Infolic Pty Ltd v Telstra Corporation Limited
[2005] VSC 429
•25 October 2005
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL LIST
F5896
No. 2107 of 2005
| INFOLIC PTY LTD & ORS | Plaintiffs |
| V | |
| TELSTRA CORPORATION LIMITED | Defendant |
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JUDGE: | WHELAN J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 24 October 2005 | |
DATE OF RULING: | 25 October 2005 | |
CASE MAY BE CITED AS: | Infolic v Telstra | |
MEDIUM NEUTRAL CITATION: | [2005] VSC 429 | |
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PRACTICE AND PROCEDURE – Injunctions – Interlocutory injunctions – Contractual arrangements – Withholding of money in relation to bad debts – Orders sought for the payment of a disputed sum of money – Serious question to be tried – Strongly arguable case not established – Lack of cogent evidence of irreparable detriment that could not be addressed by relief at trial.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr P J Bick QC with Mr C J Horan | Holding Redlich |
| For the Defendant | Mr P W Almond QC with Mr J D Armstrong | Mallesons Stephen Jaques |
HIS HONOUR:
This is an application for interlocutory injunctions. The plaintiffs, who I will refer to as “Infolic”, “1900 Live” and “Ranger Boats” respectively, operate premium rate 190 number call services under contractual arrangements with the defendant, Telstra Corporation Limited (“Telstra”). Purportedly pursuant to those contractual arrangements, Telstra has withheld money in relation to bad debts from funds otherwise due to the plaintiffs. The plaintiffs seek orders having the effect of restraining Telstra from withholding funds in this manner.
Each of the plaintiffs entered into an InfoCall Service Provider Agreement (“the ISP agreements”) with Telstra in or prior to 2003. In May 2005, Infolic and Ranger Boats entered into an InfoCall Premium Rate Services Agreement (“the IPR agreements”). According to material filed on behalf of Telstra, which is not denied, 1900 Live has also executed an IPR agreement and has returned the signature page to Telstra by facsimile.
Under the ISP agreements, Telstra was required to bill callers to the services and to then pay to the service provider the total amount billed, less Telstra’s charges. Telstra was permitted to deduct a “Bad Debt percentage” from amounts payable to service providers. Clause 5.9A of the ISP agreements then provided as follows (referring to Telstra as “we” and the service provider as “you”):
“Within 30 days of the end of each Quarter during the term of this agreement:
(a)we must analyse the historical data we record relating to your Services and the Charges we billed to Callers for those Services in the same Quarter of the previous calendar year to determine the actual Bad Debt arising referable to your Services in that previous Quarter;
(b)we must send you a statement setting out the results of the analysis under clause 5.9A(a); and
(c)the statement referred to in clause 5.9A(b) will include, per service:
(i)the total amount written off;
(ii) the number of calls written off;
(iii)the gross revenue; and
(iv)the average write off per call based on the figures referred to in clause 5.9A(c)(i)to (iii).”
Clause 5.9B of the ISP agreements then provided, in substance, that if the analysis of historical data under clause 5.9A showed a divergence of one per cent higher or lower than the Bad Debt percentage, then Telstra must change the Bad Debt percentage to reflect the actual Bad Debt. Where the actual Bad Debt was at least one per cent lower than the current Bad Debt percentage, clause 5.9B required Telstra to repay the difference to the service provider within 45 days, and where the actual Bad Debt was at least one percentage point higher, the service provider was required to pay the difference to Telstra within 45 days.
The IPR agreements, entered into in 2005, alter the arrangements concerning bad debts. However, the IPR agreements contain transitional provisions which are as follows:
“9.15:Telstra may recover from you any Bad Debts or Fraudulent Charges arising under your previous InfoCall Service Provider Agreement with Telstra as debts payable to Telstra under this agreement.
9.16:For the 12 month period commencing on the Commencement Date, Telstra will continue to reconcile Bad Debts on a quarterly basis in accordance with your previous InfoCall Service Provider Agreement. Accordingly the relevant provisions of that agreement survive and are incorporated into this agreement for the purposes of clauses 9.15 and 9.16 only.”
The IPR agreements also contain a provision concerning set-off. Clause 9.13 provides:
“9.13:Telstra may at any time without advance notice, set off any amount payable to you by Telstra (including any amounts payable by Telstra to you under your previous InfoCall Service Provider Agreement with Telstra) against any amount payable by you to Telstra (including any amounts payable by you to Telstra under your previous InfoCall Service Provider Agreement with Telstra).”
The IPR agreements contain an entire agreement clause in clause 19.1.
On this application affidavits have been filed on the plaintiffs’ behalf by officers of the plaintiffs and by two former officers of Telstra, Mr Eabry and Mr Paunovic. Mr Eabry is now the Executive Officer of the Telephone Services Providers Association of Australia (“TELSPA”). The plaintiffs are members of TELSPA. Mr Eabry deposes that at least 50 per cent of service providers are members of TELSPA.
Telstra has filed affidavits by three of its officers. Its principal affidavit is by its Business Development Manager, Premium Services, Wireless and Mobility Products, Mr Martin Ince.
The material relied upon by the parties reveals the following relevant matters.
In April 1997, Telstra gave the plaintiffs written advice as to what were then new debt management processes. In the plaintiffs’ material these processes are at times referred to as the “1997 model”.
In 2000, upon the introduction of the ISP agreements, the plaintiffs were given what was described as Telstra’s “Infocall Credit Management and Debt Recovery Statement of Finance – Credit Policy.” The covering letter from Telstra indicated that this policy document was being provided in response to concerns expressed as a consequence of the fact that the ISP agreements “will provide for you to bear all the bad debt risk associated with your services.”
Between 2000 and 2003, the plaintiffs entered into the ISP agreements.
According to affidavits sworn on behalf of the plaintiffs by Mr Eabry from TELSPA and Mr Smith from Infolic, meetings were held with Telstra officers in March and April 2004, in which they were advised that Telstra was no longer managing debt in accordance with the 1997 model and that Telstra had no intention of reintroducing such management because of costs. Mr Ince’s affidavit responds to this evidence but does not deny that statements were made to the effect that credit management in accordance with the 1997 model was not being undertaken. He does say that he does not recall it being said that this was because of costs, and he says that at no stage did Telstra officers say they would not be undertaking credit management for 190 services in accordance with “its standard credit management process”.
Mr Eabry from TELSPA also deposes that in November 2004 he was told by Telstra officers that credit management had been previously discontinued, that Telstra had no plans to reintroduce such processes, and that “all bad debts would be referred back to the service providers”.
In April 2005, negotiations were conducted in relation to the proposed new IPR agreements. Those negotiations were conducted on behalf of the plaintiffs by TELSPA. In this context Mr Eabry has sworn that he was again told by Telstra officers that specific credit management in accordance with the 1997 model had ceased. Mr Scott from 1900 Live has also sworn that Telstra officers made statements to similar effect to him. Mr Ince’s affidavit addresses this issue and says that in April 2005 he attended a meeting at which he deposes the following occurred:
“At that meeting, I recall that the TELSPA representatives were pressing Telstra to include Telstra’s credit management processes in the text of the new Agreement. Tessa responded that Telstra could not put specific credit management processes in the contract. She told the TELSPA representatives that Telstra needed flexibility in relation to its credit management processes as those processes applied across multiple products and invariably would change over time.”
“Tessa” is Tessa Jakszewicz, then Telstra’s General Manager, Premium Services.
Thereafter the new IPR agreements were executed by the plaintiffs. Given the manner in which the matter was addressed before me, I assume that there is no issue as to 1900 Live being bound by the IPR agreement.
In July 2005, Mr Ince undertook an analysis of historical data in relation to bad debts for the fourth quarter of the financial year 2003/2004, which I will hereafter refer to as “Q4 03/04”. Mr Ince deposes that the level of bad debts was significantly higher than previous quarters, and accordingly he undertook a review. A number of meetings were held with Telstra officers and with service providers. No error in the calculation was identified, nor, according to Mr Ince, was any explanation for the increase able to be identified by Telstra. Mr Ince says that when he obtained data in relation to the first quarter of 2004/2005, he compared that with the Q4 03/04 data under review. This comparison led him to conclude that the increase in Q4 03/04 was “simply an anomalous discrepancy and should be treated as such by Telstra”. Accordingly, Mr Ince deposes that Telstra decided that the “fairest way” to respond to the increase was to take an historical averaging approach, together with a “no disadvantage” test. He deposes that Telstra was not obliged to act in this way, but did so “as a gesture of good faith”.
By letters written to each of the plaintiffs in September 2005, Telstra described the approach that it intended to pursue. The letters referred to the further analysis of the Q4 03/04 historical data and then continued:
“Having completed this review, Telstra has determined that there are some discrepancies in the data. For this reason, Telstra has decided on this occasion only to amend your bad debt figure for Q4 03/04. It will now be based upon an average of your total bad debt for the periods Q4 02/03, Q1 03/04, Q2 03/04 and Q3 03/04.”
This approach resulted in a bad debt clawback which was less than would have been the case if Telstra had applied the provisions of the IPR agreements, incorporating the ISP provisions, strictly in accordance with its own purported analysis.
The plaintiffs’ affidavits express the belief that Telstra’s credit management procedures have become considerably less rigorous, resulting in a substantial escalation in bad debts. Instances and examples of alleged mismanagement are given.
The plaintiffs allege that the ISP agreements contained the following implied terms (set out at paragraph 6(l)-(q) of the statement of claim):
(a) That Telstra would properly and faithfully account to the plaintiffs in respect of the collection of Charges and as to Bad Debt pursuant to the ISP Agreements.
(b) That Telstra would take all reasonable and appropriate steps to prevent the creation of and to control and reduce bad debt.
(c) That Telstra would take all reasonable steps to recover debt from its customers before writing off any debt as a bad debt.
(d) That no debt would be written off as a bad debt unless it was not reasonably recoverable.
(e) That Telstra would do all things reasonably necessary to permit the plaintiffs to have the benefit of the ISP Agreements.
(f) That Telstra owed to the plaintiffs an obligation of good faith and fair dealing in performing its obligations and exercising its rights pursuant to the ISP Agreements.
The alleged implied terms which are of particular significance are those which specifically address Telstra’s obligations in relation to bad debt, and it is to those that I will hereafter direct attention.
The plaintiffs allege that the transitional provisions of the IPR agreements mean that the implied terms which they allege in the ISP agreements also are implied into the IPR agreements.
Applicable principles and orders sought
The principles to be applied on this application are not controversial. There are two questions to be decided: whether there is a serious question to be tried; and whether the balance of convenience favours the grant of interlocutory relief. The questions are not discrete and independent.
The plaintiffs sought wide interlocutory relief in their summons, but modified the relief sought in the course of argument. They eventually sought orders restraining Telstra, until the hearing and determination of the proceeding, from withholding any amount consequent upon any reconciliation or purported reconciliation of bad debt in respect of Q4 03/04, and restraining Telstra from performing or implementing any bad debt reconciliation or purported reconciliation pursuant to the ISP agreements, as applied by the IPR agreements, until the conclusion of the transitional provisions in the IPR agreements.
Serious question to be tried
The plaintiffs’ case is that it has established a serious question to be tried on the following claims:
(a) Telstra was not entitled to set-off the bad debt adjustments, as clause 9.13 of the IPR agreements did not apply as a matter of construction.
(b)There had been no analysis within the meaning of clause 5.9A of the ISP agreements (incorporated into the IPR agreements under the transitional provisions), and no statement had been provided within the meaning of that clause. Accordingly, clause 5.9B, providing for the adjustment, did not apply.
(c)There had been breach of the alleged implied terms of the ISP agreements, which, it is alleged, also became implied into the IPR agreements, as a consequence of Telstra’s failure to maintain adequate credit control arising from a discontinuance of its prior system of credit management as had been advised to service providers in 1997 and 2000.
(d)The representations made in 1997 and in 2000 were continuing representations which were, or which became, misleading and deceptive, and which entitled the plaintiffs to an order restraining Telstra from acting inconsistently with those representations.
It was also submitted that on no view was the actual adjustment set out in the September 2005 letters from Telstra that which was provided for in the relevant agreements. This matter was not pressed, but, in any event, I accept the submission made on behalf of Telstra that it cannot be a breach of the agreements to seek less than the strict contractual entitlement.
The case concerning the set-off provision is arguable, but it could not justify orders of the kind sought by the plaintiffs. Counsel for Telstra submitted that even if clause 9.13 did not apply, the money withheld had fallen due before the set-off or was now due. Counsel for the plaintiffs submitted that the money would fall due shortly. An interlocutory order could not be made requiring, in effect, the payment of withheld money when that withheld money had since fallen due or would shortly fall due.
The case alleging non-compliance with clause 5.9A faces obstacles. First, as counsel for the plaintiffs conceded, clause 5.9A(c), concerning the minimum requirements of the statement, was complied with, or apparently complied with. Secondly, Mr Ince has sworn that the historical data was analysed, and there is no evidence that that is not so. The fact that the analysis revealed what he described as an anomalous outcome does not necessarily mean that there was no analysis within the meaning of the clause at all.
The strength of the plaintiffs’ case was submitted to be the case concerning breach of the alleged implied terms.
If all the plaintiffs needed to establish was that Telstra’s credit control procedures had changed and that the new procedures were insufficiently rigorous to meet the requirements of the 190 service providers, the plaintiffs would have established a good arguable case. However, at trial that will not be sufficient. At trial they will also have to establish that Telstra had an obligation to provide credit control of a standard which is higher than Telstra’s performance.
The plaintiffs seek to establish this standard by relying on the implied terms. Whilst I cannot decide the matter now, it seems to me that on the material as it stands, the plaintiffs will confront considerable difficulty in satisfying the requirements of BP Refinery (Westernport) Pty Ltd v Hastings Shire Council[1] in relation to the implied terms which concern credit control. Further, it seems to me that the material sworn on the plaintiffs’ behalf, to the effect that they had been told of the change in credit management before entering into the IPR agreements in 2005, and had unsuccessfully sought the inclusion of express terms dealing with credit management in the IPR agreements, will also constitute significant obstacles.
[1](1977) 180 CLR 266.
For present purposes I accept that the plaintiffs have established a serious question to be tried on this aspect of their case, but I do not proceed on the basis that, on the present material, their case is a strong one.
In the context of the interlocutory application, counsel for the plaintiffs did not place significant reliance on the misleading and deceptive conduct case. There is a serious question to be tried on this issue, but that case will again have to confront the difficulty that, on the plaintiffs’ own case, they were told of a change in credit management before entering into the IPR agreements. In any event, a case of that kind, if established, would be most likely to result in relief by way of damages, and an interlocutory order of the kind sought would not be appropriate if that were the claim being addressed.
Counsel for the plaintiffs submitted, in effect, that the discussions and negotiations in 2004 and 2005 were not significant because the terms were, by then, already implied in the ISP agreements, and, according to the plaintiffs’ submission, were then incorporated into the IPR agreements. The matter will eventually have to be determined at trial after full argument, but I do not consider that this submission significantly detracts from the obstacles to which I have referred at this stage.
Balance of convenience
The plaintiffs’ material on the balance of convenience was to the following effect.
Mr Smith from Infolic deposes that as a result of bad debt clawbacks, his company has suffered net losses “over the last two years”. The additional clawback for his company in relation to Q4 03/04 is $59,261. He swears that this clawback will result in a “net loss” in September 2005 of $49,039. He swears that the deduction of a clawback amount would have a “serious impact on cash flow” of his company and “could therefore jeopardise its business”.
Mr Scott from 1900 Live swears that the Q4 clawback for his company is $18,003.37 out of a total revenue for September 2005 of $43,605.78, resulting in a loss for that month of approximately $27,000. He says this will place “extreme pressure on the financial viability of the business”.
The clawback claim from Ranger Boats was $66,732.21. This resulted in that company being required to repay to Telstra $8,244.64. Mr Gunderson of Ranger Boats has sworn that, as a consequence, the company will suffer a loss in September 2005 of almost $30,000. He deposes that this will place “significant pressure” on the company, and if similar clawbacks continue into the future, the business will not be able to survive.
In relation to the balance of convenience, counsel for the plaintiffs submitted that the amounts withheld need to be assessed in the context of the fact that they are in addition to the Bad Debt percentages already taken out of revenue payments, in the context of the expenses incurred by the plaintiffs, and in the context of the fact that the plaintiffs were effectively losing their entire revenue for one month. They submitted that the orders sought were not analogous to orders compelling a debtor to pay a creditor a disputed sum, as, on any view, absent the clawbacks, Telstra was obliged to pay the revenue to the service providers.
Counsel for Telstra submitted that this was a clear case where damages were an adequate remedy. They referred to the fact that the funds in question were bad debts, which, by their nature, were funds Telstra had not itself received, and that an order requiring Telstra to pay over such funds could not be justified. They characterised the orders sought as payment of damages in advance.
Counsel for Telstra submitted that the orders sought concerning Q4 03/04 could not be made as the adjustment had already been undertaken and the reduced payments had already been made. As to the orders sought concerning future reconciliations, they submitted that this would require a suspension of the entire contractual adjustment process.
Counsel for Telstra submitted that the plaintiffs’ material as to their financial position was very limited and inadequate. They submitted that there was no evidence presenting a clear picture of the plaintiffs’ financial position, and, in the circumstances, there was cause for concern as to the efficacy of the undertaking as to damages.
Conclusion
In my view this is not an appropriate case for injunctions of the kind sought by the plaintiffs. The criticisms made of the plaintiffs in relation to the disclosure of their financial position are, in my view, well-founded. Whilst the plaintiffs may have revealed the costs and revenue for the particular services, there is no material revealing their overall financial position. No financial statements have been provided. No indication has been given as to the plaintiffs’ overall assets and liabilities.
It might validly be contended that the plaintiffs are placed in a dilemma in relation to their financial position on an application of this kind. If the material reveals that their businesses may fail because funds have been withheld, it would be contended that the undertaking as to damages was not effective. If the material reveals that their businesses are sound and likely to remain so, it would be contended that there was no reason to grant interlocutory relief as they would suffer no irreversible detriment.
It seems to me that, to some extent, this dilemma arises out of the nature of the interlocutory relief which is sought. Notwithstanding the validity of the submission made by counsel for the plaintiffs to the effect that absent the controversial clawbacks the funds are clearly due to the plaintiffs, the fact remains that the relief sought is, in essence, an order requiring the payment of a disputed sum of money. Counsel for the plaintiffs were unable to refer me to any authority where an order to that effect had been made on an interlocutory basis, and whilst I do not proceed on the basis that such an order might not be made in an appropriate case, interlocutory orders of that kind would be rare. This is because the plaintiffs in such a case would ordinarily have available to them a complete remedy at trial by way of recovery of the sums allegedly due, together with interest and/or damages.
In my view, interlocutory orders of the kind sought here would ordinarily only be justified where the plaintiffs had established a strongly arguable case and had demonstrated by cogent evidence that they could suffer irreparable detriment which could not subsequently be addressed by relief in their favour at trial. In other words, where they established that in all the circumstances they should not be confined to an order at trial for damages or relief by way of recovery of a sum of money.
In my view, the plaintiffs have not established either of those matters in this application.
Whilst there is a serious question to be tried, I am not persuaded by the material as it stands that the plaintiffs have a strongly arguable case. Their case faces a number of difficulties to which I have referred.
The material they have filed in relation to the financial consequences which they face as a result of the bad debt adjustments and the withholding of money amount to little more than assertion, together with some specific figures principally referable to the month of September 2005. In my view, this is an inadequate basis for the orders sought.
Accordingly, the application will be dismissed.
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