Signal Telecommunications Pty Ltd v Vodafone Network Pty Ltd
[2000] VSC 509
•5 December 2000
| SUPREME COURT OF VICTORIA | |
| PRACTICE COURT | Not Restricted |
No. 7671 of 2000
| SIGNAL TELECOMMUNICATIONS PTY. LTD. | Plaintiff |
| v. | |
| VODAFONE NETWORK PTY. LTD. AND OTHERS | Defendants |
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JUDGE: | BEACH, J. | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 30 NOVEMBER 2000 | |
DATE OF JUDGMENT: | 5 DECEMBER 2000 | |
CASE MAY BE CITED AS: | SIGNAL TELECOMMUNICATIONS PTY. LTD. v. VODAFONE NETWORK PTY. LTD. AND OTHERS | |
MEDIUM NEUTRAL CITATION: | [2000] VSC 509 | |
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CATCHWORDS: Applications for interlocutory injunctions – Grant of plaintiff's injunction would require continuing court supervision – Plaintiff's application refused – Defendants' application granted.
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APPEARANCES: | Counsel | Solicitors |
For the Plaintiff | Dr. C.L. Pannam QC and Mr. J. Delany | Slater & Gordon |
| For the Defendants | Mr. Peter Jopling QC and Mr. Andrew Maryniak | Arthur Robinson Hedderwicks |
HIS HONOUR:
The plaintiff Signal Telecommunications Pty. Ltd. to which I shall refer as "Signal" is and has been a Vodafone Service Provider since 1997.
The second defendant Vodafone Pacific Ltd. (Vodafone) is a carrier under the Commonwealth Telecommunications Act.
The first defendant Vodafone Network Pty. Ltd. (Network) and the third defendant Vodafone Billing Services Pty. Ltd. (Billing) are subsidiaries of Vodafone.
Signal provides Vodafone services to customers using the Vodafone network. It also sells Vodafone mobile telephone service products to customers and is responsible for billing those customers and looking after their service requirements. Signal is paid commission and accounts to Vodafone for payments received.
The contractual relationship between the parties is evidenced by a service provider agreement entered into by Signal and Network. The agreement is dated 1 July 1998 and is for a term of five years with a five year option.
There have been two variations to the agreement since it was entered into by the parties – the first variation being in May 1999 and the second in June 2000. It is unnecessary to detail those amendments in these reasons.
On 21 July 2000 a new memorandum of understanding was executed by Signal and Billing. The understanding was intended to effect a restructure of the relationship between Signal and Vodafone which would result in a new Vodafone exclusive channel partner agreement and Signal selling to Vodafone the rights it was relinquishing under the agent service provider agreement.
In essence as from 1 August 2000 Signal was to cease its role as the provider of customer management services, was to continue as a retailer of Vodafone services but would not be involved in billing or providing services once a customer had signed up to use the Vodafone services.
It is the case for Signal that in order to effect the change a number of practical steps were required to occur, all of them being interdependent. Those steps included:
1.entry by Signal into a "channel partner agreement" appointing Signal a selling agent exclusively of Vodafone products;
2.arranging for the "migration" of customers from Signal's billing and customer management system to Vodafone direct;
3. finalising customer accounts and "cut-off" for billing; and
4.reconciliation of the financial relationship between Signal and Vodafone under the previous relationship.
Signal contends that it has been prevented from implementing the memorandum of understanding because the defendants:
1.have failed to procure the appointment of one of Signal's subsidiaries as a Vodafone channel partner;
2.have failed to provide for execution by Signal an exclusive channel partner agreement on the terms set out in the memorandum of understanding;
3. have failed to provide a base migration plan; and
4. have failed to provide a retention and upgrade package.
Signal says that although it has been in a position to effect the "migration" of customers from its billing and customer management system to Vodafone, it has not done so because Vodafone has failed and refused to provide a channel partner agreement as it was required to under the memorandum of understanding.
On 15 November 2000 Billing served a Notice of Termination of the July 1998 Service Provider Agreement (as amended) and Notice of Termination of the Memorandum of Understanding on Signal.
The Notice of Termination of the Service Provider Agreement alleges the following breaches by Signal:
"Signal has breached the Agreement including in the following ways:
1.Signal has engaged in conduct which, in Vodafone's opinion, has a prejudicial effect on Vodafone's business. Signal has not rectified this conduct within the period provided in the notice provided to Signal on 18 October 2000 (a Termination Event under paragraph (f) of the definition):
2.Second Level Breaches of the Agreement have occurred entitling termination under clause 3.3 of the Agreement, in particular:
(a)net connections per month have fallen below 1000 on more than one occasion during a six month period;
(b)gross connections per month have fallen below 2000 on more than one occasion during a six month period; and
(c)failure to deliver relevant Category A information within 5 days and failure to deliver relevant Category B information within 10 days in which that information was due to be delivered."
The Notice of Termination of the Memorandum of Understanding alleges the following breaches by Signal:
"Signal has breached the MOU including in the following ways:
1.Signal did not pay Vodafone $2 million on 7 September 2000 in accordance with clause 2(c) of Schedule 1 of the MOU. Signal has not rectified this conduct within the period provided in the notice provided to Signal on 14 September 2000 or at all.
2.By failing to make the payment referred to in 1 and by failing to rectify this failure within 5 days of the date on which Vodafone notified Signal of the occurrence of that conduct Signal has engaged in conduct which in Vodafone's opinion, has a prejudicial effect on Vodafone's business (a Termination Event under paragraph (f) of the definition).
3.Signal has engaged in further conduct which, in Vodafone's opinion, has a prejudicial effect on Vodafone's business. That conduct is identified in the notice to Signal of 18 October 2000. Signal has not rectified this conduct within 5 days of the date on which Vodafone notified Signal of the occurrence of the conduct (a Termination Event under paragraph (f) of the definition); and
4.Signal has not migrated the Subscriber Information in accordance with clause 3.1 of the MOU."
On 17 November 2000 Signal filed a writ in the Court whereby it seeks the following relief:
"(a)A declaration that the purported Notices of Termination and each of them is invalid and of no effect.
(b)An order restraining the Defendants and each of them from taking any steps or action in purported reliance upon the said Notices of Termination or either of them.
(c)An order Vodafone, Billing, Network and each of them specifically perform the MOU.
(d)An order restraining the Defendants and each of them, by themselves their servants and agents from taking any steps whether directly or indirectly:
(1)To notify Vodafone customers managed by Signal of the purported termination of the 1988 Heads of Agreement as amended and/or the MOU.
(2)To notify or advise any customers managed by Signal that management of such customer's account has been transferred to Vodafone.
(3)To approach the Signal dealer network or any members of the Signal dealer network or to advise or inform such persons or any of them;
(x)that the 1998 Heads of Agreement as amended has been terminated by Vodafone;
(y) that the MOU has been terminated by Vodafone;
(z)that Signal is in breach of the provisions of the 1998 Heads of Agreement as amended or of the MOU.
(4)In reliance upon the purported Notices of Termination or either of them."
At the same time it filed a summons in the Court seeking similar relief on an interlocutory basis to the trial of the proceeding.
On 22 November Billing filed a summons in the Court whereby it seeks the following relief:
"1.Until the hearing and determination of this proceeding, or further Order, the Plaintiff, by itself, its officers, servants or agents or howsoever otherwise be restrained from disclosing, using, modifying, altering, copying or otherwise dealing with the Third Defendant's Subscriber Information and the Business Records (including Subscriber Agreements) as defined in exhibit PB2 to the Affidavit of Peter Brown sworn herein
2.Until the hearing and determination of this proceeding, or further Order, the Plaintiff by itself, its officers, servants or agents or howsoever otherwise, deliver up, to the Third Defendant or its nominated agent all of the Subscriber Information and the Business Records (including Subscriber Agreements), including all copies thereof, as defined in exhibit PB2 to the Affidavit of Peter Brown sworn herein, in the possession, custody or control of the Plaintiff, its officers, servants, or agents."
In an affidavit sworn by Peter Brown on 21 November 2000 and filed on behalf of the defendants in opposition to Signal's application and in support of Billing's own application, Brown has made (inter alia) the following points on behalf of the defendants:
1. The obligation on Signal to "migrate" the customer database and the provisions in the memorandum of understanding in relation to the potential channel partner agreement are quite distinct obligations.
The subscriber information is confidential to and the exclusive property of Vodafone and must only be used by Signal for the purposes of the 1998 Heads of Agreement. (See clauses 7.4 and 14.1).
Upon termination or expiration of the Heads of Agreement Signal is required to use its best endeavours to assign to Vodafone any licences and any third party software comprising the billing system and immediately deliver up to Vodafone all the subscriber information and business records of Signal and where that is not practical to give to Vodafone access to the subscriber information and the business records and to take copies of them.
Under the memorandum of understanding Signal was required to migrate the information within a period of three months and has failed to do so.
2. Under the terms of the 1998 agreement Signal is obliged to give Vodafone an unrestricted right of access to its premises and business records including its billing system for the purpose of Vodafone auditing any aspect of the business of Signal and for the purpose of reconciling revenue allocated among the parties. (See clauses 5.4 and 12).
On 15 November 2000 and again on 17 November Signal refused to give Vodafone access to such information.
3. Under the 1998 agreement Signal was required to give to Vodafone what is described as a financial extract. The financial extract comprises an item by item description of financial information relating to each subscriber including such things as account number, mobile phone number, the amounts billed and when, the amounts paid by the subscriber and the amount outstanding from the subscriber.
Signal is also required to provide Vodafone with a customer extract which contains the name and address of each subscriber, the date of the connection of the subscriber to the network, the plan which has been agreed with the subscriber, and the handset type or types owned by the subscriber.
The last financial extract provided by Signal to Vodafone is dated 17 October 2000 and the last customer extract only incorporates information up to 30 September 2000.
4. The memorandum of understanding required Signal to pay to Billing the sum of $2m by 14 September 2000. It did not do so.
At the present time Signal's current indebtedness to Billing exceeds $6m.
5. As at 25 August 2000 Signal had failed to pay rebates and commissions to dealers which totalled in excess of $900,000.
On or about 8 September Signal agreed with Billing that it would verify to Billing payments it had made to dealers. It has not done so.
On 29 September a dealer named No. 123 Yes Pty. Ltd. served a statutory demand on signal in respect of a sum of $59,814.96 owed by Signal to it under its dealer agreement. On the 19th of the 21 days it had to make payment under the statutory demand Signal paid the debt. No. 123 Yes has now served another statutory demand on Signal with respect to a further debt.
Other dealers have complained to Vodafone concerning the non-payment by Signal of moneys owed to them by Signal.
The failure of Signal to pay its dealers has had a prejudicial effect on Vodafone because if they are not paid promptly dealers will be much less likely to promote Vodafone's products.
6. Signal has been and is attempting to sell a number of its stores. That too is prejudicial to Vodafone because it means that there are less stores selling Vodafone's products.
7. The appointment by Vodafone of Signal (or a third party nominated by Signal and approved by Vodafone) as a Vodafone channel partner has not occurred because Signal wishes to use a new entity to be formed for the purpose, thereby leaving Signal's current indebtedness to Billing in Signal.
Billing already has concerns about Signal's ability to pay its debts as and when they fall due. If Signal's business operations were transferred to another entity Signal would have no cashflow and Billing would have no prospect of ever being paid its substantial outstanding debt.
Signal already has given a fixed and floating charge over its asset to the A.N.Z. Bank. It is unlikely the A.N.Z. Bank would approve such an alteration to its business structure.
8. There is no obligation on the defendants to provide a "retention and upgrade package" or a "base migration plan to Signal". In any event following a meeting of representatives of the parties on 4 August 2000 an outline of Vodafone's standard retention and upgrade package was faxed to Signal.
The following is Signal's response to those points:
1. The whole arrangement between Signal and Vodafone was premised upon there being a channel partner agreement between them. That much is clear, so it is said, from the provisions of the guarantee and indemnity given to Vodafone by Signal's parent company Nomad Telecommunications Limited and dated 4 September 2000. See exhibit PB6 to the affidavit of Peter Brown sworn 21 November 2000.
Until such time as that occurs there is no obligation on Signal to "migrate" its customer data base.
2. It is correct to say that on 15 November and 17 November Signal refused Vodafone access to its premises and to the subscriber information in them. It contends that having received notices of termination of the 1998 heads of agreement and the memorandum of understanding when it was not in breach of either agreement, justified its attitude at that time.
3. It has not been physically possible for Signal to provide the information in question on the dates specified in the 1998 agreement. That is one reason why the parties agreed to transfer the billing and customer management function from Signal to Vodafone.
4. It was unnecessary for Signal to pay Vodafone $2m on 7 September 2000 because Vodafone had already appropriated such funds to itself on 15 August 2000, funds which should otherwise have been paid to Signal.
Signal has no current indebtedness to Vodafone. When all moneys owing between the parties are set off and reconciled, the fact is that Vodafone owes Signal in excess of $1.5m.
5. Signal has complied with the requirement of clause 6 of the memorandum of understanding so far as payments to dealers are concerned. Any amounts presently outstanding to dealers are not significantly greater than amounts outstanding to the dealer network from time to time over the last year. To the extent that there have been delays such delays have been caused because the amount which Vodafone has been setting off per customer for the cost of management equates to $9.50 per account rather than the $2 stipulated in the memorandum of understanding.
The amount owing by Signal to 123 Yes was disputed. A lesser amount was agreed upon and paid by Signal.
6. There is no obligation on Signal or its parent Nomad to operate or maintain a particular number of stores. Some of the stores previously operated by a subsidiary of Nomad have simply become joint venture outlets between that subsidiary and Hewlett Packard. Those stores will continue to be Vodafone dealers in addition to selling Hewlett Packard products.
7. Signal has always been prepared to negotiate the terms of the Channel Partner Agreement and is agreeable to remain the contracting party with Vodafone.
8. The retention and upgrade package is necessary to enable Signal to deal with customers whose mobile telephone plans have or are about to expire so as to enable Signal and its dealer network to offer those customers new mobile telephone plans or to continue with their existing plans.
The base migration plan is required to enable Signal to work out in a practical manner how customers are to be moved from the Signal billing system to the Vodafone billing system.
In reply to Signal's response to Vodafone's contentions Vodafone has filed an affidavit sworn 30 November by its Manager, Partner Finance, Fleur McDonald replying to a number of the matters relied upon by Vodafone. The following are the remaining points of significance made in that affidavit:
1. That exhibit AWW-A to the affidavit of Arthur William Wood sworn 28 November which demonstrates that on 15 August 2000 Vodafone withheld $2,102,545 from Signal, is very misleading in that it summarises amounts owing to Signal but ignores all amounts owing by Signal to Vodafone including bad debts, amounts collected by Nomad stores and payable to Vodafone and what is described as "clawback and churn KP1".
McDonald has sworn that the total of those amounts exceeded the amounts claimed by Signal and there has been no offset of the sum of $2m due on 14 September.
2. Vodafone does not owe Signal the sum of $1,592,944 appearing in exhibit AWW-D to Wood's affidavit of 28 September. At the present time Signal owes Vodafone in excess of $6m.
In enumerating the points made by the parties in the manner I have I do not wish to imply that those are the only issues raised by them in the proceeding. However, I consider that they do identify the substance of the dispute between them.
Having considered all the material before me and the submissions of counsel in the matter I have arrived at the following conclusions:
1. At this point there has been an irretrievable breakdown in the relationship between the parties, so much so that it is difficult to see them working together in a spirit of co-operation hereafter. Vodafone is clearly of the view that Signal is insolvent or almost so and that it will never be able to satisfactorily comply with the financial obligations imposed upon it by the1998 agreement and/or any new channel partner agreement.
2. Because of the matters I have adverted to in point 1, I consider any injunction granted by the Court might well require constant supervision by the Court over a protracted period of time.
In that regard I think it is useful to bear in mind the words of Southwell, J. in Dataforce Pty. Ltd. v. Brambles Holdings Ltd.[1] At p.783 his Honour said:
[1][1988] V.R. 771
"It has often been said that the courts will not grant specific performance of a contract which may require the continuing supervision of the courts. I refer again to Astor's Case, at p.428. I believe this to be such a contract and that the words of Macfarlan J. in that case are apt. If the relationship is, as other parties concede it is and has been for about two months sour and distrusting, what chance is there, firstly, of developing the harmony to which I have referred and, secondly, being able to manage without the Court's supervision? I believe very little. Who is to decide whether a 'hiccup' in the system is to be properly so labelled, or whether it should more accurately be described as an inexcusable error?"
3. It is strongly arguable that the migration of subscriber material was interdependent upon Vodafone entering into a channel partner agreement with Signal or with a third party nominated by Signal and approved by Vodafone.
In the first place commonsense would dictate that that was the understanding between the parties. I find it very difficult to accept that in the situation it was in at the time the memorandum of understanding was executed, Signal would have been prepared to agree to migrate the material, albeit the material being the property of Vodafone, until such time as it had secured its position for the future, that is by entering into the new agreement. Otherwise it could have been left in the situation where having migrated the material, it had no agreement.
Further the terms of the memorandum of understanding would support Signal's contention in that regard.
Pursuant to the provisions of clause 4.1 of the memorandum of understanding Signal's appointment as Vodafone's agent was limited to the performance of the customer management function in respect of subscribers as from 1 August 2000.
Pursuant to the provisions of clause 5.1 Vodafone was to procure the appointment by Vodafone of Signal as a channel partner as from 1 August 2000.
Yet migration of the subscriber material was only to be done within three months from the date of the memorandum of understanding which was 21 July 2000. That would have been 22 October.
If things had gone as planned by the parties the new channel partner agreement would have been in place well before Signal was obliged to migrate the material.
And so as I said a moment ago I consider that it is strongly arguable that the one event was interdependent on the other.
But the arrangement fell apart because until after the service of the termination notices on or about 15 November and the institution of this proceeding on 17 November, Signal had maintained its position that a new company be incorporated to enter into the agreement. It is only now that Signal has changed its attitude in that regard.
For the reasons put forward by Vodafone and which I have outlined in point 7 of the matters relied upon by it, I think that it is strongly arguable that in refusing to agree to such a proposal it cannot be said that Vodafone acted unreasonably in the matter.
4. It is strongly arguable that in failing to make the $2m payment on 7 September 2000 Signal breached the terms of the memorandum of understanding thereby giving Vodafone the right to serve notices of termination on it.
Signal maintains that it was not required to pay the $2m because in August Vodafone had wrongly withheld from Signal moneys totalling $2,102,545.
Exhibit AWW-A to Wood's affidavit of 28 November indicates that those moneys were withheld as from 15 August. Yet on 7 September 2000 Wood sent an email to Vodafone explaining in it the reason why the $2m was not being paid that day. The relevant paragraph in the email reads:
"We will not be making the $2.0m payment today. This payment will be made out of funds raised through the equity investment which is on track but not yet to hand."
If Vodafone had been wrongly withholding large sums of money from Signal as long ago as 15 August surely that fact would have been obvious to Wood by 7 September and relied upon by him as the explanation for failing to make the payment.
For those reasons I am not persuaded that it is appropriate to grant the injunctive relief now sought by Signal.
Further if my views in relating to the matter are subsequently found to be erroneous it is my opinion that if Signal subsequently succeeds in the proceeding it would be adequately compensated by an appropriate award of damages.
I turn then to Vodafone's cross-application.
The subscriber material in question is clearly the property of Vodafone.
By reason of the termination of the relationship between the parties there will be some 75,000 subscribers to the Vodafone Network which will very rapidly become dissatisfied with the system.
In that situation and upon Vodafone giving the appropriate undertaking as to damages I propose to order that Signal now migrate the subscriber material to it. I make the following orders in the matter. I order that:
1. The plaintiff's summons filed 17 November 2000 be dismissed.
2.Until the hearing and determination of this proceeding, or further Order, the Plaintiff, by itself, its officers, servants or agents or howsoever otherwise be restrained from disclosing, using, modifying, altering, copying or otherwise dealing with the Third Defendant's Subscriber Information and the Business Records (including Subscriber Agreements) as defined in exhibit PB2 to the Affidavit of Peter Brown sworn herein
3.Until the hearing and determination of this proceeding, or further Order, the Plaintiff by itself, its officers, servants or agents or howsoever otherwise, deliver up, to the Third Defendant or its nominated agent all of the Subscriber Information and the Business Records (including Subscriber Agreements), including all copies thereof, as defined in exhibit PB2 to the Affidavit of Peter Brown sworn herein, in the possession, custody or control of the Plaintiff, its officers, servants, or agents."
4. The plaintiff deliver its statement of claim on or before 12 December 2000.
5.The defendants deliver their defences and counterclaims, if any, on or before 29 December 2000.
6.The plaintiff delivers its reply and defence to counterclaim on or before 15 January 2001.
7.Subject to any order of the trial Judge to the contrary the trial of this proceeding be by affidavit.
8.I order that the plaintiff file and serve any further affidavit on which it intends to rely on or before 1 February 2001.
9.I order that the defendants file and serve any further affidavits on which they intend to rely on or before 16 February 2001.
10.I refer this matter to the Listing Master to enable a date for the trial of the proceeding to be fixed after 16 February 2001.
11.I order that the plaintiff pay the defendants' costs of the applications including any reserved costs.
12.I direct that this order be prepared by the solicitors for the defendants and be brought to me within 72 hours for authentication.
13.I order that within seven days of its authentication a copy of the order be served on the Associate to the Listing Master.
14.I authorise any Master of the Court to vary any of the times stipulated in paragraphs 4, 5, 6, 8 and 9 of this order.
15. I reserve to the parties liberty to apply.
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