New South Wales Supreme Court CITATION : Primus Telecommunications Pty Limited v Kooee Communications Pty Limited & Anor [2007] NSWSC 374 HEARING DATE(S) : 13/04/07 JUDGMENT DATE : 20 April 2007 JURISDICTION : Equity Division Commercial List JUDGMENT OF : Einstein J DECISION : Parties to bring in short minutes. CATCHWORDS : Set-off - Interest - Costs AWA Ltd v Exicom Australia Pty Ltd (1990) 19 NSWLR 705 CASES CITED : D Galambos & Son Pty Ltd v McIntyre (1974) 5 ACTR 10 Tooth & Co v Smith (unreported, Supreme Court of New South Wales, Clarke J, 5 September 1984) Primus Telecommunications Pty Limited (Plaintiff) PARTIES : Kooee Communications Pty Limited (First Defendant) SP Telemedia Limited (Second Defendant) FILE NUMBER(S) : SC 50004/06 COUNSEL : Mr R Garratt QC, Mr D Priestley (Plaintiff) Mr J Duncan (Defendants) SOLICITORS : Browne & Co (Plaintiff) Sparke Helmore (Defendants) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST Einstein J Friday 20 April 2007 50004/06 Primus Telecommunications Pty Ltd v Kooee Communications Pty Limited & Anor JUDGMENT Outstanding issues 1 Following the delivery of the judgment [2007] NSWSC 91 there are a number of limited issues requiring to be determined. 2 The position was shortly summarised by the first defendant as follows: What was in issue before the hearing "Before the hearing, the plaintiff had unresolved claims in respect of: i. Net Debtors - clause 2.3; ii. Unbilled Revenue - clause 2.3; ii. Primus' Costs - clause 6. Before the hearing, the first defendant had unresolved claims in respect of: i. Collections - moneys collected by the plaintiff on behalf of the defendant post the Separation Deed; ii. Revenue Share - moneys payable by the plaintiff to the defendant in respect of collections prior to the Separation Deed; iii. Damages - for breach of the Separation Deed. Issues resolved at hearing and in reasons for Judgment By operation of the agreement reached between the parties at the hearing as expressed in exhibit P1, and pursuant to the reasons for judgment of the Court delivered on 16 February 2007, (subject to outstanding issues noted below) the resulting resolution in respect of the above mentioned issues may be summarised in the following table ["the defendants' summary table"] . Claim Plaintiff $ First Defendant $ Net Debtors 4,400,724 Unbilled Revenue 1,087,152.24 Primus' Costs 300,000 Subtotal for Plt 5,787,876.24 Collections 2,365,218.75 Revenue Share 933,447.72* Damages Nil Subtotal for 1st Def 3,298,666.47 Balance in favour of Plt 2,489,209.77 * Following the matter being raised for the first time in the plaintiff's submissions, now with the benefit of further investigation, it would appear that the parties were labouring under mutual error as to the quantum of Revenue Share, as evidenced by the agreement concerning the quantum for Revenue Share in exhibit P1. The defendants now accept as correct the matter set out in paragraphs 9 and 10 of the plaintiff's submissions regarding the Revenue Share figure." 3 The above table does not purport to include amounts that may be owing by either party to the other in respect of interest to be dealt with in the following reasons. Issues Outstanding 4 In consequence but subject to the matters explained below, parameters of the following issues remained outstanding: i. whether the amounts for Collections should be set-off against the total of the plaintiffs claim; ii. as to Revenue Share the plaintiff during the hearing of these remaining issues did not challenge the proposition that Revenue Share is a debt which can be netted off against the judgment that would otherwise be given to the plaintiff: that is to say the only remaining issue in respect of Revenue Share was the question of the date from which interest would run or whether interest would run at all; iii. what interest should be awarded; iv. what costs orders should be made. Collections 5 The defendants had claimed in the cross-claim a sum of money collected by Primus from the first defendant's customers after the Termination Time. The collections amount [namely the amount collected on Net Debtors and which had been assigned] was not in issue. The only question in that regard was when that amount was payable. 6 The plaintiffs contended as follows: i. The obligation on Primus with respect to paying Collections is to be found in clause 2.5 of the Separation Deed. Clause 2.5 provides as follows: 2.5 " Subject to Kooee complying with its obligations under sub-clauses 2.3 and 2.4 above any amount paid by a Customer to Primus or any Associate of Primus on or after Termination Time must be paid by Primus to Kooee on the last day of the week following after the second payment by Kooee under sub-clause 2.3 and each subsequent week and, regardless of when any payments are made by Primus under this sub-clause 2.5, if any amount is received by Primus in respect of any Debt, Primus must give Kooee sufficient information for Kooee to identify each Debt and the amount of such Debt in respect of which such payments were made. (Emphasis added.) Sub-clauses 2.3 and 2.4 provided: 2.3 Kooee must pay to Primus one-half of the amount equivalent to the Net Debtors and Unbilled Revenue as stated in the notice issued pursuant to clause 2.2 within 3 Business Days of receipt of such notice. Kooee must pay the remaining amount equivalent to one-half of the Net Debtors and Unbilled Revenue as stated in the notice issued pursuant to clause 2.2 within 30 Business Days of receipt of such notice. 2.4 Within 180 days of the Termination Time Primus may issue further notices to Kooee advising of any Net Debtors and Unbilled Revenue amounts that were not included in the notice issued under subclause 2.2 and must supply the information in Schedule 1 in respect of any such amounts and if Primus does so Kooee must pay Primus within 5 Business Days of receipt of any such notices the amounts equivalent to the Net Debtors and Unbilled Revenue so advised. ii. The court should make no order as to Collections as they are still not payable by effect of clause 2.5 of the Deed. Kooee has still not complied with its obligations under clauses 2.3 and 2.4. It will not be until the last day of the week after the sums agreed for Unbilled Revenue and determined by the court for Net Debtors are actually paid by Kooee, that any obligation on Primus will even possibly arise. 7 The defendants contended that the sum for Collections (in addition to the sum for Revenue Share) should be set-off against the sum to which the plaintiff was entitled. 8 Primus submitted to the contrary, supporting this contention by reference to s 21(1) of the Civil Procedure Act 2005 which is in the following terms: "If there are mutual debts between a plaintiff and a defendant in any proceedings, the defendant may, by way of defence, set off against the plaintiff's claim any debt that is owed by the plaintiff to the defendant and that was due and payable at the time the defence of set-off was filed, whether or not the mutual debts are different in nature." Dealing with the issue 9 As the defendants contended s 21(4) of the Act was in the following terms: "This section does not affect any other rights or obligations of a debtor or creditor in respect of mutual debts, whether arising in equity or otherwise." [It is to be noted that s 21(6) defines "debt" as meaning any liquidated claim for the purpose of the section.] 10 AWA Ltd v Exicom Australia Pty Ltd (1990) 19 NSWLR 705 is a decision by Giles J containing a valuable analysis of the principles to be extracted from the authorities in respect of equitable set off. His Honour cited [at 707] from the judgment of Woodward J in Galambos & Son Pty Ltd v McIntyre (1974) 5 ACTR 10 at 25-266 who had inter alia observed as follows: "Claims for money due under a contract and for damages for breach of the same contract…. may be set off against each other where the equity of the case requires that it should be so. This will depend upon how closely the respective claims are related, particularly as to time and subject-matter. The general conduct of the respective parties will, as always, be relevant to the granting of such equitable relief…" 11 Later in the AWA judgment, Giles J [at 710] having cited a number of cases in which equitable set off had been considered, made the following observation: "These cases make it clear that the test is not as simple as whether Exicom's claim relates to the sale price as distinct from other payments for which the deed provides. Whilst it is correct that the mere fact that Exicom has a claim against AWA is insufficient for an equitable set-off, all the circumstances must be considered in order to determine whether what Woodward J referred to as "the equity of the case" requires that AWA be restrained from proceeding to judgment upon its claim without there being determined and set off against it Exicom's claim." 12 At 711 Giles J put the matter as follows: "There must be something additional to the fact of a cross-demand to cause the court, in the exercise of its equitable jurisdiction, to require the plaintiff to set-off against his claim, the claim of the defendant. That requirement has often been expressed in language to the effect that the equitable set-off must go to the root of or impeach the title of the plaintiff's claim. What is meant by such phrases, particularly in the light of the more recent cases, itself needs explanation. In D Galambos & Son Pty Ltd v McIntrye (at 18) Woodward J extracted from the language used by Lord Cottenham LC in Rawson v Samuel and the cases to which his Lordship referred that the prerequisites of an equitable set-off were clear cross-claims for debts or damages which were: "… so closely related as to subject matter that the claim sought to be set off impeached the other in the sense that it made it positively unjust that there should be recovery without deduction ." [ Emphasis by Giles J.] 13 Giles J also referred, it seems to me with approval, to the observation [mirroring the Galambos holding] by Clarke J in Tooth & Co v Smith (unreported, Supreme Court of New South Wales, Clarke J, 5 September 1984) that a determination as to whether an equitable set-off exists in any particular case requires an examination of the closeness of the respective claims, and that no general rule can be laid down except by stating that such a set-off will arise when there exist circumstances which make it unjust or inequitable that a plaintiff should be permitted to proceed with his claim. Returning to the matter at hand 14 Returning to the present circumstances it seems quite clear that the entitlement to that which the plaintiff seeks for Net Debtors and that which the defendant seeks for Collections arise out of the same contractual environment, the very same transaction and indeed arise from the same elements of the same transaction. 15 The defendants have made good their proposition that there should be an equitable set-off in relation to Collections. The set-off arises quite simply by reason of the fact that the respective claims are seen to be so closely related as to subject-matter that it would be positively unjust or inequitable for there to be recovery by the plaintiff without deduction. 16 In the circumstances it is unnecessary for the Court to treat with the second approach pressed by the defendant in terms of s 90(2) of the Civil Procedure Act which provides that if there is a claim by a plaintiff and a cross-claim by a defendant, the Court may give judgment for the balance only of the sums of money awarded on the respective claims. 17 In the result the amount for Collections [in addition to the amount of Revenue Share] set out in the above-described defendants' summary table require to be set-off against the plaintiff's claim for those amounts to which it is entitled. Interest Interest in relation to Net Debtors 18 The defendants' contention is that the date from which interest should run on Net Debtors is the date upon which the first notice in respect of the correct amount for Net Debtors was provided. This is said to be 20 January 2006, it being clear that Primus was required to give notice to Kooee of the amount of Net Debtors to trigger a requirement for payment [Separation Deed clause 2.2]. Primus controlled all the information to make the appropriate calculation. 19 Primus contended that it was not open to the defendants to raise this issue as it had not been squarely or at all pleaded or identified in the defendants' statement of issues. In my view the matter is appropriate to be litigated. The parties having had an opportunity to deal with one another's submissions in this second tranche of the matters being heard, there is no unfairness in permitting the argument to come forward. None has been suggested. Both parties have referred to the material documents. 20 The evidence before the Court shows that over a number of months Primus provided to Kooee documents claiming varying (incorrect) figures for Net Debtors: i. 4,609,240 was claimed initially; ii. $4,583,417 was claimed on 7 July 2005; iii. $4,655,277.23 was demanded on 18 November 2005; iv. $4,400,724 being the correct figure was calculated by Mr Sweiden in January 2006 and demanded in correspondence dated 20 January 2006. 21 In my view the differences in figures cannot be described as de minimus. 22 The Court rejects the proposition pursued by Primus that the Net Debtors commencement date should be regarded as 8 June 2005. The bundle of materials which became exhibit D1 13/4/07 clearly discloses that the first identification of the correct amount for Net Debtors came forward in the letter of 20 January 2006 from the solicitors for the plaintiff. As Mr Duncan, counsel for the defendants, contended in part by reference to this exhibit [transcript 44-45]: i. Immediately from the preliminary advice on 8 June [2005] of $4.3-odd million there is then on 27 June [2005] an advice that the amount owing for Net Debtors is $4.609 million. ii. Then on page 6 of the bundle there is the letter from Mr Scherp on behalf of the defendants saying, "We can't work out what you're doing", and putting forward some calculations. iii. That is then followed by a further purported notice at page 9 of the bundle, this time on 7 July [2005] claiming a reduced amount from the previous notification, so the previous notification was 4.609 million, it is now 4.583 million, always remembering that the actual correct amount is 4.4 million. iv. The next document in the bundle is at page 10 of the bundle and it is Mr Miller, who is the company secretary or corporate counsel at least. In the second or third paragraph of that letter Mr Miller on behalf of the plaintiff is then demanding for Net Debtors $4.655 million. v. My friend says it is not Net Debtors but the total of all indebtedness. In any event, there is a demand for that amount of money which is put in the alternative, either for that amount or for a lesser amount of $3.392 million, neither figure of which represents in any respect the amount that this Court has found that the defendants are indebted to the plaintiff for. vi. It is not until the letter dated 20 January 2006 from the solicitors for the plaintiff, which appears at page 16 of the bundle, that there is the first identification of what I submit is the correct amount for Net Debtors. vii. Clause 2 requires that in order for there to be an obligation for payment of Net Debtors there has to be an advice provided by Primus to Kooee of the Net Debtors, "Net Debtors" being a defined term within the meaning of the agreement. viii. It is my submission that for there to be an advice or notice of Net Debtors it has to be in terms of the proper definition of Net Debtors and to be an amount determined in accordance with that definition and be the correct amount subject to the de minimus principle. 23 In the result interest on Net Debtors should run from 20 January 2006. However, adopting the defendants' approach, 1 January 2006 will be the date from which interest will actually be calculated for ease of calculations (to the benefit of the plaintiff). Interest in relation to Revenue Share 24 As earlier observed the only remaining issue in respect of Revenue Share was the question of the date from which interest would run or whether interest would run at all. [It should however be observed that the defendants have accepted as correct the following matters to be found in the plaintiff's submissions: i. The effect of the reasons for judgment in combination with the agreement in Ex P1 is that $1,263,205.40 in Revenue Share is owing by Primus to Kooee. A matter not taken into account in the agreement however was that in respect of this sum, liability for which has been in dispute in the proceedings, part payment has already been made, in the amount of $329,757.68 [Apparently in respect of one of the five months claimed for Revenue Share, January 2005, that month's full amount, $329,757.68 was paid on 24 February 2005 by cheque #055308 and cashed on 1 March 2005]. ii. This payment must be taken into account in any orders relating to Revenue Share. There is presently no evidence before the court to support this. If the fact of the payment or the amount is controversial, evidence can be called on the issue. The amount still owing then to Kooee under this head of claim is $933,447.72. iii. This will also be relevant if any interest is payable on Revenue Share.] 25 Here again the Primus proposition has been that an order for interest up to judgment has as to be specifically claimed in the Summons: rule 6.12 (6) of the UCPR. 26 In my view Revenue Share is a set-off amount and in that regard there is no requirement that there be a claim for interest made. Alternatively an application was made by the defendants to permit a claim of interest even at this stage and had it been necessary to do so the court would have exercised its discretion to permit and to allow this application. 27 I do not accept as of substance the proposition put by Primus that the email from Mr Miller of Primus to Mr Simmons of Kooee dated 18 November 2005 [document #364 at CB 3663] constituted a reasonable settlement offer by the cross-claim defendants (Primus) in respect of the sum claimed. The reasonableness parameter is not apparent from this communication, there being a number of disparate matters qualifying the offer made in the email. The 'special circumstances' requirement on the question of interest in s100(4) of the Civil Procedure Act does not therefore arise. 28 I accept that the sum for Revenue Share comprises the amounts owed by Primus to Kooee against Collections for the months February to May 2005, which should have been paid to Kooee one month after their collection (that is, payments of these amounts should have been made to Kooee monthly from March to June 2005). 29 The monthly amounts are roughly equal. Therefore, and as the defendants have submitted, by a ready average, effectively Primus has had the benefit of (the whole of) these moneys from 1 May 2005. 30 Interest on Revenue Share is therefore to be calculated from this date. Interest on Unbilled Revenue 31 The defendants' contention is that interest in relation to Unbilled Revenue should run from 23 January 2007 being the date upon which Primus finally provided to Kooee a GST invoice for the sum, an invoice of a type to which it was entitled and without which payment could not properly be insisted upon. 32 As to the GST proposition Primus' submissions are of substance and are adopted in what follows. In short: i. The defendants contend that no interest is payable on Unbilled Revenue for any period before a Tax Invoice was issued. The defendants rely, only, on clause 1.3 of Schedule 3 to the Separation Deed in support of this submission. ii. The submission is rejected for each of 3 reasons. iii. First, it is not open. The failure to render a Tax Invoice was never pleaded as relevant to the liability to pay Unbilled Revenue, nor in answer to the plaintiff's pleaded claim for interest. No reference at all to Schedule 3 has been made until now. iv. Secondly, the new claim lies in contract, and not on the statute. Notwithstanding the dealings between the parties in respect of Unbilled Revenue from May 2005 onwards, no Tax Invoice was requested or suggested by the defendants until their solicitors' letter of 7 November 2006, some 17 months after the first notice for Unbilled Revenue. The dealings between the parties bespoke eloquently of a waiver of any requirement for a Tax Invoice as a condition of payment, and the plaintiff was induced to proceed and did proceed on the basis that no such requirement was relied upon as a ground for non-payment, and would promptly have rendered a Tax Invoice if one had been asked for. In the circumstances, defences of waiver and estoppel would have been open and run, which would have been complete answers to the new claim. v. Thirdly, on the proper construction of the Separation Deed, Schedule 3 applies only in respect of 'migration expenses' and not in respect of Unbilled Revenue. The provisions of Schedule 3 are "deemed to be incorporated into this sub-clause 6(2) " of the Deed by sub-clause 6.2 (underlining added). This is apparently a mistaken reference to sub-clause 6.1, the immediately preceding sub-clause, which begins with the words "Kooee must pay to Primus the GST inclusive amount" of certain listed out-of-pocket expenses. Clause 6 of the Deed is headed "Payment of Primus' Costs" and deals with what have been called 'migration expenses' for convenience. Nothing in the Deed connects Schedule 3 to Unbilled Revenue. Unbilled Revenue is not described or defined as a Taxable Supply for the purposes of Schedule 3 clause 1.3, or otherwise, anywhere in the Deed. vi. It is to be noted that the plaintiff does not concede that Unbilled Revenue is a Taxable Supply, either under GST legislation or for the purposes of Schedule 3 clause 1.3, regardless of whether or not GST has been calculated as part of the sum, or the fact that a Tax Invoice was ultimately issued in response to the defendants' suggestion. The matter has not been the subject of evidence or argument because the defendants did not raise it in pleading." 33 In the result the operative commencement date for Unbilled Revenue is 1 July 05. As Primus has submitted most of the Unbilled Revenue (approximately 80%) accrued in the two months prior to this date and the remained over the following months. The date selected is an appropriate average. Primus' Costs [sometime referred to in the submissions as "Migration Costs"] 34 In my view the submissions advanced by the defendants are of substance. They are adopted in what follows. 35 Up until the commencement of the hearing, Primus claimed the sum of $752,588.61. On the eve of the trial, the parties agreed that quantum of Primus' Costs was $300,000. 36 Pursuant to cause 6.1 of the Separation Deed, Kooee's obligation to pay to Primus a sum for Primus' Costs was contingent upon Primus providing to Kooee satisfactory evidence of the expenses for which the claim was being made. 37 Kooee repeatedly claimed that Primus had not provided satisfactory evidence for its claim exceeding $700,000. 38 The compromise of the quantum of Primus' Costs, on its face and without more, establishes that the original claim was not supportable. 39 In the circumstances, interest on this sum should not run from earlier than the date of the compromise, which was 25 January 2007. 40 Primus' contention that: i. what the compromise reflected was the acceptance of at least $300,000 of the amount which it had claimed was accepted as Migration Expenses; ii. that acceptance of at least $300,000 as payable should carry interest from the date upon which Primus had given the notification back on 8 November 2005; is not of substance. 41 As the defendants have contended: i. this is a situation where right throughout the matter up to effectively the trial there had been a claim for $750,000-odd broken down into a series of individual components; ii. there was, by the agreement, a lump sum agreement that did not make reference to any particular components; iii. it cannot be said that there was satisfactory evidence provided in respect to any particular components because there are no components that are ascribed to the $300,000 amount that were provided at any time prior to effectively the date the agreed amount was reached; iv. therefore it is appropriate that interest run from the date of the agreement, being 25 January 2007. Interest in relation to Collections 42 The sum for Collections comprises amounts owed by Primus to Kooee against collections from June 2005 [ie Termination Time]. 43 The vast majority of these sums were collected by early July 2005 as the following list [extracted in the defendants' costs submissions] demonstrates: DATE THE PAYMENT FILE WAS SENT BY PRIMUS TO KOOEE PAYMENT AMOUNT 02-Jun-05 $763,241.13 08-Jun-05 $633,796.20 20-May-05 $91,974.05 15-Jun-05 $254,945.59 22-Jun-05 $115,961.29 Bpay Except 1 $4,745.38 29-Jun-05 $124,692.66 06-Jul-05 $61,379.77 13-Jul-05 $42,471.21 Bpay 13/7/05 $702.96 20-Jul-05 $30,750.51 Bpay 20/7/05 $1,379.86 27-Jul-05 $47,046.06 Bpay27/7/05 $4,850.78 03-Aug-05 $45,507.38 10-Aug-05 $26,120.93 Bpay 15/8/05 $2,486.41 17-Aug-05 $23,459.60 Bpayl9/8/05 $1,525.87 25-Aug-05 $28,017.31 Bpay 30/8/05 $370.01 31-Aug-05 $9,748.85 07-Sep-05 $3,988.46 14-Sep-05 $3,827.67 21-Sep-05 $3,395.77 28-Sep-05 $5,692.75 05-Oct-05 $9,883.15 12-Oct-05 $3,965.00 19-Oct-05 $4,470.81 26-Oct-05 $3,290.50 02-Nov-05 $3,270.30 09-Nov-05 $2,228.99 16-Nov-05 $1,422.99 23-Nov-05 $2,026.55 30-Nov-05 $1,394.36 44 In the situation and again by a ready average, effectively Primus has had the benefit of (the whole of) these moneys from 1 July 2005. 45 Interest is therefore to be calculated from this date. General 46 The parties are to bring in short minutes reflecting the precise amounts to be awarded. 47 The intricacies of the accounting issues sought to be dealt with above are obvious. Should there be any double counting or other anomaly in the calculations, the parties have leave to raise this with the Court. Costs 48 As made clear during the hearing on the second tranche it is inappropriate to deal with costs presently and the parties will be given an opportunity following their reading of these submissions to make further submissions on costs. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.