Walker v ANZ Banking Group Ltd (No 2)

[2001] NSWSC 806

Reported Decision: (2001) 39 ACSR 557
[2001] NSWSC 806
[2001] ACL Rep 185 NSW 30

New South Wales

Supreme Court

CITATION:	Walker & Anor v ANZ (No.2) [2001] NSWSC 806
CURRENT JURISDICTION:	Equity
FILE NUMBER(S):	SC 3507/01
HEARING DATE(S):	7 September 2001
JUDGMENT DATE:	12 September 2001
PARTIES :	Peter Murray Walker and Steven John Sherman as voluntary liquidators of One.Tel Limited (Administrators Appointed) (P1) One.Tel Limited (Administrators Appointed) (P2) Australian & New Zealand Banking Group Limited (D)
JUDGMENT OF:	Austin J

COUNSEL :	T E F Hughes QC with D Pritchard (P1 & P2) A Sullivan QC with R J Weber (D)
SOLICITORS:	Clayton Utz (P1 & P2) Blake Dawson Waldron (D)
CATCHWORDS:	EQUITY - equitable remedies - interlocutory injunction - whether decision on interlocutory applicatoin will substantially determine the dispute - whether serious question to be tried on breach of contract and unconscionability grounds - balance of convenience where customers' rights and interests are involved - whether it is appropriate for court to impose 'commercial' solution between parties
LEGISLATION CITED:	Australian Securities and Investments Commission Act (2001) (Cth) ss 12CA, 12CB Trade Practices Act 1974 (Cth) ss 51AA, 51AB, 51AC
CASES CITED:	Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349 American Cyanamid Co v Ethicon Ltd [1975] AC 396 BP Refinery (Westernport) v Hastings Shire Council (1977) 180 CLR 266 Brambles Holdings Limited v Bathurst City Council [2001] NSWCA 61 (23 March 2001) Burger King Corp v Hungry Jack's Pty Ltd [2001] NSWCA 187 Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 Garry Rogers Motors (Aust) Pty Ltd v Subaru( Aust) Pty Ltd (1999) ATPR 41-703 Kolback Securities Ltd v Epoch Mining NL (1987) 8 NSWLR 533 Lubrano v Gollin (1919) 27 CLR 115 Pierce Bell Sales v Frazer (1993) 130 CLR 575 Taylor v Town and Country Planning Board (1973) 29 LGRA 367
DECISION:	Application for interlocutory relief denied

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

3507/01 Austin J
Wednesday 12 September 2001

Peter Murray Walker and Steven John Sherman as Voluntary Liquidators of One.Tel Limited (Administrators Appointed) and Anor v Australian & New Zealand Banking Group Limited

Judgment


His Honour:
Background

1 The second plaintiff is the parent company of a group which provided telephone and mobile telephone services to many thousands of customers. The first plaintiffs were appointed joint voluntary administrators of the second plaintiff by resolution of the board of directors of the second plaintiff on 29 May 2001. Subsequently they became joint liquidators when the creditors of the company resolved that the company be wound up. Although there is no direct evidence before me of that resolution, I understand from other proceedings involving the company that it was passed on about 24 July 2001. For the purposes of the present interlocutory application, nothing turns on the precise date of the creditors' resolution.

2 Prior to the commencement of the voluntary administration, the defendant supplied financial services to the second plaintiff, including a one day term deposit account which was linked to facilities including a merchant facility and a direct debit facility. Those facilities enabled customers of the second plaintiff to pay their telephone accounts by credit card or by direct debit to the customer's bank account. I shall describe them in more detail later. As I said in another interlocutory judgment in this case, delivered on 3 September 2001, "facilities of this kind were very important for the conduct of the second plaintiff's business, because amounts would fall due to be paid by customers on a frequent and recurring basis and the amount of each debt was relatively small, making it important that customers have available to them simple and efficient methods of payment".

The administrators' merchant and direct debit facilities

3 On 30 May 2001 the first plaintiffs, in their capacity as voluntary administrators, commenced negotiations with the defendant for the provision of similar services notwithstanding the commencement of the administration. On about 1 June 2001, the first plaintiffs and the defendant entered into an agreement for the establishment of two new facilities in the name of the second plaintiff in administration, namely a merchant facility and a direct debit facility, both linked to a one day term deposit account.

4 The arrangements were the same in relevant respects as the previous arrangements, except that the party contracting with ANZ, namely One.Tel, was then in voluntary administration, and One.Tel's existing bank accounts were replaced with newly opened accounts. The administrators did not obtain new Client Service Agreements, but instead the existing Client Service Agreements were treated as continuing. No issue arises between the parties as to that matter.

Cessation of One.Tel's business

5 The second plaintiff ceased to provide telephonic services to customers on about 8 June 2001. Arrangements were made to permit One.Tel customers to transfer their business to other telephone companies including Optus and Telstra. Only a limited amount of evidence about these arrangements has been adduced.

6 One.Tel had approximately 720,000 active customers with debts outstanding of about $190 million. The average debt per customer during the administration was approximately $250-275. The first plaintiffs as administrators retained approximately 70 One.Tel staff specifically to collect the outstanding One.Tel customer debts. On average one staff member spoke to approximately 80 customers per day. The staff were "incentivised" to remain by the offer of bonuses based on debt recovery levels they achieved.

7 The plaintiffs' evidence, which I accept for purposes of this application, is to the effect that if the facilities were not available for the collection of customer debts, voluntary compliance by customers would dramatically fall away and the debt recovery process would be substantially impaired. Media coverage about the affairs of One.Tel had adversely affected voluntary compliance by One.Tel customers in payment of their debts. Of One.Tel's 720,000 customers, approximately 370,000 have debts in the range $0-$50, another 149,000 have debts in the range $51-150, and another 90,000 have debts in the range $151-400. Only 56,000 have debts in excess of $1000. The plaintiffs' evidence is that the most efficient manner of collecting customer debts up to $1000 is by aid of electronic banking facilities.

Mr Hockey's intervention

8 There was a large amount of publicity surrounding the collapse of One.Tel, and Mr Joe Hockey MP, Minister for Financial Services and Regulation, took an interest. On 19 June 2001 Mr Hockey wrote to the managing director of the Australian Bankers' Association (“ABA”), saying that people with direct debit or periodical payment arrangements with One.Tel had contacted his office to inform him that, despite approaches to their bank, One.Tel was still debiting money from their accounts. Further, said Mr Hockey's letter, the banks had said they were unable to stop payments from being made. Mr Hockey expressed the understanding that, once a customer says they want payments stopped, their bank is bound to act on that advice. He expressed concern that customers were being inappropriately charged, given that they were by then receiving no service from One.Tel. He urged the ABA to address the issue with its member banks, to ensure they were complying with their customers' wishes, including directions to terminate direct debit or periodic payments to One.Tel.

9 The Australian Payments Clearing Association (“APCA”) wrote to its members on 20 June 2001, including the defendant, saying that Mr Hockey had raised with the ABA the issue of the ability of customers to cancel One.Tel direct debit authorities with their bank, and that the ABA intended to issue a press release (a draft was enclosed) making the point that banks would act on their customers instructions to cancel direct debit authorities. APCA’s letter noted that under existing procedures, banks were to advise their customers wishing to cancel direct debit authorities to contact the debit users, but that nothing in the existing procedures prevented banks from acting on behalf of their customers to assist in the process of cancellation - apart, that is, from any obligation the banks had to act on notifications by customers to stop processing particular debits.

10 On 20 June 2001 Mr Hockey gave an interview in which he said that "the banks are on notice here, that if a customer says the direct debits are to stop, they are to stop, the customer rules." Consequently, he said, if a customer of One.Tel says to their bank that direct debits have to stop, then they have to stop and "any other arrangements are between the individual and One.Tel". Except for the last quoted observation, Mr Hockey's statements do not expressly take into account the possibility that by cancelling their direct debit authorities, customers may be acting in breach of their contractual obligations to One.Tel, and consequently acting to the potential detriment of other customers and creditors of the company.

11 The ABA's draft press release, enclosed with APCA's letter, was expressed in more cautious terms. It quoted the Chief Executive of the ABA as saying that any customer of an ABA member bank could, without first approaching the supplier (in this case, One.Tel), instruct their bank not to accept or post to their account a direct debit, under a direct debit authority. However, the Chief Executive was quoted as continuing:

"Customers should read carefully their contract with their supplier. They should take account of the contractual arrangements with their supplier, for example One.Tel, and first check they can safely cancel the authority this way without breaching their contracts."

12 Mr Sherman, one of the plaintiffs, gave evidence that he received a telephone call from a person in Mr Hockey's office on 20 June 2001, drawing his attention to Mr Hockey's statement. He says that his partner Mr Walker received Mr Fryer's second letter of 20 June 2001 (described below) later on that day.

13 Mr Fryer, the bank officer who dealt with termination of the direct debit facility, gave evidence that he did not become aware of the terms of Mr Hockey's letter to the ABA until after he issued a letter terminating the facility on 26 June 2001. However, he acknowledged that he was aware of the substance of Mr Hockey's intervention at an earlier time. That is hardly surprising, given that Mr Hockey reinforced his letter with a media interview on 20 June 2001.

Negotiations leading up to termination of the facilities

14 Arrangements with respect to the merchant facility were handled on behalf of the defendant by Jennifer Fagg, Head of Global Cards Credit Risk Management. Arrangements with respect to the direct debit facility were handled on behalf of the defendant by Mr Graham Fryer, General Manager of Cash Management and Transaction Services.

15 On 15 June 2001 the first plaintiffs received a facsimile of that date from Ms Fagg of ANZ which raised a number of issues regarding the ANZ merchant facility. Ms Fagg was concerned that One.Tel customers who transferred to other telephone companies under the arrangements that had been established may not receive any credit for any pre-payments made to One.Tel; if the pre-payment had been made by credit card, the customers might charge back the prepayments under the merchant facility. She wanted to understand the extent of the potential chargeback liabilities before and after the commencement of the administration, and asked the first plaintiffs to confirm the dollar values of transactions pertaining to services paid for in arrears, and those paid for in advance. She said she expected cardholders to begin charging back pre-payments soon.

16 On 20 June 2001, Mr Fryer of ANZ wrote to the first plaintiffs, regarding a direct debit file submitted on 19 June by the first plaintiffs for processing 7839 customers' direct debits for a net total amount of $854,621. Mr Fryer said he thought the first plaintiffs should be aware that there may be a significant number of rejections as a result of customers of One.Tel putting a stop payment on their accounts for those debits or because their accounts had been cleared of funds. Noting that there was a fee of $11.50 for each returned item, he said the rate of rejections on a direct debit file processed on 30 May 2001 had been approximately 15 percent, and expressed the belief that the rate of rejections on the next occasion would be significantly higher, and consequently the first plaintiffs would incur a significant cost. He invited them to resubmit the file only for the larger items, but said that if he had not heard by 5 p.m. he would process the file.

17 Later on the same day, Mr Fryer wrote again to the first plaintiffs, requesting that they confirm:

(a) that all amounts on the Direct Debit file submitted on 19 June 2001 represented amounts believed by the first plaintiffs to be legally due to One.Tel, and
(b) that in the event of disputes with One.Tel customers, the disputes would be investigated by the first plaintiffs to determine their validity, and if the investigations supported the customers' claims appropriate refunds would be provided.

18 Mr Fryer's evidence, which I have no reason to disbelieve, was that this letter followed up on a conversation to similar effect between him and Mr Walker on the evening of 19 June.

19 On 21 June 2001 Ms Fagg wrote to the first plaintiffs purporting to suspend the merchant facility, on the ground that the information requested in her facsimile of 15 June 2001 had not been provided. She said the defendant would consider reinstating the merchant facility when the information was provided, or if acceptable alternative arrangements were made by 4pm the same day.

20 The first plaintiffs responded by letter to Ms Fagg dated 22 June 2001, saying that the suspension of the facility had caused immediate negative repercussions on their ability to collect customer accounts, estimating the immediate impact at approximately $1.5 million per day. The letter purported to provide the information that had been sought on 15 June, saying that customers who moved to Optus or Telstra under arrangements made after commencement of the administration would not be required by One.Tel to pay a break cost for termination of their agreements, but customers who terminated in other circumstances would be expected to pay that cost. There was no standing arrangement for Telstra to recognise credits, but One.Tel would process refunds except where the customers were debtors of One.Tel. The letter said that generally the billing arrangement between One.Tel and customers was that the customers paid monthly in advance.

21 Clearly by that time the first plaintiffs had become very concerned about the future of the facilities. Mr Sherman's evidence is that he had several telephone conversations with officers of the defendant to find out whether any decisions had been made to terminate the facilities.

22 The first plaintiffs wrote again to Ms Fagg on 25 June 2001 saying that suspension of the merchant facility was directly impacting their ability to collect money owing by customers of One.Tel, which amounted at that time to in excess of $200 million. It said that staff retained by One.Tel might be prevented from meeting their incentive targets and might leave. The letter enclosed a package of information that was being made available to One.Tel customers, including an open letter.

The administrators’ “open letter”

23 The document referred to as the "open letter" in the first plaintiffs' letter of 25 June 2001 was headed "Open Letter to All One.Tel Customers". It informed customers that One.Tel had ceased providing services, and set out to explain the position in relation to issues concerning direct debits in favour of One.Tel. It stated that a customer could cancel his or her direct debit authority by sending a written request to the Direct Debits Team at One.Tel.

24 The open letter continued as follows:

"How will my cancellation request be dealt with?
Where a request has been made and you owe money to One.Tel, a cancellation request will not be processed and we will continue to process the direct debit authority until your account has been paid. At this point the cancellation request will be processed.
If no moneys are owed to One.Tel the cancellation of the direct debit or credit card authority will be processed.
Where there is a dispute on an account and moneys are owed to One.Tel Ltd, we will continue to process the direct debit authority, however a reconciliation of the account will be conducted by One.Tel and where appropriate a refund will be paid to you."

25 The letter also dealt with termination fees and other fees, and arrangements for transfer to other telephone service providers.

26 Mr Fryer gave evidence, which I accept, that when he received the open letter in draft form, on 22 June 2001, he formed the view that it denied the rights of One.Tel customers, because he regarded the customers as having the unconditional right to terminate their direct debit authority with One.Tel.

Termination of the facilities

27 On 26 June, Ms Fagg sent a facsimile to the first plaintiffs purporting to terminate the merchant facility. She said that the termination was pursuant to clause 31 (ii) (g) of the general conditions of the merchant facility agreement. That clause entitled the defendant to terminate the agreement without notice "if ANZ reasonably determines that the continued provision of the Merchant Facilities to the Merchant may damage the reputation of ANZ".

28 On the same day Mr Fryer wrote to the first plaintiffs. He referred to his letter of 20 June 2001 to which, he said, he had yet to receive a response. That appears to be true, on the evidence before me. He said that the defendant was concerned with the first plaintiffs' inability to provide the assurances set out in the earlier letter, and for that reason the defendant had not processed the direct debit file submitted on 19 June 2001. In the absence of the assurances sought, he said, the defendant was concerned that, in seeking to have direct debits processed, the first plaintiffs may not be acting in accordance with the terms of the agreement, in particular clause 1.5 and 1.6 of the Direct Debit Service Conditions of Use. On this basis, he said, the defendant was terminating the Direct Debit Agreement with the plaintiffs with immediate effect, pursuant to clause 10.1. I shall describe the contractual provisions of the direct debit facility later.

29 Mr Fryer said in evidence that the primary reason for the decision to terminate was the fact that the administrators' open letter to customers was inconsistent with the right of One.Tel customers to unconditionally cancel their direct debit authorities and prevent money being drawn from their accounts against their will.

30 He had two other concerns. He was concerned that the first plaintiffs had not given the defendant any assurance that the amounts for which it sought payment through the direct debit facility were amounts to which One.Tel was entitled, for services that had actually been provided.

31 He was also concerned that in practice customers look to their bank to resolve problems or disputes in relation to direct debiting arrangements, and it is time-consuming and ultimately fruitless for the bank to deal with the customer, because on most occasions the issue can be resolved only between the customer and the biller. If the biller is unable to assist the customer, the customer will become frustrated and this frustration will usually be reflected in the customer's perception of the bank, and consequently the bank's reputation will be affected. According to Mr Fryer, an adverse experience by a customer with any single banking product is likely to affect the entire banker-customer relationship, and therefore put in jeopardy the business of the bank with those customers in relation to all banking products, including credit card facilities, and home and personal loans.

32 Termination of the direct debit facility had the effect of suspending payment of direct debits to customer debit accounts of about $6.9 million, and direct debits to customer credit cards of about $ 4.4 million, totalling $11.3 million. Credit card transactions of about $2.5 million were held in suspension by termination of the merchant facility, although some credit card customers paid by other means and (as mentioned below) interim arrangements were made on about 17 July 2001 to re-establish the merchant facility. Mr Sherman has given evidence that by 14 August 2001, the total possible payments from One.Tel customers if the direct debit facility payments held in suspension were processed and cleared would be $56.318 million, and that the direct debit transactions not processed by the defendant since termination of the direct debit facility had become $17.289 million. There are approximately 120,000 payments to either a credit card or bank account which are held in suspension and unprocessed by the defendant, many of which may now be unable to be processed and paid due to the subsequent receipt of requests from customers to cancel their direct debit authorities.

33 One of the issues at the final hearing of this case will be whether, as the plaintiffs allege, Ms Faye and Mr Fryer terminated the facilities directly or indirectly at the request of Mr Hockey. The evidence before me now is manifestly insufficient to permit any conclusion to be reached on that question. However, it is relevant for me to find, and I do find, that there is a serious question to be tried with respect to the allegation. The allegation is not so implausible as to be rejected at this interlocutory stage.

Subsequent negotiations

34 Mr Sherman protested about the defendant's decisions in telephone conversations with Mr Fryer and Ms Fagg on 26 June 2001. On 28 June 2001 the first plaintiffs wrote to Ms Fagg claiming that the purported termination of the merchant facility was in breach of contract, in pointing out that the defendant had never advised the first plaintiffs that it was proposing to make a determination under clause 31 (ii) (g) of the general conditions of that facility.

35 There is evidence before me of negotiations between the parties to explore the possible reinstatement of the merchant and direct debit facilities. Mr Sherman said that on 5 July 2001 he telephoned another bank officer, David Hewitt, Head of Technology and Media Entertainment Group of ANZ, who suggested that a meeting be arranged but then said:

"McFarlane has given undertakings to Joe Hockey and this needs to be handled through PR."

36 By 6 July 2001, the first plaintiffs had identified cases where customers had, before One.Tel ceased supplying services on 8 June 2001, received statements of account which included charges or service fees for the whole of June and/or July 2001. The first plaintiffs had processed credits for services billed in respect of periods after supply was discontinued, in order to ensure that amounts electronically provided to the defendant for processing would correctly reflect the true amount owed by the customer. The amounts credited were approximately $4 million. The first plaintiffs informed the defendant that this process had occurred, at a meeting on 6 July 2001. There was also discussion of the various ways in which the unprocessed direct debit files could be processed without exposing the defendant to the task of investigating chargebacks by dissatisfied customers.

37 By about 10 July 2001, the first plaintiffs had actually collected $15.7 million and a further $13.8 million was currently held in suspension because of termination of the facilities. As I have said, the merchant facility was reinstated on about 17 July. Thereafter, negotiations continued with respect to the direct debit facility. Mr Fryer made a diary note, which is in evidence, of a meeting between himself and representatives of the first plaintiffs on 27 July 2001. The note records that Mr Sherman wanted to pursue the option of setting up an "escrow" clearing account whereby unprocessed files could be processed and the money held for a period of time to be agreed, during which time if there was a dispute, the money would be returned to the customer but in the absence of disputes, it would be forwarded to the first plaintiffs at the end of the agreed period.

38 Mr Fryer's response, according to his note, was as follows:

"I advised that this did not resolve the principal concern we had with regard to the Administrators' advices to customers regarding their Direct Debit authorities. I explained that the reasons the Direct Debit Facilities were cancelled included, inter alia, the fact that the agreement between One.Tel and its customers provided customers with the right to terminate the facility at any time. However, the Administrators had sought to vary that agreement by refusing to cancel the facility at the customer's request. We therefore believed that this represented a breach of One.Tel's agreement with its customers and thus also constituted a breach of One.Tel's agreement with the Bank for the provision of the facility. It was for this reason that we would only be willing to reinstate the facilities with respect to customer initiated payments whereby the authorization was given following the cessation of the provision of telephony services."

39 The suspension and termination of the facilities by the defendant jeopardised the first plaintiffs' ability to collect customer debts in a timely and efficient manner. The first plaintiffs believe that it is unlikely that they will be able to recover the majority of the direct debit customer payments which have been held in suspension by the defendant, by virtue of its not processing the direct debit file. Further, since 19 June 2001 the first plaintiffs have received in excess of 5,000 requests by customers that their direct debit facilities be cancelled. The cancellation of direct debit facilities by customers means that the first plaintiffs are forced to use other, less efficient collection methods to recover outstanding debts, making some debts uncollectible in a practical sense through effluxion of time.

The proceeding

40 The plaintiffs commenced the present proceeding by summons filed with abridgment of service on 11 July 2001, and then proceeded by statement of claim filed on 20 July 2001. After an interlocutory hearing before me on 13 July 2001, arrangements were made between the parties for reinstatement of the merchant facility, which has been operating in what I shall assume, for present purposes, to be a satisfactory way as from about 17 July.

41 The plaintiffs have applied for expedition of the proceedings, on the ground that the first plaintiffs need to determine speedily the defendant's liability to reinstate the facilities and to process the direct debit file. They also applied for orders for the separate determination of the questions of liability and assessment of damages, but in my reasons for judgment delivered on 3 September 2001 I denied that application.

Interim arrangements

42 On 21 August 2001 the solicitors for the defendant wrote to the solicitors for the plaintiffs saying that their client was prepared to reinstate the direct debit facility on specified conditions, including conditions that the reinstatement would permit direct debits only where the customer's authorization was given on or after 12 June 2001, and that the first plaintiffs would undertake not to process direct debits that were received by them on or before 11 June 2001.

43 On 28 August 2001 the plaintiffs' solicitors responded to that offer, saying that the offer did not represent a "commercially appropriate interim resolution". The difficulty, they said, was that all direct debit authorities from customers pre-dated 12 June 2001, and to re-contact the customers to refresh their direct debit authorities would not only involve a huge expenditure of time and money, but could well have a detrimental effect on collections of what had become long outstanding debts. They said that in fact, the first plaintiffs had commenced a process of contacting customers who had provided direct debit authorities to see whether they would consent to pay their debts by credit card. Given that many thousands of customers are involved, this process has been expensive and, moreover, the letter alleged that since the customers thought that their debts had been paid by direct debit, the staff of the first plaintiffs had been encountering "significant and mounting pressure and criticism from people in this position".

44 Mr Sherman's evidence is that after the reinstatement of the merchant facility, One.Tel collections staff telephoned "large" debtors who had supplied direct debit authorities, in an attempt to obtain their consent to debit the outstanding debts against their credit cards. In that way the first plaintiffs were able to process recovery of some debts against the merchant facility. Mr Sherman's evidence is that the first plaintiffs were able to recover approximately $3.2 million of debt in that way up to 31 August 2001. The debt would have been recovered virtually automatically if the direct debit facility had been available to be used, and the One.Tel collections staff have been almost completely taken away from their main role of collection from "difficult" debtors.

The plaintiffs' claims

45 The statement of claim, to which the defendant has lodged a defence, alleges that the defendant is liable to the plaintiffs on the following alternative grounds, namely that

· the termination of the merchant and direct debit facilities was in breach of the express or implied terms of the contract (paragraphs 15 and 17);

· the defendant acted unconscionably in purporting to terminate the facilities, contrary to s 51AA and/or ss 51AB and 51AC of the Trade Practices Act 1974 (Cth) and/or s 12CA and/or s 12CB of the Australian Securities and Investments Commission Act 1989 (Cth) (paragraphs 20, 22, 24 and 26).

46 The statement of claim seeks, by way of relief:

· declarations of breach of contract and breach of statutory provisions concerning unconscionability;

· mandatory and prohibitory injunctions to require the defendant to reinstate the facilities and to restrain it from relying on the purported termination of the facilities, and to restrain it from terminating their provision in the future;

· orders declaring certain provisions of the contract to be void, or refusing to enforce them;

· damages.

The present application

47 The plaintiffs also claim, by amended notice of motion filed on 7 September 2001, an order in the following form:

"Until further order, the Defendant be restrained from giving effect to the Notice contained in the letter dated 26 June 2001 from the Defendant to the First Plaintiff which purported to terminate with immediate effect the Direct Debit Service Agreement between the First Plaintiff and the Defendant or any notice in substitution therefore [sic]."
The present reasons for judgment relate to that application.

48 I interpolate that, before it could grant the relief presently sought, the Court would need to accept, at least to the interlocutory standard, that the purported termination of the direct debit facility had been ineffective. As I have said, the grounds for relief relate to breach of contract and unconscionability. The latter ground is available even if the Court concludes that the contract was validly terminated. Counsel for the plaintiffs said that if it were true that an order in the form now sought would be inappropriate, he would shift back forensically and in argument to the prayer for relief in the unamended application, which sought a mandatory order.

49 The application for this interlocutory relief was originally made on 11 July 2001, but it was not immediately dealt with. The first plaintiffs have brought the application on now because they will be required to vacate One.Tel's Sydney head office by 28 September 2001 and they do not believe it will be commercially feasible to find suitable premises to re-locate the remaining One.Tel collections staff. In any event, most of the staff have either found alternative employment or no longer wish to remain with One.Tel. Once the balance of the remaining staff leave, the first plaintiffs' ability to collect outstanding debts will, they say, be severely degraded. They say that with the increasing passage of time the recovery of debts from customers who supplied direct debit authorities will continue to diminish, and the ability to collect these outstanding debts will be further diminished when it becomes known that customers who thought they had paid their outstanding accounts by way of direct debit authorities discover that their accounts remain outstanding.

50 In support of the application, the plaintiffs offer the usual undertaking as to damages, limited to the assets of the second plaintiff. Additionally, the plaintiffs offer the following undertaking, which is a personal undertaking by the first plaintiffs as well as an undertaking by the second plaintiff in liquidation:

(1) The plaintiffs shall only claim the obtaining by the Defendant of direct debit payments pursuant to the ANZ Direct Debit Facility in respect of services to customers of One.Tel:
(a) actually provided by One.Tel on or prior to 12 June 2001; and
(b) subject to paragraph (2) below, in relation to which no notice of cancellation was received by One.Tel or the administrators 5 or more days prior to the relevant due date for payment.
(2) If any notice of cancellation, by its terms, permits payment to be made, the plaintiffs may claim direct debit payment in respect of the payment permitted to be made.
(3) Upon request by the Defendant on reasonable notice, the plaintiffs shall provide access to the records of One.Tel and the plaintiffs to permit the Defendant, if so advised and at its own cost, to verify that direct debit payment claims by the plaintiffs are made in accordance with paragraphs (1) and (2) above."

Principles for the granting of interlocutory relief

51 There is no need to set out fully the principles governing the availability of interlocutory relief in this Court. Frequently, the principal issue relates to balance of convenience. However, the defendant contended that in this case, the plaintiffs have failed to cross the "serious question to be tried" threshold. The defendant submitted that this is a case where the decision on the interlocutory application will resolve the principal contention between the parties, in the sense that if the plaintiffs succeed, then their direct debit files will be processed and paid, and it will be impossible as a practical matter to unscramble those transactions.

52 The defendant invited the Court to pay particular attention to formulations of the serious question requirement in leading cases, in circumstances where the decision to grant or refuse an interlocutory injunction will in a practical sense determine the substance of the matter in issue. The statement of relevant principles most frequently cited in this Court is in the judgment of McLelland J in Kolback Securities Ltd v Epoch Mining NL (1987) 8 NSWLR 533, 535-6. There his Honour, having formulated the "serious question to be tried " issue, said:

"… although normally the Court does not undertake a preliminary trial, and give or withhold interlocutory relief upon a forecast as to the ultimate result of the case" (Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118CLR 618, 622), there are some kinds of case in which for the purpose of seeing where lies the balance of convenience (or more specifically "the balance of the risk of doing an injustice" – see per May LJ in Cayne v Global Natural Resources plc [1984] 1 All ER 225 at 237, cf per Brennan J in Brayson Motors Pty Ltd v Federal Commissioner of Taxation (1983) 57 ALJR 288 at 292; 46 ALR 279 at 285), it is desirable for the Court to evaluate the strength of the plaintiff's case before final relief: see, eg, Brayson Motors Pty Ltd v Federal Commissioner of Taxation (at 292; 285); Castlemaine-Tooheys Ltd v South Australia (1986) 68 ALJR 679 at 682; 67 ALR 553 at 559. One class of case to which this applies is where the decision to grant or refuse an interlocutory injunction will in a practical sense determine the substance of the matter in issue: see, eg, NWL Ltd v Woods [1979] 1 WLR 1294 at 1306-130 7; [1979] 3 All ER 614 at 625-626 per Lord Diplock; Cayne v Global Natural Resources plc."

53 The present case is not quite the kind of case envisaged by McLelland J. Here the decision on the interlocutory question will not determine the whole of the substance of the matter, because there will still be significant issues about damages and non-injunctive relief under the Trade Practices Act even if the plaintiff wins; and a decision against the plaintiff will leave all issues at large. Indeed, given that the plaintiffs seek perpetual final injunctions and will presumably continue to do so even if they fail to obtain interlocutory relief, it seems to me undesirable for the Court to say anything definitive about the strength of the plaintiffs’ case. Additionally, the unconscionability ground, and to a lesser extent the breach of contract ground, involve contested and necessarily unresolved questions of fact that go right to the strength of the case. My conclusion, therefore, is that I should address of the issue of "serious question to be tried” on the normal interlocutory basis.

54 The defendant strongly contended that the balance of convenience favoured the denial of interlocutory relief. It relied on some passages in the speech of Lord Diplock in American Cyanamid Co v Ethicon Ltd [1975] AC 396. His Lordship said (at 406):

"My Lords, when an application for an interlocutory injunction to restrain a defendant from doing acts alleged to be in violation of the plaintiff's legal right is made upon contested facts, the decision whether or not to grant an interlocutory injunction has to be taken as a time when ex hypothesi the existence of the right or the violation of it, or both, is uncertain and will remain uncertain until final judgment is given in the action. It was to mitigate the risk of injustice to the plaintiff during the period before that uncertainty could be resolved that the practice arose of granting him relief by way of interlocutory injunction; but since the middle of the 19th century this has been made subject to his undertaking to pay damages to the defendant for any loss sustained by reason of the injunction if it should be held at the trial that the plaintiff had not been entitled to restrain the defendant from doing what he was threatening to do. The object of the interlocutory injunction is to protect the plaintiff against injury by violation of his right for which he could not be adequately compensated in damages recoverable in the action if the uncertainty were resolved in his favour at the trial; but the plaintiff's need for such protection must be weighed against the corresponding need of the defendant to be protected against injury resulting from his having been prevented from exercising his own legal rights for which he could not be adequately compensated under the plaintiff's undertaking in damages if the uncertainty were resolved in the defendant's favour at the trial. The court must weigh one need against the other to determine where "the balance of convenience" lies."

55 After referring to, and rejecting, authorities that required to the court to undertake what his Lordship described as a preliminary trial of the action, he proceeded (at 408):

"So unless the material available to the court at the hearing of the application for an interlocutory injunction fails to disclose that the plaintiff has any real prospect of succeeding in his claim for a permanent injunction the trial, the court should go on to consider whether the balance of convenience lies in favour of granting or refusing interlocutory relief that is sought.

As to that, the governing principle is that the court should first consider whether, if the plaintiff were to succeed at the trial in establishing his right to a permanent injunction, he would be adequately compensated by an award of damages for the loss he would have sustained as a result of the defendant's continuing to do what was sought to be enjoined between the time of the application and the time of the trial. If damages in the measure recoverable at common law would be an adequate remedy and the defendant would be in a financial position to pay them, no interlocutory injunction should normally be granted, however strong the plaintiff's claim appeared to be at that stage. If, on the other hand, damages would not provide an adequate remedy for the plaintiff in the event of his succeeding at the trial, the court should then consider whether, on the contrary hypothesis that the defendant were to succeed at the trial in establishing his right to do that which was sought to be enjoined, he would be adequately compensated under the plaintiff's undertaking as to damages for the loss he would have sustained by being prevented from doing so between the time of the application and the time of the trial. If damages in the measure recoverable under such an undertaking would be an adequate remedy and the plaintiff would be in a financial position to pay them, there would be no reason upon this ground to refuse an interlocutory injunction."

56 I respectfully accept the statements of principle for the purposes of the present case. I shall seek to apply them to decide, first, whether there is a serious question to be tried on the plaintiffs' claims to relief, and secondly, whether the balance of convenience lies in granting or refusing an interlocutory injunction. The issue of "serious question to be tried" requires a close examination of the contracts under which the direct debit facility was provided.

The Direct Debit Service

57 The Direct Debit Service (the "Service") was an electronic payment facility that permitted money to be drawn directly, on a regular basis, from the nominated accounts of One.Tel's customers in payment of amounts owing by the customers to One.Tel. The accounts could be bank accounts or credit card accounts, with ANZ or other financial institutions. Under the arrangements for operation of the Service, One.Tel would send files to ANZ stipulating the amounts to be debited from the specified customer accounts for which it held authorities. ANZ would make drawings from the customer accounts via the Bulk Electronic Clearing System, a system administered by the Australian Payments Clearing Association Limited for the transfer and clearance of payments between financial institutions.

58 The Service was constituted by a contract between ANZ and One.Tel (that is, the company before 1 June 2001 and the administrators thereafter), and a separate contract between One.Tel and each of its customers (the "clients"). The original documentation between ANZ and One.Tel cannot now be located, but there is no dispute that the documentary contract between them is in the form of the standard documentation of ANZ, which is in evidence.

59 There were three documentary components to the contract between ANZ and One.Tel for provision of the Service, namely the Direct Debit Service Conditions of Use ("Conditions of Use"), the Direct Debit Service Agreement (the “DDSA”), and the Direct Debit Service Operations Manual ("the Manual"). By its letter of application, One.Tel agreed to be bound by the Conditions of Use and the DDSA when using the Service. The contract documents between One.Tel and ANZ envisaged two contract documents between One.Tel and its clients, namely a Client Service Agreement and a Direct Debit Request (the "DDR").

The Conditions of Use

60 The Conditions of Use, which stated that they were to be read in conjunction with the DDSA, dealt with the obligations and responsibilities of One.Tel and the processing responsibilities of ANZ. ANZ undertook to accept One.Tel's electronic media containing payment instructions regarding drawings from One.Tel's client accounts (clause 2.1.1). ANZ accepted full responsibility should accidentally duplicate the processing of the file payment instructions, including refunding the value of every duplicate transaction involved: clause 2.1.3. If One.Tel compiled transactions in error, ANZ was not responsible but would use reasonable endeavours to assist One.Tel to expect refunds to client accounts.

61 One.Tel was responsible for the validity of all payment instructions submitted. In his evidence Mr Fryer stressed the importance of this obligation, saying that the direct debit system is based fundamentally on a relationship of trust between the sponsor bank and the biller, with the bank relying on the biller only to collect debts to which it is legally entitled, and that in the absence of that trust, the system breaks down. He said that in processing transactions, the sponsor bank assumes that the biller has a legitimate direct debit authority with its customers. He said that sponsor banks are concerned to ensure that the direct debit system is not subject to abuse by billers, and therefore sponsors require that billers who use the direct debit system have a strong reputation, accurate billing systems and a high level of credit-worthiness.

62 One.Tel was also responsible for the correction of errors associated with the preparation of instructions, including effecting refunds of any incorrect transactions that may be delivered to and processed by ANZ (clause 2.2.2). One.Tel was also responsible for ensuring that all files of payment instructions presented to ANZ were compiled according to ANZ's specifications in the Manual, and that the files were lodged within the timeframe and in the manner agreed from time to time (clauses 2.2.4 and 2.2.5).

63 One.Tel's obligations included the following provisions:

"You [ie, One.Tel] will:
1.1. Provide to each of your Clients electing to make payments by way of direct debit facility, details of their rights and responsibilities under the Direct Debit Service. Details are to be provided in written form to a Client prior to initiating any drawing on the Client's nominated account and are to incorporate the aspects detailed in the Client Service Agreement specification contained in the Direct Debit Service Operations Manual;
1.2. Provide for your clients a Direct Debit Request that conforms to the specifications contained in the Direct Debit Service Operations Manual;
1.3. Obtain from each Client whose account is to be debited, a Direct Debit Request and correctly include the relevant data in each payment instruction prepared for that Client;
1.4. Hold and produce in terms of the requirements contained in the Direct Debit Service Operations Manual, all Direct Debit Requests given by your Clients;
1.5. Only draw amounts from a Client's account strictly in accordance with the contractual arrangements made with that Client;
1.6. Fully observe the terms and spirit of the Client's rights and responsibilities as specified in the Client Service Agreement; …".

64 The Conditions of Use also contained the following:

"10. Termination
10.1. ANZ may terminate your right to use the ANZ Direct Debit Service at any time by way of immediate verbal advice to you and will confirm such advice in writing to your registered business address. Termination when applied is without prejudice to your liability in respect of any instruction initiated by you or by a Bureau on your behalf and carried out by ANZ prior to the termination date specified in the notice of termination.
10.2. You may terminate your use of the ANZ Direct Debit Service at any time by way of the immediate verbal advice to ANZ and will confirm such advice in writing to ANZ. Termination when applied is without prejudice to your liability in respect of any instruction initiated by you or a Bureau on your behalf and carried out by ANZ prior to the termination date specified in the notice of termination."

The DDSA

65 The DDSA, a document of a single page, began by proclaiming itself to be a legal agreement between the user of the Service (in this case, One.Tel) and ANZ (the provider of the Service). It contains various indemnities given by One.Tel to ANZ and other financial institutions that Act on payment instructions. The following clauses are relevant to this case:

"1. Your right to use [the Service] exists only while you are acting in strict compliance with the terms of this agreement.
2. Your right to use the Service is granted to you in consideration of:
2.1. Your agreeing to observe the ANZ Direct Debit Service Conditions of Use;
2.2. Your agreeing to issue to each of your clients a copy of the Client Service Agreement as authorised by ANZ."
The Manual

66 As one would expect, the manual contained technical information concerning direct debit file specifications. It also contained procedures for dispute resolution, under which claims by clients were submitted through their financial institutions, and were required to be dealt with by One.Tel within a maximum of four business days of receipt. The client's financial institution was entitled to refund the amount claimed by drawing on ANZ, if it had not received a response to the client's claim by the close of business on the seventh business day from the date of initiation of the client. ANZ would in turn draw upon One.Tel as provided for in the DDSA. There was an arbitration procedure for disputed claims.

67 The Manual also dealt with DDRs. Clause 2.1 of the Manual described a DDR as "a contract made between you and your client that instructs you to draw monies owed by them from their account at a nominated Financial Institution". The DDR was to be retained by One.Tel. It could be a stand-alone document, incorporated into other documentation, or an electronic or telephone instruction.

68 The DDR was in the form of a request directed by the customer to One.Tel that money due under the repayment arrangements covered by the document be drawn from an account, details of which were in the form. The customer acknowledged that the direct debit arrangement was governed by the terms of the Client Service Agreement. The nominated account could be a bank account or a credit card account.

69 Examples of DDRs were given in the Manual, which also provided:

"2.4 Authorisation
The DDR [the initial and any subsequent version] must be authorised by ANZ before it is issued to your clients. Should you use a DDR that has not been authorised by ANZ, you will place at risk the legality of the related drawings, which if challenged by the Client may be reversed to your account. Your right to continue as a user of the Direct Debit Service may also be withdrawn as a result. …"

70 The Manual contained similar provisions concerning the Client Service Agreement. It prescribed the content of the Agreement and gave an example. Clause 3.4 specified that the Client Service Agreement must be issued to all clients giving DDRs. The Manual contained two provisions about Client Service Agreements that have particular relevance:

"3.1 Introduction
The Client Service Agreement is a mandatory component of the Direct Debit System which specifies the conditions under which you will use the Direct Debit facility to draw on your Client's account, it also specifies the responsibilities of the parties involved in the arrangement.
You must provide a Client Service Agreement to each Client prior to their signing a DDR. If any of the conditions [other than payment arrangements] alter during the currency of the DDR then you must provide your client with the altered version of the Client Service Agreement at least 14 days before the change is implemented."
"3.5 Authorisation
The content of the initial Client Service Agreement and any subsequent amendments must be authorised by ANZ prior to it being issued to your Clients. …"
The One.Tel Client Service Agreement

71 One.Tel sent to its customers a direct debit authorisation form of a single page, encouraging them to set up direct debit arrangements and explaining how to do so, and the text of the One.Tel Client Service Agreement, and a DDR for signature. The One.Tel Client Service Agreement was identical with the example Client Service Agreement set out in the Manual, except that the One.Tel Agreement completed information left blank in the example form, and did not contain a provision permitting the client to request a change to the drawing amount or frequency of drawings, and it contained a slightly different provision with respect to commencement of the drawings. I take it to be common ground that the One.Tel Client Service Agreement was authorised by ANZ as required by clause 3.5 of the Manual.

72 The following provisions of the One.Tel Client Service Agreement are material to the present case:

"As long as we receive your authorisation form 5 business days prior to your One.Bill due date, we can promptly activate this arrangement. Details of subsequent drawings will appear on each successive One.Bill."
"We reserve the right to cancel the One.Tel Pay Plan drawing arrangements if three or more drawings are returned unpaid by your nominated Financial Institution and arrange with you an alternative payment method."
"You may terminate the One.Tel Pay Plan drawing arrangements at any time by giving written notice to us. Such notice should be received by us at least 5 business days prior to the due date."
"You may stop payment of a drawing under the One.Tel Pay Plan by giving written notice to us. Such notice should be received by us at least 5 business days prior to the due date."

73 The Client Service Agreement made it clear that it was the customer's responsibility to ensure that sufficient funds were available in the nominated account to meet a drawing by One.Tel on the due date. If the customer considered that a drawing had been initiated incorrectly outside the pay plan arrangements, then it was up to the customer to take the matter up directly with One.Tel.

74 It is noteworthy that there was no provision in the One.Tel Client Service Agreement automatically terminating the Agreement, or entitling One.Tel to terminate it, in the event that ANZ were to exercise its power of termination under clause 10 of the Conditions of Use. There is an express right of termination if three or more drawings are returned unpaid by the customer's financial institution. But outside those circumstances, One.Tel would have to rely on an implied term to permit it to terminate the Agreement, and in all probability any implied term would permit termination only on reasonable notice.

One.Tel's billing practice

75 On receipt of the customer's executed DDR, One.Tel would load the information provided by the customer into its computerised system. The company operated approximately ten bill runs per month, and the amount due pursuant to a bill run was due 14 days after that bill run. According to Mr Sherman's evidence, the 14 day period was to allow the customer the opportunity to object to any particular item in the account.

76 Where a customer had been billed and an authorization for direct debit had been provided by that customer, a file would be generated by One.Tel and sent to ANZ requesting that the direct debit be processed via the customer's nominated bank account or credit card account. On receipt of the file, ANZ would pay One.Tel and process the direct debit via the customer's nominated account. The customer received a monthly bill that showed the amount deducted in the previous month under the direct debit arrangement, and the amount due in the current month.

77 Thus, as I understand the arrangements, a hypothetical customer, who had incurred fees and charges to One.Tel for use of his mobile telephone of $200 during the month to 14 February, would receive a bill rendered on 14 February showing that an amount of $200 was payable on or before 28 February. The bill would also show that the amount due in the previous month (to 14 January) had been paid by direct debit. At a time no earlier than 28 February the customer's bank account would be debited with the sum of $200. That debit would appear on the March bill.

78 When the customer's account was overdrawn, ANZ would debit One.Tel and One.Tel would be charged a $1 dishonour fee. If a customer disputed a bill issued by One.Tel, One.Tel would investigate and make an adjustment to the customer's account should it be proven necessary. If the adjustment was made prior to a due date it would be reflected in the amount debited. If not, the customer's account would be debited with the unadjusted amount and the adjustment would be reflected in the next consecutive bill.

79 The practical effect of a customer withdrawing from the Service is less clear. The agreement said that the customer was entitled under the Client Service Agreement to terminate the drawing arrangements at any time by written notice. If the termination notice was received by One.Tel at least 5 business days prior to the due date shown on the customer's bill, One.Tel was not entitled to pay the amount showing on that bill by direct debit to the customer's bank account. If it incorrectly did so, the customer could complain and One.Tel was obliged to investigate and make the appropriate adjustment.

80 What if the termination notice was received within the 5 business days prior to the due date of a bill? The agreement said that the termination notice "should" the received by One.Tel at least 5 business days prior to the due date. On one view, that statement was a non-mandatory encouragement to the customer, designed to avoid the inconvenience of One.Tel having to make a refund if the termination notice was received by it too late to prevent the debit from recurring, but not intended to deny the customer's right of termination during the five-day period. On another view, the statement had the effect that One.Tel was entitled to pay the amount shown on the bill by direct debit to the customer's bank account, before processing the termination, and had no obligation to the customer to refund the amount processed.

81 In my view the Client Service Agreement is ambiguous on the point. The second construction is not implausible, since it is reasonable to set a time limit before a bill run in the manner that avoids the necessity to reverse the effect of the bill run.

ANZ's right of termination

82 As between itself and the customer, One.Tel had a contractual right to direct debit payment of the amount shown on a bill as owing by the customer, unless it received a termination notice from the customer at least 5 business days before the due date shown on the bill. It had no express right to terminate its agreement with the customer without notice, and could probably only terminate on reasonable notice (whatever that might be) except in the event that three or more drawings were returned unpaid.

83 The relevant terms of the Client Service Agreement were mandated by the contract between One.Tel and ANZ, except for the stipulation of the number of business days, and a figure of five business days had been approved by ANZ for use in One.Tel's Client Service Agreement.

84 The structure is rather at odds with clause 10 of the Conditions of Use, which purports to authorise ANZ to terminate One.Tel's right to use the Service at any time. Termination by ANZ under clause 10, if it were available at all times without notice, would instantaneously prevent One.Tel from recouping payment from customers by direct debit. It would prevent One.Tel from meeting its contractual obligations to customers who wished to continue with the Service, and deny One.Tel the benefit of any right it may have had to process a payment if the customer's termination notice was received less than five business days before the due date.

85 That would seem to be a harsh and arguably unintended result, especially if One.Tel had rendered bills to customers and ANZ's termination occurred within five business days of the due date for those bills. If, on the proper construction of the Client Service Agreement, the client’s right of termination was suspended during the 5 business days before the due date, ANZ would have dictated that customers could not prevent the direct debit in those circumstances, and yet it would have reserved for itself the right to do so without notice.

Is there a serious question to be tried?

86 The plaintiffs have submitted that there are serious questions to be tried as to whether:

(a) the defendant, on the true construction of the express terms of the contract for supply of the Service to the second plaintiff, including terms implicit as a matter of construction, was entitled to terminate it with instantaneous effect, as it purported to do;
(b) (alternatively) the contract contained a "Codelfa" implied term that, absent breach by the second plaintiff entitling the defendant to determine the contract, the defendant would not terminate except upon the expiry of a period of reasonable notice of termination;
(c) the contract contained an implied term that the right of termination conferred by clause 10.1 would not be exercised unconscionably or contrary to good faith;
(d) the defendant was under an equitable obligation not to exercise unconscionably the power of termination conferred by clause 10.1;
(e) the defendant is in breach of any of the obligations referred to in (a) to (d) above;
(f) the defendant by giving notice of termination of the agreement with instantaneous effect, as it purported to do, contravened s 51AC of the Trade Practices Act.

87 I agree with the plaintiffs that there is a serious question to be tried with respect to at least one of paragraphs (b), (c), (d) and (f). I am sceptical about paragraphs (a) and (e), and would probably find against the plaintiffs if they relied on only one of those arguments in isolation. But it is unnecessary for me to decide whether the contentions cross the "serious question" threshold, since in my opinion paragraphs (b) and (c) clearly do.

88 It would be difficult for the plaintiffs to bring themselves within paragraph (a) because, in my view, clause 10.1 was unambiguous. The plaintiffs submitted that while clause 10.1 specified that there must be a written notice of termination stating a termination date, it did not empower the defendant to terminate without notice. Upon this submission, the words "by way of immediate verbal advice" were facultative, doing no more than empowering the defendant to give verbal notice of termination immediately, to take effect at a future date, subject to later confirmation in writing. The plaintiffs submitted that the words "termination date specified in the notice of termination" suggested the idea that the notice must look to the future.

89 I doubt that this construction is arguable, on the wording of clause 10.1. The clause envisages a verbal advice which may take effect instantly, and a subsequent written notice that merely confirms the verbal advice, and so the termination date specified in the notice may be a date earlier than the date of the written notice, if the written notice is given a day or more later than the verbal advice. If the drafter had intended to produce the complex outcome contended for by the plaintiffs, one would have expected the clause to make it clear that the termination could not take effect immediately.

90 There being, on this view, no ambiguity in clause 10.1, there is no room for the implication of contractual terms to qualify the power of termination contained in that clause: cf Lubrano v Gollin (1919) 27 CLR 115, 118; the categories of implied terms were usefully reviewed by Heydon JA in Brambles Holdings Limited v Bathurst City Council [2001] NSWCA 61 (23 March 2001), paras 28ff. Therefore, if the only serious question contended for by the plaintiff were paragraph (a), I would probably find against the plaintiffs.

91 Nevertheless, it seems to me that there is an arguable case for the implication of a contractual undertaking by the defendant not to exercise the power contained in clause 10.1 in certain circumstances. As I have explained, One.Tel was required, as part of its contract with the defendant, to enter into Client Service Agreements containing terms specified by the defendant. For the purpose of ascertaining the defendant's rights and obligations with respect to One.Tel, it is permissible to consider the whole package of contractual arrangements for the provision of the Service. As I have explained, the Client Service Agreement is open to the construction that the customer's right to terminate the arrangement was suspended during the five business days before the due date. The unfairness of the defendant terminating the Service during that period, without notice, is manifest. The parties can be taken to know that upon the cancellation of the direct debit service, One.Tel would be forced to other much more expensive and much less efficient methods of recovery of customer debts, such as the use of debt collection agencies or debt recovery in the Local Court.

92 Since the defendant prescribed the contractual outcome between One.Tel and the customer, it is arguable that it impliedly agreed not to exercise its right of termination under clause 10.1 inconsistently with One.Tel's rights against the customer, except where One.Tel was in breach of the contract in a manner justifying summary termination. The plaintiffs' argument is that the stated circumstances necessitate the implication of such a term to give business efficacy to the contract, having regard to the five-pronged test propounded in BP Refinery (Westernport) v Hastings Shire Council (1977) 180 CLR 266, approved by Mason J in Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337, 347. I think this from contention raises a serious question to be tried.

93 As regards paragraph (c), the plaintiffs relied on the principles discussed and applied in Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349 as establishing that the particular circumstances of this contract operated to impose on the defendant by implication a duty to act reasonably in good faith and not unconscionably, in exercising the right of termination conferred by clause 10.1. The plaintiffs contended that this imputation arose as a legal incident of the relationship created by the contract. In addition to the Alcatel case they relied on Garry Rogers Motors (Aust) Pty Ltd v Subaru( Aust) Pty Ltd (1999) ATPR 41-703, at 43014, and Burger King Corp v Hungry Jack’s Pty Ltd [2001] NSWCA 187, though they submitted that these cases did not add to the principles enunciated by Sheller JA in Alcatel.

94 In the Alcatel case Sheller JA reviewed academic literature as well as judicial decisions with respect to concept of good faith in contract performance. His Honour concluded that a duty of good faith may be imposed by implication upon the parties to a contract, both in performing obligations and in exercising rights (at 369). He said (at 368):

"If the contract confers power on a contracting party in terms wider than necessary for the protection of the legitimate interests of that party, the courts may interpret the power as not extending to the action proposed by the party in whom the power is vested or, alternatively, conclude that the powers are being exercised in a capricious or arbitrary manner or for an extraneous purpose, which is another way of saying the same thing. Thus, a vendor may not be allowed to exercise a contractual power where it would be unconscionable in the circumstances to do so: Pierce Bell Sales v Frazer (1993) 130 CLR 575, 587.”

95 As to paragraph (d), the plaintiffs contended that if on its true construction, the contract gave the defendant a right of instant termination in the absence of breach by One.Tel, that right was analogous to a unilateral power of rescission conferred on a vendor under a contract for the sale of land. They submitted that in such a case, the holder of the power is under an equitable duty not to exercise it if in the circumstances it would be unreasonable or unconscionable to do so: Pierce Bell Sales v Frazer.

96 Strictly speaking, paragraphs (c) and (d) raise analytically different points, the first about an implied contractual duty of good faith, and a second about an equitable limitation on the equitable remedy of rescission. However, in the Alcatel case Sheller JA treated the two doctrines as at least very similar, and there is probably nothing to be gained by keeping them separate in the present interlocutory circumstances.

97 It appears to me that the application of both principles is arguable, for the same reasons. In the present case the defendant's power of termination was literally broad and unqualified, but the defendant came to exercise it in circumstances where it knew, because it had mandated the terms, that the contracts between One.Tel and its customers (on one of the available and arguable constructions of those contracts) gave One.Tel the right to process debits notwithstanding purported termination by the customer within the five business days before the due date, and did not allow One.Tel a right of instant termination as against the customer. That being so, it was arguably unconscionable or a failure to exercise contractual power in good faith, for the defendant to terminate in the circumstances.

98 The defendant submitted that these grounds are not available because any implied duty of good faith and any equitable imitation on the right to terminate would be subject to the express terms of the contract. As Crockett J said in Taylor v Town and Country Planning Board (1973) 29 LGRA 367, 370, in the context of an employment contract, "the contract of service may specifically excluded terms that would otherwise be implied at law as to the requirement of reasonable notice and the absence of just cause for dismissal". That is so, but where (as here) the power to terminate is simply a broad and unqualified power, there is room for implying contractual limitations or imposing equitable constraints, because the power does not expressly exclude those constraints.

99 As to paragraph (e), the plaintiffs contended that the defendant based its decision to terminate on a misunderstanding of the effect of the Client Service Agreement. The defendant ostensibly relied on the One.Tel's breach of clause 1.5 and 1.6 of the Conditions of Use, by drawing or threatening to draw money from customers' accounts in breach of the contractual arrangements set out in the Client Service Agreement. Mr Fryer's evidence shows that the defendant believed that customers had an unconditional right to terminate their agreements with One.Tel at any time. But as I have said, one of the available constructions of the Client Service Agreement is that One.Tel was entitled to process debits unless a termination notice was given by the customer more than five business days before the due date. If that, arguably open construction is correct, One.Tel was neither breaching or threatening to breach its contractual obligations to customers.

100 The fact, if it be so (and it is arguable) that customers did not have an unconditional right to terminate their agreements, means that at least part of the ostensible grounds upon which the defendant acted in purporting to terminate the contract with One.Tel was misconceived. However, if clause 10.1 was available to permit immediate termination without grounds, the fact that the defendant may have proceeded on the basis of a misconception would not invalidate the termination. The real significance of the defendant's misconception is it contributes towards the conclusion that the defendant acted in breach of an implied term as to good faith, or unconscionably. In other words, paragraph (e) is not an independent ground for challenging the purported termination, but the matters raised by paragraph (e) go to the other arguable grounds in paragraphs (c), (d) and (f).

101 It follows from what I have said that there is also a serious question to be tried as to whether the defendant's conduct in purporting to terminate the contract without notice was unconscionable conduct within s 51AC of the Trade Practices Act.

Balance of convenience

102 This brings me to the question of balance of convenience, to be assessed having regard to the principles in the American Cyanamid case.

103 The plaintiffs have drawn attention to the undertaking offered by them, in addition to the usual undertaking as to damages. The Court is able to take into account any such undertaking in assessing whether the balance of justice lies in making interim orders or declining to do so. The plaintiffs have invited the Court to take into account that the dispute involves legal, equitable and statutory rights and remedies, the amount in dispute being already in excess of $17 million.

104 They submit that damages would not be an adequate remedy because the quantification of damages would involve assessing the recovery of a myriad of small debts amounting to that large amount. The defendant contends, to the contrary, that any issue between the parties as to the consequences of termination of the facility is an issue about money, and therefore necessarily damages would be an adequate remedy.

105 I agree with the plaintiff on this point. In assessing whether damages would be an adequate remedy, the Court must take a practical approach, looking at all the circumstances. In the present case, there will clearly be evidentiary difficulties on the part of the plaintiffs in proving the quantum of their loss, as I explained in my reasons for judgment of 3 September 2001. These difficulties of proof demonstrate, to my mind, that damages would not be an adequate remedy here.

106 In my view, however, the plaintiffs' case fails because, contrary to their submission, it cannot be said that the relief sought would not cause prejudice or hardship to the customers of One.Tel, or to the defendant.

107 The evidence indicates that charges for services not provided have been removed from the plaintiffs' records or remedied by credits. The plaintiffs would undertake, if the Service were restored, only to claim payments in respect of services in fact provided, on or prior to 12 June 2001. However, given that there are about 120,000 customers involved and according to the plaintiffs' evidence, there is now likely to be a strong resistance to payment, it seems to me clear from the evidence that there is a strong likelihood of a substantial number of disputes arising if the Service is reinstated. The plaintiffs' evidence indicates that it is losing the staff that would be needed process such disputes, and that it is at risk of losing the premises in which to do so once the existing tenancy comes to an end. In the circumstances, I cannot be satisfied that customer complaints will be processed by the plaintiffs fairly and efficiently.

108 The plaintiffs' undertaking casts a degree of responsibility on the defendant to verify that direct debit payment claims by the plaintiffs were made in accordance with their undertakings. But it does not seem to me to be reasonable, given the structure of the contractual arrangements under which it was up to One.Tel to resolve disputes with customers rather than for the defendant to do so, to impose such an obligation the defendant.

109 There is evidence before me, as I have said, that the defendant's reputation may suffer if I make the interim orders sought. It seems to me that there is some substance in this concern, especially to the extent that under the interim arrangements proposed, the defendant would be left in the position of being able to deflect criticism from bank customers who object to the debiting process only by monitoring the plaintiffs' performance of their undertakings, at its own cost. That would place the defendant in an invidious position.

110 The Court is therefore placed in a situation of being asked to sanction arrangements, to be implemented by the plaintiffs' undertakings and the order proposed by the plaintiffs, in which a substantial volume of disputes is likely, on the evidence, and the evidence does not indicate any practical means of processing those disputes fairly and efficiently.

111 Moreover, as the defendant pointed out, the arrangements proposed by the plaintiffs would involve the defendant paying to the plaintiffs the proceeds of the debiting process. To do so would not adequately protect the interests of the customers who dispute One.Tel's entitlement to debit their accounts, in my view. Adequate protection would involve the preservation of the funds for a substantial period under some appropriate escrow or trust arrangements.

112 The evidence shows that there have been attempts on several occasions to negotiate commercial arrangements under which disputes would be adequately handled and money would be preserved for the protection of customers who could show that they have been wrongly debited. Those commercial attempts have not been fruitful. The Court is in no position to broker a commercial resolution that the parties themselves have been unable to achieve, given the commercial complexity of the circumstances.

Conclusion

113 I therefore come to the conclusion that, notwithstanding that the plaintiffs have the been able to surmount several barriers in their path, the balance of convenience does not favour them. Their application for interlocutory relief should therefore be denied.

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Last Modified: 11/06/2001