CentralNic Ltd v Webcentral Group Ltd
[2022] VCC 2259
| IN THE COUNTY COURT OF VICTORIA AT Melbourne COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
General List
Case No. CI-22-03121
| CENTRALNIC LIMITED | Plaintiff |
| v | |
| WEBCENTRAL GROUP LIMITED | Defendant |
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JUDGE: | HIS HONOUR JUDGE COSGRAVE | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 4 October 2022 | |
DATE OF JUDGMENT: | 15 December 2022 | |
CASE MAY BE CITED AS: | CentralNic Ltd v Webcentral Group Ltd | |
MEDIUM NEUTRAL CITATION: | [2022] VCC 2259 | |
RULING
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Subject:INJUNCTIONS
Catchwords: Ex parte – injunction – discharge injunction for breach of duty
Legislation Cited:
Cases Cited:National Australia Bank Limited v Bond [1991] 1 VR 386; Redwin Industries Pty Ltd v Feetsafe Pty Ltd and McDonnell [2002] VSC 427; Westpac Banking Corporation v Hilliard [2001] VSC 187
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | R Heath KC N Guenther | BlackBay Lawyers |
| For the Defendant | A M J Meagher | Cornwalls |
HIS HONOUR:
Introduction
1On 8 August 2022, her Honour Judge Burchell made an order that, pending the hearing or determination of the proceeding or until further order, the defendant (“Webcentral”) be restrained from suspending any POP/IMAP Cloud Hosting or other services it is providing to the plaintiff. These services were described as Hosting services.
2By summons dated 8 September 2022, Webcentral seeks to dissolve that order or have it set aside. Alternatively, Webcentral seeks orders that the plaintiff (“CentralNic”) be ordered to pay the amount of $1,321,877 into the Cornwall’s Law Practice Trust Account, and that those monies not be released until either the parties agree or a court so orders.
3The essence of Webcentral’s claim is that this Court should set aside the injunctive order made by Judge Burchell because, at the time when CentralNic obtained the order, it breached its duty to the Court by failing to make full and fair disclosure of all material facts to the Court. Webcentral alleged that CentralNic did not advise the Court of all material facts which Webcentral would have brought to the Court’s attention had it appeared at the hearing.
Background
4CentralNic is a provider of domain and web services operating primarily in the United Kingdom. In August 2019, it entered into a Business Sale Agreement with Webcentral to purchase the business then known as TPP Wholesale, including its assets.
5The migration of the business assets from Webcentral to CentralNic could not be effected instantly. As a result, Webcentral agreed to provide various Hosting services to CentralNic for the duration of the migration program. The services included POP/IMAP Hosting services, Cloud Hosting services, and other like services.
6CentralNic alleged that in early August 2022, Webcentral threatened to suspend the Hosting services unless CentralNic paid substantial services charges which were markedly greater than those previously paid. In effect, CentralNic claimed that Webcentral was holding it to ransom. CentralNic claimed that if Webcentral shut off its Hosting services as threatened, it would have substantial adverse consequences for thousands of CentralNic customers whose accounts would either go “dark” or they would be unable to make changes to their websites.
Chronology
7The general chronology of events is as follows.
8In August 2019, CentralNic purchased the business and assets then known as TPP Wholesale from Webcentral. Included within the assets purchased were the Console, which was a database and software system, and the Hosting services.
9At the time of entering the business sale, the parties also entered a Transitional Services Agreement (the “TSA”) requiring Webcentral to provide CentralNic the Hosting services until the migration was complete.
10Under Schedule 2 of the TSA, Webcentral issued invoices detailing charges for the various transitional services provided. Pursuant to the schedule, Webcentral was entitled to charge CentralNic $3 per month per user or reseller account in relation to Cloud Hosting. For POP/IMAP services, Webcentral was entitled to charge CentralNic 20 cents per month per email mailbox.
11In December 2020, 5G Networks Limited (“5GN”) acquired Webcentral. Subsequently, the charges for the Hosting services increased from approximately $9,000 per calendar month to about $42,000-$50,000 per calendar month.
12In about mid-2021, CentralNic decided to focus Webcentral’s efforts on migrating the Console first, and to leave the Hosting services until after the Console migration had been effected. CentralNic contends that in September 2021, the parties had entered into what is referred to as the “September Agreement” under which CentralNic agreed to pay for the Hosting services at the “current commercial rates” until the migration was completed.
13On 22 October 2021, CentralNic and Webcentral entered into a Services Agreement. Schedule 2 of the Services Agreement set out the fees payable by CentralNic for the Hosting services. Those fees were the same as those set out in the TSA.
14On 1 June 2022, Webcentral issued a tax invoice to CentralNic in the sum of USD$507,942.27 for the Hosting services. Unlike all previous invoices sent by Webcentral to CentralNic for Hosting services, the 1 June invoice:
(a) demanded payment in advance rather than in arrears for the preceding month;
(b) required payment within seven days rather than the usual 30 days; and
(c) was issued in USD rather than AUD.
15CentralNic challenged the increased charges and other aspects of the invoice. Webcentral explained the dramatic increase in fees on the basis of current commercial rates. During the balance of June and in early July, Webcentral issued a number of revised invoices for June. The final invoice issued on 1 July 2022 was in the sum of AUD$468,650.60.
16CentralNic contended that on 5 July 2022, Webcentral suspended some of the Hosting services affecting approximately 200,000 domains. As a result, the owners or operators of those domains were unable to update, change or manage their respective domains, many of which included e-commerce platforms. In order to have the suspension lifted, Centralnic paid the invoice under protest.
17On 15 July 2022, Webcentral again issued an invoice which was about 10 times the amount normally charged on a monthly basis before June 2022. CentralNic again disputed the invoice but paid under protest in order to prevent a suspension of the Hosting services. CentralNic says that despite paying the invoice before the deadline specified by Webcentral, the Hosting services were partially suspended for a second time.
18On 1 August 2022, Webcentral issued a tax invoice to CentralNic in the sum of AUD$345,544.10 for August 2022. The invoice required payment within seven days.
19By reason of the invoices issued in June, July and August 2022, Webcentral purported to charge CentralNic:
(a) AUD$13 per user or reseller account per month whereas, before 1 June 2022, the cost was $3 per month per user or reseller account;
(b) AUD$13 per user or reseller account using an SQL Database which approximately half of Hosting clients have. Before 1 June 2022, this feature was offered without charge. There was no prior discussion by Webcentral about introducing such a charge; and
(c) AUD$3 per POP/IMAP mailbox per month. The equivalent cost before 1 June 2022 was $0.20 per month per mailbox.
20CentralNic contends that the increased fees which Webcentral is charging are uncommercial and in breach of the September Agreement and/or the Services Agreement.
21According to CentralNic, the impetus for making the injunction application before Judge Burchell was the threat by Webcentral to suspend Hosting services if full payment of a disputed invoice dated 1 August 2022 was not paid by 8 August 2022. This followed letters from CentralNic’s solicitors to the effect that CentralNic was considering its legal options.
The application before Judge Burchell
22The application came to be made before Judge Burchell in the following way.
23At 1.12pm on 8 August 2022, CentralNic’s solicitors sent to Michael Wilton, general counsel of Webcentral, an email (with approximately 770 pages attached) advising that earlier that day CentralNic had approached the Court about obtaining a hearing time for an urgent interlocutory injunction. The email included the documents sent to the Court. The solicitor advised Mr Wilton that they would forward to him any relevant link received from the Court.
24At 1.24pm, CentralNic’s solicitors sent Mr Wilton another email advising him that the hearing was listed for 2.00pm that day. The email included the details of the Zoom link which Mr Wilton would need to participate in the hearing.
25Mr Wilton was on leave at the time he received these two emails from CentralNic. At 1.32pm, he responded to CentralNic’s solicitor, Victoria-Jane Otavski, by asking that Mr Jarrod Munro, a solicitor at Cornwalls who acted for Webcentral, and Mr Andrew Meagher of counsel, be copied into any future emails.
26Mr Munro saw the emails shortly after 2.00pm when he returned to the office after lunch. He attended the Zoom meeting at which CentralNic obtained the injunction from Judge Burchell. According to Webcentral, at the time, Mr Munro did not have access to the materials which CentralNic relied upon at the hearing. Nor did Mr Munro have time to obtain any detailed instructions from his client. In the circumstances, Mr Munro did not enter an appearance before Webcentral at the hearing even though those attending the court by Zoom were asked to complete an appearance sheet.
27The affidavit material discloses that Mr Munro is a partner at Cornwalls with more than 17 years’ experience in commercial litigation. The Cornwalls website says that Mr Munro joined Cornwalls in 2008 and has been a partner at the firm since 2013. He has substantial experience in running large-scale and complex commercial litigation with a focus on insolvency and bankruptcy, retail and commercial leasing disputes, banking and finance disputes and shareholder disputes.
28Webcentral is a company of some substance. It has been listed on the Australian Stock Exchange since 1999. In September 2022, the capitalisation of the company was approximately $44 million.
29According to the affidavit material, once the hearing before Judge Burchell commenced, there was an exchange between counsel for CentralNic and Mr Munro. Mr Robert Heath KC, who appeared for CentralNic, asked Mr Munro (whose name appeared on the Zoom screen), whether he appeared for Webcentral. Mr Munro said that he did not. He said that he was a solicitor with Cornwalls but was present only to observe. When asked if he knew whether Mr Meagher or anyone else would appear, Mr Munro said that he did not know. He said that he had been told to watch what went on and find out what happened at Court.
30It appears that thereafter, CentralNic made its submissions to Judge Burchell, and Her Honour granted the interlocutory order.
31In the circumstances, it seems to be common ground between the parties that:
· CentralNic served the application and affidavit material on Webcentral’s general counsel about 45-50 minutes before the scheduled court hearing.
· Given the volume of material, it was not realistic to expect that Webcentral would have time to read and analyse all the plaintiff’s material or to be able to respond in a meaningful way that day.
· Webcentral engaged Mr Munro to attend the Zoom hearing, to observe the hearing, and to see what went on.
· Mr Munro did not engage with the Court to explain to the judge that:
§Webcentral had only just been served;
§Webcentral had insufficient opportunity to read and absorb the plaintiff’s material or prepare its own responding material; and
§Webcentral wanted such an opportunity and sought an adjournment to do so.
· Webcentral did not, through Mr Munro or otherwise:
§challenge CentralNic’s case, seek an adjournment or indicate that it disputed the allegations made against it;
§ask the court to stand the matter down to enable the defendant to provide some instructions to its lawyers;
§proffer any undertakings designed to maintain the status quo until an inter partes hearing could be held in the next few days.
Legal principles
32A critical aspect of Webcentral’s application regarding the alleged non-disclosure by CentralNic was the proposition that the application by CentralNic was made ex parte. Hence, CentralNic was subject to the particular burdens and obligations traditionally associated with such applications.
33The applicable principles were set out by Habersberger J in Redwin Industries Pty Ltd v Feetsafe Pty Ltd and McDonnell,[1] where his Honour quoted extensively from the judgment of McDonald J in Westpac Banking Corporation v Hilliard.[2] The main points to note are as follows:
· Any party seeking an injunction on an ex parte basis has a duty to place before the court all relevant matters, including such matters which would have been raised by the respondent in his defence if he had been present.
· It is of utmost importance in the due administration of law that courts and the public have confidence that an ex parte order has been made only after the applicant has complied with its duty to disclose all relevant facts.
· An applicant must disclose any defence which he had reason to anticipate may be advanced. If an applicant does not comply with his duty, it will be deprived of the fruits of any order without considering the merits and irrespective of whether, had the applicant made such disclosure, it would or would not have obtained the order.
· An applicant must make proper enquiries before applying to the court. The duty of disclosure applies not only to material facts which the applicant knew, but also to additional facts which the applicant would have known if due enquiries had been made.
· The extent of the necessary enquiries depends on all the circumstances of the case, including:
§the nature of the case which the applicant is making;
§the order sought and its probable effect on the defendant;
§the degree of legitimate urgency and the time available for making enquiries.
[1][2002] VSC 427 at [8]
[2][2001] VSC 187
· Whether an undisclosed fact is of sufficient materiality to justify or require immediate discharge of the order without examination of the merits depends upon the importance of the fact to those issues which were to be decided by the judge on the application. An important but not decisive factor is whether the non-disclosure was innocent in the sense that the applicant was unaware of the fact or did not perceive its relevance.
34The term ex parte is most commonly used when party A makes an application without informing party B. Courts have also applied the ex parte description to cases where the applicant has given notice to the respondent but the respondent has not appeared at the hearing due to the shortness of the notice. For example, in National Australia Bank Limited v Bond,[3] the NAB advised the company’s solicitors at about 2.30pm that it was applying to the Supreme Court of Victoria as soon as possible for an order appointing receivers and managers to the company. The bank advised that it expected the court to deal with the application that afternoon.
[3] [1991] 1 VR 386
35By the time the respondent’s partner returned to his office (from a meeting at the client’s premises) and arrange for representation in Melbourne, counsel and solicitors did not arrive at the Supreme Court until about 4.25pm. This was after Beach J had granted the order appointing receivers and managers and court had risen for the day. The notice to the respondent was so short that the respondent had insufficient time to attend the hearing. During the hearing before Beach J the bank’s counsel candidly acknowledged to the court that they did not expect notice of the hearing to arrive in time for the respondent to appear.
36The situation in Redwin Industries Pty Ltd v Feetsafe Pty Ltd[4] was similar to the extent that on 29 March 2001 Redwin made an application to the Magistrates Court for an asset preservation order. The court granted the order and adjourned the further hearing of the proceeding until 2 April 2001. The plaintiff served the defendant with the relevant court documents on 30 March 2001 but the defendant did not appear at the hearing on 2 April 2001. The defendant later made a counterclaim exceeding $500,000 and the case was transferred to the Supreme Court.
[4] [2002] VSC 427
37Habersberger J said that in relation to the hearing on 2 April 2001, it was not correct to describe the resultant order as ex parte – it was not made in a situation where the defendant had no notice of the application and, as a result, failed to appear.
Analysis
38In my view, the evidence shows that:
· at the time of CentralNic’s application before Judge Burchell, Webcentral had been served with the plaintiff’s material;
· Webcentral, or a legal representative on its behalf, was able to attend the Zoom hearing before Judge Burchell; and
· Webcentral chose not to make any applications to the Court or to actively participate in the hearing.
39This was not a classic ex parte application where: the moving party seeks an order from the court in circumstances where it has not served any initiating documents upon the defendant or even informed the defendant of the impending application; the defendant only becomes aware of the existence of the application, and the litigation more broadly, after the plaintiff serves the court order and the supporting material upon which it relied. As a result, the defendant is unable to attend the hearing (of which it is ignorant) and can make no submissions or applications to the court.
40In this case Webcentral had notice and was able to attend the hearing. Mr Munro did in fact observe the hearing.
41Webcentral contended that Mr Munro did not have access to the materials which CentralNic relied upon at the hearing and did not have time to obtain any detailed instructions from his client. It is true that Webcentral had only recently received the documents relied upon by CentralNic and had not enjoyed any proper opportunity to consider the material or obtain detailed instructions about it. But even allowing for this, Webcentral could have explained its predicament to the Court, sought a brief adjournment to read the main affidavit material and obtain some instructions or sought to adjourn the application for a few days so that it could prepare responsive material and submissions. Webcentral had enough notice to attend the hearing and Mr Munro was there on Zoom and could have done any of these things. Instead, he basically sat mute. It seems to me that Webcentral made a deliberate choice to act in the way it did when other options were available. Now Webcentral is trying to dissolve the injunction on grounds unrelated to the merits.
42The circumstances of CentralNic’s injunction application were such that I do not consider it appropriate to categorise the application as an ex parte application. As a result, I am not satisfied that the usual obligations in respect of ex parte applications apply to CentralNic.
43Even if I am wrong about the ex parte nature of the application, I am not satisfied that CentralNic was guilty of a level of non-disclosure which justified the immediate discharge of the injunction.
44CentralNic filed and served a large amount of material. It contained extensive background material including commercial documents and correspondence between the parties. The volume of material reflected the detailed interaction which had taken place between the parties over a period of time. The parties were familiar with the issues causing the conflict between them and were aware that the threat made in August was the third time Webcentral had taken this course against CentralNic. Indeed, on two prior occasions, Webcentral had suspended its services to CentralNic in whole or part. These suspensions had adverse consequences for CentralNic and its clients.
45Webcentral has raised in its submissions some detailed and sophisticated arguments both in support of its position and criticising the approach taken by CentralNic before Judge Burchell. Some points which Webcentral raised might prove important on the merits at trial. There are complicated issues to be resolved in this litigation and the parties plainly have different views.
46Essentially, I consider it unrealistic to expect CentralNic to have articulated before Judge Burchell the sophisticated legal points made by Webcentral. It presupposes a detailed understanding of Webcentral’s position and requires the plaintiff to almost act as if it were Webcentral’s solicitors. In my opinion, CentralNic did not omit to put before the Court important matters pertaining to possible defences which Webcentral might have raised in opposition to the application.
47I note in passing that it would have been preferable for the Court on 8 August 2022 to make an interim order restricting Webcentral in the first instance for only a few days. Then, once Webcentral had the chance to examine CentralNic’s material and prepare its own responding material, the Court could have conducted a contested interlocutory hearing.[5]
[5] See Spry, Equitable Remedies, 9th Edition (2013), page 528-9
Conclusion
48For the reasons set out, and subject to hearing from the parties, I propose to order that:
(a)the defendant’s application be dismissed; and
(b)the defendant pay the plaintiff’s costs of the application such costs to be taxed on a standard basis in default of agreement.
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