RSA v Syscon [1999] NSWSC 392

New South Wales Supreme Court CITATION : RSA v Syscon [1999] NSWSC 392 CURRENT JURISDICTION : Equity FILE NUMBER(S) : 3142/97 HEARING DATE(S) : 15/04/99 JUDGMENT DATE : 30 April 1999

PARTIES : RSA Technologies Pty Limited v Syscon Justice Systems Limited JUDGMENT OF : Master Macready at 1

LOWER COURT JURISDICTION : Supreme Court LOWER COURT FILE NUMBER(S) : LOWER COURT JUDICIAL OFFICER :

COUNSEL : Mr R. Beech-Jones for the plaintiff Mr J. Priestley for the defendant SOLICITORS : Bull, Son & Schmidt for the plaintiff Henry Davis York for the defendant CATCHWORDS : Corporations Law. Application to set aside statutory demand. Contract. Whether contract may be made to have retrospective operation and whether in the circumstances of this case that occurred. DECISION : Para 28

16

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

MASTER MACREADY

Friday 30 April 1999

3142/97 RSA TECHNOLOGIES PTY LTD v SYSCON JUSTICE SYSTEMS LTD.

JUDGMENT

1 MASTER MACREADY: This is an application to set aside a statutory demand dated 13 June 1997 which demand requires payment of $88,145.61 for what are described as "licensing fees due by the company pursuant to distribution agreement dated 1 April 1996 which demand has been made on the company". 2 The application has been made within time and concerns commercial arrangements between the two parties for the supply of software services. 3 The matter arises as a company in British Colombia, OCS Technologies Group ("OCS") was a manufacturer and supplier of prison offenders management system software which was developed in British Colombia, Canada. Through the medium of, inter alia, the plaintiff, this software was to be marketed to various Government departments in Australia, New Zealand and the South Pacific. The plaintiff's first agreement was entered into on 1 November 1992 with OCS when they were appointed as a reseller/dealer in the software. In March 1993 another company Computervision entered into an agreement with the NSW Department of Corrective Services to supply that department the software management system. That company, Computervision in effect had the head contract with the Department. On 16 June 1995 Computervision entered into a Service Agreement with RSA Justice Systems Pty Ltd for services to be supplied effectively by way of subcontract to fulfil the obligations Computervision had to the Department for the installation, commissioning and eventual running of the software system. 4 Early in 1996 OCS went into liquidation and a principal of that company formed another company Syscon Justice Systems Limited to acquire the rights for the distribution of the software. This it did in March 1996. 5 Not long after the liquidation of OCS and the defendant obtaining the licensing and distribution rights an agreement was reached between Mr Phillips on behalf of the plaintiff and Mr Sully on behalf the defendant whereby the defendant would assist the plaintiff with software implementation services for the purposes of the Computervision agreement both in Canada and on site in Sydney at the rate of US$90 per hour. On 27 June 1996 a letter was sent by the defendant to the plaintiff referring to the future implementation of a dealer agreement between the parties. It then said:- "In the meantime, for the purposes of continuity please take this correspondence as a temporary agreement to move ahead with sales of CSS and/or OMS to the New South Wales Government. The terms of the temporary agreement reflect in whole the terms as previously agreed upon with OCS Technologies Corp in their dealer re-seller agreement with RSA." 6 From the middle of 1996 the defendant continued providing software implementation services for which the plaintiff was to pay. I note that at this stage that the project with the New South Wales Government was still in the implementation stage and there had not been acceptance of the software package and the ultimate running of it by the Government. That did not occur until about April 1997. The general arrangements which I will come to provide for licence fees to be payable which amounts come initially from the Government through Computervision and the plaintiff pays part of them, pursuant to the dealer agreement, to the defendant in Canada. In mid December 1996 there were telephone conversations between Mr Phillips of the plaintiff and Mr Boyle of the defendant. This conversation is important and is set out in paragraph 19 of Mr Phillips' affidavit. As it is important I set out paragraph 19 in its entirety as follows:- "In or about mid December 1966 I had a telephone conversation with Mark Boyle of Syscom in words to the following effect: 'RSA will pay Syscon all its share for software implementation variations when RSA is paid for those variations by Computervision. RSA cannot pay any outstanding monies due as at 1 December 1996 until we commence to receive monies for providing maintenance services under the Computervision contract which we expect to start in about February 1997.' I had a conversation in words to the above effect with Mark Boyle confirming deferring payment of any monies due as at 1 December 1966 on a number of occasions during the period mid December 1996 to February 1997." 7 On 17 December 1996 the plaintiff and the defendant executed a Distributorship Agreement for the software providing exclusivity for Australia, New Zealand, Malaysia and Singapore. The agreement was made on 17 December and was expressed to operate as from 1 April 1996. 8 On 28 January 1997 the completion date for the software implementation with Computervision was extended, as I have mentioned, to April 1997 when maintenance obligations would then arise. On 11 February 1997 the defendant purported to cancel the distribution agreement for non-payment of monies which were due thereunder relying upon clause 10.2(c) of the agreement signed in December. That termination was immediately disputed and once again on 26 February 1997 a further notice of termination was issued based upon non-payment. From this time onwards the defendant in fact provided support services direct to Computervision and the State Government and ultimately maintenance services after acceptance in April 1997. In other words relying upon its termination Syscon stepped into the shoes of RSA and effectively prevented RSA from doing anything further with the projects. As well it also took over negotiations for projects which were in an advanced stage of tender both in Western Australia and New Zealand. 9 On 13 May 1997 the defendant again purported to terminate the contract this time alleging failure to provide services by RSA rather than relying upon payment. On 18 June 1997 a s459 Notice and affidavit was served and on 8 July 1997 the Summons and affidavits in support were filed. On 27 May 1998 the defendant commenced proceedings in Canada against the plaintiff to recover the same monies as are claimed in the s459 notice. No cross claim has been filed in respect of those proceedings. 10 I turn to how the plaintiff puts its case. The first point is that they say there is a genuine dispute regarding the amount outstanding at 1 December 1996. They rely upon the agreement for postponement contained in para 19 which I have set out above. The plaintiff's case is that the payments which were made after 1 December 1996 were wrongly allocated by the defendant to pre December 1996 invoices. In respect of these pre December 1996 invoices the arrangement was, according to the plaintiff, that these were not to be paid until payment of maintenance support fees became payable under the contract with Computervision. This would not occur until acceptance by the client which happened in April 1997. In any event none have been received because of, according to the plaintiff, the wrongful termination of the contract of the distribution agreement by the defendant. 11 The second way in which the plaintiff puts their case is by submitting that there is an offsetting claim being damages arising out of a wrongful breach of the distribution agreement whether it be 11 February 1997, 26 February 1997 or 13 May 1997. In respect of the first two breaches the claim for termination was based upon clause 10.2(c) which gave a right to termination if there was fault in payments "due hereunder". The plaintiff submits that the monies that were outstanding were not owing under the Distributorship Agreement but under a separate agreement made in mid 1996 following upon the liquidation of OCS. Such fees were software installation fees. In support of that argument the plaintiff draws attention to the Distributorship Agreement which was actually executed in December 1996 which it says does not make provision for software installation fees and also tends to characterise the nature of the fees by reference to the way they are sought to be recovered in the British Colombia proceedings. 12 In respect of the wrongful breach on 13 May 1997 this termination is said to be because the plaintiff had not provided software and support services following upon the earlier termination. Assuming the earlier terminations were not valid then, clearly, neither would this termination be valid. The reason why the services were not able to be provided by the plaintiff had been because the defendant wrongfully terminated the agreement and prevented them from doing so. In respect of the offsetting claim there are a number of ways in which the damages are put. Probably the most telling comes from documents of the defendant which on their own estimates put the value of the rights lost as a result of the termination at least $600,000. 13 I had the benefit of having a number of submissions in respect of the principles to be applied and I think probably the most useful summation is that given by McLelland CJ in Equity in Eyota Pty Limited v Hanave Pty Limited (1994) 12 ACLC 669. At page 671 his Honour made the following comments respect of the expression "Genuine dispute": "It is, however, necessary to consider the meaning of the expression 'genuine dispute' where it occurs in s.459H. In my opinion that expression connotes a plausible contention requiring investigation, and raises much the same sort of considerations as the 'serious question to be tried' criterion which arises on an application for an interlocutory injunction or for the extension or removal of a caveat. This does not mean that the Court must accept uncritically as giving rise to a genuine dispute, every statement in an affidavit 'however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself, it may be' not having 'sufficient prima facie plausibility to merit further investigation as to (its) truth' (cf Eng Mee Yong v Letchumanan (1980) AC 331 at 341), or 'a patently feeble legal argument, or an assertion of facts unsupported by evidence' (cf South Australia v Wall (1980) 24 SASR 189 at 194). But it does mean that, except in such an extreme case, a Court required to determine whether there is a genuine dispute should not embark upon an inquiry as to the credit of a witness or a deponent whose evidence is relied on as giving rise to the dispute. There is a clear difference between, on the one hand, determining whether there is a genuine dispute and, on the other hand, determining the merits of, or resolving, such a dispute. In Mibor Investments (at ACLC 1066; ACSR 366-7) Hayne J said, after referring to the state of the law prior to the enactment of Division 3 of Part 5.4 of the Corporations Law, and to the terms of Division 3: 'These matters, taken in combination, suggest that at least in those cases, it is not expected that the Court will embark upon any extended inquiry in order to determine whether there is a genuine dispute between the parties and certainly will not attempt to weigh the merits of that dispute. All that the legislation requires is that the Court conclude that there is a dispute and that it is a genuine dispute.' In Re Morris Catering (Australia) Pty Limited (1993) 11 ACLC 919 at 922; (1993) 11 ACSR 601 at 605 Thomas J said: 'There is little doubt that Division 3 . . . prescribes a formula that requires the Court to assess the position between the parties, and preserve demands where it can be seen that there is no genuine dispute and no sufficient genuine offsetting claim. That is not to say that the Court will examine the merits or settle the dispute. The specified limits of the Court's examination are the ascertainment of whether there is a "genuine dispute" and whether there is a "genuine claim". It is often possible to discern the spurious, and to identify mere bluster or assertion. But beyond a perception of genuineness (or the lack of it) the Court has no function. It is not helpful to perceive that one party is more likely than the other to succeed, or that the eventual state of the account between the parties is more likely to be one result than another. The essential task is relatively simply - to identify the genuine level of a claim (not the likely result of it) and to identify the genuine level of an offsetting claim (not the likely result of it).' I respectfully agree with those statements." 14 The defendant in its submission has not surprisingly suggested that the nature of matters raised by the plaintiff fell more into the realm of the spurious, bluster or mere assertion and were not maintainable. It is necessary to look at each area in slightly more detail to determine the level of genuineness. Genuine Dispute 15 I have earlier set out the terms of paragraph 19 of Mr Phillips' affidavit. In that he reports the conversation with Mark Boyle the burden of which is that RSA could not pay the outstanding monies until it started to receive payment for maintenance services. He does not give any response from Mr Boyle to that statement. The last paragraph of that paragraph 19 on its true reading in my view merely means that the statement that RSA cannot pay monies until it receives maintenance services was repeated on several occasions. What is totally missing is any response which might in any way amount to an agreement to defer for some consideration. That there may have been statements but no agreement would seem more likely given that Syscon was pressing the plaintiff for the payment at this time. In my view there was no agreement which would found a genuine dispute as put by the plaintiff. Offsetting Claim 16 I have earlier referred to the proceedings already issued by the plaintiff in British Colombia and it is apparent from a perusal of the claim in those proceedings that the same amounts are claimed under the Notice of Demand except for an amount of $9,470. In the British Colombia proceedings the claim is characterised as one under an agreement made from and after June 1996 for the provision of design, planning, project management and software installation and programming services. Relevantly there is no reference to the claim being made under the agreement dated 1 April 1996 which was executed on 17 December 1996. These proceedings were commenced in 1997 well after the execution of that agreement. This is an indication that at least the advisers to the defendant may have thought the fees were due not under that agreement. However it does not go further than that. 17 The actual services that were being performed by the plaintiff during 1996 which are allegedly the subject of a claim for termination were certainly what have been described in the evidence as software implementation fees and seem to be fees payable during the period prior to the acceptance of software by the client. It is useful to look at the terms of the agreement executed in December 1996 to see whether it may have contemplated the payment of fees for this amount by the plaintiff to the defendant. 18 In the definitions "maintenance" means provision of assistance towards the resolution of the problem or error when the products are not performing according to documentation. "Services" are defined to mean the provision of qualified personnel (at the expense of RSA) who shall have appropriate skills to enable them to perform duties relating to application design, application development business practice analysis system implementation, testing and training. Under clause 2.1 of the agreement the rights given to the plaintiff are to market and distribute the products in the territories. End users are required to enter into a software licence agreement with Syscon and the plaintiff. Under clause 2.2 the plaintiff has the right to support end users who enter into an appropriate agreement with Syscon. Such grant of rights are reflected in the corresponding obligations on the plaintiff to market, distribute and provide the services. 19 When one comes to find out how the payment is made by the plaintiff to the defendant clause 3.3 provides for a payment by the plaintiff to the defendant for the licence fee being a certain percentage of prices. Clause 3.5 provides that an invoice for the payment of fees is payable on 30 days and maintenance fees are due and payable 30 days from the maintenance effective date. On the face of it the document does not seem to provide for payment to the defendant if it provides services to the plaintiff prior to acceptance of a product and the liability for maintenance fees commencing. In addition the agreement, although defining "services" as including the provision of its personnel, does not seem on the face of it to impose an obligation to support the plaintiff by the provision of the defendant's personnel. See particularly the limited responsibilities that the defendant has under clause 8.1 of the agreement. 20 There seems no doubt that certainly with the project for the New South Wales Government that the defendant did provide services for which the plaintiff agreed to pay pursuant to the arrangement made in early 1996 as referred to in the letter of 27 June 1996. 21 This contrast is important because the next step in argument is to consider what is the effect of the written agreement that was made in December 1996. I turn to that question. 22 Importantly the agreement at the beginning contains these words, "This agreement made as of at the first day of April 1996 among". Clause 12.4 of the agreement provides that the agreement sets forth the entire understanding between the parties and supersedes prior arrangements, "relating to the subject matter hereof". It then deals with no other warranties other than contained in the document, amongst other things. The execution of the document clearly shows that it was signed on 17 December 1996. There is no doubt that a contract can be expressed to have retrospective effect. In Trollope & Colls Ltd v Atomic Power Construction Ltd (1963) 1 WLR 333 at 339 Megaw J had the following to say:- "Logically this position is, I think, unassailable if, but only if, one has to assume that the acceptance of an offer cannot have retrospective effect so as to make the contract apply to things done earlier in anticipation of the contract. But, so far as I am aware, there is no principle of English law which provides that a contract cannot in any circumstances have retrospective effect, or that, if it purports to have, in fact, retrospective effect, it is in law a nullity. If, indeed, there were such a principle, there would be many important mercantile contracts which would, no doubt to the consternation of the parties, be nullities. Frequently, in large transactions a written contract is expressed to have retrospective effect, sometimes lengthy retrospective effect; and this in cases where the negotiations on some of the terms have continued up to almost, if not quite, the date of the signature of the contract. The parties have meanwhile been conducting their transactions with one another, it may be for many months, on the assumption that a contract would ultimately be agreed on lines known to both the parties, though with the final form of various constituent terms of the proposed contract still under discussion. The parties have assumed that when the contract is made - when all the terms have been agreed in their final form - the contract will apply retrospectively to the preceding transactions. Often, as I say, the ultimate contract expressly so provides. I can see no reason why, if the parties so intend and agree, such a stipulation should be denied legal effect." 23 This case has been applied on a number of occasions and was referred in City of Box Hill v EW Tauschke Pty Ltd 1974 VR 39 at 47. Even if there is no express term giving retrospective effect the courts still will often in circumstances where the parties intend the written contract to apply to their antecedent transactions imply a term giving retrospective operation to the provisions of the written agreement. See also, for example, Murphy Corporation Limited v Acumen Design & Development (Queensland) Pty Ltd & Anor (1995) 11 BCL 274. 24 One fundamental difference between cases such as I have referred to and the present case is that in the present case the parties clearly did not contemplate that the agreement to be contemplated in the future would govern their relations until execution. The letter of 27 June makes it perfectly clear that another contract, namely, the contract with OCS contained the terms upon which they would then deal with each other. 25 The agreement executed in December 1996 I would have thought, having regard to the words at the commencement of the document clearly contained an express term that it was to be retrospective. The question that arises is in respect of what services it is retrospective. I have already noted the limited range of obligations under it in relation to software support prior to final acceptance of product by the customer and this perhaps should be contrasted with the terms of the agreement between the plaintiff and OCS which under the letter of 27 June governed the earlier arrangement. Clause 3.1 of the OCS agreement imposes arguably a greater responsibility on OCS and there is reference to provision of additional support services to the dealer provision of support and maintenance to users of the supplier products. 26 Ultimately the question I have to determine is not whether the outstanding monies were due under the arrangements made during 1996 or under the document executed in December 1997. All I have to consider is whether there is a genuine dispute about this matter. There are differences between the final agreement and the one it may have replaced. The resolution of these apart from the careful consideration of the terms of the agreement may also depend upon evidence of what in fact occurred in terms of the earlier arrangements between the parties. It seems to me this is not a clear cut matter but arguably there may be a case for saying that the monies were due under the arrangements made during 1996 and not the agreement executed at the end of 1996. In these circumstances it is appropriate to suggest that there would be a breach and clearly, given the evidence of losses following upon termination, a counter-claim would exceed the amount claimed in the notice of demand. 27 I refer to one other matter and that is that in the demand there is a sum of $9,470 included which it was suggested may have applied for something to do with New Zealand. In my view there is not sufficient evidence for me to form a view about what this was for and, accordingly, I am prepared to accept the evidence of Mr Phillips that no amounts were owed as at 10 February to the defendant for licence fees or maintenance fees under the distribution agreement dated 1 August 1996. 28 Accordingly, I make orders 1 and 2 in the Summons.