5G Network Operations Pty Ltd v GNJFMEPC Pty Ltd - [2025] VCC 1514

IN THE COUNTY COURT OF VICTORIA

AT MELBOURNE

COMMERCIAL DIVISION

Revised
Not Restricted
Suitable for Publication

GENERAL LIST

Case No. CI-21-01347

5G Network Operations Pty Ltd (ACN 620 305 393)	Plaintiff
v
GNJFMEPC Pty Ltd (ACN 145 087 752) & ORS	Defendants
(according to the attached schedule)

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JUDGE:	His Honour Judge Palmer
WHERE HELD:	Melbourne
DATE OF HEARING:	24-28 February, 5 and 31 March, 7-9 May and 16-17 September 2025
DATE OF JUDGMENT:	20 October 2025
CASE MAY BE CITED AS:	5G Network Operations Pty Ltd v GNJFMEPC Pty Ltd & Ors
MEDIUM NEUTRAL CITATION:	[2025] VCC 1514

REASONS FOR JUDGMENT
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Subject:CONTRACT
Catchwords: Contract – Plaintiff claiming breach of asset purchase agreement –whether defendant liable under agreement – whether plaintiff had warranty claim – whether plant and equipment in good working order and fit for purpose – whether plaintiff gave notice of warranty claims – whether defendant disclosed faults – whether defendant liable under Australian Consumer Law – Whether directors of defendant companies liable
Legislation Cited: Evidence Act 2008 (Vic)
Cases Cited:Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; Copper (Qld) Investment v Hallion [2015] VSCA 221; Adaz Nominees Pty Ltd v Castleway Pty Ltd [2020] VSCA 201; Lighthouse Corporation (Capital) Pty Ltd v One76 Pty Ltd [2024] VSC 623.

APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr A Meagher SC	Cornwalls
Ms K Wangmann
For the Defendant	Ms D Clough	TLM Law

TABLE OF CONTENTS

Introduction

Background

The construction of Melbourne Data Centre
Sale of MDC
The outages
The aftermath of the outages
The main witnesses

Did GNJFMEPC breach the APA in relation to the plant and equipment?

Principles of contractual construction

Consideration of items of plant and equipment

The capacity of UPS-A and UPS-B
The number of battery strings for each UPS
The extent of the installation of the CRAC System
The extent of the installation of the Cooling Pipe Work
The extent of the installation of the Power Supply Wiring

Conclusion

Did GNJFMEPC breach the interim maintenance clause of the APA?

Warranty claims

Fit for what purpose?

Did GNJFMEPC breach its warranties in relation to plant and equipment?

The UPS system
The fire system
The security system
The business management system
The CRAC system, Cooling Pipe Work and Power Supply Wiring
Miscellaneous equipment
Conclusion

Did 5G give valid notice of its warranty claims?

The 12 July 2019 notice
The 5 June 2020 letter
Is the 5 June 2020 letter admissible?
Does the 5 June 2020 letter give sufficient detail of the warranty claims?
Conclusion

Fair disclosure and reasonable knowledge

Fair disclosure
Reasonable knowledge

Conclusion

Causation and loss

Repairs and replacement of equipment

Did the breaches cause the outages?

Mitigation of loss

Consequential loss

Setoff

Liability under Australian Consumer Law

Did GNFJMEPC engage in misleading or deceptive conduct?

Did GNJFMEPC fail to inform 5G of issues with the plant and equipment?
Was it reasonable for 5G to expect GNJFMEPC to inform it of the faults?

Are the directors liable for GNJFMEPC’s contraventions?

Conclusion

HIS HONOUR:

Introduction[1]

[1] The abbreviation CB refers to the Court Book, Exhibit A; SCB refers to the Supplementary Court Book, Exhibit B. I have been assisted by the written and oral submissions and other documents filed by the parties, including Joint Chronology (20 February 2025); Plaintiff’s Outline of Opening Submissions (20 February 2025); Defendants’ Opening Submissions (20 February 2025); Plaintiff’s Written Closing Submissions (22 August 2025); Closing Submissions of the Defendants/Plaintiffs by Counterclaim (11 September 2025); Plaintiff’s Written Closing Submissions in Reply (15 September 2025); Supplementary Closing Submissions of the Defendants/Plaintiff by Counterclaim (25 September 2025); and Plaintiff’s Written Closing Submissions in Reply (20 October 2025).

In April 2019, the plaintiff 5G Network Operations Pty Ltd purchased the Melbourne Data Centre from the first defendant, GNJFMEPC Pty Ltd.[2] The data centre stored data for its customers. A key feature of this service was that the data centre had an uninterruptable power supply (UPS) system, which was designed to ensure that customers could access their data even if the mains supply failed.
[2] See Asset Purchase Agreement, CB 2513.
On 3 June 2019, the mains supply failed. The UPS was meant to step in. Instead it failed, resulting in an outage of supply to the centre. When the mains came back on there was another outage.
In the aftermath of the outages, 5G repaired and replaced the UPS, along with other parts of the data centre’s technical infrastructure. 5G claims that the failure occurred because – in breach of the asset purchase agreement (APA) – the UPS (and other parts of the technical infrastructure) were faulty, had not been properly maintained and were not fit for purpose.
In its statement of claim, 5G claims the cost of the repairs and replacements, and some consequential loss. [3] 5G also sued the four directors of GNJFMEPC who each guaranteed GNJFMEPC’s performance of the APA. 5G also sued GNJFMEPC under the Australian Consumer Law (ACL) for engaging in misleading and deceptive conduct, along with the four directors, and the companies through which each of those directors owned their share of GNJFMEPC.
[3] See Second Further Amended Statement of Claim (6 May 2025, 2FASOC); and Reply and Defence to Counterclaim (25 August 2021).
5G subsequently declined to make one of the payments required under the APA, claiming a set-off against its losses. By its counterclaim, GNJFMEPC claims that payment, together with interest.[4]   The following issues are in dispute:
[4] Defence to Second Further Amended Statement of Claim and Counterclaim (14 May 2025).
GNJFMEPC’s liability under the APA
1.      Has 5G proved that at the completion date of the APA:
a.UPS-A and UPS-B did not have an operating ability as and when required to provide 800kVa;
b.UPS-A and UPS-B did not have four strings of working batteries;
c.The CRAC System was not installed to Rows Q to Z;
d.The Cooling Pipe Work was not installed to Rows Q to Z; and
e.The Power Supply Wiring was not installed to Rows Q to Z.
2.      If so, did those matters constitute a breach of clause of 2.2 of the APA?
3.      In the alternative, has 5G proved that, during the period between the execution of the APA and the completion date, GNJFMEPC failed to repair, maintain and upkeep the various items of plant and equipment in accordance with prudent and good commercial practice and standards of maintenance?
If yes to either [2] or [3], 5G has a claim under the APA.
4.      Has 5G proved, in respect of various items of plant and equipment, that on the completion date the item:
a.Was not in good working condition (other than for fair wear and tear); and/or
b.Had not been maintained and serviced in accordance with prudent business practice; and/or
c.Was not fit for the purpose for which it was used.
If so, 5G has a warranty claim under the APA.
5.      Has 5G proved that it gave valid notice of its warranty claims?
If not, GNJFMEPC is not liable for the warranty claim.
6.      Has GNJFMEPC proved that any of the facts, matters or circumstances on which 5G’s breach of warranty claims are based were within the reasonable knowledge of 5G or had been fairly disclosed to 5G prior to the entry into the APA?
If so, GNJFMEPC is not liable for that warranty claim.
7.      In respect of equipment subject to a valid breach claim, has 5G proved that the sums of money it spent on repairs and replacement of that equipment were caused by a breach and reasonably necessary to restore it to the position it should have been in at the completion date?
If so, GNJFMEPC is liable for that sum.
8.      Has GNJFMEPC proved that 5G failed to take reasonable action to mitigate any loss or damage it suffered as a result of a breach of the APA?
If so, GNJFMEPC is not liable for loss or damage that could have been avoided by such actions.
9.      Has 5G proved that it suffered any consequential loss as a result of a breach and that the loss is recoverable?
If so, GNJFMEPC is liable for that consequential loss.
10.    Has 5G established that it is entitled to set off its claims against the outstanding payment and interest it owes to GNJFMEPC?
This is important to the calculation of any interest.
GNJFMEPC’s liability under Australian Consumer Law
11.    In the alternative, has 5G proved that:
a.Prior to 5G entering into the APA, GNJFMEPC failed to inform 5G of the issues in [1], [3] and [4] above;
b.It was reasonable for 5G to expect GNJFMEPC to disclose that information;
c.GNJFMEPC thereby engaged in conduct that was misleading and deceptive or likely to mislead or deceive 5G;
d.That conduct caused 5G to suffer loss; and
e.5G is entitled to compensation for that loss?
If so, GNJFMEPC is liable under the ACL.
Liability of the directors
12.    Has 5G proved that:
a.The four shareholder companies and their directors were involved in GNJFMEPC’s contravention; and
b.5G is entitled to recover compensation from them?
If so, the four directors and shareholder companies are liable under the ACL.
For a variety of reasons, I reject almost all of 5G’s claims for breach of the APA or warranties. I also reject 5G’s claims of consequential loss.

Background

The construction of Melbourne Data Centre

In around July 2010, Mark Eckert,[5] Janene Fulton,[6] Paul Comito[7] and Geoffrey Nicholas[8] leased Level 15 of 530 Collins Street and began construction of the Melbourne Data Centre (MDC). All had previous experience in building and operating data centres. Mr Comito’s experience was the most extensive.
[5] The sixth defendant.
[6] The seventh defendant.
[7] The eighth defendant.
[8] The ninth defendant.
A company, Melbourne Data Centre Pty Ltd, was registered to conduct the business, and the four became its directors.[9] Each of the directors also had their own company, and the shares in Melbourne Data Centre Pty Ltd were owned by these companies.[10] When Melbourne Data Centre Pty Ltd sold MDC to 5G it changed its name to GNJMEPC (an amalgam of the four directors’ initials). Melbourne Data Centre Pty Ltd is, thus, the previous name for the first defendant. I will refer to the company by its current name.
[9] See MDC Master Deed (15 February 2011), CB 1122.
[10] Mr Eckert’s company, Eckert Investments Pty Ltd (the second defendant) owned 486 shares; Ms Fulton’s company, Janene Investments Pty Ltd (the third defendant), owned 270 shares; Mr Comito’s company, PAC Equities Pty Ltd (the fourth defendant), also owned 270 shares; and Mr Nicholas’ company, Nicholas Management Services Pty Ltd (the fifth defendant), owned 54 shares.
The primary service a data centre offers its customers is secure access to their data at all times. Typical features of a data centre include:
a.Powered racks which customers rent and in which they install their own computer hardware (some customers install their own racks and instead rent the space for the rack);
b.Equipment designed to ensure that the power supply to the racks is uninterrupted; at the MDC this took the form of two items of plant, UPS-A and UPS-B, connected to strings of batteries and generators, which were designed to maintain power to the racks in the event of a mains outage;
c.Cooling plant and equipment designed to ensure that the servers and data centre infrastructure (including the UPS system) are operating within their desirable temperature range;
d.A business management system (BMS) which is designed to monitor and control the operation of the data centre, including plant and equipment, and provide information (including warnings) to the operators;
e.Fire and security systems designed to protect the centre itself as well as those working there; and
f.Some layer of redundancy in critical systems; MDC was constructed to meet an N+1 standard of redundancy, meaning that if N number of items of plant or equipment were necessary for a particular purpose, MDC had N+1 of those items.
MDC was built in stages, designed to keep pace with customer demand.[11] When MDC first came online in early 2011 it had 40 powered racks. In Stage 2, the data centre expanded to 178 racks. This required the installation of additional racks, underfloor cabling to power those racks, and upgrades to the switchboard and air-conditioning equipment. Stage 3, which had not been constructed by the time of the sale to 5G, was designed to expand the data centre by adding another 100 or so racks.
[11] There is a chronology of expenditure in the depreciation schedule spreadsheet, SCB 372.
Mr Comito and Ms Fulton were partners in a company called Securiton Technologies, which had its own racks within the MDC; and Mr Eckert and Mr Nicholas were partners in a company called Enspire Australia, which sold racks within MDC.
In 2015, MDC was certified as complying with ISO27001, an international standard applying to data centres. It maintained that certification until the time of the sale to 5G.

Sale of MDC

In 2014, the owners were considering selling MDC. They engaged Joe Demase as a consultant to help them find a buyer. Mr Demase was then, and remains, a director of 5G.[12] 5G was one of MDC’s customers. As part of the process of seeking to sell MDC, Mr Demase took several prospective buyers around the centre. He also prepared an information memorandum for prospective investors.[13] He did so, in part, based on an Executive Summary prepared by Mr Eckert and Mr Comito.[14]
[12] 5G was a wholly owned subsidiary of 5G Network Holdings Pty Ltd (ACN 163 312 025). In 2021, ownership shifted to 5G Networks Limited (ACN 073 716 793). Mr Demase is a director of both companies.
[13] Melbourne Data Centre: Information Memorandum (March 2015), CB 3209.
[14] MDC Executive Summary, CB 3029.
Mr Demase was also involved in Mr Eckert’s other company, Enspire, and in 2017 5G purchased Enspire. Sometime in 2018, Mr Demase became interested in purchasing MDC for 5G as well.
In October 2018, Mr Demase sent a high-level offer to Mr Eckert.[15] On 31 January 2019, 5G made a non-binding indicative offer for MDC, set out in a terms sheet.[16] The sale was to take the form of an asset purchase (meaning 5G would purchase the data centre, but not the company that owned it).
[15] Email (6 October 2018), CB 3259.
[16] Term Sheet: MDC Sale and Purchase, CB 2451.
The parties then started the due diligence phase. As part of this phase, Mr Eckert created a Dropbox folder and used it to share documents with 5G.[17] The functions of the due diligence process included checking revenue, customer contracts, and that the physical assets of the MDC were present and had been maintained.
[17] Email from Mark Eckert to Joe Demase (8 February 2019), CB 3263; screenshot of folder, SCB 1302. The parties provided an agreed list of documents placed in the due diligence folder: Plaintiff’s Aide Memoire – Due Diligence Documents in Dropbox (11 June 2025). The parties also provided an agreed list of documents sent by email between the parties between 1 January 2015 and the completion date: Aide Memoire – Documents Sent by Email Between the Plaintiff and the First Defendant Between 1 January 2015 and 15 April 2019 (11 June 2025).
Mr Eckert and Mr Comito gave Mr Demase tours of the MDC and invited him to carry out more detailed inspections of the plant and equipment. Mr Eckert and Mr Comito testified that Mr Demase was generally uninterested in the technical aspects of the data centre. Mr Demase said that this was because he understood that the manager of MDC, Mark Cobbin, would be staying on.
Mr Demase did ask Joe Gangi, an independent director of 5G with an electrical background, to review the documents in the due diligence folder. Mr Gangi’s report to Mr Demase was largely favourable but noted that “if there is concern about any of the equipment (or just to double check), we could arrange an existing conditions audit”. [18] Mr Gangi added that “We can discuss if you think this is worth it but from the look of the services reports, I would say probably not. It would be a risk mitigation exercise only. I’d be happy to look around (with my untrained eye) if that helps”.
[18] Email from Joe Gangi to Joe Demase (15 February 2019), Exhibit D; Exhibit C is an extract from the email.
I accept Mr Eckert’s evidence that he invited Mr Gangi to inspect the data centre and that Mr Gangi did not take up that invitation. Nor did 5G arrange for anyone more expert to inspect the MDC (both of the main expert witnesses said that they were commonly engaged to carry out such inspections, which for a data centre of this size would have taken one or two days).
On 22 March 2019, Mr Eckert sent Mr Demase a list of outstanding works, or works that MDC would likely have to spend money on within the next 12 months or so.[19] Mr Demase responded on 4 April 2019, stating that 5G expected to take over the data centre in working order.[20]
[19] Email from Mark Eckert to Joe Demase (22 March 2019), CB 3268-9.
[20] Email thread between Joe Demase and Mark Eckert (4 April 2019), CB 3270.
On 1 April 2019, the parties executed the Asset Purchase Agreement.[21] The agreed price was $5,723,864, to be paid over three years. There were further communications between the parties during the period leading up to the completion date of 15 April 2019, when 5G took over the operation of MDC.[22] Some of those communications are relevant to issues of disclosure; others are relevant to responsibility for maintenance. I will return to them later.
[21] CB 2513.
[22] 5G alleged this was the completion date; the defendants ultimately agreed: Closing submissions, [5].
GNJFMEPC always had an on-site manager for the MDC. Initially this had been Mr Comito. From about 2012, Mr Cobbin had been employed in the role.[23] Mr Cobbin was an experienced data centre manager. 5G had hoped that Mr Cobbin would initially stay on, at least until 5G could shift to its preferred approach of a remote manager (specifically, Michael Roberts, who was based in Sydney and managed other data centres for 5G).
[23] Employment Agreement (11 April 2012), CB 1584.
However, Mr Cobbin chose not to stay on. Mr Cobbin said that Mr Demase had effectively told him that he would be training his replacement. Seeing that he was not part of 5G’s ongoing plans, Mr Cobbin resigned before the completion date. Mr Comito – who through Securiton would be an ongoing customer of MDC – was concerned that MDC could not be operated properly without an on-site manager. He therefore offered to stay on, unpaid, during a handover period. Mr Demase did not take him up on this offer.

The outages

From 15 April 2019, 5G had full operational control of the MDC. On 3 June 2019, at approximately 3:55 pm, there was a mains outage. The UPS system should have continued providing power to the racks, first from its batteries, and then switching to the generators once they started (which should have taken about a minute and a half). Instead, almost immediately after the mains outage, the UPS system failed, cutting power to the racks.
Approximately an hour later, mains power was restored, triggering a switch back from generator to mains power. The UPS system – which was still not operating properly – failed, causing a second outage and loss of power to the racks. These were the first such outages in the history of the MDC.

The aftermath of the outages

5G asked Thycon, the supplier of the UPS system, to investigate the cause of the outages. [24] Thycon advised that they were the result of the failure of three batteries: one in both strings of one of the UPS units and one in one string of the other. The one intact battery string was unable to support the total load, causing both UPS units to shut down. Thycon offered 5G several options for the replacement of the batteries.[25]
[24] Thycon technical reports (21 June 2019), CB 2746; and (2 July 2019), CB 2767.
[25] Melbourne DC – Battery Options (17 June 2019), CB 2716.

5G ended up shifting to Vertiv, a competitor of Thycon, and purchasing an entirely new UPS system.[26] In the aftermath of the outages, 5G also incurred significant expenditure in making – depending on one’s point of view – either necessary repairs and replacements, or unnecessary but desirable upgrades, to the plant and equipment it had purchased from GNJFMEPC.
[26] UPS Upgrade – 5G Networks: Quotation (10 July 2019), CB 2771.
5G also failed to make a payment of $750,000 to GNJFMEPC, which was due on 17 April 2020. It is not in this dispute that 5G owes this money under the APA. However, in its statement of claim, 5G sues GNJFMEPC to recover its own post-outage expenditure and claims a contractual right to set this off against the money it owes GNJFMEPC under the APA.

The main witnesses

Mr Demase, Mr Eckert and Mr Comito all gave evidence. Obviously, they have an interest in the outcome of the proceedings. Nevertheless, all appeared to be giving evidence honestly and to the best of their recollection.
Mr Demase presented as a man with a good commercial understanding of the service the MDC provided to its customers and a vision for how to further develop the business. However, by his own admission, Mr Demase had a limited understanding of the technical infrastructure on which that service depended. He presented as more of a big picture man, and salesman, than a details man. At times, his recollection was vague, and he gave meandering non-responsive answers.
5G also called Mr Roberts to give evidence, primarily in relation to the repairs, replacements and upgrades that 5G carried out after the outages.
Mr Eckert and Mr Comito both seemed to have a better recollection of events from the period of Mr Demase’s involvement with MDC (including the sale) than he did. This was aided by the fact that both men – and particularly Mr Comito – had a much better technical understanding of the issues. Both men were also careful and considered in their answers, particularly about matters such as whether they had seen a particular document before (and if so, when), or had provided a document or information to Mr Demase. Towards the end of his evidence, Mr Comito began to give unresponsive answers suggesting a degree of bitterness towards 5G, although this did not seem to be at the expense of truthfulness.
Nevertheless, because of their superior recollection and technical understanding, I generally preferred the evidence of Mr Eckert and Mr Comito when it conflicted with that of Mr Demase.
Mr Cobbin also gave evidence. Again, he appeared to be an honest witness, albeit he clearly felt that he had been poorly treated by the MDC’s new owners. This manifested in him often giving emphatic answers with clear recollection on matters that were adverse to 5G and sliding into tentativeness and uncertainty when the opposite was the case.
The plaintiff and defendants each called an independent expert witness. They were, respectively, Rowan Peck and Peter Koulos. Both are electrical engineers with extensive experience in data centres, and there was no challenge to either of their expertise. They had prepared a joint report,[27] and gave evidence together. It was clear that they held each other in high regard, and there was substantial agreement between them on almost every question.[28] The task of evaluating the expert evidence was, thus, a relatively easy one.
[27] Joint Expert Report (JER, 16 September 2024), CB 823.
[28] There were more differences between their reports than in their evidence: Rowan Peck (24 November 2022), CB 102; and Peter Koulos (24 June 2024), CB 725. This was partly due to the fact that in writing his report Mr Peck had taken into account additional material – including websites – which the parties agreed were irrelevant to the case.

Did GNJFMEPC breach the APA in relation to the plant and equipment?

Under the APA, GNJFMEPC agreed to sell all its “business assets” to 5G.[29] Business assets were defined as all of the assets that GNJFMEPC used in connection with the business of supplying data centre serves, including “plant and equipment”.[30] Plant and equipment was defined to include all plant and equipment used in the conduct of the business, including those specified in Schedule 3 of the APA.[31] Schedule 3 in turn referred to Annexure A, which was a draft asset valuation spreadsheet prepared in May 2013 for insurance purposes.[32]
[29] Clause 2.1, CB 2522.
[30] Clauses 1.1.5 and 1.1.6, CB 2515-6.
[31] Clause 1.1.52, CB 2520.
[32] CB 2570.
The descriptions of the items of plant and equipment in Annexure A are important in determining whether 5G got what it paid for. Given its provenance, Annexure A may not have been drafted with the level of detail that would be appropriate for the purpose for which it was now being used. Regardless, that is the document the parties chose to use, and it is the one that I must construe.

Principles of contractual construction

The principles that apply to the construction of contracts are well-established and there is no real dispute about them between the parties:[33]
a.The rights and liabilities of parties under a provision of a contract are determined objectively by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose.
b.In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean. That enquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract.
c.Ordinarily, this process of construction is possible by reference to the contract alone. If an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning.
d.Sometimes, recourse to events, circumstances and things external to the contract is necessary. What may be referred to are events, circumstances and things external to the contract which are known to the parties, or which assist in identifying the purpose or object of the transaction. This may include its history, background and context and the market in which the parties were operating. However, evidence of the parties' statements and actions reflecting their actual intentions and expectations is inadmissible.
e.Unless a contrary intention is indicated in the contract, a court is entitled to approach the task of giving a commercial contract an interpretation on the assumption that the parties intended to produce a commercial result. Put another way, a commercial contract should be construed so as to avoid it making commercial nonsense or working commercial inconvenience.
[33] Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104, [46]-[51]. See also Copper (Qld) Investment v Hallion [2015] VSCA 221, [101]-[102]; Adaz Nominees Pty Ltd v Castleway Pty Ltd [2020] VSCA 201, [70]; Lighthouse Corporation (Capital) Pty Ltd v One76 Pty Ltd [2024] VSC 623, [19]-[21]; 5G’s closing submissions, [85]-[86]; and defendants’ closing submissions, [22]-[25].

Consideration of items of plant and equipment

5G says that in relation to five items or categories of plant and equipment, what it received did not match its descriptions in Annexure A. The issues for me to determine are:
1.Has 5G proved that at the completion date of the APA:
a.      UPS-A and UPS-B did not have an operating ability as and when required to provide 800kVa;
b.      UPS-A and UPS-B did not have four strings of working batteries;
c.      The CRAC System was not installed to Rows Q to Z;
d.      The Cooling Pipe Work was not installed to Rows Q to Z; and
e.      The Power Supply Wiring was not installed to Rows Q to Z.
2.If so, did those matters constitute a breach of clause of 2.2 of the APA?
In addressing these two issues, I will deal with each category of plant and equipment in turn.

The capacity of UPS-A and UPS-B

Under the heading “Switch Room”, Annexure A lists two items of plant, each with the same description. The first is for UPS-A: “Uninterruptable Power Supply installation 800kVa with 4 strings batteries, UPS-A”. The second is for UPS-B.[34] The issue is whether the UPS units that 5G received from GNJFMEPC satisfy the description of “Uninterruptable Power Supply installation 800kVa”.
[34] CB 2573. The spreadsheet also includes dollar amounts for “reinstatement with new value” and fair value. 5G does not rely on these amounts in relation to any of the categories of plant and equipment.
5G pleads that GNJFMEPC breached the APA because UPS-A and UPS-B “did not have an operating ability as and when required to provide 800kVa”.[35]
[35] 2FASOC, [18(ba)].
The experts explained that with UPS units there is a difference between apparent power – which is expressed in kilovolt-ampere (kVa) – and real power, which is expressed in kilowatts (kW). The relationship between the two is determined by the power factor, which is a measure of efficiency: kW = kVa x power factor. The more efficient the unit is, the closer real power will be to apparent power.
The UPS units at the MDC were designed and built with a power factor of 0.8. This means that their real power rating was 640 kW. The extent to which a UPS unit can then actually perform to its capacity depends on the amount of battery power with which it is installed. At the MDC, each of the UPS units were installed with batteries that enabled them to provide 180 kW for 20 minutes, or 360 kW for five minutes. To perform at their full capacity of 640 kW would have required the installation of additional batteries.
The experts said that the real power rating is a more helpful measure than apparent power rating: in that sense, they said, the description of the UPS units in the APA by reference to their apparent power was both accurate, and somewhat misleading (or unhelpful). However, both experts agreed that the UPS units at the MDC did in fact have an apparent power rating of 800 kVA. On its face, therefore, 5G got what it paid for: two 800 kVa rated UPS units.
Against that, 5G argued that the phrase “800 kVa” is a term of art within the data centre industry and cannot be understood without reference to the common understanding of the term within that industry. This submission was based on the experts’ evidence that for the past 20 years or so, the typical IT load power factor exceeds 0.95. An 800 kVa UPS unit with a power factor of 0.95 would have a real power rating of 760 kW (rather than the 640 kW the MDC UPS units had).
5G’s submission was effectively that “kVa” is a term of art that is understood to mean “kVa with a power factor of 0.95”. If that submission is correct, then 5G did not get what it paid for. As already noted, the experts agreed that a typical IT load power factor exceeds 0.95. However, the experts never said that apparent power rating expressed in kVa is a term of art which means the same as a real power rating expressed in kW based on a power factor of 0.95. Nor do I accept that a reasonable businessperson in the position of the parties would have understood it to have had that meaning.
Nor do I accept that the description of the UPS units as 800 kVa would be understood by a reasonable businessperson to mean that they had been installed with sufficient batteries to allow them to operate at their full capacity of 640 kW. The data centre was being built in stages, and the UPS units had been installed in such a way as to provide sufficient load for the data centre’s current configuration. More batteries could be added as and when the load demand increased.
The description of the UPS units in Annexure A may have been unhelpfully incomplete; but it was accurate. I therefore find that GNJFMEPC did not breach the APA in relation to the UPS units: 5G got what it paid for.

The number of battery strings for each UPS

As noted above, the description for each UPS includes the words “with 4 strings batteries”. 5G pleads that GNJFMEPC breached the APA because UPS-A and UPS-B “did not have four strings of working batteries”. [36] GNJFMEPC accepts that each UPS unit had only two strings of batteries. However, it argued that the UPS units were connected by a bus tie, which enabled the strings of one unit to be switched to the other unit, so that that unit would then be connected to four strings of batteries.
[36] 2FASOC, [18(bb)].
In my view, the plain meaning of the words in Annexure A are that each unit was installed with four strings of batteries (of their own). GNJFMEPC contends that this results in an absurdity, because the common intention of the parties was to purchase the actual assets of MDC, and those assets were limited to two strings of batteries for each UPS unit. This argument could be applied equally to any discrepancy between the item of plant as it existed and the description of that item of plant in Annexure A. I do not accept it.
In the case of the batteries, it was not possible to easily tell how many strings the batteries were configured into. Furthermore, additional strings add additional layers of redundancy and are, therefore, desirable (all other things being equal). I accept that the reference to four strings of batteries in Annexure A may have been an error on the part of GNJFMEPC; but it does not result in a commercial nonsense, and it is not self-evident that the objective intention of the parties was to purchase and sell only two strings of batteries for each UPS unit.
Accordingly, I find that GNJFMEPC breached the APA in relation to the number of strings of batteries connected to each UPS unit.

The extent of the installation of the CRAC System

Annexure A includes a heading for “Computer Room Air Conditioning (CRAC) System”. This lists eight air-conditioning units, each “having all necessary installations”; and “under floor a/c services pipework reticulation, chiller reticulation and drainage”.[37] The “CRAC System” as pleaded includes all of these elements.[38]
[37] CB 2571.
[38] 2FASOC, [13(v)(v)].
5G pleads that GNJFMEPC was obliged to transfer “the CRAC System with under floor a/c services pipework reticulation, chiller reticulation and drainage installed to locations identified for racks to be installed”;[39] and that it failed to do so because “the CRAC System was not installed to Rows Q to Z”.[40] This is part of a broader argument that various items in Annexure A should be construed as promising that infrastructure had been installed to the proposed racks of Stage 3 and beyond.
[39] 2FASOC, [14A(b)].
[40] 2FASOC, [18(o)].
In this case, there is no textual support for the argument in the wording of the Annexure A. Annexure A simply lists eight installed air conditioning units, together with the necessary underfloor infrastructure to operate those units. 5G received eight such units, together with an additional two uninstalled air conditioning units.
Accordingly, I find that GNJFMEPC did not breach the APA in relation to the CRAC system.

The extent of the installation of the Cooling Pipe Work

Annexure A includes a heading for “Chilled Water”. This includes three chilled water installations, each comprising a condenser water pump and a chilled water pump. It also includes an item for “Pipe work through out [sic] 15^th and 14^th floors servicing chilled water, fire systems, air conditioning, generators, etc”.[41] “Cooling Pipe Work” is defined in the pleadings by the adoption of these words.[42]
[41] CB 2573.
[42] 2FASOC, [13(v)(vi)(A)].
The words “through out” – which is presumably a typographical error for “throughout” – raises an issue of construction. Does it simply mean all of the pipework, wheresoever it happens to be located on the 15^th and 14^th floors? Or is it implicitly a statement to the effect that there is pipework throughout the 15^th and 14^th floors, including in the locations it might be needed for the development of Stage 3? GNJFMEPC argues for the former construction, 5G for the latter.
5G thus pleads that GNJFMEPC was obliged to transfer “the Cooling Pipe Work with pipes installed throughout the Data Centre floor to service locations identified for racks to be installed”;[43] and that it failed to do so because “the Cooling Pipe Work was not installed to Rows Q to Z”.[44] There is a dispute between the parties as to the extent of the cooling pipe work installation. Because I find that GNJFMEPC was not obliged to provide cooling pipe work to Rows Q to Z, I do not need to determine the extent to which it failed to do so.
[43] 2FASOC, [14A(c)].
[44] 2FASOC, [18(p)].
5G contends that a reasonable businessperson would have understood the term “throughout the 15^th and 14^th floors” in light of a schematic diagram in the due diligence folder.[45] The diagram is a floor plan of the data centre. It shows all the installed racks (and their users), together with the locations where further racks could be installed in Stage 3. The spaces for the proposed racks in Rows S, T, U, V, W and Z are each marked with the word “Proposed”, as are the spaces for the four CRAC units closest to them.
[45] CB 2592.

5G contends that a reasonable businessperson would have understand that the infrastructure necessary to operate the proposed racks – including the cooling pipe work – had already been installed. I am not persuaded by this argument.
First, according to the APA, the agreement was for the sale of the data centre “as a going concern and on a ‘walk in walk out’ basis”.[46] In other words, the asset being purchased was the data centre as it was currently operating, not as it might be developed to operate in the future.
[46] Background clause [B], CB 2515.
Second, the first item in Annexure A is “Data Centre” which comprises 178 of the following items: “Equipment / IT rack each having 2-APC PDU’s, under floor power, under floor power tray, comm’s cable IDF and floor conditioning”. There was cooling pipe work (and power) to all those 178 racks. Other than the words “through out”, there is nothing in the APA (including Annexure A) to suggest that any more infrastructure had been installed than was necessary to support those 178 racks.
Third, even if I accepted 5G’s argument that I can take into account the schematic diagram (which I do not), the extrinsic material taken as a whole provides no real support for 5G’s construction. The word “proposed” in the diagram has a tentative quality to it, which suggests that the MDC had not yet committed to the installation of those racks. This is inconsistent with the MDC having already made the capital expenditure in the form of the infrastructure necessary to support those racks.
Furthermore, if regard is to be had to the schematic diagram, it should also be had to an email in the due diligence folder forwarded by Mr Eckert to Mr Demase on 21 February 2019, with the subject heading “MDC Rack configuration”.[47] It states:
[47] SCB 1186. A highlighted and annotated version of the email is found at CB 2494; the parties agreed that the relevant copy of the document is the one in the Supplementary Court Book: see T923-4. The email responded to queries from 5G about rack capacity: see email from Mr Demase to Mr Eckert (6 February 2019), attaching spreadsheet of due diligence requests, in particular request [3.7].
a.The current floor configuration has the capacity to house 261 racks in the main data floor and 16 in the comms area, making for a total of 276 racks;
b.Fifty of these racks are reserved for other businesses (40 for Securiton and 10 for ITU);
c.Of the remaining 226 racks available to MDC:
i.103 racks are in use by paying clients;
ii.25 racks are free and ready for use;
iii.14 tiles are allocated for racks (there is no rack but power is present); and
iv.There are 84 allocated tiles to house racks (currently no racks and no power); and
d.The office area has the capacity to house up to 40 additional racks if converted to a data centre.

The 21 February 2019 email makes it clear that power had not been supplied to all the rack spaces depicted in the floor plan: there were 178 powered racks (50 reserved racks, 103 racks in use, and 25 free racks); 14 rack spaces for with power; and 84 rack spaces without power. This undermines any assumption a reasonable businessperson might make to the effect that cooling pipe work had been supplied to all 276 rack spaces. In my view, the email makes it sufficiently clear that the floor plan showed a combination of racks installed with the necessary infrastructure, and spaces for racks (where infrastructure had not yet been installed).
Accordingly, I find that GNJFMEPC did not breach the APA in relation to the cooling pipe work.

The extent of the installation of the Power Supply Wiring

Annexure A includes a heading for “Power supply controls and reticulation to floor”. This includes an item for “cable and wiring reticulation” for the transformer and supply to Level 15, the main distribution board, the generator switch board, the two mechanical switch boards, the distribution boards for the UPS and various other services, the UPS, UPS batteries, plus cabling to level 14 facilities, including earthing.[48] “Power Supply Wiring” is defined in the pleadings by the adoption of the words in Annexure A.[49]
[48] CB 2573.
[49] 2FASOC, [13(v)(vi)(B)].
5G pleads that GNJFMEPC was obliged to transfer “the Power Supply Wiring installed including power cabling to locations identified for racks to be installed”;[50] and that it failed to do so because “the Power Supply Wiring was not installed to Rows Q to Z”.[51] This is essentially the same argument as the one that 5G made in relation to cooling pipe work (but without the benefit of the word “through out”). I reject it for the same reasons. Accordingly, I find that GNJFMEPC did not breach the APA in relation to the power supply wiring.
[50] 2FASOC, [14A(d)].
[51] 2FASOC, [18(q)].
There was a dispute between the parties as to the extent of the power supply wiring installation. Because GNJFMEPC was not obliged to provide power supply wiring to Rows Q to Z, I do not need to determine the extent to which it failed to do so.

Conclusion

The only breach of the APA that I find proved is in relation to the number of strings of batteries connected to the UPS units.

Did GNJFMEPC breach the interim maintenance clause of the APA?

Clause 5.3.2 of the APA provides that “from the date of this document until the earlier of Completion and termination of this document, the Seller must procure that repairs, maintenance and general upkeep of the Business Assets is undertaken in accordance with prudent and good commercial practice and standards of maintenance”. [52] The date of the APA was 1 April 2019; the completion date is agreed to have been 15 April 2019.
[52] APA, clause 5.3.2, CB 2525.
5G claims that GNJFMEPC breached this clause, leading to the third issue I must determine:
3.In the alternative, has 5G proved that, during the period between the execution of the APA and the completion date, GNJFMEPC failed to repair, maintain and upkeep the various items of plant and equipment in accordance with prudent and good commercial practice and standards of maintenance?
5G contends that this clause imposes an obligation on GNJFMEPC to have ensured that the data centre has “been maintained and upkept in accordance with prudent and good commercial practice and standards of maintenance”.[53] 5G thus alleges that GNJFMEPC had breached clause 5.3.2 because it had “failed to schedule appropriate quarterly and annual maintenance of the UPS System including appropriate discharge tests of the batteries”.[54]
[53] Closing Submissions, [160].
[54] Closing submissions, [164].
5G also contends that clause 5.3.2 required GNJFMEPC to rectify any faults that there may have been in the plant and equipment, no matter how long they may have been in existence.
Such a broad interpretation of clause 5.3.2 would make redundant many of the warranties in Schedule 2 (particularly those considered under issue 4 below). It also effectively overrides the time-limited nature of the obligation in clause 5.3.2. The more natural reading, in my view, is that the clause 5.3.2 obliged GNJFMEPC to continue, during the transition period, to maintain the plant and equipment in accordance with prudent and good commercial practice.
On the evidence before me, GNJFMEPC maintained the plant and equipment at the data centre regularly and using competent suppliers. There is no evidence that it changed this approach during the completion period.
One matter requires more detailed consideration. That is the scheduling of the maintenance tests during and after the completion period.[55] The maintenance schedule for the UPS involved quarterly “online” maintenance and an annual full site “offline” test involving all suppliers.
[55] This is dealt with in the parties’ closing submissions under issue 8.
At the time of entering into the APA, the most recent quarterly maintenance occurred on 8 February 2019. Accordingly, the next maintenance would ordinarily have been conducted sometime in May 2019 (although the February maintenance report stated that the next service due was an offline test in April 2019).[56]
[56] CB 3076.
According to Mr Eckert, the annual test was due to be conducted in June 2019.[57] Mr Eckert offered to bring the annual test forward to April (at 5G’s expense), as this would enable 5G to engage with the MDC’s suppliers prior to completion.[58] Mr Comito subsequently stressed to Mr Demase the importance of bringing forward the annual test. Mr Demase chose not to do so.
[57] The previous annual offline test was conducted on 28 April 2018: see report, CB 2301-2.
[58] See email from Mr Eckert to Mr Demase (5 March 2019), CB 3266.
On the evidence before me, I am not satisfied that GNJFMEPC failed to carry out any maintenance that was scheduled during the completion period. Nor do I think that Mr Demase was under any obligation to take up Mr Eckert’s offer.
Accordingly, 5G has not proved that GNJFMEPC breached clause 5.3.2 of the APA.

Warranty claims

Under the APA, GNJFMEPC warranted that the “Warranties” were true and accurate.[59] The Warranties were defined to mean the representations and warranties set out in Schedule 2.[60] They include warranties in relation to the working order, condition, maintenance and fitness for purpose of each material item of plant and equipment.[61] 5G alleges that GNJMMEPC breached those warranties in respect of each of the UPS system, fire system, security system, business management system, CRAC system and miscellaneous equipment.
[59] Clause 14.1, CB 2534.
[60] Clause 1.1.71, CB 2521.
[61] Warranties [4.1.3] and [4.1.4], CB 2555.
However, 5G can only make a warranty claim if it gave valid notice of that claim. [62] GNJFMEPC can also defeat the warranty claim if it proves that the facts on which the warranty claim is based were within 5G’s reasonable knowledge or had been fairly disclosed to 5G prior to it entering the APA. [63]
[62] Clause 14.5.4(a), CB 2534 and clause 14.6.2, CB 2537.
[63] Clause 14.6.1(b), CB 2535.
Accordingly, the issues for me to determine are:
4.Has 5G proved, in respect of those items of plant and equipment, that on the completion date the item:
a.   Was not in good working condition (other than for fair wear and tear); and/or
b.     Had not been maintained and serviced in accordance with prudent business practice; and/or
c.   Was not fit for the purpose for which it was used.
If so, 5G has a warranty claim under the APA.
5.Has 5G proved that it gave valid notice of its warranty claims?
If not, GNJFMEPC is not liable for any warranty claim.
6.Has GNJFMEPC proved that any of the facts, matters or circumstances on which 5G’s breach of warranty claims are based were within the reasonable knowledge of 5G or had been fairly disclosed to 5G prior to the entry into the APA?
If so, GNJFMEPC is not liable for that warranty claim.
In addressing the warranty issues, I will deal with each category of plant and equipment in turn. I will then consider the notice and knowledge/disclosure issues. I note that in April 2018, Mr Cobbin sent Mr Comito a “wish list” of outstanding items he had identified over the previous five years.[64] Mr Comito did not accept that this was a list of defects or faults. Rather, it was a list of improvements or upgrades. The wish list was not disclosed during due diligence. However, nothing turns on this as 5G does not rely on the wish list in support of any of its claims.
[64] Exhibit F.

Fit for what purpose?

First, I must determine the purpose for which the items of plant and equipment had to be fit. It is uncontroversial that the plant and equipment had to be fit for the purpose for which it was being used at the time of the APA: namely, the operation of a data centre comprising 178 powered racks. The use of the present tense in the wording of the warranty – “is fit for the purpose for which it is used” – confirms this. Subject to some minor issues, the experts largely confirmed that the plant and equipment was fit for that purpose.
However, 5G alleges that the plant and equipment also had to be fit for the operation of a data centre with 290 racks.[65] There is nothing on the face of the APA which supports this construction. 5G therefore relies on information that Mr Demase says he gained during the time when he was acting as a consultant for GNJFMEPC in 2015. This included the MDC Executive Summary provided by Mr Eckert and Mr Comito, which stated that: [66]
a.“MDC have capacity to house 300+ racks”;
b.“MDC has approximately 260 to 270 racks to sell”;
c.“169 racks of a capacity of 313 Racks in current DC area, although we do have plans for removing part of the office which take that capacity to 350 odd racks”; and
d.“Plant room is sized to 350 racks although some capex [capital expenditure] is required”.
[65] 5G does this partly through a pleading device of including among the plant and equipment subject to the APA “a 290 rack capacity at the data centre”, which includes the Cooling Pipe Work and Power Supply Wiring discussed above (collectively defined as “290 Rack Capacity”): 2FASOC, [13(v)(vi)]. In other words, “290 Rack Capacity” does not refer to an actual item of plant or equipment but is simply a label designed to encompass all of the various items of plant and equipment which would have been needed to support 290 racks. I will focus on those items of plant and equipment.
[66] CB 3029-30.
Consistent with this, the investor information memorandum prepared by Mr Demase describes the MDC as having been “Designed to house 330 rack spaces”.[67] Mr Demase also testified that during the discussions that culminated in 5G’s purchase of the data centre, he had told Mr Comito about his intention to expand the business. During these discussions Mr Comito and Mr Eckert also confirmed that the data centre was capable of expansion and had been designed so that this could be done in stages.
[67] CB 3217.
5G claims, on the basis of the MDC Executive Summary and Mr Demase’s conversations with Mr Comito and Mr Eckert, that the APA was for the purchase of a data centre where the infrastructure (including pipe work and electrical cabling) necessary to support a total of 290 racks was already in place, ready for the additional racks to be installed; and that the plant and equipment had to be fit for that purpose.
I do not accept this position:
a.First, 5G’s reliance on the Executive Summary and the pre-purchase conversations is at odds both with general principles of contractual construction and with the APA, which excludes reliance on any representations, warranties, promises, undertakings, statements or conduct other than those set out in the APA.[68]
b.Second, the Executive Summary was not included in the due diligence folder or discussed during the due diligence process. By contrast, the information that was included in that folder makes it sufficiently clear that the infrastructure necessary for the proposed additional racks was not yet in place.[69]
c.Third, Mr Comito and Mr Eckert were generally clearer and more precise in their recollection of the pre-purchase conversations than Mr Demase, whose memory for details was often vague. So, where there were differences between Mr Demase on the one hand and Mr Comito and Mr Eckert on the other, I tend to prefer the latter. I therefore reject 5G’s contention that Mr Comito and Mr Eckert held out that the plant and equipment in the data centre was fit for the purpose of operating a 290 rack capacity data centre without the need for the installation of any further infrastructure other than the additional racks themselves.
[68] Clause 14.7.2, CB 2535.
[69] See paragraphs [61]-[67] above.
I therefore find that the rack capacity against which the fitness for purpose of the plant and equipment must be measured is the 178 racks that were operational at the time of the APA. The corollary of this finding is that most of 5G’s expenditure after the outages represents an upgrade, for which GNJFMEPC is not liable.

Did GNJFMEPC breach its warranties in relation to plant and equipment?

The UPS system

The UPS system had been installed in 2011 and parts of it were nearing the end of their life. However, the experts agreed that there was no evidence that the UPS system was faulty at the completion date; that it was in good working order and condition; and that it was fit for the purpose of operating a 178-rack data centre. [70]
[70] JER, CB 848 [TLM.1.a] and CB 858-860 [CG.1.i.A]-[CG.1.i.D].
The experts also agreed that there were issues with the maintenance regime for the UPS system. In particular, there were gaps in the maintenance records, including a lack of evidence of regular battery discharge testing. Mr Comito, Mr Cobbin and Adam Stevens from Thycon all testified that appropriate maintenance had been conducted at appropriate intervals. Other than the fact that are gaps in the maintenance records, there is no evidence to contradict their testimony. In my view, the absence of a documentary record of a scheduled maintenance is insufficient to prove that the maintenance did not take place.
There was also evidence to support the view that GNJFMEPC generally maintained and serviced its plant and equipment in accordance with prudent business practice. In addition to the testimony of the GNJFMEPC and Thycon witnesses, this includes the MDC annual testing procedure,[71] and the fact that GNJFMEPC had achieved and retained ISO 27001 certification since November 2015.
[71] CB 2032.
The maintenance records did disclose that there had been battery failures and issues at various points during the operation of the UPS system. However, individual battery failure is both a common and unavoidable occurrence. The batteries had needed to be replaced in 2015, probably because the temperature in the plant room was too high; however, this does not indicate that there was any fault in the UPS system itself (and that the fault was still there in April 2019).
Nor can the failure of the three batteries during the June 2019 outages be attributed to a maintenance failure or faults in the UPS. The experts agreed that battery failures can occur suddenly and without warning; and that there was no basis to conclude that if the batteries had been tested before the completion date as part of the UPS maintenance, any of them would have been identified as faulty.
Accordingly, 5G has not proved that GNJFMEPC breached the warranties in relation to the UPS system (including the batteries).

The fire system

The fire system was described in Annexure A as a “Very Early Smoke Detection Alarm (VESDA) System installation” comprising a number of distinct elements.[72] The defendants accept that aspects of the fire system were not in good working order and condition on the completion date. [73]
[72] CB 2572.
[73] Given this concession, it is unnecessary for me to also make findings as to whether the fire system had been properly maintained, and was fit for purpose; however, see JER, CB 860-3 [CG.1.ii].
The fire indicator panel had been “isolated” such that it would not send an alarm to the fire brigade in the event that smoke was detected. Mr Comito said that the fire system had been isolated because of a faulty module that would call the fire brigade unnecessarily. The defendants did not concede that this was a fault. However, in my view, Mr Comito’s evidence confirms that the reason the fire panel was isolated is because it was not in good working order and condition.
Mr Comito accepted that the testing and recommissioning of the fire system and the replacement of a faulty VESDA were necessary.[74] He was unable to comment on whether it was necessary to replace the fire panel power supply and batteries in April 2020.[75] Nor was Mr Peck able to say whether these works rectified a fault that was in existence in April 2019.[76] I am not satisfied that they were.
[74] See invoices at CB 687 and CB 689.
[75] CB 706.
[76] CB 137, [4.3.5].
I find that GNJFMEPC breached warranty in relation to the fire system, given that the system was isolated and one of the VESDAs was faulty.

The security system

The security system was described in Annexure A as the security system to the entire floor, including several distinct elements.[77] GNJFMEPC accepts that aspects of the security system were not in good working order and condition on the completion date. Given this concession, it is again unnecessary for me to make findings as to whether the fire system had been properly maintained and was fit for purpose.[78]
[77] CB 2573.
[78] However, see JER, CB 863-4 [CG.1.iii].
The faulty aspects of the security system included CCTV cameras, “sticky” security doors, and inconsistent operation of the “mantrap” doors. I therefore find that GNJFMEPC breached the warranty in relation to the security system.

The business management system

The business management system (BMS or EMS) was described in Annexure A as “Plant monitoring system for 15^th floor having Digital Direct Controller, alarm/warning/action functions”.[79] One of the controllers for the BMS was not working properly and this is undoubtedly a breach of warranty. There is no other evidence suggesting that the BMS was not in good working order and condition.
[79] CB 2573.
The real issue between the parties in relation to the BMS is the fact that it only operated manually, not automatically. This means that the BMS monitored the plant and sent alerts to Mr Cobbin and to other MDC staff; but did not actually control the plant.
After the purchase, 5G shifted to an off-site management model, with Mr Roberts managing the MDC remotely from Sydney. The existing BMS was unfit for that purpose, and 5G upgraded to an automatic BMS. However, the experts agreed that the BMS was fit for the purpose of supporting the MDC as it was being operated at the completion date: namely, a second-tier data centre with an on-site manager. [80]
[80] See JER, CB 864-5 [CG.1.iv].
5G also argues that the BMS was faulty because it was not operating automatically.[81] This seems to be based on the fact that the description of the BMS in Annexure A includes the words “action functions”. 5G did not plead a breach of the APA on the basis that the BMS did not match its description in Annexure A (under issues 1 and 2). I do not accept that the manual only operation of the BMS made it faulty. It was simply a limitation.
[81] Closing submissions, [287].
Accordingly, apart from the controller, 5G has not proved that GNJFMEPC breached its warranties in relation to the BMS.

The CRAC system, Cooling Pipe Work and Power Supply Wiring

The only breach of warranty claims by 5G in relation to the CRAC system, Cooling Pipe Work and Power Supply Wiring are that they were unfit for purpose because they could not support a data centre with racks installed in all of the spaces set aside for racks.[82] I have already rejected 5G’s contention that the plant and equipment needed to be fit for that purpose.[83] I therefore reject 5G’s warranty claims in relation to the CRAC system, Cooling Pipe Work and Power Supply Wiring.

Miscellaneous equipment

[82] See also JER, CB 865-6 [CG.1.v].

[83] See the conclusion expressed at paragraph [93] above.

During the year after the completion date 5G paid for repairs to Cooling Tower 1, Chiller 1 and a cooling tower fan hub.
In July 2019, the service provider, A.G. Coombs, reported that repairs were necessary to Cooling Tower 1;[84] and in August 2019, A.G. Coombs recommended the replacement of the expansion valve on Chiller 1.[85] However, the fact that these repairs were found to be necessary at those times does not necessarily mean that the cooling tower and chiller were in breach of warranty on the completion date.
[84] CB 3101; see also SCB 1327 (26 June 2019). The repairs to the cooling tower cost $3850: see CB 688.
[85] CB 1369-70. The repairs to the chiller cost $4980: see CB 698.
On the evidence provided to him, Mr Peck was unable to form an opinion as to whether Cooling Tower 1 and Chiller 1 were in breach of warranty.[86] I am also unable to be satisfied of that fact. In its submissions, 5G points to various issues that had been identified by A.G. Coombs in its maintenance reports prior to, or shortly after, the completion date. However, it is not clear that these are the same issues as those that later required repair; and the reports themselves provide evidence that GNJFMEPC was maintaining the cooling equipment.
[86] CB 142, [4.8.1].
In April 2020, A.G. Coombs reported that “all 3 fan hubs have now got to the point where they should be replaced due to corrosion”.[87] Mr Peck opined that the cooling tower hubs “were faulty, were not maintained appropriately, were not in good working order, and were not fit for purpose in their current state of repair in April 2020”.[88]
[87] CB 3373. The repairs cost $13,200: see CB 709.
[88] CB 142, [4.8.1] (emphasis added).
However, the issue is not whether the cooling tower fan hubs were in breach of warranty in April 2020, but whether they were in breach in April 2019. 5G did not lead any evidence to the effect that the level of corrosion found in April 2020 means that the fan hubs would not have been in good working order and condition or fit for purpose in April 2019.
5G points to a repair report from August 2019, where the service provider stated “The cooling tower overall is in good shape now. Didn’t see any leaks. Only thing I spotted was corrosion on the fan hub. All the bolts have corrosion”.[89] Notably, the service provider did not state that immediate repair was necessary.
[89] SCB 1364.
In my view, the reports confirm that corrosion is a process that occurs over time as part of ordinary wear and tear, and that may eventually result in the particular item of plant or equipment becoming unfit for purpose. However, prior to that point, an item of plant or equipment may have some corrosion but still be fit for purpose and in good working order and condition (other than for fair wear and tear).
5G has not therefore satisfied me that the cooling tower fan hubs were in breach of warranty on the completion date.

Conclusion

5G has established that GNJFMEPC breached its warranties in relation to the fire system (the isolation fault and faulty VESDA), the security system (the doors and the CCTV cameras) and the BMS controller. 5G has not established that GNJFMEPC breached its warranties in relation to the UPS system (including batteries), the fact that the BMS did not operate automatically, the CRAC system, the cooling pipe work, the power supply wiring or the miscellaneous equipment.

Did 5G give valid notice of its warranty claims?

Clause 14.5.4(a) of the APA provides that “the Purchaser must not make a Warranty Claim and the liability of the Seller for a Warranty claim is absolutely barred unless … the Purchaser has given written notice of the claim to the Seller on or before … the Audit Date”.[90] The Audit Date is agreed to have been 15 September 2020.
[90] CB 2534. The Audit Date is defined as 20 business days after the publication of 5G’s audited financial statements for the year ending 30 June 2020: clause 1.1.3, CB 2515. 5G says the Audit Date was 15 September 2020: closing submissions, [324]. The precise date is not important to the determination of whether valid notice was given.
5G says that it gave notice of its warranty claims on 12 July 2019 by means of a document headed “Notice of Potential Warranty Claims”;[91] and on 5 June 2020 by means of a “without prejudice” letter from its solicitor.[92] The defendants say that neither document is capable of satisfying the requirements of clause 14.5.4(a); and that 5G’s warranty claims are now barred. [93]

The 12 July 2019 notice

[91] CB 2803-4.

[92] CB 3377.

[93] Because the claim in relation to the number of strings of batteries for each UPS unit is based on a breach of the APA, rather than the warranties, no notice was required to be given, and disclosure is not an issue.

Clause 14.16.1 requires the purchaser to give the seller notice in three distinct situations: [94]
a.If it decides to make a warranty claim against the seller;
b.If a third-party claim is made that may give rise to a warranty claim against the seller; and
c.If the purchaser becomes aware of any events, matters or circumstances that are reasonably likely to give rise to a warranty claim.
[94] CB 2537.
Clause 14.16.1 thus requires that notice be given both of actual warranty claims (under clause 14.16.1(a)) and of likely warranty claims (under clause 14.16.1(c)). Clause 14.5.4 imposes a deadline for the purchaser to give notice of any actual warranty claims.
The 12 July 2019 notice states that “This notice is given under Clause 14.16.1(c) of the [APA] and notifies events, matters or circumstances that are reasonably likely to give rise to a Warranty Claim. It is not a notice under clause 14.5.4 of the [APA]”.[95] The notice thus makes clear that it is only giving notice of likely warranty claims, not actual ones. For that reason, I find that the 12 July 2019 does not satisfy the requirements of clause 14.5.4.

The 5 June 2020 letter

[95] Preamble [B], CB 2803.

The 5 June 2020 letter is headed “Without prejudice save as to costs”, and states that “We are writing to provide further details of 5GN’s prospective warranty claims (Prospective Claims)” against GNJFMEPC and the second, third, fourth and fifth defendants (the companies of Mr Eckert, Ms Fulton, Mr Comito and Mr Nicholas, respectively). [96] At the end of the letter, 5G’s solicitors state that “5GN is prepared if necessary to litigate its Prospective Claims should the matter not be promptly resolved on a commercially satisfactory basis”. The letter is, thus, an attempt by 5G to avoid litigation over its warranty claims.
[96] Emphasis in original.
Although clause 14.16.1(a) requires that the purchaser must give notice “if … it decides to make a Warranty Claim”, the APA allows for the passage of time between such a decision and the commencement of legal proceedings to enforce a warranty claim. Clause 14.5.4 thus imposes two deadlines: the deadline in clause 14.5.4(a) for giving notice of the claim, and a deadline in clause 14.5.4(b) of a further four months from the giving of notice before proceedings must be issued.[97] This confirms that the decision to make a warranty claim is distinct from the decision to issue proceedings.
[97] Clause 14.5.4.(b), CB 2534.
In my view, notwithstanding that the 5 June 2020 letter is couched in terms of an attempt to settle a dispute, it does nevertheless give GNJFMEPC notice of the fact that 5G has decided to make a series of warranty claims. On its face, therefore, the letter satisfies the requirement in clause 14.5.4.
Following the sending of the letter, the parties agreed to mediate the dispute. A mediation was held on 7 September 2020 and then adjourned to 30 November 2020. At the September mediation, the parties entered into an agreement “for the future conduct of the mediation”.[98] The agreement identifies the persons in dispute as being 5G and the nine defendants to these proceedings. The agreement repeatedly refers to the alleged warranty claims in the letter and uses a defined term of “the Warranty Claims”.[99]
[98] CB 2910.
[99] Clauses 2, 5 and 6, CB 2910-11.
The agreement also provides that “time stops” from the September mediation to the November mediation “for the purpose of clause 14.5.4” in respect of the warranty claims.[100] Because the Audit Date had not yet been reached, the time clause of the mediation agreement suspended the deadlines for both the giving of notice and the issuing of proceedings. The time clause does not necessarily assume, therefore, that the 5 June 2020 letter was a valid notice for the purpose of clause 14.5.4(a).
[100] Clause 5, CB 2910.
However, 5G submits that the defendants should be estopped from denying that the 5 June 2020 letter was a valid written notice of 5G’s warranty claims. 5G submits that at all material times since the September mediation the parties conducted their relationship on the basis that 5G had given notice of its warranty claims by means of the 5 June 2020 letter; and that departure from this assumption will cause it significant detriment, because it will be barred from bringing its warranty claims.
The defendants point to the other wording in clause 5 of the mediation agreement, namely that “The parties otherwise reserve all of their rights”. I am not persuaded that this generic reservation of rights includes preserving the defendants’ right to object to the 5 June 2020 letter as a valid notice of 5G’s warranty claims. I accept that the parties proceeded on the basis that the 5 June 2020 letter was a written notice for the purpose of clause 14.5.4 and that the defendants should be estopped from asserting otherwise.

Is the 5 June 2020 letter admissible?[101]

[101] See Plaintiff’s Submissions on Admissibility of 5 June 2020 Letter (24 February 2025); and defendants’ email submissions on admissibility (16 September 2025).

Nevertheless, the defendants contend that the fact that the letter is a communication that was made in an attempt to negotiate a dispute between the parties means that it falls within the privilege for settlement negotiations and is inadmissible.[102] If this is correct, then even though 5G may have given valid notice of its warranty claims it cannot put the letter into evidence to prove that it did so.
[102] Evidence Act 2008, s131(1)(a).
5G accepts that the letter falls within the scope of the privilege for settlement negotiations but submits that it also falls within one or more of the exceptions to the privilege. 5G relies on the exceptions in paragraphs (a), (b), (f), (g) and (i) of s 131(2) of the Evidence Act 2008. I will address each of these in turn, briefly:
a.The exception in (a) applies where the parties in dispute consent to the evidence being adduced in these proceedings. The defendants do not consent. This exception does not apply.
b.The exception in (b) applies where the substance of the evidence has been disclosed with the express or implied consent of all the persons in dispute.[103] The 5 June 2020 letter appears to have been disclosed to – at the very least – the mediator at the September 2020 mediation. The mediation agreement itself also discloses some of the evidence in the 5 June 2020 letter. All of the persons in dispute appear to have given either their express or implied consent to that disclosure. This exception applies.
c.The exception in (f) would apply if this proceeding were a proceeding to enforce an agreement between the persons in dispute to settle the dispute, or a proceeding in which the making of such an agreement is in issue. This proceeding is neither of those things. This exception does not apply.
d.The exception in (g) applies if evidence that has been adduced in this proceeding, or an inference from evidence that has been adduced in the proceeding, is likely to mislead the court unless evidence of the letter is adduced to contradict or qualify that evidence. 5G does not identify any such evidence. Without the letter, there is simply an absence of evidence that notice was given. This exception does not apply.
e.The exception in (i) applies if making the communication (ie sending the letter) affects a right of a person. In this case, the letter gave written notice of 5G’s warranty claims, which was a pre-requisite to it being able to recover for those claims. It therefore directly affected 5G’s rights. This exception also applies.
[103] The exception does not have a confidentiality limitation like that in s 122(5)(a)(i) for client legal privilege.
The 5 June 2020 letter is therefore admissible in these proceedings to prove that 5G gave notice of its warranty claims.

Does the 5 June 2020 letter give sufficient detail of the warranty claims?

Clause 14.5 imposes several “Quantum and time limitations” on warranty claims, including (in clause 14.5.4) a deadline for giving notice. Clause 14.16.2 then imposes a series of content requirements on warranty claim notices (including notices of actual warranty claims under clause 14.16.1(a)). The content requirements include that a notice must include “reasonable details of such facts, matters or circumstances of the Warranty Claim as are known to the Purchaser at the date the notice is given”, and “copies of any documents evidencing the Warranty Claim”.
The requirement in clause 14.16.2(a) to provide “reasonable details” must be read in light of the fact that the purchaser may not yet know all the details of the issues that have given rise to the warranty claims. This is reflected in the fact that the requirement is to provide such details “as are known” to the purchaser at the date of the notice.
In my view, the 5 June 2020 letter does set out some details of 5G’s claims in relation to the UPS system (including batteries), the fire system, the security system, the BMS, the CRAC system and the power supply wiring. The details are sometimes sufficient, and other times not. In relation to those matters where I have found that 5G has a warranty claim:
a.The fire system: the letter provides reasonable details of the fact that the fire system was isolated. It also provides a total dollar cost for repairs. It does not mention the faulty VESDA, even though 5G had already paid to have it replaced.[104]
b.The security system: the letter provides reasonable details of problems with the operation of the doors and “man trap”. It provides a total dollar cost for repairs. It does not mention the CCTV cameras that were not working, even though this issue was known to 5G at the time. [105]
c.The BMS: the letter provides reasonable details of 5G’s claim in relation to the fact that the BMS could not operate automatically (which claim I have rejected). It provides a total dollar cost for repairs. It does not mention the faulty BMS controller, even though this issue was known to 5G at the time. [106]
[104] See invoice, CB 689.
[105] It is referred to in the list of scheduled works emailed to Mr Demase on 22 February 2019: CB 3268-9.
[106] It is also referred to in the list of scheduled works.
The letter does not include copies of any documents evidencing the warranty claims, as required by clause 14.16.2(b). I do not consider that the APA evinces an intention that a failure to attach such evidence is fatal to the validity of the notice. Such a requirement would be difficult to enforce. Would it require the purchaser to attach every single document in its possession that might provide evidence of the claim? Or simply a sample of such documents? And what if the purchaser did not have any such documents? I do not consider that the absence of supporting documentation renders the 5 June 2020 letter invalid as a notice.

Conclusion

I have already found that the only warranty claims that 5G has proved relate to the fire system, the security system and the BMS system. I find that 5G gave valid notice of its claims in relation to:
a.The isolation of the fire system (but not the faulty VESDA);
b.The faults in the security system doors and access (but not the faulty CCTV cameras); and
c.The fact that the BMS could not operate automatically (which claim I have rejected), but not the faulty BMS controller.
This means that the only valid warranty claims of which 5G gave valid notice are those in relation to the isolation of the fire system and the faults in the security system doors and access.

Fair disclosure and reasonable knowledge

Clause 14.6.1(b) provides that the seller is not liable for any warranty claim to the extent that the claim “is based on any fact, matter or circumstance … within the reasonable knowledge of the Purchaser or fairly disclosed to the Purchaser prior to the entry of this agreement”.[107]
[107] CB 2535.
The defendants contend that any issues with the plant and equipment that might otherwise give rise to a warranty claim were either disclosed to 5G or within 5G’s reasonable knowledge.

Fair disclosure

5G asked GNJFMEPC to provide a list of maintenance required during the next 12 months. Mr Eckert responded on 22 March 2019, sending Mr Demase an email attaching a list of everything Mr Comito knew about that was either outstanding works or that MDC would be likely to be spending money on in the next 12 months.[108] Mr Eckert said that none of these matters were critical. The attached document had columns for “MDC Works scheduled for 2019”,“MDC Works scheduled longer term (for 2020), and “Estimated Cost”. Relevantly, it lists the following issues:
a.“CCTV replace 15 cameras that are not working … CCTV replace cameras that are not working – need to audit the number of these and the reason for them failing – estimate up to 15.”
b.“Replace 4 controllers for swipe systems / doors are stuck and locking clients in (4 doors) … Waiting to Meet with ARA to discuss the cause for this. May have to replace the Door Controller … Worst case”.
c.“Pre Action Sprinkler review and test … Waiting for Annual test to confirm details.”
d.“EMS Controller 2 review performance … May need to replace this controller. The first controller was replaced 18 months ago. The second one takes longer to act on events, and occasionally needs to repeat the instruction or at worst be manually overridin [sic]. Need to discuss with supplier and budget for it be replaced.”
[108] CB 3268.
In my view, the scheduled works document fairly disclosed the issues with the security system doors and CCTV cameras and the BMS controller (noting that 5G’s claims in relation to the CCTV cameras and BMS controller are already barred for failure to give valid notice). In my view, the scheduled works document does not fairly disclose the issues with the fire system, in particular the fact that it was isolated.
Mr Demase responded to the scheduled works document by email on 4 April 2019, stating that 5G expected “to take over in normal working order, therefore rectify before settlement or it can be adjustment from purchase price”. [109] Notably, this was after 5G had already entered the APA; no-one from GNJFMEPC responded; and Mr Demase does not appear to have taken the issue any further. Mr Demase’s response cannot, therefore, alter the fact that GNJFMEPC gave notice of the issues with the security system doors and access.
[109] CB 3270.
Mr Comito told Mr Demase that there were issues with the fire system and that it required maintenance. He did so on 14 April 2019, after the parties had entered the APA (not before, as required by clause 14.6.1(b)). However, Mr Demase appears to have been informed that there were issues with the fire system sometime before this: in an email to Mr Eckert on 4 April 2019 he wrote that “Mark also mentioned the fire system is not working correctly and need maintenance. Are you aware of this?”[110]
[110] CB 3270: given that the email is addressed to Mark Eckert, the reference to “Mark” rather than to Mr Comito is presumably a mistake.

Mr Comito says that he spoke with Mr Demase about the fire system issues on 14 March 2019. It is unclear exactly what he said, other than that the fire system was in fault. 5G also says that this date must be a mistake, because it says the conversation took place just prior to completion after Mr Cobbin had resigned. The defendants bear the onus of proving that the fire system issue was fairly disclosed to 5G prior to 1 April 2019 when the parties entered the APA. It has not discharged that burden.

Reasonable knowledge

5G’s warranty claims are also barred to the extent that they are based on any fact, matter or circumstance that was within its “reasonable knowledge”. 5G submitted that what is required is actual knowledge of faults, and that the modifier “reasonable” “requires the knowledge to be a particular level of knowledge”.[111] I do not understand what this means. I instead accept the defendants’ submission that this an objective test, based on what 5G knew or ought reasonably to have known.
[111] Closing submissions, [351].
The question of what 5G ought reasonably to have known raises issues around the thoroughness of its conduct during the due diligence process. It is clear that Mr Demase paid appropriately detailed attention to the financial and commercial aspects of the business 5G was buying. However, 5G appears to have paid less attention to the physical infrastructure it was purchasing than one might expect of a reasonably diligent second-hand car buyer.
Had I upheld 5G’s warranty claims in relation to matters such as the UPS system, the cooling pipe work and the power supply wiring, I would need to have determined whether 5G’s relatively lax approach to the technical aspects of the due diligence process bars any of those claims.
As it is, I need only determine whether 5G had reasonable knowledge of the fire system isolation fault. 5G might have had such knowledge on the basis of the material in the due diligence folder. For example, there is a fire system maintenance report in the folder which notes that “whole system isolated”.[112] However, the report also notes “job completed”. I do not accept that 5G had reasonable knowledge of the fire system isolation fault on the basis of such documents.
[112] CB 2434.

Conclusion

I make the following findings:
a.GNJFMEPC breached its warranties in relation to the fire system, the security system and the BMS controller.
b.GNJFMEPC did not breach its warranties in relation to the UPS system (including batteries), the fact that the BMS did not operate automatically, the CRAC system, the cooling pipe work, the power supply wiring and the miscellaneous equipment.
c.5G gave valid notice of the warranty claims in relation to the isolation of the fire system and the faults in the security system doors and access.
d.GNJFMEPC fairly disclosed the faults in the security system doors and access to 5G prior to the entry into the APA. It did not disclose the fault in relation to the isolation of the fire system. Nor was that fault within 5G’s reasonable knowledge.
Accordingly, the only breach of warranty fault that 5G can claim relates to the isolation of the fire system.

Causation and loss

The next set of issues concern whether there is a causal link between any breach by GNJFMEPC (of either the APA itself, or the warranties) and expenditure or loss by 5G:
7.In respect of equipment subject to a valid breach claim, has 5G proved that the sums of money it spent on repairs and replacement of that equipment were caused by a breach and reasonably necessary to restore it to the position it should have been in at the completion date?
If so, GNJFMEPC is liable for that sum.
8.Has GNJFMEPC proved that 5G failed to take reasonable action to mitigate any loss or damage it suffered as a result of a breach of the APA?
If so, GNJFMEPC is not liable for loss or damage that could have been avoided by such actions.
9.Has 5G proved that it suffered any consequential loss as a result of a breach and that the loss is recoverable?
If so, GNJFMEPC is liable for that consequential loss.
The only findings I have made in favour of 5G’s claims are in relation to the number of battery strings connected to each UPS unit, and the isolation of the fire system. Given the limited nature of those findings I do not need to consider whether 5G’s expenditure on other items of plant and equipment reflected a necessary replacement or an improvement or upgrade.

Repairs and replacement of equipment

5G is entitled to be placed in as good a position as if the APA and warranties had not been breached:
a.In relation to the batteries, Annexure A to the APA stated that each UPS unit was installed with four strings of batteries. In fact, they were only installed with two strings. However, when replacing the UPS after the outages, 5G only installed three strings of batteries. In my view, the addition of a third string added a further layer of redundancy and was reasonable and necessary. However, it was not reasonable and necessary to replace the existing strings. Vertiv charged $61,226 for installing three strings of batteries on each unit.[113] 5G is entitled to a third of that: $20,409.
b.In relation to the fire system isolation fault, 5G paid $8500 for a full test and recommission of the fire system.[114] 5G is entitled to that amount.
c.5G is therefore entitled to a total of $28,909 for breach of the APA and warranties.
[113] CB 690.
[114] CB 687.

Did the breaches cause the outages?

Self-evidently, the fire system isolation fault did not cause either of the outages. Arguably, the lack of a third string of batteries did. However, the only evidence in support of that proposition is a single short answer by Mr Stevens to a question during cross-examination.[115] Neither of the experts were asked to consider the issue, nor was this the pleaded cause of the outage.[116] In those circumstances, I am not satisfied that the breach in relation to the number of battery strings can properly be described as the cause of the outages. I also note that Mr Peck opined that the second outage was caused by a failure of operational process, rather than of the plant and equipment itself.[117]
[115] 5G’s closing submissions, [491].
[116] 2FASOC, [20], relying for particulars on part 6 of Mr Peck’s report, CB 158-161.
[117] CB 161.

Mitigation of loss

The issues raised by the defendants in relation to an alleged lack of mitigation by 5G concern the cause of the outages. Given my findings in relation to causation, I do not need to determine those issues.

Consequential loss

5G alleges that as a result of the outage it was unable to provide services to its customers, and, as a result of that, suffered loss and damage.[118] The alleged loss and damage is the loss of customers, and the provision of credits to customers so that they would not leave.[119] It follows from my findings on causation that the defendants are not liable for any consequential loss flowing from the outages. I will, nevertheless, briefly discuss the evidence relating to consequential loss.
[118] 2FASOC, [21].
[119] Further and Better Particulars of Amended Statement of Claim (6 February 2025), [1].
The losses were quantified in the report of Peter Lom, a chartered accountant. With departing customers, the method used by Mr Lom was to treat the customer base as an asset, the value of which depended on a calculation of the present value of the forecast revenue flow likely to be derived from those customers. Mr Lom adopted a calculation already carried out by 5G for this purpose, to arrive at a value for the customer base, as at the completion date, of $565,860.[120]
[120] Lom report, CB 644-5, [4.6] – [4.11]; and Appendix F, CB 723; referring to spreadsheet forming part of the MDC asset register, SCB 1303.
Mr Lom then did the same calculation for the value of the customer base, after the outage. This produced a figure of $375,266. 5G’s loss is quantified as the difference between these values, which amounts to $190,594. Counsel for GNJFMEPC argued that there were fundamental problems with this methodology for quantifying the loss. Mr Lom defended it. However, I do not need to form a view.
This is because there is a more fundamental problem with Mr Lom’s calculation: it is premised on the proposition that any customer who left MDC between the completion date and 30 June 2020 did so because of the outages. The onus of proving this is, of course, on 5G. In my view, 5G failed to prove that any customer left as a result of the outages, and therefore failed to prove that it suffered loss by reason of the reduction in value of its customer base:
a.5G did not lead evidence from any of the leaving customers to the effect that they had left MDC because of the outages.[121] Nor did 5G lead evidence that any of those customers told 5G (or anyone else) that they left for that reason. Instead 5G relies on an inference that if customers left after the outages they must have left because of the outages. But there are other reasons why customers might have left, including the change in ownership, the departure of Mr Cobbin and the shift to remote facility management, the increased competition for data centre customers, and ordinary customer attrition.[122]
b.Mr Lom assumed that customers who left because of the change in ownership would have left before the completion date (so that anyone who left between the completion date and 30 June 2020 did so because of the outages and not for any other reason). The assumption seems untenable because customers did not find out about the change of ownership until shortly before the completion date and shifting from one data centre to another would presumably take some time.
c.The information provided to Mr Lom did not enable him to tell whether customers who had left between the completion date and 30 June 2020 had left before or after the outages. Clearly customers who left before the outages could not have done so because of them.
d.In forecasting revenue, Mr Lom generally assumed an annual customer attrition rate of 15.3%. However, for the 14-month period between the completion date and 30 June 2020 Mr Lom assumed that there would have been no customer attrition, and that every customer who left did so because of the outages. An annual attrition rate of 15.3% equates to an attrition rate for the 14-month post-completion period of approximately 18%. If he had applied his methodology consistently, Mr Lom should have assumed that 18% of customers would have left the data centre anyway and not attributed this to the outages.
[121] The departing customers are listed in Annexure A to the Further and Better Particulars of Amended Statement of Claim (6 February 2025); and in a spreadsheet of MDC Customers, SCB 1304-5. This is summarised in 5G’s closing submissions, [501].
[122] The emails in Exhibit I suggest that the largest customer to leave – John Holland Pty Ltd – left due to a planned migration to AWS. According to Exhibits J, K and M, the second largest customer to leave – Port of Melbourne – did not leave the data centre at all, but shifted its racks to Securiton.
Mr Lom was also provided with a spreadsheet containing a list of credits provided to customers affected by the outages. The credits totalled $34,560.[123] If these credits had to be paid in order to prevent customers from leaving MDC (thereby causing even greater loss), then they could appropriately be claimed as a consequential loss. Again, however, 5G has not led any evidence that the credits were in fact necessary for that purpose. For that reason, 5G has failed to prove that the credits are a form of consequential loss.
[123] See 5G’s closing submissions, [511].
This means that even if I had been satisfied that a breach or breaches of the APA or warranties caused the outages, I would not have been satisfied that 5G suffered any consequential loss as a result of the outages.

Setoff

Clause 3 of the APA deals with “Purchase Price and Payments”:[124]
a.Clause 3.1 sets out the purchase price, and payments, including the Tranche 2 Payment of $750,000 that was due in April 2020 and that 5G failed to make.
b.Clause 3.7 deals with “Interest on late payments” and provides that if a party does not pay an amount on the due date, interest accrues on that amount at the default rate until payment is made in full.
c.Clause 3.8 is headed “Set off” and provides that “The Purchaser may set off against any amount payable by the Purchaser to the Seller after Completion … the amount of any Claim that the Purchaser may have for breach of the Warranties or otherwise”.
[124] CB 2522-3.
5G claims that it was entitled to set off its claims (which exceeded $750,000), against the Tranche 2 payment, and that the consequence of this set off is that no interest was payable on the Tranche 2 payment under clause 3.7. This raises the next issue:
10. Has 5G established that it is entitled to set off its claims against the outstanding payment and interest it owes to GNJFMEPC?
Although it is drafted as a single paragraph, the set off clause can be broken into three parts:
a.The Purchaser may set off against any amount payable by the Purchaser to the Seller after Completion, any amount payable by the Seller to the Purchaser and the amount of any Claim that the Purchaser may have against the Seller for breach of the Warranties or otherwise.
b.If the amount of a Claim is not finally determined the Purchaser may set off any amount that is reasonable in the circumstances and must cooperate with the Seller to agree or determine the amount of the Claim as soon as practicable.
c.If there is any dispute in relation to a set off amount, the amount will be held in escrow by the Purchaser in the Purchaser’s solicitor’s trust account until the amounts are determined.
The defendants argue that 5G is not entitled to rely on the set off clause because it failed to comply with the escrow requirement. It is common ground that 5G did not hold the set off amount in escrow in its solicitor’s trust account. I am not satisfied that compliance with the escrow requirement is a condition precedent to 5G’s being entitled to rely on the set off clause. This is because the language of the escrow requirement falls short of being mandatory (“will” rather than “must”); no time is set for compliance; no consequence is prescribed for failure to comply; and the amount that should be held in escrow is left to the determination of the purchaser. 5G is not, therefore, barred from relying on the set off clause by reason of its failure to comply with the escrow requirement.
The parties made submissions in relation to three possible ways of reconciling the interest clause and the set off clause:
a.First, the set off clause is subordinate to the interest clause, such that interest remains payable on the full amount that the purchaser owes the seller, regardless of any claims that the purchaser might be permitted to set off against that amount. In this case, this would mean that interest is payable under the interest clause on the full amount of the unpaid Tranche 2 payment.
b.Second, the interest clause is subordinate to the set off clause, such that interest is suspended on the full amount that the purchaser seeks to set off against the amount owed, regardless of whether the set off claims are ultimately successful. In this case, 5G’s claims against GNJFMEPC exceeded the Tranche 2 payment. If this view is correct, then no interest is payable under the interest clause on any part of the Tranche 2 payment, even though most of 5G’s claims have ultimately been found to be without merit.
c.Third, the interest clause and set off clause must both be given effect, such that – once the purchaser’s claims have been determined – interest is payable under the interest clause on the remainder of the amount owed by the purchaser to the seller (after deduction of the successful claims). In this case, this would mean that interest is payable on the remainder of the Tranche 2 payment after deduction of 5G’s successful claims, and is payable from the date that the Tranche 2 payment was due.
The first construction deprives the set off clause of any purpose or utility. The second construction allows the purchaser to avoid any consequence for failing to make contractual payments by the simple expedient of making an unmeritorious claim against the seller and then setting that claim off against the overdue contractual payments. I do not accept that a reasonable businessperson would understand the two clauses in combination to have either of these consequences.
The third construction gives effect to both clauses. It also represents a reasonable balance between the rights of the seller to interest on any overdue contractual payments; and the rights of the purchaser to avoid paying interest on the amount of any legitimate claim against the seller. I find that the third construction is what a reasonable businessperson would have understood the two clauses to mean.
Accordingly, I find that interest is payable on balance of the Tranche 2 payment (after deduction of 5G’s successful claims), from the date the payment was due.

Liability under Australian Consumer Law

Did GNFJMEPC engage in misleading or deceptive conduct?

As an alternative to its claims under contract law and the APA, 5G claims under Australian Consumer Law (ACL). As a preliminary point, I accept that the conduct relied on by 5G was conduct in trade or commerce within the meaning of the ACL.
The following issues arise:
11.In the alternative, has 5G proved that:
a.   Prior to 5G entering into the APA, GNJFMEPC failed to inform 5G of the issues referred to in [1], [3] and [4] above;
b.     It was reasonable for 5G to expect GNJFMEPC to disclose that information;
c.   GNJFMEPC thereby engaged in conduct that was misleading and deceptive or likely to mislead or deceive 5G;
d.     That conduct caused 5G to suffer loss; and
e.   5G is entitled to compensation for that loss?
5G asserts that GNJFMEPC engaged in misleading and deceptive conduct by failing to inform 5G of various faults in the plant and equipment. I accept that if there is a reasonable expectation that a fact such as a fault would (if it existed) be disclosed, silence or omission in relation to that fact can constitute misleading or deceptive conduct.[125] However, that can only be the case where the fact – that is, the fault – exists. If there is no fault, there is nothing to disclose, and no misleading or deceptive conduct; nor can there have been misleading or deceptive conduct if a fault was disclosed.

Did GNJFMEPC fail to inform 5G of issues with the plant and equipment?

[125] See Addenbrooke Pty Ltd v Duncan (No 2) (2017) 348 ALR 1 (Gilmour and White JJ).

Issues [1], [3] and [4] are concerned with 5G’s allegations of fault or misdescription in relation to various items of plant and equipment, including:
a.The operating ability of the UPS units and the number of strings of batteries;
b.The extent of the installation of the CRAC system, cooling pipe work and power supply wiring;
c.The fire system, security system and the BMS; and
d.Miscellaneous equipment.
I have already made several findings in relation to the faults alleged by 5G:
a.GNJFMEPC breached the APA by only providing two, rather than four, strings of batteries with each unit;
b.GNJFMEPC breached the warranties in relation to the fire system (the faulty VESDA and the isolation fault), the security system (the doors and the CCTV cameras) and the BMS controller;
c.GNJFMEPC did not breach the APA or warranties in relation to any other items of plant or equipment; and
d.Prior to the entry into the APA, GNJFMEPC fairly disclosed the faults in the CCTV cameras, the security system doors, and the BMS controller.

I make the following additional findings:
a.GNJFMEPC was aware of both of the fire system faults;[126]
b.GNJFMEPC did not provide sufficient information about the fire system faults for the purposes of the disclosure defence to a warranty claim;
c.Nor did GNJFMEPC inform 5G of the number of strings of batteries; however
d.It was not reasonable for 5G to expect GNJFMEPC to disclose that there were only two strings of batteries for each unit: although GNJFMEPC was aware that there were only two strings for each unit there is no evidence that GNJFMEPC was aware that Annexure A stated that there were four strings (and if it had been aware, it would no doubt have sought to correct Annexure A).
[126] That GNJFMEPC was aware of the faulty VESDA is implicit in Mr Comito’s evidence that GNJFMEPC had obtained a quote for replacing it: T990.30-991.11.
Accordingly, the only issue for me to determine is whether it was reasonable for 5G to expect GNJFMEPC to specifically inform it of the fire system isolation fault and the faulty VESDA. If it was, then by failing to inform 5G of those faults, GNJFMEPC engaged in conduct that was misleading and deceptive or likely to mislead or deceive 5G; and that conduct caused 5G to suffer loss (in the form of the expenditure necessary to rectify those faults).

Was it reasonable for 5G to expect GNJFMEPC to inform it of the faults?

GNJFMEPC was aware of the fire system isolation fault and the faulty VESDA and did not fairly disclose those faults to 5G during the due diligence process. The issue is whether it was reasonable for 5G to expect GNJFMEPC to specifically inform it of those faults? In my view, it was not.
Prior to entering into the APA, the parties were engaged in arm’s length commercial negotiations, which included a due diligence phase. GNJFMEPC’s obligations in due diligence were to co-operate with 5G and to respond to its queries:
a.The Term Sheet that 5G sent to GNJFMEPC on 31 January 2019 provides that “The MDC Parties undertake to provide to 5G all due diligence documents and information it reasonably requires including reasonable access to its key executives so as to enable 5G to assess the assets and liability, financial position and performance, profits and losses and prospects of the Business”.[127]
b.The APA defines the “Due Diligence Investigation” as “the due diligence investigation of the Business and the Business Assets undertaken by and on behalf of the Purchaser”.[128] GNJFMEPC was obliged to assist 5G, by – among other things – making available all information that 5G reasonably required, and using reasonable endeavours and doing all things reasonably necessary to assist 5G to undertake the investigation.[129]
c.Although fair disclosure was a defence to a warranty claim under the APA, the APA did not impose any positive obligations on GNJFMEPC to bring matters such as faults in the plant and equipment to the attention of 5G.
[127] Clause 14, CB 2452.
[128] Clause 1.1.29, CB 2518.
[129] Clause 4.2.2, CB 2524; and clause 8.1, CB 2556.
GNJFMEPC’s role during the due diligence phase was thus a responsive rather than proactive one, and the onus was on 5G to inspect, assess and investigate the asset it was purchasing. Consistent with this, GNJFMEPC responded to queries from 5G, and placed requested documents (or documents falling within requested categories) in the shared due diligence Dropbox folder. I also accept the evidence of Mr Eckert and Mr Comito that they co-operated with 5G and offered opportunities for technical inspections and assessments that 5G chose not to take advantage of.
The documents placed in the folder included fire system maintenance reports. These did not clearly indicate that there were faults in the fire system.[130] However, when 5G asked GNJFMEPC to provide a list of maintenance required during the next 12 months, GNJFMEPC’s response included “Pre Action Sprinkler review and test … Waiting for Annual test to confirm details”.
[130] CB 2434-5.
GNJFMEPC’s response thereby indicated that some maintenance of the fire system would be required, but that the details had not yet been confirmed. 5G did not seek any further information. This lack of further enquiry was consistent with 5G’s generally lax approach to the investigation of the data centre’s technical infrastructure.
The two fire system faults were relatively low dollar value issues: $8500 for the fire system isolation fault, and $5300 for the faulty VESDA (in the context of a $5.7M asset purchase).[131] There was nothing in 5G’s approach to due diligence to indicate that it expected GNJFMEPC to inform it of such relatively minor matters.
[131] See CB 689 and 2832.
Accordingly, I find that it was not reasonable for 5G to expect GNJFMEPC to provide further details of the two fire system faults than it did.
It follows that 5G has not proved that GNJFMEPC engaged in misleading or deceptive conduct, and therefore has not established any of its ACL claims against GNJFMEPC.

Are the directors liable for GNJFMEPC’s contraventions?

5G brings accessorial claims against the second to ninth defendants (the four directors of GNJFMEPC and their shareholder companies) in respect of its misleading and deceptive conduct claims against GNJFMEPC.

This raises the following issues:
12.Has 5G proved that:
a. The four shareholder companies and their directors were involved in GNJFMEPC’s contravention; and
b. 5G is entitled to recover compensation from them?
Because I have not found any contraventions by GNJFMEPC of the ACL, it follows that neither the directors nor the shareholder companies can be said to have been involved in any contraventions.[132]
[132] Had I found that GNJFMEPC contravened the ACL by its reason of its failure to fully disclose the fire system isolation fault and the faulty VESDA, I would have had to consider whether 5G had proved that any of the directors or shareholder companies were knowingly concerned in, or party to, those contraventions: ACL, s 2(1), definition of “involved”, paragraph (c). I note that there is no evidence that Ms Fulton, Mr Nicholas or any of the shareholder companies were involved in the dealings with 5G and Mr Demase over the sale of the MDC.

Conclusion

My findings can be summarised as follows:
a.GNJFMEPC breached the APA in relation to the number of strings of batteries for each UPS unit. 5G is entitled to $20,409 in damages for that breach.
b.GNJFMEPC breached its warranties in relation to the fire system isolation fault. 5G is entitled to $8500 in damages for that breach.
c.5G has not proved any of its other claims, under either the APA or the ACL.
d.GNJFMEPC is entitled to interest on the balance of the Tranche 2 payment after deduction of 5G’s two claims, from the date the payment was due.
I will hear from the parties regarding the orders to be made consequent upon these reasons, including in relation to interest and costs.

SCHEDULE OF PARTIES

5G Network Operations Pty Ltd (ACN 620 305 393)
Plaintiff / Defendant by Counter claim
and
GNJFMEPC Pty Ltd (ACN 145 087 752)
First Defendant / Plaintiff by Counter claim
and
Eckert Investment Pty Ltd (ACN 109 087 752)	Second Defendant
and
Janene Investments Pty Ltd (ACN 112 955 932)	Third Defendant
and
PAC Equities Pty Ltd (ACN 116 239 644)	Fourth Defendant
and
Nicholas Management Services Pty Ltd (ACN 093 839 911)	Fifth Defendant
and
Mark Eckert	Sixth Defendant
and
Janene Fulton	Seventh Defendant
and
Paul Comito	Eighth Defendant
and
Geoffery Nicholas	Ninth Defendant

BETWEEN