total charges for the number “07 3535 9000”, the busiest landline service, on p 5 of Exhibit 20 came to $22,009.91, but the total of all charges for landline telephony on p 1 came to only $20,864.10.  In this context, the fact that on p 5 there are charges of $46.00 and $394.70 said to relate to a period from 11 July to 11 August of 2012 included in the former amount does not necessarily mean that all of them are included in the bill as a whole.  Mr O’Shaughnessy said that the program automatically credited pro-rata for such charges: p 61; pp 2-18, 19. 

56. There is however a further difficulty with the plaintiff’s argument in relation to the landline services.  There are a number of these listed in the “Service Summary” section of Exhibit 20, on pp 4, 5, following the mobile services and before the inbound services, which have separate headings.  It is not as clear which entries were totalled for the internet credit on p 1, but the separate totals for mobile services on pp 3 and 4 add to the 78 cent credit on p 1, and the three totals for inbound services add to the $4,049.05 on p 1.  On the other hand, the separate totals for the landline services add to about $2,000 more than the total for Landline Telephony on p 1 of Exhibit 20.  That suggests that there are credits somewhere in the 706 pages of the invoice not in evidence, which would be consistent with Mr O’Shaughnessy’s evidence that credits for future service charges for landline services were automatically applied by the system, and inconsistent with the plaintiff’s submission that there was $1,373.53 charged for landline services in respect of periods after the transfer of those services.  That submission is correct only in respect of the $15 services charge for the inbound service 1300 722 974, said to relate to the period after the service was transferred, which is included in the amount claimed on p 1, there being no balancing credit. 

57. The bulk of the charges for inbound services were charged in respect of one number, a total of $4,052.82, slightly more than the total for inbound services in the summary on p 1, $4,049.05.  It seems that most of this was usage charges, but there was a charge of $15 said to cover the period of 28 July to 27 August 2012, which was a period after the services were transferred.  I cannot identify a credit which specifically balances that charge, and it appears that this is included in the amount claimed, and to this extent there is substance in the plaintiff’s argument. 

58. The internet heading also produces a credit, and the other charges and services column is largely made up of a charge of $2,368.20 representing the amount which had been incorrectly not billed to the plaintiff following the change in the terms of the agreement between the parties effected by Exhibit 1.  Prior to that time, there had been 10 channels available for inbound calls and 30 channels available for outbound calls, but the plaintiff had wanted greater capacity and this was effected by changing the system so that there were 40 channels available for either calls, which evidently produced an additional monthly charge of $39.47.  That however was, by mistake, not applied by the wholesaler, and hence not charged to the plaintiff, until this invoice. Mr O’Shaughnessy’s evidence was that the 40 channels had been provided from January 2012: pp 2-14, 15.  The balance of $15 was a fee charged for the reversal of the direct debit payment: see Exhibit 20, p 8.  Since both of the invoices on which that payment was based were subsequently withdrawn by the defendant, it cannot be entitled to recover that fee.  Overall therefore the defendant’s claim is $30 too high, but with that adjustment the balance of $25,088.86 is recoverable by the defendant from the plaintiff.  

Loss of bargain damages

59. The other part of the defendant’s claim is for damages for loss of bargain.  This was put on different bases:  First, on the basis that the defendant is entitled under cl 14 to recover the profit it lost for the balance of the terms of the agreements which were terminated, on the basis that the plaintiff had wrongly repudiated the agreement.  Second, one month’s loss of profits was claimed in the alternative.  Third, it was said that the defendant was entitled to recover the termination fees payable under the contract.  I will deal with that claim first.  Under cl 12.4.1.6, there was an obligation to pay the applicable early termination fee on termination under cl 12.1 or 12.3.  It is not obvious that any of the situations which would have entitled the defendant to terminate under cl 12.1 had arisen, but in any event, under that clause the defendant had a right to terminate exercised by notice in writing to the plaintiff, and there was no evidence that such notice was ever given. 

60. In relation to cl 12.3, again, that provided for the giving of notice in writing, this time 30 days notice in writing, and there was no document which could be correctly characterised as notice in writing from the plaintiff, or for that matter an agent of the plaintiff, terminating the contract for the purpose of cl 12.3.  Accordingly, the situation under which a termination fee would have become payable under the contract never arose.  I have held that, given that there was a contractual right to have the services moved to another supplier, the exercise of that right by the plaintiff did not amount to repudiation of the contract, though it does leave in place a somewhat strange situation where there were relevantly no services being provided, but on the face of it, the contract was still running on.  I supposed in that situation, there was still the obligation to pay the various monthly service and equipment charges, even though there will be no usage charges. 

61. Mr O’Shaughnessy said that he treated the advice of the transfer of the various landline services given by the wholesaler as notice terminating the agreement on behalf of the plaintiff: p 2-8, 9.  There is difficultly in characterising it in this way, since it did not purport to be a notice terminating the contract, either after 30 days, which is what is provided for by cl 12.3, or even immediately.  It follows that there was no entitlement to send an invoice claiming early termination fees, even one which was correctly calculated, but there was an entitlement to send an invoice in respect of charges for services already incurred, under cl 7. 

62. There was, however, the telephone conversation that the defendant said occurred after the direct debit transaction was processed and reversed.  There was a conflict of evidence between Mr O’Shaughnessy and Mr M Hough about this conversation, and it is therefore necessary for me, to resolve this issue, to make findings about the credibility of the witnesses. 

Credibility

63. I have already identified a number of points where there is a difference between the evidence of Mr O’Shaughnessy and the evidence of a Mr Hough.  I had the distinct impression that there was a good deal of hostility felt by each Mr Hough towards Mr O’Shaughnessy, which seemed to be derived from the fact that they were hostile to Mr O’Farrell who had left the plaintiff, presumably because of the circumstances of his leaving, although this was not something relevant to go into in this trial, and their tendency from the beginning to see Mr O’Shaughnessy as being on the side of Mr O’Farrell, or assisting him in a way of which they disapproved.  Mr J Hough said that when he discovered that Mr O’Farrell’s mobile phone had been moved to his personal account, he told the defendant that this was unacceptable: p 2-101.  My impression is that it was Mr O’Shaughnessy’s conduct which Mr Hough regarded as unacceptable,[29] though it is difficult to see why the former should be criticised merely for acting on a request for Mr O’Farrell to take over personally the cost of his mobile phone.[30] 

    [29]See also J Hough p 2-113.

    [30]A cynic might think it surprising that Mr O’Farrell would voluntarily give up the opportunity to have the Australian taxpayer subsidising his personal mobile phone in this way, but there were plausible explanations, including that he was intending to obtain a separate mobile phone for business use. 

111. It follows that the period of three years expired on 25 November 2014.  If notice had been given under cl 12.3 on 19 July 2012, it would have expired on 18 August 2012.  At that point the contract would have had a bit over 28 months to run.  The minimum monthly commitment under the contract was $440.70, and if this amount is multiplied by 28 months it produces a figure of $12,339.60.  That in my opinion was the amount of the early termination fee in respect of the contract Exhibit 1, had one been payable on the basis of a notice to terminate given on 19 July. 

112. This involves reading the formula in Appendix A on the basis that it is the minimum monthly commitment in respect of all lines or channels which has to be multiplied by the number of months remaining, rather than the minimum monthly commitment for one line or channel.  In my opinion the correct interpretation is that it is the minimum commitment for all services if all services are cancelled or terminated which is multiplied by the number of months.  Clause 12.3, the exercise of which activates cl 12.4 and hence the obligation to pay the early termination fee, provides that the customer may terminate the whole agreement, or cancel the provision of any service or package.  It follows that the reference to a service is to a particular individual telecommunication service which is provided, so it would be possible in a particular situation either to cancel one or more lines or channels, or all lines or channels. 

113. One would not expect that both situations would produce the same early termination fee, since it would be an odd outcome if cancelling, say, one of six services produced the same earlier termination fee as cancelling all six.  The expression “per line” or “per service” means for each line or service, but if all lines or services are cancelled the total fee payable will be the same as the fee worked out on the basis of the minimum monthly commitment for all lines or services.

114. It was submitted for the defendant that the disconnection fees claimed for the ADSL services were included with this service as they were specified in part 1.2 of Exhibit 1.  That is true, but this form was for use in a number of different situations, and Exhibit 1 did not cover the ADSL services in Exhibit 20.  Those have numbers not within the number bracket set out in part 3.2 of Exhibit 1, nor are they covered by the ADSL application form Exhibit 21, which was dated 18 April 2005.  The number in Exhibit 21 appears in Exhibit 20, but as a fax line.  The numbers in Exhibit 9 appear in Exhibit 20 as internet numbers, where two of them (and another number) have credits recorded for DSL charges.  There is no evidence that the services covered by Exhibit 1 included ADSL services which gave rise to a disconnection fee or refund of an installation fee.  I expect they were covered by a different contract, which is not in evidence, and not shown to incorporate the terms in Exhibit 6. 

115. With regard to mobile services, again it is the minimum monthly commitment per service multiplied by the number of months remaining in the contract.  In the case of Exhibit 4, dated 11 April 2012, when this service was terminated on 31 July 2012 there was a little under 21 months left to run in the contract.  Assuming this produced a fee based on 20 months, the minimum monthly commitment for the mobile service was $59, the amount payable as the monthly cap.  Hence the early termination fee was $1,180.  In the case of the two services covered by Exhibit 3, this was dated 22 February 2012, so when it was terminated on 31 July 2012 there were 18 whole months left in the contract.  This contract covered two mobile phones, for each of which the minimum monthly commitment was $89, so the early termination fees for both services came to $3,204.  On my calculations therefore the early termination fees total $16,723.60.  There would also have been ordinary monthly fees for the equivalent of one month during the period of the notice, a total of $723.70,[47] so that the damages for loss of business would be limited to $17,447.30. 

     [47]This includes the monthly amounts payable under Exhibit 1, and one month’s fees for the three mobiles.  For reasons given earlier, there is no double counting with the past services claim.

116. The figure I have used per month for the business line services is quite different from the figure of $1,578.80 per month used by Mr O’Shaughnessy in Exhibit 9, to which he added a further $46 per month for the “in-dial service”.  He seems to have obtained that figure from the extra charge which arose per month as a result of the change in the plaintiff’s service following the signing of Exhibit 1.  It is the amount that appears on p 9 of Exhibit 20 as the previously unbilled amount for each month for each of the 10 additional channels, but according to p 5 of Exhibit 20, the amount charged for service and equipment for one month, $394.70 plus the in-dial range service charge should represent the minimum monthly commitment for all 40 channels.  In any case, Exhibit 20 is the only document I have which gives details of the breakup of the charges for the business telephone services covered by Exhibit 1, so that is all I can go on.  I note that in the monthly figures in Exhibit 14, there is a “service and equipment” entry each month which appears with what I take to be calls on this business line, and which seems to have been $1,184.10 per month up until Exhibit 1 was signed, after which it became $394.70 per month.  If that is the service and equipment charge for the landline services covered by Exhibit 1, that is consistent with the amount in Exhibit 20 for the services.

117. Exhibit 9 also includes an installation fee dating from November 2011 of $6,000, apparently on the basis of the fee payable following Exhibit 1.  Annexure A does refer to the inclusion of the relevant installation fee for the service in the early termination fee in the case of a Telstra ISDN, but as indicated I understand this is an Optus installation, so this amount would not have been payable. 

Penalty

118. The plaintiff also alleged that the early termination fee was unenforceable on the ground that it was a penalty: answer para 19(d).  This is a matter considered recently by the High Court, in Paciocco v Australia and New Zealand Banking Group Ltd [2016] HCA 28, 90 ALJR 835. That case involved the question of whether bank fees imposed on late payment of credit card accounts amounted to a penalty for the purposes of that principle, but there was some general discussion about the operation of the principle. The present Chief Justice, with whom the then Chief Justice agreed, at [32] identified the policy of the law which was reflected in the doctrine:

“It is that a sum may not be stipulated for payment on default if it is stipulated as a threat over the person obliged to perform; it may not be stipulated where the purpose and effect of requiring payment is to punish the defaulting party.”

119. Reference was made to four tests referred to in the judgment of Lord Dunedin in Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1915] AC 79 at 87. The first of these was said to be that the sum stipulated will be a penalty if it is extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach. Her Honour at [33] said that this was not to be confined to damages flowing directly from the breach, but that otherwise it remained a useful test. The second test, that when the breach is constituted by a mere failure to pay a sum of money the sum stipulated to be paid will be a penalty if it is greater than the sum which ought to be paid, was said to have a narrow range of operation and to be confined to the simplest case: [35]. The third test was that there was a presumption, but no more, that a sum would be a penalty where it is a single sum made payable on the occurrence of one or more of several events some of which may occasion serious and others only inconsequential damage: [36]. The fourth was simply that difficulty or even impossibility in the pre-estimation of damages was not necessarily inconsistent with the conclusion that the sum was a penalty, though it was likely that it would not be, because it was in that situation most likely to reflect a true bargain about pre-estimated damages between the parties: [39].

120. Gageler J at [157] described as very useful an earlier formulation of the test, whether the stipulation in question can be considered to be a genuine pre-estimate of the creditor’s probable or possible interest in the due performance of the principal obligation, or whether it is a penalty inserted merely to secure the enjoyment of a collateral object. The question is whether the only purpose of the stipulation was to punish: [158]. After analysing the circumstances of the fees charged in that case his Honour concluded at [176] that the conclusion that the late payment fee had no purpose other than to punish the account holder in the event of late payment could not be sustained. The fourth member of the majority, Keane J, formulated the test to distinguish a penalty from a provision protective of a legitimate interest was whether the sum or remedy stipulated as a consequence of a breach of contract is exorbitant or unconscionable when regard is had to the innocent party’s interest in the performance of the contract.[48]

     [48]Paciocco supra at [270], citing Cavendish Square Holding BD v Makdessi [2015] 3 WLR 1373 at [255].

121. It was submitted in the present case for the plaintiff that the clause fixing the early termination fee made no distinction as to the time left in the contract, and that there was no sliding scale depending on the length left in the contract or any discount.  Given that the fee was calculated by reference to the number of months remaining in the contract, which must mean the number of months remaining between the point at which the contract is terminated and the point at which the contract expires, it is difficult to understand this submission; the amount of the early termination fee will be directly proportionate to the time remaining in the contract, as would be appropriate in circumstances where the loss to the supplier of the customer’s business would be greatest when the contract is new and least just before it expires. 

122. It was also submitted that potentially the maximum amount that would conceivably have been payable under the contract becomes payable forthwith without any discounting for acceleration in respect of the payment or allowance for the saving on expenses by no longer having to supply the equipment or the services.  To some extent of course this was a submission based on the amount claimed by way of early termination fee, rather than the amount which I have found to be the amount properly recoverable by way of early termination fee.  It would not have been the maximum amount that would conceivably have been payable under the contract except in the situation where the customer ceased to make any use of the telephone service, either by doing so directly or by transferring the service under cl 7.  In such a situation, the customer may, provided there is no breach of contract entitling the supplier to terminate it, simply let the contract run out. 

123. If the customer chooses to terminate the contract, it could be said that it would be fairer if the balance of the minimum monthly payments were discounted to achieve a present value, but given that the maximum length of contract was only three years, it is difficult to see that the failure to provide discounting to present value renders the obligation to pay out the contract either exorbitant or unconscionable.  Unless the customer ceased using the relevant telephone system, or transferred the services away under cl 7, the amount payable by way of early termination fee would be likely to be significantly less than the benefit that would accrue to the supplier if the contract had not been terminated, because of the profit generated by user charges.  Further there is the consideration that Exhibit 1 provides expressly that the connection fee is “free on contract”, that is no fee was charged as a result of the institution of Exhibit 1, on the basis that the contract would operate for three years.  Protecting that investment in the contract on the part of the defendant is an aspect of the interest of the defendant in the performance of the contract. 

124. There is also the consideration that the traditional formulation of the test speaks of a comparison between the amount payable under the contract and the greatest loss that could conceivably be proved to have followed from the breach, whereas the plaintiff’s submission involves a comparison between the amount payable by way of early termination fee and the amount that would have been paid under the contract if the plaintiff had taken all possible steps to minimise the amount payable, which is not consistent with the test.  I have already referred to the fact that the calculation of the loss of profit in para 21A is not quite accurate even as a calculation of the profit that could reasonably have been anticipated had the contracts merely run their course to expiry, but a proper calculation of that figure would not have been dramatically less than the $288,000 set out in that paragraph, an amount vastly in excess of the early termination fees that I have found would have been payable if it had become payable under this contract in respect of the services the subject of Exhibit 1. 

125. The plaintiff relied on a passage cited from the judgment in PT Thiess Contractors Indonesia v PT Arutmin Indonesia [2015] QSC 123, where among other things Jackson J quoted[49] at [156] a passage including:

“The penal character of the provision is derived from the extravagance of the relationship between the payment and the possible loss capable of compensation.  If there is no such extravagance present, the provision failure of which (by breach or not) admits of compensation is taken to be a genuine pre-estimate of damage, and not penal in character.”

As this decision shows, and indeed as Paciocco (supra) shows, it is not a question of whether the liquidated amount can be shown to be more than a narrow assessment of the loss actually suffered by the relevant party; it will not be a penalty unless there is some extravagance apparent from that comparison.[50]

126. Applying this approach, I do not consider that the early termination fee in respect of the landline service covered by Exhibit 1 was a penalty.  With regard to the mobile phone contracts, the position here is somewhat different, because the contract was structured on the basis that there was a monthly cap which would only be exceeded if usage were very high, or if some use were made of the phone in a way which took it outside the area covered by the cap, such as by using the phone overseas on mobile roaming.  Looking at the amounts charged month by month for the total mobile services in Exhibit 24, a pattern of such stability does not emerge, but Exhibit 3 was only signed in February 2012, and Exhibit 4 in April 2012 and from that month the monthly charge for mobile services settled down to a little under $400 per month. 

127. In the February account mobile services came to over $2,400, but there was nothing in the evidence to explain this figure.  It may be that the plaintiff was paying more for the mobile services covered by Exhibits 3 and 4 before those documents were signed.  In any case, it is obviously possible for the charges for mobile services to be much higher than the monthly cap.  One other factor is that the contracts Exhibits 3 and 4 included the provision of a mobile phone for each number at no cost to the plaintiff.  No doubt in practise the cost of this was recovered, by the defendant or whoever actually paid for it, over the two year period of the contract, but the fact that a mobile phone had been provided free on entry into the contract was a factor which was relevant to the assessment of the interest of the defendant in the performance of the contract.  In view of that, and in view of the fact that the contract was only for a period of two years, which is really not very long, the proposition that an obligation on early termination to pay the amount of the monthly cap for the number of months left in the contract is not, in my view, one which involves such a degree of extravagance between the amount payable and the defendant’s interest in the performance of the contract as to render the obligation a penalty.  I therefore reject the plaintiff’s claim that the contractual provisions for early termination fees amounted to a penalty. 

Conclusion

128. In summary, the defendant’s first claim succeeds, subject to a small adjustment, but its second claim fails.  The defendant is entitled to recover the sum of $25,088.86, together with interest by statute, since I cannot find in Exhibit 1 or Exhibit 6 an obligation to pay interest on overdue payments at a particular rate.  Under cl 7.1 this amount was payable immediately on receipt of the invoice Exhibit 20, but the invoice said it was due on 15 August 2012, and because of that and cl 3.4 of Exhibit 6, I find the cause of action accrued on 15 August 2012.  Interest by statute calculated in accordance with the practice direction for the period since then comes to $7,833.12, according to the court calculator.  There will therefore be judgment that the plaintiff pay the defendant $32,921.98, including $7,833.12 by way of interest.  I shall invite submissions as to costs when judgment is given.