Chelmer NZ Ltd v Financial and Energy Exchange Ltd - [2019] NSWDC 23

District Court

New South Wales

Medium Neutral Citation: Chelmer NZ Ltd v Financial & Energy Exchange Ltd [2019] NSWDC 23
Hearing dates: 24 – 27 July 2017, 10 – 11 August 2017, 25 August 2017, 11-13 December 2017, 19 April 2018, 15 May 2018. Written submissions: 8 March 2018 3 May 2018 and 20 December 2018 (Plaintiff/Cross Defendant); 7 April 2018, 16 December 2018 and 1 February 2019 (Defendant/Cross Claimant)
Date of orders: 22 February 2019
Decision date: 22 February 2019
Jurisdiction: Civil
Before: Hatzistergos DCJ
Decision:
See [654]

Catchwords:
CONTRACTS – Termination – Contract for financial service technology – products not delivered - whether contract was repudiated or terminated for cause – contractual interpretation – compensation

CONTRACTS - Breach of Contract – Construction of contract for financial service technology – standards of contractual duty – implied term to exercise care, skill and diligence – whether term had been breached

CONTRACTS – Misleading conduct under statute – misleading or deceptive conduct – whether a failure to disclose a monetary amount included in estimated hours of work amounted to such conduct – whether a representation as to expertise and employees’ expertise amount to such conduct

TORTS – Negligence – financial services contract - duty to perform with reasonable skill and care – whether duty had been breached – liability for others’ negligence
LIMITATION PERIODS – Limitation of particular actions – contracts, torts and misleading and deceptive conduct – accrual of cause of action and when time begins to run
Legislation Cited: Civil Procedure Act 2005 (NSW) ss 100, 144
Evidence Act 1995 (NSW) s 69
Justice Legislation Amendment Act (No 3) 2018
Limitation Act 1969 (NSW) s 14(1)(b)
Trade Practices Act 1974 (Cth) ss 51A, 52, 82
Cases Cited: Australian Competition and Consumer Commission v Pratt (No 3) [2009] FCA 407
Australian Securities & Investments Commission v Adler [2002] NSWSC 171
BodyCorp Repairs Pty Ltd v Holding Redlich [2018] VSCA 17
BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266
Byrne v Australian Airlines Ltd (1995) 185 CLR 410; [1995] HCA 24
Cellarit Pty Ltd v Cawarah Holdings Pty Ltd [2018] NSWCA 213
Christie v Purves and 2 Ors [2007] NSWCA 182
Con Stan Industries v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226
Connor v Blacktown District Hospital [1971] 1 NSWLR 713
Demagogue v Ramensky (1992) 39 FCR 31
Dilosa v Latec Finance Pty Ltd (1966) 84 WN (Pt 1) (NSW) 557
D.R. Design (NSW) Pty Ltd v Grand City International Development Pty Ltd [2017] NSWSC 1778
Effem Foods Pty Ltd v Lake Cumbeline Pty Ltd (1999) 161 ALR 599; [1999] HCA 15
Elayoubi v Zipser [2008] NSWCA 335
Fazio v Fazio [2012] WASCA 72
Foran v Wight (1989) 168 CLR 385
Hooker Corporation Ltd v The Commonwealth of Australia (1986) 82 FLR 321
In the Matter of Maiden Civil Pty Ltd [2012] NSWSC 1618
Iverson v Howen [2008] NSWSC 1246
Jones v Dunkell (1959) 101 CLR 298
Koompahtoo Local Aboriginal Land Council v Sandpine Pty Ltd (2007) 233 CLR 115
Kuligowski v Metrobus (2004) 220 CLR 363
Lake Cumbeline Pty Ltd & Ors v Effem Foods Pty Ltd (trading as Uncle Ben’s of Australia) (Unreported 29 June 1995, Federal Court of Australia, Tamberlin J)
Laurinda Pty Ltd v Capalaba Parks Shopping Centre Pty Ltd (1989) 166 CLR 623
Lumbers v W Cook Builders Pty Ltd (in liq) (2008) 232 CLR 635
Miller & Associates Insurance Broking v BMW Australia Finance [2010] HCA 31; (2010) 241 CLR 357
Neville v Lam (No 3) [2014] NSWSC 607
Nova 96.9 Pty Ltd v Natvia Pty Ltd [2018] NSWSC 1288
NTF Group Pty Ltd v PA Putney Finance Australia Pty Ltd [2017] NSWSC 1194
Nu v NSW Secretary of Family and Community Services (2017) 95 NSWLR 577; [2017] NSWCA 221
Parkdale Custom Built Furniture Pty Ld v Puxu Pty Ltd (1982) 149 CLR 191
Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221
Placer (Granny Smith) Pty Ltd v Thiess Contractors Pty Ltd [2003] HCA 10
Protec Pacific Pty Ltd v Steuler Services [2014] VSCA 338
Protector Glass Industries Pty Ltd v Southern Cross Autoglass Pty Ltd [2015] NSWCA 16
Rhesa Shipping O SA v Edmunds [1985] 1 WLR 948; [1985] 2 All ER 712
SAS Realty Developments Pty Ltd v Kerr [2013] NSWCA 56,
Sangha v Baxter (2009) 52 MVR 492
Southern Cross Autoglass Pty Ltd v Protector Glass Industries Pty Ltd [2014] NSWSC 261
SunWater Ltd v Drake Coal Pty Ltd [2016] QCA 255
Taouk v Assure (NSW) Pty Ltd [2017] NSWCA 227
Vasco Investments Ltd v Morgan Stanley Australia [2014] VSC 455
Wadgy Hanna & Associates Pty Ltd v National Library of Australia [2014] ACTCA 32
Wardley Australia Ltd v Western Australia (1992) 175 CLR 514
Warner v Hung, in the matter of Bellpac Pty Limited (Receivers and Managers Appointed) (In Liquidation) (No 2) (2011) 297 ALR 56; [2011] FCA 1123
Texts Cited: GE Dal Pont, Law of Limitation (LexisNexis Butterworths, 2016)
Colin Lockhart, The Law of Misleading or Deceptive Conduct (5th Ed, LexisNexis Butterworths, 2019)
Category: Principal judgment
Parties: Chelmer NZ Ltd (Plaintiff)
Financial & Energy Exchange Ltd (Defendant)
Financial & Energy Exchange Ltd (Cross Claimant)
Chelmer NZ LTD (Cross defendant)
Representation:
Counsel:
Mr M Klooster (Plaintiff/Cross Defendant)
Mr P Afshar (Defendant/Cross Claimant)
Solicitors:
Macedone Legal (Plaintiff/Cross Defendant)
FEX Ltd in house legal (Defendant/Cross Claimant)

File Number(s): 2013/13955
Publication restriction: N/A

Judgment

INDEX:

Introduction

[1]

Conduct of Proceeding

[13]

Witnesses

[19]

Background to the Dispute – Equities Project

[34]

Test Plan

[76]

Further Development

[83]

Business Requirements Document

[90]

Web IRESS

[117]

Project Status Report

[130]

Test Plan

[134]

Functionality Testing

[137]

Lucsan Indicates Load Requirements

[141]

Load Failure

[145]

Further Steps

[147]

Why Did the FEXE/WebFEX project not proceed?

[174]

Chelmer Submissions

[174]

FEX Submissions

[178]

Determination

[180]

Cross Claim – FEXE Contract

[184]

Pleadings

[184]

Chelmer Submissions

[188]

FEX Submissions

[189]

Determination

[192]

Cross Claim – FEXE Negligence

[204]

Pleadings

[204]

Chelmer Submissions

[207]

FEX Submissions

[212]

Lucsan’s Role

[226]

Determination

[235]

Background to the Dispute – Derivatives Exchange

[271]

Cross Claim – FEXD Contract Claim

[296]

Cross Claim – FEXD Negligence Claim

[301]

Cross Claim – Misleading and Deceptive Conduct

[304]

Paragraphs 6 and 7 of the Cross Claim

[304]

Did Lucsan Recommend Chelmer to FEX for the Project?

[306]

Was there a Brokerage Agreement to Pay Lucsan?

[315]

Did Chelmer Mislead or Deceive?

[353]

Paragraph 10(a) of the Cross Claim

[363]

Paragraph 10(b)-(f) of the Cross Claim

[377]

Damages for Misleading and Deceptive Conduct

[381]

Cancellation

[383]

Background

[383]

FEX Submissions

[402]

Chelmer Submissions

[411]

Determination

[418]

Limitations

[431]

Chelmer Submissions

[432]

FEX Submissions

[435]

Determination

[439]

Compensation

[447]

Evidence

[447]

Chelmer Submissions

[496]

Was there an agreement between Lucsan and Chelmber to Factor the

Costs of Additional Functionality into the cost of the FEXD Project?

[517]

FEX Submissions

[517]

Chelmer Submissions

[520]

Determination

[529]

Did the Time Disciple Report Include Work on the FEXE/WebFEX?

[536]

Use of Code

[536]

General Criticisms of Work Activity Report

[544]

Determination

[560]

Particular Challenges

[574]

Time Billed to the Project

[574]

Statement of Work

[577]

Testing and VeriFIX

[587]

Replication

[612]

Memory Leak

[615]

Log on References

[619]

ISVs

[624]

GUI

[627]

Log In

[631]

Learning

[633]

Hourly Rate

[631]

Determination

[637]

Quantum Meruit

[642]

Damages Sought by FEX

[644]

Summary and Orders

[650]

INTRODUCTION

On or about 6 June 2007, the Plaintiff, Chelmer NZ Ltd (‘Chelmer’), [1] and the Defendant, Financial & Energy Exchange Ltd (‘FEX’) [2] entered into an agreement for Chelmer to develop a FIX gateway to connect to the National Stock Exchange [3] equity trades. [4]
1. Hereinafter ‘Chelmer’.
2. Hereinafter ‘FEX’.
3. Referred to as NSX (formerly known as the Newcastle Stock Exchange).
4. Referred to as FEXE.
FIX is an acronym for Financial Information Exchange. [5]
5. Exhibit 4 at [17].
The “FIX gateway interface” was bespoke software that allowed various software used by different brokers to communicate with the “X-Stream” system using industry standard language. It was described as a translator between the various software platforms and the X-Stream system. It was to be used by FEX to assist it in establishing its own independent market for equities. [6]
6. Exhibit B at [24].
The said project was developed together with a second project which required Chelmer to build a browser based interface trading terminal known as “WebFEX” that would connect to the FIX gateway and allow users to carry out trades on the NSX.
On or around February 2008 Chelmer and FEX entered into a second agreement for Chelmer to develop a FIX gateway to connect to the derivatives exchange (the Derivatives Project).
In all, Chelmer carried out work on three projects for FEX namely:

the development of a FIX gateway to connect to the X-Stream trading platform used by the NSX (the NSX Project);

the development of a browser based user interface trading terminal (WebFEX Project); and

the development of a FIX gateway to connect to a derivatives exchange (the Derivatives Project).

Throughout the hearing the NSX Project and the WebFEX Project were referred to collectively as the Equities Project or FEXE/WebFEX. The Derivatives Project was also referred to as the FEXD.
It is not in issue that Chelmer was paid in full for works carried out under the Equities Project.
By Statement of Claim filed on 10 October 2013, Chelmer seeks payment from FEX for cancellation under the contract [7] or in the alternative for the provision of services under quantum meruit [8] for professional software development provided under the Derivatives Project agreement. Chelmer’s claim is in the amount of USD$121,654.66 together with interest pursuant to s 100 of the Civil Procedure Act 2005 (NSW). [9]
7. Statement of Claim at [35].
8. Statement of Claim at [47].
9. Statement of Claim (1).
FEX resists the claim asserting that Chelmer either repudiated the contract, which it accepted, or alternatively it terminated for cause. [10]
10. FEX written submissions at [124] and [143].
It further seeks Damages by way of Cross Claim asserting in respect of both projects:

Breach of contract; and

Negligence; and

Misleading or deceptive conduct [11]
11. Cross Claim at [22] and [23].

Although FEX pleaded a case in contract and negligence against Chelmer [12] and identified its claim in the statement of issues, [13] in closing submissions it acknowledged that the case in tort was more difficult by reason of a limitation defence raised against it. [14]
12. Amended Statement of Cross Claim at [20]-[23].
13. FEX’s Statement of Issues at [11].
14. T 740.04-.06.

CONDUCT OF PROCEEDINGS

This matter was first set down for hearing on 29 July 2016 to commence on 24 July 2017 with an estimate of 5 days.
Whilst the hearing commenced on 24 July 2017, it was adjourned on 27 July 2017 to 10 August 2017 with a further two day estimate. On 10 August 2017 FEX sought to amend its pleadings. Due to the late filing of the motion its hearing was adjourned to 11 August 2017 to enable Chelmer to respond. This meant that the substantive hearing did not resume until 11 December 2017 with an estimate of four days. The evidence concluded on 13 December 2017. The parties requested time to prepare written submissions before oral addresses. Accepting that the matter involved some complexity, the Court agreed to the parties’ timetable and oral submissions were scheduled to be heard on 20 April 2018. On 19 April 2018 the matter was relisted in circumstances where I was advised that due to a fall out in the time table for written submissions, Chelmer was not in a position to address orally the following day. A revised timetable was then ordered and the matter set down for oral submissions on 17 May 2018. The Court sat late on 17 May 2018 to enable the completion of argument. Judgment has been reserved since that time.
Overall the matter occupied significantly above the original estimate of 5 days. It meant the time allocated was not continuous and this in turn led to delays in the finalisation of submissions.
The matter was thereafter relisted to address an issue as to the collation of Exhibit C whose page referencing did not appear to correspond with Chelmer’s written submissions. By consent on 18 October 2018, Exhibit C was uplifted by Chelmer’s counsel and it was returned the following day.
As these reasons will explain, I have had some difficulty in correlating the arguments advanced with the pleadings on the Cross Claim. On 30 November 2018 my Associate wrote to the parties on my behalf seeking each party to advise the relevant paragraphs of their submissions that referred to the Cross Claim at paragraphs [20]-[23] and the Amended Defence to Cross Claim at [20]-[23]. Responses were received from Chelmer on 16 December 2018 and FEX on 20 December 2018. Thereafter my Associate wrote again raising further questions on 14 January 2019 relating to FEX’s negligence claim. Additional written submissions were forthcoming from FEX on 1 February 2019. Chelmer chose not to advance further submissions. Neither party sought a relisting for further oral argument.
Beyond the issues raised, the matter was affected by the circumstances that led to the passing of the amendments to s 44 District Court Act 1973 by the Justice Legislation Amendment Act (No 3) 2018. [15] This matter was raised with counsel on 18 October 2018. However I was informed on 19 October 2018 that neither party wanted a transfer to the Supreme Court pursuant to s 144 of the Civil Procedure Act 2005 (NSW) in circumstances where legislative amendment was anticipated. The amendments ultimately commenced with retrospective effect on 28 November 2018.
15. See The NTF Group Pty Ltd v PA Putney Finance Australia Pty Ltd [2017] NSWSC 1194 and Nova 96.9 Pty Ltd v Natvia Pty Ltd [2018] NSWSC 1288.

WITNESSES

Chelmer was incorporated in New Zealand in 1988 [16] having its origins as a service and support provider to the financial services industry. In 1996 it diversified its activities into software development and later on, consultancy and support services. [17]
16. Exhibit B, tab 1.
17. Exhibit B at [9].
Mr Andrew Robertson was its Managing Director. According to his evidence, Chelmer and its staff were specialists in the financial services technology solutions providing full solutions from outsourcing, professional services, hosting and cloud delivery and a full end to end wealth management and asset management cloud enabled platform. [18]
18. Exhibit B at [10].
Apart from Mr Robertson, four other witnesses who worked on the Derivatives Project were called in Chelmer’s case. They were Kelly Leslie Cole, [19] Martin Cleland-Pottie, Andrew Hamilton and Michael Keith Holdsworth. Mr Hamilton and Mr Holdsworth worked as contractors. Only Ms Cole remained in employment with Chelmer at the time of the hearing.
19. Formerly Emanuel before 1 May 2010.
In FEX’s case, Thomas Price and two further witnesses were called.
The first was John Hulst. He gave evidence of having extensive experience from 1987 in software development and technology, including working a consultant and holding positions in the Australian and Swiss Stock Exchanges. [20] In or around August 2007, Mr Hulst became the Chief Operating Officer of FEX and was engaged to deliver its business objective: to develop an exchange traded derivatives exchange.
20. Exhibit 2 at [7]-[10].
Ms Ann Bowering was the second further witness. Around March 2007 she began working for Lucsan Capital Pty Ltd, [21] as the head of Business Development and Operations reporting to Mr Harrold Lucero. [22] Ms Bowering stated that during the period March to November 2017 Lucsan project managed the building of a “market access tool” (WebFEX) for the SIM [23] equites market. She stated that she and Brian Price were involved in liaising with Lucsan and through Lucsan Chelmer about the best way to implement WebFEX. [24] She stated that she was brought into the FEX Project as Lucsan’s internal project manager responsible for coordinating tasks and maintaining communications between the various involved parties. [25] Ms Bowering stated that whilst she worked for Lucsan, FEX was the only client of the business she was working on, although she also performed general work for Lucsan. [26] Her interactions with Chelmer were described as being with Brian Price even after Mr Hults was appointed Chief Operating Officer. [27] In around December 2007 she stated that she went to work for FEX. Her title was as Group Executive SIM FEX Ltd. [28]
21. Hereinafter referred to as ‘Lucsan’.
22. Exhibit 10 at p 4.
23. This was the branding to be used for the end user in lieu of the NSX; see T 291.32-.42
24. Exhibit 3 at [11] This was marked MFI A but read see T 462.5
25. Exhibit 3 at [4]-[5]
26. T 467.1 -.27.
27. T 468.28- 469.-7.
28. Exhibit 2 -JH-1 p122.
At the time Ms Bowering joined Lucsan she stated that she was also aware that Thomas Price had approached Mr Lucero with a view to engaging Lucsan as the project manager for the development of FEX’s Derivatives Exchange. From around March 2014 until resigning on 1 December 2017 Ms Bowering was a director of FEX. She was also a director of the National Stock Exchange. [29]
29. T 472.31--.43 (formerly the Newcastle Stock Exchange).
Two expert witnesses were also called.
These were Geoffery Williams on behalf of Chelmer and Jeff Yancey on behalf of FEX. Each produced separate reports and a joint report pursuant to orders made by the Court on 29 July 2016. [30] On 13 December 2018 they gave evidence in joint session. [31]
30. Exhibit A1.
31. T 590.1-617.25.
The events the subject of these proceedings occurred a numbers of years past. In assessing the evidence, I am mindful of what was stated by Tamberlin J in Lake Cumbeline Pty Ltd & Ors v Effem Foods Pty Ltd (trading as Uncle Ben’s of Australia):-

“[Given the lapse of time] between the events and conversations raised in evidence and the hearing of the evidence before me, the only safe course is to place primary emphasis on the objective factual surrounding material and the inherent commercial probabilities, together with the documentation tendered in evidence. In circumstances where the events took place so long ago, it must be an exceptional witness whose undocumented testimony can be unreservedly relied on.” [32]
32. (Unreported, Federal Court of Australia, Tamberlin J, 29 June 1995) at 122 – 123 (in a passage cited with approval by the High Court when it upheld his Honour’s decision: Effem Foods Pty Ltd v Lake Cumbeline Pty Ltd (1999) 161 ALR 599; [1999] HCA 15 at [15]).

Accordingly I have carefully examined the evidence of all witnesses. FEX submitted that I should find Mr Robertson not to be a witness of truth on all matters in contention asserting that he was evasive, argumentative and displayed an unwillingness to engage with questions being asked of him and to answer them directly, fairly and openly. [33]
33. FEX written submissions at [29]-[30]

In Sangha v Baxter [34] , Basten JA stated:-

There are risks in making global findings about credibility of any particular witness. Because a witness has not told the truth with respect to a particular matter does not mean that other parts of his or her evidence are untruthful. Where possible, an assessment should be made of the reasons for the untruthfulness in order to see if other aspects of the evidence are likely to be infected by the same concern. Further, evidence may be rejected because it is apparently unreliable, possibly mistaken or deliberately untruthful or capable of being categorised in a variety of ways which are unlikely to be capable of clear delineation in some cases.
Further, findings of credibility are not usually findings with respect to factual issues in the case, but are rather subsidiary findings on the way to determination of issues. Like many aspects of the evidence in a trial, the evidence of a witness who is believed to have lied in a particular respect, will nevertheless be able to bear some weight and should be placed into a balance, with other material evidence, before a conclusion is reached in relation to a critical fact. The rejection of a witness in total, absent corroboration is likely to mean that, even where corroborated, little attention will be paid to the evidence of the witness and less to the possible consequences which might flow from the fact that particular evidence is shown to be truthful: see generally, King v Collins [2007] NSWCA 122 at [44].
34. (2009) 52 MVR 492 at 526 (with whom Handley AJA agreed). See also SAS Realty Developments Pty Ltd v Kerr [2013] NSWCA 56, Ward JA (with whom Macfarlan JA and Sackar J agreed) at [115].

I also bear in mind what was stated by Emmett J (as his Honour then was) in Warner v Hung, In the matter of Bellpac Pty Limited (Receivers and Managers Appointed) (In Liquidation) (No 2):

When proof of any fact is required, the Court must feel an actual persuasion of the occurrence or existence of that fact before it can be found. Mere mechanical comparison of probabilities, independent of any belief in reality, cannot justify the finding of a fact. Actual persuasion is achieved where the affirmative of an allegation is made out to the reasonable satisfaction of the Court. However, reasonable satisfaction is not a state of mind that is attained or established independently of the nature and consequences of the fact to be proved. The seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, and the gravity of the consequences flowing from a particular finding are considerations that must affect whether the fact has been proved to the reasonable satisfaction of the Court. Reasonable satisfaction should not be produced by inexact proofs, indefinite testimony or indirect inferences (see Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336 at 361-2). [35]
35. (2011) 297 ALR 56; [2011] FCA 1123 at [48] (Emmett J).

I do not consider that a global finding as to Mr Robertson’s credibility is appropriate. Having assessed Mr Robertson’s evidence carefully against that of other witnesses and contemporaneous documents, I am satisfied that he was generally reliable except in one respect where I did not accept his characterisation of an agreement that Chelmer entered into with Lucsan. This is discussed below.
As the time line of the matter commenced with the Equities Project, it is appropriate to consider the events chronologically. Although the SIM-equities market was a market structure that was separate to the FEX Derivatives Exchange, the two were interconnected in a way that will be later explained.

BACKGROUND TO THE DISPUTE - EQUITIES PROJECT

FEX was conceived in 2005 by two brothers Thomas and Brian Price. Both had the idea of establishing a business comprising an equities exchange and a derivatives exchange as a market for exchange traded and centrally cleared futures and options contracts. [36]
36. Exhibit 4 at [7].
FEX was incorporated in October 2006. [37]
37. Exhibit 4 at [8].
The FEX trading engine was to be a key component of exchange technology that principally managed trading instructions, sent by brokers and traders to the FEX exchange and matched orders subject to pre-set rules. [38]
38. Exhibit 4 at [10].
Thomas and Brian Price undertook extensive research on various service providers and ultimately selected a product provided by OMX software, a Swedish exchange systems provider called X-Stream. “X stream was a software platform used by some financial exchanges to allow price discovery and trading to occur”. [39]
39. Exhibit B at [16].
Thereafter, Thomas Price looked for a service provider who could manage the customisation, implementation and deployment of the OMX – stream trading engine. [40]
40. Exhibit 4 at [9].
In early 2007 Thomas Price stated that he and Brian Price engaged in discussions with Harold Lucero the managing director of Lucsan Capital Pty Ltd.
This culminated in FEX engaging Lucsan to manage the implementation of the FEX project including customisation, implementation and deployment of the OMX-Stream trading engine. [41]
41. Exhibit 4 at [13].
On 21 March 2007, Thomas Price signed a “Project Services Agreement” on behalf of FEX with Lucsan. [42] Thomas Price stated that thereafter he and Brian Price began involving Lucsan fully in the FEX project. He added that during this period FEX required Lucsan to provide a “market access tool” (WebFEX) for the SIM-equities market.
42. Exhibit 4 at [17].
Thomas Price gave evidence of being a Director responsible for overseeing the operational aspects of FEX’s business from February 2007 and April 2009. [43] He stated that he was responsible for managing FEX’s day to day relationships with Lucsan including its officers, (in particular Harold Lucero) and individuals within Lucsan who were responsible for different aspects of the project to set up the FEX trading engine. [44]
43. Exhibit 4 at [5]-[6].
44. FEX Project.
Thomas Price stated that Mr Lucero informed him that a lot of clients wanted to connect by FIX and they should obtain a FIX gateway and find someone to build it. [45] Thomas Price’s description of FIX as a financial industry technology standard allowing many and varied computer systems to “speak” to one another, largely corresponded with Mr Robertson’s evidence. [46]
45. Exhibit 4 at [17].
46. Exhibit 2 at [17].
WebFEX was to be the front end system in which trades are affected in SIM-equities market. Thomas Price stated that Ann Bowering and Brian Price were much more involved in the implementation of WebFEX than he was; his involvement being greater in relation to the implementation of the “FIX gateway.” In particular he was responsible for the implementation of the derivatives trading platform which also included the development of a FIX gateway. [47]
47. Exhibit 4 at [14] at T 530.34-.36.
According to Thomas Price, in or about May or June 2007 based on recommendations and statements from Mr Lucero, he instructed Mr Lucero to begin negotiations with Chelmer and engage them to undertake work on the FIX gateway. [48]
48. Exhibit 4 at [20].
Mr Robertson gave evidence that this occurred around July 2007. This followed a conversation in which Mr Lucero asked him whether he could put together a proposal to develop and implement a FIX gateway interface for X-Stream for FEX. Chelmer asserted that it had previously commenced a project of this nature for the New Zealand Stock Exchange. [49]
49. Exhibit B at [16].
Chelmer proceeded to prepare a statement of works which Mr Robertson stated that, to the best of his recollection, he provided to Mr Lucero who then passed it to a representative of FEX. [50]
50. Exhibit B at [22].
Thereafter Chelmer and FEX entered into an agreement for Chelmer to develop a FIX gateway to connect to NSX equity trades. That project was developed together with a second project which required Chelmer to build an interface known as “WebFEX”.
A history of the FEXE Project was outlined as follows:-
On 6 June 2007 Mr Lucero had sent an email to Mr Robertson that reads as follows:-

“Hi Andy,
Please find attached a revised version of your document. Apologies if we modified your initial thoughts but we think we can move faster if we revise it first.
The following changes were made:
1. We have changed the “project background and purpose” as it did not reflect FEX goals to establish this job.
2. We have added a graph (and text) to illustrate the entire FEX solution as Brian sees it, I think you need to guide us here and let us know if we are on the same page.
3. We have changed the prices to US dollars to present the solution/prices to the FEX Board. Also, we will provide FEX with two options, the first one with the “FUSION” or any other front end, and the cheaper one without 2.4.5 and just using the standard ORMSTW [51] (we assume there is no further charge here if 2.4.5 is not implemented).
4. In the price page, we have included around 7% profit on the development costs and some marginal on the monthly ongoing charge.
5. We have changed the dates on the front page, also the project plan prior to our meeting with FEX today.
6. We have updated the entire document so the contractual relationship is between Chelmer and FEX directly.” [52]
51. Order Routing Management System Trader Workstation.(A Chelmer Product suite component).
52. Exhibit 5.

Thereafter on 6 June 2007, Chelmer issued the third revision of a document titled “FEX Order Routing Hub and NSX Connectivity.” [53] That document noted that it had been updated on Lucsan feedback that day. Relevantly it:-

(a) states that it contains information that is provided for the sole purpose of permitting FEX to evaluate the proposal submitted herewith; [54]
(b) sets out proposal costs for two options each with a fixed price;
(i) option 1 total cost USD$229,700.00
(i) option 2 total cost USD$150,000.00 [55]
53. Exhibit C-AR2; tab2, p 66.
54. Exhibit C-AR2; tab2, p 68.
55. Exhibit C-AR2; tab 2 p 77-8.

Option 1 was a browser based user interface trading terminal. Mr Robertson stated that a user would access this type of interface via an internet browser window. The browser based user trading interface became known as ‘WebFEX’. [56]
56. Exhibit C at [18].
Option 2 was a trader workstation Windows application that required installation on a user’s computer. Mr Robertson described it as similar to the X-Stream trader workstation. [57] It was described as involving an enhancement of the ORMS TW. [58]
57. Exhibit C at [19].
58. Exhibit C-AR2; tab 2 at p75.
Paragraph 2.3 described the scope of the proposal as limited to:

The provision of a technology platform that will route orders from third parties to the NSX and at a later date to the FEX trading system;

Development of an interface to the NSX X-Stream trading system using the OMX proprietary protocol;

Successful accreditation of the NSX connectivity with the NSX

Development if a FIX interface that can accept third party orders and route the orders to the NSX;

Development of a FIX interface that can accept third party orders and route the orders to the NSX;

Creation of Accreditation plans for third parties to connect to the FEX FIX gateway;

Accreditation of 2 third parties to connect to the FEX FIX gateway;

Provision of a Hosting facitlity for the FEX gateway platform with VPN connectivity over the Internet to both the NSX and third parties;

Development of a use interface (FEX TW) that can place NSX orders and view NSX market data. This could be used by third parties rather than passing orders via the FIX gateway;

Unit and functional testing of the NSX gateway, the FIX gateway and the FEX TW;

Implementation of the production system and a DR strategy involving the replication of systems between different cities.

Within the said document was a diagram proving a link from TP [59] (Web IRESS and ORMS TW to FEX). The accompanying text states:

“The diagram below illustrates the overall FEX solution. The NSX uses the X-Stream platform as the trading engine. The FEX equity solution will be as market generic as possible so that it can be easily integrated with the various current technologies of existing ASX market participants. The automatic order-processing engine (AOEI [60] ) will have direct connection to the NSX platform using the API(X-Stream). There is an option to make the FEX AOEI engine (exchange end) FIX compatible, if enabled new participants wanting to connect to the NSX using FIX is possible-ie FEX talk to the NSX via the native API and provide a FIX connection out the other side-then new brokers/participants can connect through a FEX (FIX) gateway. [61]
59. Third Party.
60. Automated Order Entry Interface being the FIX gateway interface being developed to the X-Stream system used by the NSX see Exhibit B at [24].
61. Exhibit C-AR2; tab2 p76.

Paragraph 2.4.1 further stated that:

Chelmer would produce a document which defines the functionality that will be supported for the NSX gateway. The approach taken to define this will be consultation with the NSX with what messages are supported and consultation with the FEX on what business features they wish to provide and what FIX standards exist to support the functionality on to third parties.
Key features of this document are:
• The functionality/data availability to be defined include:
• Order Entry-market order types
• Market data- Market Depth views
• Company announcements

• An overview of the gap between the current state of the ARM system and the desired state

The same day 6 June 2007, FEX signed acceptance of the terms set out in the proposal referred to above. It was forwarded to Chelmer and signed by it on 7 June 2007. [62]
62. Exhibit C-AR2; tab3 p84.
During the period 12 June to 26 June 2007 Chelmer issued four revisions of the FEX Order Routing Hub and NSX Connectivity Project Definition document. [63] Mr Robertson described the Project Definition as a high level document which outlines the nature, structure, approach, schedule, governance and deliverables of the project created by Chelmer and that it was amended from time to time as the project progressed. [64]
63. Exhibit 2-JH1; p 93.
64. Exhibit C at [27].
In July 2007 Chelmer commenced its development of the project and Mr Robertson in his affidavit gave an outline of the steps taken in this regard. [65]
65. Exhibit C, at [28(a)].
On 12 July 2007 Mr Robertson sent an email to Lucsan setting out the advantages of using Fusion for the FEX trader workstation (that is WebFEX). [66] It is not in issue the Fusion was a pre-existing product that Chelmer already had. [67]
66. Exhibit 9.
67. T 104.41 - .43.
On 13 July 2007 Mr Kym Sharma from Lucsan responded to Mr Robertson’s email stating:-

“Fusion is the best option moving it further and commercially viable for future enhancements.” [68]
68. Exhibit 9.

On 18 July 2007 Chelmer issued a tax invoice for 20% of the overall project fee in an amount of $30,000.00 which was paid by FEX on 30 July 2007. [69] It can be inferred from the amount that at this point in time, the proposal was to proceed with option 2.
69. Exhibit C-AR2;tab 17 p 248 and [93(e)].
On 20 July 2007 Mr Sharma sent an email prior to travelling to New Zealand to see Mr Robertson. He stated:-

“As discussed yesterday Brian has agreed to take on the option 1 which includes solution with ORMS, CAMERON FIX and FUSION web front. [70] Few points to note are:
70. See T 28.6-.21.It was accepted that this was the FEXE/WebFEX combination of software.
• Total cost for Option 1 is $229,700.00 which includes Lucsan’s share of $26,000”
• Chelmer will stagger these payments and charge accordingly, possibly delay major portion til Nov/Dec 2007
• Lucsan will outline requirement on behalf of FEX and work in conjunction with BA resource from Chelmer to confirm requirements
• Agreed Equity functionality will be built for Sep 14 release and other will be incorporated at a late stage with no additional
• We will forward you official signature of approval from Brian within next couple of days.
• Look forward to see you again in Wed in your office.

Brian would like to see connectivity between FEX gateway and IRESS FIX engine so web IRESS traders are able to trade. Brian understands it is effectively an ECN and is looking forward to a robust solution. He would like to call the “web front” a “WebFEX” rather than FUSION (bummer). Let me know if you would like to clarify anything further.” [71]
71. Exhibit 7.

On 24 July 2007 Brian Price confirmed on behalf of the FEX that it wished to proceed with option 1. [72] On the same day an email was forwarded by Mr Robertson to Brian Price, Mr Lucero, Ms Bowering and Mr Sharma titled “FEX Equities and WebFEX confirmation.” That email stated that: -
72. Exhibit C-AR2; tab 3, p85.

“Thanks team. We have been playing around with some components for this for a little while and are now started with working on the user interface and presentation layout to plug into the AOEI work already underway. I am actually really excited about this – we are going to extend the existing Fusion framework using the new components which will provide user interface and presentation and layout functionality that will be industry leading for a web interface. The extended framework is unbelievably powerful so we will be aiming to bring as much of it to bear for September 14 as possible, but expect to be delivering additional usability features in a staged manner throughout the last quarter (no additional charges). Of course, being the web there will be no deployment issues to do this – just every time users log on they will have the new features enabled.
We will be working with Kym the end of the week while he is here to set the minimum requirements and start laying out the user manuals based on the prototypes.
Hope to get you visited here on the interface over the coming weeks.
Obviously of great concern (dealt with in a separate email) there is still no API to support all entries to the NSX. In simple terms this means that the Web TW, ORMS or any other system connecting to the AOEI will not be able to place orders on the NSX. So with approximately 7 weeks remaining we have to:-
get the API delivered (no date has been set by NSX or OMX), develop the Auto Creation, order amendment, Order Cancellation work, receive functionality.
Map the flow of that functionality into the FIX messaging, complete internal testing of FIX, order entry Complete internal testing on the Web TW, entry complete NSX performance testing, confirm functionality to the conformance testing, test plans FEXR, issuing conformance test X brokers for FEX AOEI.

We have plenty of work to keep us busy half of the order entry is fairly clear on the critical path and we close to a point where we simply will not have time because adding resources will only go so far to reduce the duration.” [73]
73. Exhibit P.

On the same day Mr Sharma replied stating:-

“Thanks Andy, Lucsan is managing several FEX initiatives including Equities NSX access. To keep effective communications channels streamlined, if you can send emails through to Lucsan Capital it would be appreciated. We have stressed the urgency with Brian and there will be some actions followed with the senior management at NSX. Look forward to seeing you guys tomorrow.” [74]
74. Exhibit P.

FEX pleaded that the contents of the “FEX Order Routing Hub and NSX Connectivity Project Definition” and the email of 24 July 2007 constituted the WebFEX Arrangement. [75]
75. Cross Claim at [12].
On 30 July 2007 Mr Robertson sent an email to Lucsan asking whether it expected Chelmer to deliver the ORMSTW and the Web TW or just the Web TW. [76] Mr Sharma responded:-

“Yes, expectation is ORMSTW and WebFEX for retail oriented clients. Both these products will be further enhanced for Derivatives functionality as OMX will not provide any X-Stream TW for Derivatives. Let’s call it WebFEX portal with advanced retail client functionality to be developed in the second phase (no additional charge). So we can meet the time lines for agreed deliverable. Web IRESS functionality is a good reference point.” [77]

76. Exhibit 8.
77. Exhibit 8.

On 31 July 2007 Mr Sharma sent a detailed email to Mr Robertson that email followed the meeting between Mr Robertson and Mr Sharma in New Zealand and summarises discussion points during the visit following a phone call on the same day stating: -

“Thanks for your kind hospitality and insights into the progress of FEX Equities Project. FEX is very excited that it will be an excellent trading capability with advanced technology and features. Just to summarise a few discussion points during my visit and today after your phone call.
• WebFEX portal to cater functionality for retail clients/investor/punter, as discussed Lucsan realised that some of the additional functionality costs will be factored into the Derivatives enhancement.
• FEX/Lucsan to provide crude spec for retail client requirements
• Chelmer/Luscan to formalise agreements to further develop/enhance and exclusive licensing in Australia, North America and South America region to promote/sell Chelmer products, including ACE, ARM, CUSTODIAN, FUSION, WRAPPORT, MARGIN LENDING productions…. [78]
78. Exhibit 10 at p 2.

As earlier noted around August 2007 John Hulst was engaged by FEX as Chief Operating Officer. [79] Mr Hulst stated that as part of his operational responsibility for FEX he commenced investigating the WebFEX Project both from a developmental status and managerial perspective. [80] He stated that he did this predominantly by making more general inquiries from Brian Price. [81] At the time he said that he was responsible for management of an estimated 5 projects for FEX which included the WebFEX Project. [82] When he was asked as to what his understanding was of the role of Lucsan with respect to WebFEX as at August or September 2007 he stated:-
79. Exhibit 2 at [11].
80. Exhibit 2 at [12].
81. T 262.01 - .10.
82. T 262.12 - .33.

“Q. So, what do you say, sir - as at August 2007, or September 2007 for that matter, but that period - was your understanding of Lucsan's role with respect to WEB FEX?
A. They were the project managers.
Q. And what roles and responsibilities would they have had as project managers, as far as you're aware?
A. To drive the outcomes that the business required.
Q. When you say, "Drive the outcomes the business required," I mean, one of those would be to, first of all, have an understanding of what the business required?
A. Yes.
Q. By the "business", I'm referring to FEX.
A. Correct.” [83]
83. T 264..23 - .38.

Mr Hulst accepted that his understanding was that Lucsan were responsible for issuing directions about WebFEX to Chelmer [84] and that he understood that FEX got its money from investors. [85] Mr Hulst further accepted that from August 2007 to the end of 2007 his contact with Chelmer was relatively limited and he had more dealings with Lucsan. [86]
84. T 264.06 - .08.
85. T 273.9 - .13.
86. T 263.30 - .38.
On 2 August 2007 Chelmer sent an email to Lucsan asking various technical questions and seeking a response. None of these questions referred to load. [87]
87. Exhibit 10 at p 1.
On 9 August 2007 revision 5 of the “FEX Order Routing Hub and NSX Connectivity Project Definition Document” was prepared by Chelmer. [88] The document was an updated version of the previous document created on 26 June 2007 and was expressed to follow a “review meeting with Mr Robertson and Mr Sharma and “to include target model.” [89] The document stated under “Background and Purpose” that :

“…The FEX initiative is to facilitate the creation of a sustainability and cleantech equities exchange. Chelmer will assist FEX with the implementation of the FEX equity board solution by providing electronic order routing exchange connectivity and trader workstation to professional NSX clients” [90]

Under the heading” Deliverables” it stated

“The approach taken to define this will be consultation with the NSX with what messages are supported and consultation with the FEX on what business features they wish to provide and what FIX standards exist to support the functionality on to third parties, [91]

Under the heading “Market Data” it stated

There is a requirement to be able to display NSX market data to exchange members. The options include the Cameron Net-trader solution, client’s own FIX enabled TW’s WebFEX or ORMS TW. The fall back is for NSX market data to be available on IRESS [92]
88. Exhibit 2-JHI p 91. (emphasis added)
89. Exhibit 2-JH1; p 93 (emphasis added)
90. Exhibit 2-JH1; p94 [2.1]
91. Exhibit C-AR1; p73 at [2.4.1]
92. Exhibit 2-JH1; p94 at [2.3]

Further into the document it reiterated the Scope in similar terms to that previously expressed including ;

Development of a FIX interface that can accept third party order and route the orders to the NSX

Creation of Accreditation plans for third parties to connect to the FEX FIX Gateway

Accreditation of 2 professional third parties to connect to the FEX FIX Gateway [93]
93. Exhibit 2-JH1; p95 at [2.5.1]

The Scope specifically excluded “Retail brokerage activities where the ‘trader’ is not responsible for settlement.” [94]
94. Exhibit 2-JH1; p96 at [2.5.2]
Under “Risk Description” it stated:

“Currently no market data capability within Fusion or Cameron FIX gateway” “Back up is to use IRESS. Restrict market data messages to core messages required by NSX messages” [95]

95. Exhibit 2-JH1; p110

Test Plan

On 18 August 2007 a draft test plan was created by Chelmer updated on 27 August 2007. [96] By way of background the document states at (1.1):-

“FEX had engaged Lucsan Capital and Chelmer Ltd to deliver and an order, a routing hub and trader workstation to provide access for market professionals to a new ‘FEX’ board on the national Stock Exchange (NSX). The solution is to provide participants with the view of the market and allow placing of orders and trading on the FEX board.
The solution will be based around the FIX protocol which will allow FIX capable applicants to connect directly to the FIX hub as per to the NSX via the FEX gateway. Applicants who are not FIX capable will have the option of taking the WebFEX trader workstation, at browser based TWR that will connect directly to the FEX gateway.
The time table for the project is very aggressive with exchange due to go live on Sept 14 2007. As a result delivery is split into two phases. [97]
Phase 1 will cover FIX messaging, connectivity, WebFEX TW and core messaging flow. Phase 2 will provide enhanced WebFEX functionality and a broader message set.
There is expected to be 3 companies listed on the Exchange for day 1 with volumes anticipated to light up to 10 trades per security per day.” [98]
96. Exhibit K at pp 10-22.
97. Exhibit K p13.
98. (emphasis added).

On 11 September 2007 Ms Bowering was working for Lucsan and sent an email to Mr Hulst and Mr Sharma stating that she had reviewed and made a number of amendments and comments about what appeared to be an earlier version of the support implementation and services agreement [99] for the WebFEX interface prepared by Chelmer. Ms Bowering made a number of suggestions for the best method of moving forward. [100] Mr Hulst stated that he was aware that Lucsan’s role extended to amending or proposing changes to contracts that FEX was going to enter into. [101]
99. Exhibit C tab 1,p1-65 also see Mr Hulst’s evidence at T 267.16-.24.
100. Exhibit 2-JH1 p1.
101. T 265.28-.49.
On 17 September 2007 Mr Sharma sent an email to Mr Hulst which enabled him to access the demo version of the WebFEX interface. [102] Mr Hulst conceded that he may have gained access to the demo version but could not recall it. [103] He stated that he believed he had tried but he was unable to access it but could not be absolutely sure. Mr Robertson’s evidence was that Chelmer provided Lucsan with early access to Web FEX whilst it was being developed. [104]
102. Exhibit 2-JH1 p2.
103. T 268.8-.28.
104. Exhibit C at [28](c).
Ultimately, on 28 September 2007 Chelmer issued a tax invoice for USD$15,940.00 to reflect the balance of the 20% overall project fees allowing for the difference in price for Option 2 being FEX’s original choice and Option 1 which FEX confirmed with Lucsan was the option it desired. [105] This was paid by 8 October 2007. [106]
105. Exhibit C-AR2; tab 4 p 118.
106. Exhibit C at (93)[e] ii.
By 7 October 2007 Mr Hulst was aware that WebFEX interface needed to be produced and it was his role to ensure that it was delivered as quickly as possible within common sense. [107]
107. T 273.35 - 274.5.
On 14 October 2007, Brian Price sent an email to Mr Lucero and other personnel at FEX and Lucsan asking for a written status update on the WebFEX Project. In his email he requested inclusion as to:-

estimated completion date of a workable version (internet Explorer user friendly version),

the status of the testing,

whether you require any review or testing from us. [108]
108. Exhibit 2 –JH1 p 7.

On 15 October 2007 National Stock Exchange in an email sent to Chelmer stated that they were prepared to grant official accreditation to both the FIX connection and the WebFEX trading platform. [109]
109. Exhibit 2 -JH1 p 8 (bottom of the page).

Further Development

On 15 October 2007 Mr Lucero responded to Brian Price and other personnel at FEX and Lucsan (but not Chelmer) informing them that:-

a workable version will be online tomorrow morning and

Chelmer was already vigorously testing the WebFEX interface but Lucsan should conduct its own user acceptance testing. [110]
110. Exhibit 2-JH1,p 8.

Attached to the email was a status report that confirmed:-

project Phase 1 had been completed and Phase 2 has commenced for enhancement,

noted as a key achievement; NSX API accreditation and approvals. [111]
111. Exhibit 2- JH1,p 10.

On 24 October 2007 Mr Hamilton asked Lucsan whether its users on WebFEX interface should be only able to view FEX boards. Mr Sharma confirmed that it wanted to restrict the view and the ability of any users to place orders on the FEX board only. [112]
112. Exhibit C-AR2; tab 19, p 254.
On 26 October 2007 Ms Bowering sent an email to Lucsan and also to Mr Robertson. In that email she confirmed a revised go live date of 15 November 2007 and set out the tasks that needed to be performed and who was responsible for the performance of such tasks. Chelmer was tasked with the responsibility of completing and developing and testing of Phase 2 and providing test results and relevant information to Lucsan, and Lucsan was responsible to complete the tests strategy and plans also to implement the test strategy. [113] This was revised on 29 October 2007. [114]
113. Exhibit 2 -JH1,p 11.
114. Exhibit 2- JH1,p 12-13.
On 1 November 2007 Ms Bowering sent an email to Chelmer and to Lucsan which referred to a meeting that took place with Mr Hulst the previous week and confirmed that Mr Hulst was happy with the WebFEX interface based on his experience in the system so far. [115] Around this time Ms Bowering began to transition her employment from Lucsan to the FEX [116] . Mr Hulst gave evidence that after November 2007 there was a transitional period where Ms Bowering worked half time at FEX and half time at Lucsan but eventually worked full time for FEX reporting to Brian Price. [117]
115. Exhibit C –AR2; tab 17 p 247.
116. Exhibit 2 at [26].
117. T 282.29-.46.
On 8 November 2007 Ms Bowering sent an email to personnel at FEX and Lucsan which summarises the position “to bring everyone up to the same page.” [118] In that email Ms Bowering states:-

“Lucsan Capital will have completed the WebFEX Design Spec document tomorrow, which will mean that it is available for review and approval by FEX on Monday.”
118. Exhibit 2 -JH1, p 23.

That same day the 1st version of the Business Requirements document is created by Lucsan. [119] It can be inferred that this document was the “WebFEX Design Spec” referred to by Ms Bowering as it was prepared around the same time as when Ms Bowering states the “WebFEX Design Spec” would be completed. There is no document that is otherwise titled “WebFEX Design Spec” and further Ms Bowering conceded this could be the document she was referring to. [120]
119. Exhibit 2- JH1, p 31.
120. T 476.44 – 477.2.

Business Requirements Document

The document history of the Business Requirements document shows that on 12 November 2007 a version (V1.1) is created being amended entirely by Lucsan. [121] A new version (V1.2) of the Business Requirement document was created the same day with the involvement of Mr Hamilton and Mr Robertson on behalf of Chelmer; it being noted as having been “reviewed, comments incorporated”. [122] That document (V1.2) appears to have been attached to an email from Ms Bowering on 12 November 2007 forwarded to Mr Hulst, Brian Price, other personnel at FEX and Lucsan. In the email Ms Bowering states:-

“It is important for all parties to treat this document as a hard sign off. Anything at all not explicitly outlined in the document will be treated as the change request (eg volume is currently displayed at ten thousand per user would probably expect ten thousand? the examples of each column display format are provided in the document).
Please review.
If you have any questions or comments, I will arrange a meeting with Kym or Ivan to discuss. If you are satisfied with the document please let me know.
Once the document is signed off Lucsan will complete user acceptance test plan.” [123]
121. Exhibit 2- JH1, p 31.
122. Exhibit 2 -JH1, p31.
123. Exhibit K p1.

During the course of cross examination Mr Hulst was referred to “Business Requirements document” and his answers were as follows:-

“Q. When we're talking about technical solutions do you understand, in general terms, what a business requirements document is?
A. Yes.
Q. And from a software development point of view, is that the document that sets out what the software's supposed to do?
A. Yes.
Q. And if you were going to test the software, at some point in time, it's the document that you would base those tests on?
A. Yes.
Q. So it's an important document?
A. Yes.
Q. It is one of the most important documents from a software development point of view.
A. Yes.
Q. Because if there's something missing in it, the software may not do what you want it do.
A. Correct.” [124]
124. T 277.8 - .29.

Mr Hulst in cross examination was taken to Ms Bowering’s email of 12 November 2007 attaching Business Requirements (V1.2). [125] He accepted that he understood when he received the document that the Business Requirements document was an important document. [126] He further accepted that he would have looked at the document when he received it and checked it carefully to the best of his capability because he knew that it was important. [127] Thereafter Mr Hulst stated that he had an involvement between the period of 12 and 20 November 2007 with the document that ultimately was titled Business Requirements referred to in the email dated 20 November 2007. [128] He stated that whilst he relied on others to do their part he also reviewed the document and accepted that he had taken great care in that regard. [129] Whilst he relied on others to do their part he accepted that he would have made sure that it was a complete document to the best of his ability. [130] Certainly following his input another version of the Business Requirements document (V1.3) was produced. [131]
125. T 286.29 - .47.
126. T 286.49 – 287.01.
127. T 287.3 - .11.
128. T 288.24 - .27.
129. T 288.21 - .33.
130. T 288.35 - .37.
131. Exhibit C-AR2; tab 5 p 87.
On 20 November 2007 Mr Ivan Golenkov, of Lucsan, forwarded an email to other personnel at Lucsan, Chelmer and FEX enclosing (V1.3) and setting out action points for each of the parties and seeking responses. [132]
132. Exhibit K p 2.
On 22 November 2007 Mr Golenkov circulated a new version of the Business Requirements document (V1.4) and asks for further responses from Chelmer and FEX. [133]
133. Exhibit K p 7 (middle of the page).
On 27 November 2007 Mr Hulst received a copy of the Project Definition document Revision 5 (earlier referred) to by Chelmer. [134] That document notes its status as a final draft last updated on 16 October 2007. [135] It was sent for sign off by Mr Andrew Hamilton. [136] This document expressly identified the absence of FEX’s input to the business requirements as a risk. [137] It noted that this as “high impact” and “high probability” and the mitigation strategy was described as “back up is to use IRESS to restrict market data messages to core messages required by NSX members.”
134. Exhibit 2 -JH1, p 90.
135. Exhibit 2- JH1, p 91.
136. Exhibit 2 -JH1, p 90.
137. Exhibit 2-JH1, p 110.
Mr Hulst stated that if he read this document he would have been aware of it but had no reason to believe one way or the other whether he had done so. [138] He accepted that the document was an important document setting out project definitions for a project that he was managing or involved in overseeing. [139] He accepted that he also would have done his best to have taken care to ensure that he adequately oversaw the WebFEX Project and to read important documents such as the Project Definition document when he received it. [140] He accepted that in that document at p110 Chelmer identified as a risk FEX’s lack of input into the business requirements. [141]
138. T 280.23 -.34.
139. T 280.36 - .44.
140. T 280.49 – 281.5.
141. T 280.18-.24 and Exhibit 2-JH1, p 110.
On 29 November 2007 Mr Hamilton made an inquiry of Mr Scott Evans of the NSX as to:

“any indication of daily volumes on the NSX, in terms of orders and trades? Also do you have a threshold that you use for benchmarking or similar?” [142]

Mr Evans from the NSX responds:

“We have about 10 – 20 trades per day. We have about 20 – 30 orders per day. So not big numbers yet that would crash any systems.
We have sized the system allow 100,000 trades per day, 200,000 orders per day and 200,000 negotiated deals per day.” [143]
142. Exhibit C-AR2; tab 13 p 237.
143. Exhibit C-AR2; tab 13 p 235.

Mr Hamilton responds:-

“No that’s all I need to know really, the reason I ask is we have manually put through about 500 orders so far today under the FEX test user group and they are getting some performance issues with browser speed but I doubt any one user firm would ever hit that level of activity so it is unlikely they will experience this problem.”

There is no other clarification of the import that the “500” referred to.
Mr Robertson in his affidavit explained that at no point in time were there any discussions between Lucsan and Chelmer regarding the benchmark performance criteria for user acceptance performance testing of WebFEX or the number or volume of trades WebFEX had to support. He stated that in these circumstances Chelmer made its own inquiries with the NSX as to the volume of trades that occurred each day. On the basis of the information obtained by Mr Hamilton on behalf of Chelmer from the NSX, he understood that in November 2007 the NSX was at a low point in market stock. [144]
144. Exhibit C at [47]
In the opinion of Geoffrey Williams (the expert qualified on behalf of Chelmer):-

“ … If Lucsan and/or FEX were unable to provide detailed volumetric requirements then it is reasonable for Chelmer to try and determine this requirement. The absence of this information would be considered a major risk in the project so therefore, Chelmer should have tried to mitigate this risk by gathering the necessary information.” [145]
145. Exhibit A1 p 115

Mr Geoff Yancey (the expert qualified on behalf of FEX) agreed with this opinion. [146]
146. Exhibit A1 p 197 in response to Q (4.28)
On 29 November 2007 Mr Hulst provides responses sought from him with respect to Business Requirements document V1.4. [147]
147. Exhibit K p 9.
In cross examination Mr Hulst accepted that based on the contents of his email to Lucsan of 29 November 2007 he would have read the Business Requirements. [148] He did not offer any explanation as to why the email was not included in his affidavit. [149] He also accepted that he would have been sure when he reviewed the document that it was complete and accurate to the best of his ability. [150]
148. T 290.20 - .22.
149. T 290.16 - .18.
150. T 290.24 - .26.

Subsequent to that correspondence a new version of the Business Requirements document was created by Lucsan on 30 November 2007 being the 1.5. [151]
151. Exhibit C tab 5 p 87.
In his affidavit Mr Hulst asserted that he understood from discussions that he had with FEX as well as Lucsan and Chelmer that WebFEX was” intended to be a product that competed with IRESS, which delivers a product used by many equity market trading participants to access a number of exchanges in Australia and overseas, including the ASX.” Whilst he asserted that his email of 11 December 2007 set out his immediate technical concerns in fact Mr Hulst signed off on the Business Requirements document (V1.5) on behalf of FEX. In his email of the same day his only expressed concern to Lucsan was that there was no data validation at the WebFEX, adding:

“Therefore I will sign off on these requirements with the single caveat as follows:
that this version of WebFEX is unsuitable to put in front of any designated trader in a broking organisation who is used to trading ASX stocks and MUST be enhanced before any such exposure occurs. We have already identified the Cookie on the Server design issue that needs to be addressed, this one must too.
I note that I expect most trading desks will want to use a FIX connection more than a GUI and we can reasonably expect/request simple pre-validation to occur before the FIX message is sent to our gateway [152]
152. Exhibit 2-JH1, p 116.

Mr Hulst accepted in cross examination that V1.5 would be about the final version [153] and by the time it was settled he probably had the chance to read it numerous times. [154] Mr Hulst also accepted that he understood that these business requirements were to form the basis as to what software was to be tested against. [155] He also accepted that there was nothing stopping him from requesting that those criteria be put into the document. [156]
153. T 290.46 - .47.
154. T 290.49 – 291.01.
155. T 291.44 - .46.
156. T 292.1 - .08.
Mr Hulst was then asked whether at this time he was involved with the document he was aware that FEX wanted to have higher volume orders through the software. He stated:-

“The way the business was explained to me was that the market was to be a young, vibrant market. The implication of that was that (not transcribable) … was clearly going to be an issue because that was the key thing going around the markets at the time.” [157]
157. T 292.13 - .16.

He said he formed his understanding from discussions with Brian Price on the goals of FEX and his knowledge of the marketplace in Australia. [158] He conceded however that he never had those discussions with Chelmer. [159] As to his discussions with Chelmer on the issue Mr Hulst responded as follows: -

“Q. And you never told Chelmer at any time, any one from Chelmer at any time prior to this business requirements document being signed off on, what you've just informed the Court is your understanding of what this software needed to do?
A. From a performance perspective?”
Q. Correct.
A My-No [160]
158. T 292.22-..23.
159. T 292.26.
160. T 292.28- .35.

Mr Hulst accepted that he signed off on the document with either no load requirement or any type of performance requirements contained in it. [161] He said he did not find it specifically concerning that they were not in this document [162] . He accepted that time was of the essence with the project and the performance and load were important issues. [163] He stated that performance and load should be disclosed to whoever is building the software or requested by that party. [164] When it was put to him that he should have disclosed these details because it was his obligation to tell the person who is building the software what it is he wanted the software to do he responded by stating:-

“The level of detailed knowledge presumption in that statement I think is false. [165]
161. T 293.06 - .09.
162. T 293.11 - .13.
163. T 293.18 - .25.
164. T 293.27 - .29.
165. T 293.03- .34.

Mr Hulst accepted that the v1.5 was an important document. [166] He also accepted that he accessed to UAT version of WebFEX interface and tested it for about an hour. [167]
166. T 294.1 - .02.
167. T 298.33 - .44.
Mr Hulst understood that at some time in the future there would be some load and performance testing. [168] He stated that he took great care to analyse the Business Requirement document V1.5, before he signed off on it [169] and by 6 February 2008 he received an sent an email from Lucsan stating that all functionality and interface test passed and previously raised issues had been resolved. [170]
168. T 306.29 - .31.
169. T 310.40 - .42.
170. Exhibit C-AR2; tab 10 p 175.
Mr Hulst accepted that he signed off on the Business Requirements document, despite the fact that he noticed that the document did not have the performance and load requirements in it. [171] He also accepted that it would have been preferred practice for a document to clearly set out performance and load tests that should be measured against. [172] He stated that if he was the technical development manager it would have been a practice that he would have adopted if he was developing the software. [173] Notwithstanding this and his involvement in software development, he stated that he did not raise with Chelmer at any time his concern that there were no performance or load requirements or specifications or matters of that description in the Business Requirements document. [174] He understood that this was theoretically an important aspect of software. [175]
171. T 312.10 - .15.
172. T 312.22 - .24.
173. T 312.29 - .31.
174. T 312.38 - .42.
175. T 312.44 - .50.
Mr Hulst was questioned on the performance and load requirements being within the knowledge of Chelmer and being driven by its business needs. He responded to questions as follows: [176]
176. T 314.4 - .40.

“Q. But the technology supplier can only build what it's told to build, correct?
A. And the business can only express the business requirements that it understands.
Q. Sir, I'm asking the questions. I'd be grateful if you could answer them.
A. I'm trying to.
Q. General proposition: assume you're developing a piece of software. You can only build what you are told to build.
A. How you build it is your responsibility as the technology developer. What you build is driven by the business.
HIS HONOUR
Q. Can I ask you a question. How would the supplier know what the load required by a client is going to be?
A. Ask.
Q. I'm sorry?
A. To ask - just ask what - the client, "What's your expectation of usage?"
Q. Wouldn't that be something that you would specify? You're buying a product. I know you talk about the business requirement; wouldn't you say to them, "I want a product that can do this and have these requirements"? I'm not familiar with purchasing this sort of material, so I'm just trying to understand how you say the process would work.
A. The performance requirements depend on how the technology is going to be built and what the business usage is, so it's a combination of both the technical input and the business input as to what the performance requirements ought to be.
Q. But that would be knowledge that you would have, wouldn't it? Or
A. Part of it, yes.
Q. FEX would have.
A. It would - it's both parties. Both parties know elements that need to be put together to achieve the appropriate performance requirements.”

Mr Hulst stated that he presumed that the performance and load requirements had been discussed between Lucsan and Chelmer. [177] He accepted that he took full responsibility for the Business Requirements document [178] and was the last one to approve its contents. [179]
177. T 315.35 - .50.
178. T 316.29 - .31.
179. T 296.25 - .31.
At the time Ms Bowering sent her email to Mr Hulst 12 November 2007, [180] she attached a document being the Business Requirements document for WebFEX being version 1.2. [181] Ms Bowering accepted that she knew this was an important document. [182] She understood what the document was but could not recall whether she had any input into the document or its previous version. [183] She accepted that the document was what the software would be tested against. [184] She further accepted that it was a Lucsan document [185] . She stated that so far as she was aware primary responsibility for the Business Requirements document, so far as Lucsan was concerned, rested with Mr Lucero. [186] She stated that Lucsan and FEX would come up with the Business Requirements and then they would be shared with Chelmer. [187] Ultimately, however she accepted that FEX had to sign off on the Business Requirements document. [188]
180. Exhibit 2-JH1; p 30.
181. T 480.46 – 481.14.
182. T 481.16 - .17.
183. T 481.23 – 481.33.
184. T 481.35 - .42.
185. T 481.44 - .45.
186. T 487.30 - .32.
187. T 487.46 - .47.
188. T 487.18 - .20.

Web IRESS

In 2007 a product said to be similar to WebFEX was in existence called IRESS. Ms Bowering stated that FEX could not use IRESS however, and had to build its own interface because IRESS was partially owned by the Australian Securities Exchange which was FEX’s competitor and it was unlikely that IRESS would invest substantial resources into the FEX Project given the size of FEX at the time. [189]
189. Exhibit 3 at [14].
Mr Robertson stated that to the best of his recollection at no point was Chelmer ever made aware that WebFEX had to compete with IRESS. [190] He stated that there was no mention of this requirement in any of the versions of the business requirements/statement of works developed for WebFEX. Further there was no mention of IRESS during user acceptance testing. [191]
190. Exhibit C at [50].
191. Exhibit C at [51].
I have earlier referred to the “FEX Routing Hub and NSX Connectivity” document signed 7June 2007 that referred to connectivity with Web IRESS” and revision 5 of the “FEX Order Routing Hub and NSX Connectivity Project Definition Document” prepared by Chelmer issued 9 August 2007. [192]
192. Exhibit 2-JH1; p 91.
In neither of those documents is it raised that WebFEX is to compete with Web IRESS. The second document mentioned that as a mitigation strategy for the fact that certain capabilities are not available in the FUSION product, “Back up is to use IRESS.” [193]
193. FEX written submissions at [58] and Exhibit 2-JH1;p91
In his affidavit Mr Robertson stated:-

“52 Chelmer was not engged by FEX to develop a user interface that would compete with IRESS.
53 I am not aware of what IRESS software FEX is referring to. IRESS is a computer software program that develops and distributes numerous programs.
54 WebFEX is by definition a browser based user interface solution whereas, to the best of my knowledge and belief, some of the products developed by IRESS at the time were either market data viewing solutions, or free standing applications that are installed on a computer (or other platform) known as an auto management solution (IOS). From my experience:
(a) the IOS could be interfaced with the NSX FIX gateway to be used instead of WebFEX and
(b) whilst WebFEX and some programs developed by IRESS at the time may perform similar functions based on my understanding of the IRESS products at the time, none of the products on offer by IRESS were directly comparable to WebFEX. [194]
194. Exhibit C at [52].

Mr Robertson was asked whether he was saying that in the Project Definition document that there was a specific statement that says that it was not to compete with Web IRESS. He responded: -

“A. No, what I'm saying is there's nothing in the project definition which says in scope, is that this product must compete with WebIRESS. In fact, the two products are completely different. WebIRESS was a retail product, WEBFEX, by definition, was a broker product. And you could evidence that by the basis that WEBFEX had negotiate a deal functionality in it, and that type of functionality can only be performed by a broker. [195]
195. T 72.05-.10.

Notwithstanding this, Mr Robertson’s attention was drawn to the contents the email referred to earlier from Mr Sharma dated 20 July 2007 where the later stated:

Brian would also like to see some connectivity between FEXFIX gateway and IRESS FIX engine so Web IRESS traders are able to trade. Brian understands it is effectively an ECN and is looking forward to a robust solution. [196]
196. Exhibit 7 see T 71.24-.28.

Mr Robertson denied that he was directed to use Web IRESS functionality as a good reference point. [197] His attention was then drawn to the email from Mr Sharma addressed to him dated 30 July 2007 [198] referring to Web IRESS functionality as a good reference point. [199]
197. T 75.25.
198. Exhibit 8.
199. Exhibit 8.
In light of this document Mr Robertson conceded that what he had previously said was untrue. [200]
200. T 75.40 - .47.
Following his return to Australia from New Zealand, Mr Sharma sent the email dated 31 July 2007 earlier referred to. [201]
201. Exhibit 10 at p 2.
Mr Robertson denied that there was any agreement with Mr Sharma along the lines suggested in the first bullet point referred to in that email. His evidence was as follows:-

“Q. Now, go over the page please, now I'm going to suggest that what appears in bullet point one is what you agreed with Lucsan in relation to the additional cost of WEBFEX portal functionality, you want to read it to yourself? That’s what you agreed with Lucsan didn't you?
A. I don't believe this states there's any form of agreement?
Q. Sorry, no formal agreement is that what you’re saying?
A. Well, I don't recall any of the conversations but this appears to be a list of him recapping things that were discussed, I can't recollect these discussions.
Q. Mr Robertson you agreed, in conversation with Kym Sharma, either in New Zealand or on the phone, that whatever additional costs Chelmer was going to incur in building this additional functionality for the WEBFEX portal that we were going to put that into the fixed derivatives project?
A. This appears to be an email from Kevin to me, it doesn't appear to be a reply from me agreeing to anything.
Q. We'll get to the reply now in a second, but do you accept that in 2007 July you agreed with Kym Sharma, either on the telephone or when he was there, that you would push the additional cost that Chelmer was going to incur in doing the additional WEBFEX functionally into effects his derivatives project?
A. I don’t have any recollection of that conversation.
Q. But you see the reference in that email to that same arrangement, do you accept that there was an arrangement of that kind as described in the first bullet point or do you not?
A. "What there was an arrangement to deliver WEBFEX portal to cater functionality for a retail client investor, punter, as discussed Lucsan realised that some of this additional functionality cost will be factored into derivative enhancement." Again, I have no recollection of that. I've no visibility of an agreement.
Q. Sorry, you don't?
A. I don't believe I've got visibility of an agreement on that.
Q. You agreed with me yesterday that you understood for an agreement to come into place, you don't need a signed formal document, didn't you?
A. That's true.
Q. Just to give - in fairness, your reply is on the page before, the first page of the document that I gave you. Can you just read it to yourself and point out the bit in that email where you disagree with what Kym Sharma had put in the first bullet point - said, "No, no, that's not what we discussed," or, "That's not the arrangement. That's not what we're going to do. We're going to do something else"?
A. It doesn't but it clearly doesn't say I agreed to anything either.
Q. He doesn't say that in the email, I suggest to you, Mr Robertson, because you'd agreed over the phone or in person with Mr Sharma. That's what he was recording in his email. Isn't that right?
A. I don't recall a conversation and I certainly don't recall an agreement of that nature.” [202]
202. T 108.18 – 109.19.

Mr Robertson responded to the email on 2 August 2007. [203] In it he did not reject the contents of the first bullet point referred to in the email from Mr Sharma on 31 July 2007 as reflecting the discussions they had had. Mr Robertson denied that he was going to inflate the hours in the statement of works for the Derivatives FIX gateway to incorporate the costs of Chelmer developing additional functionality for the Web FEX. He maintained that WebFEX was delivered as an institutional broker based application, the requirements of which were agreed to by FEX and did not mention anything to do with retail functionality. [204]
203. Exhibit 10 at p 1.
204. T 109.44 - .50.
Ms Bowering stated that in around November 2007 she managed some of the functional testing of the WebFEX interface with assistance from FEX’s technical staff although most of this was done by Lucsan and Chelmer. She stated that by November 2007 the efforts to build the WebFEX had stalled and it appeared to her that the project could not proceed further adding that it was important that to the success of WebFEX that it compete with IRESS. Specifically Ms Bowering stated that although she could not recall all the deficiencies she came to the view at that time that WebFEX in the form that it had been built by Chelmer could not compete with IRESS and was significantly inferior to it. [205] Ms Bowering’s opinion was advanced as a lay opinion based on her expectation not on the basis of technical experience. [206]
205. Exhibit 3 at [17]-[19]
206. T 460.17-.28

Project Status Report

On 18 December 2007 Chelmer prepared and circulated a Project Status Report to Mr Hulst, Ms Bowering and Lucsan personnel. [207] The document identified as a “top risk”:-

“Performance of web browser when firm activity reaches > 300 transactions per day”.

The mitigation strategy was expressed as:-

“Volumes not anticipated to exceed 100 orders.” [208]
207. Exhibit 2-JH1; p 123 – 124.
208. Exhibit 2-JH1; p 124.

Mr Hulst gave evidence that he possibly read this Project Status Report but that this would be a report that Ann Bowering would be particularly focused on. [209] He said that at this point in time he was doing other things as well and Ms Bowering was taking full responsibility at this particular point in time as he did not feel that he ought to be doing her job at that same time as doing his own. [210] He conceded that he was spending less time on FEX at this time because Ms Bowering was more hands on the project and he was busy on other projects. [211]
209. T299.42 - .48.
210. T300.05 - .07.
211. T 305.34 - .39.
Ms Bowering’s evidence was that she believed reports of this nature were generated monthly. [212] She stated that so far as the Status Report of 18 December 2007 was concerned, she did not specifically recall seeing it but she would have opened the attachment on the email to which it was attached. [213] She acknowledged that the Project Status Report referred to the risks and mitigation referred to earlier. [214] She stated that she did not recall reading the document when she received it. Ms Bowering accepted it was an important document and it was her practise to read important documents when they were sent by email to her. [215] She stated that had she read the document she would have read it carefully. [216] She accepted that she did not know who defined the mitigating conditions whether they were FEX, Lucsan or an assumption by Chelmer. [217]
212. T 475.38 - .43.
213. Exhibit 2-JH1; p 123 – 124.
214. T 497.41 - .50.
215. T 498.5 - .10.
216. T 498.12 - .13.
217. T 498.33 - .35.
Ms Bowering further accepted that in relation to the NSX around 29 June 2007 when the WebFEX Project was started there would have been around 23 trades, [218] that for the 2006 calendar year would be around 1,120, [219] 2008 around 991 and for 2009 around 973. [220] She further accepted that on the day that WebFEX failed, the user acceptance performance testing being on 25 March 2008, there were about 4 trades made on the NSX that day. [221]
218. T 499.46 - .47.
219. T 499.33 - .34.
220. T 499.33 - .40.
221. T 500.11 - .12.

Overall I am satisfied that the relevant entries consitiute “time billed to the project.”

ISVs

Mr Robertson accepted that ISV’s (independent system vendor) was software that would interface with the derivatives gateway [961] as WebFEX functionality and code was not going to be used for the derivatives gateway. [962] Mr Robertson stated that he could not recall if Chelmer delivered anything described as a specification for ISV to FEX but rejected the suggestion that someone would make up 113 hours of work in the Work Activity Report referrable to this. [963] Mr Hamilton who was responsible for the relevant entries was not cross examined on the issues. His evidence was that with some small exception he was not involved in the Equities Project. His name was not listed amongst the resources proposed for the FEXE/WebFEX Project. [964]
961. T 113.8-.23.
962. T 112.25-.27.
963. T 175.30-.39.
964. Exhibit C-AR2 tab2; p 82.
FEX argued that ISV Work was excluded from the specification for work by clause 2.2.2 of the Statement of Works. [965]
965. Exhibit B AR1; p128 at [2.2.2].
The Project Definition document specifically mentioned the need to develop ISVs. [966] The entry in the Work Activity Report was for “FEXD FIX specification for ISV’s. Clause 4 .3 of the Statement of Works stated that “A detailed business requirements specification, message mapping and FIX definition will be created during the detailed analysis phase.” A draft document to that end was produced as revised between 9 April and 4 August 2008. [967] The exclusion in clause 2.2.2 was as to the development of a trader workstation which will be supplied by ISVs. On its face the references to ISVs in the Work Activity Report do not fall within that exception and I am satisfied that the relevant work constitutes “time billed to the project.”
966. Exhibit B-AR1; p27 at [4.8].
967. Exhibit M.

GUI

Mr Robertson accepted that the reference to GUI meant graphic user interface such that it did not have anything to do with the derivatives gateway as that had to do with the user using WebFEX. [968] Although he stated that there might be a plausible explanation for the reference to GUI in the Work Activity Report, he could not tell by looking at it. . Mr Robertson stated that his explanation “may sound contradictory”. [969] No explanation was ultimately given, although neither Mr Holdsworth nor Mr Hamilton were questioned on this
968. T 184.42.
969. T 185.1-.13 see Exhibit B-AR1 tab 12; p 234.
FEX submitted that the references to GUI begin to appear in the activity report which Mr Robertson admitted was neither relevant to the FEXE (on its own) nor to the FEXD. It argued that taking this as an example the Court could not know from the Activity report or indeed form other evidence led by Chelmer whether or not other work in June, July and August 2008 concerned FEXE/WebFEX or FEXD. [970] I would not accept the broader proposition.
970. FEX’s written submissions at [92].
The issue as to GUI was raised in FEX’s case and put in issue. [971] It was not re-examined on. Mr Holdsworth and Mr Hamilton were not directly challenged. It was for Chelmer to establish that this was related to the FEXD project having regard to the evidence presented. Based on Mr Robertson’s account of what it involved I am not satisfied that it related to FEXD.
971. Nu v NSW Secretary of Family and Community Services (2017) 95 NSWLR 577; [2017] NSWCA 221 at [57]-[58] per Beazley P.
I would therefore not allow the claim totalling 5.42 hours

Log In

Mr Robertson accepted that he could not be sure that the references to “getting gateway going” in June 2008 related to the Derivatives Project but by looking at the entry he stated that when the Derivatives Project started then the JAFA was already in existence so by definition it started with a gateway. [972] The matter was not pursued with other witnesses. The additional project meeting notes of 12 June 2008 refer to the generic usage of a FIX gateway on the assumption it was built. [973] As this matter was taken no further its status as “time billed to the project” has not been put in doubt.
972. T 185.35-186.08.
973. Exhibit B-AR1;tab 6 at p 60.

Learning

Mr Robertson also accepted that a portion of the hours in the Work Activity Report was comprised of learning how to do the work however everything was deliverable work. [974] Taking account that this was bespoke software FEX did not identify what if any work ought to be excluded on such a basis by expert evidence or otherwise.
974. T 202.01-203.05.

HOURLY RATES

Chelmer contended that time billed to the project by each resource that provide the services would be costed at hourly rates of either USD $112.50 per hour or$ USD 137.50. [975] Although the Agreement did not have hourly rates it was said that this could be implied by dividing the daily rates of USD $900 [976] and USD $1100 [977] by 8. In support of its argument Chelmer submitted:
975. Statement of Claim at [42].
976. For work by the Developer and Analysts; Exhibit B tab 7 at p 165.
977. For work by the Project Manager; Exhibit B, tab 7 at p 165.

First, Mr Robertson gave evidence that the standard working in New Zealand was 37.5 hours. This equates to a 7.5 hour working day. In circumstances where that evidence was unchallenged and not inherently improbable it should be accepted by the Court.

There is objective evidence which states that:

in any given week staff are expected to work 37.5 hours

It was never put to Mr Robertson or any other lay witness called by Chelmer that they were required to work or actually worked 9.5 hours each working day.

There is objective evidence that Chelmer must have allowed its staff to have lunch and tea breaks as staff and tea breaks are expressly excluded when calculating the requirement to work 37.5 hours each week. Seeking an 8-hour working day only requires the Court to allow a modest 30-minute break each day for lunch and tea breaks.

Mr Robertson gave evidence that each employee should be recording 37 to 40 hours per week. In circumstances where that evidence was unchallenged, not inherently improbable and consistent with the objective evidence471 it should be accepted by the Court.

It is inherently improbable that staff who were required to work for 9.5 hours with no breaks whatsoever would take the time and effort to fly overseas to provide evidence for a former employer.

The summary prepared by Chelmer by reference to the Detailed Time Disciple Report show that there are only 13 days out of 304 days, where staff members of Chelmer recorded more than 8 hours of time per day and even then, time is not recorded more than 30 minutes.

Whilst the terms and conditions state that staff will not be required to commit to any weekly or daily quota, that clause (when read in its entirety) is directed to how Chelmer’s resources are assigned to Lucsan. On that basis it says no more than that Chelmer staff will not be required to commit to any weekly or daily quota whilst working under the direction of Lucsan. The term “or required to be present at the FEX site” which appears in the same clause supports such a construction. On that basis the clause does not support a finding of a 9.5 hour working day. [978]
978. Chelmer’s written submissions at [19].

FEX argued that Chelmer’s contention should be rejected.as there is no basis for the implied term. Secondly it contends that the Agreement does not specify any hourly rates. Thirdly and at best the Agreement actually refers to a 9.5 hour day not an 8 hour day. It argued that it was for Chelmer to demonstrate a proper basis in the Agreement for its pleaded case and it have failed to do so. Rather it has sought to navigate around the difficulty by contending that the experts have a particular view on the reasonableness of an hourly rate by reference to expert evidence. It argued that this may be relevant to quantum meruit but did not assist Chelmer on its contract case. [979]
979. FEX’s written submissions at [10].
FEX contended that the Agreement described “normal working hours as “being 8 am to 5.30 pm that is 9.5 hours and that Chelmer staff “will not be required to commit to any weekly or daily quota”. [980]
980. FEX’s written submissions at [145].
In oral submissions FEX added:

AFSHAR: As to whether or not the number of days was eight as opposed to nine and a half, your Honour has my submissions on that point, but can I just say, the evidence of what Mr Robertson, said or didn't say, about what happens in New Zealand is irrelevant. What people did on a day to day basis, is also irrelevant. Your Honour is not there to determine whether or not, by conduct, which was never communicated to us until after termination, or cancellation or termination, or whatever your Honour finds, that somehow that grounds an implied term. There are rules in terms of what could constitute an implied term in fact, and none of those have been addressed by my learned friend. This contract itself, has a term to denote what are normal business hours. So it's not about who worked at what time, who worked for how long, it's what the contract say and how the contract ought to be‑‑
HIS HONOUR: Well that's in the next dot point, isn't it?
AFSHAR: Yes, and this specifically says that it's 8am to 5.30pm. Normal working hours are defined, that ought to be taken as the day, and it needs to be - the evidence that my learned friend, the submission that my learned friend makes or the evidence that he leads, needs to be so strong that it overcomes that express term, and it's Chelmer's document. If Chelmer failed to specify an hourly rate, well that it has consequences for Chelmer, and it is significant because it does reduce the amount by around 25%, and I've provided your Honour some submissions.
Can I just say one other thing about, just before I move on from the activity, my learned friend say something along the lines of, "Well, your Honour should accept from the fact that these people flew over to Sydney to give evidence," as somehow strengthening to chase Chelmer has. With respect, that consideration is completely irrelevant. There's no evidence as to - it actually goes no where, but on one view of the world when one has a paid trip to another country, even if it's for the purposes of evidence, that helps - that's neither here nor there, in terms of whether or not that activity report records what Chelmer in fact did.

Determination

Chelmer did not seek to develop a submission based on the standard working week in New Zealand to support an implied term based on custom and usage within the criteria referred to in Con Stan Industries v Norwich Winterthur Insurance (Australia) Ltd. [981] Nor did it argue that any statute implied such a term.
981. (1986) 160 CLR 226 at 236-238, See also Byrne v Australian Airlines Ltd (1995) 185 CLR 410; [1995] HCA 24 at [37]-[41].
However, the Agreement did envisage the charging of an hourly rate as evidenced in the reference to an overtime rate “when a non-complete hour is worked it will be rounded up to an hour” and “During Saturday, Sunday and public holidays, a minimum of 4 hours will be billed”.
To argue that such a term should be implied required Chelmer to demonstrate how such an implication met the requirements set out in BP Refinery (Westernport) Pty Ltd v Hastings Shire Council. [982] The test for establishing an implied term outlined in that case was adopted in Secured Income Real Estate v St. Martins Investments Pty Ltd [983] and expressed as follows:

“(1) it must be reasonable and equitable;
(2) it must be necessary to give business efficacy to the contract, so that no tem will be implied if the contract is effective without it;
(3) it must be so obvious that ‘it goes without saying;
(4) it must be capable of clear expression;
(5) it must not contradict any express tem of the contract.”
982. (1977) 180 CLR 266 at 282–3 (Lord Simon delivering the advice of the majority (1979) 144 CLR 596 at p 606.
983. (1979) 144 CLR 596 at p 606 by Mason J with the concurrence of other member of the Court.

Chelmer argued that it should be implied that the daily rate is based on an hourly rate derived by a division daily rate by 8. Were that to occur, it leaves open the prospect that where the hours billed exceed 8 in the period 8 am to 5.30 pm, the amount being charged exceeds the daily rate. To that extent it would not be consistent with the intention expressed in the contract.
Whilst it might be reasonable to assume that the parties envisaged that Chelmer workers would have appropriate rest and lunch break during the day, the Agreement is silent on the matter particularly from the perspective of calculating an hourly rate. The question of what is reasonable is to be assessed within the terms of the parties’ agreement. The terms did not specify the provision of breaks but instead a daily rate set within a time frame of working hours. In the circumstances, I am not satisfied that Chelmer has demonstrated meeting the requirements for the implied term in the terms it was seeking. Accordingly, I would accept FEX’s argument to the extent that the only implication that should be accepted is based on the calculation using a 9.5 hour day being hourly rates of US $115.79 and US $ 94.74.

QUANTUM MERUIT

In light of my findings as to Chelmer’s contractual claim it is strictly unnecessary to consider the alternative claim it makes on quantum meruit. FEX had asserted however that such a claim is not maintainable.
Were it relevant however, I would not have accepted FEX’s argument that such a claim would fail in light of there being no evidence of FEX receiving any benefit. That proposition is inconsistent with authority as I see it. [984]
984. See Pavey & Matthews Pty ltd v Paul (1987) 162 CLR 221 at [255]-[256] per Deane; J Lumbers v W Cook Builders Pty Ltd (in liq) (2008) 232 CLR 635at [87]-[90] per ; Gummow, Hayne, Crennan and Kiefel JJ; Vasco Investments Ltd v Morgan Stanley Australia [2014] VSC 455, at [337] – [342] per Vickery J and Sun Water Ltd v Drake Coal Pty Ltd [2016] QCA 255, at [41], per Philip McMurdo JA with whom Gotterson JA and Philippides JA agreed.

Damages Sought By FEX

I turn to consider the substance of FEX’s Cross Claim as to damages on the assumption that I am wrong.
The Damages sought by FEX were particularised as:

Monies paid to Chelmer in relation to the FEX Derivatives Project: USD $78,180.60

Alternatively to (1) above, a portion of the $220,236 FEX paid to EPAM to rebuild a portion of the FIX Derivatives Gateway equivalent of USD $78,180.60.

Monies paid to HCL to manage the development of a FIX solution to FEX; AUD $65,738

Monies paid by FEX to Chelmer in relation to the WebFEX/FIX Equities Gateway projects; USD $232,100 [985]
985. FEX Schedule of Damages.

The amounts referred to in (2) and (3) were sought to be supported by reference to the annexure of the FEX accounts that were said to show the payments to HCL and EPAM. [986] Mr Hulst, in whose affidavit they were contained, conceded that he was not involved in the processing of invoices or decision making as to what invoices were paid or unpaid. He believed that those decisions were the responsibility of Brian Price. [987] The FEX entries in documents were admitted subject to the original invoices being supplied. [988] Ultimately, what FEX sought to rely on was Master Service Agreements with HCL and EPAM. [989] Chelmer submitted that the claim for damages cannot succeed even if FEX could establish lawful termination, for the following reasons: [990]
986. Exhibit 2-JH1;p 387 to 389.
987. T 451.23-.43.
988. T 250.36.
989. Exhibit N and O. See FEX written submissions at [130].
990. Chelmer’swritten submission in reply at [15].

First, Mr Hulst admitted that the service FEX obtained from other service providers extended past those with which Chelmer was to provide. [991] One of those service providers (EPAM) charged USD $61,860 to design and implement a FIX Gateway required to transmit FEX trades to a clearing House. [992]
991. T 447.41-448.26.
992. Exhibit N p 17-19.

Second, there are no tax invoices in evidence that establish what the payments made to EPAM and HCL were for. The two schedules FEX rely on [993] were said not to provide sufficient information for the Court to ascertain what those services providers were being paid for and what part of those payments (if any) was for work within Chelmer’s scope.

Third, FEX paid EPAM USD$50,800.00 for “FixEdge Lic Fee.” There is no evidence as to what the licensed software does and why it is required. In any event it could not have been within Chelmer’s scope of works which expressly excluded maintenance and support.

Fourth, even if FEX could establish lawful termination and that the money it paid other technology providers was for work within Chelmer’s scope, it has to deduct USD$246,919.40, being the balance payable to Chelmer under the FEXD project. [994] FEX has not attempted to provide any form of contract reconciliation and such a task should not be left to this Court.

Fifth, FEX have provided no authority whereby they are entitled to obtain a full refund from Chelmer of all monies paid in addition to having Chelmer completely indemnify FEX for all costs it incurred to allegedly complete the FEXD project.

Sixth, whether the contracts entered into with other technology providers subsequently engaged by FEX and the contract with Chelmer involved the same work is a matter for expert evidence. FEX has adduced no evidence on this issue and the Court should not be left to speculate as to exactly what services other technology providers were engaged to carry out for such a highly technical and bespoke project.
993. Exhibit 2-JH1; p 388-389.
994. Derived from the total contract price of USD$325,100.00 (Exhibit B, Tab 7, p 169) less payments made byFEX totalling USD$78,180.60 (Exhibit B, Tab 23 pg 348).

HCL outsourced the developmental work to the FIX engine supplier EPAM. [995] Mr Hulst gave evidence that FEX selected HCL and engaged them to build a FIX gateway from scratch as Chelmer had not completed a useable portion of the Gateway that they had originally been engaged to build and Chelmer’ project and operational costs were going to be significantly higher others it had canvased. [996]
995. Exhibit 2 at [84].
996. Exhibit 2 at [86].
Except as indicated earlier, FEX did not respond to Chelmer’s submissions. On the evidence it is not apparent what payments were actually made to HCL and EPAM and the extent the work may have interacted with what Chelmer was contracted to perform. FEX’s counsel stated in oral submissions:

…….. we're not just saying that we could have gotten someone else. We're also saying that the money that we paid was wasted. So it is actually to do with - I don't need to necessarily demonstrate that, at the time, I could've got someone else. Or that there is evidence for that. It is that that money that was paid, was completely wasted.

Those funds would be USD $78,180.60 and USD $232,100. [997]
997. FEX’s written submissions at [156].

SUMMARY and ORDERS

It follows form the above that Chelmer succeeds on its claim although I would delete the following form the Work Activity Report:

3 hours in relation to the preparation of the Statement of Work

All hours in relation to the Project Definition document after 11 April 2008

5.42 hours in relation to the GUI

I would accept that the hourly rates as described above at USD 115.79 and 94.74.
The relevant amounts need to be calculated and converted to Australian Dollars.
FEX has failed on its Cross Claim.
I order the following:

Verdict for the Cross Defendant on the Cross Claim.

Verdict and Judgment for the Plaintiff against the Defendant in a sum to be calculated.

I defer entry of final orders pending the following:

Counsel to confer and agree upon the appropriate Consent Order including giving effect to the calculations referred to above, interest and costs.

Parties have liberty to lodge with my Associate in Chambers any agreed Consent Order.

To the extent the above are not agreed, stand proceedings over to 9.30 am on Friday 8 March 2019 for determination of any outstanding issue as to calculations interest and costs and the making of final orders.

Liberty to either party to apply to the Court on 48 hours notice.

**********

Endnotes

Decision last updated: 27 February 2019

Medium Neutral Citation:	Chelmer NZ Ltd v Financial & Energy Exchange Ltd [2019] NSWDC 23
Hearing dates:	24 – 27 July 2017, 10 – 11 August 2017, 25 August 2017, 11-13 December 2017, 19 April 2018, 15 May 2018. Written submissions: 8 March 2018 3 May 2018 and 20 December 2018 (Plaintiff/Cross Defendant); 7 April 2018, 16 December 2018 and 1 February 2019 (Defendant/Cross Claimant)
Date of orders:	22 February 2019
Decision date:	22 February 2019
Jurisdiction:	Civil
Before:	Hatzistergos DCJ
Decision:	See [654]
Catchwords:	CONTRACTS – Termination – Contract for financial service technology – products not delivered - whether contract was repudiated or terminated for cause – contractual interpretation – compensation CONTRACTS - Breach of Contract – Construction of contract for financial service technology – standards of contractual duty – implied term to exercise care, skill and diligence – whether term had been breached CONTRACTS – Misleading conduct under statute – misleading or deceptive conduct – whether a failure to disclose a monetary amount included in estimated hours of work amounted to such conduct – whether a representation as to expertise and employees’ expertise amount to such conduct TORTS – Negligence – financial services contract - duty to perform with reasonable skill and care – whether duty had been breached – liability for others’ negligence LIMITATION PERIODS – Limitation of particular actions – contracts, torts and misleading and deceptive conduct – accrual of cause of action and when time begins to run
Legislation Cited:	Civil Procedure Act 2005 (NSW) ss 100, 144 Evidence Act 1995 (NSW) s 69 Justice Legislation Amendment Act (No 3) 2018 Limitation Act 1969 (NSW) s 14(1)(b) Trade Practices Act 1974 (Cth) ss 51A, 52, 82
Cases Cited:	Australian Competition and Consumer Commission v Pratt (No 3) [2009] FCA 407 Australian Securities & Investments Commission v Adler [2002] NSWSC 171 BodyCorp Repairs Pty Ltd v Holding Redlich [2018] VSCA 17 BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 Byrne v Australian Airlines Ltd (1995) 185 CLR 410; [1995] HCA 24 Cellarit Pty Ltd v Cawarah Holdings Pty Ltd [2018] NSWCA 213 Christie v Purves and 2 Ors [2007] NSWCA 182 Con Stan Industries v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226 Connor v Blacktown District Hospital [1971] 1 NSWLR 713 Demagogue v Ramensky (1992) 39 FCR 31 Dilosa v Latec Finance Pty Ltd (1966) 84 WN (Pt 1) (NSW) 557 D.R. Design (NSW) Pty Ltd v Grand City International Development Pty Ltd [2017] NSWSC 1778 Effem Foods Pty Ltd v Lake Cumbeline Pty Ltd (1999) 161 ALR 599; [1999] HCA 15 Elayoubi v Zipser [2008] NSWCA 335 Fazio v Fazio [2012] WASCA 72 Foran v Wight (1989) 168 CLR 385 Hooker Corporation Ltd v The Commonwealth of Australia (1986) 82 FLR 321 In the Matter of Maiden Civil Pty Ltd [2012] NSWSC 1618 Iverson v Howen [2008] NSWSC 1246 Jones v Dunkell (1959) 101 CLR 298 Koompahtoo Local Aboriginal Land Council v Sandpine Pty Ltd (2007) 233 CLR 115 Kuligowski v Metrobus (2004) 220 CLR 363 Lake Cumbeline Pty Ltd & Ors v Effem Foods Pty Ltd (trading as Uncle Ben’s of Australia) (Unreported 29 June 1995, Federal Court of Australia, Tamberlin J) Laurinda Pty Ltd v Capalaba Parks Shopping Centre Pty Ltd (1989) 166 CLR 623 Lumbers v W Cook Builders Pty Ltd (in liq) (2008) 232 CLR 635 Miller & Associates Insurance Broking v BMW Australia Finance [2010] HCA 31; (2010) 241 CLR 357 Neville v Lam (No 3) [2014] NSWSC 607 Nova 96.9 Pty Ltd v Natvia Pty Ltd [2018] NSWSC 1288 NTF Group Pty Ltd v PA Putney Finance Australia Pty Ltd [2017] NSWSC 1194 Nu v NSW Secretary of Family and Community Services (2017) 95 NSWLR 577; [2017] NSWCA 221 Parkdale Custom Built Furniture Pty Ld v Puxu Pty Ltd (1982) 149 CLR 191 Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221 Placer (Granny Smith) Pty Ltd v Thiess Contractors Pty Ltd [2003] HCA 10 Protec Pacific Pty Ltd v Steuler Services [2014] VSCA 338 Protector Glass Industries Pty Ltd v Southern Cross Autoglass Pty Ltd [2015] NSWCA 16 Rhesa Shipping O SA v Edmunds [1985] 1 WLR 948; [1985] 2 All ER 712 SAS Realty Developments Pty Ltd v Kerr [2013] NSWCA 56, Sangha v Baxter (2009) 52 MVR 492 Southern Cross Autoglass Pty Ltd v Protector Glass Industries Pty Ltd [2014] NSWSC 261 SunWater Ltd v Drake Coal Pty Ltd [2016] QCA 255 Taouk v Assure (NSW) Pty Ltd [2017] NSWCA 227 Vasco Investments Ltd v Morgan Stanley Australia [2014] VSC 455 Wadgy Hanna & Associates Pty Ltd v National Library of Australia [2014] ACTCA 32 Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 Warner v Hung, in the matter of Bellpac Pty Limited (Receivers and Managers Appointed) (In Liquidation) (No 2) (2011) 297 ALR 56; [2011] FCA 1123
Texts Cited:	GE Dal Pont, Law of Limitation (LexisNexis Butterworths, 2016) Colin Lockhart, The Law of Misleading or Deceptive Conduct (5th Ed, LexisNexis Butterworths, 2019)
Category:	Principal judgment
Parties:	Chelmer NZ Ltd (Plaintiff) Financial & Energy Exchange Ltd (Defendant) Financial & Energy Exchange Ltd (Cross Claimant) Chelmer NZ LTD (Cross defendant)
Representation:	Counsel: Mr M Klooster (Plaintiff/Cross Defendant) Mr P Afshar (Defendant/Cross Claimant) Solicitors: Macedone Legal (Plaintiff/Cross Defendant) FEX Ltd in house legal (Defendant/Cross Claimant)
File Number(s):	2013/13955
Publication restriction:	N/A

Introduction			[1]
Conduct of Proceeding			[13]
Witnesses			[19]
Background to the Dispute – Equities Project			[34]
Test Plan			[76]
Further Development		[83]
Business Requirements Document		[90]
Web IRESS		[117]
Project Status Report		[130]
Test Plan		[134]
Functionality Testing		[137]
Lucsan Indicates Load Requirements		[141]
Load Failure		[145]
Further Steps		[147]
Why Did the FEXE/WebFEX project not proceed?			[174]
Chelmer Submissions		[174]
FEX Submissions		[178]
Determination		[180]
Cross Claim – FEXE Contract			[184]
Pleadings		[184]
Chelmer Submissions		[188]
FEX Submissions		[189]
Determination		[192]
Cross Claim – FEXE Negligence			[204]
Pleadings		[204]
Chelmer Submissions		[207]
FEX Submissions		[212]
Lucsan’s Role		[226]
Determination		[235]
Background to the Dispute – Derivatives Exchange			[271]
Cross Claim – FEXD Contract Claim			[296]
Cross Claim – FEXD Negligence Claim			[301]
Cross Claim – Misleading and Deceptive Conduct			[304]
Paragraphs 6 and 7 of the Cross Claim		[304]
Did Lucsan Recommend Chelmer to FEX for the Project?		[306]
Was there a Brokerage Agreement to Pay Lucsan?		[315]
Did Chelmer Mislead or Deceive?		[353]
Paragraph 10(a) of the Cross Claim		[363]
Paragraph 10(b)-(f) of the Cross Claim		[377]
Damages for Misleading and Deceptive Conduct		[381]
Cancellation			[383]
Background		[383]
FEX Submissions		[402]
Chelmer Submissions		[411]
Determination		[418]
Limitations			[431]
Chelmer Submissions		[432]
FEX Submissions		[435]
Determination		[439]
Compensation			[447]
Evidence		[447]
Chelmer Submissions		[496]
Was there an agreement between Lucsan and Chelmber to Factor the Costs of Additional Functionality into the cost of the FEXD Project?		[517]
FEX Submissions		[517]
Chelmer Submissions		[520]
Determination		[529]
Did the Time Disciple Report Include Work on the FEXE/WebFEX?			[536]
Use of Code		[536]
General Criticisms of Work Activity Report		[544]
Determination		[560]
Particular Challenges			[574]
Time Billed to the Project		[574]
Statement of Work		[577]
Testing and VeriFIX	[587]
Replication		[612]
Memory Leak		[615]
Log on References		[619]
ISVs		[624]
GUI		[627]
Log In		[631]
Learning		[633]
Hourly Rate			[631]
Determination		[637]
Quantum Meruit			[642]
Damages Sought by FEX			[644]
Summary and Orders			[650]