Aibi Holdings Pty Ltd v Virtual Technology Services Pty Ltd

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FEDERAL COURT OF AUSTRALIA

AIBI Holdings Pty Ltd v Virtual Technology Services Pty Ltd [2022] FCA 696   

File number: NSD 177 of 2021
Judgment of: PERRAM J
Date of judgment: 16 June 2022
Catchwords:

CONSUMER LAW – where alleged contravention of s 24 of Australian Consumer Law – where application for declaratory relief – where small business contract – whether ‘standard form’ contract – whether Applicant had ‘effective opportunity to negotiate’ – whether Applicant was ‘in effect, required to accept’ terms – whether terms unfair

CONTRACTS – where non-payment of invoice – where previous payment exceeded sums due – where payee terminates services – whether payer entitled to set-off – whether obligation to provide services is an intermediate term – whether loss of an entitlement to terminate – whether repudiation

Legislation:

Australian Securities and Investments Commission Act 2001 (Cth) s 12BG

Competition and Consumer Act 2010 (Cth) Sch 2 ss 23, 24, 27

Cases cited:

Andrews v Australia and New Zealand Banking Group Ltd [2012] HCA 30; 247 CLR 205

Australian Competition and Consumer Commission v CLA Trading Pty Ltd [2016] FCA 377

DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423

Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007] HCA 61; 233 CLR 115

Paciocco v Australia and New Zealand Banking Group Ltd [2016] HCA 28; 258 CLR 525

Poole v Australian Pacific Touring Pty Ltd [2017] FCA 424

Upper Hunter County District Council v Australian Chilling & Freezing Co Ltd (1968) 118 CLR 429

Division: General Division
Registry: New South Wales
National Practice Area: Commercial and Corporations
Sub-area: Regulator and Consumer Protection
Number of paragraphs: 148
Date of hearing: 26-28 April 2022
Counsel for the Applicant: Mr W Soon
Solicitor for the Applicant: Avantro
Counsel for the Respondent: Mr J O’Sullivan
Solicitor for the Respondent: Quest Legal Pty Ltd

ORDERS

NSD 177 of 2021
BETWEEN:

AIBI HOLDINGS PTY LTD (ACN 619 923 125)

Applicant
AND:

VIRTUAL TECHNOLOGY SERVICES PTY LTD (ACN 141 194 470)

Respondent

ORDER MADE BY:

PERRAM J

DATE OF ORDER:

16 JUNE 2022

THE COURT ORDERS THAT:

1.The application is dismissed. 

2.The parties are to file and serve any affidavits relating to the question of costs within 7 days. 

3.The parties are to file any written submissions on the question of costs within a further 7 days.

4.The question of costs is to be resolved on the papers.

Note:   Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.


REASONS FOR JUDGMENT

PERRAM J:

INTRODUCTION

  1. This is a contractual dispute. The Respondent (‘VTS’) is a provider of IT services. The Applicant (‘AIBI’) is a provider of vocational education services. During the course of their business relationship, VTS and AIBI entered into three contracts: the 2016 contract (‘the first agreement’), the 2017 contract (‘the second agreement’), and the current contract which was executed on 20 February 2020 but backdated to 1 October 2019 (‘the third agreement’). Each of the agreements took…

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Details
Case
[2022] FCA 696
Decision Date

CaseChat Overview and Summary

Aibi Holdings Pty Ltd sought relief from the Federal Court of Australia against Virtual Technology Services Pty Ltd over alleged breaches of the Australian Consumer Law and a contract. The Applicant claimed that the third agreement between the parties was a standard form contract containing unfair terms and that it was entitled to terminate the contract. The Respondent denied these claims and asserted that the Applicant was not entitled to terminate the contract and had breached it by failing to pay an invoice. The court had to decide whether the third agreement was a standard form contract and if so, whether any of its terms were unfair. The court also had to determine whether the Applicant was entitled to terminate the contract and if the Respondent had breached it by failing to pay an invoice. The court found that the third agreement was not a standard form contract and that the unfair terms claim therefore did not arise. Even if the third agreement had been a standard form contract, two of its terms were unfair. The Applicant was not entitled to terminate the contract, and the Respondent had not breached the contract by failing to pay the invoice. The court dismissed the Applicant’s claims and ordered that the question of costs be resolved on the papers.

Orders

Orders of the court

1. The application is dismissed.

2. The parties are to file and serve any affidavits relating to the question of costs within 7 days.

3. The parties are to file any written submissions on the question of costs within a further 7 days.

4. The question of costs is to be resolved on the papers.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

For the reasons that follow, I conclude that the third agreement is not a standard form contract and that the unfair terms case therefore does not arise. Had it arisen, I would have concluded that two of its terms were unfair: cl 11.9, which permitted VTS to increase its fees as it saw fit on 30 days’ notice; and cl 11.12, which permitted VTS to withhold its services if AIBI failed to pay to VTS amounts due to it under other contracts (i.e. not under the third agreement). In relation to the contract case, I conclude that AIBI is not entitled to terminate the third agreement. It is convenient to begin with the facts.FACTUAL BACKGROUND To understand the nature of the third agreement, it is necessary to understand where it fits into the contractual history of the parties. Evidence was given on behalf of AIBI by Ms Laura Mao who is one of its owners and its general manager. Subject to one matter to which I will return, I found Ms Mao to be a satisfactory witness. She explained that in 2016, AIBI had desired to have an IT company take over its IT services and provide support. She was introduced to a Mr Glenn Kennedy who is the founder of VTS and its Chief Executive Officer. A meeting between Ms Mao and Mr Kennedy took place sometime in July 2016. He suggested that any contract would be of a three year term. Ms Mao said that negotiations about the first agreement did take place. In her affidavit evidence, she nominated two of AIBI’s employees as being the persons who on behalf of AIBI conducted the negotiations. These were Mr Fabio Gallego, AIBI’s operations manager, and another person called Lincoln. Lincoln negotiated the technical aspects whereas Mr Gallego was to negotiate the prices and the technical issues. Mr Gallego’s evidence was a little different. He felt that he was brought into the negotiations at the end of the negotiation process. His role was to provide technical input and details for VTS so that it could come up with a price. He dealt with Mr Kennedy. Eventually a price was worked out between Mr Kennedy and Mr Gallego. Mr Gallego took this price to Ms Mao and she gave her approval. Ms Mao’s evidence was that she did not seek legal advice about the contract at that time because she felt that she could trust VTS. This was because VTS had come recommended to her from someone else. She says that ‘we’ (I interpolate, AIBI) read the first agreement and considered that it looked fairly standard. She also says, at §10 of her first affidavit, that ‘I did not know precisely what they all meant, however I did not feel that I wanted to negotiate any other terms at that point in time. The only thing we were then concerned with was the price per device’. In her reply affidavit (at §6), Ms Mao says that she had not felt the need to negotiate the terms because Mr Kennedy had left her feeling assured that any issues which arose would be smoothed over. Under cross-examination by Mr O’Sullivan of counsel for VTS, Ms Mao accepted that her predominant concern was pricing. She was content to leave the negotiation of the non-price terms to Mr Gallego and Lincoln. I conclude that Ms Mao was not particularly concerned by the non-price terms during these negotiations.

Evidence

Evidence Before The Court

As I will explain in further detail below, AIBI’s unfair terms case turns first upon whether the third agreement is a standard form contract. Section 27 of the ACL outlines a number of matters which the Court must take into account when determining whether a contract is a standard form contract. This includes, inter alia, whether a party was ‘given an effective opportunity to negotiate’ certain terms of the contract (s 27(2)(d)) and whether a party was ‘in effect, required either to accept or reject’ certain terms (s 27(2)(c)). Much of the parties’ evidence, therefore, was directed to the question of whether AIBI had such an opportunity and whether or not it was, in effect, required to accept certain non-price terms. It is convenient first to outline this evidence. Ms Mao’s Evidence about Her Ability to Negotiate At §37 in her first affidavit, Ms Mao gave evidence that when she was negotiating the third agreement with Mr Kennedy, ‘the focus was only on the price, and not on the other terms. Again, I did not get the impression I could not discuss the other terms, it was just that they were never raised’. The reference to ‘again’ is a reference to Ms Mao’s earlier evidence about the negotiations leading to the first and second agreements. Her evidence about the first agreement was that she never felt the need to negotiate any of the terms in the ‘Terms and Conditions’ because she had been left feeling reassured by Mr Kennedy that any issues which arose would be smoothed over by him: Ms Mao’s affidavit in reply at §6. In respect of the second agreement, Ms Mao said she was ‘quite happy to sign’ the agreement essentially because ‘it all sounded reasonable – a longer commitment for a lower price’. Ms Mao’s evidence at §37 in relation to the negotiations leading to the third agreement is forensically significant because it suggests that Ms Mao perceived that she was not prevented from negotiating the Terms and Conditions with VTS. However, the picture is complicated somewhat by Ms Mao’s evidence in reply. In her affidavit in reply, Ms Mao said that during the negotiations leading to the second agreement she had sought to negotiate a number of non-price terms but had been rebuffed. This evidence consisted of three emails and Ms Mao’s account of a conversation she had with an employee of VTS, Ms Jin Kyung Kim, which she says took place between the second and third of these emails. The first email of 26 September 2017 was sent by Ms Mao to Mr Kim and sought amendments to some of the non-price terms for what would become the second agreement. This email was as follows:Dear Glen and Jin, Thank you for the agreement. Our solicitor has proposed the following minor changes: 1.Initial term is for 60 months/5 years2.Clause 14.2 – Once the period of 60 months expires, ACBI will need to say for another 12 months, please have this clause deleted and replaced with “if the Client does not give notice to renewal the Agreement before the expiry of the Term, the Agreement will automatically come to an end at the expiry of the Term.”3.Clause 1(z) – Replace with the words “Term means the Initial Term.”4.Clause 4 – VTS should not agree to proportionally increase their costs should ACBI increase their requirements. Eg, if they charge ACBI $9.50 per Chromebook and $75 per PC now, then in the future whilst on the same Agreement, they should stillcharge ACBI $9.50 per Chromebook and $75 per PC.5.Clause 8.2 – change the meeting to monthly6.Clause 11.9 – ACBI fees will remain unchanged during the term of the agreement7.Clause 11.10 – VTS may increase their fees with 30 days’ notice. I propose the following: “Should VTS increase their fees outside of clause 11.9, the Client will have 30 days to terminate the Agreement. Should the client not terminate the Agreement within 30 days, the Agreement will continue.” 8.Clause 15 – the Client should be able to terminate the Agreement should VTS “strike” out 3 times (breach of contract agreement). We need the conditions reciprocated for ACBI should VTS go bankrupt etc. 9.Clause 15.4 – change to 14 days10.Please change the contract to be between VTS IT and AIBI Holdings Pty Ltd (ABN: 83 619 923 125). …[errors in original]

Decision

Reasons for decision

Construed in that fashion, there is nothing unfair about cll 14.2, 15.2 or 15.8. For completeness, the provisions are not transparent for the purposes of s 24(2)(a). They do not cause a significant imbalance in parties’ rights and obligations, they are necessary to protect the legitimate interests of VTS, and they would not cause detriment to AIBI if relied upon by VTS. Viewed in the context of the whole agreement (as required by s 24(2)(b)), the provisions are not unfair.Conclusion on Claims under s 24 AIBI’s claim under s 24(1) fails. The third agreement was not a standard form contract. Had it been a standard form contract, two of its terms were unfair, cll 11.9 and 11.12. ISSUE 3: THE BREACH OF CONTRACT CASE The third agreement had been signed on 20 February 2020 but was retroactive to 1 October 2019. On 11 March 2020, the World Health Organization declared COVID-19 to be a pandemic. On 19 March 2020, Australia closed its borders to non-citizens and non-residents. The lockdown in Sydney commenced on 23 March 2020. These developments had an impact upon the business of AIBI which was heavily dependent on the enrolment of overseas students. The impact on its bottom line forms part of the backdrop to the events which then followed. Soon after the third agreement was signed, it became clear that the parties were not on the same page on the question of the Chromebooks. In May 2020, Ms Mao says that she told Mr Kennedy that VTS was not entitled to charge for Chromebooks. She says that Mr Kennedy accepted the correctness of her position. I accept Ms Mao’s account of this conversation which is corroborated by Mr Kennedy’s email of 1 October 2019. That email set out the pricing structure for the third agreement (and eventually became part of it). It makes no mention of any separate charge for Chromebooks which corroborates Ms Mao’s version of events. In any event, it is now accepted by VTS that AIBI was not to be charged for the Chromebooks. From February 2020, AIBI ceased paying that portion of each monthly invoice which related to the Chromebooks. It was not until 28 May 2020 that VTS confirmed in writing that there would be no charge for the Chromebooks. That might have been thought to have resolved the issue between the parties except for four further developments. The first concerned an unsuccessful attempt by the parties to agree a reduction in VTS’ fees due the COVID-19 pandemic. Various possibilities were discussed including one which involved VTS deferring payment of its invoices by 30% but making provision for the repayment of the deferred amounts over the following 12 months. These negotiations did not result in any deal between the parties. Nevertheless, AIBI unilaterally reduced its payment of an invoice dated 1 April 2020 in the amount of $20,971.25 by 30% (as well as excluding the Chromebook element). AIBI was not entitled to do this and it meant that it was in arrears on that invoice. The second development concerned AIBI’s contention that it was entitled to a credit for the Chromebook payments that it had been making prior to the execution of the third agreement. That agreement was of course retroactive. I accept the logic of AIBI’s position. Once VTS accepted that the third agreement did not permit it to charge for the Chromebooks, this conclusion necessarily applied retroactively to 1 October 2019.

Ratio Decidendi

Legal Principle Established

Full text does not contain this section.