ETT v IPstar Australia

[2008] NSWSC 644

CITATION:	ETT v IPSTAR Australia [2008] NSWSC 644
HEARING DATE(S):	13/06/08
JUDGMENT DATE :	16 June 2008
JURISDICTION:	Equity
JUDGMENT OF:	White J
EX TEMPORE JUDGMENT DATE:	16 June 2008
DECISION:	See paras 57 and 58 of judgment.
CATCHWORDS:	INJUNCTION – interlocutory injunction – serious question of construction of agreement for appointment of exclusive distributor of broadband satellite products - balance of convenience – no evidence that defendant will be better off if interlocutory injunction refused – difficult to assess plaintiff’s loss if injunction refused – injunction granted - CONTRACT – construction – compulsory arbitration clause – parties reserved their right to seek urgent equitable relief – interlocutory injunction requires that final relief is sought – whether arbitration and litigation seeking urgent equitable relief are alternative courses – comment that the two courses are not necessarily alternatives
LEGISLATION CITED:	Commercial Arbitration Act 1984 (NSW)
CASES CITED:	Ferris v Plaister; Stap v Gray (1994) 34 NSWLR 474 Seeley International Pty Limited v Electra Air Conditioning BV [2008] FCA 29
PARTIES:	ETT Limited v IPSTAR Australia Pty Ltd
FILE NUMBER(S):	SC 3099/08
COUNSEL:	Plaintiff: J Robson SC & T Baw Defendant: J Garnsey QC & D G Charles
SOLICITORS:	Plaintiff: Macpherson + Kelley Lawyers Defendant: Arnotts Lawyers

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
DUTY JUDGE LIST

WHITE J

Monday, 16 June 2008

3099/08 ETT Limited v IPSTAR Australia Pty Ltd

JUDGMENT

1 HIS HONOUR: This is an application for an interlocutory injunction restraining the defendant until further order from acting upon or implementing a purported notice of termination dated 30 May 2008 of an agreement dated 30 October 2007 between the plaintiff and defendant. The defendant is a supplier of broadband satellite products and services using technology licensed by its parent. By the agreement dated 30 October 2007 it appointed the plaintiff as its Australian national service operator (“NSO”) with the exclusive right to distribute its products and services in Australia.

2 In the agreement the plaintiff is called "the NSO” and the defendant "IPA". The agreement is for 12 years from 1 January 2008, subject to specific provisions for early termination or extension. The plaintiff is required to purchase from the defendant minimum quantities of satellite-based bandwidth and customer premises equipment (“CPE”). An example of the latter is satellite dishes.

3 When the agreement was entered into the defendant had established relationships and contracts with internet service providers to which it supplied bandwidth and CPEs. In general terms, the contract with the plaintiff provides that if a service provider fails to agree on and execute the plaintiff's standard terms and conditions, the defendant can continue to provide bandwidth (called “NDB Capacity Service”) and CPEs to such service providers on its current terms, provided that it purchases the NDB Capacity Service and CPEs from the plaintiff. The repurchase is to be at a mark-up of 10 percent. There is evidence that one existing service provider had agreed to the plaintiff's standard terms and conditions, but none of such service providers has executed the plaintiff's standard service provider terms and conditions.

4 A major issue on this application is the price at which the defendant is required to repurchase the NDB Capacity Service. A second question is whether the defendant is required to pay for the repurchase of CPEs and NDB Capacity Service in respect of supplies to a particular internet service provider, Australian Private Networks Pty Limited (“APN”).

5 The defendant claims that as at 30 May 2008, the plaintiff was indebted to it, after giving credit for repurchases, in the sum of $8,710,867.31. It claims that as at 30 May 2008, this debt was outstanding for more than 30 days. On that day it gave notice of termination of the agreement effective five days from the date of the letter.

6 The plaintiff says that the defendant did not correctly calculate the credit in its favour in respect of repurchases. The plaintiff claims the defendant is indebted to it in the sum of $1,804,464.81 as at 30 May. It also says that the defendant should be restrained from giving effect to its notice of termination because the parties had agreed to refer any such matter to arbitration.

7 The critical clauses of the agreement are as follows. Clause 2.3 provides:

" Subject to take-or-pay conditions specified in Appendix A, IPA hereby agrees to provide and reserve the NDB Capacity Service for the NSO in the Territory on a Full Time Basis and the NSO agrees to utilize the NDB Capacity Service … ”

8 Clause 2.3.5 provides:

“ Subject to Clauses 2.4, 2.5 and Appendix A, IPA shall provide the NSO with a revocable (only in accordance with clause 2.5), non-transferable, exclusive right, in the Territory, to acquire the NDB Capacity Service and the CPE from IPA and the exclusive right to offer all IPA’s IPSTAR™ service providers the NDB Capacity Service and the CPE provided that such IPA’s IPSTAR™ service providers agree to and execute the NSO’s standard service provider terms and conditions for the provision of the NDB Capacity Service and CPE. Where an IPA’s IPSTAR™ service provider fails to agree and execute the NSO’s standard terms and conditions, IPA may continue, without liability to the NSO, to provide the NDB Capacity Service and CPE to such service providers on its current terms and conditions, provided that IPA purchases such NDB Capacity Service and CPE from the NSO based on the agreed terms and conditions in Appendix D. NSO retains the right to accept service providers that fail to agree to its standard terms and conditions and receive assignment of existing contracts with such service providers from IPA provided that NSO accepts ALL service providers contracted with IPA at the date of execution of this Agreement who fail to agree to its standard terms and conditions .”

9 The agreement further provides:

“ 2.4 The NSO agrees to purchase from IPA and IPA agrees to sell CPE to the NSO in accordance with the terms and conditions in Appendix A and Appendix I.
...
5.1.1 The Service Fee and the CPE Fee under this Agreement and their payment schedule shall be in accordance with Appendix A, subject however, to the provisions of clauses 8 and 12.
5.1.2 Payments of Service Fee and the CPE Fee shall be made by the NSO in advance, on or before the Due Date of Payment as specified in Appendix A. ...
...
12.7.1 If the NSO fails to make any payment under this Agreement and such amount remains unpaid for a period of more than thirty (30) days after the Due Date of Payment;
...
12.8 Upon the termination of this Agreement in the circumstances described in clause 12.6, and without prejudice to the other rights or remedies of IPA under this Agreement or at law:
12.8.1 The Deposit (if any) as set out in Appendix A shall be forfeited;
...
23. DISPUTE RESOLUTION
23.1 Any dispute arising out of or relating to this Agreement shall be defined by notice by the Party raising it to the other and shall forthwith be discussed on a ‘without prejudice’ basis by a representative from each Party in an attempt to resolve their differences amicably. All discussions as to any matter in dispute shall be held in such place and in such manner as shall be appropriate and most convenient to the Parties.
23.2 If discussion between the Parties fails to produce agreement between them on the matter in dispute under clause 23.1 or if the Parties fail to reach agreement within twenty (20) working days from the date of service of a notice defining a dispute under clause 23.1, the matter shall be referred to and finally settled by arbitration under the Rules for the Conduct of Commercial Arbitrations for the time being of the Institute of Arbitrators & Mediators Australia subject to clauses 23.3. to 23.4 inclusive.
23.3 Unless otherwise agreed, the arbitration shall be conducted in Sydney, Australia.
23.4 The arbitration award shall be final and binding on the Parties. The costs of the Arbitration shall be shared by the Parties equally.
23.5 Nothing in this clause shall prevent a Party from seeking urgent equitable relief before an appropriate Court.
24. BILLING DISPUTES
24.1 If the NSO disputes any Service Fees and/or CPE Fees (‘Charges’), it must notify IPA at least 7 days prior to the due date of the relevant Charges.
24.2 Notification effected in accordance with Clause 24.1 must contain a copy of the relevant invoice, the amount disputed, the amount not disputed, comprehensive reasons for the dispute and must contain a statement that the notification is for the purposes of this Clause 24.
24.3 For the avoidance of doubt, all Charges must be paid by their Due Date of Payment, regardless of whether any Charges are disputed by the NSO. Where an adjustment to Charges is required in accordance with this Agreement, the NSO shall deduct that portion of the Charges that it was not obligated to pay to IPA from the next month[‘]s payment of Charges. ”

10 The deposit referred to in clause 12.8.1 is $3,000,000 and has been paid.

11 Clauses 2 and 3 of Appendix A relevantly provide:

“ 2. Minimum purchase and order requirements (Take or Pay Basis)
2.1 The minimum NDB Capacity Service and CPE purchase commitments specified in Table A-5 specify the minimum requirements for the NSO to purchase the NDB Capacity Service (in the form of minimum payments per month) and CPE in each month during the Service period on a TAKE-OR-PAY basis.
2.2 ‘TAKE-OR-PAY’ means the NSO must pay at least the minimum amounts specified in Table A-5 regardless of whether or not they utilise the amount of NDB Capacity Service and/or CPE and the NSO is entitled to for those minimum payment amounts regardless of any other circumstances of the NSO.
3. Service Fee
The NSO shall purchase and make the payment to IPA for the NDB Capacity Service each month according to the minimum Service Fee specified in Table A-5.
... ”

12 Table A-5 specified minimum service fees in dollar amounts per month. For example, in the months of March and April 2008 the minimum service fees on NDB Capacity Service were A$587,887 and A$624,010 respectively. Table A-5 stipulated minimum CPE orders. The minimum CPE order was 2,000 units for January to April 2008 and 3,000 units in May and June 2008. Minimum service fees in dollars and minimum units of CPE were specified for each month up to 2019. Table A-5 does not specify what bandwidth, that is NDB Capacity Service, will be provided in respect of which the minimum fee is to be paid.

13 Clause 3 of Appendix A also provides:

“ The provision of the NDB Capacity Service is categorized into Spot Beams, Shaped Beam [sic] . The Service Fee for Spot Beams, Shaped Beam, and Broadcast Beam is set out in Tables A-1, A-2, and A-3, respectively. ”

14 There is no Table A-3 and it was common ground that the reference to broadcast beams is otiose. Spot beams and shaped beams refer to different types of satellite beams. Spot beams are focused on and around the major centres of population and have substantially higher upward and downward capacity than shaped beams. The latter cover a far wider area; effectively the bulk of the continent. Tables A-1 and A-2 stipulated a unit price for bandwidth supplied as spot beams or shaped beams expressed in dollars per megabits per month. A higher fee per megabit per second per month is payable for the supply of shaped beams than spot beams.

15 It was common ground that the defendant is able to record the level of use and supply of bandwidth and charge either the plaintiff or its existing service providers accordingly. Thus, depending upon the capacity used, it is able to calculate whether the minimum monthly service fee has been reached. If the plaintiff purchases additional NDB Capacity Service over and above the minimum amount implied by the minimum service fees in Table A-5, then it would pay for the capacity used based on the prices in Tables A-1 and A-2.

16 Clause 4 of Appendix A provides:

“ 4. Minimum CPE orders and payments (Take or Pay Basis)
The minimum CPE orders in Table A-5 shall set out the minimum requirements for the NSO to purchase CPE on a monthly basis. The minimum CPE purchase shall be applicable even when the total actual CPE orders from the NSO (or sales by the NSO) are less than the minimum CPE requirements.
...
4.3 If the actual CPE orders in the Current Month are less than the minimum CPE requirements at the end of each monthly milestone (the ‘Shortfall’), the NSO shall purchase the amount of CPE required to make up for the Shortfall within the earlier event of the followings [sic] (the ‘Purchase Deadline’):
4.3.1 ninety (90) days of the end of the Current Month;
4.3.2 the 31st December of the year such the CPE is required to purchase.
4.4 If after the Purchase Deadline, the NSO has not fulfilled the CPE purchase requirement for the Shortfall, IPA shall immediately issue the invoice for the CPE amount which is required to purchase within the Purchase Deadline but has not been ordered by NSO yet and the NSO shall pay to IPA within thirty (30) days of receipt of such the invoice (the ‘Due Date of Payment’). ”

17 Clause 5 of Appendix A and Table A-4 specify the prices for CPE according to three different specifications.

18 Appendix D deals with the transfer by the defendant to the plaintiff of the defendant’s existing service providers and the repurchase charges payable by the defendant to the plaintiff in accordance with clause 2.3.5 if the defendant continues to supply an existing service provider who fails to agree on and execute the plaintiff's standard terms and conditions. Appendix D relevantly provides:

“ 1. Transfer procedure of existing IPA’s IPSTAR™ service providers
By entering into this Agreement and becoming the IPSTAR™ National Service Operator in the Territory, IPA agrees to transfer its existing service providers to be directly managed by the NSO. The commitment of IPA shall be as follows:
1.1 IPA shall upon the NSO’s facilitation and cooperative effort use its best endeavours to transfer IPA’s IPSTAR™ existing service providers (the ‘Existing SP’) to the NSO within a 3-month period from the Commencement Date.
1.2 If the transfer of the Existing SPs cannot be done for any reason (the ‘Non-transferred SP’) within the period set out in clause 1.1 above, IPA shall continue providing services directly to such Non-transferred SP under its existing IPSTAR™ bandwidth agreement(s) by re-purchasing NDB Capacity Service and/or CPE from the NSO according to the following terms and conditions:
1.2.1 The NSO shall re-sell the NDB Capacity Service and/or CPE based on Table D1.
1.2.2 The re-purchase conditions of NDB Capacity Service and/or CPE under this clause 1.2 shall be in effect from the Commencement Date and valid until:
(a) the Non-transferred SP have been transferred to be directly managed by the NSO; or,
(b) IPSTAR™ bandwidth agreements between IPA and the Non-transferred SP have been terminated.
1.2.3 The NDB Capacity Service shall be re-purchased in the portion equal to the aggregate order of the Non-transferred SP based on Table D1.
1.2.4 The charges in relation to NDB Capacity Service and/or CPE re-purchase shall be as specified in Table D-1

Table D-1 : NDB Capacity Service and CPE re-purchase charges.

Charges	Payment Due Date
NDB Capacity Service (based on 84cm CPE)	10% above the NSO’s buy price from IPA	Off set with the NSO monthly NDB Capacity Service payment to IPA of the corresponding period
84cm CPE devices dish with 1 W BUC and router controller (satellite modem or indoor unit)	10% above the NSO buy price from IPA	Off set with the NSO’s monthly CPE payment to IPA of the corresponding period

19 Clause 1.2.6 provides:

“ CPE charge in Table D-1 shall be based on the CPE terms and conditions specified in clauses 5.4-5.5 of Appendix A. ”

20 The key words in Table D-1 are “the NSO’s buy price from IPA”. That expression is not defined.

21 As I have said, none of the internet service providers who were customers of the defendant as at 30 October 2007 has executed the plaintiff's standard service provider terms and conditions. None of the existing contracts between the defendant and its service providers has been assigned to the plaintiff, although by letter dated 29 May 2008 the plaintiff exercised its right under clause 2.3.5 to require the defendant to assign all non-transferred service providers.

22 The defendant has continued to supply at least some of its existing service providers. There is an issue as to whether it has continued to supply one provider, namely, APN. The defendant calculates the credit to which the plaintiff is entitled under clause 2.3.5 of Appendix D on the basis of the prices specified in Tables A-1 and A-2 applied to the quantities of bandwidth supplied to those service providers plus the mark-up of 10 percent. The plaintiff claims that the defendant is indebted to it for the total amount of the minimum fees payable by the plaintiff in accordance with Table A-5, plus the mark-up of 10 percent. It says that the minimum service fee specified in Table A-5 is the price it has had to pay for the bandwidth the defendant has repurchased for supply to the service providers and hence is the NSO buy price within the meaning of Table D-1.

23 There is no dispute as to the price at which the defendant is required to repurchase CPEs for supply to its existing service providers. It is the per unit price at which the plaintiff buys CPEs from the defendant plus 10 percent. The dispute in relation to the repurchase of CPEs is that the defendant's calculation excludes customer hardware supplied to APN.

24 In its notice of termination the defendant claimed the plaintiff was indebted to it for the bandwidth service fee in the months of January to April 2008 in the sum of $2,507,232.20. This was in accordance with Table A-5. The defendant gave credit of $829,586.09 for the "Balance of ISP Bandwidth usage exclusive of APN". The plaintiff says it is entitled to a credit of $2,757,955.42, being a 10 percent mark-up on its minimum monthly service fees.

25 The defendant claims that the plaintiff is indebted to it for $11,647,610.77 for hardware ordered and purchased by the plaintiff pursuant to its minimum purchase obligations. It gives credit to the plaintiff of $4,614,389.57 in respect of hardware supplied by it to service providers. The plaintiff claims it is entitled to a credit of $12,812,371.84, being the price payable by it plus the 10 percent mark-up. The difference, it seems, relates to equipment supplied to APN.

26 The evidence regarding arrangements with APN was meagre in the extreme. Senior counsel for the defendant said that there was an informal agreement or arrangement between the parties regarding APN, but neither party gave evidence as to what that agreement or arrangement was. The defendant did not give evidence to the effect that it had not supplied bandwidth or CPE to APN. It tendered various invoices, purchase orders and payment details, but did not attempt to explain the confused picture those documents create. For example, the documents tendered show that for the month of January 2008 the plaintiff invoiced APN for $397,658.96 for "APN retail plan January 2008" but it also issued a credit note for the same amount. The defendant also issued an invoice in the same amount to APN for "monthly service fee – IPstar bandwidth service fee for period Jan 08”. There was no explanation for this, but on the face of those documents, it would appear that APN was charged by the defendant, but not by the plaintiff, for bandwidth supplied in that month. APN appears to have been invoiced by both the plaintiff and the defendant for hardware as well as for bandwidth, although at least some credit notes were issued by the plaintiff. Documents were tendered by the defendant from APN suggesting that payments were made to an account in the name of Ultimate Internet Pty Limited (a subsidiary of the plaintiff) totalling $2,100,000, but what those payments were for was unexplained. In any event, such payments do not negate the possibility, asserted by the plaintiff to be a fact, that the defendant supplied hardware and bandwidth to APN, as various of the documents tendered by the defendant also suggest. That is so even if the plaintiff also made some such supplies. Presumably questions thrown up by these documents could be answered, but they were not answered by the evidence adduced on this application.

27 On the question of the amount payable where the defendant repurchases bandwidth for supply to its existing service providers, the defendant pointed out that the relevant sentence in clause 2.3.5 required it to repurchase from the plaintiff "such NDB Capacity Service", that is, the NDB Capacity Service it provided to existing service providers. This was not all of the NDB Capacity Service the plaintiff was required to pay for by the minimum monthly service fee. However, although the evidence did not explain this clearly, it appears to be common ground that the defendant did not physically supply all the bandwidth which the plaintiff was required to purchase by a payment of the monthly minimum fee, but only the bandwidth to be supplied to the internet service providers for their retail customers to the extent there was demand for it.

28 Accepting that the defendant is required only to pay the price for such bandwidth as it supplies to its service providers one asks what was the plaintiff’s buy price for such bandwidth? If, as I understand the plaintiff to contend, no bandwidth was supplied to it in addition to the bandwidth supplied to the existing service providers, then it follows, so the plaintiff says, that the price it was liable to pay for all such bandwidth was not the unit price in Tables A-1 and A-2, but the total minimum monthly fee.

29 The defendant submits that I should decide this question on a final basis. In cases where interlocutory injunctive relief is sought a court will usually decide questions of law, if time permits and it is otherwise possible to do so. The present is not such a case. I cannot exclude the possibility of there being further evidence of the objective matrix of facts which would be admissible to construe the agreement. Moreover, because of the uncertainties as to what bandwidth and hardware has been supplied by the defendant to APN, the uncertainty as to what was the arrangement, if any, between the parties concerning APN, and the uncertainty as to what physically was supplied, a final decision on this question of construction would not resolve the issues.

30 I do not consider that the plaintiff's argument, as outlined above, is untenable. In this respect the defendant referred to clause 1.2.3 of Appendix D which provides for the NDB Capacity Service to be repurchased "in the portion equal to the aggregate order of the Non-transferred SP …”. It is not clear to me what that means. The words "the aggregate order of the Non-transferred SP” may mean the aggregate of the orders placed by the non-transferred service providers whom the defendant supplies. I do not know what else it might mean, but that is not to say that further evidence of the background facts might not prove enlightening. If that is the meaning of these words, then the clause reinforces clause 2.3.5 in that the defendant has to repurchase only such NDB Capacity Service as it provides. But that says nothing as to whether the price to be paid on the repurchase is the unit price in Tables A-1 and A-2 or whether it is the price payable by the plaintiff for such NDB Capacity Service ascertained by identifying what bandwidth was in fact supplied by the defendant in a month for which the plaintiff is liable to pay its minimum monthly service fee, identifying how much of that bandwidth was supplied by the defendant to its service providers, and calculating the plaintiff’s buy price by taking the proportion that the latter bears to the former and multiplying the monthly service fee by that fraction.

31 The words "in the portion" may simply mean the amount of the aggregate order (or aggregate of the orders) of the non-transferred service providers. In that case, the words "in the portion of" say nothing as to what is the plaintiff's buy price for that NDB Capacity Service. On the other hand, the word "portion" may refer to a proportion which the "aggregate order of the non-transferred service providers" bears to something else, presumably the total of the NDB Capacity Service purchased by the plaintiff which has to be at least the minimum implied from the specification in Table A-5. That would favour the plaintiff's construction, but the plaintiff's construction does not depend on reading the words "the portion of" in that way.

32 In correspondence and submissions the defendant contended that it was plain that the agreement requires the defendant to pay the prices in Tables A-1 and A-2 for the bandwidth it supplies to existing service providers. I do not consider there is any such clear meaning to be extracted from the agreement. In my view, it is at least seriously arguable that the "NSO’s buy price” in Table D-1 requires a calculation of how much money the plaintiff paid, or is required to pay, in any month for the bandwidth repurchased by the defendant, rather than the per unit prices in Tables A-1 and A-2. In simple terms where the plaintiff does not take up all the bandwidth for which it is required to pay, the price at which it buys bandwidth which the defendant repurchases will be higher than the prices in Tables A-1 and A-2. It is at least seriously arguable that such a higher price is the NSO’s buy price. Indeed, it presently appears to me that that is the better construction of the agreement, but I can envisage that there may be objective facts about the industry which may be relevant to the construction, which are not before me. It is sufficient to say that the plaintiff's construction is seriously arguable.

33 The defendant says that this would produce a commercially nonsensical result. If the plaintiff does nothing and the defendant continues to supply bandwidth to any of its existing service providers the plaintiff would derive a 10 percent margin over its monthly service fee and the defendant will make a loss of 10 percent of the minimum service fee plus its costs of supplying the service. However, even on the defendant's case, if it continues to provide bandwidth to its existing service providers, it will make a loss on the service provided, and the more bandwidth provided, the greater will be the cost to the defendant. On any view, clause 2.3.5 and Table D-1 operate as an incentive to the defendant to encourage its service providers to agree upon the plaintiff's standard terms and conditions.

34 On the plaintiff's construction, the defendant might be compelled not to supply its service providers who do not agree to the plaintiff's terms and conditions, or otherwise face adverse monetary consequences. But that is not necessarily a commercial absurdity. Moreover, if there were such a commercial absurdity it might be ameliorated by either or both of two other matters. One is the assignment of the benefit of all existing service provider contracts to the plaintiff. There was no argument as to whether such an assignment would affect the defendant’s repurchase obligations and, if so, how. The other matter is that if the plaintiff fails to achieve its sales targets for three consecutive months the agreement becomes non-exclusive. However, there was little argument about that matter and I prefer to express no view on the construction of clause 2.5 (which I have not extracted above), and Appendix A concerning sales targets. It suffices to say that I do not consider the commercial consequences of the plaintiff's construction are such as to make it untenable.

35 The major issue in dollar terms does not depend upon this question of the construction of Table D-1. Rather, it depends on the factual issue of the bandwidth and CPEs the defendant has supplied to APN. For the reasons above, that question has not been satisfactorily addressed. There is a serious question to be tried on this question. That is to say, this is a serious matter for investigation.

36 In correspondence, the defendant contended that "Any ‘offset’ to be taken into account in calculating the debt is only in relation to the Payment Due Date (see heading of third column in Table D-1 of the Agreement) and not in respect of the minimum monthly Service Fee and CPE Orders required of you to ‘take or pay’ pursuant to Table A-5.” I do not understand this contention. Table D-1 plainly permits moneys payable by the defendant on repurchase of NDB Capacity Service or CPEs to be offset against payments due by the plaintiff in Appendix A in respect of the corresponding period.

37 The defendant also relied on clause 24.3 to say that all service fees and CPE fees must be paid by their due date regardless of whether they were disputed. There is a serious question as to whether the defendant can rely on that clause if in fact the "Charges" in question are not due and payable. On its construction of clause 24.3, the defendant could insist on payment of the account billed to the plaintiff of $14,154,842.97 even though it acknowledges that that is not the amount payable by the plaintiff. In any event, if the plaintiff's contentions as to the proper construction of the agreement and as to the supplies made to APN are correct, then under clause 24.3 the plaintiff would be entitled to deduct the credit due to it in respect of any one month from the following month’s payment. It is not clear what the accounting consequence of that would be as at 30 May 2008, but clearly it would not result in a debt in the amount claimed by the defendant, if indeed it resulted in any debt at all.

38 I conclude that there is a serious question to be tried that the plaintiff is not indebted to the defendant as claimed by the defendant in its notice of termination, or at all.

39 The dispute as to what moneys are owed by the plaintiff to the defendant or vice versa, and the dispute as to whether the defendant is entitled to terminate the agreement, arises out of and relates to the agreement. The dispute has not been resolved by discussions between the parties. It has not been resolved within 20 working days of the plaintiff having served a notice defining the dispute. On or about 17 April 2008, the plaintiff gave notice in respect of the matters then in dispute. In a sense, the dispute has been enlarged by the service of the plaintiff's notice of termination of 30 May 2008 and the incurring of further liabilities on both sides of the ledger, but in essence the dispute is the same as that defined in the notice of 17 April 2008.

40 Pursuant to clause 23.2 the parties have agreed that the matter in dispute be referred to and finally settled by arbitration. In its correspondence, the defendant submitted that the submission to arbitration would not survive termination of the agreement. That point was not pressed in the defendant's final submissions in the light of substantial authority to the contrary (see for example Ferris v Plaister; Stap v Gray (1994) 34 NSWLR 474).

41 The defendant also submitted that the plaintiff had waived its right to refer the dispute to arbitration, or had elected against doing so, or was estopped from doing so by its delay in making such a reference, and by instituting these proceedings. There has been no reference to arbitration in accordance with the procedure envisaged by clause 23.2. However, there has been no relevant delay by the plaintiff.

42 On 17 April 2008, the defendant served notice threatening to suspend performance on the basis of an unpaid debt of US$4,495,920. The plaintiff immediately gave a detailed notice of the dispute and proposed a time for discussions to seek to resolve the dispute. There were subsequent meetings and without prejudice correspondence.

43 By a letter dated 5 May 2008, the plaintiff noted that the dispute had not been resolved and that the period of 20 working days from service of the notice defining the dispute would expire on 16 May 2008. It proposed a further meeting and advised that if the dispute was not resolved by 16 May, it intended to take immediate steps to refer the matter to arbitration. The following day it asked when it could expect a response to this proposal. The defendant's solicitor replied that he was seeking instructions and would respond in due course. The defendant's response came on 30 May 2008 when it served its notice of termination and a letter setting out its views on the construction of the agreement. For the defendant to complain of delay in the matter being referred to arbitration rings hollow when any relevant delay was on its part.

44 By its summons filed on 4 June 2008, the plaintiff sought a declaration that it was not indebted to the defendant in the sum of $8,710,867.31 as alleged by the defendant, a declaration that the purported notice of termination was invalid and of no effect and an "order by way of interlocutory relief until further order". The last order was articulated in an amended summons filed on 6 June 2008.

45 At least the claim for interlocutory injunctive relief is urgent equitable relief expressly contemplated by clause 23.5. The question whether the two routes provided for in clause 23, namely arbitration or litigation seeking urgent equitable relief, are alternative courses, such that where the latter is invoked there is no agreement to submit the subject matter of the dispute to arbitration, is not straightforward (see Seeley International Pty Limited v Electra Air Conditioning BV [2008] FCA 29 at [37]). Nor was it the subject of detailed argument. Although senior counsel for the defendant cited Seeley International Pty Limited v Electra Air Conditioning BV, it was for a different proposition. In my view, the fact that a party might invoke curial jurisdiction to obtain urgent equitable relief, particularly interlocutory relief, is not inconsistent with the parties’ agreeing to refer the subject matter of their dispute to arbitration after the claim for urgent equitable relief has been determined.

46 The relief sought in this case includes a declaration, which is equitable relief, and which, depending on the circumstances, might or might not be regarded as urgent. Because an applicant for an interlocutory injunction needs to establish that there is a serious question to be tried as to his entitlement to final relief it is probably incumbent on the applicant to indicate the final relief claimed. In other words, the claim for declarations may have been essential to found the claim for an interlocutory injunction. In my view, the filing of the summons does not foreclose the dispute between the parties being referred to arbitration once the urgent claim, in this case the claim for an interlocutory injunction, is determined. However, I should add that for the reasons which follow the availability of arbitral proceedings is not determinative of the plaintiff's claim for an interlocutory injunction.

47 I turn to the question of the balance of convenience. As I have said, the agreement is for a 12-year term. It is in its infancy. It is now the plaintiff's core business. The plaintiff’s acting chief executive officer, Mr Meehan, deposed:

“ 18. Since the commencement of the Agreement, the Defendant provided information that a further 10,000 customers have signed supply contracts with Service Providers. If the Defendant is permitted to act on or implement a purported notice of termination of the Agreement, the Plaintiff loses profit that would have been generated from providing broadband services and hardware to approximately the 35,000 customers that have signed Supply Contracts with the Service Providers. Until Service Provider Contracts are transferred by the Defendant to the Plaintiff or the Plaintiff signs new contracts with those Service Providers, the Plaintiff cannot earn income from the Service Providers.
19. Further, the Agreement was the very basis of the rejuvenation of the Plaintiff by the public fund raising of $6.6m in November 2007, resulting in the lifting of the suspension of the Plaintiff’s shares on the Australian Stock Exchange. Since the rejuvenation of the Plaintiff, this has been the core business of the company. There would be considerable damage in the industry perception of the Plaintiff to undertake its business if the Agreement was terminated. The Plaintiff has expended substantial money in establishing resources to enable it to comply with its obligations under the Agreement. The company has 14 full-time employees, all of which have been employed since the fund-raising. ”

48 The defendant did not point to any operational considerations relevant to the scales of the balance of convenience such as whether it intends to appoint a new distributor. It did not point to a risk of losing sales which might be made through service providers whilst the plaintiff's claim is being determined as a matter going to the balance of convenience. The defendant contended that the plaintiff is on the brink of financial collapse and it should be inferred that the agreement will in any event come to an end in the near future. It also submitted that the plaintiff's undertaking as to damages was likely to be manifestly inadequate.

49 The plaintiff is a publicly listed company. Its share price is now trading at only half a cent. On 28 May 2008, it announced the resignation of its chief executive officer. A non-executive director resigned on 7 May 2008. I do not know to what extent, if any, the plaintiff's share price and those resignations may have been influenced by its dispute with the defendant.

50 On or about 30 May 2008, the plaintiff released a directors' report and review of operations for the year ended 31 March 2008. The report disclosed a net loss for the year of $6,511,649. The plaintiff reported net assets, including the $3,000,000 deposit with the defendant, of $6,294,572. The directors released the report on the going concern basis. It is unclear whether the plaintiff included as an asset in its financial report the amount it claims is due to it by the defendant. It is clear, however, that it did not recognise as a liability the debt claimed by the defendant.

51 I do not accept that this evidence establishes that the plaintiff's financial position is such that if it were successful in an arbitration, or in litigation, it will be unable to perform the agreement. In other words, I am not satisfied that to grant an interlocutory injunction to restrain the defendant until further order from giving effect to the notice of termination would be simply to delay the inevitable.

52 As to the adequacy of the undertaking as to damages, it is relevant that the defendant holds a deposit of $3,000,000 which it is entitled to forfeit on termination. The plaintiff has cash reserves of "at least" $1,500,000. Nonetheless, it is clear that if the defendant succeeds, the debt which it claims is due to it will substantially exceed the plaintiff's ability to pay. That debt, assuming the defendant's contentions are correct, appears likely to increase. Clearly, the undertaking as to damages will be of no value to the defendant as it will be unable to recover all that would then be found due to it.

53 However, in my view, the relevant comparison is how much financially worse off the defendant would be if effect were given to the notice of termination of the agreement, than it would be if the defendant is restrained from giving effect to the notice of termination until the dispute is determined but ultimately succeeds. There is no evidence that the defendant will be able to generate greater income over the period it takes for the dispute to be determined if effect is given to the termination of the agreement than if it is not.

54 For these reasons, I consider that the balance of convenience favours the grant of interlocutory relief. I also consider that if an interlocutory injunction is not granted but it is ultimately decided that the defendant was not entitled to terminate the agreement, damages would not be an adequate remedy. There is no issue as to the defendant's capacity to pay whatever damages might be awarded but it could be a difficult task to assess what revenue the plaintiff would have earned, and at what cost, during the period between the termination taking effect and any such decision being given. It would be very difficult, if not impossible, to assess accurately the profit the plaintiff might have earned had the agreement run its full term but which it would lose if the agreement is terminated. For these reasons, I consider that the status quo should be preserved and the interlocutory injunction, which I extended on Friday until further order, should continue.

55 That takes me to the question as to how the proceedings should continue. I have already said that, in my view, the plaintiff's application to the Court for urgent equitable relief in the form of the interlocutory injunction does not preclude the substance of the parties’ dispute being resolved by arbitration. The defendant has not sought a stay of these proceedings under s 53 of the Commercial Arbitration Act 1984 (NSW). To the contrary, it contended that the plaintiff is not entitled to proceed to arbitration because it has instituted these proceedings. The plaintiff has offered an undertaking to proceed expeditiously with the arbitration. If both parties prefer the dispute to be resolved by litigation, then it would not be appropriate to stay these proceedings to compel the parties to proceed with arbitration. On the other hand, if either party contends that the matter should proceed to arbitration then, in my view, effect should be given to the parties' agreement to ensure that that happens. That would require a stay of these proceedings.

56 I will therefore enquire of the parties as to whether either of them seeks to arbitrate the matter in dispute. If so, on the plaintiff giving the undertaking which it proffered at the hearing to initiate the process for the appointment of an arbitrator forthwith and to prosecute the arbitration with expedition, then I will stay these proceedings. In any event, I will continue the injunction.

[Counsel sought time to consider their respective positions.]

57 I will not vary the order which I made on Friday which was, on the plaintiff's undertaking as to damages, to continue the injunction until further order. That undertaking continues and the injunction will continue. Depending upon what I am told tomorrow, then I may need to discharge that order and substitute a different order.

58 I will hear any submissions on costs, but my preliminary view is that the costs of the application for interlocutory relief should be the plaintiff's costs in the proceedings. If anyone wants to talk me out of that then they will have a brief opportunity to do that tomorrow morning.

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