Netforce Pty Ltd v ITC Group Pty Ltd

[2010] NSWSC 443

CITATION:	Netforce Pty Ltd v ITC Group Pty Ltd [2010] NSWSC 443
HEARING DATE(S):	10 May 2010
JUDGMENT DATE :	11 June 2010
JURISDICTION:	Administrative Law List
JUDGMENT OF:	Davies J
DECISION:	1.The appeal is allowed. 2. The judgment and orders of the court below are set aside. 3. In lieu thereof, judgment is entered for the Plaintiff in the sum of $23,022.17. 4. The Defendant is to pay the Plaintiff's costs of the hearing below on the ordinary basis up to and including 27 March 2009, and on an indemnity basis from and including 28 March 2009. 5. The Defendant is to pay the Plaintiff's costs of these proceedings on the ordinary basis up to and including 13 November 2009, and on an indemnity basis from and including 14 November 2009. 6. The Defendant is to have a Certificate under the Suitor’s Fund if otherwise entitled.
CATCHWORDS:	CONTRACTS - general contractual principles - discharge, breach and defences to action for breach - whether innocent party elected to continue in contractual arrangement - mitigation - claim for liquidated sum - no obligation to mitigate. APPEAL - appeal from inferior Court - obligation to provide reasons - need for error of law to be found.
LEGISLATION CITED:	Fair Trading Act 1987 Trade Practices Act 1974 (Cth)
CATEGORY:	Principal judgment
CASES CITED:	Amann Aviation Pty Ltd v Commonwealth of Australia (1990) 92 ALR 601 Arturi v Zupps Motors Pty Ltd (1980) 33 ALR 243 Azzopardi v Tasman UEB Industries Ltd (1985) 4 NSWLR 139 Campbelltown City Council v Vegan (2006) 67 NSWLR 372 Fortune Food Manufacturer Pty Ltd v K Young Trading Pty Ltd [2010] NSWSC 407 Hexiva Pty Ltd v Lederer [2006] NSWSC 1129 Immer (No 145) Pty Ltd v The Uniting Church in Australia Property Trust (NSW) (1993) 182 CLR 26 Instrumatic Ltd v Supabrase Ltd [1969] 1WLR 519 Sasterawan v Morris [2008] NSWCA 70 Soulemezis v Dudley (Holdings) Pty Ltd (1987) 10 NSWLR 247 US Manufacturing Co Pty Ltd v ABB Service Pty Ltd [2008] NSWSC 705
TEXTS CITED:	Carter & Harland, Contract Law in Australia, 4th ed (2002) Butterworths
PARTIES:	Netforce Pty Ltd (Plaintiff) ITC Group Pty Ltd (Defendant)
FILE NUMBER(S):	SC 2009/297181
COUNSEL:	J Horowitz (Plaintiff) S J Walsh (Defendant)
SOLICITORS:	Bull, Son & Schmidt (Plaintiff) Breene & Breene (Defendant)
LOWER COURT JURISDICTION:	Local Court
LOWER COURT FILE NUMBER(S):	10229 of 2008
LOWER COURT JUDICIAL OFFICER :	Magistrate O’Shane
LOWER COURT DATE OF DECISION:	3 September 2009

- 1 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION

DAVIES J

11 JUNE 2010

2009/297181 NETFORCE PTY LTD V ITC GROUP PTY LTD

JUDGMENT

1 The Plaintiff and the Defendant entered into 3 contracts (relevantly) for the provision of Internet lines and services by the Plaintiff to the Defendant in 2006 and 2007. The contracts required the payment of monthly fees for the provision of the services.

2 Problems were experienced by the Defendant between March and June 2007. These problems were acknowledged and ultimately rectified by the Plaintiff. The Defendant paid the monthly charges up to and including February 2008.

3 Notwithstanding that, the Defendant ceased to use the Plaintiff for the provision of these services in September 2007, and in December 2007 purported to terminate the agreements. The Plaintiff disputes that there was a valid termination and claimed the payment of monthly invoices from March to July 2008. When these invoices were not paid the Plaintiff brought proceedings in the Local Court.

4 In a judgment of 3 September 2009 Local Court Magistrate O’Shane held that the Defendant had terminated the agreements and entered a verdict for the Defendant.

5 The Plaintiff appeals to this Court alleging that the Magistrate erred in law in reaching the view that she did.

The contracts

6 The first contract which is dated 26 April 2006 relates to Sydney and Melbourne (“the Melbourne Agreement”). The terms and conditions imported provisions of the quotation and in particular that the minimum term of the Agreement was 24 months commencing on the date of the customer’s connection to the service. Clause 12 provided for termination and relevantly provided:

12 TERMINATION

12.1 Our Agreement will terminate when:

(i) Expiry of the Minimum Term specified in Clause 1 occurs and either Party has given at least twenty (20) Business Days prior written notice to the other Party of its intent to terminate on the expiry of the Minimum Term; or
(ii) Either Party gives the other Party twenty (20) Business Days written notice of termination of our agreement after the expiry of the Minimum Term.

7 The second contract which related to Brisbane (“the Brisbane Agreement”) was dated 30 January 2006 and was also for a minimum term of 24 months. The termination provision was in the same terms as the Melbourne Agreement.

8 The third contract relating to Perth (“the Perth Agreement”) was made on 24 April 2007. It was also for a minimum term of 24 months but its terms and conditions were governed by what was called a Netforce Master Agreement. The termination conditions were much more detailed and relevantly provided:

17. TERMINATION

17.1 A party may immediately (or with effect from any later date it may nominate) terminate this Agreement by written notice to the other party if:

(a) the other party materially breaches this Agreement and fails to remedy such breach within 14 days of receipt of notice from the first party specifying the breach and requiring it to be remedied;
(b) the other party materially breaches this Agreement and the breach is incapable of remedy;
…
17.2 Subject to Clause 18, either party may terminate a Service on or after the expiry of the Minimum Term (if any), provided that one party gives the other party at least 20 Business Days prior written notice.
…

17.4 Subject to Clause 18.3, You may terminate a Service prior to the expiry of the Minimum Term by giving Netforce 20 days written notice of termination.

…

18.2 If You breach any provision of this Agreement and that leads to termination of a Service and the Minimum Term of the Service as specified in Clause 3 has not expired, You must, without prejudice to any other remedies to which Netforce may be entitled, pay the following amount to Netforce:

(a) if the unexpired Minimum Term remaining is less than 12 months, the amount payable is the balance of the Fees that would have been payable to Netforce had You continued to use the Service from the termination date until the expiry of the Minimum Term;
(b) if the unexpired Minimum Term remaining is greater than 12 months, the amount payable is calculated as follows:
Amount payable = B - CPl(B)
Where:
B is the balance of the Fees that would have been payable to Netforce had You continued to use the Service from the termination date until the expiry of the Minimum Term; and
CPl means the percentage change in the Consumer Price Index (All Groups) Sydney published by the Australian Bureau of Statistics for the last 12 month period ending prior to the date of termination (and should no such index be published then such replacement index as reasonably nominated by Netforce)
The parties agree that the discount percentage specified (the CPl) is a reasonable approximation of the net present value of the balance of the Fees which would otherwise have been payable to Netforce.

18.3 If you wish to terminate a Service prior to the expiry of the Minimum Term you must pay to Netforce an amount calculated in accordance with Clause 18.2.

The problems

9 Some problems were experienced with the services provided. The Statement of Jason Varker-Miles, the Managing Director of the Defendant, relevantly said this about the problems concerning the Melbourne Office:

[16] The internet connection to (sic) between the Sydney office and the Melbourne office of ITC would intermittently fail and isolate the Melbourne office. The situation deteriorated such that on 4 March 2007 the internet link connecting the Melbourne office was not working for the whole of 4 and 5 March 2007. The Melbourne office was unable to connect to the Sydney servers and the Melbourne Office was thereby prevented from operating its business.

[17] Annexed hereto and marked "H" is a copy of an email from the administrator of ITC to Fiona Morcom (cc'd to me) dated 5 March 2007.

10 The email itself said:

The link connecting to our Melbourne Office apparently down since yesterday afternoon. We have spoken with your support team and apparently they (sic) ETA is 7PM today. This means our Melbourne operation will be out of action for the whole day today. Is it possible for you to do anything or give us a backup link or something similar.

11 There is no evidence of further problems with the Melbourne Office and various invoices in evidence showed that the monthly charges for the Melbourne network were paid by the Defendant from March 2007 to February 2008 inclusive.

12 In relation to the Brisbane Office there were also problems. In that regard Mr Varker-Miles’ statement said that the Brisbane Office opened in May 2007 and that there were problems with the installation of the internet services at that location because the Plaintiff did not wire a connection to the offices. On 21 May 2007 an email was sent from the Defendant to the Plaintiff as follows:

We have moved to the new office in Brisbane but I think the link is not available. I spoke with one of the engineer on Sat and they said someone will be on site Monday morning. Can you check for me what's the current status of it. Thanks

Mr Varker-Miles says that no response to that email was received. However, the evidence discloses no further complaint and the monthly bills in relation to Brisbane were paid from May to February 2008 inclusive.

13 In relation to the Perth Office Mr Varker-Miles’ statement discloses the following:

[10] In or about the end of April 2007, the Perth office opened and became part operational except that the proposed internet connection between the Perth Office and the Sydney office did not work. The only available connection was via a wireless connection which did not enable high speed transmission of data.

[11] In or about early May 2007 I had a conversation with Fiona Morcom using words to the following effect:
Varker Miles: “The internet connection form (sic) the Perth office to the Sydney office is still not working. Why not? We can't run our business properly without fast and reliable internet connectivity. We are using a domestic grade wireless connection at the moment which is just too slow."
Morcom: "It needs a new router reconfigured for your Perth office, and a compatible router in Sydney."
Varker-Miies: "Why wasn't this installed before?"
Morcom: "I don't know"
Varker-Miies: "You know we are relying on you to supply a high speed internet connection so that we can run our business. How long will it take to be fixed if we use a new router?
Morcom: "We can get it done immediately. Don't worry. We will sort this issue out."
Varker-Miles: "Go ahead and install the new routers."

[12] On 29 May 2007 I had an email exchange with Fiona Morcom from the plaintiff, a copy of which is annexed hereto and marked "D".
[13] On 5 June 2007 sent a further email to Fiona Morcom, a copy of which is annexed hereto and marked "E".

14 There was then a series of emails culminating in a lengthy email from the Plaintiff to the Defendant of 25 June 2007 which involved a reduction of the installation charge for the inconvenience that had been caused to the Defendant. That email indicated that the position had been corrected by 6 June. The invoices show the credit that was given and, otherwise, the payment by the Defendant of the monthly invoices from June 2007 until February 2008.

The purported termination

15 In the meantime, as Mr Varker-Miles’ statement makes clear, in September 2007 the Defendant transferred all of its internet services to another company then known as Destra and subsequently known as Intrapower. The statement went on to say that thereafter the Defendant did not use the internet services provided by the Plaintiff and that even though the Defendant was not using the Plaintiff’s services the Defendant paid the Plaintiff from December 2007 to March 2008.

16 A Statement by Emma Miles, an assistant to Mr Varker-Miles, gave evidence of conversations purporting to terminate the contracts with the Plaintiff. The evidence was this:

[6] On or about 10 December 2007, I called Netforce and spoke to a person who identified herself as Fiona Morcom. We had a conversation to the following effect:

I said: "Fiona, I have been asked by Jason to cancel our contract with Netforce immediately.
She said: I’ll have to discuss it with our accounts department, there will probably be a payout figure on the contracts. Can I get back to you?"
I said: "Can you please get back to me right away? We want to terminate the service immediately."

[7] On 13 December 2007, I received an email from Fiona Morcom setting out the claimed payout figures. I annexe hereto marked with letter "A" a copy of that email.

The email relevantly read:


I have had our finance dept analyse your contract agreement and there are two options. ITC can just pay each month but not use the service until each line expires or payout the whole contract up-front and cancel all the lines. We will give ITC a 10% discount if you payout the contract by the 28th Dec.

[8] On or about 14 December 2007, I called Fiona Morcom and had a conversation to the following effect:

I said: "The payout figures are too high, they are identical to the monthly rate. We just want to terminate the service and have it stop straight away."
She said: "Are you experiencing any problems with the service?"
I said: 'The Managing Director, Jason Varker-Miles is very dissatisfied with the level of service provided and that is why we are terminating the agreement."
She said: "Ok. You will have to pay the amount set out in my email. If you pay the amount immediately, you'll get a 10% discount. If there is a problem with cashflow, you can pay month to month until the contract runs out."
I said: "You will have to discuss any payment with Jason Varker-Miles. I am not authorised to agree to any payment."

17 There was no written notice terminating the Agreements.

18 In February 2008 in a telephone conversation a Mr Mindag on behalf of the Defendant told Ms Billing for the Plaintiff that the invoices for December 2007 to March 2008 were missing. Ms Billing invoiced those invoices and they were paid.

19 Subsequently, invoices were issued by the Plaintiff from 25 March 2008 to 22 July 2008 but those invoices remained unpaid. It is in respect of those invoices that the Plaintiff sues the Defendant. Those invoices total $20,291.70.

The Defence

20 The Defendant pleaded that it was a term and condition of each of the Agreements that the Plaintiff would provide the services to a high quality standard with due skill, care and attention and that the services would be fit for the purpose provided. The particulars given referred to s 74 Trade Practices Act 1974 (Cth) and s 40S Fair Trading Act 1987.

21 It was then pleaded that in breach of the Agreements the services were not provided to the standard required and were not fit for the purpose. The Defence continued:

[10] Due to the plaintiff’s failure to provide the Services to the standard required, the defendant ceased using the plaintiff’s services in September 2007.

[11] Following and as a result of the plaintiff’s breach, the defendant terminated the Agreements in December 2007.

[12] Notwithstanding the defendant's termination and discontinuance of use of the Services, the defendant paid the plaintiff on a monthly basis until 20 March 2008.

[13] By reason of the matters aforesaid the defendant has suffered loss and damage.

PARTICULARS
(i) The defendant incurred significant losses as a result of the plaintiff's failure to establish the Perth connections / links prior to the opening of that office and for a further five weeks thereafter, together with loss arising from the ongoing failure to provide reliable internet services.

[14] The defendant claims the loss and damages incurred by it by way of set off.
The Magistrate’s decision

22 The Magistrate provided lengthy reasons for her decision that the Defendant was not liable to the Plaintiff for the amounts claimed. She determined a number of issues that are not relevant to the appeal and then considered the issue of whether the Agreements were terminated. She said this:

Turning to the matter of the termination. It has already been noted that the defendant first raised the matter of termination of the contracts with the plaintiff in early December 2007 by way of a telephone call. The defendant submits that it was entitled to and did terminate the agreements on that occasion. In pressing its point the defendant relies on express or implied warranties on the part of the plaintiff to provide its services to a high quality standard with due skill, care and attention and that the services would be fit for the purpose provided .

The plaintiff simply relies on the terms and conditions set out in the master agreement relating specifically to termination being cl 17.1:

A party may immediately (or with effect from any later date it may nominate) terminate this agreement by written notice to the other party if:
(a) the other party materially breaches this agreement and fails to remedy such breach within fourteen days of a suit of notice from the first party specifying the breach and requiring it to be remedied;
(b) the other party materially breaches this agreement and the breach is incapable of remedy.


No answer is made to the defendant's submissions on implied or expressed warranties and on the matter of the plaintiff's alleged breaches of essential terms and conditions rather the plaintiff’s response in submission on the point was to set out at some length various clauses of the terms and conditions contained in the Netforce master agreement before proceedings to submit, "Termination is a matter of election."

That even if the plaintiff breached its contracts with the defendant the defendant affirmed the contracts by paying the invoices issued by the plaintiff between March and November 2007 thus the defendant had no right to terminate the contracts for breach in December 2007. In any event the defendant did not terminate the contracts in December 2007 because it continued to pay the invoices issued by the plaintiff and the contracts remained on foot until they were terminated by the plaintiff on 8 August 2008.

Certainly there is no contest that the defendant paid moneys due in respect of all the contracts but at the same time it is noted it was attempting through several communications with the plaintiff to achieve some resolution of the growing problems being experienced with the level and quality of services which the plaintiff had provided. The court does not accept that such behaviour on the part of the defendant disentitled it to terminate the agreement. Indeed having regard to all of the evidence the court is satisfied that the defendant was entitled to terminate the agreements. It had done what it could; it continued to pay on its contracts and at the same time it had notified problems that it was experiencing with the level and quality of the services and was attempting to achieve some resolution of those matters, it did not achieve any resolution of the matters.

Indeed, a reading of the correspondence that occurred by way of email between the parties indicates that the plaintiff gave the matter something less than a desirable level of attention. It is not clear that the notice of attention (sic) was given in writing, but the only evidence in respect of the termination notice being received and acted upon by the plaintiff is contained in the evidence of Ms Miles who tendered in evidence a copy of an email from Ms Fiona Morcom who responded by quoting a payout figure which as noted earlier was contested by the defendant. Those matters were not contested in evidence and nor were they addressed in the plaintiff’s submissions other than in the general terms indicated a short time ago.

However, in written submissions the plaintiff relies on a plain reading of the contract to argue:

(1) that the defendant simply failed to pay on the invoices issued by the plaintiff which were required to be paid within fourteen days from the date of issuance, and

(2) that interest and other fees are payable under the terms of the contract. In other words, it certainly seemed to the court at that point in its reading of the submissions and having had regard to the evidence that's been canvassed already that the plaintiff simply ignored the defendant's submissions as to those further matters, that is to implied terms and warranties et cetera.

The plaintiff further relies on a plain reading of the contract to argue the point about termination and in particular to argue that:

The expiry or termination or our agreement will not affect or limit any accrued rights of the parties.


The last few words are clearly not relied on by the plaintiff. The plaintiff’s case that termination does or did not affect or limit its accrued rights to continue to charge the monthly costs together with interest and other fees. In light of the Court's findings to this point it is not necessary to consider the issue raised by the defendant of the plaintiff’s failure to mitigate damages or loss. It does however accept the defendant's submissions on overcharging by the plaintiff in respect of the services that were provided which are set out in paras 39 through to 55 of its written submissions.

…

IN ALL OF THE CIRCUMSTANCES THE COURT IS NOT SATISFIED THAT THE PLAINTIFF HAS MADE OUT ITS CLAIM AND VERDICT IS ENTERED FOR THE DEFENDANT.

23 The matters that the Magistrate had to decide were these:

(a) Was the Defendant entitled to terminate the contracts in December 2007?

(b) Did the Defendant terminate the contracts on 10 December 2007?
(a) Was the Defendant entitled to terminate the contracts in December 2007?

24 The Perth Agreement made provision for termination in the event of a material breach of the Agreement by the other party in cl 17.1. On the other hand, the Melbourne and Brisbane Agreements contained only a provision which assumed the Plaintiff had the right to terminate for a breach by the Defendant (cl 12.3).

25 In respect of the Melbourne and Brisbane Agreements the matter must be determined in accordance with ordinary contractual principles. That means that if there was a breach by the Plaintiff justifying a termination of the contract by the Defendant, the Defendant would be entitled to give notice of what it would allege to be a repudiation of the Agreement by the Plaintiff and an acceptance of that repudiation by the Defendant.

26 That necessitated an enquiry as to whether the Plaintiff had breached terms of the Agreement that entitled the Defendant to terminate. I have detailed the problems about which the Defendants complained earlier in this judgment.

(i) The Melbourne Agreement

27 What seems clear from the evidence is there were problems in relation to the connection to the Melbourne office in early March 2007 but there was no subsequent complaint about any problems relating to the Melbourne connection. Moreover, the Defendant paid invoices in respect of that contract, as I have said, right through to March 2008.

28 It might be doubtful that the problems as described by Mr Varker-Miles in his statement in relation to the Melbourne office were such that the Defendant was entitled to terminate the contract. However, if I assume in favour of the Defendant that those problems would have justified a termination, the first time the Defendant purported to terminate in respect of the Melbourne contract was in December 2007.

29 It seems to me that, on the assumption that the Defendant was entitled to terminate the contract because of the problems it experienced with the Melbourne connection in March 2007, it was bound to elect between continuing with the contract or terminating it: Immer (No 145) Pty Ltd v The Uniting Church in Australia Property Trust (NSW) (1993) 182 CLR 26 at [30], [38]-[39] and [41]. The plurality judgment pointed out that a party, faced with the choice of terminating the contract or keeping it on foot, who terminates will ordinarily have acted in a way that leaves no doubt as to the choice made. Where, on the other hand, the converse is true the question of whether an election has been made is not so easily answered (see at [41]).

30 Even approaching the matter with that caution in mind, the facts in relation to the Melbourne Agreement are simply that there were problems in early March 2007, no subsequent complaint was made about them, the Defendant went on paying the monthly invoices without demure, and then for no particular proffered reason the Defendant in December 2007 said that it either wanted to, or did, terminate the arrangement.

31 The Magistrate only dealt with this by that portion of her judgment which says this:

Certainly there is no contest that the defendant paid moneys due in respect of all the contracts but at the same time it is noted it was attempting through several communications with the plaintiff to achieve some resolution of the growing problems being experienced with the level and quality of services which the plaintiff had provided. The court does not accept that such behaviour on the part of the defendant disentitled it to terminate the agreement. Indeed having regard to all of the evidence the court is satisfied that the defendant was entitled to terminate the agreements. It had done what it could; it continued to pay on its contracts and at the same time it had notified problems that it was experiencing with the level and quality of the services and was attempting to achieve some resolution of those matters, it did not achieve any resolution of the matters.

32 With the greatest respect to the Magistrate, this does not come to grips with a number of matters. Those matters are the questions of when a breach occurred, whether the breach entitled a termination, why the Defendant should not be held to have elected to have waived the breach by the continued payment of the invoices, and what new event might have justified the Defendant terminating in December 2007.

33 Part of the problem, it seems to me, is that the Magistrate failed to distinguish the 3 contracts made between the Plaintiff and the Defendant. So much is apparent, first, from that first portion of the judgment that I have set out in para [22] above where the Magistrate appears to assume that cl 17.1 (in the Perth Agreement) was also in the other 2 Agreements. Secondly, it is apparent that the Magistrate links the problems the Defendant was experiencing in relation to all 3 of the contracts as if problems in one were entitled to be relied upon in the others to decide whether to terminate or not. There were 3 separate contracts, and the forwarding of invoices which included the 3 contracts in the one invoice does not mean that the contracts, and their terms, do not have to be considered separately.

34 In my opinion, and on the continuing assumption that the problems with the Melbourne office entitled a termination, the Defendant lost the right to terminate as it purported to do in December 2007 by its election to continue to make the monthly payments up to and beyond the date it purported to terminate.

(ii) The Brisbane Agreement

35 In relation to the Brisbane Agreement the problems occurred in May 2007 when the Plaintiff did not wire a connection to the offices. The complaint is set out in para [12] above. The evidence is silent about what happened when no response was received to the email of 21 May 2007. However, as in the case of the Melbourne office, the Defendant went on paying the monthly invoices.

36 For similar reasons to those I gave above in respect of the Melbourne Agreement, the Defendant elected to continue with performance of the contract. Again, no reason was proffered for the purported termination in December 2007. Nothing was said about either the problems that had been experienced in May 2007 in relation to the Brisbane office nor any subsequent problems. The continued payment of monthly invoices means that the Defendant had no right to terminate when it purported to do so in December 2007.

(iii) The Perth Agreement

37 The problems in relation to the Perth office appear to have been more prolonged and were accepted as more serious by the Plaintiff. The details appear in paras [13] and [14] above. As noted there, the lengthy email of 25 June from Mr Cantor, the Director of Software Solutions for the Plaintiff, frankly acknowledged the problems and said:

As I discussed with Tim, as an indication of our good faith, we will deduct $1,100 from the installation charge of $2,688.

38 That deduction appeared on the invoice dated 22 June 2007. The Defendant accepted the reduction by payment of the reduced invoice and continued to pay invoices in respect of the Perth office up to and including February 2008.

39 It appears that the Defendant ceased using the Plaintiff’s services in September 2007 although it did not inform the Plaintiff of that matter. Despite the transfer of services it continued to pay the Plaintiff’s invoices. The next relevant event was the telephone conversation of 10 December 2007 recorded in para [16] above.

40 I have noted earlier that neither in that telephone conversation nor in the subsequent one on 14 December 2007 was any particular reason given by the Defendant for terminating the Plaintiff’s services – there was simply an expressed dissatisfaction with the level of service. At least by December 2007 it could not be because of problems the Defendant was experiencing at that time or in the 2 months prior to the conversation because the Defendant had transferred to another service provider.

41 What transpired in June 2007 in relation to the Perth Agreement points more strongly to the fact that the Defendant may have had a right to terminate for breach. But in any event I have assumed that fact in favour of the Defendant for the purposes of considering whether there was an entitlement to terminate in December 2007.

42 On the other hand, the position for the Plaintiff in this regard appears to be stronger because the Plaintiff acknowledged the problems and provided a payment to the Defendant, in the form of a credit, which the Defendant accepted. It seems to me that that makes the election a much clearer one that the Defendant agreed to keep the contract on foot notwithstanding whatever rights it may have had as a result of the problems of June 2007.

43 In my opinion, the Defendant was not entitled to terminate the contract in December 2007.

(b) Was a termination effected in December 2007?

44 In the light of my conclusions about the entitlement to terminate it is not strictly necessary to decide whether a termination was in fact effected in December 2007. Lest I am wrong in my earlier conclusions I will consider this issue. Involved in this consideration is the matter of the payments made after December 2007.

45 The learned Magistrate makes no finding on this issue, in particular, she does not address either the question whether an oral termination was effective or, if it was, whether the conversation amounted to a termination. The only inference that is available from her reasons, and particularly from her conclusion that the Defendant was entitled to terminate, and that the continuing payments made after that time did not mean it had not terminated, is that the Magistrate considered that the conversation of December 2007 was effective to terminate.

46 It was only the Perth Agreement that contained detailed terms about the right of the parties to terminate the Agreement. It is clear, however, that under that Agreement written notice had to be given in any circumstance that entitled a termination. It was the only Agreement that enabled termination prior to the expiry of the minimum term where no breach by the party was involved.

47 The Defendant submits that an insistence on a written notice to terminate was a term which restricted the Defendant’s right to terminate contrary to s 68 Trade Practices Act and s 40M(1) Fair Trading Act. In my opinion, the term requiring written notice was not a term that offended those provisions. Section 68 only contained a provision that (inter alia) restricted the exercise of a right conferred by a provision in Div 2 of Pt V of the Trade Practices Act. That Division does not give a right to terminate for breach. Rather, it implied into contracts various undertakings, conditions and warranties which can conveniently be summarised as provisions which ensured that the consumer obtained what the consumer intended to obtain and in proper and suitable working order. It is Divisions 2A and 3 of Pt V and Pt VI which provide the remedies available for the breaches of those provisions. The exception to that is a rescission under s 75A (found in Div 3) but such a rescission requires a notice in writing signed by the consumer giving particulars of the breach.

48 The Defendant also submitted that the breach relied upon was not a breach referred to in cl 17.1 of the Perth Agreement. That is because, the Defendant submits, what the Magistrate found, impliedly, was that the breach was a breach of a warranty imported into the contract by s 74 Trade Practices Act. The result is, the Defendant submits, that the mechanism in cl 17.1 did not have to be complied with particularly because the opening words of the clause say “a party may …”.

49 It certainly appears that the Magistrate based her decision on the breach of what she has called express or implied warranties (see the first paragraph of her judgment that I have set out in para [22] above). Ordinarily, a breach of such a warranty would result in a right to damages and not a right to rescind: Arturi v Zupps Motors Pty Ltd (1980) 33 ALR 243 at 246 and Amann Aviation Pty Ltd v Commonwealth of Australia (1990) 92 ALR 601 at 606. Further, as was said in Amann Aviation (at 607), the parties to the contract having agreed to a procedure in relation to termination including a termination for breach, it is that procedure which ought to be followed.

50 The Magistrate seems to accept that no notice to terminate was given in writing but does not seem to draw a conclusion adverse to the Defendant in that regard, notwithstanding that she set out the provisions of cl 17.1 earlier in her judgment. In my opinion, written notice was necessary to effect a termination of the Perth Agreement.

51 Because a written notice was required, and because no such written notice was given the termination in respect of the Perth contract was not effected. The Magistrate was wrong in her conclusion that it had been and she failed to provide reasons for that conclusion which has to be inferred from the overall result.

52 The Melbourne and Brisbane Agreements required written notice after the expiry of the minimum term without any cause being needed. Termination for breach is allowed for but only for breach on the part of the customer and not on the part of the Plaintiff (cl 12.3). In the absence of the requirement for writing when terminating for breach by either party it must be inferred that an oral termination was possible.

53 The question becomes, therefore, whether what was said by Ms Miles in the conversation amounted to unequivocal words evincing an election to terminate the contract: Carter & Harland, Contract Law in Australia, 4^th ed (2002) Butterworths at 735. Mr Horowitz of counsel who appeared for the Plaintiff, in the course of his very careful and thorough submissions argued that what had been said by Ms Miles did not constitute unequivocal words. Rather, he submitted, she was expressing a desire or an intimation that the Defendant wanted to terminate the contract. That, he said, was not sufficient to evince an election to terminate. Mr Horowitz also points to the fact that what was undetermined was the payout figure and that this was an indication that termination had not been effected.

54 The Magistrate does not refer to these conversations in her judgment and makes no express finding that the Defendant terminated the arrangements. However, it is implicit in her conclusions and discussion about the subsequent payments that she regarded the contracts as terminated.

55 Although on one view the language used by Ms Miles in her conversations of 10 and 14 December 2007 (particularly the latter) appears to state that the Defendant is terminating the contracts, the matter cannot be viewed independently of the ongoing discussions about what payment would be due from the Defendant if a termination was effected. This, of course, is a further indication that the Defendant was not purporting to terminate for breach by the Plaintiff of the Plaintiff’s obligations. Rather, it is an indication that the Defendant thought that it was entitled to terminate the contracts subject to the payment of some amount of money (cf cl 18.3 in the Perth Agreement).

56 So, for example, in the first conversation of 10 December 2007, Ms Miles asks Ms Morcom to get back to her about the payout figure because “we want to terminate the service immediately”. Then, after receipt of the email of 13 December 2007, Ms Miles rings Ms Morcom to complain about the payout figures. Certainly, when asked, she said that Mr Varker-Miles was very dissatisfied with the level of service provided and that was why the Defendant was terminating the arrangement. However, there was then a further conversation about what would have to be paid to bring about the termination, a matter inconsistent with the Defendant asserting a right to terminate or that it was doing so there and then. Once again, the position at the end of the conversation was left where the payout figure was still not agreed and Ms Morcom was to ring Mr Varker-Miles to discuss it.

57 The Plaintiff continued to send monthly invoices which, after Mr Mindag rang Ms Billing to ask for duplicates, were all paid by the Defendants.

58 In my opinion, the continuing issue of what any payout figure would be together with the request for duplicate invoices and their subsequent payment, are all indications that there was no termination of the Agreements by the Defendant in December 2007.

59 In the evidence there is no explanation or justification of these payments which, on their face, suggest that notwithstanding what Ms Miles had told Ms Morcom on 10 and 14 December 2007, the Defendant did not believe that it had terminated in December and intended to continue with the contract until the expiry of the minimum period.

Conclusions on the Magistrate’s judgment

60 The Plaintiff only has an appeal as of right to this Court if an error of law is shown in the judgment of the Magistrate. I recently reviewed the authorities on what amounts to an error of law in Fortune Food Manufacturer Pty Ltd v K Young Trading Pty Ltd [2010] NSWSC 407 at [26]-[31].

61 It seems to me that the Magistrate has made a number of errors of law in coming to her determination. In some cases it is not easy to pinpoint where the errors are made because the Magistrate does not determine particular issues. It is necessary from her conclusion that the Plaintiff had not made out its claim that certain matters must have been determined against the Plaintiff and that those matters must be errors of law.

62 First, as stated earlier, the Magistrate appears to have come to her conclusion on the basis that the 3 Agreements were in identical terms and that those were the terms of the Perth Agreement. But having done so, and having set out cl 17.1 of that Agreement, she says nothing about the fact that there were no written notices given by the Defendant to terminate the Agreement in accordance with cl 17.1. For the reasons I have given above, and even assuming that the Defendant was entitled to terminate the Perth Agreement, the Defendant did not comply with cl 17.1 with the result that that Agreement was not terminated.

63 Secondly, the Magistrate draws an inference from the evidence which cannot reasonably be drawn in saying:

It is not clear that the notice of attention (sic, termination) was given in writing, but the only evidence in respect of the termination notice being received and acted upon by the Plaintiff is contained in the evidence of Ms Miles who tendered in evidence a copy of an email from Ms Fiona Morcom who responded by quoting a payout figure …”

64 In fact, there was no Notice of Termination in writing, and the email referred to was the email that I have set out in para [16] above that is inserted between paras 7 and 8 of the Statement of Ms Miles. That Notice was not a Notice of Termination and if the Magistrate was asserting that it was, that was an error of law.

65 Thirdly, the Magistrate has treated what she regarded as breaches in respect of each of the contracts as if they were breaches that were relevant to all of the contracts. So, for example, she talks about the Defendant’s communications with the Plaintiff “to achieve some resolution of the growing problems being experienced with the level and quality of services which the Plaintiff had provided”. Similarly she said: “a reading of the correspondence that occurred by way of email between the parties indicates that the Plaintiff gave the matter (sic) something less than a desirable level of attention”.

66 Fourthly, although the Magistrate noted the Plaintiff’s submission that the Defendant had affirmed the contract by paying the invoices issued between March and November 2007 with the result that the Defendant had no right to terminate the contracts for breach in December 2007, all she said in relation to that was:

The Court does not accept that such behaviour on the part of the defendant disentitled it to terminate the Agreement.

67 That perhaps should be seen in conjunction with the previous sentence where her Honour says in relation to that payment of money by the Defendant:

… but at the same time it is noted it was attempting through several communications with the Plaintiff to achieve some resolution of the growing problems being experienced with the level and quality of services which the Plaintiff had provided.

68 There is a factual error there in that there was no evidence at all that the Defendant was attempting to achieve some resolution of the problems in the period through to December 2007. I have dealt with each of the contracts but, overall, the last resolution of problems was in June 2007.

69 As the Court of Appeal made clear in Azzopardi v Tasman UEB Industries Ltd (1985) 4 NSWLR 139 at 150 an error of law may occur in the finding of facts if the court treats as having occurred what in truth is not shown by the evidence to have occurred. Similarly, Hall J in US Manufacturing Co Pty Ltd v ABB Service Pty Ltd [2008] NSWSC 705, following Lord Denning MR in Instrumatic Ltd v Supabrase Ltd [1969] 1WLR 519 at 521 said at [54] an error in point of law may occur where there is a finding made where there is no evidence to support it or where the Court draws an inference from facts that cannot be reasonably drawn.

70 Fifthly, the Magistrate did not deal at all with the question of election by the payment of invoices after the purported termination in December 2007. In relation to that matter and others that I have mentioned, the Magistrate has made an error of law in failing to give reasons: Soulemezis v Dudley (Holdings) Pty Ltd (1987) 10 NSWLR 247 at 269-271 and 280-281: Campbelltown City Council v Vegan (2006) 67 NSWLR 372 at [130]; Sasterawan v Morris [2008] NSWCA 70 at [47].

71 The Defendant draws attention to what Mahoney JA said in Soulemezis at 273 to the effect that a judge is not required to make an express finding in respect of every fact leading to or relevant to the final conclusion of fact. I make no criticism of the Magistrate in that regard. What she has failed to do is to give reasons that are required for her ultimate conclusion that the Defendant was entitled to, and did, terminate the contracts. I have mentioned some of these matters but, in summary, she gives no reasons arising out of the requirement for written notice in respect of the Perth Agreement, no reasons in relation to the continued payments after the purported termination in December 2007 and how they might impact on whether that termination had been effected, no reasons for saying that the continuing payments of invoices throughout 2007 was behaviour that disentitled the Defendant to terminate the Agreement, and no reasons for her apparent conclusion that the Plaintiff was in breach of one or more of the Agreements in December 2007.

Failure to mitigate

72 The Magistrate did not deal with this issue, understandably enough, because she found in favour of the Defendant on the Plaintiff’s claim. Since I have concluded that she was in error in holding that the Plaintiff was not entitled to recover, the Defendant submits that the issue of mitigation ought to be determined. The Defendant points out that a failure to mitigate was pleaded and submissions were made about it.

73 The substance of the present submission by the Defendant is that the Defendant had ceased using the Plaintiff’s service in September 2007 and terminated in December 2007. The Defendant points to evidence of Mr Ting in the Court below that the Plaintiff could have reallocated its lines and in fact ordinarily did so 90% of the time. Rather than do that, the Defendant submits, the Plaintiff took no steps to mitigate its loss between December 2007 and August 2008. Had it done so, the Plaintiff would have suffered no loss for the period in respect of which it now claims.

74 However, what the Plaintiff is claiming in these proceedings is a liquidated sum based on the terms of the 3 contracts made between the parties. Any obligation to mitigate applies to claims for damages but not the liquidated claims for sums due under a contract: Hexiva Pty Ltd v Lederer [2006] NSWSC 1129 at [66] and the cases there cited.

75 For these reasons I make the following orders:

1. The appeal is allowed.

2. The judgment and orders of the Court below are set aside.

3. In lieu thereof, judgment is entered for the Plaintiff in the sum of $23,022.17.

4. The Defendant is to pay the Plaintiff's costs of the hearing below on the ordinary basis up to and including 27 March 2009, and on an indemnity basis from and including 28 March 2009.

5. The Defendant is to pay the Plaintiff's costs of these proceedings on the ordinary basis up to and including 13 November 2009, and on an indemnity basis from and including 14 November 2009.

6. The Defendant is to have a Certificate under the Suitor’s Fund if otherwise entitled.

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