Mobileworld Operating Pty Ltd v Telstra Corporation Ltd

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FEDERAL COURT OF AUSTRALIA

Mobileworld Operating Pty Ltd v Telstra Corporation Limited [2005] FCA 1365

PRACTICE & PROCEDURE – applicant exclusive dealer of mobile phone services for respondent – respondent claims that commissions paid to applicant exceeded “cap” as specified in written dealership agreement – notice issued by respondent requiring repayment of alleged overpayment – applicant claims respondent gave oral assurance in pre-contractual negotiations that “cap” would not be enforced – applicant further claims amount of overpayment miscalculated – application for interlocutory injunction restraining respondent from requiring applicant to pay amount of alleged overpayment or treating failure to pay as grounds for termination of dealership agreement – claim in promissory estoppel – claim for breach of contract – whether either claim gives rise to a serious question to be tried – whether balance of convenience favours grant of interlocutory relief – whether discretionary factors operate to prevent such relief being granted

American Cyanamid Co v Ethicon Ltd [1975] AC 396 referred to
Anaconda Nickel Ltd v Edensor Nominees Pty Ltd (2004) 50 ACSR 679 referred to
Australian Broadcasting Corporation v Lenah Game Meats Pty Limited (2001) 208 CLR 199 referred to
Australian Coarse Grain Pool Pty Ltd v Barley Marketing Board of Queensland (1982) 57 ALJ 425 referred to
Axxess Australia Pty Ltd v Primus Telecommunications (Aust) Pty Ltd [2000] VSC 64 referred to
Beecham Group Limited v Bristol Laboratories Pty Limited (1968) 118 CLR 618 referred to
Bingham v 7-Eleven Stores Pty Ltd [2003] QCA 402 referred to
Brikom Investments Ltd v Carr [1979] 1 QB 467 referred to
Buchanan Group Pty Ltd v Sorgetti [2002] FCA 1646 referred to
Bullock v The Federated Furnishing Trades Society of Australasia (No 1) (1985) 5 FCR 464 applied
Bunbury Foods Proprietary Limited v National Bank of Australasia Limited (1984) 153 CLR 491 referred to
Castlemaine Tooheys Limited v South Australia (1986) 161 CLR 148 referred to
Commonwealth v Verwayen (1990) 170 CLR 394 referred to
Epitoma Pty Ltd v Australasian Meat Industry Employees Union (1984) 3 FCR 55 referred to
Fletcher Construction Australia Ltd v Varnsdorf Pty Ltd [1998] 3 VR 812 referred to
Fletcher v Foodlink Ltd (1995) 60 FCR 262 referred to
Foran v Wight (1989) 168 CLR 385 referred to
Kolback Securities Ltd v Epoch Mining NL (1987) 8 NSWLR 533 referred to
Liristis Holdings Pty Ltdv Q-Corp Marine Pty Ltd [2001] NSWSC 418 referred to
McHattan v Australian Specialised Vehicle Systems Pty Ltd (1996) 34 IPR 537 referred to
Mobileworld Communications Pty Ltd v Q & Q Global Enterprise Pty Ltd (2003) 59 IPR 107 referred to
Mobileworld Operating Pty Ltd v Telstra Corporation Limited [2005] FCA 292 referred to
Moonlighting International Pty Ltd v International Lighting Pty Ltd [2000] FCA 41 referred to
Patrick Stevedores Operations No 2 Proprietary Limited v Maritime Union of Australia (1998) 195 CLR 1 referred to
Philips Electronics NV v Remington Products Australia Pty Ltd (1997) 39 IPR 283 referred to
Shercliff v Engadine Acceptance Corporation Pty Ltd [1978] 1…

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Details
Case
[2005] FCA 1365
Decision Date

CaseChat Overview and Summary

Mobileworld Operating Pty Ltd, trading as Crazy John’s, sought interlocutory relief against Telstra Corporation Ltd in the Federal Court of Australia. The applicant, Crazy John’s, is a Telstra dealer that sells mobile phone connections and related products and services. It has been an exclusive Telstra dealer since 1991. The dispute concerns alleged representations made by Telstra representatives regarding the terms of a new dealership agreement and the enforcement of a cap on commissions payable to Crazy John’s. The primary legal issues were whether Crazy John’s could establish a serious question to be tried regarding promissory estoppel and whether Telstra had breached a duty of good faith in their negotiations and dealings. The court considered the evidence and arguments presented by both parties, focusing on the credibility of the witnesses and the available documentary evidence. The court determined that while there were competing accounts of the events, Crazy John’s had not conclusively proven that Telstra made the alleged representations regarding the cap on commissions. Consequently, the court held that Crazy John’s had not established a serious question to be tried regarding the promissory estoppel claim. The court dismissed the applicant’s notice of motion seeking interlocutory relief.

Orders

Orders of the court

1. The applicant’s notice of motion filed on 10 May 2005 be dismissed.

Background

Background to the litigation

This proceeding has already had an extensive history. It was commenced in May 2004, and was docketed to Crennan J. Her Honour delivered a lengthy judgment regarding the form of the pleadings earlier this year: see Mobileworld Operating Pty Ltd v Telstra Corporation Limited [2005] FCA 292. The matter came before me as duty judge when interlocutory relief was sought.THE BACKGROUND FACTS Mobileworld Operating Pty Ltd carries on business as “an exclusive Telstra dealer”, selling mobile phone connections to Telstra’s mobile telecommunications network, and also selling related telephone products and services. It trades under the name “Crazy John’s”. For convenience, I will refer to it by that name hereafter in these reasons for judgment. Crazy John’s has been an exclusive Telstra dealer since 1991. From that time until 1 December 1999, the business was conducted by various corporate entities, all of them effectively controlled by John Ilhan, and his family interests. At one point it was proposed to float Crazy John’s business on the Australian Stock Exchange. However, that did not occur. Crazy John’s currently supplies telecommunications products and services throughout Australia. There are three main divisions of the business. These are: the retail business which currently operates 96 retail outlets throughout Australia; a corporate sales division which services the business and government sector; and a customer care division, which is a national call centre, operated from the head office premises in South Melbourne. Crazy John’s operates thirty-three retail outlets in Victoria; sixteen in Queensland; twenty-six in New South Wales; seven in South Australia; four in the Australian Capital Territory; eight in Western Australia; and two in Tasmania. The major focus of Crazy John’s business is the retail supply of mobile phones, and connecting its customers to Telstra’s mobile phone network. In addition to connecting customers to that network, it also provides mobile phone hardware (including handsets and accessories), fixed line communications products, business telephone systems and support and after sales service. It currently has about 550 employees. Revenues for the financial year ending 30 June 2005 are projected to be approximately $160 million. Although there are hundreds of Telstra dealers, less than ten key national dealers sell Telstra products exclusively. In 2003, Crazy John’s was named as Telstra’s National Dealer of the Year. In 2004, it was named Australian Mobile Phone Retailer of the Year. At present, Crazy John’s has approximately 350,000 mobile phone services in operation, all through the Telstra network. It estimates that these connections will generate mobile phone revenue for Telstra during the current financial year of about $270 million. It relies exclusively upon Telstra to supply its customers with mobile phone services, and access to Telstra’s mobile phone network. Crazy John’s has two main sources of revenue. The first is generated by the sale of mobile phone handsets and associated products through its retail outlets, the corporate division and the call centre. The second consists of various payments that it receives from Telstra. These include what are described as “trailing commissions”, paid under a “dealership agreement” currently in place between Crazy John’s and Telstra. The “trailing commissions” comprise a percentage of the revenue received by Telstra from customers signed up by Crazy John’s to Telstra’s mobile phone network. Telstra also makes incentive payments to Crazy John’s under the dealership agreement, and various promotional agreements, for signing customers to Telstra’s mobile phone and fixed line services. Telstra also makes contributions to Crazy John’s administration, advertising and marketing expenses. These contributions are made, in part, pursuant to the current dealership agreement, and a series of earlier dealership agreements that go back over ten years. They are also made pursuant to various one-off, or stand alone, agreements that are described as “promotional agreements”. THE EVENTS LEADING UP TO DECEMBER 2002

Evidence

Evidence Before The Court

It is in the light of these general principles that I propose to summarise the evidence led by both sides in relation to the two causes of action upon which Crazy John’s relies for interlocutory relief.THE EVIDENCE IN RELATION TO THE PROMISSORY ESTOPPEL CLAIMMr Fleiter’s version of what occurred at the 18 December 2002 meeting One of the few matters on which there is any common ground is that a meeting took place between the parties at Telstra’s offices in Sydney on 18 December 2002. At that meeting, Crazy John’s was represented by its Chairman, Barry Hamilton, and by Mr Ilhan, and Mr Fleiter. Telstra was represented by one of its then Group Managing Directors, David Thodey, by its former Chief of Retail and Distribution in its Consumer and Marketing business unit, Greg Willis, and by Mr Pretty. It seems that Mr Ilhan had met Mr Pretty on several previous occasions. However, neither Mr Hamilton nor Mr Fleiter had ever made his acquaintance. Mr Fleiter’s evidence as to what took place at the meeting is set out in considerable detail in his affidavit of 10 May 2005. He said as follows: “56.Once the introductions were concluded, Mr Pretty started speaking in a very angry and loud voice. He was waving a letter from Crazy John’s in his hand. He said “I’m not putting up with this fucking crap”, referring to the letter. He said that he was a qualified lawyer, that he understood how the legal system worked and that if we wanted to engage in litigation with Telstra, Telstra would crush us. He did not show us the letter, but I could see that it was a letter dated 15 October 2002 which had been sent by Mr Ilhan to Mr Thodey explaining why Crazy John’s was at that time engaged in litigation with Telstra in the Supreme Court for Telstra’s continuous failure to honour its obligations under the 2002 agreement. Now shown to me marked “BWF-11” is a copy of Crazy John’s letter dated 15 October 2002.57.In response, Mr Ilhan asked what he (Mr Pretty) would do if he was in the same circumstances as Crazy John’s. Mr Ilhan then summarised the factors that had led to Crazy John’s decision to commence legal action. Mr Pretty appeared to me to calm down on hearing this and said that he wanted to move forward from the past difficulties in a productive manner. Mr Ilhan then said to Mr Pretty that he would withdraw the proceedings by making a phone call “right now” if Mr Pretty was happy to move forward with the new dealership arrangement. I said that Mr Macdonald and I had been in discussions recently in an attempt to agree on a new dealership agreement. Mr Pretty said that that’s the way he would like to move things and that he wanted to move forward, particularly in the Sydney market where Telstra’s mobile phone market share had severely declined during 2002. At about this point, Mr Thodey left the meeting.58 Mr Pretty then stood up, walked across to the whiteboard and asked Mr Ilhan to outline the terms of the new dealership agreement that had been negotiated. I responded to Mr Pretty’s request of Mr Ilhan by summarising the proposed terms to Mr Pretty.”

Decision

Reasons for decision

WEINBERG J
Crazy John’s submitted that Mr Russo’s evidence fell short of establishing that Telstra had no reasonable basis for believing that the overpayment amount was accurate, and had been properly calculated. Crazy John’s referred again to the audit. It also relied upon an affidavit of Timothy Rumbold, its Chief Financial Officer, who took issue with many of the claims made by Mr Russo. Mr Rumbold identified what he said were a series of flaws in Mr Russo’s reasoning. These included, for example, Mr Russo’s use of figures from different periods in his attempts to show error in Mr Fleiter’s evidence. CONCLUSION – IS THERE A SERIOUS QUESTION TO BE TRIED? The promissory estoppel claim When determining whether there is a serious question to be tried, a court must have regard to all of the evidence before it, including such evidence as bears upon the availability and strength of any defences: Shercliff v Engadine Acceptance Corporation Pty Ltd [1978] 1 NSWLR 729. Telstra submitted that Mr Fleiter’s letter of 12 September 2003 could not be reconciled with his evidence before me concerning Mr Pretty’s alleged assurance. I must say that, on its face, that submission seems compelling. However, as indicated above, Crazy John’s invited me to accept Mr Fleiter’s explanation that when he wrote the letter he was conscious of Mr Willis’ request to him to avoid “slotting” Mr Pretty. It was for that reason, Mr Fleiter claimed, that in his letter he did not set out accurately, or in full, what Mr Pretty had actually said. Both sides addressed me at length, and in extraordinary detail, as to whose evidence should be preferred. Each side made some telling points. In the end, both sides acknowledged that this issue would have to be resolved, to some degree, by a process of inference. At one point during the course of argument I indicated to the parties that I considered that this aspect of the proceeding was going nowhere. It was simply not possible, in my view, to make any sensible finding as to whether Mr Fleiter’s version of events was to be preferred to that of Mr Willis. Neither witness had been cross-examined. A number of other persons who had been present at the meeting had not given evidence. Yet I was being asked on incomplete and unsatisfactory material to make definitive findings as to credibility. In the end, all that can be said is that Mr Fleiter has maintained, in [62] of his affidavit, that at the 18 December 2002 meeting, Mr Pretty gave an assurance that the cap would not be enforced. Whatever difficulties there may ultimately be in accepting Mr Fleiter’s account, there is nothing in the evidence before me that demonstrates incontrovertibly that it is false. I am conscious of the competing contentions of the parties. I note in particular Crazy John’s submission that Mr Fleiter must be telling the truth. Why else would Crazy John’s enter into an agreement on less favourable terms than had previously existed unless the representation alleged was made?

Ratio Decidendi

Legal Principle Established

Established by: WEINBERG J

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