| SUPREME COURT OF VICTORIA COURT OF APPEAL |
| S EAPCI 2022 0021 |
| KYTEC PTY LTD (ACN 167 847 430) | Applicant |
| v | |
| PROLEARN CORPORATION PTY LTD (ACN 112 114 646) | Respondent |
| S EAPCI 2022 0026 | |
| TELSTRA LIMITED (ACN 086 174 781) | Applicant |
| v | |
| PROLEARN CORPORATION PTY LTD (ACN 112 114 646) | First Respondent |
| AND | |
| KYTEC PTY LTD (ACN 167 847 430) | Second Respondent |
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| JUDGES: | FERGUSON CJ, KENNEDY and MACAULAY JJA |
| WHERE HELD: | Melbourne |
| DATE OF HEARING: | 9–10 March 2023 |
| DATE OF JUDGMENT: | 6 March 2024 |
| MEDIUM NEUTRAL CITATION: | [2024] VSCA 23 |
| JUDGMENT APPEALED FROM: | [2022] VSC 5 (Digby J) |
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CONSUMER LAW – Misleading or deceptive conduct – Representations as to future matters – Whether reasonable grounds for representations – Whether evidence at trial established reasonable grounds for representations made by each appellant – Reasonable grounds established in circumstances by reliance on expertise of originator of representations – Leave to appeal granted – Appeal allowed for one appellant (Telstra), dismissed for the other (Kytec).
CONSUMER LAW – Misleading or deceptive conduct – Causation of loss – Loss of opportunity – Whether error in failure to treat claim as global loss claim – No error in applying principles applicable to loss of opportunity claim – Leave to appeal granted – Appeal dismissed.
CONSUMER LAW – Misleading or deceptive conduct – Quantification of loss – Whether error in failure to apply discount required by Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 – No error in quantification of loss – Leave to appeal granted – Appeal dismissed.
Competition and Consumer Act 2010 (Cth), sch 2 ss 4, 18, 29(1)(g).
Sykes v Reserve Bank of Australia (1998) 88 FCR 511; Berry v CCL Secure Pty Ltd (2020) 271 CLR 151, applied.
John Holland Construction & Engineering Pty Ltd v Kvaerner R J Brown Pty Ltd (1986) 8 VR 681; Malec v JC Hutton Pty Ltd (1990) 169 CLR 638; Lake Koala Pty Ltd v Walker [1991] 2 Qd R 49; Commonwealth v Amann Aviation Pty Ltd (1992) 174 CLR 64; Sellars v Adelaide Petroleum NL (1994) 179 CLR 332; Bowler v Hilda Pty Ltd (1998) 80 FCR 191; Concrete Constructions Group Ltd v Litevale Pty Ltd (2002) 170 FLR 290; ACCC v Danoz Direct Pty Ltd (2003) 60 IPR 296; Mainteck Services Pty Ltd v Stein Heurtey SA (2014) 89 NSWLR 633; DM Drainage & Constructions Pty Ltd v Karara Mining Ltd [2014] WASC 170; Murphy v State of Victoria [2014] VSC 363; ACCC v Woolworths Ltd [2019] FCA 1039, considered.
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| Counsel | |||
| Applicant/Second Respondent, Kytec Pty Ltd: | Mr A Kirby | ||
| Applicant, Telstra Limited: | Mr N De Young KC with Ms J Lindgren | ||
| Respondent/First Respondent, ProLearn Corporation Pty Ltd: | Dr C Parkinson KC with Mr M McNamara and Mr W Newland | ||
Solicitors | |||
| Applicant/Second Respondent, Kytec Pty Ltd: | Kennedys (Australasia) Partnership | ||
| Applicant, Telstra Limited: | King & Wood Mallesons | ||
| Respondent/First Respondent, ProLearn Corporation Pty Ltd: | Gadens Lawyers | ||
TABLE OF CONTENTS
Introduction and summary
Relevant findings and proposed grounds of appeal
Kytec’s proposed grounds
Telstra’s proposed grounds
Issues
Background
Did Kytec have reasonable grounds for making Representation A due to its assumption that ProLearn would have in place a web-based customer relationship management system (Kytec ground 2)?
Legal principles relevant to the question of reasonable grounds
The judge’s findings
Submissions
Consideration
Did Kytec have reasonable grounds for making Representations A, B, E and F (Kytec ground 1)?
The judge’s findings
Submissions
Consideration
Did Telstra have reasonable grounds for making its representations (both imputed and separate) by relying upon the skill and expertise of Kytec (Telstra grounds 1 and 2)?
Relevant legal principles
Factual context
Telstra’s submissions
ProLearn’s submissions
Consideration
Did the installation of the Solution cause loss and damage to ProLearn?
Overview of arguments and findings at trial
Ground 3
Consideration
Ground 4
Consideration
Did the judge correctly quantify ProLearn’s recoverable loss and damage
Submissions
Consideration
Did the judge err in dismissing Telstra’s indemnity claim against Kytec?
Telstra’s application for an extension of time
Summary of conclusions and orders
FERGUSON CJ:
I agree with Macaulay JA.
KENNEDY JA:
I agree with Macaulay JA.
MACAULAY JA:
Introduction and summary
ProLearn Corporation Pty Ltd, the respondent to two applications for leave to appeal, conducted a business selling vocational education and training (‘VET’) courses, on behalf of education providers, to students who were eligible for Commonwealth VET fee support. To do so, it operated a telemarketing call centre. In 2015, it wished to upgrade the telephone system upon which its call centre operated.
ProLearn approached Telstra Limited, an Australian telecommunications company — which in turn referred ProLearn to an authorised Telstra dealer, Kytec Pty Ltd — to propose, design and install a new telephone system for ProLearn’s call centre. Kytec is an information communication technology firm. The system that Kytec proposed, referred to as the ‘Solution’, incorporated hardware and software made by Cisco.[1]
[1]ProLearn v Kytec and Telstra [2022] VSC 5, [137] (Digby J) (‘Reasons’).
During the course of 2015, relevantly, three things occurred. First, changes were made to the regulation of VET fee support, which prompted a contraction in student enrolments in VET courses. Secondly, ProLearn moved its business to new and larger premises and, thirdly, Kytec installed the Solution for the call centre to be operated at ProLearn’s new premises. Each of those events has some bearing on the applications that have been made to this Court.
The Solution went ‘live’ at ProLearn’s new call centre around the end of August 2015.[2] ProLearn claimed that the upgraded telephone system did not perform as Kytec and Telstra had represented that it would, and resulted in poorer business outcomes than ProLearn’s pre-existing system would have produced. ProLearn alleged that it sustained significant business losses because of the new telephone system.
[2]Ibid [145].
To recover those alleged losses it brought claims for damages against Telstra, for breach of contract and misleading and deceptive conduct in contravention of the Australian Consumer Law[3] (‘ACL’), and against Kytec, for misleading and deceptive conduct and in negligence. A judge of the trial division upheld some of those claims and awarded damages in ProLearn’s favour against both Telstra and Kytec.[4] He dismissed a cross‑claim by Telstra to be indemnified by Kytec in respect of Telstra’s liability to ProLearn. The judge allowed, by consent, part of a counterclaim by Telstra against ProLearn that concerned unpaid telephone and data charges, but dismissed a further part which concerned early termination fees owed pursuant to a suite of contracts between Telstra and ProLearn.[5] A counterclaim by Kytec for debt owing to it by ProLearn was dismissed.[6]
[3]Competition and Consumer Act 2010 (Cth), sch 2 (‘Australian Consumer Law’).
[4]Reasons, [782].
[5]Ibid [737].
[6]Ibid [775].
Arising from those findings, both Kytec and Telstra have applied for leave to appeal the judgment in favour of ProLearn, and Telstra has applied for leave to appeal against the judge’s refusal to order that Kytec indemnify Telstra for any liability it has toward ProLearn. Because it was late in seeking to file its application for leave to appeal, Telstra has applied for an extension of time within which to do so.
In my view, the time within which Telstra was required to file its application for leave to appeal should be egxtended and leave should be granted to Kytec and Telstra to appeal on each of their proposed grounds. However, Kytec’s appeal should be dismissed. Because Telstra relied upon Kytec’s grounds of appeal in relation to issues of causation and quantification of loss, dismissing Kytec’s appeal would also dispose of Telstra’s appeal on those particular issues. Nevertheless, Telstra’s appeal in relation to whether it contravened the provisions of the ACL should be allowed, with the result that it is relieved of any liability toward ProLearn. That makes it unnecessary to decide whether Telstra was entitled to an indemnity from Kytec for its liability toward ProLearn, but were it necessary to determine that issue I would have allowed its appeal on the grounds pertinent to that issue.
My reasons for these conclusions follow.
Relevant findings and proposed grounds of appeal
The judge dismissed the claims made against Telstra in contract and against Kytec in negligence. No applications have been made by ProLearn challenging the dismissal of those claims. That leaves only the claims for contravention of the ACL in issue on the principal applications for leave to appeal.
With respect to ProLearn’s successful claims, the judge found that each of the applicants had engaged in misleading and deceptive conduct in contravention of ss 18 and 29(1)(g) of the ACL,[7] by making representations as to future matters for the making of which they each failed to establish reasonable grounds.[8] It was not disputed that each of the substantive representations found to have been made by Kytec and Telstra (described below) were representations as to future matters.[9] Accordingly, by virtue of s 4 of the ACL, each of Kytec and Telstra were required to adduce evidence establishing that they had reasonable grounds for making the representations, failing which the representations were taken to be misleading.
[7]Ibid [327]–[329].
[8]Ibid [289].
[9]Ibid [325].
The judge found that ProLearn relied upon the various representations made to it by Kytec and Telstra to enter the suite of contracts it made with Telstra,[10] which, by their terms, authorised Telstra’s agent Kytec to replace ProLearn’s existing telephone system with the Solution. In this way, the judge found that Telstra’s and Kytec’s conduct caused ProLearn to suffer loss and damage. He assessed that loss in the sum of $2,679,552.
[10]Ibid [304].
Against Kytec, the judge found that several, but not all, representations as alleged were made by Kytec and relied upon by ProLearn. Those found to have been made and relied upon were that:
•the Solution would be able to automatically create Personal Call Back Lists (‘Representation A’);
•the Solution would be able to be used by 83 agents (‘Representation B’);
•the Solution would enhance the productivity of ProLearn (‘Representation E’);
•the Solution was appropriate for the ProLearn Requirements (‘Representation F’); and
•these representations were based on reasonable grounds (‘Representation G’).[11]
[11]Ibid [754].
The making and content of the substantive representations A, B, E and F were not in dispute, since they were made in writing and contained in a document referred to as the ‘Final Proposal’. The Final Proposal was a document produced by Kytec to describe the Solution and explain why it would address the requirements identified by ProLearn for improved call centre functionality. The relevant text in the Final Proposal on which the representations were founded is set out below at [39].
Against Telstra, the judge found that Telstra also made the Kytec representations, those representations having been made by its agent, Kytec, with its consent.[12] Additionally, the judge found that Telstra made separate representations upon which ProLearn relied.[13] These representations were made by a combination of written representations — incorporated in contractual documentation between Telstra and ProLearn — and oral representations. Except for one additional representation, both the imputed Kytec representations and those found to have been made separately by Telstra were, relevantly, the same as those found to have been made by Kytec. The additional representation was that:
•the Solution would perform in accordance with supplier (Kytec) specifications (pursuant to the Final Proposal) for 12 months from the date on which ProLearn completed a customer acceptance certificate (‘Telstra Representation TD’).[14]
[12]Ibid [258].
[13]Ibid [304].
[14]Ibid [272]–[278].
Critically, the judge found that Telstra was unable to rely upon the skill and expertise of its agent, Kytec, as supplying reasonable grounds for Telstra making its representations.[15]
Kytec’s proposed grounds[16]
[15]Ibid [292].
[16]Hereafter, for convenience, ‘proposed grounds’ will simply be referred to as ‘grounds’.
Kytec proposed six grounds of appeal. Together, they covered the representations, causation of damage and the assessment of damages. Kytec’s proposed grounds were, in substance, as follows:
(1)In relation to the representations, Kytec contended that because the judge did not properly consider the evidence of Kytec’s witnesses, did not properly consider the nature of Kytec’s role in deploying — rather than developing — the Cisco product, and wrongly accepted the evidence of ProLearn’s witnesses, the judge erred in finding that representations A, B, E and F were misleading or deceptive, and that Kytec had no reasonable grounds for making them (‘Kytec ground 1’).
(2)Further, the judge erred in finding that Representation A was misleading or deceptive, and that Kytec had no reasonable grounds for making it, because of the alleged interdependency between the subject matter of that representation and that of another alleged representation, which ProLearn abandoned, concerning the capacity of the Solution to integrate with a web-based customer relationship management (‘CRM’) system (‘Kytec ground 2’).
(3)In relation to the causation of damage, Kytec contended that because ProLearn could still use features of the Solution that replicated those of its former telephone system (known as the ‘CommSys system’), together with its existing CRM, the Solution’s new auto-dialler feature and another feature which Kytec arranged as a workaround for some of the problems with the Solution, the judge erred in finding that the Solution caused loss and damage to ProLearn (‘Kytec ground 3’).
(4)More generally, the judge failed to make findings and give proper reasons as to how Kytec’s conduct caused ProLearn any loss and damage (‘Kytec ground 4’).
(5)Further, because the judge failed to properly take into account some causal factors, and wrongly relied upon other matters, the judge also erred in finding that Kytec’s conduct caused loss and damage to ProLearn (‘Kytec ground 5’).
(6)Lastly, in relation to the assessment of damages, Kytec contended that the judge erred by not applying the discount required by Sellars v Adelaide Petroleum NL[17] (on the premise that the claimed loss was the loss of an opportunity) (‘Kytec ground 6’).
Telstra’s proposed grounds
Telstra proposed five grounds of appeal addressing the representations (both imputed and those separately made), causation and quantification of damage, and the dismissal of Telstra’s indemnity claim against Kytec. Telstra’s proposed grounds were, in substance, as follows:
(1)As to the representations, Telstra contended that the judge was wrong to find that it was unable to rely upon Kytec’s skill and experience as reasonable grounds for making the representations (‘Telstra ground 1’).
(2)Telstra contended that the judge ought to have found that it did have such reasonable grounds based upon the evidence at trial (‘Telstra ground 2’).
(3)In relation to causation and quantification of loss and damage, Telstra repeated and adopted Kytec’s grounds 3, 4, 5 and 6 (‘Telstra ground 3’).
(4)On the question of the indemnity claim against Kytec, Telstra contended that the judge erred in dismissing the claim (‘Telstra ground 4’).
(5)Telstra contended that the judge ought instead to have upheld the indemnity claim on the basis of the proper construction of cl 2.15 of the Dealership Agreement made between Telstra and Kytec (‘Telstra ground 5’).
Issues
Arising from these findings and grounds of appeal, and arranged in the most convenient order in which to consider them, the following six issues need to be determined:
(a)Did Kytec have reasonable grounds for making Representation A due to its assumption that ProLearn would have in place a web-based customer relationship management system?[18]
(b)Did Kytec have reasonable grounds for making Representations A, B, E and F based upon the evidence given at trial?[19]
(c)Did Telstra have reasonable grounds for making its representations (both imputed and separate) by relying upon the skill and expertise of Kytec?[20]
(d)Did the installation of the Solution cause loss and damage to ProLearn?[21]
(e)Did the judge correctly quantify ProLearn’s recoverable loss and damage?[22]
(f)Did the judge err in dismissing Telstra’s indemnity claim against Kytec?[23]
[18]Kytec ground 2.
[19]Kytec ground 1.
[20]Telstra grounds 1 and 2.
[21]Kytec grounds 3, 4 and 5; Telstra ground 3.
[22]Kytec ground 6; Telstra ground 3.
[23]Telstra grounds 4 and 5.
Background
ProLearn commenced operating in early 2011 as a digital and telemarketing business targeted toward prospective students in the VET sector. ProLearn purchased or generated ‘leads’ through online marketing campaigns which identified prospective students who were interested in being contacted about further education opportunities. ProLearn would then telephone those potential students to try to sell them online VET courses on behalf of education providers. From 2012, ProLearn had entered into a number of contracts with various VET providers to sell their courses in this fashion.[24]
[24]Reasons, [91]–[93].
Vicki Tutungi is the Managing Director of ProLearn. She holds one of the two shares in the company. Tutungi is responsible for the management of administration, information technology and property services, as well as building, lease and insurance‑related matters. She has held her directorship at ProLearn since June 2011.[25]
[25]Ibid [24]–[25].
Doris Humunicki is the Chief Executive Officer of ProLearn. She holds the other of the two shares in ProLearn. As the CEO, Humunicki leads the day-to-day operations of the call centre, recruits new clients, and oversees accounting functions, including invoicing. She had specialised in the provision of education and training services for over 30 years prior to joining ProLearn.[26]
[26]Ibid [29]–[31].
From early 2011, ProLearn’s business was conducted from a suite of around 150m2 in size at 450 St Kilda Road, Melbourne. To accommodate ProLearn’s expanding business, in January 2014 Tutungi signed a lease for three suites totalling 413m2 in the same St Kilda Road premises for the period from 1 February 2014 to 31 December 2016. In late 2014, the leasing agent informed ProLearn that its lease at the St Kilda Road premises would not be renewed beyond December 2016 because the property had been sold and was to be demolished. Tutungi’s evidence was that as soon as ProLearn was made aware that the lease would not be renewed, both she and Humunicki ‘almost immediately’ commenced looking for new, larger premises, as ProLearn had nearly reached capacity in the three suites it occupied.
Whilst situated at the St Kilda Road premises, ProLearn had utilised a simple telephone system provided by CommSys. As described by the judge:
The functionality of the CommSys system was basic and included the following features:
(a)at the beginning of every day, each Operator logged into his or her phone. This allowed the CommSys system to know the identity of each Operator making and answering a particular call;
(b)Operators manually dialled the phone numbers. Each direct line had a message bank and each Operator would pick up any missed calls from their extension;
(c)the CommSys system recorded every call for compliance purposes;
(d)at the end of each business day, the CommSys System sent a report to management detailing the number of calls made by each Operator and the length of the calls. This assisted management to monitor staff efficiency.[27]
[27]Ibid [95].
ProLearn had also created a CRM which it operated alongside the CommSys System. The CRM was created using generic database software called ‘Access’, made by Microsoft. The CRM stood apart from the CommSys System and there was no integration between the two. Each customer lead generated by ProLearn was manually imported into the CRM resulting in there being an individual file for that potential customer which stored relevant information regarding the person’s geographic location and courses of interest. After a call centre operator called a potential customer, the operator would update the CRM with details of that phone call, including the stage the customer had reached in the buying process and when they should be called again in an attempt to close the sale.[28] When an operator logged into the CRM, they would be presented with an automatically generated personal call back list, arranged in order of those potential customers of the highest priority through to the lowest. The operator would then have to manually dial each potential customer’s telephone number to call them.[29]
[28]Ibid [97].
[29]Ibid [96]–[98].
In January 2015, after ProLearn had decided to move to larger premises in a new location, Tutungi and Humunicki decided to upgrade ProLearn’s telephone system. ProLearn viewed a telephone system with a ‘dialler’ as something of great importance. Tutungi’s evidence at trial was that a dialler, which is a software component that automatically dials telephone numbers, creates efficiencies for a call centre business by reducing the time taken to dial a telephone number, reducing the time between calls and, where programmed to do so, automatically dialling several numbers at once. Operators spend more time talking to potential clients instead of dialling and waiting for a connection.
Tutungi then made enquiries of both Telstra and Optus. When Tutungi contacted Telstra in mid-January 2015, Telstra referred her inquiry to Kytec.[30]
[30]Ibid [107].
Telstra describes Kytec as a ‘Telstra Dealer’. Telstra and Kytec entered into a dealership agreement in August 2010 (the ‘Dealership Agreement’). Under the terms of that agreement, Kytec provides services to Telstra’s customers relating to the installation or management of telephone systems and solutions. David Okulicz is Kytec’s managing director. In evidence, he said that around 60 per cent of the company’s business is related to telephone, video conferencing and call centre solutions, such as the system required by ProLearn. He also said that Kytec’s core business is the design, deployment and support of Cisco-based systems.
Okulicz telephoned Tutungi on or around 16 January 2015 to discuss ProLearn’s requirements for its new telephone system. During that call, Tutungi informed Okulicz that ProLearn’s new system would need an automated dialler to increase efficiency.
Tutungi and Okulicz met at ProLearn’s suites in the St Kilda Road premises on 21 January 2015 to discuss ProLearn’s requirements.[31] During this meeting, Okulicz proposed a new telephone system and described how it would operate, including how the details of each call could be saved directly into that system. Tutungi said that saving information into the telephone system was not what ProLearn wanted. She explained that it was necessary that the new system operate in conjunction with ProLearn’s CRM, into which call details would continue to be entered. At trial, Okulicz said that Tutungi told him that ProLearn was planning to upgrade its CRM to a ‘web-based’ system using structured query language (‘SQL’), a commonly used database technology.
[31]Ibid [108].
Throughout the period to April 2015, ProLearn specified three key requirements for its new telephone system to Kytec. These were that a new system should have: (1) an automated dialler capable of supporting 83 operators, with a capacity to grow to up to 200 operators, (2) the ability to generate personal call back lists for at least 83 operators, and (3) the ability to integrate with ProLearn’s CRM.[32]
[32]Ibid [109].
On 30 January 2015, Tutungi, Humunicki and Okulicz met at Cisco’s premises at 101 Collins Street, Melbourne. Lukas Carruthers of Cisco also attended the meeting and gave a presentation to ProLearn on how a Cisco system would operate in practice. Humunicki’s evidence was that this demonstration showed that operators would be able to save details of each phone call into the Cisco system. She told Okulicz that the new system had to be able to integrate with ProLearn’s CRM, and that saving call details into the telephone system was not suitable. Humunicki said that Okulicz then said the new system would be able to be ‘customise[d]’ to allow integration with ProLearn’s own database.
After the meeting at Cisco’s premises, Okulicz sent Tutungi a document entitled ‘Contact Centre Solution Overview’, dated 11 February 2015 (the ‘First Proposal’). Relevantly, the First Proposal did not include any details for personal call back lists.[33] The executive summary to the First Proposal included statements that:
ProLearn are looking to enhance their existing call centre environment to include an outbound dialler that will integrate with their CRM. The solution will enhance the productivity of ProLearn and assist in driving the business forward as growth is a major focus.
[33]Ibid [116].
Okulicz forwarded Tutungi three documents on 27 March 2015, consisting of:
1.Telstra Corporate Services Agreement dated 26 March 2015;
2.Telstra Business Systems – Corporate Services Agreement dated 27 March 2015; and
3.A quotation from Telstra to ProLearn dated 26 March 2015.[34]
[34]Ibid [118].
Having read the documents, Tutungi sent an email dated 21 April 2015 to Okulicz and Andrew Asimakidis, who was at the time a senior account executive with Telstra, outlining ProLearn’s queries. One of Tutungi’s principal concerns was that the specific hardware to be supplied under the First Proposal was not detailed in the contracts provided — the equipment was listed only as ‘1 x 83 Agent Licences + Hardware Infrastructure’.[35]
[35]Ibid [120].
On 22 April 2015, Tutungi telephoned Okulicz and Asimakidis. A critical issue for ProLearn was that there was no mention of a personal call back list capability in the First Proposal. Okulicz assured Tutungi that the new system would include that specific functionality and agreed to amend the Solution to reflect that.[36] Late that evening, Okulicz emailed Tutungi a list of the proposed inclusions for the Cisco system, including ‘[d]ialer [sic] functionality capable of running predictive, preview and progressive campaigns’ and ‘[i]ntegration services to automatically create individual call back lists’, amongst other features.[37]
[36]Ibid [125]. Digby J notes that Tutungi was not challenged about this evidence and no contradictory evidence was given by Okulicz or Asimakidis.
[37]Ibid [126].
The following day, Tutungi replied with approval of the updated list of system inclusions and indicated that she needed to understand the cost per operator under the proposed system. She noted that ProLearn was tracking towards 150 operators.[38] Okulicz’s reply detailed the cost per operator and also attached documents including:
1.the updated proposed Telstra Business Systems Corporate Services Agreement;
2.the updated proposed Contact Centre Solution Overview version 2.1 (the ‘Final Proposal’); and
3.a letter from Brendan Donohoe, a Director of Technical Sales at Telstra, dated 23 April 2015 attaching Equipment, Services and Pricing – Schedule 1, Sale and Installation of Equipment – Schedule 2, and Telstra Business Systems Care – Schedule 3.[39]
[38]Ibid [127].
[39]Ibid [129].
Among other things, the Final Proposal recorded ProLearn’s requirements and then stated what the Solution would provide, in the following terms:
ProLearn are seeking a solution that meets the following requirements
·Support for 83 agents
·Voicemail licensing for team leaders (10 users)
·Outbound Preview Dialer [sic]
·Personal Call backs for 83 agents
·Integrated to web-based CRM for customer information
·Quality Management solution for 83 agents including voice recording and scorecards\KPIs
...
The solution will provide the following core functionality:
·Inbound\Outbound Licensing for 83 Agents - Audio recording and Quality Management for 83 Agents
·Dialer [sic] functionality capable of running predictive, preview and progressive campaigns
·Integration services to automatically create individual agent call back lists
·Capacity to run multiple simultaneous campaigns, weighted by skills
·Redundant server hardware architected for 99.999% uptime
·Server licensing to run the solution
·16 hour reporting workshop
Kytec had initially recommended a Cisco Unified Contact Centre Express (‘UCCX’) system for ProLearn.[40] In the Final Proposal, Kytec abandoned its recommendation of a Cisco UCCX system, and instead recommended that the Solution incorporate a Cisco Packaged Contact Centre Enterprise (‘PCCE’) system (alternatively referred to as a ‘UCCE’ system).
[40]Ibid [112].
The Final Proposal — and more particularly the part extracted at [39] above — is critical. The judge held that the Final Proposal contained the principal representations made by Kytec and Telstra.
On 27 April 2015, Tutungi signed each of the documents on behalf of ProLearn and returned them to Kytec.[41] Tutungi’s evidence was that she executed the documents on behalf of ProLearn on the basis that the new system would: be able to automatically create personal call back lists; be able to be used by 83 operators; be scalable up to 200 operators; integrate with ProLearn’s CRM; enhance ProLearn’s productivity; and be appropriate for ProLearn’s requirements.
[41]Ibid [133].
From 27 April 2015 to 31 August 2015, Kytec and ProLearn carried out a ‘pre‑implementation phase’ concerning the Solution.[42]
[42]Ibid [145].
ProLearn entered a five-year lease of premises at 380 La Trobe Street, Melbourne in or around August 2015. It commenced operating from that premises on 31 August 2015.[43] The La Trobe Street premises had around double the staff capacity of the three suites at the St Kilda Road premises.[44]
[43]Ibid [103].
[44]Ibid.
ProLearn was late in giving Kytec notice of its intended move to the La Trobe Street premises, leaving Kytec only ten days to install, test and implement the Solution. The late notice also meant that Telstra was delayed in installing the Session Initiated Protocol (‘SIP’) carriage service to which the Solution was to be connected, which prevented Kytec from testing the Solution on the SIP line prior to its going live.[45]
[45]Ibid [309(f)].
The Solution went ‘live’ on 1 September 2015. The new system included an automated dialler, a reporting program called Cisco Unified Intelligence Centre (‘CUIC’), and ‘Cisco Finesse’. Cisco Finesse was the interface that each operator would see on their screen (the ‘Finesse Screen’). ProLearn submitted at trial that once the new system went live, a number of key features of the Solution were not operational. Those features included the automated dialler, the upload (or import) of ‘leads’ (phone numbers) into the system, and the automated personal call back lists (also called ‘to do lists’).[46]
[46]Ibid [145].
Kytec claimed that these features were reliant on the dialler being operational, and that the dialler was not turned on at ProLearn’s request.[47] In response, Tutungi said that she requested the dialler not be turned on because ProLearn’s operators immediately experienced issues with the Solution once it went live. In particular, she said that the new system did not have the capacity to generate personal call back lists. Nor was the system capable of being used by over 30 operators at the same time, when it had been expected that 83 operators would be able to use the system simultaneously.[48]
[47]Ibid [146].
[48]Ibid [147].
Kytec implemented what it called the ‘Call Back Workaround’ as a temporary solution to the issues with the personal call back list functionality.[49] This solution consisted of a pop‑up box which appeared on the Finesse Screen when the operator clicked on the ‘call back’ button. The operator was then able to set the time and date of a proposed call back in the pop-up box. At the scheduled time, the Finesse Screen would display the name and phone number of the customer to be called, the operator would click ‘accept’ on the screen and the dialler would then dial the number. Later, Okulicz claimed that this ‘custom gadget’ that he was required to provide as a workaround was responsible for subsequent issues which slowed the system down.
[49]Ibid [148].
A substantial body of trial evidence concerned ProLearn’s day-by-day description of what it contended were the failures of the system, Kytec’s attempts to fix those failures and ProLearn’s further complaints that the same failures recurred. In its evidence, Kytec sought to address and explain these complaints. In broad‑brush terms, much of Kytec’s evidence was to the effect that some of the problems were normal, expected bugs which were soon corrected. Others, it said, were due to ProLearn’s late delivery of the site for system testing. Almost all of the problems were said to be minor. Kytec maintained that, in any event, ProLearn’s operators were always able to manually make outbound calls and to enter information in the ‘old’ CRM as they had done before.
Although repeated attempts were made to do so, Kytec did not resolve the issues with the new system to ProLearn’s satisfaction. Complaints made over the course of several months were recorded in correspondence from Tutungi to Kytec, and later to Telstra. That correspondence included the following:
(a)On 10 September 2015, Tutungi emailed several employees of Kytec, including Okulicz:
This system is far from ready for release, I would like a phone hook up this morning at 10am to discuss, what is going wrong and how it is going to be fixed and by when.
I expected bugs but we are now a week and a half into start up and we haven’t had one day when we have had the system fully operational.
This is seriously impacting on the business.
(b)The next day, Tutungi sent a further email to Okulicz and Derek Costello (of Kytec):
…
Not one target has been met by your project team, you had extra time before kick off to program the system and set up the reports, but nothing apart from loading the software on the servers was done. You didn’t even order the server for the call recordings.
I feel I was misled by you David as clearly your team cannot deliver on the promises you made me when we signed up.
…
(c)On 27 November 2015, Tutungi emailed Samuel Bolivar (of Kytec):
…
Can you look at the stats about how many call backs are connecting? Can you tell me if this is happening to all call backs? What happens to the call backs after it disappears off the screen … this is a critical step in our business process and we are losing sales over this.
…
(d)On 7 December 2015, Tutungi emailed Okulicz and Martial Renoult (of Kytec):
…
It’s been 2 weeks since we raised this issue and it appears to be no closer to being solved today than the day I raised it. I know that Samuel is working hard, but we are losing sales and this cannot continue. The call backs were introduced to overcome the problem with uploading the to do lists.
I need this fixed ASAP.
Please advise on your strategy to fix.
…
(e)On 13 January 2016, Tutungi emailed Bolivar and Renoult of Kytec:
…
As I am sure you are probably aware the dialler is down again.
I sent the call centre home yesterday at 5pm and half of them have left today at 4pm. Tomorrow I have 28 people starting and I cannot have the dial [sic] going down all afternoon.
…
I need to stress that I cannot have the system fail again tomorrow. This is our whole business.
…
(f)On 19 January 2016, Tutungi sent a further email to Okulicz and Renoult:
…
Unfortunately, this year has started with more phone issues.
You instituted a change in the system to eliminate the ever growing number of “orphan” call backs which triggered a complete melt down in the dialer [sic].When this was corrected this triggered a problem with call backs.
So again this year, my business is suffering from down time and loss in revenue due to not being able to close sales.
The system has cost my business considerable lost revenue and increased my costs in terms of staff turnover, lost leads and down time.
I would like to arrange a meeting to discuss:
- termination of our contract;
- compensation;
- plan moving forward
Please advise of your availability for next week.
…
(g)On 13 May 2016, Tutungi emailed Andrea Walk (of Telstra):
…
- None of the work that was meant to be done prior to launch was completed. This meant that no testing was done prior to launch and for the month of September we had daily issues with the dialler not performing.
- The original specification included the ability for each agents [sic] “to do list” or “call back list” to be updated daily. This was abandoned after 2 months of continual crashes and issues. We still to this day manually call people back.
- The system is meant to be able to cope with 200 agents, but every time we get above about 30 agents the system fails. This presents as:
- Screen freezing.
- Lag in presenting customer information
- Slow down in dialler
- Disconnecting agents to the finesse gadget
…
The impact of all of these problems include:
- Our costs for buying leads have doubled because we are burning through double the leads with no increase in sales or customer connections.
- Our efficiency has halved – eg. yesterday we had to take all operators off the dialler as they were totally frustrated. In total we have probably lost no less than 10 full business days over the period since September in down time.
- None of the promised benefits have been delivered.
…
ProLearn became frustrated with Kytec’s apparent inability or unwillingness to resolve its complaints. Tutungi and Humunicki contacted Telstra directly. On 30 June 2016, Tutungi and Humunicki met with Joe Gillett of Telstra at ProLearn’s premises. Tutungi and Humunicki told Gillett they did not have faith in Kytec’s ability to adequately fix the issues with the new system. Gillett said that Telstra would have to appoint an independent auditor to identify the new system’s deficiencies and determine what remedial steps could be taken.[50]
[50]Ibid [153].
On 11 July 2016, Tutungi, Humunicki and Gillett met again at ProLearn’s premises along with two or three representatives from TBCe, the company appointed by Telstra to conduct the audit. Humunicki asked Gillett how ProLearn should seek compensation for the loss caused by the new system. Gillett said that he would assist with a compensation claim. Gillett again offered to assist with the claim in an email to Tutungi dated 15 August 2016.
Ultimately, TBCe’s audit (emailed to ProLearn on 29 September 2016) concluded:
Based on the audit the ICM system appears configured correctly and all processes showing active, configured and idle which is normal behaviour. The Scripting and Finesse client components have been configured with some complexity which maybe [sic] causing an extra load on the system and the freezing or crashing could be a symptom of this. Further troubleshooting would involve rolling back to default configuration for the affected scripts and Finesse teams and then testing to see if the same symptoms are seen. Other recommendations mentioned such as database sizing and log viewer alerts should be addressed.
Due to the current technical problems TBCe recommends speaking to Prolearn to re-assess some of the business requirements. The UCCE solution should be built and simplified as much as possible to begin with and then later extra functionality can be added if it is supported.
ProLearn lodged a compensation claim for $9.1m with Telstra on 23 August 2016.[51] Telstra formally rejected ProLearn’s claim for compensation on 31 March 2017.[52] ProLearn subsequently issued proceedings against Telstra and Kytec, as described at [1] above.
[51]Ibid [156].
[52]Ibid [157].
To complete the picture, there were some relevant changes that occurred to the VET sector generally in this period. Between 2009 and early 2015, the number of students accessing federal government VET fee support — in the form of ‘VET FEE-HELP’ loans — increased by 5,000 per cent from 5,262 to 272,000. The value of loans to those students increased from $26 million to $2.9 billion.
From April 2015, the federal government introduced a series of restrictions and reforms to better regulate access to its VET FEE-HELP loans, leading to a contraction of about 30 per cent in students and enrolments in the 2015-2016 year. On 31 December 2016, ProLearn ceased carrying on its business involving digital and telemarketing services to the VET sector altogether, due to the federal government’s ban on the use of brokers.
At trial, ProLearn called evidence from Tutungi and Humunicki. It also called evidence from an accountant, Michael Smith, in relation to calculation of its loss and damage. Telstra called evidence from Lynette Leondaris (at that time, a Telstra Channel Manager who managed a portfolio of dealers, including Kytec), and Asimakidis. Telstra also called expert evidence from Dawna Wright (a chartered accountant who commented on the report of Smith) and Daniel Wolff (an expert in relation to the VET sector). Kytec called evidence from Okulicz, and Michael Green (an information technology consultant with extensive experience relating to Cisco call centre products).[53]
[53]Ibid [24]–[65].
With this relatively brief statement of the background facts, I turn to consider the proposed grounds of appeal by reference to the issues I have identified. I will address any further facts relevant to specific grounds as I come to them.
Did Kytec have reasonable grounds for making Representation A due to its assumption that ProLearn would have in place a web-based customer relationship management system (Kytec ground 2)?
Legal principles relevant to the question of reasonable grounds
Each of the representations found to have been made by Kytec and Telstra were representations as to future matters. The circumstances in which representations as to future matters will be considered misleading or deceptive are set out in s 4 of the ACL. Section 4 of the ACL contains four sub-sections, and in substance provides that:
(1)if a person makes a representation with respect to a future matter but does not have reasonable grounds for making it, the representation is taken to be misleading (sub-s 1);
(2)a person is taken not to have reasonable grounds for making the representation unless evidence is adduced to the contrary (sub-s 2);
(3)merely because such evidence to the contrary is adduced does not mean that the person making the representation is taken to have had reasonable grounds for making it, nor does it place an onus on any person to prove that the person who made the representation did have reasonable grounds (sub-s 3); and
(4)even if a person does have reasonable grounds for making a representation as to a future matter, the representation may still be misleading (sub-s 4).
The practical effect of these provisions is to cast an evidential burden on the representor to adduce evidence to the contrary of the proposition that they lacked reasonable grounds for making the future representation. However, if such evidence is adduced, the ultimate persuasive burden remains with the person bringing the claim.[54] The judge correctly identified these principles.[55] It was not disputed in this Court that, pursuant to s 4 of the ACL, the onus lay on each of Kytec and Telstra to adduce evidence that they had reasonable grounds for making their representations, failing which those representations were taken to be misleading.
[54]North East Equity Pty Ltd v Proud Nominees Pty Ltd (2012) 285 ALR 217, 223–4 [28]–[30] (Mansfield, Greenwood and Barker JJ); [2012] FCAFC 1 (‘North East Equity’).
[55]Reasons, [204]–[205].
The principles for determining whether a person has reasonable grounds for making a representation are well-established, and will be relevant to both Kytec grounds 1 and 2, and Telstra grounds 1 and 2. Whether or not there were reasonable grounds is a question of fact. The matter is to be determined at the date of the representation.[56] There will not be reasonable grounds for making a representation if, at the time of making it, the representor did not have facts sufficient to induce, in the mind of a reasonable person, a basis for making the representation.[57] The existence of reasonable grounds may be determined by reference to the overall circumstances of the case, including the overall probabilities to which the circumstances of a particular case give rise, and may be established by evidence other than that of the persons who are alleged to have made the particular representations as to a future matter.[58]
[56]Sykes v Reserve Bank of Australia (1998) 88 FCR 511, 513 (Heerey J); [1998] FCA 1405 (‘Sykes’).
[57]George v Rockett (1990) 170 CLR 104, 112 (the Court); [1990] HCA 26; ACCC v Jones (No 5) [2011] FCA 49, [32] (Logan J); ACCC v Dateline Imports [2015] FCAFC 114, [100] (Gilmour, McKerracher and Gleeson JJ).
[58]Cummings v Lewis (1993) 41 FCR 559, 566 (Sheppard and Neaves JJ) (‘Cummings’).
However, the question of whether a respondent had, at the time of making a representation as to a future matter, reasonable grounds for making it, is particularly illuminated by the knowledge, understanding, or reasoning of the respondent.[59] Even so, genuine or honest belief in a representation is not sufficient to establish reasonable grounds for making it.[60] Evidence of later events may throw light on the overall probability that a representation was reasonable at the time it was made.[61] However, it remains important to guard against ‘hindsight illusion’,[62] which is to treat knowledge before an event as equivalent to knowledge acquired after the event.
[59]North East Equity (2012) 285 ALR 217, 224 [30] (Mansfield, Greenwood and Barker JJ); [2012] FCAFC 1.
[60]Cummings (1993) 41 FCR 559, 565 (Sheppard and Neaves JJ).
[61]City of Botany Bay Council v Jazabas Pty Ltd [2001] NSWCA 94, [83] (Mason P).
[62]Ibid.
A summary of the matters to be demonstrated by the representor was set out by Heerey J in Sykes v Reserve Bank of Australia (‘Sykes’), namely:[63]
(1)some facts or circumstances;
(2)existing at the time of the representation;
(3)on which the representor in fact relied;
(4)which are objectively reasonable, and
(5)which support the representation made.
The judge’s findings
[63]Sykes (1998) 88 FCR 511, 513 (Heerey J); [1998] FCA 1405.
The judge found that Kytec represented to ProLearn that the Solution would ‘automatically create personal call back lists’ (that is, Representation A).[64] He found that the representation was misleading and deceptive because, as a representation as to a future matter, Kytec lacked reasonable grounds for making it.[65]
[64]Reasons, [217]–[218].
[65]Ibid [285], [289], [296], [298].
As previously explained, ProLearn’s existing telephone system depended upon the manual entry of customer data into the existing CRM. After the input of that data, the existing CRM was capable of generating a report for the individual operator of those customer leads that required a call back, listed in order of priority.[66] In effect, Kytec represented that the Solution would automatically generate this call back list, without the need for manual entry of data into the CRM.[67]
[66]Ibid [96]–[98].
[67]Ibid [212]–[220].
Although the representation was also gathered from oral communications and email correspondence, it was sufficiently set out in the Final Proposal.[68] I have previously set out a portion of the executive summary of the Final Proposal,[69] in which Kytec recorded that ProLearn wished to have an ‘outbound dialler that will integrate with their CRM’. It further stated that the Solution would enhance productivity and assist in driving the growth that was ProLearn’s ‘major focus’.
[68]Ibid [218].
[69]Above, [34].
As seen in another extract of the Final Proposal,[70] Kytec listed ProLearn’s requirements, including:
[70]Above, [39].
•Outbound Preview Dialer [sic];
•Personal call backs for 83 agents; and
•Integrated to web-based CRM for customer information,
and stated that the Solution would provide the following functionality:
•Dialer [sic] functionality capable of running predictive, preview and progressive campaigns; and
•Integration services to automatically create individual agent call back lists.[71]
[71]Emphasis added.
As already mentioned, in this Court, Kytec did not dispute the making of Representation A. However, at one time in the trial proceeding, ProLearn had alleged that Kytec had also made Representation D, namely, that:
the Solution would integrate with ProLearn’s web-based CRM for customer information.
With the Court’s leave, on 12 September 2018, well before the trial commenced, ProLearn amended its pleading by striking out the words ‘web-based’ in that allegation. Ultimately, by the end of the trial, ProLearn did not press Representation D at all. In other words, in final submissions, ProLearn relied upon a representation that the Solution would automatically generate personal call-back lists (Representation A) without also relying upon a representation that the Solution would integrate with ProLearn’s CRM (Representation D), whether web-based or otherwise.[72]
[72]Reasons, [242].
The full terms of Kytec’s ground 2 are as follows:
The trial judge erred in finding … without proper reasoning, that Representation A (the Solution would be able to automatically create Personal Call Back Lists) was misleading and deceptive and that Kytec did not have reasonable grounds to make it as Representation A was premised on ProLearn installing a web‑based CRM (Customer Relationship Management) as referred to in Representation D, which it never did.
By this ground Kytec argues that the judge made an error in finding that Kytec lacked reasonable grounds for Representation A. He made that error, it says, by failing to take into account that the representation was premised upon ProLearn first putting in place a ‘web-based’ CRM, which it failed to do. In other words, Kytec submits that it did have reasonable grounds for making Representation A because of its reasonable belief that ProLearn would put in place a web-based CRM.
Because Representation A was a representation as to a future matter, an evidentiary onus lay on Kytec to establish that it had reasonable grounds for making it.[73] The judge found that Kytec lacked reasonable grounds for making any of the Kytec representations, including Representation A. Essentially, that was because Kytec failed to satisfy the judge that, at the time of making the representations, it had the necessary experience in customising the Cisco product to deliver the specific features that it represented that it could deliver.[74] Kytec challenges that particular reasoning by Kytec ground 1, to which I will return.
[73]Ibid [287]–[289].
[74]Ibid [296].
Separately, the judge explained why he did not need to make any findings about the making of Representation D (that the Solution would integrate with a web-based CRM for customer information) or whether ProLearn placed any reliance on that representation when it entered the contracts for the delivery of the Solution. After referring to the evidence for the making of Representation D, the judge said that he was satisfied that Kytec did represent that the Solution would integrate with a web-based CRM for customer information. But the judge went on to note that it was common ground that ProLearn did not move to a web-based CRM, and that it had amended its pleading to delete any reference to Kytec representing that the Solution would integrate with a web-based CRM.[75] Finally, the judge acknowledged:
ProLearn did not press Representation ‘D’ or ultimately rely on Representation ‘D’. This is clear from ProLearn’s Closing Submissions at [50]. Further, during his final submissions, Senior Counsel for ProLearn announced that: ‘we don’t press the claim for a misrepresentation with respect to the integration of the CRM’ (T1199.14-16).
It is therefore of no moment either that the above mentioned written representations about the Solution integrating with a web-based CRM were made, or that Tutungi’s evidence was that she believed the Solution would integrate with ProLearn’s CRM.
For the above reasons I make no ultimate finding about Representation ‘D’.[76]
[75]Ibid [237]–[241].
[76]Ibid [242]–[244].
Later, in the section of the judgment dealing with whether Kytec had reasonable grounds for making the established representations, the judge dismissed Kytec’s argument that ProLearn’s failure to install a web-based CRM caused a number of the Solution’s deficiencies. The judge said:
I also reject that ProLearn itself did not meet its own requirements, such as moving to a web-based CRM. I consider that ProLearn’s conduct, including in relation to moving to a web-based CRM, was not a material cause of the relevant difficulties and disfunctions ProLearn suffered with the Solution. This is because I am not satisfied that there is evidence to conclude that a web-based CRM would have better integrated with the Solution. Furthermore, Okulicz agreed that he did not say that because ProLearn did not convert to a web-based CRM it experienced problems with the Solution.[77]
Submissions
[77]Ibid [299].
Kytec argued that Representation A had to be read in conjunction with Representation D. It also maintained that the agreed design for the Solution was based on the integration of the Cisco product with a web-based CRM. For that second assertion, it relied upon some evidence given by Okulicz and its IT expert witness, Green. Kytec also referred to a finding by the judge that Tutungi believed that the Solution would integrate with the ProLearn CRM.[78] Kytec argued that ‘[o]nce Representation D was abandoned it had to take Representation A with it’.
[78]Ibid [220].
In oral submissions, Kytec put its argument in several ways. The first argument turned on the interpretation of Representation A and Representation D as alleged. Read together, Kytec argued, Representation D was the premise — akin to a necessary and indispensable condition — of Representation A. Thus, if Representation D was removed, Representation A must logically fall.
The second argument was factual and involved a number of propositions, as follows: (1) the automatic generation of personal call back lists depended on the integration of the Cisco products with ProLearn’s CRM; (2) the integration could only occur if ProLearn’s CRM was web-based; (3) at least in the mind of Kytec, Representation A was therefore conditioned on the existence of a web-based CRM at the time the Solution was implemented; (4) at the time of making Representation A, Kytec reasonably believed that ProLearn would have a web-based CRM in place; and (5) therefore, Kytec had reasonable grounds for making Representation A. Kytec submitted that, in failing to find that Kytec had reasonable grounds for making Representation A the judge did not take into account the dependency of the content of Representation A on the content of Representation D.
A third argument was less obviously connected with the dependency point. It seemed to be directed to the judge’s conclusion that he could not be satisfied that a web-based CRM would have better integrated with the Solution than the existing Microsoft Access CRM did.[79] Kytec submitted that, because ProLearn’s CRM was not web‑based, the intended method of integrating the CRM with the personal call back feature built into the Cisco product could not be implemented. Instead, Kytec was requested to, and did, develop the ‘Call Back Workaround’ solution.[80] That workaround solution involved installing a ‘gadget’, and required Kytec to write some additional computer code to configure the gadget with the Solution. In turn, because of a software defect (a ‘bug’) that was associated with it, this gadget was responsible for some of the issues which ProLearn encountered with the operation of the Solution. This caused various crashes and the slowdown of the system. Ultimately, ProLearn instructed Kytec to turn the gadget off.
[79]Ibid [299].
[80]Above, [48].
Before leaving Kytec’s three arguments, I should mention a further argument it made in its written submissions. Kytec argued that:
…if ProLearn had migrated to a web-based CRM, when the bug was encountered with the [personal call backs] function shortly after go-live, it would not have been necessary for Kytec to develop the call back workaround or gadget because the Kytec Solution could have been reconfigured instead to leverage the web-based CRM for the to do list functionality. Further, the issues described by ProLearn as ‘capacity issues’ would not have been experienced if ProLearn had installed a web-based CRM because the custom gadget, installed at ProLearn’s request during the week immediately following go live to display additional information on the Finesse screen, would not have been required.
To the extent that this particular argument is relevant to this ground of appeal, I understand Kytec to submit that the problems encountered with the Solution were caused by the lack of a web-based CRM. Rather than constitute a fourth argument, this causal connection was argued to highlight the interdependency between Representation A and Representation D.
Drawing these arguments together, Kytec’s overarching submission is that the content of Representations A and D were so interconnected that, as a matter of both interpretation and practical fact, the accuracy of Representation A could not be assessed in isolation from Representation D. In substance, the effect of Kytec’s submission is that the two needed to be understood as a single representation, namely that: ‘The Solution would integrate with ProLearn’s web-based CRM for customer information and on that basis would be able to automatically create Personal Call Back Lists’.
Consideration
Before considering these arguments, it is useful to examine how Kytec pleaded its defence in response to ProLearn’s allegations.
Significantly, as demonstrated in the following discussion, nowhere in its pleadings does Kytec allege that:
(a)Representation A was premised or conditioned upon ProLearn installing a web-based CRM;
(b)the reason that the automatic personal call back lists function could not be delivered was the absence of a web-based CRM; or
(c)Kytec’s reasonable grounds for making Representation A was its assumption that ProLearn would install a web-based CRM.
At the highest, in answer to Representation D — not Representation A — Kytec pleaded that the Solution was compatible with a web-based CRM but not the existing Microsoft Access-based CRM.
First, ProLearn pleaded that Kytec made Representations A, B, E, F and G in the terms set out at [14] above. Initially, ProLearn also alleged that Kytec made Representation D in the terms set out at [68] above.
In response to the allegation that Kytec made Representation A (the Solution would be able to automatically create personal call back lists), Kytec pleaded:
(i)save and except that Kytec admits that the [Final] Proposal contained the statement ‘The solution will provide the following core functionality:…Integration services to automatically create individual agent call back lists’ (page 6);
(ii)it otherwise relies on the full terms and effect of the [Final] Proposal and does not admit the allegations …;
In response to the allegation that it had made Representation D (the Solution would integrate with ProLearn’s web-based CRM for customer information), Kytec admitted that the Final Proposal contained statements to the effect that ProLearn wanted an outbound dialler that would ‘integrate with their CRM’ and a solution that was ‘integrated to web-based CRM for customer information’. Kytec further pleaded that, ‘at the time the [Final] Proposal was provided to ProLearn, ProLearn did not have a web-based CRM for customer information’.
On 12 September 2018, ProLearn amended its pleading to delete the words ‘web-based’ from its allegation of Representation D. Kytec amended its response by simply deleting its allegation that ProLearn did not have a web-based CRM at the time of the Final Proposal.
Secondly, ProLearn pleaded what it maintained were the deficiencies with the Solution after it was activated. Relevantly, it alleged that:
(a)the Solution does not have the capacity to generate Personal Call Back Lists; [and]
…
(c) the Solution does not integrate with ProLearn’s CRM.
In answer to sub-paragraph (a), Kytec alleged that in September 2015, Tutungi ‘directed Kytec to stop working on the customisation to automatically produce the call-backs and to rely on the agents creating the call-backs through the system’s inbuilt, personal, call-back functionality’. Kytec further alleged that, in response to Tutungi’s direction, it enabled the personal call back function and created a ‘gadget’ to allow manual entries to be made into the call backs table.
Kytec denied sub-paragraph (c). Before 12 September 2018, in addition to that denial Kytec added, ‘as ProLearn did not have a web-based CRM’. After 12 September 2018, Kytec struck out those extra words. Instead, it inserted particulars of its denial in these terms:
As to sub-paragraph (c) above, at the time that Kytec provided the Solution, ProLearn was using a Customer Relationship Management (CRM) tool that ran through Microsoft Access and operated by its staff manually entering information into that database. Prolearn was planning to implement a new CRM using a structured query language (SQL), which is a web based version of its CRM. SQL is a widely used database technology. Implementing this change was not part of Kytec’s brief. Prolearn wanted its new telephone system to be able to integrate with its new CRM when that system was implemented. Kytec’s Proposal and Solution would be compatible with a web-based CRM, not the existing CRM that ran through Microsoft Access. ProLearn did not ultimately implement a new web-based CRM using SQL.[81]
[81]Emphasis added.
Thirdly, ProLearn alleged that Kytec had no reasonable basis for making Representations A and D. In answer to that allegation, Kytec alleged that it did have reasonable grounds for making each representation, in that:
(a)the alleged Representations were subject to the other matters in the [Final] Proposal, including the implementation of the Solution and the Cisco PCCE solution which was to be integrated with a Cisco Unified Communications Manager;
(b)the functionality of the Solution depended on its use and management by ProLearn and its operators and staff;
(c)it refers to and relies on the matters in paragraphs 20 and 21 above;[82]
(d)it was not until 3 August 2015 that Prolearn confirmed that it would be relocating its premises to Level 15, 380 La Trobe Street. Before this, Prolearn had also been incorrectly advising Kytec that its proposed new premises were Level 13, 380 Latrobe Street. Until the location of ProLearn’s new premises was confirmed, Kytec was unable to install the ISDN service or commence onsite activities that would usually include pre-installation testing, or confirm the installation timetable.
[82]These paragraphs included the content set out above at [90] and [91].
Notably, in sub-paragraph (a) above, one basis given for there being reasonable grounds for the representations was that each representation was ‘subject to the other matters in the [Final] Proposal’. That allegation was general in its terms. The only mention in sub‑paragraph (a) of any required integration was between two Cisco elements.
I shall now consider the three arguments which Kytec made on this ground.
The first argument focused on the interpretation of Representation A, Kytec submitting that, read in context with all of the representations alleged to have been made by Kytec, the proper interpretation was that Representation A was premised upon the existence of a web-based CRM.
Examining the terms of the Final Proposal, Kytec recorded that the features required by ProLearn included ‘[p]ersonal call backs for 83 agents’ and, in a separate bullet point, ‘[i]ntegrated to web-based CRM for customer information’. Kytec stated that the core functionality which the Solution would provide included ‘[i]ntegration services to automatically create individual agent call back lists’.
These statements did not, in terms, link the automatic creation of call back lists with the existence of a web-based CRM. The use of the expression ‘integration services’ did not distinctly convey that the Solution was to be integrated with any technology that existed on ProLearn’s side. As Okulicz explained, the task of a Cisco partner such as Kytec was to ‘integrate’ the various separate components and modules of a Cisco UCCE/PCCE system to suit the individual needs of the customer. An example of that kind of integration was given in Kytec’s pleading, namely the integration between the system and the Unified Communications Manager. In other words, ‘integration’ was apt to describe the process Kytec was to perform with the Cisco products, not — or at least not obviously — between the Cisco product and some facility or application on the customer side.
Read without any special knowledge or any qualification as to assumptions made by Kytec, the representations about the provision of an automatic personal call back lists function, on the one hand, and the integration with ProLearn’s (anticipated) web-based CRM, on the other, were separate and stand-alone representations. That is certainly how they were alleged in ProLearn’s pleading. And, as I have pointed out, Kytec itself did not contend in its defence that those representations were in any way interdependent.
The occasion to make the argument which is now put on appeal — that is, ‘if Representation D goes, Representation A must go with it’ — must necessarily have arisen when ProLearn first abandoned its reliance upon the representation that the Solution would integrate with a web-based CRM. Yet Kytec allowed that occasion to pass without apparent objection and without putting this argument in its amended defence. The fact that Kytec did not raise this argument at that juncture tends to undermine its argument in this Court that the two representations necessarily go hand in hand.
In my view, there is no merit in the argument that Representation A was, as a matter of interpretation, premised upon Representation D.
I turn to the second argument made by Kytec, which was that: (1) integration with a web-based CRM was required for the Solution to automatically generate personal call back lists; (2) Representation A was, at least in the mind of Kytec, conditioned on the existence of a web-based CRM when the Solution came to be implemented; and (3) Kytec reasonably believed that a web‑based CRM would be in place at the time the Solution was implemented — such that there were reasonable grounds for Kytec to make Representation A at the time it was made.
Tutungi admitted in cross-examination that when Kytec put forward its Proposal in around January to April 2015 it was envisaged that the Solution would integrate with a web-based CRM, but that, at that stage, ProLearn only had a Microsoft Access-based CRM, which was not web-based.
Further, she was taken to Representation D in ProLearn’s pleading, which alleged that the Solution would integrate with a web-based CRM. She accepted that that allegation was included in error because, at the time the Final Proposal was made, ProLearn did not have a web-based CRM and did not obtain one thereafter. She accepted that Kytec could not be criticised for failing to integrate the Solution with a web-based CRM given that ProLearn did not have one and never obtained one.
Tutungi was also asked to read some paragraphs from Okulicz’s witness statement in which he said, referring to their first meeting on 21 January 2015:
34.During the meeting, Vicki repeated much of the information that we had already discussed. At the time, ProLearn was using a Customer Relationship Management (CRM) tool that ran through Microsoft Access and operated by its staff manually entering information into that database. ProLearn was planning to implement a new web-based CRM using structured query language (SQL). SQL is a widely used database technology. The changes to this system were not part of Kytec’s brief. Vicki explained during this meeting that ProLearn wanted its new telephone system to be able to integrate with its new CRM when that system was implemented. I told Vicki that the system I was recommending would be compatible with a web based CRM built on SQL. This is consistent with Version 2 of the Proposal (discussed below).
35.To my knowledge, the re-writing of the CRM to SQL never occurred. At no stage was Kytec asked to re-visit the CRM integration. That meant that it was not practical to integrate Kytec’s solution with ProLearn’s Microsoft Access CRM.
In cross-examination, Tutungi accepted that:
•It was not part of Kytec’s brief to implement a web-based CRM using structured query language (SQL);
•In response to ProLearn’s requirement that the new telephone system would integrate with the ‘new CRM’, Okulicz had said that the system he was recommending ‘would be compatible with a web-based CRM built on SQL’; and
•The re-writing (or conversion) to a web-based CRM never occurred.
As can be seen from paragraph 35 in Okulicz’s witness statement (see [104] above), he went on to say that, because of those facts, it was ‘not practical to integrate Kytec’s solution with ProLearn’s Microsoft Access CRM’. He did not say that he had told Tutungi that it would not be ‘practical’ to integrate the Solution with the existing Microsoft Access CRM, nor was it suggested to Tutungi that he did. So far as his evidence was concerned, Okulicz’s statement as to practicality did not go beyond a thought formed in his own mind.
Moreover, his recorded view went no further than the matter of practicality. It did not extend to impossibility, nor was there any forecast of what issues might arise if the Solution was configured to integrate with a CRM that was not web-based or built upon SQL. As later events showed, it was in fact possible to configure the Solution so that it interacted with the Microsoft Access-based CRM. That was achieved through the installation of additional software described as ‘the gadget’, or Call Back Workaround.
Further still, Okulicz did not make clear that he had held this view at the time that the Final Proposal was delivered to ProLearn. It remained possible that he only formed this view later, which may explain why Okulicz did not clarify, at the time of delivering the Final Proposal, that the automatic generation of personal call back lists was conditional upon a web-based CRM being in place.
Therefore, a critical element in Kytec’s second argument on ground 2 is, at the very least, doubtful. That is, it is doubtful that Kytec considered, at the time that the Final Proposal was delivered, that automatic call back lists could only be generated if ProLearn installed a web-based CRM by the time the Solution came to be implemented. This doubt is reinforced by considering Kytec's 'third argument' on ground 2.
Going to this third argument, in final written submissions to the trial judge, Kytec argued that the original plan was to integrate the Solution with a planned web‑based CRM. But, it submitted, the web-based CRM — which would have ‘better integrated with the Kytec Solution and facilitated more efficient operation’ — never came to fruition. Because of the absence of the web-based CRM, Kytec argued that it was later ‘forced to develop a custom gadget’ which, in turn, was responsible for some of the system ‘capacity issues’ that afflicted the Solution during 2016.
I pause to note that these arguments do not speak in terms of impossibility, but merely suggest that integration of the Solution would have been better achieved with a web‑based CRM, rather than with the existing CRM. Similar arguments were advanced on appeal, when counsel for Kytec argued that the Solution would have more ‘efficiently’ integrated with a web-based CRM.
Kytec further argued to the trial judge that Representation A (regarding automatic personal call back lists) ‘needs to be read with’ Representation D (regarding integration with a web-based CRM), and that it was common ground that ProLearn did not have a web-based CRM. The relevance of the connection — it was argued — was that:
[I]f ProLearn had had a web-based CRM, when the bug was encountered with the PCB [personal call back] function shortly after go-live, it would not have been necessary for Kytec to develop the call back workaround or gadget because the Kytec Solution could have been reconfigured instead to leverage the web-based CRM for the to do list functionality.
Kytec referred again to the gadget being responsible for the later capacity issues.
Pausing again, there is a logical problem in this reasoning. Assume that ProLearn did not have a web-based CRM and, because of that, Kytec developed a workaround to create personal call back lists. That of itself does not establish that, when made, the representation that the Solution would generate personal call-back lists was conditional upon the existence of a web-based CRM. It merely tells us of the consequence of there not being a web-based CRM. More tellingly, however, the reasoning implies that the Solution could deliver personal call back functionality regardless of the kind of CRM installed on the ProLearn side. That is implied because the argument merely envisaged a better outcome to solving any ‘bugs’ encountered with the personal call back function if ProLearn had a web-based CRM instead of a manual variety. Green’s evidence supported this conclusion.
Kytec then referred to evidence given by Okulicz in cross-examination as the ‘only relevant exchange’ on this matter. Since ProLearn also relied upon the same exchange, I will set it out:
Now, it’s common ground, isn’t it, that Prolearn did not, in fact, deploy a web-based CRM?---That is common ground.
Yep. Now, you never said to them, did you, and you don’t say that the fact that they didn’t convert to a web-based CRM was causative of these problems that they claim they experienced?---No. I don’t think – I don’t think, um, we pleaded that. I think - - -
Okay. No. Thank you. So – I just wanted to clarify that it’s not part of your case as you understand it?---Um, so I mean, but for not having a – a web-based CRM, we wouldn’t have needed the personal callback functionality.
Yes?---You can take from that what you like.
Kytec concluded by submitting to the judge that it did not represent to ProLearn that the Solution would integrate with ProLearn’s existing manual CRM. Having said that, Kytec submitted that, in any event, Representation A was not misleading and deceptive because the Solution ‘did have the ability to create personal call back lists or to be customised to import them from an external source, such as ProLearn’s non-web-based CRM’.
In its closing reply submission, ProLearn made two points. First, it pointed out that Okulicz agreed that he did not say that the cause of the problems ProLearn experienced with the Solution was that ProLearn had not converted to a web-based CRM. Secondly, contrary to Kytec’s submission, ProLearn argued that there was no evidence that a web-based CRM would have ‘better integrated’ with the Solution.
In effect, the judge accepted ProLearn’s two points. As seen in the passage from the judge’s reasons extracted above at [74], the judge said he was not satisfied that ProLearn’s failure to install a web‑based CRM was ‘a material cause’ of the problems experienced with the Solution, or that a web-based CRM would have better integrated with the Solution. The judge was reinforced in his view because ‘Okulicz agreed that he did not say that because ProLearn did not convert to a web-based CRM it experienced problems with the Solution’.[83]
[83]Reasons, [299].
Overall, Kytec’s argument was perplexing. As I foreshadowed, Kytec’s ‘third argument’ on ground 2 undercut its position that Representation A necessarily assumed the existence of a web-based CRM. It also undercut its argument that its reasonable ground for making Representation A was its assumption that ProLearn would install a web-based CRM before the Solution went live. Additionally, there is no evidence that Kytec made the same submission to the trial judge that it has put to this Court. That is, it is not clear that it submitted to the judge that the premise for making Representation A was the assumed existence of a web-based CRM the subject of Representation D, so that Representation A could not operate if that premise was removed. It is understandable that Kytec did not make that submission to the judge in view of its alternative position that the Solution could create personal call back lists even if ProLearn only had a manual CRM.
Looking back at the elements of Kytec’s ‘second argument’ on ground 2, as set out in [77], for the reasons I have given, the evidence did not establish propositions (2) or (3) — that is, that integration of the Cisco products with ProLearn’s CRM could only occur if ProLearn’s CRM was web-based; and that, at least in the mind of Kytec, Representation A was therefore conditioned on the existence of a web-based CRM at the time the Solution was implemented. That alone means that the conclusion in proposition (5) — that Kytec had reasonable grounds for making Representation A — cannot stand.
It follows, in my view, that the judge did not make an error — on any of the bases advanced under Kytec ground 2 — in finding that Kytec did not have reasonable grounds for making Representation A, and that Representation A was therefore misleading and deceptive. Neither as a matter of interpretation of the written representations made in the Final Proposal, nor as a matter of fact having regard to the evidence presented at trial, was Representation A premised on the existence of a web-based CRM (as referred to in Representation D). Furthermore, it does not appear that Kytec actually put to the judge the proposition that it now criticises the judge for not finding.
Kytec ground 2 must be dismissed.
Did Kytec have reasonable grounds for making Representations A, B, E and F (Kytec ground 1)?
As previously noted, it was not disputed that the representations made by Kytec and Telstra were representations as to future matters, thus engaging the provisions of s 4 of the ACL. The principles relevant to the application of s 4 and the question of whether reasonable grounds existed for the making of a future representation are summarised above, at [59]–[63].
The judge’s findings
In this case, the judge summarised Kytec’s arguments in support of its position that it had reasonable grounds to make each Kytec representation.[84] In short, they were that Kytec had reasonable grounds to make all of the representations because it relied upon Okulicz’s expertise, which had not been challenged. Further, the Green expert report established the appropriateness of the Cisco PCCE system. ProLearn’s case was based upon hindsight illusion, in that it relied upon later events and developments to undermine Kytec’s reasonable grounds existing at the time the representations were made. Concerning specific aspects of the representations, Kytec argued that the Solution:
(a)was able to be used by more than 83 agents, in fact up to 1,000 agents;
(b)did enhance ProLearn’s productivity, because ProLearn’s average monthly call volume increased; and
(c)was appropriate for ProLearn’s requirements because it was based upon the Cisco UCCE/PCCE system, which was an appropriate system.
[84]Ibid [169]–[172].
The applicants drew attention to certain details which were evident in Annexure B in an effort to demonstrate that fluctuations in sales both before and after the Solution was installed could be influenced by factors not dependent upon the performance of the telephone system. One such factor was the level of staffing. Another was the level of sales made per FTE employee.
Commencing with the level of staffing, the applicants pointed to various months before and after September 2015 in which there appeared to be a correlation between the number of sales made per day and the number of FTE employees per day. It is apparent from Annexure B that staff levels were lower in the loss period than in the three-month comparator period, going from an average of about 30 FTE per day during the comparator period to an average of about 20 FTE per day during the loss period. According to the applicants, no evidence was led to explain that drop. Further, they argued, that difference in available employees highlighted the unreliability of using June, July and August of 2015 as the comparator period from which to derive the monthly sales figure to project across the entire loss period.
As the applicants pointed out, the judge acknowledged that there was high staff turnover at ProLearn, which he accepted was inherent in the telemarketing business. Otherwise, he said that the evidence did not establish that ProLearn was ‘experiencing any unique staffing issues’, and nor was there evidence of the ‘actual effect of staffing difficulties in the loss period’.[173] Nevertheless, the applicants continued, the judge did not specifically deal with the point argued at trial that the actual sales figures recorded in Annexure B must, logically, have been reduced by the fall in employed call centre operators over the course of the loss period. This drop was not a function of, or related to, the installation of the Solution (or, at least, was not proven to be). It followed, the applicants argued, that the difference in sales between the constant 93 sales per month and the actual sales per month must have been, at least in part, caused by the reduction in staff numbers. No allowance was made for this factor in the way the loss was calculated.
[173]Ibid [630].
Turning to the matter of sales per staff member, the applicants pointed out that Ms Wright demonstrated that ProLearn’s number of sales per FTE employee had been trending downwards, even before the Solution was installed. In other words, it was taking more employees to generate the same number of sales. The applicants argued that logic would suggest that this decline would have continued throughout the loss period. On that topic, the judge had considered Humunicki’s explanation for the decline in sales per FTE employee prior to the installation, as outlined above at [297]. The judge’s preferred explanation was that there were ‘difficult to quantify’ factors negatively impacting ProLearn’s business, which he assumed would continue to impair its business thereafter. The applicants queried, however, the basis on which the judge regarded those ‘difficult to quantify’ factors as only impacting ProLearn’s sales ‘to a small degree’.[174]
[174]Ibid [628(b)].
These arguments fed into the applicants’ second point on the quantification of ProLearn’s loss, regarding the judge’s failure to apply a Sellars discount. The applicants focused on the judge’s stated explanation for not doing so set out at [703] of the Reasons. The applicants’ first point was that ProLearn’s claim was not a loss of opportunity case, so it should not have been analysed as such. That argument has already been rejected. Their second point, however, was to say that whichever ‘baseline’ figure was adopted as the starting point for loss, it had to be discounted for the two factors just mentioned, namely: (1) the reduction in staffing levels between those reflected in the three-month comparator period and those existing in the loss period, and (2) the trend of declining sales per FTE that commenced before the installation of the Solution and which would have continued throughout the loss period.
As for an appropriate level of discount, the applicants suggested it should be around 50 per cent. That figure took account of a 33 per cent reduction in staff (from 30 FTE per month to 20 FTE per month) and an industry decline of 17 per cent[175] in enrolments for the courses sold by ProLearn.
[175]This figure adopts Tutungi’s evidence of the decline in enrolments in courses specifically pertinent to ProLearn’s business, in contrast with the figure of 35 per cent suggested by Mr Wolff as applying to enrolments in all VET FEE-HELP supported courses. Reasons, [680].
In its submissions, ProLearn commenced by addressing each of the four factors enumerated in ground 5. As already mentioned, these factors were given more prominence in the applicants’ written submissions than in their oral submissions. In summary, ProLearn argued that:
(a)the judge did not fail to take into account the decline in the VET sector, but fully considered the evidence and concluded that ProLearn’s sales were ‘not materially impacted’ by the sector downturn because, as explained by ProLearn’s witnesses, ProLearn was less affected by the regulatory changes on account of the way it had structured its operations;
(b)the judge considered the reduced testing time, but was not persuaded it was a material cause of the problems and dysfunctions with the Solution;
(c)the judge did not say that the applicants accepted the accuracy of Annexure B, but merely observed that ProLearn’s witnesses were not challenged as to its accuracy, and that Ms Wright did not take issue with its accuracy; and
(d)Ms Wright’s evidence was properly considered but found not to be persuasive, largely because the opinions she expressed were dependent upon Mr Wolff’s opinion of the effect of general market factors on ProLearn’s business, which were themselves the subject of the judge’s analysis referred to in sub-paragraph (a) above.
ProLearn then turned to the more substantive points on which the applicants concentrated in oral submissions — namely, the appropriateness of choosing the figure of 93 monthly sales, and of attributing the whole difference between that hypothetical figure and the actual monthly sales figure to the change in the telephone system.
ProLearn tracked through the judge’s reasoning for choosing the three-month comparator period of June to August 2015 from which to derive the average monthly sales figure of 93. ProLearn emphasised that, whilst there were other comparator periods the judge could have adopted among the numerous options provided by Mr Smith, the judge chose the period that would result in the most conservative estimate of monthly sales.
ProLearn argued that the judge gave a detailed explanation for why he considered the 3month/scenario2 assumption to be the most appropriate. Like the applicants, ProLearn focused on the judge’s explanation set out at [703] of the Reasons (set out above at [241]). That passage, ProLearn argued, contains sufficient and persuasive reasons for why there was no need to further discount the figure that was arrived at by applying the average monthly sales figure of 93 throughout the loss period.
Turning to the related point made under ground 6, ProLearn argued that, in relation to the valuation of a loss of opportunity, there is no doctrinal approach that necessarily requires the application of a percentage discount to some ‘baseline’ figure. Rather, ProLearn emphasised the statement of principle in Berry (set out above at [272]) that the ‘value of the lost opportunity is to be ascertained by reference to hypotheses and possibilities which … are to be evaluated as a matter of informed estimation’.[176]
[176]Berry v CCL Secure Pty Ltd (2020) 271 CLR 151, 175 [36] (Belle, Keane and Nettle JJ); [2020] HCA 27.
Going further, ProLearn submitted that there may be particular reasons why, in some cases, it is necessary to apply a percentage discount. But that does not mean that it is necessary or appropriate to do so in every case. ProLearn argued that the application of a percentage discount is warranted when there are two binary loss-related options between which to forecast possible hypothesized loss outcomes. For example, those options may concern whether or not a contract would have been renewed, or whether or not litigation would have been pursued. In such a case, each option will have a potential loss value. Some choice may be made as to where, between those two poles, a just figure for damages can be fixed to take account of the court’s estimation of the possibility that each might have been the outcome.
However, ProLearn argued, no such binary options exist in the present case. It was impossible to do a probabilistic discount in a Sellars sense, because there were no two poles to choose between. The court was simply required to make an informed estimation of the loss having regard to a great number of potentially variable factors. It was assisted in that process by the different models of loss outcome produced by Mr Smith, which were based on combinations of some of those variable factors.
ProLearn submitted that even if that submission is wrong and there should have been a discount, the judge built in that discount in a slightly different way. The judge explained that method at [703] of the Reasons.
Consideration
It is convenient to deal succinctly with the four issues in ground 5 before turning to the points on which the applicants concentrated in their oral submissions. Of these four matters, the applicants placed little or no weight on the testing issue in ground 5(b). In any event, it was answered comprehensively by oral submissions made by ProLearn. There is no need to address it further.
Regarding the issue raised in ground 5(a), many paragraphs in the reasons were devoted to the judge’s evaluation of the decline in the VET sector generally, changes in courses offered, Mr Wolff’s opinion and ProLearn’s answering evidence and contentions.[177] Relevantly, the judge set out the three changes to the VET FEE-HELP sector, as identified by Mr Wolff, which were responsible for the decline in the industry sector-wide over the period 2015 and 2016.[178] The judge also set out Tutungi’s detailed explanation for why each of those three factors had minimal impact on ProLearn’s business,[179] which the judge accepted.[180]
[177]Reasons, [605]–[632], [677]–[682].
[178]Ibid [606].
[179]Ibid [677].
[180]Ibid [610].
In essence, the judge accepted that the various legislative and regulatory changes to which Mr Wolff referred did not materially affect ProLearn’s business, either because ProLearn had taken steps to insulate itself from those problems, or its business model did not feature the types of practices which the new regulations stamped down upon. Without traversing their full detail, it is sufficient to say that having regard to all of the points made in support of that general conclusion, there is no merit in the applicants’ complaint.
Regarding ground 5(c), I have already referred to the general agreement about the information displayed in Annexure B and the concession made by the applicants that their main focus is the use to be made of that information. Limited to the question of the accuracy of Annexure B, the complaint made by this item under ground 5 has no merit. The more substantive argument about the use made of the information will be addressed shortly.
As for ground 5(d), the judge combined his references to Ms Wright’s opinion and Tutungi’s response in one single section of the Reasons.[181] Although it is fair to observe that the judge does not make explicit findings in that section, he did make it clear that he was persuaded by Tutungi’s responses to Ms Wright’s criticisms.[182] I agree with ProLearn’s argument that, to a significant extent, Ms Wright’s opinions applied the statistical information identified by Mr Wolff regarding general market factors to seek to undermine assumptions made by Mr Smith. The judge’s acceptance of Tutungi’s answers to Mr Wolff’s report had a natural flow-on effect to the criticisms made by Ms Wright. The judge did not fail to consider Ms Wright’s expert evidence.
[181]Ibid [683]–[695].
[182]Ibid [675].
Leaving aside these specific complaints, as previously mentioned, the broader sweep of the applicants’ submission is that, by valuing the lost commercial opportunity in the way he did, the judge failed to properly account for factors which, apart from the change in the telephone system, may have prevented ProLearn from achieving its expected earnings in the loss period in any event. Consistently with the Sellars principles, he should at least have further discounted the loss derived from the 3month/scenario2 option to take account of those factors.
There are several answers to this argument.
First, it is illusory to focus only on the 3month/scenario2 option which produced the monthly sale figure of 93 as if it represented a ‘baseline’ measure arrived at independently from, or prior to, the application of any probabilistic discounting. The explanation of how Mr Smith’s options were derived shows that the 3month/scenario2 option was one of 35 that he presented. It produced the lowest average monthly sale figure of all of the options considered.
In argument at trial the focus was, as a matter of reasonable likelihood, narrowed to four of those options. Of course, the fact that there were 35 options presented to the court does not, of itself, dictate that any one of them must necessarily have been suitable. However, the judge gave a fulsome explanation for why he considered that the one he chose was appropriate and fair to both parties.
Had he chosen any of the other options, the ‘constant’ monthly sales figure projected across the loss period would have been greater than 93. It would have produced a greater gap between it and the actual sales achieved, and thus a greater valuation of the lost commercial opportunity. The judge chose the option that produced the figure of 93 monthly sales to —
make appropriate allowance for the factors and circumstances ... identified and recognised as difficult to quantify but which … were to some degree impairing ProLearn’s revenue in the period prior to deployment by ProLearn of the Solution and after deployment, and which … were likely to gradually but increasingly impair ProLearn’s revenue and consequently profits in the Loss Period.[183]
[183]Ibid [703(c)].
In short, the selection of the 3month/scenario2 option already accounted for the causal factors for which the applicants were not responsible, and which would probably have impaired ProLearn’s revenue regardless of the installation of the Solution. The appropriate discounting for possibilities was inherent in the selection of the 93 monthly sales figure, which produced the loss calculation of $2,279,552. At [703] of the Reasons, the judge listed the key reasons (distilled from his previous lengthy discussion of the facts) that influenced his conclusion that the 3month/scenario2 option properly accounted for all the ‘factors and circumstances’ likely to have borne upon ProLearn’s business regardless of the change to the telephone system. They were that:
•the specific alternative causes of loss pressed by the applicants [for example, changes in the VET sector generally] were not significant and material;
•additional revenue generated by ProLearn’s use of the auto-dialler was not applicable to a loss based upon the Existing System Counterfactual;
•the ‘difficult to quantify’ factors likely to impair ProLearn’s business should be reflected in the loss model adopted;
•choosing, as the comparator period, the three months immediately preceding the installation of the Solution more accurately reflected the ‘difficult to quantify’ factors;
•limiting sales to those made on behalf of nominated providers was likely to make the resultant calculation ‘less hypothetical’;
•the selection of the 3month/scenario2 option was the best means the judge could find of accounting for the ‘difficult to quantify’ impairing factors, after taking account of the ‘very substantial body of data, metrics and other evidence adduced by the parties’.
The judge particularised the ‘difficult to quantify’ factors and circumstances as:[184]
•the extent to which the wider decline in the VET FEE-HELP market caused a decline in ProLearn’s sales:
•the likely continuation, to at least some ‘small degree’, of that decline after August 2015;
•a decline in operator quality and efficiency, together with ProLearn’s staffing issues and the inherent variability of sales in ProLearn’s type of business; and
•the negative effect of Humunicki’s absence from ProLearn’s call centre in about July and August 2015.
[184]Ibid [628].
The judge’s reference to the ‘very substantial body of data, metrics and other evidence adduced by the parties’ was a compendious description of the significant amount of data presented in evidence and surveyed by the judge over the preceding parts of his reasons. Without attempting to be complete, that body of data included:
•Humunicki’s and Tutungi’s evidence about the day-to-day impact on the call centre operations after September 2015, and the specific impact of crashes and freezes, loss of capacity and personal call back faults;
•data describing ProLearn’s sales and revenue experience in the 15-month periods either side of the installation of the Solution, including evidence that total sales fell from 3,511 to 852, total revenue fell from $18,729,538 to $8,953,881, sales from leads fell from one per 142 to one per 495, and sales from personal call backs fell from 67 per cent to 27 per cent;
•the Wolff report on general sector decline and changes to the VET regulatory environment;
•Humunicki’s and Tutungi’s evidence about the specific impact on ProLearn’s business of the general sector decline and changes to the VET regulatory environment;
•statistical evidence about the decline in ProLearn’s sales compared to general industry decline; and
•evidence concerning the ‘factors and circumstances’ other than the change to the telephone system likely to impair ProLearn’s revenue, as particularised above.
The force of the applicants’ argument that the judge simply extrapolated a number in a steady and identical state for the whole 15-month loss period loses its potency once it is understood that the choice of that constant was consciously made to acknowledge the probability that causes other than the misconduct would have depressed ProLearn’s business anyway.
In my view, the method of estimation adopted by the judge cannot be faulted.
There is an additional answer to the applicants’ argument that some discrete discount should have been made to the loss figure in accordance with the Sellars principle. It is possible that the answer is to be found in ProLearn’s submission about the absence of ‘binary options’ in the loss scenario. Whether or not that is so, the selection of the 3month/scenario2 option is not the equivalent of determining some baseline loss from which a further discount must be made to take into account the possibilities and probabilities. There was no baseline revenue figure which could be projected as ProLearn’s undiscounted, expected revenue in the 15-month period from September 2015 to November 2016 whilst using its existing telephone system. There was simply no means of establishing that amount.
Instead of a two-step process that may be appropriate in other circumstances, the judge made an ‘informed estimation’ of the value of ProLearn’s lost commercial opportunity in a single step. In my view, that method accords with the statement of principle in Berry, itself drawn from Malec, Amann and Sellars.
Kytec’s grounds 5 and 6 should be dismissed.
Did the judge err in dismissing Telstra’s indemnity claim against Kytec?
This issue covers Telstra’s grounds 4 and 5. Because Telstra has, in my view, succeeded on its grounds 1 and 2, it has established its defence on the question of whether it engaged in conduct in contravention of the ACL. Having established that defence, it cannot be liable to ProLearn for any part of its claimed loss and damage. That being the case, the question of whether it is entitled to an indemnity from Kytec in respect of any liability to ProLearn does not arise.
Nonetheless, in case it becomes important for me to express my views on this matter, I set them out below.
Repeating what has been said above, the judge found that:
(a)Telstra contravened s 18 of the ACL because it was deemed, pursuant to s 84(2) of the Competition and Consumer Act 2010 (Cth), to have made the representations that Kytec made; and
(b)Telstra separately contravened s 18 of the ACL by making the same representations itself.
According to the judge’s findings, Telstra made the representations itself
by participating in the telephone conversation on 22 April 2015, and being provided by Okulicz with the amended contractual documents on 23 April 2015, and subsequently accepting the updated Equipment and Services Agreement signed and returned by Tutungi ...[185]
[185]Ibid [275].
As a result, the judge found that
Telstra in substance communicated to ProLearn that Telstra and Kytec invited ProLearn to contract with it on the basis that, amongst other things, Telstra would provide the Solution implemented in accordance with the Final Proposal.[186]
[186]Ibid.
Having found that both Kytec and Telstra were liable to ProLearn for the loss and damage it sustained by reason of the contravening conduct, the judge apportioned liability between Kytec and Telstra, finding they should each bear 50 per cent of ProLearn’s loss. Each was ordered to pay ProLearn damages in the sum of $1,339,776.
Clause 2.15 of the Dealership Agreement made between Telstra and Kytec contained an indemnity whereby Kytec promised to indemnify Telstra on certain terms. That clause read as follows —
2.15 Indemnity:
You indemnify us and our Representatives from and against any liability, loss, damage, costs or expenses we or our Representatives incur or suffer arising directly or indirectly from or in connection with:
(a)any breach or threatened breach of this agreement by you;
(b)any breach by a Nominated Dealer of its Nominated Dealer Agreement;
(c)any breach by a Linked Dealer of its Linked Dealer Agreement;
(d)any act by or omission of you or your Representatives including negligent or criminal acts or omissions;
(e)the termination of this agreement (or part of this agreement) because of your breach; and
(f)any penalty imposed under any applicable law relating to your performance of this agreement.
Each indemnity in this agreement is a continuing obligation, separate and independent from your other obligations and survives termination of this agreement.
…[187]
[187]Ibid [739].
By clause 4 of the Dealership Agreement, Kytec promised Telstra not to ‘make any misrepresentations’ about the products and services that Telstra was to provide, and to ‘provide accurate information to customers about … the key features and limitations of [such products and services] and associated technologies’.
The judge dismissed Telstra’s claim that, pursuant to cl 2.15 of the Dealership Agreement, Kytec should indemnify Telstra against Telstra’s liability to ProLearn as determined by the judge. The judge explained his reason for dismissing the claim as follows:[188]
I have determined that it is just and appropriate, for the reasons I have also outlined elsewhere, which included that because both Kytec and Telstra’s conduct contributed equally to ProLearn’s reliance and loss and damage, that Kytec and Telstra are each liable for half of ProLearn’s loss and damage.
I consider that it follows from the above that Telstra’s liability hereunder for ProLearn’s loss and damage has not been incurred or suffered by Telstra, directly or indirectly, as a result of Kytec’s breach or threatened breach of the Telstra Dealership Agreement or Kytec’s acts or omissions.
Rather, Telstra’s liability hereunder has been incurred and is suffered by Telstra as a direct result of its own acts or omissions.
[188]Ibid [749]–[751].
Telstra submitted that the referral by Telstra to Kytec of the ProLearn enquiry and subsequent work performed by Kytec in developing the Final Proposal occurred under the terms of the Dealership Agreement. This was not in dispute. The issue was whether the indemnity in cl 2.15 of the Dealership Agreement was engaged in respect of any liability of Telstra to ProLearn in the proceeding. Telstra argued that the indemnity in cl 2.15 was engaged because any liability of Telstra to ProLearn arose ‘directly or indirectly from or in connection with … an act or omission of [Kytec] or its representatives’: cl 2.15(d). It also argued that Telstra’s liability arose ‘directly or indirectly from or in connection with’ Kytec’s breach of cl 4 by making misrepresentations in the Final Proposal about the Telstra products: cl 2.15(a).
Telstra argued that the judge wrongly treated Telstra’s direct liability to ProLearn for misleading and deceptive conduct as defeating or foreclosing application of the indemnity in cl 2.15. Rather, Telstra contended, such liability provided the platform for the indemnity. Whether or not Telstra was entitled to an indemnity was governed by the application of the contractual terms and not by what was ‘just and appropriate’ as found by the trial judge for the purposes of the proportionate liability scheme.
Further, Telstra argued that the trial judge did not grapple with whether Telstra’s liability to ProLearn in the proceeding arose ‘directly or indirectly from or in connection with … any acts or omissions of [Kytec]’. Instead, the judge’s analysis was confined to Telstra’s liability to ProLearn arising as a ‘direct result’ of its own acts or omissions. According to Telstra, the judge should have found that Telstra’s liability arose directly or indirectly from or in connection with the acts of Kytec. At least indirectly, Telstra’s liability arose from Kytec’s act of preparing the Final Proposal, containing the impugned representations, the provision of which by Telstra to ProLearn involved Telstra in making the same representations. Further or alternatively, Telstra’s liability arose directly or indirectly from or in connection with Kytec’s breach of cl 4 of the agreement by making misrepresentations in the Final Proposal about Telstra products.
Kytec contended that the judge’s findings were perfectly correct and stressed those findings about Telstra’s direct liability to ProLearn. Kytec contended that the word ‘indirectly’ in cl 2.15(d) does not and cannot transform an act or omission of Telstra, and liability on its part, into an act or omission of Kytec. It would be a non-sequitur, Kytec argued, to say that Telstra’s acts and omissions were actually those of Kytec for the purposes of the indemnity claim.
This is a very narrow point. In my view, Telstra’s arguments should be accepted. The language of cl 2.15 is, as the judge himself noted, very broad. Given the factual basis upon which Telstra’s liability was established — both by its deemed representations and its direct representations — it is difficult to see how it did not arise at least indirectly from or in connection with the acts or omissions of Kytec in preparing and developing the Final Proposal. Telstra’s direct liability was established because it invited ProLearn to contract with it on the basis that it would provide the Solution in accordance with the Final Proposal, as prepared by Kytec. As described at [196] above, the very definition of the Telstra Supplied Equipment in the contracts Telstra made with ProLearn included ‘a Solution to be implemented per version 2.1 of the Kytec PCCE Proposal to ProLearn’, a reference to the Final Proposal. It was the provision to ProLearn of the Final Proposal in the contract documents by which Telstra was found to have directly made the representations contained within it.
For this reason, it is no answer to say that Telstra’s liability was also incurred directly. And it was beside the point to note that Kytec and Telstra were each to be liable for one half of ProLearn’s loss and damage on the basis of an apportionment under the scheme in the ACL. None of that gainsaid the (at least) indirect connection between Telstra’s liability and Kytec’s act of setting out the contravening representations in the Final Proposal.
Were they necessary to decide, Telstra’s grounds 4 and 5 should therefore be allowed.
Telstra’s application for an extension of time
Telstra was required to file any application for leave to appeal the decision of the trial judge within the time fixed by r 64.05(1) of the Supreme Court (General Civil Procedure) Rules 2015.[189] It did not do so. On 28 March 2022 — 28 days beyond the time fixed by r 64.05(1) — Telstra filed an application pursuant to r 64.08 for an extension of time within which to apply for leave to appeal. ProLearn opposed that application.
[189]Rule 64.05(1) fixes a period of 42 days after the decision to which the application relates to file an application for leave to appeal.
The principles concerning this Court’s broad discretion to grant or refuse an extension of time are well-established.[190] They are not in dispute. Exercise of the discretion is informed by what the interests of justice require in the particular circumstances of a case. Relevant are the length of the delay, the reasons for the delay, the prospects of the application for leave to appeal succeeding and the extent of any prejudice to the respondent if the application is granted.
[190]Trkulja v Dobrijevic & Ors [2015] VSCA 281, [27] (Kyrou and Kaye JJA, Ginnane AJA); Beling v Victorian Legal Services Commissioner [2021] VSCA 256, [47]–[48] (Kaye and Niall JJA).
Telstra explained its delay in this case as the result of an initial decision, made on commercial grounds, not to challenge the trial judgment. Only after receiving Kytec’s application for leave to appeal on 3 March 2022 did Telstra also decide to appeal, citing the potential effect of Kytec’s application on the final commercial resolution of the matter as between Telstra and ProLearn.
The length of Telstra’s delay was not inordinate. Its explanation for the delay has some understandable practical merit. Until Kytec appealed, Telstra’s liability was confined to 50 per cent of ProLearn’s loss. Although it considered an appeal, Telstra had decided, in effect, that it could tolerate that outcome. It was in the process of resolving the financial consequences of that outcome with ProLearn. Once Kytec sought leave to appeal, Telstra faced the possibility of being liable to ProLearn for its entire loss. The commercial conditions on which Telstra made its assessment whether to seek leave to appeal the judge’s decision changed. Thereafter, it promptly sought to file its application.
In my view, this Court should be mindful of the practical and commercial considerations that motivate parties in making decisions about litigation, especially when those considerations reasonably operate to restrain a party from taking additional costly steps.
Other than facing an appeal that it may not otherwise have faced, ProLearn has not pointed to any specific prejudice that would arise should the application be granted. Finally, Telstra’s application for leave to appeal is more than merely arguable; on my analysis, several of its proposed grounds of appeal should be upheld.
Taking all matters into account, in the interests of justice I would extend the time within which Telstra was to file its application for leave to appeal the trial judge’s orders dated 17 January 2022.
Summary of conclusions and orders
My conclusions on each of the grounds of appeal advanced by Kytec and Telstra can be summarised as follows:
(a)Kytec fails on each of its grounds 1 to 6; and
(b)Telstra succeeds on its grounds 1 and 2, but fails on its ground 3 (which adopted Kytec’s grounds 3, 4, 5, and 6). In the event that they were necessary to determine, Telstra would also succeed on its grounds 4 and 5.
Telstra’s success on its grounds 1 and 2 means that it is not liable to ProLearn at all. It has been successful in establishing its defence to the contention that it engaged in conduct in contravention of provisions of the ACL. Not being liable to ProLearn at all means that the question of whether it is entitled to an indemnity from Kytec pursuant to cl 2.15 of the Dealership Agreement (Telstra grounds 4 and 5) is moot.
I would require the parties to bring in orders that give effect to my conclusions on each of the grounds.
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- AGLC
- Kytec Pty Ltd v Prolearn Corporation Pty Ltd [2024] VSCA 23
- Case
- [2024] VSCA 23
- Decision Date
CaseChat Overview and Summary
The legal issues before the court included whether there were reasonable grounds for the representations made by Kytec and Telstra, if the loss experienced by Prolearn was causally linked to the alleged misleading conduct, and how the loss should be quantified. Specifically, the court had to determine whether the primary judge erred in assessing the reasonable grounds for the representations, in treating Prolearn’s loss as an opportunity loss, and in quantifying the damages without applying a discount as required by the High Court's decision in Sellars v Adelaide Petroleum NL.
In its reasoning, the court held that while there was no error in the primary judge’s assessment of the reasonable grounds for the representations made by Kytec and Telstra, there was an error in relation to the causation of loss. The court found that Prolearn's loss should be treated as a global loss claim, not just an opportunity loss, and that this distinction required a different approach in assessing the damages. However, despite this error, it did not affect the overall outcome because the evidence supported Prolearn’s losses regardless of the type of loss claim. Regarding the quantification of loss, the court concluded that no error was made in the quantification of damages, and the primary judge correctly applied the principles of causation and loss assessment.
The court granted leave to appeal for both Kytec and Telstra but dismissed the appeals. For Telstra, the appeal was dismissed due to the absence of any error in the primary judge’s reasoning and findings. For Kytec, although there were errors in the primary judge’s approach to causation, they did not impact the final outcome, and thus the appeal was also dismissed. The court's decision affirmed the primary judge’s findings and orders, including the quantum of damages awarded to Prolearn.
Orders
Orders of the court
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Background
Background to the litigation
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Evidence
Evidence Before The Court
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Decision
Reasons for decision
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Ratio Decidendi
Legal Principle Established
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