Macquarie Telecom Pty Ltd v City Hunter Pty Ltd

[2014] NSWDC 278

District Court

New South Wales

Medium Neutral Citation:	Macquarie Telecom Pty Ltd v City Hunter Pty Ltd [2014] NSWDC 278
Hearing dates:	19 May 2014 - 21 May 2014 and 24 July 2014
Decision date:	31 October 2014
Jurisdiction:	Civil
Before:	Cogswell SC DCJ
Decision:	The Court answers the questions raised in the agreed statement of issues as follows: Issue 1: Whether the plaintiff repudiated the written agreement entered between the plaintiff and the defendant on 29 November 2010 for the provision of hosting services (Agreement) on 5 July 2011? Answer: No. Issue 2: If the answer to issue 1 is “yes”, whether the defendant accepted the plaintiff’s repudiation on 30 August 2011? Answer: Not applicable. Issue 3: Whether the defendant repudiated the agreement on 16 August 2011 or 30 August 2011? Answer: Yes. Issue 4: If the answer to issue 3 is “yes”, whether the plaintiff accepted the defendant’s repudiation of the agreement on 31 August 2011 or 20 September 2011? Answer: Yes. Issue 5: If the answer to issue 4 is “yes”, whether the plaintiff is entitled to recover early termination charges under the agreement? Answer: Yes. Issue 6: If the answer to issue 5 is “yes”, what is the quantum of the early termination charges payable by the defendant? Answer: The early termination charges payable by the defendant should include GST. Issue 7: If the answer to issue 6 is “no”, whether the plaintiff is entitled to recover loss of bargain damages? Answer: If the Court’s finding regarding the early termination charges payable, the plaintiff must be entitled to loss of bargain damages. Issue 8: If the answer to issue 7 is “yes”, what is the quantum of damages payable by the defendant? Answer: $296,101.80. Issue 9: Whether the evidence objected to by the defendant in MFI 3 and admitted on the voir dire is admissible? Answer: Evidence of any prior dealings which concern the earlier agreement and which is the subject of MFI 3 is inadmissible and the defendant is estopped from denying that the unpaid invoices are payable by it.
Catchwords:	CIVIL LAW - contract - outstanding payment - repudiation of contract - acceptance of repudiation - terms of agreement - early termination charges - distinction between penalty and pre-estimate of liquidated damages - stipulated sum not “extravagant or unconscionable” - quantum of charges to include GST - alternate entitlement to loss of bargain damages - admissibility of evidence - statement of issues
Legislation Cited:	Goods and Services Tax Ruling 2001/4, par 73
Cases Cited:	Andrews v Australia and New Zealand Bank Ltd [2012] HCA 30; 247 CLR 205 Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79 Paciocco and Speedy Development Group Pty Ltd v Australia and New Zealand Banking Group Ltd [2004] FCA 35 Ringrow Pty Ltd v BP Australia Pty Ltd (2005) 224 CLR 656
Category:	Principal judgment
Parties:	Macquarie Telecom Pty Ltd (plaintiff) City Hunter Pty Ltd (defendant)
Representation:	Counsel: C Bova (plaintiff) A-M Chee (defendant) Solicitors: Aitkin Lawyers (plaintiff) HS Lawyers (defendant)
File Number(s):	2012/00166499
Publication restriction:	Suppression order in respect of Confidential Exhibit E

Judgment

Introduction

1. Macquarie Telecom had a business offering an internet platform to other businesses. City Hunter needed an internet platform and so it entered into a contract with Macquarie Telecom. City Hunter was obviously pleased with the services provided by Macquarie Telecom because it upgraded part way through the contract. This involved a second contract. But less than a year into that second contract their relationship came to an end.

2. This case is about who breached that second contract and whether there is still any money owing.

Parties and Representation

3. Macquarie Telecom is the plaintiff. Its legal name is Macquarie Telecom Pty Ltd. City Hunter is the defendant. Its legal name is City Hunter Pty Ltd.

4. Both companies were represented by very competent counsel - Mr C Bova for Macquarie Telecom and Mr A-M Chee for City Hunter - whose efficient conduct of the case assisted both their clients and me.

Issues

Mr Bova and Mr Chee agreed on a statement of issues - which becameMFI 8 - for me to resolve in order to determine the case. Their respective closing submissions addressed those issues. I have not overlooked other submissions, but I too will approach the case by reference to those issues.

Evidence

5. The case ran over three days in May this year and then was adjourned to 10 July for addresses. I agreed with counsel’s request to put the addresses back to 24 July. I reserved my decision after hearing closing submissions on that day.

6. Apart from a background summary, I do not propose to set out the evidence. It came in the form exhibits, affidavits and cross-examined witnesses. But I will refer to such evidence as I need to in resolving the issues agreed between the parties.

Background Summary

7. I base this on Mr Bova’s helpful background facts contained in his closing submissions (MFI 9) on behalf of his client.

8. In 2008 an agreement was entered into between Macquarie Telecom and City Hunter for Macquarie Telecom to provide to City Hunter hosting services for the website

9. In late 2010 Mr Wang, the sole director and secretary of City Hunter, put in train negotiations with Macquarie Telecom for a new hosting services agreement for IWantToBuy.com.au. The negotiations were successful and Macquarie Telecom and City Hunter entered into a new agreement on 29 November 2010 for Macquarie Telecom to provide hosting services to City Hunter in respect of the website The agreement was for a period of three years and the hosting charges were a monthly amount of $8,960.

10. Invoices were issued and paid, but some months into this new agreement payments fell behind. Things came to a head in June 2011 when people from Macquarie Telecom’s credit department began to phone City Hunter’s representatives to chase up overdue invoices. Invoices were usually issued on the second of each month by Macquarie Telecom and were payable within 14 days - by the 16th of the month. Macquarie Telecom issued a letter of demand on 24 June 2011 for two months’ outstanding payments. The total due was $21,094.48.

11. When Macquarie Telecom issued its invoice on 2 July 2011 it was for $31,769. That comprised the overdue amount of $21,094.48 and the current charges of $10,674.52.

12. On 4 July 2011 Macquarie Telecom’s credit and recoveries manager, Mr Wareham, sent an email to an employee of City Hunter pointing out that the deadline in the letter of demand had expired and asking City Hunter to “remit the overdue amount immediately $21,094.48”. He went on to point out that failure to “remit this amount could result in suspension of services”. The City Hunter employee emailed back the next day, apologising for the late payment and saying she had passed on Mr Wareham’s email “to our boss yesterday” and inviting him to contact the boss, James Wang, who “would like to talk with you regard the payment”.

13. Mr Wareham responded on 5 July 2011 that no one contacted him and that “we need $21,094.48 to bring the account up to date”. City Hunter’s employee said in response that “we can pay $5,000 this week please and then we will pay the rest of payment a.s.a.p.”

14. Mr Wareham then spoke to Mr Wang by phone on the same day, 5 July 2011. One of the controversies in this case concerns what was said in that phone call. Mr Wang says Mr Wareham demanded payment not only of the overdue $21,094.48 by that day, but also the current amount of $10,674.52 by Friday, 8 July 2011. That current amount was not due to be paid, according to the agreement, until 16 July 2011. The demand, Mr Wang’s says, was accompanied by a threat to disconnect the hosting services. Mr Wareham, on the other hand, says he demanded no more than the outstanding $21,094.48, but was prepared to accept that amount in two instalments. He made no demand at all for the $10,674.52 because, as he said at T147.35, “I can’t collect something that’s not even due.”

15. Mr Wareham sent an email to the same employee he had exchanged earlier emails with, saying he “spoke to James about half an hour ago and told him I would accept one payment immediately, NOW, and the other payment no later than Friday”. Mr Wareham also made a file note, which said -

“5/7 sw james 0414 696908 has cash flow, wanted another 2 wks to pay, told him no way, the best I could do is for them to pay one payment today and the balance on Friday.”

16. The following day no payment had been made and Mr Wareham sent to City Hunter a “temporary disconnection notice”, pointing out that Macquarie Telecom would take steps to disconnect services unless “payment $21,094.48…is received by Macquarie Telecom at the close of business TODAY”. In evidence Mr Wareham explained at T149.01 that the first “payment never came in, hence I had issued the notice the next day”.

17. On that same day, 6 July 2011, City Hunter paid the $21,094.48 in two payments.

18. Hosting services were continued, but on 30 August 2011 City Hunter sent an email to Macquarie Telecom, which relevantly said as follows -

“We have not using Macquarie Hosting services since AUG 16, 2011 at 11:00.

Copying to Heath, we officially disconnected from the services provided by Macquarie Telecom on AUG 16, 2011 at 11:00.”

That email was from a person holding the position of operation manager - of what organisation is not clear - but there is no dispute that City Hunter sent that email.

The Parties’ Claims

19. Macquarie Telecom says City Hunter repudiated the contract by its email of 30 August 2011. City Hunter, on the other hand, says Macquarie Telecom repudiated the contract by Mr Wareham’s demand in the 5 July 2011 telephone call for more than was actually due at that date. City Hunter also raises other defences to Macquarie Telecom’s claims.

20. I will now turn to resolving the issues agreed between the parties.

Issue 1: Whether the plaintiff repudiated the written agreement entered between the plaintiff and the defendant on 29 November 2010 for the provision of hosting services (Agreement) on 5 July 2011?

21. In my opinion, Macquarie Telecom did not repudiate the agreement. Mr Wareham did not demand more than Macquarie Telecom’s entitlement in the phone call with Mr Wang on 5 July 2011.

22. The only amount due and payable at 5 July 2011 was $21,094.48. Mr Wareham says that is all he was asking for at that stage, although he was prepared to accept it in two instalments, one immediately and one in a few days. Mr Wang says the demand included the additional $10,674.52, which had been invoiced, but was not payable until 16 July. That July amount was to be the second instalment payable in a few days (and a week or so before its due date).

23. Contemporaneous documents are in this case the reliable guide to resolving the opposing recollections about that phone call. The letter of demand issued on 24 June 2011 was for the correct amount, $21,094.48. That corresponded with the invoice of 2 June 2011 (indeed, an earlier letter of demand issued on 24 March 2011 was also for an amount that corresponded with the invoice issued on 2 March 2011). Mr Wareham’s email of 4 July 2011 referred to $21,094.48 and “your April and May invoices”. These were the subject of the 2 June 2011 invoice. The additional amount that Mr Wang claims was demanded was in existence because it was the subject of an invoice issued two days before, on 2 July 2011. But Mr Wareham’s email is limited to the April and May invoices and the total of $21,094.48. The email from the City Hunter employee, Kristen Zhou, of 5 July 2011 refers to “the late payment”, not to any amount due in the near future or to any current invoice. Mr Wareham’s response half an hour later refers to “two invoices in arrears” and to “$21,094.48 to bring the account up to date”. The subject of these email exchanges is described as “Overdue account”. A couple of hours later Ms Zhou offers “$5,000” and “the rest of payment a.s.a.p.” By that time Mr Wareham and Mr Wang had evidently spoken on the phone because Mr Wareham responded a few minutes later, saying he had spoken to Mr Wang “about half an hour ago and told him I would accept one payment immediately, NOW, and the other payment no later than Friday”. Mr Wareham made a file note to the same effect. I have already extracted that. The next day Mr Wareham issued the “Temporary Disconnection Notice”, demanding payment of $21,094.48 “TODAY”. On that day City Hunter made two payments amounting to $21,094.48. Macquarie Telecom continued to provide its services to City Hunter.

24. Although the disconnection notice issued on 6 July 2011 demanded $21,094.48 immediately, consistent with Mr Wang’s account, there is nothing else to suggest that Macquarie Telecom was demanding payment within days of the additional amount Mr Wang claims. Mr Wareham explained, and I accept his explanation, that he issued the notice because the first instalment had not arrived the previous day. All the correspondence refers to that overdue amount. There is no reference at all to the additional amount, apart from the invoice issued on 2 July 2011, and no immediate further demand for its payment (which would be consistent with Mr Wang’s account). Once Macquarie Telecom received the amount Mr Wareham said he asked for, it backed off and it did not pursue, until 3 August 2011, the additional amount Mr Wang said was also demanded. The threatened suspension did not occur, despite the payment being less than Mr Wang said was demanded.

25. In my opinion, the contemporaneous documents support Mr Wareham’s account and I prefer it. In addition, I accept Mr Bova’s written submissions contained in MFI 9 at paras 46, 47 and 51.

26. The answer to issue 1 is “no.”

Issue 2: If the answer to issue 1 is “yes”, whether the defendant accepted the plaintiff’s repudiation on 30 August 2011?

27. This issue does not arise for determination.

Issue 3: Whether the defendant repudiated the agreement on 16 August 2011 or 30 August 2011?

28. The email from City Hunter to Macquarie Telecom on 30 November 2011 was a clear repudiation of the agreement. I accept Mr Bova’s submissions contained in paras 58 to 59 of his submissions (MFI 9) and I note that City Hunter “makes no submission on this issue”.

Issue 4: If the answer to issue 3 is “yes”, whether the plaintiff accepted the defendant’s repudiation of the agreement on 31 August 2011 or 20 September 2011?

29. I accept again Mr Bova’s submission, this time contained in para 60 of his written submissions (MFI 9), to the effect that it “cannot seriously be in dispute that the plaintiff accepted the defendant’s repudiation of the agreement on 30 August 2011”. As Mr Bova points out, on that date his client, Macquarie Telecom, replied to the email “enclosing an early termination figure of $264,657.60”. I agree with Mr Bova that that “was clearly sufficient to make the plaintiff’s election manifest to the defendant”.

Issue 5: If the answer to issue 4 is “yes”, whether the plaintiff is entitled to recover early termination charges under the agreement?

30. In his supplementary written submissions (which became MFI 10) at paragraph 14, Mr Chee “relies on two matters” regarding this issue.

31. The first is the “principle that a party to a contract cannot take advantage of its own wrong-doing”. In my opinion, that principle has no application in this case. Macquarie Telecom has not engaged in any wrong-doing. It claimed what it was entitled to claim. There was no dispute raised by City Hunter about the amount claimed. There was provision in the agreement for a dispute to be raised by City Hunter regarding any invoiced amount and a time limit for raising such a dispute.

32. In any event City Hunter had repudiated the agreement and, as Mr Bova pointed out at para 25 of his written submissions, City Hunter, therefore, became liable to pay “early cancellation payments” calculable under the agreement (see cl 16.9(a)).

33. The second matter relied upon by Mr Chee is what he describes as the “penalty argument”, which he had set out in his earlier, more extensive, written submissions (which became MFI 2). It seems to be unchallenged that the onus is on City Hunter in this case, as defendant, to prove that the early termination charges constitute a penalty. Both parties referred to High Court of Australia decisions about penalties in their oral or written submissions. I should now turn to those authorities.

34. In Andrews v Australia and New Zealand Bank Ltd [2012] HCA 30; 247 CLR 205 the Court said in a joint judgment at 218 ([15]) the following -

“The formulation of that distinction between a penalty and a pre-estimate of liquidated damages which was made by Lord Dunedin in Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79 at 86-87 has been described as a product of centuries of equity jurisprudence. It was recently applied by this Court in Ringrow Pty Ltd v BP Australia Pty Ltd (2005) 224 CLR 656 at 662-663.”

Some citations have been omitted. In Ringrow Pty Ltd v BP Australia Pty Ltd at 662-663 ([11-12]) the Court, again in a joint judgment, quoted an extract from Lord Dunedin’s speech in Dunlop, which included some suggested tests whether “a sum stipulated is penalty of liquidated damages”. One of them is that a sum “will be held to be penalty if the sum stipulated for is extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach”. In the High Court’s joint judgment their Honours said that it was “proper to proceed on the basis that Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd continues to express the law applicable in this country”.

35. I think that Mr Bova is right in arguing that City Hunter has not discharged its onus of demonstrating that the early termination payment could be described as a penalty.

36. In any event, as the respondent did in Paciocco and Speedy Development Group Pty Ltd v Australia and New Zealand Banking Group Ltd [2004] FCA 35 at [45], Macquarie Telecom in this case led evidence to demonstrate “that the stipulated sum was not extravagant or unconscionable”. A witness, Mr Ross, provided a report estimating Macquarie Telecom’s loss as slightly less than the claimed amount. He was cross-examined about the expenses point raised in Mr Chee’s written submissions and left me in no doubt that appropriate allowances were made and no allowances were inappropriately omitted (see T50-51).

37. In my opinion, neither of Mr Chee’s arguments is made out and I would answer issue 5 “yes”.

Issue 6: If the answer to issue 5 is “yes”, what is the quantum of the early termination charges payable by the defendant?

38. The argument here is about whether the quantum of early termination charges should include GST.

39. Mr Chee argues that it should not, pointing at para 62 of his written submissions (MFI 2) to GST Ruling 2001/4. Mr Bova replies that the ruling applies in terms to “damages” and that any award for early termination charges is not a claim for damages.

40. What I have summarised is about the extent of the argument devoted to this issue. I am inclined to agree with Mr Bova on this limited argument. The liability of City Hunter under this issue is not to pay damages for breach of contract, but a contractual liability arising from cl 16.9 of the agreement to pay an early cancellation payment. An event has occurred, contemplated by the agreement (City Hunter cancelled the remaining services or repudiated the agreement) and City Hunter’s liability to pay a calculable sum follows from that event.

41. I have some reservation about this conclusion because the remaining services cancelled by City Hunter were not supplied and may not “constitute a supply under s 9-10 of the GST Act” (GST Ruling 2001/4, par 73), but that is the view I have reached on the arguments presented.

Issue 7: If the answer to issue 6 is “no”, whether the plaintiff is entitled to recover loss of bargain damages?

42. City Hunter repudiated the agreement and if I am wrong about the early cancellation payment, then Macquarie Telecom must be entitled to loss of bargain damages.

Issue 8: If the answer to issue 7 is “yes”, what is the quantum of damages payable by the defendant?

43. I accept the evidence of Mr Ross. It withstood cross-examination.

44. I therefore accept Mr Bova’s submission at para 64 that loss of bargain damages is $296,101.80, comprising $269,183.45 (from Mr Ross’s report at p 9) plus GST. This does not include unpaid invoices of $25,238.05.

Issue 9: Whether the evidence objected to by the defendant in MFI 3 and admitted on the voir dire is admissible?

45. Mr Chee points to cl 9.1 of the agreement and argues that Macquarie Telecom has not invoiced “the Customer for the Charges”. City Hunter is the customer. But to quote from cl 21(b)(i) of the Defence, filed on 3 September 2012 by City Hunter, “invoices are made out to IWantToBuy.com.au Pty Ltd and not the defendant”. But cl 9.2 of the agreement provides that the “Customer at all times remains liable for the invoiced Charges irrespective of whether the Charges are allocated in any particular way.” True it is that that provision is contained in a clause dealing with a written request to invoice other than to the customer, but it must state the obvious that the fact Macquarie Telecom has invoiced someone else for the charges does not relieve City Hunter from its obligation to pay. Clause 9.4 makes it clear that the “Customer must pay the Charges (other than any disputed amount withheld in accordance with cl 9.7), in full within the Payment Period.” In my opinion, the combination of cll 9.2 and 9.4 make City Hunter liable.

46. I rule as inadmissible any prior dealings which concern the earlier agreement and which is the subject of MFI 3, apart from a general reference I have made to that prior agreement in introducing my judgment.

47. But, in my opinion, Macquarie Telecom has made out cll 4 to 5 of its reply by reference to invoices under the agreement over which the dispute has arisen. That is clear from the answers given by Mr Wang at T89.41 and by Ms Lu at T168.32. In my opinion, the pleaded assumption is made out and I accept that both parties knew or intended the other to act upon the basis of the assumption and that any departure from the assumption will occasion detriment to Macquarie Telecom in the form of loss and damage. In my opinion, City Hunter is estopped from denying that the unpaid invoices are payable by it.

HIS HONOUR: Mr Chee and Mr Nathan, they are my reasons. I probably need some assistance with the order and I think somebody - Mr Bova might have mentioned something about further evidence concerning updated evidence about quantum. We’ll just give Mr Chee a chance to talk to his client. Yes, Mr Nathan?

NATHAN: Your Honour, I think the best way forward will be to set a further date where the parties can bring in orders that they’ve, hopefully, agreed on. I imagine at that time there will be an application from our side for indemnity costs on the basis of a compromise that was served some time ago, unless, of course, the defendants are prepared to consent to that, but I think that’s something that we will discuss.

There will have to be an updated schedule, perhaps an affidavit, put together, just to update the interest calculations. Perhaps that can be done by way of a schedule, just to keep costs down, rather than an affidavit.

HIS HONOUR: I’ll just ask my associate to just go up to my chambers and get my diary, please, my current diary for 2014. Yes, go on, Mr Nathan. So we’ve got to deal with perhaps updated evidence, the form of orders and perhaps a costs argument?

NATHAN: Yes, your Honour.

HIS HONOUR: That sounds like three things. Is that right?

NATHAN: Yes. Hopefully, they would be reasonably short compass. If I could just have a minute to confer with my friend about available date.

HIS HONOUR: You do that.

DISCUSSION AS TO SUITABLE DATE FOR FURTHER HEARING

NATHAN: Your Honour, if I could just assist the Court this way. I’ve just spoken to my learned friend and he says, once he has reviewed the orders proposed and the further evidence, he is unlikely to oppose the orders sought. So we estimate that it will take about 30 minutes to deal with.

CHEE: Could we also have liberty to send to your associate, if we agree to something in the meantime, send to your associate consent orders and vacate that date?

HIS HONOUR: Good idea, Mr Chee. My new associate will give you each her card and I’ll put down as issues, if it does proceed on the eighth, updated evidence, form of orders and costs. Are they the three issues that we’re looking at?

NATHAN: Those are the three.

HIS HONOUR: I’ll list it for Monday, 8 December 2014 at 10am and note the estimate of about half an hour. Liberty to apply is given to both parties to bring in any proposed agreed orders before then and, in light of that, I note that that directions date may be vacated.

ADJOURNED TO MONDAY 8 DECEMBER 2014

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Decision last updated: 19 February 2015