Customs & Cargo Administrators Pty Limited v China Shipping (Australia) Agency Co Pty Limited
[2008] NSWDC 89
•26 May 2008
CITATION: Customs & Cargo Administrators Pty Limited v China Shipping (Australia) Agency Co Pty Limited [2008] NSWDC 89 HEARING DATE(S): 08/04/08 - 10/04/08, 23/04/08
JUDGMENT DATE:
26 May 2008JURISDICTION: Civil JUDGMENT OF: Rolfe DCJ DECISION: See paragraph 110 of Judgment CATCHWORDS: Contracts relating to cargo reporting services - Estoppel by representation claim relating to application and enforcement of contractual provision - Unconscionable conduct - Consideration of evidence - Penalty - Statement of Principles and application to the facts - Indemnity costs - Consideration of contractual provisions LEGISLATION CITED: Trade Practices Act 1974 (Cth)
Fair Trading Act 1987 (NSW)CASES CITED: Ringrow Pty Limited v BP Australia Pty Limited (2005) 222 ALR 306
Dunlop Pneumatic Tyre Co Limited v New Garage and Motor Co Limited (1915) AC 79PARTIES: Customs & Cargo Administrators Pty Limited (Plaintiff)
China Shipping (Australia) Agency Co Pty Limited (Defendant)FILE NUMBER(S): 1643/06 COUNSEL: A J Lidden SC with A R R Vincent (Plaintiff)
M G McHugh (Defendant)
JUDGMENT
1 The plaintiff, Customs & Cargo Administrators Pty Limited, carries on the business of cargo reporting services. It provides these services to importers, freight forwarders, customs brokers and shipping lines.
2 The defendant, China Shipping (Australia) Agency Co Pty Limited, carries on the business of a shipping line.
3 For some years prior to 2005 the defendant ran weekly liner services into Australia and utilised the plaintiff’s services in reporting on regulatory matters to the Australian Customs Service (“Customs”). On 13 January 2005 governmental regulations for the reporting requirements of Customs changed for a number of reasons including security and efficiency. This meant that the reporting on cargo arriving in Australia had to be performed at least 48 hours prior to a vessel arriving at an Australian port. This was much earlier than had been the case beforehand.
4 As part of the overhaul of the regulations and the systems in place a new Customs electronic cargo reporting system was due to commence on 19 July 2005. The new system was known as the Customs Management Re-Engineering Project (“CMR”). On 5 July 2005 the Government announced that the commencement date of CMR had been deferred until 12 October 2005.
5 Throughout July, August and September of 2005 the plaintiff’s staff were engaged in training so that they could familiarise themselves with the requirements of CMR.
6 On 5 September 2005, the plaintiff was accredited by Customs to conduct electronic cargo reporting with Customs on the CMR. Without being exhaustive, the sort of information provided by the plaintiff to Customs on the CMR included the processing of manifests, container lists, arrival dates and authorities to transfer freight under Customs’ control and so on.
7 Prior to October 2005 the plaintiff had rendered its fees to the defendant on a regular basis for the work that it performed on the defendant’s instructions. Fees were charged in accordance with a fee structure which had been put in place between the parties in March 2001.
8 By email dated 19 September 2005 the plaintiff informed all its clients, including the defendant, that the CMR project was to commence shortly and that from 1 October 2005 the plaintiff would be implementing its new price structure for the provision of its cargo reporting services (Annexure ‘H’ to the statement of Zac Zacharia dated 26 April 2007, part of Exhibit A).
9 Prior to 19 September 2005 the plaintiff informed the defendant of its new pricing structure contained in the document described as “Bureau SEA Imports/Client Schedule” which is Annexure I to Mr Zacharia’s statement of evidence. From now on I will refer to this document as the “Standard Costs Agreement”. I should add that it was not in dispute that at all times the plaintiff’s General Trading Terms and Conditions were part of the plaintiff’s contract with the defendant.
10 Under the Standard Costs Agreement the cargo reporting services provided by the plaintiff to the defendant included the creation of message types, message lines and message transmissions to Customs based upon material and information provided by the defendant to the plaintiff.
11 Under the Standard Costs Agreement the plaintiff would charge the defendant for each message line, transmission or type on an accumulative rate basis, exclusive of GST, calculated on the number of message lines, transmissions or types created by the plaintiff for the defendant in a fortnight as follows:
(a) $25 for the first message line, transmission or type.
(b) $15 for the second to tenth message line, transmission or type.
(c) $9.50 for the eleventh to fiftieth message line, transmission or type.
(e) $5.50 for the one hundred and first message line, transmission or type and every message line, transmission or type continuing after the one hundred and first.(d) $7.50 for the fifty-first to one hundredth message line, transmission or type.
12 Under the Standard Costs Agreement under the heading “Two CCA Account Type Clients” there was set out the following provision:
“As a user pays service, (the plaintiff’s) accounts department, through immediate client history (previous 3 invoice periods), frequency and volumes of utilising (the plaintiff’s) services, will determine the account type service for each invoice period. (Account client, Back up/Contingency client).”
13 With reference to the charge rates set out in paragraph 11 above, the Standard Costs Agreement provided as follows as set out under the table numbered Figure 1 on page 3:
“*Back up/Contingency clients service – accumulative by rate over 10 remains at 2-10 by rate.”
14 Under the Standard Costs Agreement a non-compliant service charge was to be made for each message line, transmission or type which the defendant provided to the plaintiff for it to create less than five business days (after 1pm) prior to an importing vessel’s arrival at the first Australian port, being the date of arrival posted on the plaintiff’s on-line system. This non-compliant service charge was an additional amount of $12 for each message line, transmission or type which was created by the plaintiff.
15 The Standard Costs Agreement provided that the plaintiff would issue to the defendant an invoice for cargo reporting services performed by it and that the invoice was payable within seven days.
16 The plaintiff’s general trading terms and conditions provided that the defendant would pay interest at the rate of 12% per annum on all outstanding amounts owed by it to the plaintiff, seven days after the last invoice was issue by the plaintiff to the defendant and that the defendant would pay all costs and expenses including all legal costs incurred by the plaintiff in enforcing or recovering a debt owed by the defendant to it.
17 Mr Zacharia is the General Manager of the plaintiff, a position he has held for approximately four and a half years. In his statement of evidence Mr Zacharia said that after the documents referred to above were sent out to the defendant, he was telephoned by Rebecca Yao on or about 22 September 2005. Ms Yao is the Freight Supervisor employed by the defendant and has been in that position for four years. For three years prior to that Ms Yao was the defendant’s Imports Documentary Officer. Ms Yao’s responsibilities as Freight Supervisor include supervising the daily operations of the defendant, particularly its import documents. In this capacity Ms Yao liaised on a daily basis with employees of the plaintiff.
18 Mr Zacharia said that when Ms Yao phoned him on 22 September 2005 she told him that the defendant had received the Standard Costs Agreement and wanted to have a meeting with him about it. Ms Yao said that she and her superior, Ross Metcalfe, were prepared to meet with Mr Zacharia either at his office or theirs. Mr Metcalfe is the National Freight Manager of the Defendant and has been in this position for more than seven years.
19 As a result, Mr Zacharia said he phoned Mr Metcalfe, mentioned that Ms Yao had proposed a meeting and told Mr Metcalfe it would be more convenient if the three of them could hold the meeting at Mr Zacharia’s office, to which Mr Metcalfe agreed.
20 The meeting took place on 26 September 2005 at Mr Zacharia’s office. Both Mr Metcalfe and Ms Yao attended. After a discussion about the services that the plaintiff could provide the defendant, in terms of compliance with the CMR, Mr Zacharia confirmed to Mr Metcalfe and Ms Yao that there were timeline requirements for reporting to Customs and the plaintiff had accommodated those in its Standard Costs Agreement by proposing a priority charge fee which Mr Zacharia told them was called the plaintiff’s “non-time compliant fee”. Mr Zacharia said to Mr Metcalfe and Ms Yao (para 57):
“Pages four and five of the new price structure sets out how the fees are to be charged. It sets out the conditions necessary for the application of the (plaintiff’s) non-time compliant fee.”
21 Mr Zacharia said that Mr Metcalfe’s immediate response was to enquire of him as to why the plaintiff was implementing timeline compliance fees when the Government would not be penalising the defendant for late reporting of cargo until next year. Mr Zacharia explained (para 58):
“These charges have nothing to do with (Customs) penalties. These are our surcharge fees to be incurred when we aren’t given enough time to facilitate the information which you provide to us and then lodge same with (Customs) in accordance with its new reporting requirements.”
22 Mr Zacharia said he reminded Mr Metcalfe that under existing arrangements the plaintiff already had a priority charge. This was simply being replaced in the Standard Costs Agreement with a non-time compliance fee.
23 Mr Zacharia said that Mr Metcalfe asked how the parties could work around the position. Mr Zacharia told him there was not much the plaintiff could do but he would check with management. Mr Zacharia said he would get back to Mr Metcalfe and put something to him in a new document.
24 Mr Zacharia said there was no discussion amongst him, Mr Metcalfe and Ms Yao about the removal of the non-compliance fee from the Standard Costs Agreement and that Ms Yao did not say anything at the meeting regarding the non-compliance fee. However, Mr Metcalfe said to him (para 64):
“Zac, with respect to the rates, I’ve done some calculations. There looks to me like a 130% increase in your fee structure.”
25 Mr Zacharia told Mr Metcalfe that the plaintiff had not increased its rates since 2001 and new charges were to be imposed because the plaintiff had to change its systems and processes, have staff undergo training and the plaintiff had to obtain accreditation with Customs. Mr Zacharia said that Mr Metcalfe responded by asking (para 66):
“Can we negotiate? We have got roughly about 3000 containers a fortnight. Your new rate provides for a fee of $5.50 for each container. I’m not paying that.”
26 Mr Zacharia said he would check with management, noting that the plaintiff might be able to do better by maybe $1 per container with the volume of vessels envisaged, given that the defendant would be providing information to the plaintiff electronically. Mr Zacharia said that Mr Metcalfe told him he would provide the plaintiff with whatever format he could and the parties would go from there.
27 Mr Zacharia said there was a discussion about the duration of the agreement to be put in place. Mr Zacharia asked for 12 months and Mr Metcalfe immediately rejected that. When Mr Zacharia asked if six months was acceptable, Mr Metcalfe responded by saying (para 70):
“We’ll take two months.”
28 Mr Zacharia then said to Mr Metcalfe (para 71):
“I’ll put everything together in document form. We will work on a rate from there.”
29 On 30 September 2005 Mr Metcalfe provided Mr Zacharia with an email containing details of the number of containers that were being moved by the defendant, arrival times for the then three voyages to Australia per week and the usual time of receipt of the vessel’s manifest. Mr Zacharia said that these details were provided to him to assist the plaintiff in reformulating a price structure for the defendant. Also attached to Mr Metcalfe’s email of 30 September 2005 was a downloaded file of the defendant. In relation to that file, Mr Zacharia’s evidence was that it was not in a satisfactory format.
30 Mr Zacharia responded with an email of 30 September 2005 in which he informed Mr Metcalfe that he would provide him with a schedule to apply to the defendant for a term of two months effective from 1 October 2005.
31 On the same date, on 30 September 2005, Mr Zacharia couriered to Mr Metcalfe a document incorporating a new fee structure which was described as “China Shipping and CCA – negotiated service term and arrangement”. A copy is annexure O to Mr Zacharia’s statement of 26 April 2007. I will refer to it as the “Service Agreement”. This document envisaged a term commencing 1 October 2005 up to close of business on 30 November 2005 and a reduction in fees per container from $5.50 to $4.00 where the volume of containers exceeded 3000. A further copy of the Standard Costs Agreement was supplied on 30 September 2005 with the Service Agreement.
32 Immediately after despatching these documents Mr Zacharia spoke to Mr Metcalfe and told him that, having regard to the volume of containers about which they had spoken, provided downloaded files were received by the plaintiff in a satisfactory format, the plaintiff could do better than $4.50 per container. He told Mr Metcalfe the plaintiff could do $4.00 per container where there were more than 3000 containers per fortnight. Mr Zacharia told Mr Metcalfe that the Service Agreement had been specially created for and couriered to the defendant. He asked Mr Metcalfe to review it and call him.
33 On 4 October 2005 Mr Zacharia emailed to Mr Metcalfe the documents he had couriered to Mr Metcalfe on 30 September 2005.
34 The Service Agreement sent by the plaintiff to the defendant included the following provisions:
“10.3. Receipt by (the plaintiff) of acceptance in writing of these terms and conditions will constitute the entire Schedule for the provision of the (plaintiff’s) services.
10.5. Where the client continues to supply work to (the plaintiff) without a signed document, the plaintiff shall apply the standard schedule services and fees.”10.4. It is agreed between the parties that the above rates and services shall commence 1 October 2005. This document formalises this arrangement by supplying each party a signed copy.
35 After the defendant received the Service Agreement it continued to engage the plaintiff to perform cargo reporting services for it throughout October and November 2005. The plaintiff invoiced the defendant fortnightly for these services and when doing so, charged the defendant on the basis of the prices set out in the Standard Costs Agreement. Mr Zacharia said this was done because the defendant had not signed and returned the Service Agreement.
36 On 24 November 2005 Mr Metcalfe signed the Service Agreement. He sent it to the plaintiff on 25 November 2005. After the plaintiff received it, on or about 25 November 2005, the plaintiff charged the defendant for its services in accordance with the rates set out in the Service Agreement.
37 The plaintiff invoiced the defendant for the following amounts:
Date Invoice Number Amount 7 October 2005 63928 (as
corrected)$15,774.55 21 October 2005 63925 $68,257.20 4 November 2005 63926 $73,126.35 18 November 2005 63972 $73,233.60 2 December 2005 64066 $57,162.05 16 December 2005 64187 $242.00 30 December 2005 64323 $70.40 TOTAL $287,866.15
These charges were made in relation to 15,594 data entries or line transmissions made by the plaintiff on behalf of the defendant. They covered 14,962 containers.
38 The defendant did not pay any of the above invoices and so the plaintiff commenced proceedings on 19 April 2006.
39 On 16 March 2007 the defendant paid the plaintiff the amount of $180,000 which it regarded as all that the plaintiff was entitled to be paid for the services which had been provided.
40 After the hearing date set on 16 June 2007 was vacated on the defendant’s application, the plaintiff filed an Amended Statement of Claim on 19 July 2007. In it, the plaintiff claimed the amount of $300,469 plus interest from the defendant on the basis that it alleged it had properly characterised the defendant as a back-up/contingency client because it did not pay the invoices set out in paragraph 37. On this basis the plaintiff claims it is entitled to charge the defendant $25 plus GST for the first line entered in the CMR, $15 plus GST for every other line, plus any non-compliance fees and consignment status check facility fees. The plaintiff relies on the provisions of the Standard Costs Agreement to make good this amended claim. Calculating the claim this way, the plaintiff arrived at a figure of $480,469 and then credited the defendant with the payment of the $180,000.
41 Alternatively, if the defendant was properly characterised as a client account, then the rates charged in the invoices set out in paragraph 37 are applicable. After allowing the defendant credit for the amount of $180,000 the plaintiff arrives at $107,866.15 plus interest.
42 Mr Metcalfe conceded in cross-examination (T120.28) that when he read the Service Agreement for the first time he could see that it required payment of charges calculated under the Standard Costs Agreement up until the date the Service Agreement was signed. In any event, following the meeting on 26 September 2005, the defendant did not engage anyone else to do the work. Although Mr Metcalfe contacted another party in the industry referred to in the evidence as “EEC”, no instructions were given to EEC; rather, the defendant instructed the plaintiff to do the work the subject of the invoices set out in paragraph 37 above. Apart from a minor issue raised in the Cross-Claim relating to small amounts totalling $5,512.50, the defendant does not dispute the work was done, merely the rate for which it was charged.
43 The defendant pleads three separate matters in its defence:
(a) The plaintiff is estopped from denying that the non-compliant fee would be charged.
(c) That the charging of the non-compliant fee and interest at 12% were penalties and therefore unenforceable.(b) The plaintiff engaged in unconscionable conduct in contravention of s 51AC of the Trade Practices Act 1974(Cth) (“TPA”) and/or s 43 of the Fair Trading Act 1987 (NSW) (“FTA”) from 26 September 2005 to 30 November 2005.
44 The defendant’s estoppel case is that at the meeting on 26 September 2005 the plaintiff, through Mr Zacharia, represented to the defendant, through Mr Metcalfe and Ms Yao, that the Standard Costs Agreement would be amended so as to remove the reference to the so called “Non-compliant fee” of $12 per container in respect of work done by the plaintiff for the defendant relating to jobs submitted by the defendant to the plaintiff later than five business days prior to the arrival of the defendant’s vessel at the first Australian port as per the defendant’s vessel listing posted on its online system.
45 It is also part of the defendant’s estoppel case that the email of 4 October 2005 containing the Standard Costs Agreement and Service Agreement contained a representation by the plaintiff to the defendant that the documents which were sent by the plaintiff to the defendant were “as discussed” at the meeting of 26 September 2005, meaning that the proposed non-compliant fee had been replaced with a provision which required the defendant to give to the plaintiff electronic notice of ship’s manifests on arrival.
46 A discrete part of the defendant’s estoppel case is that the invoice forwarded by the plaintiff to the defendant on 7 October 2005 contained a representation that no non-compliant charge had been levied by virtue of the way in which the invoice had been set out.
47 The final aspect of the defendant’s estoppel case is that between 4 October 2005 and 24 November 2005 (the period during which the Service Agreement awaited Mr Metcalfe’s signature) the plaintiff represented to the defendant that charges under the Service Agreement would apply as from 4 October 2005 rather than from the date the Service Agreement was signed.
48 I now turn to the defendant’s evidence.
49 In his statement of evidence in chief made on 15 June 2007 (part of exhibit 1), Mr Metcalfe acknowledged that the CMR was a completely new way of reporting to Customs, that the plaintiff and the defendant would have to design new software programs which would comply with the new reporting regime and that under the CMR there was more import cargo information which had to be submitted to Customs to obtain clearance than had previously been the case.
50 Mr Metcalfe said he was surprised by what he read in the Standard Costs Agreement, particularly with reference to the new charges proposed by the plaintiff, especially the non-compliant fee of $12 per container in relation to any inbound cargo movements not submitted by the defendant to the plaintiff at least five business days prior to the defendant’s vessel’s arrival at its first port of call in Australia. For this reason Mr Metcalfe instructed Ms Yao to set up the meeting with Mr Zacharia.
51 Mr Metcalfe said, as had Mr Zacharia, that they spoke briefly on the phone on or about 22 or 23 September 2005 before the meeting.
52 Mr Metcalfe also said that he thought it would only be fair on his part to advise the plaintiff at the proposed meeting that the defendant would be purchasing its own software program so that in the future it could lodge information and cargo manifest data directly with Customs rather than utilising the plaintiff’s services. In this respect Mr Metcalfe said that a decision had been made by the defendant to go down this path in January 2005 and that the defendant had got the software package well under way by September 2005 by using the services of an independent software company, Eagle Datamation.
53 Mr Metcalfe said that at the meeting on 26 September 2005 he asked Mr Zacharia to run through the pricing structure and in particular, to explain the “non-compliance” idea. In response Mr Zacharia told him that the non-compliance fees were tied into the date that the plaintiff received a vessel’s manifest. Mr Zacharia said this had previously been charged as a priority fee but from now on was to be called a “non-compliant fee”.
54 Mr Metcalfe said he asked Mr Zacharia why the new charge was being implemented given that Customs would not be imposing penalties until the following year and that Mr Zacharia told him (para 21):
“… one of (the plaintiff’s) problems with the present arrangements is in respect of planning workloads based on when manifests are received as against the vessels’ arrival. To address these problems, relevant terms have therefore been placed in the new proposal at clause 3. The priority charge (Priority Processing Fee) has been replaced by the “non-compliant fee””.
55 Mr Metcalfe said he was aware that under the Customs’ regulations that all inbound sea cargo had to be reported and notified at least 48 hours prior to the scheduled arrival time at the first port of call in Australia of the vessel carrying the cargo.
56 Mr Metcalfe said he was concerned that a “non-compliant” fee would be charged in circumstances where the plaintiff did not receive the relevant information at least five business days prior to the arrival time of the vessel at the first port of call in Australia. This was because much of the defendant’s business provided to the plaintiff would be “non-compliant” as generally the defendant received manifests in relation to its vessels only a few days before the vessel was due to arrive in Australia. Thus, costs to the defendant would increase significantly. Accordingly, Mr Metcalfe told Mr Zacharia that he was concerned with the timeframes shown in the Standard Costs Agreement. The defendant would not be able to meet the requirements for the majority of its trades and as far as the defendant was concerned, he told Mr Zacharia that the “non-compliant fee” was not going to happen. He asked Mr Zacharia how they could work around it.
57 Mr Metcalfe said he then did some calculations and worked out that at $12 a container the defendant was likely to spend $30,000 per fortnight as against an outlay at that time of $6,000 per fortnight. Mr Metcalfe claimed that Mr Zacharia did some calculations himself and told him that the figures were ridiculous and Mr Zacharia asked him to come up with a figure “to use as a replacement” (para 27).
58 Mr Metcalfe then claimed that he said to Mr Zacharia (para 29):
“In order to assist (the plaintiff) with planning workloads, we could send you an electronic manifest that you could download into your system. This would replace the current hard paper copy. You won’t have to gather so much data. We can send you a detailed summary as to when manifests would become available which would allow you to plan your work and resource allocations in advance.”
59 According to Mr Metcalfe, he then informed Mr Zacharia that the defendant was purchasing its own CMR software system and was awaiting final modifications prior to switching to the new system which was likely to be implemented in the next one or two months.
60 It was in the above context that Mr Metcalfe said that Mr Zacharia asked for a one year exclusive arrangement between the plaintiff and the defendant if a new fee structure was put in place. Mr Metcalfe said he rejected a period of 12 months and likewise an alternate suggestion of Mr Zacharia for a 6 months arrangement. Mr Metcalfe said he put forward a period of 2 months on the basis that he told Mr Zacharia that the defendant’s new software system should be operational within that period of time. The meeting then closed and Mr Zacharia told Mr Metcalfe that he would put everything into documentary form and the parties could finalise the rates from there.
61 Shortly after the meeting, Mr Metcalfe said he proposed a $300 flat fee per vessel on top of existing rates and that during a subsequent telephone conversation Mr Zacharia told him the rate needed to be based on a per container rate and that the plaintiff could do a rate on $4.50 per container.
62 Mr Metcalfe said he understood that the proposed rate of $4.50 per container would operate in place of the previously proposed “non-compliant fee” of $12 per container. He therefore believed that the non-compliant fee would be taken out of the Service Agreement and replaced by an agreed flat rate fee of $4.50 per container. According to Mr Metcalfe, this is the reason why the defendant provided the vessel details in the email of 30 September 2005.
63 Mr Metcalfe also said he relied on the fact that Mr Zacharia did not tell him that the non-compliant fee of $12 formed any part of the Service Agreement or, if it did, that it would be enforced. He said his belief was that the non-compliant fee would be taken out of the Service Agreement and replaced by a flat fee of $4.50 per container.
64 Mr Metcalfe conceded that he contacted another company, EEC Sea Cargo Automation (“EEC”) to get a comparison of charges, but EEC was not interested in doing business with the defendant because it would only be on a short-term basis. According to Mr Metcalfe the defendant had therefore absolutely no other alternative than to use the plaintiff.
65 With regard to the invoices sent by the plaintiff to the defendant during the relevant period, Mr Metcalfe claimed in his statement of evidence that he was too busy to query the inclusion in the plaintiff’s invoices of the non-compliant fee of $12 per container. His other excuse was that the non-compliant fee had been charged in error and could be corrected “at some convenient time in the future” (para 57).
66 With regard to the defendant’s failure to sign the Service Agreement, Mr Metcalfe’s explanation was that he was required to lodge it with the directors of the defendant, although he proffered as an excuse that he “simply did not get around to signing the (Service Agreement) … due to time pressures and volume of work and compliance issues …”. However, he realised that if the document was not signed the plaintiff may not be prepared to provide further services to the defendant with the result that the defendant’s cargo could be held up by Customs.
67 Mr Metcalfe said that when he eventually signed the Service Agreement he realised it contained references to the non-compliant fee but he believed that such a fee did not form part of the Service Agreement or would not be enforced and that the agreed fee per container was $4.50. In this respect Mr Metcalfe asserted in his evidence-in-chief that Mr Zacharia deliberately set out to deceive him at the meeting on 26 September 2005 and in subsequent negotiations. However, in cross-examination, Mr Metcalfe unreservedly withdrew his allegation of deceit on Mr Zacharia’s part. Mr Metcalfe also conceded in cross-examination (T 120.28) that he understood that until such time as the defendant executed the Service Agreement the defendant would be paying for the plaintiff’s charges up to that point in accordance with the Standard Costs Agreement.
68 In her statement of evidence-in-chief dated 15 June 2007 Ms Yao said that she telephoned Mr Zacharia on or about 22 or 23 September 2005 after the defendant had received the Standard Costs Agreement and told Mr Zacharia that Mr Metcalfe would like to have a meeting. Ms Yao said she then attended the meeting with Mr Metcalfe at Mr Zacharia’s office at 3.30pm on 26 September 2005.
69 Ms Yao said that at the meeting on 26 September 2005 Mr Metcalfe asked Mr Zacharia to run through the pricing structure and in particular, ask for an explanation of the “non-compliance idea”. Ms Yao said that Mr Zacharia told them that the non-compliance was tied into the date on which the plaintiff received the defendant’s manifest and it had to be five business days prior to the arrival of the vessel. This was to tie in with the new reporting requirements under the CMR. Mr Zacharia told them that he had had to put on more staff during the day when the defendant’s manifests were received in order to process them and meet Customs’ time reporting requirements.
70 Ms Yao said that Mr Metcalfe told Mr Zacharia that the defendant would not be able to meet the requirement of delivering manifests five business days prior to a vessel’s arrival and that as far as he was concerned the non-compliant fee was not going to happen. Ms Yao claimed that Mr Zacharia did some calculations and then told her and Mr Metcalfe that the figures were “ridiculous” and asked Mr Metcalfe to come up with a figure to use as a replacement. Ms Yao said that Mr Metcalfe told Mr Zacharia that the defendant could download its manifests to the plaintiff’s system so that not all details would have to be keyed in manually.
71 Ms Yao also claimed that Mr Metcalfe told Mr Zacharia that the defendant was purchasing its own software system and was likely to switch over to it in one or two months time.
72 Ms Yao said that Mr Zacharia spoke to her on several occasions inquiring about the execution of the Service Agreement by the defendant and on each occasion she told him that he would have to speak to Mr Metcalfe.
73 Counsel for the defendant correctly contended that what was said at the meeting between the parties on 26 September 2005 falls to be determined largely on the Court’s assessment of the evidence of the three witnesses. In this respect, to the extent of any conflict in their evidence, I prefer the evidence of Mr Zacharia over the evidence of Mr Metcalfe and Ms Yao.
74 Mr Zacharia gave his evidence in a straightforward way, but in doing so was careful and thoughtful about it. He impressed me as an honest and truthful witness. Notwithstanding skilful cross-examination, the evidence about the meeting on 26 September 2005 which Mr Zacharia gave in his statements (part of exhibit A) not only remained intact, but in the Court’s assessment, was reinforced by the evidence he gave during cross-examination.
75 On the other hand, I do not regard Mr Metcalfe as a witness who was truthful about the factual matters which were in dispute. From the beginning, my observation of Mr Metcalfe was that he was extremely uncomfortable in the witness box, even when confronted with relatively straightforward questions. In my assessment, Mr Metcalfe displayed an attitude of arrogance towards the plaintiff. His actions demonstrated that he treated the plaintiff contemptuously. The reality was that Mr Metcalfe expected to have his own system on-line within a relatively short period of time and he was furious about the fact that he had to engage the plaintiff prior to that system coming on-line. He was outraged by the revised fees that the plaintiff had decided it wished to charge as demonstrated at the meeting on 26 September 2005 when he told Mr Zacharia he was simply not going to pay a fee of $5.50 for each container. I am also satisfied that his evidence about telling Mr Zacharia that the defendant would have its own system on line in two months was completely untrue. Mr Metcalfe said no such thing.
76 The defendant’s case on the first representation fails not only because I accept Mr Zacharia’s evidence, but because, when pressed in cross-examination, Mr Metcalfe conceded that no such statement or representation was ever made at the meeting on 26 September 2005. Mr Metcalfe’s evidence at T 114.28 was:
“Q. Please answer my question, Mr Metcalfe. You thought the deal you had hammered out – you’ve agreed with this already – was that you wouldn’t be charged non-compliance fees. You thought that was the deal?
A. The deal hadn’t been completed. Zac had asked us to go away and come back with a figure that we thought we could substitute. He asked us to go away and think about it, and come back with a new rate. So the deal hadn’t been done, but that’s where we were.
Q. Whatever the rate was going to be involved – I thought you just agreed with this proposition, Mr Metcalfe – there would be no non-compliance fee. Is that right?
A. Yes.
Q. You took a while to answer that. Are you a bit unsure about it?
A. No.
Q. Do you have your statement of 15 June 2000 there in front of you still?
A. Yes.
Q. You have complained that you’d be paying too much for this service, particularly if a non-compliant fee was involved, haven’t you?
A. Yes.
Q. According to your affidavit, what he said to you was, “Why don’t you come up with a figure to use as a replacement?”
A. Paragraph?
Q. 27, according to your statement. Just have a look at that.
A. Thank you.
Q. Do you see that?
A. Yes.
Q. That’s all he said to you, wasn’t it?
A. Yes
Q. He didn’t say there will be no non-compliant fee at all, did he?
A. (No verbal reply)
Q. Well, did he?
A. In those exact words, no.
Q. You’ve given us the exact words, as best you recall, that he used, in paragraph 27, haven’t you?
A. Yes
A. No.”Q. It doesn’t even come close, does it, to “there will be no non-compliance fee”?
77 In the case of Ms Yao, whilst I do not consider that she deliberately lied to the Court, nevertheless, I regard her evidence as untruthful and unreliable. Leaving aside the remarkable similarity between Ms Yao’s evidence-in-chief and that of Mr Metcalfe (the responsibility for which was acknowledged by the defendant’s solicitor in his affidavit, Exhibit 3), my assessment of Ms Yao whilst giving her evidence was that she was extraordinarily loyal to Mr Metcalfe and this entirely clouded and affected her recollection of events, particularly what transpired at the meeting on 26 September 2005. At the end of the day I am satisfied that Ms Yao was prepared to say anything which would support Mr Metcalfe’s version of events and the defendant’s case. This infected her evidence and I therefore do not accept it insofar as it conflicts with the evidence of Mr Zacharia.
78 Mr Metcalfe knew when he left the meeting on 26 September 2005 that Mr Zacharia would confer with the plaintiff’s management to see if the plaintiff might be able to shave off $1 per container, given the volume of vessels envisaged and that Mr Zacharia would put something together in documentary form and the parties would work on a rate from there. In this respect, I am satisfied that Mr Metcalfe simply did not like the terms of the Service Agreement when it was supplied to him and although initially he sought to convince the Court that it was up to the directors of the defendant to sign the document, this was not true because the execution of the Service Agreement was a matter entirely within Mr Metcalfe’s control. I am satisfied that Mr Metcalfe only signed the Service Agreement at the last minute because he was worried that, if he did not, the plaintiff might decide not to provide services to the defendant when the defendant was still in need of those services because its software system had not been finalised. Up until that point, Mr Metcalfe had ignored the invoices which the plaintiff had sent him because he simply did not want to pay them. In my assessment, Mr Metcalfe took the view that because he had not signed the Service Agreement there was no contract in place. In reality, Mr Metcalfe thought he had the upper hand because the plaintiff had done the work but he could decide whether or not the defendant had to pay for the work at the rates charged in the invoices. This attitude was demonstrated by the defendant’s eventual payment of $180,000 which was purely arbitrary and based on what Mr Metcalfe thought would bring the matter to a close.
79 It follows that the second representation was not made either because the Court is satisfied that at no time during the meeting on 26 September 2005 did Mr Zacharia ever discuss replacing the non-compliant fee merely with a provision in a contract which simply required the defendant to give the plaintiff electronic notice of ships’ manifests on arrival.
80 The third representation is said to have arisen from invoice 63644 dated 7 October 2005 which shows that a non-compliant fee was charged and the charge was reversed. Mr Zacharia’s evidence was that the plaintiff decided to waive the charge on a one-off basis. I accept this evidence. In any event, there is nothing on the face of the invoice to suggest that the plaintiff would never charge a non-compliant fee. In fact, such a fee appeared in all subsequent invoices.
81 Accordingly, the third representation is not made out.
82 The fourth representation is not made out either. No one ever told the defendant that the charges under the Service Agreement would apply retrospectively once the document was signed. Moreover, as already stated, Mr Metcalfe conceded in cross-examination that when he looked at the document he understood that the rates under the Standard Costs Agreement would apply up to the date that the Service Agreement was signed (T 120.28).
83 In paragraph 25 of its defence the defence alleged that the plaintiff was guilty of unconscionable conduct between 26 September 2005 up until 30 November 2005 without particularising the nature of that conduct. It was touched upon by counsel for the defendant in his oral submissions and reference was made to the provisions of s 51AC (3) (a) (b) (c) (d) (e) (i) (j) and (k) TPA inclusive.
Section 51AC (3) (a)
84 It was submitted that the plaintiff had the defendant over a barrel, leaving the defendant with no other choice than to agree to pay charges which counsel for the defendant described as “unconscionable”. However, the bargaining positions of the plaintiff and the defendant were equal as demonstrated by the fact that although the plaintiff initially wanted a contract for one year and then for six months, the defendant agreed to neither and the plaintiff was stuck with a period of two months.
85 In any event the defendant was a wholly owned subsidiary of a large multi-national operating from China and was in a position, if Mr Metcalfe had chosen to do so, to take steps to engage a third party to do the work. He decided not to do so because he believed he could get away with paying the plaintiff an amount which he initially considered was fair.
Section 51AC (3) (b)
86 There was no evidence before the Court to support a submission that the conditions of the Standard Costs Agreement or the Service Agreement were anything other than reasonably necessary to protect the plaintiff’s legitimate interests.
Section 51AC (3) (c)
87 Through Mr Metcalfe, the defendant had access to solicitors to have the contractual documents reviewed. He chose not to adopt this course. In any event, Mr Metcalfe agreed that he understood the documents once he read them and before they were signed.
Section 51AC (3) (d)
88 There was no evidence in support of any submission that the plaintiff exercised undue influence or engaged in unfair tactics. The parties were in an equal bargaining position. The defendant received the Standard Costs Agreement well in advance of its intended date of operation, 1 October 2005 and after receipt of this document, negotiations took place culminating in the Service Agreement. There is no evidence that the plaintiff forced the defendant in any way, shape or form to execute the Service Agreement. Mr Metcalfe signed it on behalf of the defendant in order to procure further services from the plaintiff.
Section 51AC (3) (e)
89 There is no evidence before the Court which would support a submission that the defendant could have acquired identical or equivalent services from a party other than the plaintiff at any different rate or otherwise. Mr Metcalfe contacted another provider of cargo reporting services but was vague about the rates applicable. Mr Metcalfe simply did not bother to take any further steps to engage anyone else, let alone inform himself as to the rates that might be charged by third parties.
Section 51AC (3) (i)
90 By mid September 2005 the plaintiff had disclosed the rates and terms it proposed to charge the defendant because the defendant had received from the plaintiff the Standard Costs Agreement. Mr Metcalfe was well aware of what was contained in that agreement because he asked for a meeting with Mr Zacharia. The result was that the parties entered into the Service Agreement. In the circumstances there was no failure by the plaintiff to disclose any intended conduct or risks arising therefrom.
Section 51AC (3) (j)
91 The plaintiff entered into negotiations with the defendant and was prepared to provide a discount for its services in accordance with the Service Agreement. The defendant chose not to execute the document until 25 November 2005. In those circumstances, the defendant cannot rely on the provisions of the sub-section.
Section 51AC (3) (k)
92 There is no evidence to support a submission that the plaintiff acted other than in good faith.
93 In paragraph 26 of the defendant’s further amended defence filed on 10 August 2007, the defendant pleads as follows:
“26. Further or in the alternative, the defendant says that the plaintiff’s “non-compliant” fees and/or the charging of interest at the rate of 12% per annum on all outstanding amounts are void and unenforceable as they are a penalty and contrary to public policy.”
94 In Ringrow Pty Limited v BP Australia Pty Limited (2005) 222 ALR 306 at para 12 the High Court proceeded on the basis that Dunlop Pneumatic Tyre Co Limited v New Garage and Motor Co Limited (1915) AC 79 continued to express the law applicable in Australia on penalties. At 86-87 in that case Lord Dunedin provided the following formulation:
“2 The essence of a penalty is a payment of money stipulated as in terrorem of the offending party; the essence of liquidated damages is a genuine covenanted pre-estimate of damage …
3. The question whether a sum stipulated is penalty or liquidated damages is a question of construction to be decided upon the terms and inherent circumstances of each particular contract, judged of as at the time of the making of the contract, not as at the time of the breach …
4. To assist this task of construction various tests have been suggested, which if applicable to the case under consideration may prove helpful, or even conclusive. Such are:
(a) It will be held to be a penalty if the sum stipulated for is extravagant and unconscionable in amount in comparison with the greatest loss that could conveivably be proved to have followed from the breach …
(c) There is a presumption (but no more) that it is a penalty when “a single lump sum is made payable by way of compensation, on the occurrence of one or more or all of several events, some of which may occasion serious and others but trifling damage”.”(b) It will be held to be a penalty if the breach consists only in not paying a sum of money, and the sum stipulated is a sum greated than the sum which ought to have been paid …
95 Counsel for the defendant submitted that the non-compliance fee and interest rate of 12% claimed by the plaintiff and “the indemnity costs claim” fell squarely into the characterisations above: see paragraphs 15-26 of his written outline.
96 The non-compliance fee is dealt with at pages 7 and 8 of the Standard Costs Agreement as follows (“CCA” being a reference to the plaintiff):
“Page 7 – -CCA timelines (CETA) – To avoid any extension fees, clients are required to submit their jobs to CCA no later than 5 business days (before 1pm) PRIOR to the importing vessel’s arrival at the FIRST Australian port per CCA’s vessel listing posted on CCA’s online system (for short transits refer below)
Page 8-Where non-compliance to CCA reporting timelines is identified by CCA at time of receipt of your request CCA will as part of the service to reporting and meeting Customs compliance on behalf of the client, supply the required resources and move your request to the front of the process queue to ensure timelines are met or at worst reduced. The supply of such required resources and process will incur additional charges per CCA’s vessel listing posted on CCA’s online system See CCA Timeline Reporting Extension Charge Table
Per Message line, Transmission
Or Type+ $15.00 each
* Where notified prior to “scheduled” Service Category of short transit cargo and quantities e.g. from New Zealand – CCA will work closely with you to determine appropriate timelines.”
97 On any view, it could not be said that the charging of the non-compliance fees fell within Lord Dunedin’s second or third categories set out above. As to category one, there has to be a breach of contract before the question of a penalty arises. In my opinion, no such breach was established on the evidence. The contract simply provided that the plaintiff could charge a higher rate if the information was not received from the defendant within a certain period of time. The defendant had no contractual obligation to supply the information within that limited period. Rather, it simply had two options; supply within a specific time and pay a specific rate; supply outside that time and pay a different rate. On this ground alone the penalty argument fails.
98 Apart from the above, the evidence establishes that the plaintiff incurred some additional labour costs by way of late receipt of the information from the defendant because it had to ensure that the defendant went to the top of the queue so that Customs would have the required information by the required deadline it had imposed under the new regime. Although it is true in cross-examination that Mr Zacharia could not be particular about the breakdown of the $12 non-compliance fee, the defendant did not discharge the onus it had in establishing what the greatest loss was that the plaintiff suffered so that a comparison along the lines envisaged by Lord Dunedin in his first category could be made.
99 So far as the interest rate of 12% is concerned, the Courts have long recognised the legitimacy of parties to commercial contracts agreeing that a high rate of interest can be charged in respect of defaulting accounts. The plaintiff’s right to charge interest at this rate is contained in clause 17 of its general terms and conditions. There was no evidence to suggest that the defendant was placed under any pressure to agree to this rate (which had applied for some time prior to 1 October 2005) and the rate is not exorbitant, especially having regard to the rate which applies under the Rules of Court on unsatisfied judgments.
100 Similarly, the Courts have long recognised that parties to a contract are free to include provisions which impose obligations on one party to pay the other parties’ costs in the event that the party which is the creditor has to take steps to recover its debts and incur costs in the process of doing so. Accordingly, the plaintiff’s claim to recover costs from the defendant under Clause 18 of the plaintiff’s general terms and conditions does not constitute a penalty.
101 At this point it is convenient to deal with the plaintiff’s claim for indemnity costs because it is based on Clause 18 of the plaintiff’s general terms and conditions as follows:
“Where the customer fails to finalise the (plaintiff’s) account, (the plaintiff) shall within 28 days of termination issue the outstanding debt to its solicitor or a collection agency not excluding CRA and all costs and expenses of enforcing the debt shall be borne by (the defendant).”
102 There is no mention of indemnity costs in Clause 18, nor is there is specific reference to the plaintiff’s costs incurred in the context of Court proceedings or the basis of the assessment of any such costs. In my opinion, therefore, a proper reading of Clause 18 does not disclose that it amounts to a contract of indemnity between the parties. At its highest, Clause 18 operates to provide a contractual entitlement in favour of the plaintiff to recover its costs of the proceedings assessed on the ordinary basis.
103 The plaintiff seeks to recover the higher amount of $300,469 plus interest on the basis that it had properly characterised the defendant as a Back up/Contingency client because the defendant did not pay the invoices set out in paragraph 37. In my opinion, the plaintiff is not entitled to recover the higher amount for the following reasons.
104 The plaintiff invoiced the defendant on the basis that it was an ordinary “Account Client” not a Back up/Contingency client (refer paragraph 12). The process of classification is predicated upon the plaintiff’s accounts department making such a determination for each invoice period. In my opinion, that determination was made in each and every case when the invoices set out in paragraph 37 were despatched by the plaintiff to the defendant. In those circumstances, particularly since the contract has come to an end, it is too late for the plaintiff to attempt to change its mind and seek to re-classify the defendant as a different sort of client. In my opinion, it had no contractual entitlement to do so. Clearly, it was an afterthought in the context of the litigation as paragraph 146 of Mr Zacharia’s statement of evidence dated 26 April 2007 makes clear.
105 That leaves for determination the defendant’s allegation pleaded in its cross-claim that the plaintiff charged the defendant for data entry tasks and corrections which were necessary because of errors made by the plaintiff incorrectly making certain entries in the first instance. The parties agreed that the amount in dispute in this respect was $5,512.50.
106 The amount of $5,512.50 was said to comprise of the following components:
(a) A so-called “container stripping” error in the entry of data.
(c) Multiple charging in respect of a single Customs’ data or manifest entry.(b) A “forwarder indicator” error in the entry of data.
107 I accept the submission made by the plaintiff that there is simply no evidence to suggest that the plaintiff was responsible for the stripping of a container. The evidence suggests that if there was a problem it was one emanating from the computer program of Customs, the difficulties about which were explained by Mr Zacharia in his statement made on 20 July 2007 at paragraph 32. I accept this evidence.
108 There is also no evidence to suggest the plaintiff was responsible for any forwarder indicator error. Again, I accept the evidence given by Mr Zacharia in his statement of evidence dated 8 February 2008 in paragraphs 19-32.
109 Finally, there is no evidence in support of the defendant’s allegation that the plaintiff charged it more than once for the exact same work. The plaintiff charged the defendant per entry which included amendments, adjustments, re-lodgements, cancellations of manifests and the marking of freight forward indicators. The defendant has failed to discharge the onus in respect of this item, particularly having regard to the evidence contained in paragraphs 33-48 of Mr Zacharia’s statement of 8 February 2008. I accept this evidence.
110 In the result the Court makes the following orders:
1. On the plaintiff’s claim, Verdict for the Plaintiff against the Defendant in the amount of $107,866.15.
2. Order the defendant to pay interest on the above amount in accordance with the provisions of Clause 17 of the plaintiff’s General Terms and Conditions.
4. Direct that the exhibits be returned to the parties.3. On the Cross-Claim, Verdict and Judgment for the Cross-Defendant.
111 Costs should follow the event on the ordinary basis, but I will hear submissions if either party wishes to contend otherwise for reasons unrelated to the Court’s determination of the plaintiff’s contractual entitlement to recover indemnity costs.
112 To enable the plaintiff to do the interest calculations, I stand these proceedings over for mention before me on Monday 2 June 2008 at 10am when Judgment will be entered on the plaintiff’s claim.
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