Simon Richards Group Pty Ltd; v Ad Systems Pty Ltd - [2002] FMCA 202

FEDERAL MAGISTRATES COURT OF AUSTRALIA

SIMON RICHARDS GROUP PTY LTD
v AD SYSTEMS PTY LTD

[2002] FMCA 202

TRADE PRACTICES – Misleading and deceptive conduct – section 51A Trade Practices Act 1974 – reasonable grounds.

CONTRACT – Repudiation – damages.

Trade Practices Act 1974, ss 51A, 52, 53A, 53AA, 53C

Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337

Applicant:

SIMON RICHARDS GROUP PTY LTD

Respondent:

AD SYSTEMS PTY LTD

File No:

MZ 204 of 2001

Delivered on:

11 September 2002

Delivered at:

Melbourne

Hearing Dates:

10, 11, 12 and 13 September 2001

Judgment of:

McInnis FM

REPRESENTATION

Counsel for the Applicant:

Mr P Clarke

Solicitors for the Applicant:

Harwood Andrews

Counsel for the Respondent:

Mr McDonald

Solicitors for the Respondent:

Philip Jones & Co

ORDERS

The counter-claim filed 26 June 2001 be dismissed.
The respondent shall pay to the applicant damages in the sum of $46,650.
The respondent shall pay the applicant’s costs including reserved costs if any.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
MELBOURNE

MZ 204 of 2001

SIMON RICHARDS GROUP PTY LTD

Applicant

And

AD SYSTEMS PTY LTD

Respondent

REASONS FOR JUDGMENT

Simon Richards Group Pty Ltd (the applicant) by further Amended Statement of Claim filed 11 September 2001 claims damages against Ad Systems Pty Ltd (the respondent) arising out of a contract between the parties entered into on 28 April 1999 for the supply to the applicant of computer software known as AMPs software (the software) together with associated installation, configuration, training and other support services.
It is not in dispute that there was a contract between the parties and that the total licence fee payable pursuant to that contract was $59,500.
The claim has been made by the applicant against the respondent for breach of terms of the contract and/or breach of representations said to be misleading or deceptive or likely to mislead or deceive contrary to ss.52, 53A, 53AA and 53C of the Trade Practices Act 1974 and/or that representations were made and that the respondent did not have reasonable grounds for making the representations pursuant to s.51A of the Trade Practices Act.
The applicant claims damages for breach of contract and the conduct and contravention of the Trade Practices Act of $41,650 being the amount paid under the contract to the respondent and $28,525.87 being the cost of the applicant’s employees time in entering data for use by the software and attempting to make the software work and also by re-entering data in the applicant’s earlier accounting software system.
It is claimed further that the consideration of payment of the sum of $41,650 had failed and that the respondent had and received that sum to the use of the applicant.
The respondent by counterclaim filed 26 June 2001 relies upon the contract and claims that there was an obligation pursuant to that contract for the applicant to pay to the respondent a total licence fee of $59,500. It is claimed that the respondent at all times was willing to complete the installation of the system but that the applicant had refused to proceed with the process and in breach of the contract the applicant had repudiated the contract. The respondent therefore in the counterclaim seeks the balance of the total licence fee namely $17,850.
In its defence to the counterclaim the applicant asserts that the respondent had repudiated the contract and the repudiation had been accepted by the applicant and otherwise denies allegations set out in the counterclaim which relate to difficulties in completing the installation process to which more detailed reference will be made in the analysis of the evidence.
By way of background the applicant is described as a “integrated relationship marketing communications agency”. Hence it was interested in what was described as a tailor made software program of the respondent which had been designed or marketed for use of companies engaged in the advertising industry.
There is no dispute that the applicant had decided to change its software which it had been using in the conduct of its business including job costing and accounting systems.
In essence the applicant claimed that the critical features of the contract together with assurances allegedly received prior to entering into the contract were that the system and its operation would be reliable, functional and would not require support.
In general terms it is claimed by the applicant that between 1 October 1999 when the new system was to come on line and 19 November 1999 there were a number of difficulties with the system or the commission of the system. By 18 November 1999 the contract between the parties had come to an end and there is dispute of course about who had repudiated the contract. The 18 of November 1999 was significant as it is said by the applicant that after a number of difficulties had occurred prior to that date which are referred to as “error logs”. The system on that date “crashed”.
Voluminous material was tendered of emails passing between the applicant and the respondent and an attempt throughout the trial was made to identify those documents which were particularly relevant.
It was claimed by the applicant that the software did not function according to the requirement, that it did not have the specified enhancement and essentially did not operate on the applicant’s system. System errors were not corrected then by the respondent as they became known. It was claimed that there was an average of three or four problems each day from the time the applicant commenced using the software. Examples of the problems encountered including inability to print job cost reports, inability to save timesheets and various other problems.
It was claimed that a tension developed between the parties whereby the applicant on the one hand was not satisfied that errors were being resolved, where it was then claimed that the respondent found that the attention devoted to this project rendered it unprofitable and according to the applicant the respondent indicated it was not prepared to make changes in the system simply to accommodate the applicant.
Ultimately the relationship broke down and the contract terminated, though as indicated there is dispute about who repudiated the contract. The applicant’s contention is that the conduct of the respondent on

18 and 19 November 1999 amounted to repudiation in that the respondent evinced an intention not to be bound by the contract not to continue with it and the applicant then accepted that alleged repudiation. This was of concern it was claimed by the applicant as the contract had provision for a support and maintenance component with a fee of 20% of the licence fee being $11,900 for the first year.

The Evidence

The Applicant

Jozsef Fekete

Mr Fekete adopted a statement made by him dated July 2001. From January 1998 to April 1999 he was the Group Finance Director of the applicant. He is a qualified accountant and his responsibilities as Group Finance Director of the applicant included preparation of the accounts and general responsibility for maintenance of the accounting and other financial records. The Manager or Supervisor of the Intellectual Technology Department of the applicant reported to him and for the purpose of this application that was a Mr Shane Jackson and Mr Ian Penney.
When he commenced employment with the applicant the accounting software used was known as the “Clients and Profits” system which he said was an American software system. It was decided to review the system to improve accounting and job costing and related matters in relation to financial reporting and the recording system. Mr Fekete was responsible for negotiations which took place between the applicant and the respondent. He had considered the system offered by the respondent which was known as the “AMPs system”. Mr Terry McMillan of the respondent gave him a document entitled “System Outline” (part of Exhibit A1). He relied on this document in determining whether or not to use the respondent’s system. He believed at the time based on the material in the System Outline that the respondent's system had the advantage of being supported in Melbourne by the respondent while the current “Clients and Profits” system of the applicant was not supported locally.
At his request a functionality analysis was performed by Ernst & Young and that analysis was subsequently incorporated into the contract in order to reflect what the AMPs system was able to deliver for the purposes of the applicant. Before entering the contract after discussions with Mr Terry McMillan of the respondent Mr Fekete believed that it was intended to run the AMPs system in parallel with the Clients and Profits system from June 1999 until 1 July 2001. Mr Fekete claimed in his statement that he was not informed by the respondent that the AMPs system would not be capable of operating on the applicant’s computer system. He believes raising with Mr McMillan concern that some of the modules on the AMPs system were DOS system whilst the applicant’s system operated on Windows software. He claimed that Mr McMillan informed him that although some of the modules on the AMPs system were DOS based, by the time it came to implement the AMPs system all major modules of the AMPSS system would be Windows based with the entire system being Windows based by the end of 1999 or early 2000. He was advised by Mr McMillan that the respondent had people working on the conversion of the modules in both Singapore and Australia.
Under cross-examination he agreed that he contacted some of the clients of the respondent which had been referred to in the System Outline and checked to see what they thought of the system offered by the respondent. He agreed that he received a positive response.
He agreed that he understood that the support provided in the contract would be by means of the use of a modem and a remote connection to the computer system together with phone support. Attendance by the respondent would be dependent on the nature of the problem to be fixed, according to Mr Fekete.
Mr Fekete agreed that the respondent’s personnel did not check each of the personal computers on the desks of the applicant.

Ian Campbell Penney

Mr Penney was employed by the applicant as the Desktop/Network Co-ordinator. He had been employed by the applicant for a total period of approximately 2.5 years and holds tertiary qualifications in Applied Science and Computing. In his statement which was adopted he described his job as looking after intellectual information technology support for the AMPs system used by the applicant. From September 1999 he was responsible on an almost full time basis “readying the applicant’s technology system for the year 2000 and for the introduction of the AMPs system to be installed for the applicant by the respondent”.
Mr Penney agreed that he had seen Schedule C of the contract and was aware of the computer hardware and network requirements for the AMPS system and formed the opinion that the applicant’s system would be capable of meeting the requirements. He knew that the AMPs system was to replace the existing “Clients and Profits” system. He was involved in trialing the AMPs system before it “went live”. In the course of performing his role in the implementation of the AMPs system he became aware of what he regarded to be a problem in that the AMP’s system operated on a 16 bit DOS or Windows application running on a 32 bit Windows 95, 98 and NT which were the applicant’s operating systems. The AMPs system used a large amount of memory according to Mr Penney which required upgrade of the RAM memory on certain computers to have sufficient memory to operate the AMPs system together with other software. He claimed that during the course of implementation it became apparent that the AMPs system would continue to crash even with the additional memory. He had formed the view that the reason for the crash appeared to be memory related problems. Errors kept emerging through September 1999 in the AMPs system which he believed to be caused in that system rather than the applicant’s computer system or other programs. The type of problem encountered had not occurred when simply operating the Clients and Profits system. The problem with AMPs system was one of crashing. He would then take a “screen dump” of the computer screen at the time of the crash which he would then send to the respondent with the AMPs error logs by email. He claimed it was not always possible to obtain a screen dump from the computer which had crashed. A selection of email documents was produced as Exhibit A4. Throughout the time when emails were forwarded he claimed that he did not receive a request from the respondent to provide Mr McMillan with “dial-on access”. Mr Penney then gave evidence in relation to selected emails to describe the various problems that had arisen. The emails contained a number of errors but Mr Penney indicated that that was not necessarily the bulk of the errors as a lot of people did not let him know when problems occurred. In any event the errors were conveyed to the respondent by email and sometimes by telephone. When problems arose in relation to the system Mr Penney would advise staff accordingly. This was important as it may affect the billing, timesheets and costings.
Mr Penney produced a diary note of a telephone conversation with Mr McMillan on 18 November 1999. His note attached to the statement referred to a statement from Mr McMillan who had said something like, "As you are the AMPs Project Manager I need to inform you that because of lack of commitment at SRG to the project we feel that the only option is to cancel the project”. Mr Penney in the note of the telephone conversation states that he told Mr McMillan that he was not the Project Manager and ultimately referred to Lee Ward. He asked Mr McMillan for the reasons for his action and was told by Mr McMillan that SRG had a number of times deferred the project and changed its mind regarding the composition of the master files and asked for many changes to the master files since the start of October and had not provided stable hardware and network platform and not provided the respondent with a “dialin” access to the network as requested. In his evidence Mr Penney indicated his impression from that conversation was that Mr McMillan was cancelling the contract.
On 19 November 1999 Mr Penney along with Ms Lee Ward and Sarah Musgrave of the applicant and Terry McMillan of the respondent had a meeting at the applicant’s premises. According to the note which was also exhibited to Mr Penney’s statement reference was made to the telephone conversation of the preceding day between McMillan and Penney and there was some initial conversation about postponing AMP’s implementation from 1 October to which McMillan stated if that happened then he would cancel the project as he was “sick of all the delays and that it was not the way that his company worked”. McMillan then went through a list of problems which he believed showed a lack of commitment from the applicant to the respondent’s implementation which led to the feeling that the project should be cancelled. This included numerous meetings, postponement of implementation on two occasions, delaying the sending of master files, issues in relation to structure, changes in master files, decisions to “go live” being reversed, personnel leaving the applicant company, no remote dial in facility, provision of an unstable server and lack of commitment by the applicant to rectify the situation. A note of the meeting refers to McMillan pointing out that the “final straw was a second email” sent to him by Penney that day reporting an error message. The note records “Consensus that Terry and his team, Sarah and myself had all worked well together in tracking of error messages”. The note records when McMillan was asked what he wanted, there was some discussion and reference to McMillan’s telephone conversation wanting to cancel the contract the day before meant the relationship between the parties had broken down. Ward was recorded as saying to the meeting that there had been no warning from McMillan in that if the applicant did not do certain things then the contract would be cancelled. McMillan was then advised that the applicant would be moving back to the Clients and Profits system and he said his company would help to ensure smooth transition.
In his evidence Mr Penney said at the meeting on 19 November 1999 there was no mention of a breach of contract by anyone.
Under cross-examination Mr Penney agreed that he had a limited role from late April to early May when he first became involved in the AMPs implementation. He described the problems with the system running out of memory which led to the need referred to earlier to increase the amount of memory but did not regard that as a criticism of the AMPs system but rather that he wanted to get better functionality out of the system. He agreed that there was a slowing down of the AMPs system when it referred to “crash”. He was using it to refer to the AMPs system “not responding any longer”. This included ‘freezing’. He indicated that he had never noticed this problem with the Clients and Profits system.
Mr Penney indicated in cross-examination that the respondent had a login and password that they could use within the building occupied by the applicant. After 24 September a login was available for dialin but the modem was switched off for security reasons. He did not recall sending an email to the respondent advising them of the remote access. He agreed that he was actually loading upgrades from the respondent on the system rather than it being done remotely by the respondent. Mr Penney indicated that because he is not a programmer he was not qualified to answer questions concerning the cause of errors.
He reiterated that he thought he had advised the respondent that there was remote access and also mentioned that the respondent was only approximately two kilometres away from the applicant’s premises or probably “a five minute drive in the car”.

Lee Meredith Ward

Ms Ward adopted a statement and gave evidence. She is the Chief Finance Officer of the applicant and had commenced employment in September 1999. She is a qualified Chartered Accountant. By the time she commenced employment with the applicant it had already engaged in the implementation of the AMPs system of the respondent and she together with Mr Laurie Smith had responsibility for the implementation of that system. She described the duties of other staff in relation to the implementation and noted that Mr Smith had left the applicant’s employment on 15 October 1999. In her statement Ms Ward states that it was matter of “critical importance for the applicant that the AMPs system would be reliable and perform the functionality requirements as contained in the contract between the applicant and the respondent.” According to her, the AMPs system was a complete accounting and job costing package which was intended to replace the existing ‘Clients and Profits’ system of the applicant.
When the system “went live” in October 1999 information was progressively keyed and coded on to the system. The applicant conducts its business in the advertising industry and accordingly needs proper recording of time to enable costing of the various jobs for its clients. She noted that on 18 November 1999 she was advised of a conversation between Mr Penney and Mr McMillan of the respondent where it was indicated the respondent was not prepared to proceed further with the implementation of the AMPs system and that it was intended to cancel the project. She was informed that McMillan had blamed the applicant for delays in the implementation of the AMPs system. Ms Ward convened a meeting the next day as she was concerned that deciding not to proceed with the installation meant that Mr McMillan was placing the applicant in a difficult position regarding the financial management of its business. She otherwise confirmed what had been recorded by Mr Penney in relation to the meeting the next day. She believed that as a result of that meeting and the report of the earlier telephone conversation that the respondent was no longer wishing to undertake its obligations under the contract with the applicant and consequently believed that the only option available to the applicant was to return to its Clients and Profits system.

In her evidence Ms Ward confirmed that there had been problems with the AMPs system as at 18 November 1999. She gave evidence that there was approximately 130 staff employed by the applicant which comprised approximately 5 companies with two main operating companies. Hence the records are significant as they sometimes operate more than one cost centre within the profit centre.
Ms Ward arranged after the meeting of 19 November 1999 to re-code and re-key data on to the Client and Profits system. She gave evidence that the costs associated with that process amounted to $28,525.87 and provided a breakdown of those costs according to each employee whose time had been allocated to the project. She did indicate that she had made her own note of the meeting of 19 November and insisted on Mr Penney and Ms Musgrave making their own independent notes without consultation after the meeting.
Under questioning Ms Ward agreed that Mr McMillan at the meeting on 19 November had raised several matters of concern.
Ms Ward acknowledged in cross-examination complaints that Mr McMillan included the lack of provision of a remote access and change of personnel of the applicant company. She agreed that from the date of a meeting following 4 November 1999 it was clear that remote access had not been provided. Though subsequently she claimed emails demonstrated that the remote access would be provided and referred to an email dated 24 September 1999. She agreed however that email did not actually indicate that access was being provided but rather raises the issue of agreement being reached that it would be provided.
Ms Ward agreed that the contract terms required a representative of the respondent to be on site for 20 days and that this had been exceeded for the purposes of installation.
Under cross-examination Ms Ward indicated that she thought Mr McMillan was not going to continue with the project and that it did not seem to possible to resolve the issues between them. She did not think that the applicant could afford to be in a position where she had four weeks of transactions to go back to and need to use the old system. She did not believe she could change Mr McMillan’s’ mind even though she thought that they were trying to work through the issues between them. At the meeting on 19 November she could not see the matters being resolved.
Ms Ward was shown a copy of an email dated 23 November 1999 from Mr McMillan addressed to Ms Ward outlining Mr McMillan’s position and referring to the meeting of 19 November. Issues were summarised which have been previously referred to and the email otherwise contained the following:
“In our meeting last Friday, I expressed the our view that unless these key issues were resolved then AMPs could not fulfill SRG’s requirements and that it would not be in the best interests of both SRG and Ad Systems to not proceed with the project.
Your response was that the relationship between SRG and Ad Systems had deteriorated to a point that you did not believe the problems could be resolved, and that there was no point in attempting to continue with the project. I committed to assisting SRG in whatever way possible in the process of converting back to your previous system.”
Ms Ward remembered the email and indicated she did not reply to that email. She denied however that she did not reply because she had decided not to proceed and stated that she was quite “taken aback by the email because it put quite a different slant on the meeting and what had transpired than what I had – my own interpretation of the events that I hardly knew where the begin to address any of these things. It was just not consistent with my own understanding and in any case it was simply setting out the history of what had gone before which I hadn’t been involved in and I had no control over”.
When cross-examined about the quantum Ms Ward conceded that the claim in relation to the amount of $28,528.87 was in part for works completed prior to 19 November 1999. She agreed that $22,000 out of the $28,000 relates to activities prior to November and stated that the document was a “best estimate based on discussions with the accountant who was supervising the staff”. She stated, “We couldn’t be precise”.

Sarah Musgrave

Ms Musgrave adopted a statement which she had made dated 24 July 2001. She is a financial accountant employed by the applicant and responsible to Ms Lee Ward. She is a certified practising accountant with appropriate qualifications. She first joined the applicant in August 1999 and from September 1999 became involved in the implementation of the AMPs system. She was working with Mr Laurie Smith on that system preparing to load data on to that system after it became “live” from October 1999.
She claimed that problems occurred with printing and the set up in general from October 1999 in relation to the AMPs system. If problems were technology based then they would be referred to Mr Penney and she would also deal directly with the representatives of the respondent and in particular a Mr Philip de’Harcourt who had attended the applicant’s premises to refer to error messages appearing on computer screens after the AMPs system went live in October 1999. One example she recalls is the system could not process a request for a “month end” at a time when the month end processing was not in fact taking place. She believed there were a number of difficulties being experienced with the AMPs system which resulted in frequent error messages being received and crashes on the applicant’s computer system. She understood that copies of screen dumps and emails would then be sent usually by Mr Penney to the respondent.
Ms Musgrave attended the meeting on 19 November 1999 with Mr McMillan, Ms Ward and Mr Penney and made notes during the course of that meeting which she converted to a typed account. In her typed version of the meeting she states, “Lee commenced the meeting by asking Terry to explain what his concerns were that led him to cancel the contract”. That typed reference does not appear in the handwritten note which was attached to the witness’s statement.
She recalls that after 19 November 1999 the applicant had to return to its Clients and Profits system and she supervised labour employed to undertake that task. At that time the applicant was considerably behind in its normal billing cycle as she said it was usual for two departments of the applicant to commence billing in the last week of the billing month, that is 23 October 1999 with the balance of the departments undertaking their billings at the commencement of the subsequent month, that is November 1999. She claimed that at the time of the 19 November 1999 meeting some billing had commenced using the AMPs system but for the sake of the applicant’s financial records and accounts it was necessary to urgently re-load the relevant data on to the Clients and Profits system.
In her evidence in chief Ms Musgrave referred to various emails which were consistent with her knowledge of the difficulties with the AMP’s system. Selected emails were tendered.
She indicated that she recalled reference to the cancellation of the contract at the meeting and that those words were used during the meeting by Ms Ward as they appeared in the typed version to which reference has been made. She indicated that when Ms Ward asked Mr McMillan his concerns he did not say anything like, “I haven’t cancelled the contract” or words to that effect. Under cross-examination she confirmed that the handwritten note simply said “Cancel contract – concerns – mutual benefit to cancel”. She indicated that she did not remember Mr McMillan saying, cancelling”.
She denied that when an error was reported someone from the respondent would fix it. She claimed that they were having a lot of problems printing in jobs and the system would just disappear and you would get an error message and I thought it had been fixed when a new version was loaded on for the applicant.
Whilst she admitted under cross-examination that you would expect some problems to occur with a new system, she was concerned about the error messages and the number of times that her screen just “disappeared”.

Eric Carl Thomas Kesser

Mr Kesser prepared an expert report dated July 2001 and a further selection of emails referred to in that report. In his report he analysed the errors from the email messages which of course included a screen dump. He had indicated to the court that he is a principal of Ernst & Young and has a speciality in Information Technology Assurance and Advice. No issue was taken in relation to his qualifications or expertise set out in his report.
After an analysis of the available documentation he concluded in his report that the problems experienced by the applicant with the respondent’s system in 1999 was fundamentally caused by “a lack of robustness in the AMPs system itself; and poor project management and control of the AMPs system installation and configuration at SRG in 1999”.
He added in his report, “While the lack of remote access to the SRG systems by Ad Systems would have made support a little more difficult this neither was a cause of the errors nor did it prevent Ad Systems from providing a suitable level of support”.
In evidence he expressed the view that the process of actually installing the system files and making changes were necessary to the system of files was ill-managed. He said that process is normally the responsibility of the vendor.
During the course of his evidence he elaborated on the report in relation to errors occurring on 12 November. He said, “The general protection fault at the time was a common error that occurred with applications that were run on Windows operation systems. In this case there were several errors of the AMPs systems application which generated a general protection fault. In general the error represents a problem with the management of the systems memory.” He went on to say that what causes general protection faults is running an application with insufficient resources such as memory or CPU speed or hard disk drive capacity. He noted no concern was raised by the respondent or any other party that the specifications for hardware of the applicant had not been met. He concluded that the general protection faults (GPF) related to a fault in the AMPs programs and files themselves.
He explained the meaning of “lack of robustness” in his evidence as follows:
“Given the documentation of the errors which occurred, it illustrated to me that there were some fundamental I guess or some potential weaknesses in the structure of the AMPs design and application itself”.
He further added that any changes to the applicant’s project management staff were not directly the cause of any technical errors which occurred.
Under cross-examination Mr Kesser explained the selection procedure undertaken by Ernst & Young to take into account whether the system was a robust system or not. He said,
“The process of which Ernst & Young went through in selecting or aiding Simon Richards Group to select was based on a generic functional list of systems, of which we asked the vendors or vendor in this case to respond accordingly. The responses that came back from that questionnaire were not tested in any form. There was also comment in our report in regards to some concern about the technology or the programming language which was being used at the time to program the AMPs applications.”
Further under cross examination Mr Kesser agreed that if there was a constantly changing data base system then that wouldn’t necessarily relate back to the time of installation. He agreed that problems could arise with people trying to download data from one system and attempting to backload into another system if it is not compatible. He agreed that his criticism involved problems subsequent to the initial installation with upgrades and corrections made to the system when he referred to there being no adequate control to ensure that you did not end up with multiple systems running. He indicated in evidence that you would expect the vendor to have good documentation and guidance in terms of how systems are to be installed.
During the course of cross-examination he was questioned closely about numerous errors and in particular in referring to an error on 17 November said, “The error message indicates to me that the way in which the AMPs application was at the time managing the changing of system variables had a problem. It may not necessarily have been related to systems actually running out of memory but more the way that that memory was being managed”.
Mr Kesser conceded that there appeared to be delays in the installation schedule based on correspondence which he had viewed.

Respondent’s evidence

Terence George McMillan

Mr McMillan adopted a statement made by him on 27 July 2001.
He is the Managing Director of the respondent. He referred to AMPs as the market leader in advertising agency specific systems in Asia. Since 1980 he has worked as an employing consultant to over 100 advertising agencies in the Asia Pacific region. He referred to the background negotiations between the applicant and the respondent leading to a letter of proposal for the installation of the AMPs system dated November 17, 1998 and he confirmed the contract to which reference has already been made. He explained the process of tasks in creating a master file information for implementation of the system and referred to meeting with Mr Laurie Smith of the applicant who he later found was a contractor working on a temporary basis for the applicant.
Mr McMillan in his statement recited details in relation to the exchange of emails and concern about no feedback being received in relation to testing in May 1999. He then met with Mr Smith and Ms Brown of the applicant in August 1999 in relation to the installation of the system and agreement was reached that October 1, 1999 would be the “go live date”. He recited the process for loading the updated version of the AMPs system on the applicant’s network and claimed that in September 1999 at a meeting with representatives of the applicant he expressed concern about the implementation and indicated that if it did not proceed on October 1 as planned then the respondent would not be prepared to do the work over yet again as a number of tasks had already been carried out twice and the effort wasted. He was concerned about the profitability of the project from the respondent’s point of view. He expressed frustration at the loading procedure of the master files because some that were set in April 1999 were redundant.
He claimed that during the implementation period the respondent undertook a number of actual software customisation tasks that were not required to be made under the contract. Mr McMillan complained that information from the respondent was incomplete and that they were confronted with suggested major changes by Ms Ward to the service category structure that had been previously designed by Mr Smith. These changes were normally dealt with via remote connection after hours when no users were in the system. As the respondent would not provide remote connection he indicated that staff were forced to travel to the applicant’s office.
On 1 November 1999 a review of the progress was undertaken at a meeting between Mr McMillan and representatives of the applicant. Critical tasks which were to be completed he claimed had not been completed within time by the applicant and at that time he was advised that there was another business entity of the applicant that would need to be migrated on to the AMPs system. This required further time by the respondent. He expressed concerns via email to Mr Penney, Ward and a Shane Jackson of the applicant by email on 15 November 1999. He indicated that he had a conversation with Mr Penney on 18 November and agreed that he said something like, “If the applicant was not prepared to make the necessary commitment of resources then perhaps it would be in their interest to cancel the project”. He referred to the continuing frustrations encountered and inability to investigate cause of errors due to the fact that the applicant had not provided a remote connection facility.
Mr McMillan attended the meeting on 19 November 1999 and outlined concerns which appear to be common ground. He commented when asked what should be done by Ms Ward, he stated that he believed one of two things had to happen, either the applicant needed to put resources required into the project to complete it or cancel the project which he claimed was not in the best interests of the applicant but if the applicant cancelled the project then he would assist in any way he could. Thereafter he carried out other tasks and confirmed sending an email dated 23 November 1999 to Ms Ward and received no response.
In evidence he confirmed that the representations that were referred to in the System Outline document to which the applicant had referred had been made though in general confirmed that those representations were accurate and had been met. He regarded many of the representations as being components of the project though stressed again that the provision of support revolves around remote connection.
The installation time of 20 days referred to in the contract is the average on site time allowed for an implementation.
Mr McMillan in evidence expressed doubts about the ability of Mr Penney of the applicant to upgrade the system. He agreed the upgrades were sent by email with an attachment to be installed by Mr Penney. One of the errors he noticed was that one machine was not running on the last version of the software that had been given to Mr Penney.
Under cross-examination Mr McMillan indicated that the period of

20 working days in the contract for the purpose of system installation configuration and training applies though seemed to indicate that the span of the installation if one counts the completion of the first month end of success is usually a span really about 6-7 weeks depending on what one terms as the installation period. He agreed that was promised in the contract He agreed he did not look at the hardware system of the applicant though one of the complaints is the instability of the hardware system. He conceded that perhaps it was the configuration of the hardware system that was the problem. He was then asked “Yet you nonetheless contend that this software is suitable for my client and now you blame the hardware?” He answered, “Yes”.
He agreed that it was the respondent’s contention that part of the reason for the lack of success on the installation and configuration of the software was the applicant’s hardware.
Under cross-examination Mr McMillan stated that about 60 days was spent on site rather than the contracted period of 20 days. He agreed that under particular circumstances he would decide to quit a project. In certain circumstances he would be prepared to cancel a project. He stated he used the expression “nightmare” in relation to the provision of master files and that the index file was a “massive problem”. He agreed that the performance of the contract was most definitely frustrating.
He stated under cross-examination that he was looking for commitment from the applicant in September 1999 having aborted the installation once before and wanted to be sure that sufficient resources were going to be put in this time to do it correctly. He agreed that he threatened to cancel the contract on 9 September 1999 if the project did not go live by 1 October.
He agreed by email dated 24 September 1999 he had been advised by Mr Penney that remote access was being made available as required and that he would be happy with that access on request.
In reference to questions regarding the installation of a program named “Sequel Server” Mr McMillan indicated that that was not recommended though the AMPS system is able to accommodate it. He agreed he did not advise the applicant that it should not run the Sequel Server as one of the programs it might have on its network.

In relation to the meeting of 19 November 1999 he ultimately in cross-examination did not disagree with the evidence of Ms Musgrave that he had told Mr Penney that he was cancelling the project.

Philip Andrew de’Harcourt

Mr de’Harcourt adopted a statement made by him on 27 July 2001. He is an IT consultant employed with the respondent. He had in fact previously been employed by the applicant as a Financial Accountant from 1996 to 1998 and was responsible for the implementation of their existing accounting software Clients and Profits. He confirmed that he was involved in the implementation of AMPs software on behalf of the respondent and he began his involvement with the project of the applicant’s in April 1999. He explained the technical processes involved in installing the AMPs software and he otherwise confirmed that there appeared to be a delay as the installation was “on hold” until August 1999 when he then assisted in re-loading software and the system was tested and developed by Mr Smith of the applicant. He worked closely with Mr Smith between September and October 1999 in creating another set of master files. The process took longer than the one undertaken by him in April 1999 due to changes in data. He asserted that a major reason why the master files were still being changed at the late stage in October of 1999 was due to the fact that Mr Smith had left the applicant and Ms Musgrave who took over made extensive modifications after analysing Mr Smith’s work.
Another problem identified by Mr de’Harcourt were errors in the data which was received by the applicant to be imported into AMPs database. He indicated other errors occurred with duplicated records where there are two entries for different employees but using the same employee code so the software has no way of telling them apart.
Mr de’Harcourt indicated that when he received data from the applicant he had to check it for duplicate records and if found return the data to the applicant to be corrected. He referred to specific examples where that occurred.
He gave evidence that in late October early November 1999 he was advised by Ms Ward that the applicant had decided to make extensive alterations to the master file. In the absence of remote access he indicated that he was forced to make on site changes during work hours. The process involved, he claimed, several wasted hours. His main complaint seemed to be the failure to set up a method of remote access to the applicant’s server. He investigated errors which had occurred when printing reports from AMPs and traced the cause to the error to software of a reporting system.
Under cross-examination he agreed that in 1999 there was some incompatibility between the respondent’s AMPs system and using a terminal server. He agreed that usually when promoting AMPs software he makes enquiries as to the average specifications of the user’s PCs and also the specifications as to the server the AMPs intends to reside on. He indicated that by asking the questions in relation to the specifications he would then obtain information about the sort of hardware the customer was going to use.
He agreed that in his experience schedules for installation fall behind and that in this case there was some delay. The problem of duplication of files he indicated could be corrected and although it used up time it wasn’t an impediment to the successful implementation and configuration. He agreed his task was install the AMPs software to the limit of his technical abilities and that he had to ensure that databases were set up correctly and had the correct information on them.
He agreed he was never informed that remote access was available or that there had been an agreement between Mr McMillan and Mr Penney on 24 September 1999 to provide remote access.

Matthew Cullen

Mr Cullen gave evidence and adopted a statement dated 3 September 2001. That statement was entitled “Response to ‘Expert Report’ of July 2001 prepared by Ernst & Young”. Mr Cullen is a Senior Architect of Software for the respondent. He holds a Bachelor of Business and Graduate Diploma in Accounting and has been employed by the respondent for ten years. He referred to the original programming of the AMPs system as being undertaken by an overseas company and regards himself as a key person because he has engaged other consultants who have been used within Australia.
In his report he concludes after analysing the various errors and the report from Ernst & Young that the major cause of the errors experienced by the applicant was fundamentally caused by an unstable server environment and a prolonged period of time when the major system indexes were corrupt. He further claims as a result of the fact that the applicant did not provide the respondent with remote connection facilities as the contract stipulates, all the proven methods of file updates and system maintenance used by the respondent and every other client signed using AMPs were in this case not able to be followed. He effectively states then that these crucial tasks became the responsibility of Mr Penney who did not have the experience in management of the files and failed to notify the respondent of occurrences such as server crashes indicates that Mr Penney did not understand the ramifications of the situation.
Under cross-examination Mr Cullen conceded that he discussed his report with Mr McMillan particularly references to poor project management because he was not involved in the project management but rather in the development management. He conceded the report refers to the fact that it was prepared in conjunction with Mr McMillan.
He agreed under cross-examination that he would not recommend suggesting to a customer that AMPs software could be successfully operated on the customer’s computer network without knowing what hardware was being used.
Further in cross-examination Mr Cullen indicated that he and Mr McMillan are business partners and that he is a director of the respondent company.
He agreed that there had been some failure to control somewhere down the line as his company was unable to install the system, upgrade the system in the way that would normally occur.
He agreed that he did not have direct knowledge that Mr Penney undertook the upgrades and when he made a point about Mr Penney it was based upon what he had been told by Mr McMillan.
He agreed that it is fundamental as the company installing the software program that the program or the application must be installed properly and if it is done by the company then proper instructions should be given to the person who does that installation. He stressed that an inherent part of AMPs system was to have a remote dialin facility.

Submissions

The Applicant

The Applicant referred to the Amended Statement of Claim and in particular paragraph 5 and argued that the contract had provided that the software supplied by the respondent would be fit for its intended purpose of performing accounting functions in accordance with the requirement analysis issued by Ernst & Young.
It was submitted the software would function according to the requirements analysis and as I understand the proceedings before me there is no dispute that that forms part of the contract. It is submitted by counsel for the applicant however that one does not get to that stage because the software provided did not get to the “performance stage”. It was contended that whilst the software product may not be goods within the meaning of the Goods Act that it was a reasonable implication that the terms referred to in paragraphs 5(a) and 5(d) should be regarded as part of the contract namely that the software would be fit for its intended performance of performing accounting functions in accordance with the requirement analysis and that the software would be able to operate properly on the applicant’s computer hardware. Reliance was placed on the decision of Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337. It was conceded to imply a term into a contract it must be reasonable and equitable and must be necessary to give business efficacy to the contract so the term will be implied that the contract is defective without it. It was contended that the terms referred to of 5(a) and 5(d) though not express within the contract meet the requirements set out in Codelfa. The procuring of a licence for computer software it was submitted it is axiomatic that it is going to be fit for the purpose installation on the applicant’s hardware system and would operate properly.
Reference was made to term 5(e) of the Amended Statement of Claim which provides that the respondent would correct system errors identified by error messages. Reference was made to the express provision under the heading “Software Customisation” in the contract which provides as follows:
“Ad Systems is under no obligation to add new functionality to the software or modify the software at the request of the licensee, except to the extent of correcting system errors as identified by such as system error messages sent to the screen.”
It was submitted that the events occurred in the present case in trade and commerce. That there were two corporations and they should be subject to the provisions of the Trade Practice Act 1974. Further reference was made to s 51A of the Trade Practices Act which casts an onus on the respondent to establish that it had reasonable grounds for making the representations.
Reference was made to the representations set out in paragraph 6 of the Amended Statement of Claim. The representation that the software would be fit for the intended purpose whilst not part of the contract was said to be an implied warranty and an implied term. Paragraph 6(b) that the software would function according to the requirements analysis was an express term and an express warranty. The applicant did not then appear to rely on an implied warranty in 6(d) which provided that the software would be able to operate property on the applicant’s computer hardware. Reliance was placed on paragraph 6(e) of the Amended Statement of Claim which provided that the respondent would correct system errors as identified by error messages and it was argued this is an express warranty or representation. In the amended pleading there were other representations referred to in sub-paragraphs (f) to (j). The particulars of those representations which involve alleged representations that the applicant would not need any additional computer equipment to run the software, that the respondent would provide great support for the software which was a fundamental objective of the respondent, that the respondent would work closely with the applicant’s management and staff to configure the software correctly, the respondent would tailor the file and report structures of the software to meet the applicant’s requirements and that the respondent would spend an extended time on site at the applicant’s premises for installation of the software and would not comprise on that were all terms that were representations set out in the “Systems Outline” provided to the applicant by the respondent before the contract had been entered into by the parties.
Those express representations it was submitted were made without reasonable grounds having regard to an analysis of the error messages. It was contended that the applicant was different from standard advertising agencies and it was no answer to the applicant’s claim that the respondent had successfully installed the software in other advertising agencies. Hence it was submitted that it is not sufficient for the respondent to refer past successful installations particularly in circumstances where the respondent did not determine the nature of the applicant’s computer system so that they knew it was a network of personal computers. Reference was made to Schedule C of the contract where under the heading “File Server” there was an entry “To be advised by SRG”. It was submitted therefore that the respondent did not even know the type of file server which the applicant had used. It was further submitted the respondent did not seem concerned to find out and therefore in relation to the hardware the respondent did not care and still made representations notwithstanding the lack of knowledge.
It was further submitted there was no basis upon which a representation could be made that the respondent would spend an extended time on site when in the contract there was a reference to 20 days on site as part of the installation configuration and training.
It was submitted that the attempt by the respondent to defray their responsibility because of the complexity of the system does not relieve the respondent of liability given that the representations were made in the Systems Outline without the respondent having looked at hardware or looked at the software then used by the applicant.
It was submitted that Mr Fekete had relied upon the representations and was induced to enter into the contract as a result. It was submitted there was no contrary evidence.
It was further submitted that in the lead up to the telephone conversation and meeting respectively on 18 and 19 November there had already been an indication by way of threat that Mr McMillan was going to cancel the project. That occurred on 9 September.
It was contended that the Ernst & Young report of Mr Kesser should be relied upon as an independent report.
It was noted that the respondent does not rely upon frustration and performance of the contract as a defence.
The Court was invited to conclude that the respondent through the actions of Mr McMillan had cancelled the contract. It was argued this was a repudiation and is a breach of the contract which entitles the applicant to damages in relation to costs incurred. If there had been an abandonment by the parties of the contract then it was conceded that the entitlement to damages would be confined to an entitlement to recover the amount paid by the applicant to the respondent of $41,650. It was ultimately submitted that there was clear repudiation and a clear acceptance of that repudiation. It was conceded however that if there had been abandonment of the contract by the parties then the claim is limited and the money paid as indicated.
If the court were find the misrepresentation claim succeeds then the damages would include the amount paid at $41,650 together with additional expenses.

Respondent’s submissions

In dealing with the alleged implied terms it was submitted that those terms in relation to fitness for purpose is taken strictly from either the Trade Practices Act or s 19 of the Goods Act as there was a concession that these are not goods. It is clear the Goods Act does not apply and it was submitted that neither that act or the Trade Practices Act apply in these circumstances. It was not appropriate to otherwise imply the terms sought to be implied by the applicant.
The respondent relied upon the terms of the contract and submitted that those terms cover the field and there was no need to imply any further terms.
In dealing with the representations and specifically those representations taken from the System Outline it was submitted that the respondent complied with its obligations under the contract as far as it was able in the circumstances and any representations made were true as the software was installed and it ran on the applicant’s computer equipment. Additional equipment did not need to be added for the software to run on the computer equipment of the applicant.
It was submitted that the respondent had provided the support for the software as specified and indeed provided extensive support well beyond the 20 days on site service provided in the contract.
Reliance was placed on other satisfied customers in order to establish that representations were reasonable.
It was conceded that the events of 18 and 19 November 1999 could give rise to two possibilities, that is a repudiation on 18 or 19 November or simply mutual abandonment. It was submitted that a decision in relation to the contract had been left to Ms Ward and having already spoken to a director of the applicant company she had a preconceived notion of what the situation may have and had decided the contract was at an end. It was said that Mr McMillan had not actually cancelled the contract but indicated that he was going to cancel the contract if certain problems were not fixed.
It was suggested that repudiation by the applicant was a possibility or that it may have simply been an acceptance that the parties had agreed to no longer pursue their contractual obligations or benefits. That was submitted to be more likely. At that point the applicant had elected to abandon the contract. The preferred position of the respondent was that the contract should not be abandoned but the resources should be put in to make the project work. This was consistent with the email sent a few days later by the respondent dealing with the way in which the matter could continue.
In the event that there was mutual abandonment then it was submitted that there should be no remedy as one party’s expended money and the other has expended labour and the provision of a computer software system.
In relation to the damages claimed of $28,525.87 it was submitted that a significant proportion of that claim relates to work completed prior to 19 November 1999.

Findings/Reasoning

In this matter I am satisfied that the respondent had made representations of the kind set out in paragraph 6(f) to (j) of the Amended Statement of Claim. That is it had made representations of the kind which were part of the document entitled “Systems Outline”.
Those representations included a representation that the applicant would not need any additional computer equipment to run the software. This in my view is the most significant representation, given the suggestion by the respondent that problems occurred due to the hardware of the Applicant.
I find that the applicant through its employee Mr Fekete had relied upon those representations which in turn induced the applicant into entering into the contract with the respondent. That contract incorporated the requirements analysis provided by Ernst & Young.
I accept that the provision of the software of the kind marketed by the respondent is clearly designed to function correctly according to the requirement of the contract.
In my view it is not necessary to look at implied terms as the contract itself refers to the systems functionality and software customisation. The functionality is clearly subject to the attached requirements analysis and whilst there is no obligation to add new functionality the contract expressly provides for the correcting of system errors as identified by such as system error messages sent to the screen.
I am satisfied on the evidence that there are numerous examples of system errors which were occurring throughout the relevant time and certainly up to the time when the parties had the meeting on

19 November 1999. If the errors occurred due to any hardware deficiency of the Applicant’s system them relying on the representations one would not expect a change to that system by the Applicant.
In my view this is not a case where the court needs to go beyond the representations to which I have referred or the express provisions of the contract and therefore I do not propose finding that there are other implied terms and/or warranties referred to by the applicant.
In my view the evidence clearly provides a proper basis upon which it can be said that in truth and in fact representations were made of a kind which clearly could not be reasonable having regard to the lack of enquiry made by the respondent of the applicant’s hardware system and server. It is clear from the contract itself that information about the applicant’s server was to be supplied and that any representations made specifically that the applicant would not need any additional computer equipment to run the software could not have been a reasonable representation in those circumstances. It may well be regarded as a standard representation made by computer software marketing organisations but it should be remembered that despite the success in marketing a product, such organisations still need to address the specific requirements of customers albeit those customers who might be considered part of a generic market such as advertising agencies. The Applicant engaged approximately 130 staff and was clearly a significant organisation.

I accept the evidence of the applicant’s witnesses that its business was different to a conventional advertising organisation as it involved a group of companies where the demands on a software product may well be different from the demands made on such a product by other advertising agencies.
At the very least it is surprising and of concern that the respondent did not bother to enquire as to the hardware arrangements of the applicant and thereby modify its representation concerning the need for additional computer equipment or provide some warning to the applicant rather than simply asserting as it did throughout the course of the evidence that the real problems occurred due to either difficulties with the hardware, the server or the capacity of employees of the applicant to properly download and install upgrades from time to time.
In the circumstances I am satisfied that there have been representations of a kind which could be properly regarded as in breach of s.52 of the Trade Practices Act and the consequences of that breach are that damages should be awarded.
In the alternative I also find as a matter of fact that Mr McMillan had evinced an intention to repudiate the contract as early as September 1999.
I accept the evidence of Mr Penney in relation to the telephone conversation with Mr McMillan on 18 November 1999 that Mr McMillan by that time had clearly indicated he was about to cancel the contract. I further accept the evidence and the handwritten notes of the applicant’s witnesses including Ms Musgrave and Ms Ward in relation to the meeting that occurred on 19 November 1999.
In my view having found that I prefer the version of events of the applicant’s witnesses who had made contemporaneous and independent notes I am satisfied that even the handwritten note of Ms Musgrave though allowing for the differences in the handwritten version from the typewritten version that there was still sufficient record in those notes to indicate that the contract was to be cancelled by Mr McMillan. I am satisfied by that time that although Mr McMillan referred to the complaints he had formed the view that enough time and effort had been expended on this contract and that he was not prepared to allow the matter to continue. I therefore find relying on that evidence that the respondent has repudiated the contract and the repudiation was accepted by the applicant.
It follows therefore in the alternative that that repudiation would give rise to damages of a kind at least claimed in relation to repayment of the amount advanced by the applicant to the respondent of $41,650.
Further and in the alternative it is my view that in the present case the court is entitled to rely upon the report from Mr Kesser and his evidence in preference to that evidence given by Mr Cullen. Mr Kesser although being part of the organisation which provided the requirements analysis was able to provide independent evidence and to highlight the problems that had occurred in this matter. I accept that the lack of robustness of the AMPs system itself and the poor project management control of the AMPs system installation and configuration at the applicant’s premises by the respondent was a fundamental cause of the problems that occurred in this matter. In failing to ensure functionality of the software system I am satisfied that has been a breach of an express term of the contract and again the consequence is that damages would normally follow from that event.
In my view the evidence of Mr Cullen as a business partner of Mr McMillan could not in any way be regarded as independent evidence and although he readily acknowledges that his report was written with the assistance of Mr McMillan, it seems to me that whilst there can be no suggestion that there has been hidden collaboration the fact that there has been that form of assistance diminishes the value of the report to the extent where I prefer to place reliance upon the alternative report for and on behalf of the applicant by Mr Keyer.
The issue of damages in this matter has not in my view been properly or adequately established by the applicant insofar as it relates to those damages said to be incurred in attempting to make the software work and re-entering data into the applicant’s earlier accounting software. The sum of $28,525.87 was properly the subject of an attack by counsel for the respondent on the basis that almost $22,000 relates entirely to Mr Smith who was not even present on 19 November having left about one month earlier. That leaves in general terms a balance of no more than $6,525.87 and in the circumstances doing the best I can on the limited material available to me and having regard to the fact that other expenses referred to in the list provided by Ms Ward may well have been incurred regardless of these events, I am only prepared to allow the sum of $5,000 damages. Added to that should be the sum of $41,650 which I accept should be regarded as appropriate damages in this claim.
The orders I propose making are as follows:
(1)The counter-claim filed 26 June 2001 be dismissed.
(2)The respondent shall pay to the applicant damages in the sum of $46,650.
(3)The respondent shall pay the applicant’s costs including reserved costs if any.

I certify that the preceding one hundred and thirty-two (132) paragraphs are a true copy of the reasons for judgment of McInnis FM

Associate:

Date: 11 September 2002