FEDERAL COURT OF AUSTRALIA Primus Telecommunications Pty Ltd v Kooee Communications Pty Ltd [2011] FCA 8 Citation: Primus Telecommunications Pty Ltd v Kooee Communications Pty Ltd [2011] FCA 8 Parties: PRIMUS TELECOMMUNICATIONS PTY LTD (ACN 071 191 396) v KOOEE COMMUNICATIONS PTY LTD (ACN 00 341 331) File number(s): VID 1227 of 2007 Judge: MARSHALL J Date of judgment: 12 January 2011 Catchwords: TRADE PRACTICES—Misleading and deceptive conduct in contravention of s 52 of the Trade Practices Act 1974 (Cth) —whether acts and omissions in seeking to terminate a contractual arrangement for the provision of telecommunication services amounted to conduct in contravention of s 52 of the Trade Practices Act 1974 (Cth)—whether applicant relied on the contravening conduct— whether there was loss and damage flowing from the misleading and deceptive conduct pursuant to s 82 of the Trade Practices Act 1974 (Cth)—calculation of interest payments on damage sustained. Legislation: Federal Court of Australia Act 1976 s 51A Trade Practices Act 1974 (Cth) ss 52, 82 Cases cited: Australian Competition and Consumer Commission v Dukemaster Pty Ltd [2009] FCA 682 CCP Australian Airships Ltd v Primus Telecommunications Pty Ltd (2005) ATPR 42-042 Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 Enzed Holdings Ltd v Wynthea Pty Ltd (1984) 57 ALR 167 General Newspapers Pty Ltd v Telstra Corporation (1993) 45 FCR 164 Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No 1) (1988) 39 FCR 546 Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No 2) (1989) 40 FCR 76 Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Ltd (1978) 140 CLR 216 Kenny & Good Pty Ltd v MGICA (1992) Ltd (1999) 199 CLR 413 Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 Poseidon Ltd v Adelaide Petroleum NL (1991) 105 ALR 25 Primus Telecommunications Pty Ltd v Kooee Communication Pty Ltd [2008] FCA 1027 Wardley Australia Ltd v State of Western Australia (1992) 175 CLR 514 Dates of hearing: 24, 25, 26, 27 May 2010; 13 August 2010; & 9 September 2010 Place: Melbourne Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 82 Counsel for the Applicant: Mr R Garratt QC with Mr D Priestly Solicitor for the Applicant: Brown & Co. Counsel for the Respondent: Mr A J Meagher SC with Mr J G Duncan Solicitor for the Respondent: Aleco Vrisakis IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 1227 of 2007 BETWEEN: PRIMUS TELECOMMUNICATIONS PTY LTD (ACN 071 191 396) Applicant AND: KOOEE COMMUNICATIONS PTY LTD (ACN 00 341 331) Respondent JUDGE: MARSHALL J DATE OF ORDER: 12 January 2011 WHERE MADE: MELBOURNE THE COURT ORDERS THAT: 1. Pursuant to s 82 of the Trade Practices Act 1974 (Cth) there be judgment for the applicant in the sum of $2,386,349. 2. The respondent pay the applicant's costs of the application, to be taxed in default of agreement; subject to leave being granted to the parties to file submissions in support of an application for a variation of this costs Order on or before 7 February 2011. 3. The parties are to file and serve short submissions on the calculation of interest in accordance with these reasons on or before 7 February 2011. 4. The time for filing and service of any notice of appeal from the judgment herein be extended until the expiration of 21 days from the making of final orders in respect of the matters referred to in paras 2 and 3 of this Order. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court's website. IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 1227 of 2007 BETWEEN: PRIMUS TELECOMMUNICATIONS PTY LTD (ACN 071 191 396) Applicant AND: KOOEE COMMUNICATIONS PTY LTD (ACN 00 341 331) Respondent JUDGE: MARSHALL J DATE: 12 January 2011 PLACE: MELBOURNE REASONS FOR JUDGMENT 1 The matters currently in issue before the Court stem from a commercial dispute between two companies engaged in Australia's emerging telecommunications industry. The first issue for determination is whether the applicant , Primus Telecommunications Pty Ltd, ("Primus") is entitled to relief as a result of an alleged breach of s 52 of the Trade Practices Act 1974 (Cth) ("the TP Act") by the respondent Kooee Communications Pty Ltd ("Kooee"). If the Court is satisfied as to the existence of such breach, it is then required to consider whether Primus relied, to its detriment, on the misleading and deceptive conduct involved in the breach. The final issue for determination is the question of the quantum of such relief in the form of damages. Ancillary questions arise concerning other claims for relief, costs and calculation of interest on the damages awarded. Background 2 The applicant, Primus, was duly incorporated according to law and, carried on in Australia, the business of providing telecommunication carriage services. The respondent Kooee, formerly known as Newcastle Broadcasting & Television Corporation Pty Ltd ("NBTC"), was a corporation within the meaning of the TP Act and was the retailer of telephony and internet services. On or about 21 July 2000, Primus and Kooee entered into the Virtual Service Provider Agreement ("the VSPA"). The VSPA, which was wholly in writing, provided for the supply of wholesale telephony and internet services by Primus to Kooee for an agreed fee. It commenced on 1 August 2000 and provided a three year contractual term. The VSPA was later extended by what was known as the Letter Agreement between the parties from 1 August 2003, and allowed for an additional two year option period. The Letter Agreement was wholly in writing and constituted by two letters, one by Mr Michael Simmons (former General Manager of Kooee) dated 14 April 2003, and the other by Mr Geoff Neate (former General Manager of Primus) dated 2 May 2003. The Letter Agreement extended the VSPA, which then became due for renewal on 1 August 2006. The VIRTUAL Service Provider Agreement 3 The VSPA was an agreement between Primus and then NBTC. NBTC, shortly after having entered the agreement with Primus, became a wholly owned subsidiary of SPT Holdings Pty Ltd, which in turn became a wholly owned subsidiary of Washington H. Soul Pattinson and Company Limited, the parent company of Kooee. Recitals A and B of the VSPA provided: A. Primus owns or controls and operates the Primus Network and is a supplier of Internet, mobile phone and other telecommunications access, products, carriage services and related services. B. NBTC is or is shortly to become a wholly owned subsidiary of SPT Holdings Pty Ltd which in turn is or is shortly to become a wholly owned subsidiary of Washington H. Soul Pattinson and Company Limited (ACN 000 002 728). 4 The essential terms of the VSPA were as follows: Clause 2.1 and Schedule 1 Item 1; provided that the agreement would run for a period of three years. Clause 2.1 and Schedule 1 Item 2; provided for an option period in favour of Kooee for a further period of two years. Clause 2.2 and Schedule 1 Item 3; provided Kooee with rights to seek or obtain alternate carriage services from a provider other than Primus during the duration of the VSPA, being rights regulated by the VSPA. 5 Clauses 6.1, 6.2, 6.3 of the VSPA under the heading, NBTC Obligations of Exclusivity provided: 6.1 NBTC's Purchase Offers Neither NBTC or any NBTC Related Body Corporate controlled by NBTC's ultimate holding company will (as reseller) enter into any resale agreement with any third party (as supplier) for the supply and resale of any Carriage Service competing directly with any Primus Product, which Primus (as supplier) may be able to supply unless NBTC first makes to Primus an offer (the "Purchase Offer") to acquire for resale such Carriage Service setting out the type, specifications, price and conditions for and upon which NBTC or its Related Body Corporate controlled by NBTC's ultimate holding company would be prepared to acquire and resell the Carriage Service and such Purchase Offer is not accepted by Primus within thirty (30) days after Primus has received it. 6.2 Acceptance of Purchase Offer Within thirty (30) days of receiving any NBTC Purchase Offer, Primus may accept that Purchase Offer at the price and upon the terms, specifications and conditions as detailed therein whereupon the Parties will be deemed to have entered into an agreement for Primus's sale or supply for resale of the specified Carriage Service at the price and upon Primus's standard terms and conditions as varied by any terms detailed in the accepted purchase offer. 6.3 Alternate suppliers If an NBTC Purchase Offer is not accepted by Primus within thirty (30) days of Primus receiving it then the Purchase Offer will lapse and NBTC may enter into an agreement to purchase for resale the Carriage Service specified in the Purchase Offer referred to in Clause 6.1 from a third party supplier, provided always that neither NBTC nor any NBTC Related Body Corporate controlled by NBTC's ultimate holding company will purchase for resale the Carriage Service specified in the Purchase Offer elsewhere at a price or on terms more favourable to a third party supplier than was specified in the Purchase Offer without first having made to Primus a new Purchase Offer setting out the new more favourable price or terms. 6 The VSPA enabled a subsidiary of Primus (confusingly known as Kooee Telecom Pty Ltd), to be the vehicle for the performance of Primus's functions under the VSPA. The VSPA also operated as though Kooee sold telephony services in its own capacity, when in fact the services were provided for by Primus in, what is known in the telecommunications industry, as 'the blind supplier'. Primus would not be known as the carrier and supplier to customers and the customers would 'belong' to Kooee. Primus, under the agreement, would then bill the customers in the name of Kooee and remit 10 percent of the customer revenue to Kooee, retaining 90 percent of the revenue as the overhead for the services it provided. 7 Under the VSPA Primus was to supply the following products: internet access by dial up and permanent connection; fixed line switch voice telephony; mobile telephony; data products; HDSL (High bit rate Digital Subscriber Line); and phone cards. 8 Primus was further to provide: all billing and financial transactions; customer registration; call centres; helpdesk; customer care; credit control; bad debt management; customer complaints; and advertising and marketing support. 9 Term 2.4 of the VSPA provided Primus with first rights of refusal as follows: Term 2.4- First Rights of Refusal – If NBTC does not exercise the Option then for the period of twelve (12) months following the expiration or termination of this agreement (including the expiration of the Term), NBTC will not enter into any agreement with a third party dealing with the subject matter similar to the matters dealt with in this agreement without first offering to Primus an agreement on terms and conditions no less favourable to Primus than those which NBTC is prepared to accept from the third party and that offer is not accepted within twenty (20) Business Days after Primus has received it after which time the NBTC offer will lapse. NBTC must perform its obligations under this clause in good faith. 10 Kooee advertised and promoted its products and found customers for the Primus products which it was selling. Neither Kooee nor any related body, as reseller, was to enter into any resale agreement with any third party for the supply and resale of any carriage services competing directly with the Primus product. Primus was also not to sell more favourably to any third party. Kooee was not to compete in relation to the products which it was selling, having purchased the wholesale services from Primus. If, however, Kooee did find a better deal elsewhere it was obliged to give Primus the first right to match it. If Primus could not, or would not, match the deal, Kooee became free to terminate the services under the VSPA, at that time, but only to the extent of taking up an offer no more favourable than the offer already made. Kooee would need to make a further offer to Primus, if the terms of the offer changed. 11 Primus and Kooee entered into what became know as the Separation Deed on 21 April 2005. The VSPA thereby ended on May 2005, ahead of the original agreement as extended by the Letter Agreement, extending the termination date to August 2006. Primus claims that by having been misled into early termination of the VSPA, around 15 months earlier than originally intended, it is entitled to damages for the loss it suffered. Upon entering into the Separation Deed in April 2005, the services previously provided by Primus were then to be provided by another company, B Digital Ltd, through its subsidiary DigiPlus. The DigiPlus Offer 12 On or about 19 October 2004, Primus received a letter written on the letterhead of Kooee and signed by Michael Simmons as General Manager. The letter was in the form of a 'Purchase Offer', within the meaning of cl. 6 of the VSPA for the purchase of carriage services on new terms. The letter contained the following: Kooee Communications Pty Ltd (Kooee) has received an offer from B Digital Ltd for the supply and resale of BBB carriage services by Kooee. The BBB offer is attached. In accordance with the VSPA between Primus and Kooee, Kooee hereby makes Primus a Purchase Offer to acquire from Primus for resale the carriage services described in the BBB Offer on the terms contained in the BBB offer. Acceptance of the Purchase Offer by Primus must be in writing and addressed to the attention of myself [Mr Michael Simmons]. If Primus has not accepted the Purchase Offer within 30 days of the date of this letter, it will lapse and Kooee may enter into an agreement with BBB for the supply of BBB carriage services on the terms set out in the BBB offer. 13 Attached to that letter was a letter dated 13 October 2004 written on the letterhead of DigiPlus Pty Ltd and signed by the Director Mr Nick Kotzohambos. The letter contained the following paragraphs: Further to our discussions last week I now write to you to outline our proposals on the possibility of DigiPlus Pty Ltd providing alternative and competitive services to Kooee Communications Pty Ltd to that previously received. 1. DigiPlus to offer Kooee for resale to Kooee customers the full suite of DigiPlus products and services, including: (a) all fixed line telephony services, including local, long distance, international, service and equipment and all fixed line value added services; (b) mobile telephony services; (c) Dial Up Internet access services; (d) Broadband Data and Internet access services; (e) Phone Card/Calling Card services (in foreseeable future); (f) Prepaid telecommunications products and services (in foreseeable future). … 7. In consideration of the DigiPlus services rendered, DigiPlus shall be entitled to retain 82% of the revenue earned by Kooee through the resale of DigiPlus products. DigiPlus acknowledges that Kooee shall be entitled to record 100% of the revenue billed to Kooee customers and will pay DigiPlus 82% of that revenue. This means that Kooee earns an effective 18% margin. 8. DigiPlus will wear the risk of cash collection and bad debts, such that Kooee does not incur any bad debt loss. In this manner Kooee will be guaranteed an 18% revenue share of all revenue billed by DigiPlus on behalf of Kooee. Primus's Claims as pleaDed The TP Act claims 14 By its amended statement of claim, Primus claims at paragraph 24: 24. At the time of making the Purchase Offer, the supply of the carriage services referred to in Term 1 of the DigiPlus offer was not in fact available to the respondent on the terms set out in Term 7 or Term 8 of the DigiPlus offer. 15 It further alleges, in the alternative, that those terms would not be made available in the immediate future: 25. In the alternative, at the time of making the Purchase Offer the respondent had reasonable grounds to believe that supply of the carriage services referred to in Term 1 of the DigiPlus offer would not in fact be available in the relevantly immediate future to the respondent on the terms set out in Term 7 or Term 8 of the DigiPlus offer. 16 A cause of action for contravention of s 52 of the TP Act is pleaded in paragraph 26 of the amended statement of claim which alleges: 26. In making the Purchase Offer, the respondent engaged in conduct that was misleading or deceptive, or was likely to mislead or deceive, in contravention of s 52 of the TP Act. 17 Paragraph 27 of the amended statement of claim alleges: Further, and in the alternative, at a time subsequent to the making of the Purchase Offer, but prior to the execution of the Separation Deed, supply of the carriage services referred to in Term 1 of the DigiPlus offer became no longer available to the respondent on the terms set out in Term 7 or Term 8 of the DigiPlus offer, and the respondent did not notify Primus of this change in circumstances. 18 Primus then claims, further or alternatively, by not telling it of the change in circumstances prior to the execution of the Separation Deed, Kooee engaged in conduct that was misleading or deceptive, or was likely to mislead or deceive, in contravention of s 52 of the TP Act. 19 In the amended statement of claim, at paragraph 29, Primus says that, further and in the alternative, in communicating the Purchase Offer to Primus, Kooee implicitly represented that supply of the carriage services referred to in Term 1 of the DigiPlus offer would in the relevantly immediate future be available to Kooee on the terms set out in Term 7 and Term 8 of the DigiPlus offer and that this implied representation was false, misleading and deceptive. 20 At paragraph 31 Primus alleges: The respondent did not have reasonable grounds for making the said implied representation, and thereby engaged in conduct that was misleading or deceptive, or was likely to mislead or deceive, in contravention of s 52 of the TP Act, as interpreted by s 51A. 21 Primus claims at paragraph 32 of its amended statement of claim, that these representations about the Purchase Offer were misleading conduct by Kooee and that Primus relied on them to its detriment, by negotiating and executing the Separation Deed. Misrepresentation 22 Paragraph 33 of the amended statement of claim alleges that in making the Purchase Offer Kooee impliedly represented to Primus that supply of the carriage services referred to in Term 1 of the DigiPlus offer would in the relevantly immediate future be available to Kooee on the terms set out in Term 7 and Term 8 of the DigiPlus offer, ("the initial terms representation"). 23 Primus claims at paragraph 34 that the initial terms representation was false and that at the time of making the initial terms representation Kooee knew it to be false, or did not believe it to be true. Primus claims, at paragraph 36, that it relied on the initial terms to its detriment, by executing the Separation Deed. 24 Further and in the alternative, Primus claims that subsequent to the making of the Purchase Offer, but prior to the execution of the Separation Deed, Kooee was under a common law duty to advise Primus if the initial terms representation ceased to be true. 25 At paragraph 38, Primus claims that Kooee failed to advise that the initial terms representation ceased to be true. At paragraph 39, Primus states that it relied on the failure to correct the initial terms representation to its detriment, namely by negotiating and executing the Separation Deed. Breach of Contract 26 A cause of action for breach of contract is pleaded in paragraph 40 of the amended statement of claim which alleges: It was a term of the VSPA that the respondent was at all material times under a duty to act in good faith in its dealings with the applicant in relation to the performance of the VSPA. The term is implied by common law. 41. By its conduct, as described in paragraphs 24 to 40 above, the respondent breached its said duty to act in good faith. Loss and Damage 27 At paragraph 42 Primus alleges that as a result of the pleaded contraventions of the TP Act, misrepresentations, and breaches of contract, Primus has suffered loss and damage: (a) Loss of revenue from the respondent under and in accordance with the VSPA for the period 21 April 2005 to 1 August 2006; (b) Costs and expenses incurred in negotiating and executing the Separation Deed; (c) Loss of right of indemnity under Clause 6.6 of the VSPA for breach of Clause 6. … Misleading Or deceptive conduct-Section 52 TP Act 28 The primary question for determination is whether Kooee has engaged in conduct which was misleading or deceptive or was likely to mislead or deceive Primus, under s 52 of the TP Act. This is a question of fact which can only be determined by having regard to the relevant circumstances. 29 The facts of each case must be considered in light of the ordinary incidents and character of commercial behaviour, to determine if a party has engaged in misleading and deceptive conduct; see General Newspapers Pty Ltd v Telstra Corporation (1993) 45 FCR 164 at [178]. Conduct is deemed misleading or deceptive if it induces, or is capable of inducing error; see Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 per Brennan J at [198]. The general principles underpinning s 52 have been well established; see Australian Competition and Consumer Commission v Dukemaster Pty Ltd [2009] FCA 682, per Gordon J at [10]. Primus points to conduct that it alleges amounts to misleading and deceptive conduct being: the DigiPlus Purchase Offer made on 19 October 2004; the making of implied representations in communicating the Purchase Offer, that supply of the carriage services would in the relevantly immediate future be available to Kooee on the terms set out in the DigiPlus Purchase Offer and; Kooee not informing Primus that after 19 October 2004 and before 27 April 2005, when the Separation Deed was entered into, that supply on the terms of the Purchase Offer was no longer available to Kooee. 30 Kooee alleges that the VSPA was varied by two letters, the SPT letter dated 14 April 2003 and the Primus letter dated 2 May 2003 (the Letter Agreement). The effect of the arrangement following the Letter Agreement then according to Kooee provided as follows: The term of the VSPA had been extended by the Letter Agreement to 1 August 2006; Primus had agreed to supply Kooee with access to the Primus Network and certain Primus services to enable Kooee to sell those services under Kooee's name; Kooee was under no obligation to accept any supply of services from Primus or to resell Primus services at any rate set by Primus; Kooee was not entitled to enter into a resale agreement with any third party supplier unless it first made Primus an offer to acquire such carriage service, setting out the type, specifications, price and conditions on which Kooee would be prepared to acquire and resell those carriage services and the offer was not accepted by Primus within 30 days; If Primus did not accept the offer, Kooee was permitted to enter into an agreement with a third party supplier to purchase for resale services specified in the initial offer to Primus. Kooee was not able to enter into an agreement at a price or on terms more favourable to the third party supplier than were originally made to and not accepted by Primus; If Kooee's shares were to be sold or its customer base sold or transferred, Primus was first to be given an opportunity to negotiate and make an offer for such shares or customers. 31 Primus contends that, at this time, Kooee wanted to merge its business with DigiPlus and saw the financial benefit in the proposed merger. Kooee considered its business could be more valuable with the associated "synergy benefits" of effecting a merger with B Digital Ltd. Primus alleges that what remained as a matter of priority for Kooee was terminating the VSPA, which still had time to run, in order to gain full control of the Kooee customers. In or about November 2004, Kooee commenced negotiations for the sale of its shares in Kooee to B Digital Ltd. Kooee offered Primus the first option to acquire the shares in Kooee. Primus declined to take up the offer. B Digital Ltd at this time acquired the issued capital in Kooee. Primus contends that the termination of the VSPA by Kooee, in order for Primus to cease being the supplier of the carriage services, was of central concern to Kooee. 32 In 2004 Kooee sought legal advice from two law firms, as to whether it was at that time in breach of the VSPA. At first instance, Sparke Helmore considered that Primus may be in breach of the VSPA, but that there were associated risks with attempting to terminate the VSPA. In around August 2004, Kooee then sought a second opinion from Baker & McKenzie, which recommended against terminating the VSPA and advised that a proposed merger would be better achieved using other means. 33 In September 2004, Mr Simmons presented to the Kooee board an outline on how the merger might proceed and the value that might be achieved for the Kooee business. Fundamental to that process was the termination of the VSPA. Kooee claims that at the conclusion of the presentation it was assumed that, "Primus's services [were] able to be replaced by B Digital Ltd without breaching current agreement". Primus contends that the serving of a purchase offer, which was then not accepted by Primus, enabled a change of supplier for the carriage services in question but did not terminate the VSPA. 34 On 13 October 2004, Baker & McKenzie sent an email to Mr Simmons providing further advice on how to proceed, so that Kooee was not to receive supply from Primus. It was contemplated that the sale of Kooee would occur before the purchase offer and advised that the offer be at market rates and "arms-length", to avoid any accusation of bad faith. Mr Simmons gave evidence that around this time Kooee was contemplating a purchase offer being made before an offer of the sale of shares. 35 Primus alleges that Kooee then needed to make a purchase offer to Primus under cl. 6 on such terms that Primus could not commercially match and those uncommercial terms would affect the sale outcome of Kooee. The margin at this time between Primus and Kooee was a 10 to 90 percent split. Primus and Kooee during this time were in disagreement about revenue share. The dispute centred on, whether, under the contract, Primus was obliged, after collecting monies from customers, to remit to Kooee 10 percent of the amounts billed to customers (Kooee's contention) or 10 percent of amounts received only, (Primus's contention). The Letter Agreement purported to resolve the dispute, albeit unsuccessfully as the parties continued to disagree. The DigiPlus offer was favourable to Kooee in that it provided for an 82 percent to 18 percent split and the more favourable treatment of bad debt collections. 36 Primus alleges the arrangement between Kooee and B Digital Ltd, included an offer being made on one set of terms (the 82/18 percent split), while Kooee and B Digital Ltd secretly agreed that those terms would not be enforced. The name of the letter's author, Mr Kotzohambos, was misspelt in the letter from DigiPlus. Primus claims that it is probable that Kooee's solicitors prepared the first draft of the DigiPlus offer, on Mr Simmon's instructions. Kooee claims that DigiPlus authorised the letter because it allowed its letterhead to be used. Primus nevertheless, contends that it did not represent the full situation at the time the offer was made and, as such, was misleading. Counsel for Primus relies on the proposition that a statement can be literally true but nevertheless be misleading: see Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Ltd (1978) 140 CLR 216 at 227 per Stephen, Jacobs and Murphy JJ. 37 Kooee contends that a genuine offer was put forward by a third party (B Digital Ltd) in accordance with the VSPA. Kooee further contends that any representations or matters conveyed in the Kooee letter and the DigiPlus offer were factually correct. Primus contends that the offer was sent in order to mislead and deceive. It says that the DigiPlus offer terms were never intended to be carried out in the event there was no sale of Kooee by SPT. Primus alleges that the DigiPlus offer was not a genuine offer, but instead a contrivance of Mr Simmons. 38 During this time, Primus alleges that B Digital Ltd was concerned about the 82 to 18 percent arrangement proceeding. Most concerning to B Digital Ltd was that if the heads of agreement between B Digital Ltd and Kooee were to proceed in the form supplied, it may have been necessary for DigiPlus to provide services to Kooee at the proposed 82 to 18 percent split. At this time, Kooee agreed to change the terms of supply so that the applicable rate and terms would be 90 to 10 percent which was no less favourable than those currently applying to the Primus agreement. Primus contends that the Chief Financial Officer of B Digital Ltd, at this time, knew that Kooee's share was only to be 10 percent and not 18 percent and so was confused by the reference to an 18 percent Kooee share in the draft DigiPlus VSPA. Primus contends that the proposed arrangement was included in the heads of agreement in order to satisfy Primus's first right of refusal under their VSPA. 39 General counsel for Primus during this time, Mr Miller, gave evidence that he was concerned upon reading the letter from Kooee and the annexed three page letter from DigiPlus that circumstances were created which would enable termination of the VSPA, enabling Kooee to commence to receive services from another provider. In Mr Miller's opinion this would have been detrimental to Primus. Mr Miller further gave evidence that he wrote to Kooee addressing the DigiPlus offer on two occasions challenging the adequacy of the DigiPlus offer as an effective Purchase Offer under the VSPA. 40 Primus contends that the 10 to 90 percent conditions were to remain the benchmark in the DigiPlus VSPA. Primus also contends that this was no longer the offer that was forwarded to Primus on 19 October 2004 by Kooee. This was a new offer and under cl. 6 of the VSPA, Primus should have received a further offer at this point. Primus contends that this showed DigiPlus did not want to be exposed to the 82/18 percent arrangement in certain circumstances. DigiPlus, wanted the arrangement of a 10 to 90 percent split, however the terms of the Heads of Agreement between B Digital Ltd and Kooee were not modified to embody this change. 41 A letter dated 16 November 2004, from Mr Wilson, the then Managing Director of Primus, to Mr Simmons, stated that the proposal from DigiPlus was contrary to the agreement in place between Primus and Kooee. The agreement between Primus and Kooee was that the first right of refusal mechanism would apply only during the term of the agreement in circumstances where an additional service(s) were not being provided for by Primus and would be provided for by the proposed third party. An example of this was "the recent GSM mobile offer". The letter went on to say: In any event the purported offer from DigiPlus, and your purported Purchase Offer, do not comply with the requirements of our agreement. Primus therefore does not accept that your letter dated 19 October 2004 is in an appropriate form requiring a response from Primus. 42 A letter dated 2 March 2005, to Mr Simmons by Mr Kotzohambos, provided: DigiPlus and Kooee agree as follows: 1. If the DigiPlus VSPA is terminated under clauses 23.1 of the DigiPlus VSPA before Kooee becomes a wholly owned subsidiary of B Digital Ltd… 43 Primus claims that this letter further demonstrates an agreement and an arrangement that proceeded, or was in place to proceed, that was different to the DigiPlus offer that was originally offered to Primus. The Separation Deed was entered into 27 August 2005 and Kooee began the process of migrating customers away from Primus. However, DigiPlus did not in fact supply services to Kooee and no further trading occurred under the Kooee name. Instead, the Kooee customers, as well as the B Digital Ltd and DigiPlus brand customers, were transferred into a new brand called Soul. Primus contends that the offer given to it in October 2004 by DigiPlus was not a bona fide offer as the terms of the 82/18 split were not readily available to Kooee and no such offer ever operated. Primus further alleges that Kooee procured an offer for carriage services on terms which were so favourable to Kooee that Primus would not have been able to commercially match them. 44 Mr Miller gave the following evidence, which I accept: I was immediately concerned as to whether or not Primus would be prepared to or profitably be able to match the commercial terms set out in DigiPlus letter. In particular the margin of revenue share for Kooee at 18% was significantly more than the existing share for Kooee under the VSPA namely 10%. I also apprehended that the treatment of bad debts was apparently more favourable in the DigiPlus letter than with Primus. … It was however my firm view at that time, that is November and December 2004, that unless Primus was prepared to match or successfully challenge the Purchase offer the VSPA would soon come to an end despite having by virtue of its terms and the terms of the letter agreement at least until 1 August 2006 to run. 45 Kooee states that Mr Miller erroneously proceeded as if some deal between Kooee and B Digital Ltd had already been made despite the conditional terms of the offer. Mr Miller's evidence demonstrated that he assumed B Digital Ltd would not offer terms to Kooee unless it had carefully considered the effect of them and formed a view that they were readily available and worth offering at the time the offer was made. 46 In reliance on the factual background discussed above, I consider that the DigiPlus Purchase Offer made to Kooee and communicated to Primus was not a genuine offer made under the terms of the VSPA. It amounted to misleading and deceptive conduct in contravention of s 52 of the TP Act. It is a well accepted proposition that s 52 can be contravened by conduct, not only by statements; see Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No 1) (1988) 39 FCR 546 per Lockhart, Burchett and Foster JJ at [31]. 47 Moreover, silence can also constitute misleading and deceptive conduct; see General Newspapers Pty Ltd v Telstra Corporation (1993) 45 FCR 164 at [44]. Conduct which objectively leads a party to error is misleading, this is also so if the information provided is a half truth; see Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No 2) (1989) 40 FCR 76. In Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31, Black CJ at [32] said: Silence is to be assessed like any circumstance. Although "mere silence" is a convenient way of describing some fact situations, there is in truth no such thing as "mere silence" because the significance of silence always falls to be considered in the context in which it occurs. 48 The acts and omissions of Kooee constituted a breach of s 52 of the TP Act. By not disclosing the true position of B Digital Ltd to Primus, at the time B Digital made the Purchase Offer to Kooee, that it was not prepared at any time to proceed with the offer on the terms made, namely the, 82/18 split, Kooee engaged in misleading and deceptive conduct. Kooee mislead Primus into believing that the Purchase Offer made was intended to be taken up as an immediate supply offer, not a conditional future offer, and that if Primus could not match the offer the VSPA would terminate. The bargaining process in commercial dealings is not a licence to deceive, see Nettle JA in CCP Australian Airships Ltd v Primus Telecommunications Pty Ltd (2005) ATPR 42-042 at [33] and Burchett J in Poseidon Ltd v Adelaide Petroleum NL (1991) 105 ALR 25. 49 I am satisfied that at the time B Digital Ltd made the Purchase Offer to Kooee the terms on offer were not capable of being executed. Consequently, it follows that the Purchase Offer made on those terms was not a genuine offer. Kooee claims that the offer was subject to board approval and therefore conditional, but a genuine offer. However, the managing director of B Digital Ltd was not aware that the arrangement between B Digital Ltd and Kooee had been discussed until the day before the merger was announced. The B Digital Ltd board was not aware of the merger proposal until after the DigiPlus offer was made. This further illustrates that the Purchase Offer was not a genuine offer capable of execution on the terms offered. Even if the DigiPlus offer was a conditional offer, being subject to board approval, what followed after the offer was further misleading and deceptive conduct. 50 Primus was not able to commercially match the conditions on offer from DigiPlus. This led to an early termination of the VSPA. Kooee claims that it was under no contractual obligation to advise Primus of any changes to the terms of the contract. However, Primus had rights under cl. 6 of the VSPA that constituted an ongoing first right of refusal. As such, if those terms did change, Primus would then have needed to be provided with a further purchase offer under the VSPA. Kooee did not inform Primus about any changes to the terms that were on offer. This too amounted to misleading and deceptive conduct. Reliance 51 Primus needs to demonstrate that it acted upon, or was influenced by the contraventions to be entitled to damages. A practical common sense approach should be taken to causation, see Wardley Australia Ltd v State of Western Australia (1992) 175 CLR 514 at [525]. The contravention need be only the, or one of the, decisive considerations leading to the loss; see Kenny & Good Pty Ltd v MGICA (1992) Ltd (1999) 199 CLR 413 per Gaudron J at [35]. It is sufficient if the contravening conduct only plays a minor part in the loss. Primus alleges that it suffered loss by entering into the Separation Deed earlier than foreseen by approximately 15 months. 52 Primus alleges that Kooee's conduct in conveying the purchase offer, and in actively fostering the ongoing misapprehension as to the terms that were available to Kooee from a third party, constituted a clear breach of Kooee's duty in performing its obligations. The conduct, it is alleged, affected Primus's rights under cl. 6 of the VSPA. 53 Kooee contends that even if Primus could establish misleading and deceptive conduct in one of the respects alleged, it could not establish that it relied upon the conduct and further that that reliance led it to execute the Separation Deed, thereby suffering loss. Kooee alleges that the only evidence Primus relies upon is from Mr Miller who said, "If Primus had never received the purchase offer from Kooee, I would not have advised Primus to negotiate an orderly and consensual termination of the VSPA". Kooee states that Mr Miller's role was to give legal advice and commercial decisions were referred to commercial officers, usually the Chief Executive Officer. The Chief Financial Officer for Primus gave evidence that he oversaw the financial aspects of the VSPA and assessed the financial implications of the purchase offer. In his opinion, the reason for Primus entering into the Separation Deed was because it could not match the DigiPlus offer. He was not challenged on that belief. I am satisfied that Primus did rely on the contravening conduct which led it to enter into the Separation Deed. Common law misrepresentation and breach of duty to advise 54 Primus contends that the same conduct relied upon for the TP Act claims also gives rise to a common law claim. Kooee alleges that there has been no common law breach as Primus makes no allegation of fraud or negligence, so as to found a claim for damages for misrepresentation. Kooee further contends that in any event, such representations were not untrue. As the TP Act claims have succeeded and the conduct which gave rise to those claims involves the same conduct which gave rise to this claim, it is unnecessary to decide whether this claim is made out. Any damages which may have flowed from this claim being made out would not have exceeded those awarded under s 82 of the TP Act. Breach of contract 55 Primus alleges that Kooee breached the VSPA by not acting in good faith in its dealings with Primus. Kooee denies that it acted dishonestly. It further alleges that the Separation Deed absolved it of any liability for a breach of the VSPA as a matter of contract. 56 It is not necessary for the Court to resolve these issues. Even if the Court had been satisfied that a relevant breach of contract had occurred, no extra damages would have flowed to Primus over and above those awarded for breach of s 52 of the TP Act. Anshun Estoppel and abuse of process 57 On 10 July 2008, the Court rejected an interlocutory application by Kooee to dismiss the proceeding; see Primus Telecommunications Pty Ltd v Kooee Communications Pty Ltd [2008] FCA 1027. At [2] in the interlocutory judgment, the Court described Kooee's contentions as follows: In essence, Kooee contends that the claims made by Primus in the current proceeding should have been raised in an earlier proceeding between the two companies in the New South Wales Supreme Court. Kooee submits that the two proceedings arise out of substantially the same facts and that the current proceeding will give rise to the possibility of a judgment inconsistent with that obtained in New South Wales. Kooee further contends that no special circumstances apply to avoid the conclusion that it was unreasonable for Primus to have refrained from raising its current claims in the earlier proceeding. 58 The Court considered that it was not unreasonable for Primus to defer reliance on its claims raised in this proceeding rather than raising them in the New South Wales proceeding. At [31], the Court considered that no case had been made out for the invocation of the Anshun Estoppel principle. At [32] it rejected a submission that the current proceeding constituted an abuse of process. Kooee re-agitates those submissions before the Court at trial. They remain as submissions that should be rejected. Having heard the evidence and submissions raised at trial, I am confirmed in my earlier expressed view as set out at [27] of the interlocutory judgment that "the critical facts required to make out the current application did not require examination in the earlier litigation". Further, the judgment and order which will result from the current proceeding will not conflict with any judgment or order made in the New South Wales proceedings. As correctly forecast at [28] in the interlocutory judgment: The judgments in New South Wales give effect to the Separation Deed by interpreting the rights of the parties under it. Any judgment in this proceeding will focus on the conduct of Kooee in the…period leading up to the termination of the VSPA… . 59 At [30] in the interlocutory judgment, the Court said: …A judgment dismissing the matter before the Court is interlocutory in nature. It would still be open to Kooee to advance its submissions based on the Anshun principle at the trial of the proceeding when the issues will be more clearly defined. 60 The trial did not elucidate the issues with greater clarity than was available at the interlocutory hearing. Rather, it confirmed the correctness of the view expressed in the interlocutory judgment, that it was not unreasonable for Primus to refrain from raising matters alleged against Kooee in this proceeding, rather than when Primus was engaged in the New South Wales proceedings. 61 I remain firmly of the view that this is not a case for the invocation of the Anshun Estoppel principle for the reasons set out in the interlocutory judgment. 62 I also reject any claim that the current proceeding is an abuse of process. No matter has been litigated in it which had previously been disposed of in any early proceeding. The abuse of process contention is devoid of any merit. My earlier expressed views at the interlocutory stage have been confirmed by the evidence at the trial and by the findings of fact based on the evidence. Loss and Damage 63 Primus contends that its loss arising from the contravening conduct is the loss of the revenue which Primus would have received had the VSPA not been prematurely terminated. Primus seeks to recover earnings on a net basis under the VSPA from 21 April 2005 to 1 August 2006. As a Full Court of this Court said in Enzed Holdings Ltd v Wynthea Pty Ltd (1984) 57 ALR 167, at 183: …If the court finds damage has occurred it must do its best to quantify the loss even if a degree of speculation and guess work is involved. Furthermore, if actual damage is suffered, the award must be for more than nominal damages. We should add that we can see no reason why this principle should not apply in cases under the Trade Practices Act as well as in cases at common law. We emphasize, however, that the principle applies only when the court finds that loss or damage has occurred. It is not enough for a plaintiff merely to show wrongful conduct by the defendant. 64 A joint experts report on quantification of loss was prepared and filed as evidence before the Court with alternate scenarios in order to ascertain the amount of loss and damage sustained. 65 The two experts agreed on the use of a discounted cash flow methodology as appropriate to assess the value of the loss to Primus and provided two possible scenarios for the Court's determination. Four sub-scenarios A to D have been calculated for both scenarios 1 and 2. Both scenarios assume that the VSPA would have run its full course. Scenario 1: 66 This scenario assumes the loss commenced from 1 May 2005 and that Kooee would continue to promote the services by Primus. Scenario 2: 67 This scenario assumes the loss commenced from 1 May 2005 and that Kooee would not continue to promote the services by Primus. 68 Primus contends that there are three issues which remain subject to the Court's determination after the joint report. They are: whether the lost revenue should be reduced to reflect Kooee ceasing to promote Primus services as a result of the sale of the Kooee business in April 2005 and, if so, the amount of any such deduction; whether an amount should be deducted to reflect "actual profits" allegedly derived by Primus subsequent to the termination of the VSPA; whether there should be a deduction representing a claim by Kooee for unpaid revenue share over the life of the VSPA. 69 Kooee claims that any figure should take into account a deduction for the post Separation Deed profit allegedly obtained by Primus, that being, the profit made by Primus in respect of the VSPA business in the period post the Separation Deed, in the sum of $456,468. Kooee also claims that any figure should be discounted for contingencies as both scenarios 1 and 2 assume the VSPA would have run its full term. Kooee claims that due to the commercial relationship between both parties being so seriously disaffected one or both parties may have sought to discontinue that relationship prior to the VSPA running its full term. Kooee claims that an appropriate discount for this contingency would be 50 percent. Kooee also claims that by entering into the Separation Deed, Kooee gave up a claim for unpaid revenue share under the VSPA in the sum of $911,977. As such it is Kooee's contention that this unpaid revenue share should be deducted from the total figure. 70 Primus contends that the loss can be quantified according to the joint expert report at $2,386,349, using sub-scenario A of scenario 1, plus interest from the midpoint between 21 April 2005 and 31 July 2006, being around 10 December 2005. Primus makes this claim for damages for the loss of opportunity to earn income pursuant to the terms of the VSPA. 71 Koeee claims that the quantification of loss should be measured via sub-scenario D of scenario 2, that is, loss adjusted for both post April 2005 profits reported and Kooee's foregone commission, at the amount of $333,896, plus interest since that date to the date of judgment. 72 Kooee contends that scenario 2 is to be preferred over scenario 1 as the same level of promotion by both Primus and Kooee of the VSPA business would not have continued post Separation Deed, in exactly the same way as it existed prior to such time. Kooee points to evidence that upon Primus's knowledge of the merger deal between Kooee and B Digital Ltd, Primus would have ceased promotion of the VSPA business. The report at scenario 2, assumed a 7 percent per month attrition rate, based on the average rate of loss of customers over the period from 1 May 2005 leading up to the cessation period of the VSPA. However, no allowances were made for any new customers taking up the Primus/Kooee services during this 15 month period. The figure does not account for any incoming customers during this period and it is probable that new customers would have signed up to the Primus/Kooee services, due to residual marketing and promotional advertising that already existed in the market place, as well as word of mouth sign-ups through family and friendship connections. As such, I am satisfied that scenario 1 should be preferred over scenario 2 on the basis that even though it is probable that both Primus and Kooee may not have continued to advertise their services in the same way post Separation Deed, the figures in scenario 2 do not take account of any new customer up take from existing promotional marketing. The figure to be applied to Primus's loss is taken from scenario 1 sub-scenario A, being the amount of $2,386,349. 73 I am not satisfied that this figure should be discounted for the profit allegedly made by Primus in respect of the VSPA business in the sum of $456,468. The Court has no evidence before it, whether if any or all, of the actual profits were received by Primus. Primus contends that Kooee took over the physical collection of monies owed from the Kooee customers and that there was litigation between the parties in respect of monies owed between them. As such, the Court can not be satisfied as to the costs and other expenses, if any, which may have been incurred by Primus in recovering any monies that may have resulted from the actual profits received. 74 Kooee further contends that it would have potentially received the sum of $911,997 had the Separation Deed not been entered into. Primus contends that this figure is in the nature of a set off claim, which has not been pleaded or referred to in Kooee's Defence or any Cross Claim. Primus submits that the sum reflects the accumulated differential between the revenue share that Kooee considered that it was entitled to under the VSPA, being the agreed percentage of the amounts billed and the revenue share which Primus in fact remitted throughout the life of the VSPA. That reflects the agreed percentage of the monies actually received from customers. These issues were part of the ongoing dispute between Primus and Kooee and it is contended by both parties that the Letter Agreement purported to resolve some of these issues. 75 However, the evidence suggests that the Letter Agreement did not conclusively resolve the issues between the parties and disagreement as to what monies were owed continued until the execution of the Separation Deed. Primus submits that Kooee could have commenced legal proceedings to recover the claimed $911,997, but did not. Kooee obtained legal advice concerning these issues from Baker & McKenzie yet did not commence a proceeding, as the advice received on this point was adverse. Mr Simmons also gave evidence that in order to achieve the migration of customers away from Primus, Kooee was prepared to give up on rights which Kooee might have had on higher commission payments from Primus, in order to facilitate a smooth migration of customers. 76 As this issue was not raised in Kooee's Defence or Cross Claim, it is not open to the Court to make a finding on the merits of this claim as it would be unfair to do so, when arguments have not been the subject of a full contest. The only relevant evidence before the Court on this issue, is the affidavit of Mr Simmons, which sets out the history of the dispute between Primus and Kooee. As the pleadings do not engage this issue, the information provided on this point has been treated as historical background. As I am unable to form a considered view about the merits of this claim, it is rejected. 77 Kooee's claim that damages should be discounted by 50 percent to reflect the contingency that the VSPA may have terminated in any event has not been substantiated. The evidence is to the contrary. Kooee, throughout the lead up to the termination of the VSPA, engaged in conduct which was misleading and deceptive as part of a process designed to terminate the VSPA with Primus. It is presumed that Kooee engaged in this unlawful conduct as it was the only available option to Kooee at that time in order to terminate the VSPA ahead of its full term. If there had been other options available to Kooee to terminate the VSPA, by other means, it is presumed it would have done so. I am not satisfied that the monetary amount to be awarded to Primus for its loss should be discounted to encompass this contingency. Interest Payments 78 Pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth), Primus is entitled to interest on the damages payable to it under the Court's order, up to the date of judgment. This entitlement is subject to good cause being shown to the contrary. Kooee did not submit that should the Court award damages to Primus there was good cause not to award interest on the sum payable. 79 In accordance with practice note CM 16 issued by the Chief Justice on 28 June 2010, the relevant rate of interest is 4 percent above the cash rate published by the Reserve Bank of Australia in respect of any period from 1 January to 30 June and 1 July to 31 December in any year respectively. Practice Note CM 16 provides: … 2. Practitioners and litigants should expect that where, pursuant to section 51A (1) (a), interest in respect of a pre-judgment period is to be included in a judgment, the Court will have regard to the following rates, being rates agreed upon by the Discount and Interest Rate Harmonisation Committee established following a referral by the Council of Chief Justices of Australia and New Zealand: (a) in respect of the period from 1 January to 30 June in any year- the rate that is 4% above the cash rate last published by the Reserve Bank of Australia before that period commenced, and (b) in respect of the period from 1 July to 31 December in any year- the rate that is 4% above the cash rate last published by the Reserve Bank of Australia before that period commenced. 80 The above Practice Note provides a guide to the approach to be applied when awarding interest on damages payable. Primus is seeking interest payable from the midpoint of 21 April 2005 to 31 July 2006, this being 10 December 2005. The cash rate of interest set by the Reserve Bank of Australia in December 2005 was 5.5 percent. The current cash rate at the time of judgment is 4.75%. Interest is payable on the awarded damages of $2,386,349 for the approximate five year period from 10 December 2005 to present day. The below table demonstrates the changes in the Reserve Bank of Australia cash rate over this period. Reserve Bank of Australia- Approximate cash rate table from 2005-2011 1 July -31 December 2005 5.5 + 4 = 9.5% 1 January- 30 June 2006 5.75% + 4 = 9.75% 1 July -31 December 2006 6.25% + 4 = 10.25% 1 January- 30 June 2007 6.25% + 4 = 10.25% 1 July -31 December 2007 6.75% + 4 = 10.75% 1 January- 30 June 2008 7.25% + 4 = 11.25% 1 July -31 December 2008 4.25% + 4 = 8.25% 1 January- 30 June 2009 3.00% + 4 = 7.00% 1 July -31 December 2009 3.75% + 4 = 7.75% 1 January- 30 June 2010 4.5% + 4 = 8.5% 1 July -31 December 2010 4.75% + 4 = 8.75% 1 January- 30 June 2011 4.75% + 4 = 8.75% 81 Given the considerable time period involved in the calculations and in order to lessen the likelihood of mathematical error, it is appropriate to reserve to the parties the right to advance short submissions on the calculation of the rate of interest to apply taking into account the above table. These submissions should be filed and served on or before 7 February 2011. Costs 82 There is no reason why costs should not follow the event. However, the Court will grant leave to the parties to file submissions in support of an application for a variation of the costs order. Any submissions regarding costs should be filed and served on or before 7 February 2011. I certify that the preceding eighty-two (82) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Marshall. Associate: Dated: 12 January 2011