Ozefax v Telco Edge
[2013] NSWSC 1506
•08 October 2013
Supreme Court
New South Wales
Medium Neutral Citation: Ozefax v Telco Edge [2013] NSWSC 1506 Hearing dates: 08/10/2013 and 09/10/2013 Decision date: 08 October 2013 Jurisdiction: Equity Division - Commercial List Before: McDougall J Decision: Grant interlocutory injunctive relief.
Catchwords: PRACTICE & PROCEDURE - Injunctions - interlocutory injunctions - application for interlocutory injunctive relief - whether serious question to be tried - balance of convenience Cases Cited: Australian Broadcasting Corporation v O'Neill (2006) 227 CLR 57 Category: Procedural and other rulings Parties: Ozefax Pty Limited (Plaintiff)
Telco Edge Pty Limited (First Defendant)
Unifier2 Pty Limited (Second Defendant)Representation: Counsel:
EAJ Hyde (Plaintiff)
HPT Bevan (First Defendant)
JM White (Second Defendant)
Solicitors:
Addisons (Plaintiff)
Womersley & Co (First Defendant)
Medcalf Grant (Second Defendant)
File Number(s): 2013/295962
Judgment - Re Application for interlocutory injunctive relief; See pg 44
HIS HONOUR: The Plaintiff (Ozefax) provides internet faxing services and other telecommunication services to customers. As part of that business, Ozefax obtains wholesale telecommunications services from the Defendants (respectively, Telco Edge and Unifier2).
It would appear that the commercial relationships between Ozefax on the one hand and Telco Edge and Unifier2 on the other hand has proceeded more or less peacefully for a number of years. That happy state of affairs came to an end, on the evidence before me, when the principals of Ozefax approached a consultant to put its business and assets on the market. Those who were approached included Telco Edge and Unifier2. Each submitted an expression of interest.
In the result, the principals of Ozefax decided to enter into negotiations with a party other than Telco Edge or Unifier2. Ozefax and what it calls "the successful bidder" have signed a letter of intent. As I understand it, negotiations are proceeding.
If the sale is to proceed then one of the things that the purchaser would require is that the customers of Ozefax would be in effect transferred, or in the jargon of the trade migrated, to it. Clearly enough, that would require some degree of cooperation from the defendants.
It would be possible for Ozefax, or the purchaser of its business, to source wholesale telecommunications services from other suppliers. However, on the evidence, that would take some time. The evidence as to precisely how much time would be required is lamentably deficient.
This is all of some significance because each of Telco Edge and Unifier2 has taken steps to vary the nature of the arrangements between it and Ozefax. In the case of Telco Edge, those steps included purporting to change (or, as Telco Edge would have it, changing) the terms and conditions on which it provided services to Ozefax. One of the effects of those changes would be to make money payable in advance for services and to limit significantly the time for payment. Another change would have the effect of giving Telco Edge the right to terminate the arrangements for, among other things, failure to pay on time.
In the case of Unifier2, the steps taken included sending a letter of 23 September 2013 which stated that Unifier2 would cease to provide services to Ozefax on 6 October 2013.
All that happened against a background of the proposed sale, and in a context where (at least on the evidence for Ozefax), it could be thought that Unifier2 at least is looking to extract substantial sums of money from Ozefax in effect to ensure continuity of service so that the sale could proceed.
In this context, it is worth noting that one of the ways that the case will be put for Ozefax is that Telco Edge and Unifier2 have acted unconscientiously in the exercise of what they say (although Ozefax disputes) are their contractual rights; alternatively, that they have acted in a manner inconsistent with what are said to be implied obligations of good faith and fair dealing.
Matters have come to a head because the Defendants have not given undertakings sought by Ozefax which were intended to secure continuity of service. That has led to an interlocutory hearing today in which Ozefax has sought relief, of a very wide nature, which it claims is what is required to hold the present position until there can be a final hearing.
In relation to the prospect of a final hearing, I should indicate that it will be possible for the Court to deal with the matter on 11 and 12 December 2013, and it is likely that this date will be allocated provisionally on the assurance of the parties that it can be met and that two days will be all that is required.
Involved in the detail of the evidence are what are referred to as web portals. In effect, Ozefax says, each of the Defendants has set up a web portal which Ozefax can access. Ozefax can use (and has used) that facility to set up customer accounts and make changes to customer accounts. It has also been used by some customers who have limited (non-administration) rights of access, for example to monitor their usage and spending.
On the evidence so far, Ozefax, perhaps unwisely, has taken the course of storing its information in relation to its customers using those web portal facilities, and not elsewhere.
Each of the Defendants has withdrawn access to the web portal that, hitherto, it provided. The result of that has been, Ozefax says, to cause significant disruption to its business.
There is a lot of confusion as to what are the precise contractual arrangements between Ozefax on the one hand and each of the Defendants on the other. It is rather surprising that parties who should have devoted considerable attention to the preparation and signing of a non-disclosure agreement (Ozefax and Telco Edge) did not trouble to document, in an equally clear way, the basis on which they contracted.
It is clear that, for example, Telco Edge has maintained on its website from time to time what it says are the terms and conditions on which it supplies wholesale telecommunications services to resellers such as Ozefax. As I understand the evidence for Ozefax, it accepts that there were some such terms and conditions, but does not accept that they governed the relationship between it and Telco Edge.
Further, in the case of Telco Edge, there is a suggestion that something called a "Hosted Services Agreement" has some relevance. Although it is difficult to make final findings of fact on an interlocutory application, that proposition does not appear to be consistent with the terms of the non-disclosure agreement that in fact Ozefax and Telco Edge made before Telco Edge began to supply the services that are the subject of the present dispute between it and Ozefax.
As between Ozefax and Unifier2, the evidence is again less than clear. Unifier2 relies on the letter that it sent on 23 September 2013, giving notice of termination of service from 6 October 2013. That letter attached what Unifier2 said were the terms of the contract between it and Ozefax. That document, if it applied, would indeed have justified withdrawal of service at any time without notice and for any reason. Ozefax does not agree that this document was brought to its attention at the relevant time, or that it has any contractual significance.
Another matter of concern to Ozefax is that, through the web portals that I have described, each of the Defendants has access to information concerning the customers of Ozefax. That is of concern, because in the case of Unifier2 certainly and in the case of Telco Edge by inference, each of the Defendants is not only a wholesaler but also a reseller, or retailer, of telecommunications services. It is thus possible that each of the Defendants could use the information held by it to approach Ozefax's customers and attempt to solicit their business. Ozefax claims, with some justification, that the customer information that it has stored through the web portals is its own, and is confidential.
Telco Edge appears to dispute the question of ownership. However, that dispute turns on the conditions that it relies upon, and the particular condition seems to me to have more to do with the services provided by Telco Edge than it does with the information stored by Ozefax. It might be noted, in this context, that Telco Edge acted in a way that might be thought to have sought to strengthen its claim to that information, by seeking to amend the terms of contract once the parties appeared to fall into some degree of dispute.
Ozefax today seeks interlocutory injunctive relief that is intended to preserve the provision of services to it, and the use of the web portals, until there can be a final hearing and resolution of the dispute. Mr J White of counsel, for Unifier2, gave some, in my view, justified, critical attention to the terms of the notice of motion. Without going into the detail, I accept that the prayers for relief are too widely framed.
I accept, also, that the summons appears to suffer from similar ambition.
Nonetheless, when one reduces the case to its elements as they appear from the evidence to date (and accepting, as I do, that the evidence is necessarily incomplete), there seem to be a number of propositions that emerge. The first is that there was a contract in place between Ozefax and each of the Defendants. The second is that there was no express agreement as to the term of each of those contracts. The third is that the contracts have been performed for a number of years, no doubt with appropriate and consensual variations as to matters of, for example, price.
In those circumstances, it seems to me, it is open to the Court to conclude that there is a serious question to be tried as to whether (as Ozefax says) the contract was one for no definite term, or whether it was something more specific. Specifically, whilst reserving the dispute as to what were the particular terms of each contract, it seems to me that there is a serious question to be tried as to whether each contract includes an implied term that, at least absent breach or repudiation, it could not be terminated except on reasonable notice.
In this context, there is no fixed or immutable standard as to what is a serious question to be tried or, in the words of some of the cases, a prima facie case. Gummow and Hayne JJ addressed that issue in Australian Broadcasting Corporation v O'Neill (2006) 227 CLR 57 at [65] and following. Their Honours said at [71]:
"The requisite strength of the probability of ultimate success depends upon the nature of the rights asserted and the practical consequences likely to flow from the interlocutory order sought."
Their Honours then expanded upon the reference to practical consequences at [72] by referring to:
"the particular considerations which arise where the grant or refusal of an interlocutory injunction in effect would dispose of the action finally in favour of whichever party succeeded on that application."
I take their Honours to mean, among other things, that in assessing whether to grant an interlocutory injunction, the Court should pay attention to the form of the relief sought and to the consequences of granting or withholding relief as part of the assessment of the seriousness of the question to be tried. If that be correct, it would appear to involve some telescoping, or perhaps running together, of the question as to a serious question to be tried and the question of balance of convenience.
In this case, the grant of some interlocutory relief (perhaps not all that is sought by Ozefax) would have the effect of preserving the continuing provision of telecommunications services and access to customer data through the web portals. There is no evidence that continuing that position would impose any hardship or expense or inconvenience on the Defendants. Nor would one expect there to be any such evidence, because that is precisely what the Defendants have been doing for some years up until the events of August this year.
If interlocutory relief is not granted then each of the Defendants is free to terminate the contract according to its view of what the terms are. It is also free to continue to refuse access to customer information through the web portals. Each of those courses (if taken) would have a very significant impact on Ozefax and also on people who are effectively innocent third parties, namely its customers.
Again, there has been no suggestion that restraining the Defendants from using what Ozefax says is its confidential information for their own purposes would cause them any significant detriment in the near term. But if they were permitted to do so (by the absence of a restraint), it is possible - I would have thought likely - that the sale value of Ozefax's business would diminish.
The position is not entirely straightforward, because Telco Edge has offered (at the last moment) certain undertakings to the Court. It undertakes, in effect, that it will continue to invoice Ozefax as it has done in the past, provided that Ozefax continues to pay as it has done in the past; that with certain exceptions relating to circumstances beyond its control, it will maintain its prices at current levels; and that it will not terminate without cause without giving at least 30 days' prior notice.
In those circumstances, and where there is no evidence of an express threat to terminate, Mr HPT Bevan of counsel for Telco Edge submits that protection of the legitimate interests of Ozefax needs no further relief.
I do not agree with that submission. There are two reasons. The first is that one view of the facts is that Telco Edge has sought to manipulate the situation, or to manoeuvre, in such a way as to give itself a contractual right to terminate on short notice, and so as to give itself grounds to do so. Whilst I accept that some of the undertakings given would diminish that contractual right, I do think one can infer from the activities of Telco Edge at least a propensity to threaten to terminate if it thinks that it can improve its commercial position (in terms of obtaining some compensation from Ozefax for continued cooperation) by so doing.
Further, the undertakings offered by Telco Edge do not address the question of customer information, nor the related question of access to the web portal.
As to customer information, Telco Edge appears to maintain that it is entitled to the information in question as its own property. As I have indicated already, I regard that as a tenuous claim.
As to access to the web portal, it is Telco Edge's position that this is some unique and world-beating secret of its own. It expresses concern that any purchaser from Ozefax would seek access to the web portal so as to gain some insight into the business of Telco Edge and a market advantage to the detriment of Telco Edge.
I do not understand those fears, and the obscurity of the evidence has not assisted. It seems to me that the relevant information is not that relating to the design and structure of the web portal but, rather, the information that is stored in or using that portal. And it is that information which is the subject of dispute, and which is relevant to the intention of Ozefax to sell its business and assets.
Bearing in mind the very serious consequences of refusing relief, and what appear to me to be the minimal consequences of granting it, I think that there is, as between Ozefax and Telco Edge, a case for the grant of some relief. I will return to the particular terms.
As between Ozefax and Unifier2, the position is in some ways clearer, because Unifier2 has offered no undertakings. And yet it is clear, from the evidence, that once again there is a propensity to terminate, from which one could infer (and I stress that I do not draw the inference on the basis of the limited evidence available) that Unifier2 is attempting to manipulate the situation, or to manoeuvre, for its own commercial advantage.
As between Ozefax and Unifier2, the consequences of granting or withholding relief are essentially the same as they are between Ozefax and Telco Edge.
In the case of Unifier2, however, it should be noted that Mr White submitted that his client had not had sufficient time to prepare its case on the interlocutory application. He requested an adjournment. When it appeared that this would mean simply a deferral of the present dispute, I came to the view that it would be better to hear the application on the basis of such material as was available. I should note that Mr White was able to call Mr Nicholas Harriss, a director of Unifier2, and to adduce at least some evidence from him orally.
Nonetheless, I accept that there may be other matters that Unifier2 would wish to address. Accordingly, any grant of relief would be subject to the usual reservation of liberty to apply. That would protect the position not only in relation to matters which Unifier2 has not been able to put to the Court but also if (for example) some problem arose because Ozefax did not perform its obligations even on what it says are its version of the relevant terms of contract. I note that Ozefax offers undertakings to the court, including that it will continue to pay as (it says, on its view of the contracts) it is required to do.
The essential interests that seem to me to require interlocutory protection are three-fold. The first is protection of what Ozefax says is its confidential information. The second is preventing termination or suspension of service. The third (which arises because the definition of "services" in the summons and notice of motion does not include it) is access to the web portals.
It is unsatisfactory to be required to draft relief on the run. Accordingly, what I propose to do is to indicate what at present seem to me to be the appropriate orders (other than procedural orders) and to give counsel the opportunity to speak to them.
The orders that I propose to make are that until the further order of the Court each of the Defendants be restrained from, by itself, its servants, or agent, or otherwise:
1. Otherwise than for the purposes of providing the internet-based telecommunications services provided by it to the Plaintiff or to the customers of the Plaintiff, contacting any customer of the Plaintiff who uses or utilised those services or making any other use of or otherwise disclosing any information provided by the Plaintiff to that Defendant to enable that Defendant to provide its services to the Plaintiff or its customers;
2. Varying the terms and conditions upon which it provides services to the Plaintiff or its customers;
3. Terminating, withdrawing or suspending those services;
4. Terminating, withdrawing or suspending access by the Plaintiff or its customers to the web portal referred to at paragraph 30 of the affidavit of David Dixon sworn 1 October 2013 (in the case of the first Defendant) or paragraph 52 of that affidavit (in the case of the second Defendant)
(See transcript for discussion with counsel.)
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Decision last updated: 18 October 2013
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