Court of Appeal Supreme Court New South Wales Medium Neutral Citation: Ipstar Australia Pty Ltd v APS Satellite Pty Ltd [2018] NSWCA 15 Hearing dates: 29-31 August 2017 Date of orders: 14 February 2018 Decision date: 14 February 2018 Before: Bathurst CJ at [1]; Beazley P at [268]; Leeming JA at [269] Decision: (1) Grant the appellant leave to amend its notice of appeal in terms of the draft amended notice of appeal dated 30 August 2017. (2) Order the appeal be dismissed. (3) Order the appellant pay the respondent's costs of the appeal. Catchwords: CONSUMER LAW – Competition and Consumer Act 2010 (Cth) – Australian Consumer Law – unconscionable conduct – whether conduct of an experienced commercial party in imposing a price increase on another experienced commercial party was in all the circumstances unconscionable CIVIL PROCEDURE – Commercial List, Technology and Construction List – Procedure – whether reply to commercial list response forms part of pleadings – whether pleaded case encompassed claim for statutory warranty for defective equipment regardless of cause of defect Legislation Cited: Australian Securities and Investment Commission Act 2001 (Cth) Competition and Consumer Act 2010 (Cth) Competition and Consumer Legislation Amendment Act 2011 (Cth) Trade Practices Act 1974 (Cth) Uniform Civil Procedure Rules 2005 (NSW) Cases Cited: A v B1 (No 2) (2012) 271 FLR 122; [2012] WASC 383 Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349 Attorney-General of New South Wales v World Best Holdings Ltd (2005) 63 NSWLR 557; [2005] NSWCA 261 Australian Competition and Consumer Commission v C G Berbatis Holdings Pty Ltd (2003) 214 CLR 51; [2003] HCA 18 Australian Competition and Consumer Commission v Lux Distributors Pty Ltd [2013] FCAFC 90 Australian Securities and Investments Commission v National Exchange Pty Ltd (2005) 148 FCR 132; [2005] FCAFC 226 Banque Commerciale SA en Liquidation v Akhil Holdings Ltd (1990) 169 CLR 279 Burger King Corporation v Hungry Jack's Pty Ltd (2001) 69 NSWLR 558; [2001] NSWCA 187 Canon Australian Pty Ltd v Patton (2007) 244 ALR 759; [2007] NSWCA 246 Colin R Price & Associates Pty Ltd v Four Oaks Pty Ltd [2017] FCAFC 75 Commonwealth Bank of Australia v Kojic (2016) 341 ALR 572; [2016] FCAFC 186 Dare v Pulham (1982) 148 CLR 658 Garry Rogers Motors (Aust) Pty Ltd v Subaru (Aust) Pty Ltd [1999] ATPR 41-703 Jenyns v Public Curator (Q) (1953) 90 CLR 113 Medtel Pty Ltd v Courtney (2003) 130 FCR 182; [2003] FCAFC 151 Paciocco v Australia and New Zealand Banking Group Ltd (2015) 236 FCR 199; [2015] FCAFC 50 Paciocco v Australia and New Zealand Banking Group Ltd (2016) 258 CLR 525; [2016] HCA 28 PT Ltd v Spuds Surf Chatswood Ltd [2013] NSWCA 446 Re Baden's Deed Trusts (No 2) [1973] Ch 9 Stewart v Atco Controls Pty Ltd (in liq) (2014) 252 CLR 307; [2014] HCA 15 Thorne v Kennedy (2017) 91 ALJR 1260; [2017] HCA 49 Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389 United Group Rail Services Ltd v Rail Corporation New South Wales (2009) 74 NSWLR 618; [2009] NSWCA 177 Category: Principal judgment Parties: Ipstar Australia Pty Ltd (Appellant) APS Satellite Pty Ltd (Respondent) Representation: Counsel: A S Bell SC / M Sealey (Appellant) D L Williams SC / R Glover (Respondent) Solicitors: Norton Rose Fulbright Australia (Appellant) Thomson Geer (Respondent) File Number(s): 2016/384969 Publication restriction: Nil Decision under appeal Court or tribunal: Supreme Court of New South Wales Jurisdiction: Equity Citation: [2016] NSWSC 1898 Date of Decision: 22 December 2016 Before: Rein J File Number(s): 2011/380786 [Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.] HEADNOTE [This headnote is not to be read as part of the judgment] Ipstar Australia Pty Ltd was a wholesaler of satellite broadband services. It supplied bandwidth to its customers using a satellite in geostationary orbit. A proprietary user terminal (UT) needed to be installed to connect premises to the satellite. Ipstar did not manufacture the UTs but imported them into Australia. APS Satellite Pty Ltd, known as SkyMesh Pty Ltd at the relevant times, purchased bandwidth and UTs from Ipstar pursuant to an agreement made in 2007 and then onsold the bandwidth and UTs to end users. From 2009 onwards, SkyMesh purchased UTs from Skybridge (Australia) Pty Ltd, which had been appointed as Ipstar's distributor and was unrelated to SkyMesh. Two defects affected the UTs supplied to SkyMesh between 2009 and 2011, referred to in the judgment as "the water ingress problem" and "the firmware problem". Either problem would prevent a UT from connecting to the satellite. Ipstar was aware of both problems from its retailers at least by 2010. SkyMesh began complaining about the problems at around the same time after receiving complaints from end users. SkyMesh bore the cost of repairing or replacing a defective UT after receiving a complaint from an end user. SkyMesh claimed that Ipstar was required to indemnify SkyMesh against these costs by reason of the Trade Practices Act 1974 (Cth) (the statutory warranty claims). SkyMesh provided information to support its statutory warranty claims at the end of 2010. During early 2011, Ipstar reviewed the statutory warranty claims submitted by SkyMesh but made no payment, even in respect of claims which it considered to be valid. It purported to reject the entirety of the claims on the basis that insufficient information had been provided for some claims. At the same time, Ipstar commenced negotiations with SkyMesh for the price of bandwidth for the next 12-month period of their agreement. In March 2011, Ipstar made a final offer which represented a 15% increase on the price which SkyMesh was paying at the time. Ipstar had calculated this price increase by estimating the cost of meeting SkyMesh's statutory warranty claims. Ipstar did not inform SkyMesh of how it calculated the increase and did not impose a similar price increase on its other retailers. SkyMesh accepted the offer, but protested that it could not operate at a profit with such a price increase. Despite increasing the bandwidth price, Ipstar did not make any payment to SkyMesh in respect of its statutory warranty claims. In the proceedings at trial, SkyMesh claimed that Ipstar, as importer of the UTs, had supplied goods which were not fit for purpose or which were of unmerchantable or unacceptable quality (the defective goods claim). SkyMesh also claimed that Ipstar had engaged in unconscionable conduct during negotiations for the price increase (the unconscionability claim). Ipstar was said to be liable to compensate SkyMesh for both claims. The primary judge found in favour of SkyMesh and awarded it compensation for both claims. The issues on appeal were: 1. Whether the primary judge erred in finding that Ipstar had engaged in unconscionable conduct (Grounds 1-5); 2. Whether the primary judge erred in assessing the amount of compensation awarded to SkyMesh for the unconscionability claim (Grounds 5A-5B); 3. Whether the primary judge erred in determining that SkyMesh's pleaded case on the defective goods claim was wide enough to permit it to claim compensation for defective UTs which it could not prove were affected by the water ingress or firmware problems (Ground 6); The Court (Bathurst CJ, Beazley P and Leeming JA) held, dismissing the appeal: Unconscionable conduct (Grounds 1-5) (i) Section 22 of the Australian Consumer Law, as in force at the time of the alleged contraventions, was not limited to unconscionable conduct within the meaning of the unwritten law. However, the approach taken in cases dealing with unconscionable conduct under the unwritten law is of assistance in determining whether conduct is unconscionable under s 22: [182], [199] (Bathurst CJ); [268] (Beazley P); [269] (Leeming JA). Australian Securities and Investments Commission v National Exchange Pty Ltd (2005) 148 FCR 132; [2005] FCAFC 226, considered. Australian Competition and Consumer Commission v C G Berbatis Holdings Pty Ltd (2003) 214 CLR 51; [2003] HCA 18; Paciocco v Australia and New Zealand Banking Group Ltd (2016) 258 CLR 525; [2016] HCA 28, referred to. (ii) It is unhelpful to seek to redefine the statutory concept of unconscionability. However, the use of terms such as "moral obloquy" may be of assistance to the extent that they emphasise that what is required is such a departure from accepted community standards as can objectively be seen to be against conscience: [195] (Bathurst CJ); [268] (Beazley P); [269], cf [275]-[278] (Leeming JA). (iii) Whether certain conduct is unconscionable does not involve an idiosyncratic determination of what is "fair" and "just" in a particular case. Rather, it involves a consideration of all the circumstances to conclude whether or not the conduct in question falls below acceptable norms, standards or values such as to warrant it being determined to be unconscionable. It is appropriate to take into account the terms of the statute, the approach taken by the courts in dealing with cases under the unwritten law, and judgments in related areas involving lack of good faith in considering this question: [196]-[197] (Bathurst CJ); [268] (Beazley P); [269]-[270] (Leeming JA). Attorney-General (New South Wales) v World Best Holdings Ltd (2005) 63 NSWLR 557; [2005] NSWCA 261; Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389; A v B1 (No 2) (2012) 271 FLR 122; [2012] WASC 383; Australian Competition and Consumer Commission v Lux Distributors Pty Ltd [2013] FCAFC 90; PT Ltd v Spuds Surf Chatswood Ltd [2013] NSWCA 446; Paciocco v Australia and New Zealand Banking Group Ltd (2015) 236 FCR 199; [2015] FCAFC 50; Paciocco v Australia and New Zealand Banking Group Ltd (2016) 258 CLR 525; [2016] HCA 28, considered. Jenyns v Public Curator (Q) (1953) 90 CLR 113; Commonwealth Bank of Australia v Kojic (2016) 341 ALR 572; [2016] FCAFC 186; Thorne v Kennedy (2017) 91 ALJR 1260; [2017] HCA 49; Colin R Price & Associates Pty Ltd v Four Oaks Pty Ltd [2017] FCAFC 75, referred to. (iv) Ipstar had engaged in unconscionable conduct. Ipstar imposed a price increase based on an estimated accrued liability whilst taking steps to avoid payment of that liability, in circumstances where Ipstar regarded at least some of the claims made by SkyMesh as valid, where the reason for the price increase was concealed from SkyMesh, and where SkyMesh was at a commercial disadvantage in dealing with Ipstar due to its business model: [200]-[201], [210]-[217] (Bathurst CJ); [268] (Beazley P); [269], [271]-[274] (Leeming JA). Assessment of compensation (Grounds 5A-5B) (v) The trial judge did not err in assessing the amount of compensation awarded to SkyMesh for the unconscionability claim. SkyMesh was entitled to claim compensation for Ipstar's unconscionable conduct calculated as the difference between what it actually paid to Ipstar after the price increase and what it would have paid had the price increase not occurred. The amount of compensation was not limited to the amount awarded to SkyMesh for its defective goods claim: [225]-[227] (Bathurst CJ); [268] (Beazley P); [269] (Leeming JA). SkyMesh's pleaded case (Ground 6) (vi) A commercial list statement and a commercial list response stand in the place of pleadings in proceedings in the Commercial List of the Supreme Court. Where a reply to a commercial list response has been permitted, that reply also forms part of the pleadings: [260] (Bathurst CJ); [268] (Beazley P); [269] (Leeming JA). (vii) SkyMesh's pleading in the present case adequately put Ipstar on notice that SkyMesh was contending it was entitled to compensation for defective UTs irrespective of the cause: [263] (Bathurst CJ); [268] (Beazley P); [269] (Leeming JA). Dare v Pulham (1982) 148 CLR 658; Banque Commerciale SA en Liquidation v Akhil Holdings Ltd (1990) 169 CLR 279, referred to. Judgment 1. BATHURST CJ: The appellant, Ipstar Australia Pty Ltd (Ipstar), is a wholesaler of satellite broadband services. The respondent, APS Satellite Pty Ltd, formerly known as SkyMesh Pty Ltd (SkyMesh), was at the time of the events the subject of these proceedings, a licensed telecommunications carrier. 2. In 2007, SkyMesh and Ipstar entered into an agreement whereby Ipstar sold bandwidth to SkyMesh at a price per megabytes per second (Mbps) per month. The agreement was varied on three occasions. The first, on 1 August 2008 by a document described as the "First Addendum", the second, by an agreement reached some time in May 2010 varying the price payable for the services, and the third, by a document executed on 27 April 2011 described as the "Second Addendum". The Second Addendum increased the price payable for bandwidth to $2,933 per Mbps per month. SkyMesh paid that amount for bandwidth from 1 March 2011 to 31 July 2016. 3. SkyMesh claimed that the price increase insisted upon by Ipstar in the Second Addendum involved conduct which was unconscionable in contravention of s 22 of the Australian Consumer Law (schedule 2 to the Competition and Consumer Act 2010 (Cth)) (ACL) as in force at the time of the entry into the Second Addendum (the unconscionability claim). SkyMesh claimed that it suffered loss and damage as a result. It claimed as damages the difference between the price it paid for bandwidth immediately prior to 1 March 2011 and the price it paid thereafter. Alternatively, it sought that the Second Addendum be varied to provide for the payment of the pre-existing price. 4. SkyMesh also claimed that the equipment supplied by Ipstar was defective. It claimed that Ipstar was required to indemnify it for the loss it suffered as a result of the defective equipment supplied by virtue of s 74B, s 74D and s 74H of the Trade Practices Act 1974 (Cth) (TPA) until 1 January 2011, and thereafter by virtue of the provisions of s 54, s 55 and s 274 of the ACL (the defective goods claim). The TPA and ACL state in s 74K and s 276 respectively that the provisions relied upon by SkyMesh in the defective goods claim are not capable of exclusion by contractual provisions. 5. The primary judge found in favour of SkyMesh on each of these issues. He gave judgment in favour of SkyMesh in respect of the unconscionability claim in the amount of $3,482,367, together with pre-judgment interest in an amount of $856,074.49. He gave judgment in favour of SkyMesh in the defective goods claim in the amount of $1,837,792, together with pre-judgment interest in an amount of $779,602.08 on that claim. 6. Ipstar has appealed against these orders. Background facts 1. Because of the issues raised in this appeal, it is necessary to have regard to the background facts in some detail. 2. As I indicated, Ipstar was a wholesaler of satellite broadband services. It is a wholly owned subsidiary of a Thai telecommunications company, Thaicom Public Company Ltd (Thaicom). It supplied bandwidth through two "Earth Stations", being large satellite dishes located in Kalgoorlie, Western Australia and Broken Hill, New South Wales. Those dishes sent signals to Thaicom's satellite "IPSTAR-1" in geostationary orbit above the Earth. The orbiting satellite relayed signals to and from smaller Ipstar satellite dishes located on the premises of end users. 3. The service provided was proprietary. All users were required to have a proprietary user terminal (UT). The equipment could only send or receive signals from the Thaicom satellite, and terminals supplied through providers other than Ipstar could not communicate with that satellite. This has significance because any retailer who sold broadband services to end users could only change to another broadband service provider by changing the UTs which it supplied to its end users. 4. The UT consists of an outdoor unit (ODU) connected to an indoor unit (IDU) by two coaxial cables. The ODU consists of a satellite dish and a satellite radio frequency transceiver assembly. Having regard to the issues raised in this appeal, it is unnecessary to describe further details of the technical makeup of the ODU. 5. For present purposes, the IDU can simply be described as a modem connected to the end user's computer. 6. The initial agreement between Ipstar and SkyMesh was entered into on 27 September 2007. The agreement was for a period of three years, expiring on 27 September 2010. There was no right of renewal. The agreement was for the supply of services and products, the services being the supply of bandwidth and the products being the UTs. Appendix A to the agreement provided a bandwidth price of $3,972 per Mbps per month and a separate fee for the provision of the UTs. Clause 2.1 of Appendix C to the agreement provided a limited warranty in respect of the UTs for the period of 12 months from the date of delivery. 7. These arrangements were varied in 2008 by the introduction of Skybridge Pty Ltd (Skybridge) as the distributor of the UTs on behalf of Ipstar. On 16 January 2008, Skybridge and SkyMesh entered into an agreement whereby Skybridge agreed to supply and install the UTs for the fee set out in section S4-Table 1 and S4-Table 2 of schedule 4 to that agreement. A 12-month warranty was given in respect of the products installed in section S4-2.1 of schedule 4. 8. As I noted in [2] above, the agreement between Ipstar and SkyMesh was varied on 1 August 2008 by a document described in these proceedings as the "First Addendum". The document is itself entitled "Addendum to the Bandwidth Service Commercial Terms and Conditions". It provided for a bandwidth price on a sliding scale depending on the amount of Mbps utilised. The price ranged from $3,372 per Mbps per month when 0-9 Mbps were utilised to $2,686 per Mbps per month when in excess of 200 Mbps were utilised. 9. At some time in May 2010, the parties agreed to vary the bandwidth price to a fixed $2,550 per Mbps per month. 10. Until the Second Addendum, which was dated 27 April 2011, there were no further relevant changes to the terms of the agreement. 11. On 17 March 2009, SkyMesh and Skybridge entered into a further supply agreement expressed to be for the duration of the current funding deed with the Department of Broadband Communications and the Digital Economy (the Department). 12. Part of the business model of SkyMesh was to take advantage of the Australian Broadband Guarantee Programme administered by the Department, which, at the relevant time, subsidised the cost of the provision of internet services in rural and regional areas of Australia. In return for funding from the Programme, an internet service provider such as SkyMesh entered into contractual arrangements with the Commonwealth to provide services to a customer for three years on guaranteed terms and conditions. SkyMesh entered into three funding agreements under the Programme. The Programme ended on 30 June 2011. 13. Revenue received from the Programme provided a significant portion of income derived by SkyMesh. In 2009, it received subsidies under the Programme of $21,157,172 against total revenue of $24,734,886. In 2010, it received subsidies totalling $19,462,467 against total revenue of $26,756,032. The cost of goods sold in each of 2009 and 2010 was $17,343,819 and $14,708,223 respectively. 14. The business conducted by SkyMesh expanded rapidly. In 2008, it supplied 3,133 active terminals, being 6% of the total number of terminals using the Ipstar facilities. By 2011, the number of active terminals supplied by or on behalf of SkyMesh had increased to 28,302, being 38% of the total number of terminals using the Ipstar facilities. By 2014, the number of terminals which it supplied had declined to 9,725 active terminals, but the percentage of the total number of active terminals had declined only slightly to 36%. 15. There was no dispute between the parties that a number of the terminals were defective in two respects, although issue was joined as to the extent of the problem. The first defect, described in the Court below as the "water ingress problem", arose from the fact that ODUs located on the satellite dish outside the end user's premises were frequently not adequately sealed against rain. 16. The second problem related to the modem. Some of the modems were prone to what was described as "drop out", "freezing" or "hang" issues. The primary judge noted at [27] that this was a result of "firmware issues". The primary judge described "firmware" as "software embedded in a product such as a modem which enables the product to function or communicate" with "a network or other devices". If the modem "hangs", "freezes" or "drops out", it prevents the UT being used as intended. For convenience, I will describe this defect in the balance of the judgment as the "firmware problem". 17. The effect of either of these problems was that the UT was unable to access the Ipstar satellite system. 18. The water ingress problem was identified by at least January 2008. In an email of 18 May 2010 from Ms Lisa Cutts of Skybridge to Mr Paul Rees of SkyMesh, Ms Cutts confirmed this to be the case. In a slide presented at a "forum" meeting with service providers held by Ipstar on 26 February 2010, it was stated that the problem was first raised by a service provider in July 2007. 19. It is not entirely clear when the firmware problem first arose. It was clear it was an issue by the time of the "forum" meeting held by Ipstar on 26 February 2010. 20. On 15 May 2009, Ipstar and Skybridge entered into a memorandum of understanding concerning faulty ODU replacement and compensation. The memorandum recorded that, from time to time, ODUs "may become subject to water ingress" and, as a result, "are considered faulty". The memorandum provided for Skybridge to submit water ingress problem reports on a weekly basis, indicating the number of faulty ODUs which had been discovered the previous week. Clause 3 stated that a claim for replacement could only be made in accordance with the procedures specified in the "Return Mechanism Authorisation" (RMA) documentation and that faulty ODUs had to be returned in the manner in which they were installed. Clause 7 acknowledged that the warranty applicable to a replacement faulty ODU would be 12 months. 21. From at least early 2010, SkyMesh commenced complaining about the defective condition of the UTs. In an email of 14 January 2010 from Mr Paul Rees, a director of SkyMesh, to Mr Laurence Dusan of Ipstar, Mr Rees requested Ipstar to voluntarily recall all ODUs susceptible to water ingress installed at their customer sites. He stated that they had "a major problem with customer outages due to water ingress" and a "lack of spare parts to repair the faults". He stated that each day SkyMesh got "at least one complaint from [the Department] on behalf of a customer whose service is taking in excess of the agreed 10 days to be repaired". Mr Rees inquired whether Ipstar would pay Skybridge to replace the ODUs. 22. In response, Mr Dusan, in an email of 18 January 2010, stated that Ipstar had "a current process in place for water ingress testing, service calls and replacements" and would not be changing the process. The email stated that, where water ingress was found, the arrangement with Skybridge would cover the cost of service calls and that Ipstar assumed that Skybridge was "back-to-backing this" with SkyMesh and that, therefore, "there should not be any cost to end users". On 19 January 2010, Mr Rees inquired of Mr Dusan whether, if ODUs which had failed out of warranty were found to have water ingress, Ipstar would reimburse SkyMesh for the full cost of replacing them. By a later email to Mr Rees of the same day, Mr Adam Leeflang of Ipstar confirmed that that was the case. 23. I have referred at [24] above to the "forum" meeting with service providers held by Ipstar on 26 February 2010. Mr Rees of SkyMesh attended that meeting. The first item on the agenda in a slide presentation given at that meeting was the scope of the technical issues affecting the UTs, reference being made to "ODU water ingress" and "IDU issues". The second item was the resolution of those issues. 24. One of the slides presented at the "forum" meeting outlined steps that Ipstar stated that it had been taking with service providers to deal with the water ingress problem. It included a reference to the memorandum of understanding, to which I have referred at [26] above, and to the fact that UT replacement and claims issues were being dealt with as per that memorandum. It also referred to corrective action being taken to minimise IDU failures. 25. The slides also referred to compensation methods. In relation to what was described as a "Skybridge model", a slide stated that Ipstar would issue credit notes to cover compensation, Skybridge would in turn credit the service providers and the service providers would handle their customers. 26. On 16 April 2010, Ipstar issued a circular entitled "Drop-Out Issue", which was said to be a follow-up of the "forum" meeting held on 26 February 2010. The document noted that service providers were observing an increasing trend of drop-out complaints from end users. It suggested that possible causes were "ODU water ingress" and "UT software hanging stage etc". It was suggested that the latest firmware would solve the problem. 27. I have been through this material in some detail to show that at least by the early part of 2010, Ipstar was aware of the water ingress problem and the firmware problem. Further, the material to which I have referred suggests that Ipstar was accepting responsibility for those problems. It is necessary to keep that in mind when considering the subsequent conduct of Ipstar for the purpose of the unconscionability claim. 28. SkyMesh commenced to complain about the manner in which Ipstar dealt with the problems from about May 2010. Mr Rees was a director of SkyMesh and the principal correspondent with Ipstar during this period. Mr Rees mainly corresponded with four officers of Ipstar: Mr Supoj Chinveeraphan, Mr Robert Gibbons, Mr Adam Leeflang, and Mr Phil Cross. Mr Chinveeraphan was Ipstar's general manager in Australia, Mr Gibbons was its chief financial officer, Mr Leeflang was its operations director and Mr Cross was its sales director. 29. Mr Rees sent an email on 19 May 2010 to Mr Chinveeraphan, which attached a formal letter of 18 May 2010. The letter stated that Ipstar's response to the water ingress problem was "not acceptable". It also stated that Mr Rees knew that 75% of the faulty ODUs tested had been proven to be affected by water ingress. In a later formal letter of 1 September 2010 to Mr Chinveeraphan, Mr Rees complained that he had not received any formal response to his letter of 18 May 2010. He stated that the Department had made SkyMesh "go ahead and have the equipment repaired at its own cost and attempt to recoup the costs from the customer" months after the repairs had taken if SkyMesh had been advised by Ipstar that the ODUs were not affected by water ingress. 30. On 2 September 2010, Mr Chinveeraphan responded to Mr Rees by email. He stated that Ipstar would "not accept any dispute regarding non-water ingress claims" and that Ipstar had a "normal RMA process" to deal with such problems "as long as the units that are said to have failed are within warranty". 31. In relation to the water ingress claims, Mr Chinveeraphan stated that Ipstar was formulating a formal response to all service providers and the Department. He said that he would like to "emphasise that Ipstar agreed to manage the problem through Skybridge". He stated that "SkyMesh should not withhold any monies from our monthly bandwidth account" and that, if it did, Ipstar would "take appropriate action to recover any and all such amounts due". 32. Until this point in time, the parties appeared to have been proceeding in ignorance of the statutory warranties in the TPA, to which I have referred to at [4] above, which form the basis for SkyMesh's defective goods claim in these proceedings. On 21 October 2010, Mr Rees wrote to Mr Chinveeraphan by email, referring to the provisions of s 74H of the TPA. He stated that it gave SkyMesh "the right to pursue a course [sic] of action against Ipstar as the manufacturer or importer of the goods" and that this right included "not only our water ingress costs" but "our costs associated with the drop outs caused by bugs in the firmware". I will refer to the claims for compensation under the TPA which SkyMesh made during this correspondence as the "statutory warranty claims", to distinguish them from the claims made in these proceedings. 33. On 17 November 2010, Mr Chinveeraphan emailed Mr Rees, stating that "Ipstar has now agreed to provide a retrospective three year parts warranty". However, he stated that Ipstar would not agree to an on-site labour warranty which "would have the effect of making Ipstar liable for all warranty and non-warranty repairs". Mr Chinveeraphan further stated that, after delivering equipment to Skybridge, Ipstar had "no visibility" with regard to its installation. Further, he stated that, based on the statistics he received from Thaicom, 18% of the ODUs which were returned to Thailand for testing had no fault. He described this as a "high percentage". 34. Mr Chinveeraphan stated in the email that Ipstar was "well aware" of its TPA obligations and would "honour all warranty repairs". He stated that the problem was distinguishing between cases of warranty and non-warranty repairs and that neither SkyMesh nor Ipstar had any process in place to deal with it. 35. Mr Chinveeraphan also referred to a "without prejudice" offer made by Mr Rees not to withhold bandwidth payments if a three-year parts and labour on-site warranty was provided. He stated that outstanding charges should be paid and that the question of the warranty was irrelevant to that fact. In relation to modem drop out issues, he stated that Ipstar was trying to remedy the problem. 36. Mr Rees responded by email on 18 November 2010, stating that, if Ipstar acknowledged that the equipment provided had a statutory warranty of three years for parts and on-site labour, the only repairs for which Ipstar would be liable would be warranty repairs. He complained that Ipstar was making a "50% margin on the sale of equipment that isn't fit for purpose". He stated that the equipment was "failing in large numbers" and that Ipstar had an obligation under the TPA to repair or replace it at no charge to the customer or the retailer. He rejected the proposition that Ipstar had "no visibility" as to the installation of the equipment, stating that there was no evidence of poor quality installation and that Ipstar had had the opportunity to audit 50 sites in conjunction with Skybridge, 42 of which had faulty ODUs. 37. Mr Rees also suggested in the email that it was easy to distinguish between warranty and non-warranty repairs. 38. That email drew a somewhat terse response on the same day from Mr Chinveeraphan, who stated that it seemed that email correspondence was futile. However, he suggested that a face-to-face meeting would be productive. 39. Mr Rees and Mr Chinveeraphan met on 26 November 2010. On 28 November 2010, Mr Rees wrote to Mr Chinveeraphan by email, noting that Ipstar had "conceded that [there] is a Statutory Warranty on equipment for three years on-site parts and labour" under the TPA. Mr Rees confirmed that SkyMesh had outlaid money for service calls to customers who asserted a statutory warranty, and that he would request that Ipstar reimburse it for those charges. He stated that, before booking a service call with Skybridge in future, SkyMesh would ask Ipstar to confirm "our diagnosis" (presumably, the reason for the defect) and Ipstar would issue an RMA to give to Skybridge. He said that, in those circumstances, Skybridge would carry out the service call and bill SkyMesh for the work, and SkyMesh would claim the repair costs back from Ipstar. 40. On 14 December 2010, Mr Rees wrote to Mr Gibson, with a copy to Mr Chinveeraphan, Mr Leeflang and Mr Cross. He stated that there was a need to agree on documentation that SkyMesh needed to supply Ipstar for its statutory warranty claims so that its claims for reimbursement of expenses could be processed quickly. He indicated that SkyMesh was required to pay Skybridge over $1.1 million on that day, part of which was for statutory warranty claims to be reimbursed by Ipstar. He stated that "things are going to get tight for our cash flow" if SkyMesh could not get its claims "turned around by Ipstar by the time our bandwidth bill becomes due". 41. On 20 December 2010, Mr Rees sent a further email, this time to Mr Leeflang as well as Mr Gibson, with a copy to Mr Chinveeraphan and Mr Cross. In that email, he stated that SkyMesh was making progress on its statutory warranty claims and that "we have the past 12 months or so done now". He stated that "we'll send the first 12 months or so through to you shortly and we'll have a lot more done by Christmas". He attached a sample spreadsheet to show the types of claims that Ipstar would be receiving. He stated that the older the claims were, the smaller the claimed amounts would be, because "the repairs in the first year were covered by the warranty uplift we [SkyMesh] paid to Skybridge". 42. Mr Leeflang was cross-examined on Mr Rees' two emails of 14 December 2010 and 20 December 2010. He denied that he participated in any discussions with anyone at Ipstar about the company's response to SkyMesh's statutory warranty claims under the TPA. He stated that he was not sure if Mr Chinveeraphan indicated that he was interested in the way the company would respond to the statutory warranty claims, although he acknowledged that the claims were a serious matter for Ipstar. He acknowledged that Mr Rees' email of 14 December 2010 had mentioned the need to agree on documentation. He agreed that when he received Mr Rees' email of 20 December 2010, he did not tell Mr Rees that the documentation was unsatisfactory. 43. Mr Leeflang subsequently agreed that it was likely that he would have discussed the appropriate manner in which to respond to Mr Rees' emails with Mr Chinveeraphan. He acknowledged that he was aware of the size of the potential claims. 44. On 21 December 2010, Mr Rees wrote to Mr Gibson and Mr Leeflang by email, stating that SkyMesh had finished going through the Skybridge invoices covering the period 31 December 2009 to 30 November 2010 for which SkyMesh claimed compensation from Ipstar. The email claimed a total of $583,065.49. Mr Rees sent another email to Mr Gibson and Mr Leeflang on 30 December 2010, referring to Skybridge invoices covering the period 15 February 2008 to 16 December 2009 for which SkyMesh claimed compensation. This email claimed a total of $116,039.91. On 1 January 2011, Mr Rees wrote to Mr Gibson by email, noting that the November 2010 bandwidth invoice was due shortly, but that Ipstar had statutory warranty claims "totalling close to twice that amount, some of it being for amounts that we [SkyMesh] outlaid as far back as November 2007". He indicated Ipstar's only response to its claims to date had been to say that "we will respond in due course" and asked whether Ipstar had an expectation that its invoice would be paid while SkyMesh awaited a response on its statutory warranty claim. 45. In cross-examination, Mr Cross indicated that Mr Rees' email of 1 January 2011 would have been brought to his attention if SkyMesh had failed to pay its invoices. He said that he had had discussions with Mr Chinveeraphan about the statutory warranty claims, which discussions occurred in late 2010 or January 2011. He agreed that these discussions occurred in the context of discussing the costs that might be occasioned to the company if and when the statutory warranty claims were met and that Mr Chinveeraphan told him that he wanted to increase the bandwidth price to recoup the cost if and when those claims arrived. 46. On 4 January 2011, Mr Gibson replied to Mr Rees by email and stated that Ipstar had an expectation that SkyMesh would continue to pay outstanding invoices. He also noted that Mr Chinveeraphan had been overseas for the last month, and that due to the "sizeable volumes [sic] and amounts of the claims", Ipstar would need to "carefully consider our response to historical, current and future claims, including ensuring that we are provided with all the information that we need to investigate each and every claim, the development of a new RMA process and the establishment of appropriate resources to investigate" the statutory warranty claims . 47. On 31 January 2011, Mr Rees emailed Mr Gibson, noting that Mr Gibson had previously said in his email of 4 January 2011 that Ipstar would provide a detailed reply to SkyMesh's statutory warranty claims "shortly". Mr Rees then asked Mr Gibson to define what he had meant by "shortly", suggesting that Mr Rees was not satisfied with the time that Ipstar had taken in providing a response. Mr Gibson responded by email later the same day, and stated that "the ball is not in my court", but that he would follow up and get an answer. He stated that he believed that an answer would come "early this week". 48. On 4 February 2011, Mr Cross forwarded to Mr Rees by email a copy of a proposed addendum to the existing agreement between the parties. This was the first version of the document which later became the Second Addendum. The email noted that the proposed addendum included new bandwidth pricing, warranty terms and an RMA process. The bandwidth price in the proposed addendum was $3,060 per Mbps per month. The proposed addendum also sought to insert an amended warranty and to provide a new RMA process in respect of claims under the warranty. That process included requirements for a specific description of the faults and a return of the goods intact and undamaged. It stated that, if a fault was found by Ipstar, then it would, "at its expense and its option", repair or replace the defective goods. 49. The price nominated in the proposed addendum was expressed to be effective from 7 February 2011 until 7 February 2012. Mr Cross' email enclosing the proposed addendum stated that "we trust you understand that the new pricing is a reflection on the substantial increase in the cost of doing business with SkyMesh". 50. On 8 February 2011, Mr Leeflang wrote to Mr Rees by email, stating that a large number of the claims submitted by Mr Rees in his emails of 21 December 2010 and 30 December 2010 were invalid and that Ipstar would not "continue to investigate the lists that you have provided as there are too many errors and hence, Ipstar rejects the total claim submitted". That response had evidently been the subject of discussions between Mr Leeflang, Mr Cross and Mr Chinveeraphan because, on 7 February 2011, Mr Chinveeraphan suggested to Mr Leeflang by email, with a copy to Mr Cross, that the sentence quoted earlier in this paragraph added to his email to Mr Rees. 51. On 8 February 2011, Mr Chinveeraphan also emailed Mr Rees in relation to the statutory warranty claims, stating that he was concerned that SkyMesh did not fully understand the scope of the statutory warranties under the TPA. He said that "much of the information that you [SkyMesh] provided does not evidence legitimate statutory warranty claims". He stated that Ipstar was now "implementing a formal process through which SkyMesh can put a claim" and that SkyMesh should follow that process and provide all information evidencing its claims in accordance with it. 52. On 9 February 2011, Mr Rees emailed Mr Cross in response to the proposed addendum attached to Mr Cross' email of 4 February 2011. He noted that Mr Cross had stated the bandwidth price increase was due to the "substantial increase in cost of doing business" with SkyMesh. Mr Rees said that he was keen to understand what Mr Cross had meant by that. He stated that he could understand that adding a three-year warranty would increase the price of the satellite equipment, but that he was not sure why the bandwidth price would increase. 53. Mr Rees also asked Mr Cross whether the bandwidth price was negotiable or "a take it or leave it situation". He stated that SkyMesh had a gross margin of "around 25% before expenses" and that a 20% increase in bandwidth price would make it impossible to operate at a profit. 54. Mr Rees further inquired whether Ipstar was increasing the bandwidth price for all customers, or just for SkyMesh. He noted the competitive disadvantage at which his company would be placed if the increase only applied to SkyMesh. 55. Mr Rees also stated that he had expected that the statutory warranty claims would already have been resolved at that point in time, and that it looked like the process was going to be much more complex than anticipated. He proposed to discuss a way to progress the claims with Mr Gibson and Mr Leeflang. 56. On 10 February 2011, Mr Rees sent an email to Mr Leeflang concerning, first, the RMA process for future statutory warranty claims and, second, Ipstar's attitude to retrospective statutory warranty claims. In relation to the former issue, Mr Rees stated that the information being requested by Ipstar was not available to SkyMesh and that it was information already available to Ipstar. He also stated that he believed that part of the proposed RMA process did not comply with the TPA or the ACL. 57. In relation to the retrospective statutory warranty claims, Mr Rees stated that Mr Leeflang's email of 8 February 2011 from Ipstar was the first that SkyMesh had heard of the proposal to reject the claims that SkyMesh had made. He stated that SkyMesh had provided Ipstar with all the information needed to check whether the claims were valid and that it had done so in good faith. He stated that he did not believe that Ipstar had the right to reject the entirety of the claims "on the basis that you've found a small number of errors". 58. On 18 February 2011, Mr Chinveeraphan emailed Mr Rees, stating that, to process any potential statutory warranty claims, Ipstar "needs to be provided with evidence that the claim is a proper one for which Ipstar is liable" and that, when such evidence was received, Ipstar would comply with its obligations under the statutory warranties. 59. On 21 February 2011, Mr Cross responded to Mr Rees' comments on the proposed addendum. He stated that compliance with the RMA process included in the proposed addendum would "achieve operational efficiencies" which would benefit Ipstar and service providers such as SkyMesh. He also stated that the fact that the duration of the new bandwidth pricing was for a limited term of 12 months was because "we cannot anticipate what the future holds". He stated that, should SkyMesh agree to the proposed addendum, then, in the period leading up to the end of the 12–month term, Ipstar would thoroughly reassess market conditions, its costs generally and the costs of doing business with SkyMesh. 60. Mr Rees responded by email on the same day, stating that "there is information on those forms [the RMA forms] we don't know and can't find out". In relation to the price increase, Mr Rees stated that the 20% increase "effectively makes our satellite business unprofitable". He asked again if the bandwidth price was negotiable or "a take it or leave it situation". 61. On 23 February 2011, Mr Cross emailed Mr Rees, telling him that the new bandwidth price was Ipstar's current proposal and that SkyMesh was welcome to make a counter-proposal. He said Ipstar had "reviewed our costs, which have recently increased and that needs to be reflected in pricing". 62. On 24 February 2011, Mr Rees sent a further email to Mr Cross, stating that SkyMesh agreed that Ipstar's costs would increase due to the statutory warranty claims, assuming that Ipstar paid SkyMesh's legitimate claims. He stated that he knew that Ipstar had had a 100% mark-up on satellite equipment for the previous five years which he thought "would have been sufficient to cover costs, even with a failure rate of 22.89%". He stated that it was a matter for Ipstar as to how it chose to recover its costs, but that he would have thought that it was more logical to increase equipment costs rather than bandwidth prices. He also stated that it did not make sense to increase bandwidth prices beyond SkyMesh's ability to pay. 63. In that email, Mr Rees put a counter-proposal to Ipstar which involved continuing "to pay for bandwidth under the price schedule in our current agreement", but with an increase in price if there was a decrease in bandwidth utilisation. He also indicated that he would consider an increase in costs for additional bandwidth over and above what SkyMesh was currently using. 64. Mr Rees stated the Department had "given us [SkyMesh] confidence (unofficially) that we can connect customers right up to" 30 June 2011 and that it was spending an "enormous amount of money" on marketing activities to connect as many customers as possible by then. 65. On 1 March 2011, Mr Cross responded to Mr Rees by email, stating that if SkyMesh wished to assert a statutory warranty claim, Mr Leeflang had already provided details of what was required. He distinguished these requirements from the RMA process, which was stated to only apply to parts sold after 1 July 2010 where Ipstar had given a "voluntary" warranty. In relation to the counter-proposal made by Mr Rees, Mr Cross stated that Ipstar did not accept continuation of the current pricing and that increasing the price for UTs would not solve the increased cost of doing business with SkyMesh in the long-term. He said that there was a "huge increase in the number of service calls from SkyMesh since December which was disproportionate to other providers". 66. Mr Cross stated that Ipstar was not prepared to sign a new addendum with a three-year term and would offer the proposed addendum with a 12-month term only. However, he stated that the pricing had been reassessed and that Ipstar's final offer was $2,933 per Mbps per month. 67. On 2 March 2011, Mr Cross sent a further email to Mr Rees, attaching the proposed addendum in word document format. It added a subparagraph which stated that "if IPA [Ipstar] and SP [SkyMesh] cannot agree to new pricing by 7 February 2012, this Agreement will automatically terminate with immediate effect". 68. On 4 March 2011, Mr Rees emailed Mr Leeflang and requested him to look at an attached spreadsheet and the information it contained relating to the statutory warranty claims. He noted that it was "a complete dump from SkyMesh's and Skybridge's systems" and that it might contain charges for service requests which would not be claimed by SkyMesh. He stated that it was "not a claim" in itself, but "just a first draft", and requested that Mr Leeflang advise whether the information provided would be sufficient to process the claims. 69. On 10 March 2011, Mr Rees emailed Mr Cross some suggested amendments to the proposed addendum. Mr Rees stated that he looked forward to resolving the points he raised and getting the proposed addendum signed. 70. On the same date, Mr Leeflang responded to Mr Rees' email of 4 March 2011, which contained the "complete dump" from SkyMesh's and Skybridge's system. Mr Leeflang said that he could not figure out which charges in the spreadsheet were in fact going to be claimed, noting it was "a complete dump of the 9,700 jobs". 71. Mr Rees responded to Mr Leeflang by email on the same day and noted that he had said in his email of 4 March 2011 that the spreadsheet was "just a first draft" to enable Mr Leeflang to say whether the amount of information was sufficient. Mr Leeflang responded to Mr Rees by email on the same day, stating that, at that point in time, he could not really say whether the information was sufficient. 72. On 14 March 2011, Mr Rees emailed Mr Leeflang, enclosing what he described as "our first claim for Statutory Warranty" using the spreadsheet format requested by Ipstar and the information that was available to SkyMesh. Mr Rees emailed a "second claim for Statutory Warranty" to Mr Leeflang on 28 March 2011. In this email, Mr Rees also asked for an update on the processing of the first claim sent to Ipstar in his email of 14 March 2011. 73. Mr Leeflang responded by email to Mr Rees on 29 March 2011, stating that he "wasn't expecting anymore as thought [sic] that the first run was the final run as it looked like a scripted result" and that "it's [hard] if they keep coming along like this". He also stated that Ipstar was completing its "statutory handling policy", and that "once that is complete, I'll let you know and we'll start the processing". 74. On 30 March 2011, Mr Rees wrote to Mr Leeflang by email, noting that it appeared from Mr Leeflang's email that Ipstar had not started processing the "first claim" he had submitted by email on 14 March 2011. He stated that Ipstar had already rejected SkyMesh's statutory warranty claims submitted in the previous year and that SkyMesh had subsequently gone to "great lengths" to provide the requested information and "check and verify" every claim. He pointed to the fact that Ipstar was now charging SkyMesh 15% more for bandwidth because of the "substantial increase in cost of doing business with SkyMesh". He stated that, contrary to Mr Leeflang's assertion in his email, there had in fact been no increase in Ipstar's costs because "you've not paid a single cent of the claims we have submitted". Mr Rees further stated that "if your intention is to bleed SkyMesh with higher bandwidth charges and lack of spare parts while not paying legitimate claims, then I must say that this will backfire badly". He requested that both claims that he had submitted by email on 14 March 2011 and 28 March 2011 be paid promptly. 75. On 14 April 2011, Mr Cross emailed Mr Rees, attaching a revised version of the proposed addendum. Mr Cross insisted that the addendum include a term that the agreement should terminate if the parties could not agree on a new bandwidth price before the end of the 12-month term in the addendum. 76. On 21 April 2011, Mr Leeflang emailed Mr Rees, stating that Ipstar had combined the two statutory warranty claims submitted by email on 14 March 2011 and 28 March 2011 into one claim for the purposes of processing. Mr Leeflang informed Mr Rees that the result of Ipstar's investigation was that 247 items in the claim had a fault, 140 items had no fault and 2,482 items had incomplete information. These claims were described in an accompanying spreadsheet as having been "rejected". The email stated that SkyMesh would need to satisfy the following criteria to allow Ipstar to proceed: "(1) IPSTAR asks that the pricing [for the items in the claim] is reviewed and standardised by Skymesh [sic] (2) IPSTAR asks that Skymesh reprocess the claim removing claims that are: a. extended warranty b. jobs where refurnished parts were the part being replaced or used c. paid by the end user for the work, otherwise, provide information to confirm to us that end users didn't pay for service calls (3) IPSTAR asks that Skymesh reprocess the claim by including the: a. missing serial numbers (4) IPSTAR asks that Skymesh provide the parts that have: a. not been sent to IPSTAR for testing" 1. Mr Leeflang also raised certain other issues in his email and commented that it took Ipstar "a great deal of time to deal with this and process the information as we ended up wasting a lot of time looking for parts that were never received". 2. On 22 April 2011, Mr Rees responded by email to Mr Cross' email of 14 April 2011, expressing his disappointment at the unwillingness of Ipstar to negotiate any of the substantive issues raised by him in his email of 10 March 2011. He also indicated that the proposed addendum involved a price increase that SkyMesh did not agree was reasonable and that SkyMesh "simply wanted comfort that services would not be determined arbitrarily and without good cause" under the agreement. He stated that, despite its "significant ongoing concerns" with the proposed addendum, SkyMesh had no option but to continue dealing with Ipstar. He said that, in those circumstances, the addendum needed to be finalised to provide SkyMesh "with some security of supply", and that SkyMesh agreed with the addendum "under duress". The addendum was executed on 27 April 2011 and became the "Second Addendum" to which I have previously referred at [4] above. 3. On 4 May 2011, Mr Rees responded in detail to Mr Leeflang's email of 21 April 2011 refusing to further process SkyMesh's statutory warranty claims. Mr Rees rejected Mr Leeflang's comments about the claims, but requested Ipstar to pay the claims it had decided were valid. He stated that "we've [SkyMesh] been trying to get Ipstar to reimburse us for costs since December last year and you just come up with reasons not to pay us". He further stated that Ipstar had increased SkyMesh bandwidth price so that it could not compete with other resellers and that Ipstar was making SkyMesh pay for repairs and refusing to reimburse legitimate expenses. He stated that Ipstar had "forced us [SkyMesh] into a corner and now you're poking us with a sharp stick". 4. Mr Leeflang replied by email to Mr Rees on 19 May 2011. Mr Leeflang acknowledged that his description of some claims as having been "rejected" in his email of 21 April 2011 was "a bit harsh". He said that his intent was to say that, "based on information provided in the claim, the claim cannot progress any further and more verification is required". He set out the additional matters which he said were required. 5. On 26 May 2011, Mr Rees replied in detail to Mr Leeflang by email. Mr Rees stated that he believed that Ipstar was not clear on SkyMesh's position with respect to the statutory warranty claims and that he thought that he ought to set out what he regarded as the history of the matter. On 27 May 2011, Mr Leeflang responded by email, stating that he disagreed with various assertions made by Mr Rees and saw no purpose in responding to them on a line-by-line basis. 6. On 16 December 2011, Mr Gibson wrote to Mr Rees by email stating that Ipstar was prepared to hold SkyMesh's current pricing open for another year. Mr Rees responded by email on 17 January 2012. He noted that it was not financially viable for SkyMesh to agree to the offer, and stated that the price should be no more than SkyMesh was paying prior to 1 March 2011. He stated that the 15% increase which Ipstar had applied to reach the current bandwidth price was not financially viable for them. He pointed out that the funding deed which SkyMesh had with the Department prevented an increase in prices for three years from the time the customer is connected, the last customer being connected on 30 June 2011. He acknowledged that SkyMesh had customers whose services had been installed for more than three years, but stated that, since Australia Private Networks Pty Ltd (APN), Ipstar's other major client, was buying bandwidth for a much cheaper price than SkyMesh, if there was an attempt by SkyMesh to increase its prices, it would mean that those customers "would most likely transfer to APN or cancel and take up Telstra NextG". He also noted that, although APN was willing to sell bandwidth to SkyMesh at SkyMesh's old price or less, APN's agreement with Ipstar precluded on-selling. 7. The bandwidth price of $2,933 per Mbps per month set out in the Second Addendum continued to be levied and paid until the relationship between Ipstar and SkyMesh terminated. 8. It appears that no payment was made by Ipstar to SkyMesh in relation to its statutory warranty claims prior to the commencement of the proceedings at first instance. 9. There is one other matter which should be noted. On 19 April 2012, Mr Cross wrote to Mr Chinveeraphan by email, attaching a spreadsheet which Mr Cross said in his evidence was the formula used in deciding bandwidth pricing with SkyMesh. The spreadsheet was in the following terms: "SkyMesh Bandwidth Pricing 2012 1) Previous Calculations: SkyMesh Network at time of negotiations: Customer base: 34,921 Bandwidth purchased: 220 Mbps Bandwidth price: AUD$2550/Mbps/Month Stat Warranty Additional Cost to IPSTAR: Assumed failure rate 4%/year + 1,397 1. Assumption based on maximum percentage of failures acceptable to industry 2. If failure rate was based on SkyMesh/Skybridge assertions, the percentage applied would be higher Costs – Labor $320, hardware $400 + total $720 1. Labor cost is based on Skybridge quotes Total cost + 1,397x$1,005,840 per year SkyMesh Bandwidth Price Calculations: Required price increase per Mbps : $1,005,840/220Mbps = $4572/Mbps/year or $381/Mbps/month 1. This is around 15% of the current BW pricing = $2550/Mbps/month 2. Resultant pricing = 2550+381 = $2931/Mbps/month Actual price provided = AUD$2933/Mbps/Month 2) New Bandwidth Pricing SKM total UT's purchased 38,726 SKM Fleet Today 28,421 SKM previous Mbps Price $ 2,550.00 Mbps purchased by SKM today 233 Failure Rate per year 1% >(0.75%/year is more Labour & Hardware cost $ 720.00 accurate based on units Monthly Price Increase per Mbps $ 73.19 returned since 2007) New Monthly Mbps price $ 2,759.19 3) Sliding Scale (as per 2008 SKM Addendum) Mbps Price AUD$ 0 to 9 $ 3,372.00 10 to 29 $ 2,989.00 30 to 49 $ 2,889.00 50 to 69 $ 2,832.00 70 to 89 $ 2,791.00 90 to 109 $ 2,760.00 110 to 139 $ 2,735.00 140 to 169 $ 2,715.00 170 to 199 $ 2,700.00 200 to 239 $ 2,686.00 >SKM falls into this price bracket today 1. As I indicated at [48] and [51] above, Mr Leeflang and Mr Cross were cross-examined at trial. I have summarised a portion of their cross-examination above. There are further parts of the cross-examination which are relevant to the unconscionability claim. It is convenient to deal with the cross-examination of each of Mr Leeflang and Mr Cross separately. (a) Mr Leeflang 1. Mr Leeflang denied that he was told to drag his heels for as long as possible and not pay SkyMesh's claims, or to make it as difficult as possible to make the claims. He was asked whether he was privy to communications with others at Ipstar in which it was decided to respond to the statutory warranty claims by providing, firstly, new bandwidth pricing at a greater amount, secondly, new warranty terms, and thirdly, an RMA process. Mr Leeflang said that that may have been the case, although he stated that he did not recall it happening like that. He said that he had difficulty in answering because he was not part of the "commercial discussion" around the terms of the proposed addendum. 2. Mr Leeflang was cross-examined on his email of 8 February 2011, to which I have referred at [56] above. It will be recalled that, in this email, Mr Leeflang responded to the claims submitted by Mr Rees in his emails of 21 December 2010 and 30 December 2010. Mr Leeflang said that some of these claims may have been claimable, and that, even in relation to valid claims, Ipstar refused to pay them. He said that "rejection [of the claims] wouldn't have been just my decision. It would have been a decision with Supoj [Mr Chinveeraphan] as well". He agreed that Mr Chinveeraphan told him to reject all of the claims. Mr Leeflang stated that he thought that it was commercially appropriate to pay the valid claims. He stated that his view was that, if there was evidence that Ipstar owed money, it should pay it. He said that he may have indicated that to Mr Chinveeraphan. He also gave this evidence: "Q. Then you say at the top of page 2229, 'IPSTAR will not [continue] to investigate the list that you've provided as there are too many errors and, hence, IPSTAR rejects the total claims submitted.'? A. Yes, I do. Q. You say you'd gone through a thorough review. Was that true? A. I think it was about 390 something claims that we had a look at. We had a look at a sample. Q. When you say, 'following a thorough review', had you given a thorough views [sic] for those claims? A. Of the ones that we sampled, yes. Q. You'd found that there were some that you thought were acceptable claims and some that you thought were invalid claims; is that right? A. There may have been. Q. No, that's what you found, isn't it? A. Well, I probably did – yeah, I would have found some that were claimable. I mean, what we wanted to do was try and process the whole lot at once. Q. You found some claims that were – you thought were valid and some that you thought might be invalid; is that right? A. This is, again – Q. Is that right? A. Yes, from – Paul started [sic] that he supplied. Q. Even in relation to the valid claims, you refused to pay them, didn't you? A. Yes, we did." 1. Mr Leeflang was also cross-examined on the email he received from Mr Rees on 10 February 2011, to which I have referred at [62]-[63] above. It will be recalled that, in this email, Mr Rees responded to Mr Leeflang's email of 8 February 2011. In Mr Rees' email, he had stated that SkyMesh had had "no feedback at all from Ipstar regarding the processing or approval of our claims". Mr Leeflang agreed that this was a fair representation of what occurred. He also agreed that there was never any suggestion that the statutory warranty claims would not be approved. 2. Mr Leeflang also stated that he agreed with Mr Rees' comment in that email that "we [SkyMesh] don't believe you've got the right to reject the entirety of our claim on the basis that you've found a small number of errors". He said that he was overruled by Mr Chinveeraphan on that point. (b) Mr Cross 1. At the outset of his cross-examination, Mr Cross was asked about his email of 19 April 2012 to Mr Chinveeraphan, to which I have referred at [91] above. He agreed that the email contained a "frank and honest account of the way in which the bandwidth pricing had been arrived at" and that he was referring to "the additional cost of doing business" with SkyMesh when he sent the email increasing SkyMesh's price. He agreed that he and Mr Chinveeraphan had discussions as to Ipstar's pricing response to SkyMesh in early 2011, and that Mr Chinveeraphan told him that he wanted to recoup any obligation that Ipstar may be under for statutory warranties back from the party asserting the statutory warranties. 2. Mr Cross agreed that he ordinarily got approval from Mr Chinveeraphan in making commercial decisions about the pricing of bandwidth. He agreed that Mr Chinveeraphan directed him to prepare the proposed addendum with the figures for bandwidth pricing which were included in it. 3. Mr Cross denied that he participated in any discussions with Mr Chinveeraphan about the "operational response" to the statutory warranty claim. He denied that it was Mr Chinveeraphan's direction to make things as difficult as possible for SkyMesh in recovering its statutory warranty claims. He was asked whether it was Mr Chinveeraphan's direction that part of the company's response to those statutory warranty claims should be to increase the bandwidth pricing. Mr Cross said that it was not in direct response to the statutory warranty claim, but instead, in respect of reviewing the agreement which was due for renewal or termination. However, he agreed that part of the response that Mr Chinveeraphan directed in respect of the statutory warranty claims was to increase the bandwidth pricing. Mr Cross agreed that the reason for Ipstar adopting the particular bandwidth pricing in its negotiations with SkyMesh was the desire to recover the amount of the statutory warranty claims and that there was no other reason. 4. Later in his cross-examination, Mr Cross was asked further questions about the reason for the increase. He agreed that he had conversations in January 2011 with Mr Chinveeraphan as to what the company's response should be to the statutory warranty claims. He agreed that they occurred in the context of discussing the costs that might be occasioned to the company if and when the statutory warranty claims were received, and that Mr Chinveeraphan told him that he wanted to increase the bandwidth price so as to be able to recoup the costs as and when the claims arose. 5. Mr Cross was cross-examined on his email of 4 February 2011, which attached the proposed addendum, to which I have referred at [54] above. He agreed that within the proposed addendum there was a price increase, new warranty terms and a new RMA process. He agreed that the inclusion of the RMA process was an attempt to make it part of the contractual arrangements between Ipstar and SkyMesh. 6. Mr Cross was also asked about drafting of Mr Leeflang's email of 8 February 2011 to Mr Rees, to which I have referred at [56] above. He stated that he did not recall that Mr Leeflang had the belief that some of the claims submitted were valid, but he vaguely remembered discussion about rejecting the whole claim. He denied that he was part of the team determining the response to the claim. 7. Mr Cross was also asked about Mr Chinveeraphan's email of 8 February 2011, to which I have referred at [57] above. In that context, he was asked the following questions and gave the following answers: "Q. Was Mr Supoj directing the company's response; was he? A. On some issues, yes. Q. Was he directing the response in terms of how to deal with the statutory warranty claims? A. Yes. Q. Was he directing the response in terms of increasing the bandwidth price with SkyMesh? A. Yes. Q. Was he directing the response in terms of the matters that he was requiring of SkyMesh in the proposed addendum? A. Yes." 1. Mr Cross stated that he would have been aware that some of the claims made by SkyMesh were valid. He said that he did not consider whether it was appropriate to reject the claims in their entirety as it was not part of his remit and he did not question Mr Chinveeraphan's authority. He said that it was a matter which fell under the operational department. Ultimately, he said that he believed that claims which were valid should not have been rejected. 2. Mr Cross was also asked about Mr Rees' inquiry in his email of 9 February 2011, to which I have referred at [58]-[61] above, regarding whether Ipstar was increasing the bandwidth price for all customers. He acknowledged that it was only the price payable by SkyMesh that was being increased, and said that he did not believe that doing so would put SkyMesh at a competitive disadvantage in relation to other internet service providers. Even with the price increase, Mr Cross stated that he believed that it was possible for SkyMesh to remain competitive. 3. Mr Cross was asked about his email of 21 February 2011 to Mr Rees, to which I have referred at [65] above, which he acknowledged was one of his first responses to Mr Rees' inquiries about what Mr Cross had meant by the "increased cost of doing business". He agreed that he did not give Mr Rees a "frank and honest answer" as to the reason for the increase and he ultimately stated that he was not sure why he did not do so. It was put to him that he lied in the email and he responded that he "didn't reveal all the costs". He said that he had been given legal advice as to how to respond to Mr Rees' inquiries. Ultimately, he was asked these questions and gave these answers: "Q. But you've written a letter that you have accepted was lacking in frankness and wasn't an honest account and you've told me that that's not normally how you conduct yourself, so I want to suggest to you that one of the reasons that you didn't reveal the true position was that you were uncomfortable with that true reason for the price increase; that's fair, isn't it? A. Yes. … Q. It was your intention, when writing this letter, not to reveal the true reason for the price increase, wasn't it? Wasn't it? A. Yes." 1. Mr Cross was asked about his email of 23 February 2011 to Mr Rees, to which I have referred at [67] above, which he agreed was his second attempt to explain the reasons for the price increase. Ultimately, he acknowledged that he did not give a "frank and honest answer" to the inquiry in that email. 2. Mr Cross was asked about his email of 1 March 2011 to Mr Rees, to which I have referred at [71] above. In a passage relied on by the primary judge at [135(3)], he was asked the following questions and gave the following answers: "Q. You say, 'We have already seen a huge increase in the number of service calls from SkyMesh since December which is disproportionate to other providers, then you say (and I do not mean your statutory warrant retro claims.' A. Yes. Q. You were intending to suggest, weren't you, that the reason for the price increase was not to do with the statutory warranty claims? A. No, I'm just saying there's a huge increase in the number of service calls since December. Q. Come on, Mr Cross, have a look at this. 'We've seen a huge increase in the number of service calls from SkyMesh since December which is disproportionate to other providers' and then you specifically state, 'And I do not mean your statutory warranty retro claims', don't you? A. Yes. Q. In other words you're talking about issues other than the statutory warranty claims? A. Yes. Q. You're seeking to justify the price increase on the basis of matters other than the statutory warranty claims; aren't you? A. Yes. Q. That's not a true reflection of the reasons for your price increase; was it? A. No. Q. You accept, don't you, that this third time that you've dealt with this concept didn't involve a frank and honest response from you? You accept that; don't you? A. Partially, yes. Q. Insofar as you were purporting to give an explanation for the increased cost of doing business it was a false explanation; wasn't it? A. Yes. Q. The reason you gave a false explanation is because you did not want to reveal the true reason for the price increase, that's right; isn't it? A. Yes. Q. Can we go then to the first time you deal with this issue, it's at 2386 [Mr Cross' email to Mr Rees of 2 March 2011, referred to at [73] above]. You don't in that email reveal the true reason for the price increase; do you? A. No. Q. You tried to keep secret from SkyMesh the true reason for the price increase; didn't you? A. No. Q. Really? Is that really your evidence? A. We didn't reveal the reason for the price increase. Q. We know that, you tried to keep it secret; didn't you? A. Not intentionally. Q. Mr Cross, you intentionally kept secret from SkyMesh, from the time that you were asked questions about it, what the real reason was for the price increase; didn't you? A. Yes." 1. He subsequently gave this evidence: "Q. He'd already made a counter-proposal and you'd rejected it? A. Yes. Q. You believed that he had no other practical alternative but to agree to the price that you demanded? A. As I've just stated he could have volunteered an alternative arrangement. Q. You were aware at this stage, that SkyMesh was dependent upon obtaining bandwidth to continue its business of providing IPSTAR satellite services to its customers? A. Yes. Q. And you knew that there had been a substantial capital cost in providing SkyMesh's customers with the equipment that was supplied by IPSTAR? A. Yes. Q. You were aware that there was [sic] some 30,000 odd user terminals active to the SkyMesh network at about that time? A. Yes. … Q. Because to replace IPSTAR satellite equipment at its various customers' premises would have, assuming they were prepared to move to some other provider, would have cost $2,000 times 30,000, something in the order of 6 million [sic]? A. Yes." 1. Mr Chinveeraphan did not give evidence. The relevant legislation 1. Section 22 of the ACL, as in force at the time of the entry into the Second Addendum, was relevantly in the following terms: "22 Unconscionable conduct in business transactions (1) A person must not, in trade or commerce, in connection with: (a) the supply or possible supply of goods or services to another person (other than a listed public company); or (b) the acquisition or possible acquisition of goods or services from another person (other than a listed public company); engage in conduct that is, in all the circumstances, unconscionable. Note: A pecuniary penalty may be imposed for a contravention of this subsection. (2) Without in any way limiting the matters to which the court may have regard for the purpose of determining whether a person (the supplier) has contravened subsection (1) in connection with the supply or possible supply of goods or services to another person (the business consumer), the court may have regard to: (a) the relative strengths of the bargaining positions of the supplier and the business consumer; and (b) whether, as a result of conduct engaged in by the supplier, the business consumer was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the supplier; and (c) whether the business consumer was able to understand any documents relating to the supply or possible supply of the goods or services; and (d) whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the business consumer or a person acting on behalf of the business consumer by the supplier or a person acting on behalf of the supplier in relation to the supply or possible supply of the goods or services; and (e) the amount for which, and the circumstances under which, the business consumer could have acquired identical or equivalent goods or services from a person other than the supplier; and (f) the extent to which the supplier's conduct towards the business consumer was consistent with the supplier's conduct in similar transactions between the supplier and other like business consumers; and (g) the requirements of any applicable industry code; and (h) the requirements of any other industry code, if the business consumer acted on the reasonable belief that the supplier would comply with that code; and (i) the extent to which the supplier unreasonably failed to disclose to the business consumer: (i) any intended conduct of the supplier that might affect the interests of the business consumer; and (ii) any risks to the business consumer arising from the supplier's intended conduct (being risks that the supplier should have foreseen would not be apparent to the business consumer); and (j) if there is a contract between the supplier and the business consumer for the supply of the goods or services: (i) the extent to which the supplier was willing to negotiate the terms and conditions of the contract with the business consumer; and (ii) the terms and conditions of the contract; and (iii) the conduct of the supplier and the business consumer in complying with the terms and conditions of the contract; and (iv) any conduct that the supplier or the business consumer engaged in, in connection with their commercial relationship, after they entered into the contract; and (k) without limiting paragraph (j), whether the supplier has a contractual right to vary unilaterally a term or condition of a contract between the supplier and the business consumer for the supply of the goods or services; and (l) the extent to which the supplier and the business consumer acted in good faith. … (5) For the purpose of determining whether a person has contravened subsection (1): (a) the court must not have regard to any circumstances that were not reasonably foreseeable at the time of the alleged contravention; and (b) the court may have regard to circumstances existing before the commencement of this section but not to conduct engaged in before that commencement." 1. Section 22 took effect with the introduction of the ACL on 1 January 2011. It was in similar terms to its predecessor, s 51AC of the TPA. 2. At that time, s 21 lso dealt with unconscionable conduct in respect of the supply of goods and services. However, s 21(5) limited its scope to "goods or services of a kind ordinarily acquired for personal, domestic or household use or consumption". Section 21(6) also provided that the section did not include a supply of goods if it was for the purpose of resupply. Further, unlike s 22(5)(b), which limited the conduct to which a court could have regard to that occurring after the section commenced, s 21(4)(b) provided that, in determining whether there was a contravention of s 21, "the court may have regard to conduct engaged in, or circumstances existing, before the commencement" of the section. The section was in that respect similar to its predecessor, s 51AB of the TPA. 3. These provisions were amended by the Competition and Consumer Legislation Amendment Act 2011 (Cth). The amendments took effect from 1 January 2012. Section 21 was amended to remove the provisions which limited its scope to "goods or services of a kind ordinarily acquired for personal, domestic or household use or consumption" and excluded the supply of goods for the purpose of resupply. Section 21(3)(b) of the amended provision, like its predecessor s 21(4)(b), stated that the court, in determining whether there was a contravention of s 21, could "have regard to conduct engaged in, or circumstances existing, before the commencement" of the section. Section 22 was amended to take account of the fact that the contraventions it covered were now wholly dealt with in s 21. The provisions of s 22(5) were repealed. 4. The provisions of s 22(5)(b) as it existed at the time of the alleged contraventions are not without significance, as some of the conduct to which I have referred at [27]-[50] above occurred prior to 1 January 2011. However, no point was taken concerning this in the appeal and, in any event, the conduct which is relevant to the question of unconscionability in the setting of the bandwidth price, to the extent that it commenced prior to 1 January 2011, continued until 27 April 2011, the date of execution of the Second Addendum. 5. Further, it should be noted that the amendment to s 21 which came into force on 1 January 2012 contained the following subsection which was not previously incorporated into either s 21 or s 22 of the ACL: "21 Unconscionable conduct in connection with goods or services ... (4) It is the intention of the Parliament that: (a) this section is not limited by the unwritten law relating to unconscionable conduct; and (b) this section is capable of applying to a system of conduct or pattern of behaviour, whether or not a particular individual is identified as having been disadvantaged by the conduct or behaviour; and (c) in considering whether conduct to which a contract relates is unconscionable, a court's consideration of the contract may include consideration of: (i) the terms of the contract; and (ii) the manner in which and the extent to which the contract is carried out; and is not limited to consideration of the circumstances relating to formation of the contract." 1. The provisions of the TPA relevant to the defective goods claim are s 74B, s 74D, s 74H and s 74K. Relevantly, they were in the following terms: "74B Actions in respect of unsuitable goods (1) Where: (a) a corporation, in trade or commerce, supplies goods manufactured by the corporation to another person who acquires the goods for re-supply: (b) a person (whether or not the person who acquired the goods from the corporation) supplies the goods (otherwise than by way of sale by auction) to a consumer; (c) the goods are acquired by the consumer for a particular purpose that was, expressly or by implication, made known to the corporation, either directly, or through the person from whom the consumer acquired the goods or a person by whom any antecedent negotiations in connexion with the acquisition of the goods were conducted; (d) the goods are not reasonably fit for that purpose, whether or not that is a purpose for which such goods are commonly supplied; and (e) the consumer or a person who acquires the goods from, or derives title to the goods through or under, the consumer suffers loss or damage by reason that the goods are not reasonably fit for that purpose; the corporation is liable to compensate the consumer or that other person for the loss or damage and the consumer or that other person may recover the amount of the compensation by action against the corporation in a court of competent jurisdiction. … 74D Actions in respect of goods of unmerchantable quality (1) Where: (a) a corporation, in trade or commerce, supplies goods manufactured by the corporation to another person who acquires the goods for re-supply; (b) a person (whether or not the person who acquired the goods from the corporation) supplies the goods (otherwise than by way of sale by auction) to a consumer; (c) the goods are not of merchantable quality; and (d) the consumer or a person who acquires the goods from, or derives title to the goods through or under, the consumer suffers loss or damage by reason that the goods are not of merchantable quality; the corporation is liable to compensate the consumer or that other person for the loss or damage and the consumer or that other person may recover the amount of the compensation by action against the corporation in a court of competent jurisdiction. … 74H Right of seller to recover against manufacturer or importer Where: (a) a person (in this section referred to as the seller) is under a liability to another person (in this section referred to as the consumer) in respect of loss or damage suffered by the consumer as a result of a breach of a condition or warranty implied by a provision of Division 2 in a contract for the supply of goods (whether or not the goods are of a kind ordinarily acquired for personal, domestic or household use or consumption) by the seller to the consumer; and (b) a third person (in this section referred to as the manufacturer): (i) is liable to compensate the consumer in respect of the same loss or damage by reason of a provision of this Division; or (ii) in a case where the goods referred to in paragraph (a) are not of a kind ordinarily acquired for personal, domestic or household use or consumption — would, if the provisions of sections 74B, 74C, 74D and 74E applied in relation to those goods, be liable to compensate the consumer in respect of the same loss or damage by reason of any of those provisions; the manufacturer is liable to indemnify the seller in respect of the liability of the seller to the consumer and the seller may, in respect of the manufacturer's liability to indemnify the seller, institute an action against the manufacturer in a court of competent jurisdiction for such legal or equitable relief as the seller could have obtained if the liability of the manufacturer to indemnify the seller had arisen under a contract of indemnity made between the manufacturer and the seller. … 74K Application of Division not to be excluded or modified (1) Any term of a contract (including a term that is not set out in the contract but is incorporated in the contract by another term of the contract) that purports to exclude, restrict or modify, or has the effect of excluding, restricting or modifying, any liability of a person to compensate or indemnify another person that may arise under this Division, is void. (2) A term of a contract shall not be taken to exclude, restrict or modify the application of a provision of this Division unless the term does so expressly or is inconsistent with that provision." Additionally, s 74A(4) deems an importer of goods into Australia to have manufactured the goods if the true manufacturer does not have a place of business in Australia. 1. The equivalent provisions of the ACL are s 54, s 55, s 259, s 271, s 274 and s 276. So far as they are relevant, they are in the following terms: "54 Guarantee as to acceptable quality (1) If: (a) a person supplies, in trade or commerce, goods to a consumer; and (b) the supply does not occur by way of sale by auction; there is a guarantee that the goods are of acceptable quality. (2) Goods are of acceptable quality if they are as: (a) fit for all the purposes for which goods of that kind are commonly supplied; and (b) acceptable in appearance and finish; and (c) free from defects; and (d) safe; and (e) durable; as a reasonable consumer fully acquainted with the state and condition of the goods (including any hidden defects of the goods), would regard as acceptable having regard to the matters in subsection (3). … 55 Guarantee as to fitness for any disclosed purpose etc. (1) If: (a) a person (the supplier) supplies, in trade or commerce, goods to a consumer; and (b) the supply does not occur by way of sale by auction; there is a guarantee that the goods are reasonably fit for any disclosed purpose, and for any purpose for which the supplier represents that they are reasonably fit. … 259 Action against suppliers of goods (1) A consumer may take action under this section if: (a) a person (the supplier) supplies, in trade or commerce, goods to the consumer; and (b) a guarantee that applies to the supply under Subdivision A or Division 1 of Part 3-2 (other than sections 58 and 59(1)) is not complied with. … 274 Indemnification of suppliers by manufacturers (1) A manufacturer of goods is liable to indemnify a person (the supplier) who supplies the goods to a consumer if: (a) the supplier is liable to pay damages under section 259(4) to the consumer for loss or damage suffered by the consumer; and (b) the manufacturer is or would be liable under section 271 to pay damages to the consumer for the same loss or damage. … 276 This Part not to be excluded etc. by contract (1) A term of a contract (including a term that is not set out in the contract but is incorporated in the contract by another term of the contract) is void to the extent that the term purports to exclude, restrict or modify, or has the effect of excluding, restricting or modifying: (a) the application of all or any of the provisions of this Part; or (b) the exercise of a right a conferred by such a provision; or (c) any liability of a person in relation to a failure to comply with a guarantee that applies under Division 1 of Part 3-2 to a supply of goods or services. (2) A term of a contract is not taken, for the purposes of this section, to exclude, restrict or modify the application of a provision of this Part unless the term does so expressly or is inconsistent with the provision." "Manufacturer" is defined in s 7(1)(e) to include a person who imports goods into Australia if the person is not the manufacturer of the goods and at the time of the importation the true manufacturer of the goods does not have a place of business in Australia. 1. It was common ground, at least on the appeal, that the effect of these provisions was to impose liability on Ipstar to the extent that the equipment supplied was not fit for the purpose for which it was supplied or was not of merchantable or acceptable quality. The primary judgment 1. The primary judge referred to the original contractual arrangements between Ipstar and SkyMesh and the emergence of the water ingress and firmware problems. He pointed to the fact that it was common ground that customers who had some difficulties first contacted the SkyMesh helpdesk and that, if SkyMesh was unable to provide assistance, customers were referred to the Skybridge helpdesk. If the problem could not be solved in that fashion, Skybridge arranged for a technician to attend the customer on-site. 2. The Skybridge technician used a testing protocol to eliminate simple faults but if it was ultimately determined that a particular item of equipment should be replaced, the technician would do so and Skybridge would invoice SkyMesh for the service call and the cost of the replacement equipment. Documentation was created by Skybridge in respect of the 4,000 claims which are the subject of these proceedings. 3. The primary judge briefly summarised the negotiations concerning the claims made by SkyMesh. He pointed out that amounts totalling $460,000 had been paid by Ipstar, $400,000 of which was paid to Skybridge, and the remaining $60,000 relating to claims which do not form part of these proceedings. (a) Defective goods claim 1. The primary judge noted that SkyMesh's defective goods claim comprised the individual claims made in respect of about 4,000 items of equipment. He referred to the fact that an agreement had been reached between the parties that a sample of 102 items (the 102 representative items) could be used to determine the amount, if any, recoverable by Ipstar (the representative sample process). The recoverable amount was agreed to be determined by an equation, following which the $400,000 which had been paid to Skybridge would be deducted. The equation calculated the total recoverable amount by taking the value of the claimable representative items, dividing it by the total value of representative items, and multiplying it by the total value of all 4,000 claims. 2. The primary judge also noted that SkyMesh claimed that, irrespective of the outcome of the representative sample process, if it could be established on the balance of probabilities that an Ipstar UT was not working, it was entitled to recover unless Ipstar could establish that the failure was not something inherent in the ODU or the modem. 3. The primary judge pointed out that the problem of water damage to the ODUs could be demonstrated by the fact that Ipstar paid to Skybridge $2.9 million in satisfaction of claims for water ingress failures of the ODUs and paid $3 million to APN, which acquired equipment directly from Ipstar. The primary judge referred to a number of other factors showing the scale and extent of the problems with the ODUs, but having regard to the issues in this appeal, it is unnecessary to refer to them. 4. The primary judge noted that the first way that SkyMesh put its case in the defective goods claim was that the UTs supplied were not fit for purpose because they were "prone to failure", that is, the ODUs had an unacceptably high level of risk of failure due to the water ingress problem and the modem had an unacceptably high risk of failure due to the firmware problem. He referred to evidence that failure from the water ingress problem occurred in 12% of the total number of ODUs deployed by Ipstar in Australia, which he accepted was an unacceptably high failure rate, but that, without more, it could not be concluded that a randomly selected item might fail. He stated that the present case was not a case like Medtel Pty Ltd v Courtney (2003) 130 FCR 182; [2003] FCAFC 151, where the relevant products (pacemakers) were removed without any failure because there was a concern that they might cease to function in the future. However, he stated at [82] that, in relation to the modem, it was more probable than not that when Skybridge technicians replaced modems that were not functioning, but in which no specific defect had been identified, they did so because they were aware that Ipstar modems were prone to failure and that a new modem might solve the problem. 5. The primary judge stated that the second way in which SkyMesh put its case was based on the result of the representative sample process. 6. The primary judge stated that, apart from six of the 102 representative items, Ipstar did not dispute that either the ODU or modem were not functioning, leading to the removal or replacement of one or both of them. 7. The primary judge recorded that Ipstar made a number of responses to the part of the defective goods claim based on the representative sample process. The only one maintained in this appeal is what the primary judge described as "the pleading issue". 8. The primary judge pointed to the fact that there was authority for the proposition that, for the purpose of establishing unfitness for purpose, it is not necessary to establish why the product was not functioning. On the other hand, he stated at [86] that, for example, the mere fact that a modem was not working and was the subject of a service call does not of itself lead to the conclusion that it was not fit for purpose and not of merchantable quality. 9. The primary judge stated at [87] that, unless the ODU was a "first generation Patriot" model, SkyMesh must establish on the balance of probabilities that the cause of non-functioning was a cause which rendered the ODU and modem unfit for purpose or not of merchantable quality. He stated that if the cause was water ingress, Ipstar accepted that the product was not fit for the purpose for which it was supplied. He stated that half of the 102 representative items involved had ODUs removed which were proven or likely to be water damaged and they were claims which SkyMesh had made out. The reference to the "first generation Patriot" model is a reference to the finding of the primary judge at [64(3)] that by 2010 there were some 65,000 "Patriot" ODUs in Ipstar's fleet, and of the 27,360 deployed in 2008, 3,772 had already failed due to water ingress. Likely failures were projected to total 36% of the 2008 stock. In that context, the primary judge accepted at [64(7)] the evidence of Mr Burns, an expert called by SkyMesh in the proceedings, that the "Patriot" ODUs were not of acceptable quality, referring also at [64(9)] to the evidence of Mr Leeflang that Ipstar regarded the failure rate of the "Patriot" ODUs as unacceptable. 10. So far as the pleading issue was concerned, the primary judge noted Ipstar's submission that the case of SkyMesh was confined in the pleadings to unfitness for purpose due to the water ingress problem alleged in the ODUs and the firmware problem in respect of the modem. He referred to paragraph 9.1 of the Third Further Amended Commercial List Statement and said that it was broad enough to cover defective ODUs that were not defective because of the water ingress or firmware problems, but stated at [91] that the particulars identifying those two matters narrowed the scope of the case. 11. The primary judge accepted that by agreeing to the representative sample process, Ipstar did not give up its contention that SkyMesh should be confined by its pleading, but stated that he was unable to accept that, by agreeing to the process, Ipstar's position was improved. He stated at [94] that the issue of whether SkyMesh was precluded from maintaining a case in respect of defects other than the water ingress or firmware problems applied equally to the 4,000 individual claims as to the 102 representative items. He stated that, if SkyMesh was not precluded from raising claims other than for the water ingress and firmware problems in respect of the 4,000 claims, it was not precluded from running it in respect of the 102 representative items which were allegedly defective. 12. The primary judge pointed out that pleadings and particulars can lag behind the evidence. He stated that, if Ipstar had been caught by surprise by the inclusion of claims for defective goods that were not due to the water ingress or firmware problems, he would have excluded them from consideration. However, he said that he was satisfied that Ipstar was fully aware that such claims were included. 13. The primary judge stated that it was clear that in the case of a number of the 102 representative items, the experts identified that the cause for the equipment not working was neither water ingress in the ODU, nor modem failure due to the firmware problem. However, he concluded that it was more likely than not that the modems which were replaced were replaced because they were not working due to an inherent defect or a problem with its power supply, rather than damage caused by factors extraneous to the equipment supplied. In relation to the ODUs, he reached the conclusion that if an ODU was not functioning, it was more likely than not to be as a result of water ingress or some other inherent defect in the equipment. 14. The primary judge concluded that if the equipment imported by Ipstar once installed did not permit the customer to connect to the Ipstar satellite, it was not fit for the purpose for which it was designed. He said that water ingress in the ODUs would prevent it from working properly, and that a modem with firmware which causes it to hang, freeze or drop out is equally not fit for its purpose and that if it could not be cured by a procedure that can be utilised by the consumer or by a technician by remote access, a customer is entitled to insist on its replacement. 15. The primary judge noted what he described as "Mr Donaldson's concession" that in almost all of the cases the items replaced were "impaired by a defect". Mr Donaldson was senior counsel for Ipstar at the trial. The primary judge stated that, in those circumstances, it was not necessary to go into the details of the 102 representative items other than those specifically identified by Mr Donaldson. He stated that there was agreement between the parties that the ODUs and modems were not functioning due to a defect and were replaced in the course of the relevant service call in all cases except Items 1, 11, 17, 24, 69 and 75 of the 102 representative items. 16. The primary judge dealt with each of the items which were not the subject of agreement separately. In relation to Item 1, he concluded that the defect in the ODU was due to water damage. In relation to Items 11, 24 and 69, he concluded that the items were defective, but would not be recoverable if water damage or firmware issues were required. 17. In relation to Item 17, the primary judge concluded that the ODU was a "first generation Patriot" model with the water ingress problem and that there was also a problem with the modem, but not due to its firmware. He stated that SkyMesh was entitled to recover because the ODU was a "first generation Patriot" model and the modem was not functioning, but that the cost of the replacement of the modem would not be recoverable if "firmware were required [sic]". 18. The primary judge concluded that Item 75 was not recoverable. (b) Unconscionability claim 1. The primary judge stated that he did not regard it as relevant to this claim that SkyMesh received $8.6 million for the sale of its business and that, had SkyMesh been offered the same bandwidth pricing terms as APN, it would have reduced the amount payable by it to Ipstar by $8.4 million. He stated that, so far as the lack of honest dealing on the part of Mr Cross was concerned, although it was the type of conduct within the purview of the ACL, there was no evidence that Mr Rees was misled or did or did not do anything on the basis of what he was told. However, he stated that the false explanation given to Mr Rees for the price increases indicated recognition that the recovery of statutory warranty claims for past sales through increased prices was not an appropriate course of action. 2. The primary judge stated that he doubted whether it would have been unconscionable for Ipstar to increase the bandwidth price by 15% if it had done so because it was in its commercial interest to do so to maintain its profit margin, notwithstanding the possibility of statutory warranty claims being made in the future, or because it believed that SkyMesh would be willing to pay or that it was in SkyMesh's commercial interests to pay the increased price. 3. However, he stated that what he regarded of paramount importance was that what Ipstar had decided to do was to calculate what the statutory warranty claims would have been likely to cost it and to impose that on SkyMesh. He referred to s 74K of the TPA, which he stated made it clear that a seller or importer who is required to meet a liability must carry the burden of indemnifying the consumer or the intermediate seller, and that it therefore followed that the legislation must be taken to have regarded it as not in the legitimate interests of Ipstar to require SkyMesh to pay an amount calculated as the cost of meeting those claims. 4. The primary judge stated that Ipstar embarked on the course of requiring SkyMesh to meet the cost of the statutory warranty claims in circumstances where SkyMesh had no practical alternative but to accept the price increase. He also referred to the fact that Ipstar did not seek to recover the costs from other service providers, did not advise SkyMesh of the true basis of the calculated increases and did not give frank and honest answers to Mr Rees' inquiries. He stated that those factors reinforced the unconscionability of Ipstar's conduct. 5. In those circumstances, the primary judge made the orders from which this appeal is brought. 6. It is convenient to deal with the appeal in respect of the unconscionability claim and the defective goods claim separately. The unconscionability claim (a) The grounds of appeal 1. Ipstar relied on the following grounds of appeal: "1 Having held correctly at paragraph 141 that the respondent was not misled by the appellant, and, at paragraph 142 that it was 'very much' doubtful that a 15% increase in the bandwidth price by the appellant could, in the circumstances described in paragraph 142, be characterised as unconscionable, the trial judge erred in finding at paragraphs 143, 144 and 145 that the appellant's method of the calculation of that price increase caused the otherwise non-offending conduct to be characterised as unconscionable, by reason of the fact that that method was said not to be 'in protection of [the appellant's] legitimate interests'. 2 In circumstances where the respondent did not contend and had not pleaded that the Second Addendum (as defined in paragraph 11) was void by reference to paragraph 74K [sic] of the Trade Practice Act 1974 (or its equivalent under Schedule 2 to the Competition and Consumer Act 2010 (Cth) (ACL), the trial judge erred in having regard, at paragraph 143, to s74K in aid of the interpretation of s21 and/or s22 of the ACL. 3 Furthermore, the trial judge erred in finding: a. at paragraph 143, that s74K evidences an intention on the part of the legislature that a seller must carry the 'burden' of indemnifying the consumer or an intermediate seller who has compensated the consumer in circumstances where s74K does not evidence this intention for the reason that, inter alia, it is directed to a different purpose; and b. at paragraph 144, that the existence of s74K requires an inference that the legislature intended that particular conduct (in this case the appellant's conduct in calculating the 15% price increase) was not in the 'legitimate interests' of a supplier, for the purposes of s21(2)(b) and/or s22(2)(b) of the ACL. 4 Having held correctly at paragraph 142 that there can be no expectation by a purchaser that the price he or she is paying is equal to the price that any other customer is paying, the trial judge erred at paragraph 146 in taking into account the fact that that [sic] the appellant did not seek to recover the cost of statutory warranties through a price increase from other service providers. 5 The trial judge erred in finding, at paragraph 147, that the appellant required the respondent to meet an obligation that the appellant was required by statute to meet itself, for the reason that the 15% price increase did not result in the respondent meeting any statutory obligation of the appellant. Further, even if that be true (which is denied), the trial judge erred, for the above stated reasons, in finding that such conduct was unconscionable." 1. By notice of contention, SkyMesh contended that the primary judge should have found that Ipstar's conduct "as a whole was in all the circumstances unconscionable, and that unconscionable conduct was not limited to the reason for, and the calculation of, the price increase imposed by the appellant on the respondent". (b) The parties' submissions (i) Ipstar 1. Ipstar, in its written submissions, described the decision of the primary judge as "radical and wrong", stating that the setting of price was a matter for commercial negotiations and that the increase was less than Ipstar had first sought. It also submitted that, subject to competition law constraints or contractual regulation, a commercial party is entitled to set its price "as high as it can achieve by negotiation". It was submitted that, if a party forms the view that its costs will increase in the future, "it is entitled to set its price and adjust the conditions of the contract accordingly". 2. Senior counsel for Ipstar emphasised the negotiation process which led to the price increase being reduced from 20% to 15%. He emphasised that SkyMesh was a successful company and had legal advice throughout the negotiation. He referred to the primary judge's comments that it was not unreasonable simply to increase the price by 15% to maintain its profit margin. 3. Senior counsel for Ipstar submitted that the increased price was calculated by reference to an industry standard of failures of 4% per year, and not by reference to the failure rates referred to by the primary judge, which I have summarised at [126] above. That may be so, but it does not alter the evidence that the 15% price increase, according to the evidence of Mr Cross to which I referred at [99]-[100] above, was designed to offset the statutory warranty claims. 4. Senior counsel for Ipstar also submitted that, at the time of Second Addendum, the claims had not crystallised. That may be correct, but the fact remains that the calculation was based on an assumed failure rate leading to a total additional cost of $1,005,840 per year. This was the failure rate assumed to be correct at the time of the Second Addendum, although at that stage no payment of compensation had been made to SkyMesh, subject to the $400,000 paid to Skybridge in respect of the SkyMesh claims. 5. Senior counsel for Ipstar submitted that there was nothing unconscionable in taking into account accrued liabilities or future liabilities in setting a price. He described it as "commercially rational conduct". He submitted that there was no evidence that the 15% increase was exorbitant. He pointed to the fact that the initial fee for bandwidth was $3,972 per Mbps per month and that, notwithstanding the price increase, SkyMesh continued to sign customers until the end of the Australian Broadband Guarantee Programme on 30 June 2011, doing so in the knowledge that it had no guarantee of future supply from Ipstar beyond 30 April 2012. He also pointed to the fact that the lower fixed rate of $2,550 per Mbps per month was only available from May 2010 until February 2011. 6. Senior counsel for Ipstar submitted that, when SkyMesh commenced to submit claims in late 2010 and 2011, Ipstar complained about a lack of detail. Ipstar was concerned that the real potential source of complaint may have been a defective installation. He submitted that, right up to the eve of the trial, it struggled with the lack of specificity in the material produced by SkyMesh to substantiate its complaints. 7. Senior counsel for Ipstar referred to the affidavit of Mr Leeflang of 9 April 2014, in which he referred to payments made by way of credit notes to Skybridge totalling $2,984,625.26 as compensation for the water ingress problem. He submitted that it showed a system had been established to compensate for the water ingress problem. I have referred to the memorandum of understanding entered into between Ipstar and Skybridge at [26] above. 8. Senior counsel for Ipstar also referred to the email exchange between Mr Rees and Mr Dusan in January 2010, to which I have referred at [27]-[28] above, and to the "forum" meeting held by Ipstar on 26 February 2010, to which I have referred at [29]-[31] above, which he submitted showed that the water ingress problem was not being dealt with in some nefarious way. He also referred to the email exchange between Mr Chinveeraphan and Mr Rees in November 2010, to which I have referred at [39]-[45] above, describing Ipstar's approach as "proactive". He submitted that Ipstar was "not running away from [its] responsibilities", but that it did not wish to be fixed with responsibility for claims for which it was not liable. 9. Senior counsel for Ipstar referred to the email of 20 December 2010 from Mr Rees to Mr Leeflang, to which I have referred at [47] above. He pointed out that no detailed information about the statutory warranty claims had been received by that stage. 10. Senior counsel for Ipstar described the information provided by Mr Rees in his emails of 21 December 2010 and 30 December 2010, to which I have referred at [50] above, as a "dump of information". He submitted that Mr Leeflang's response by email of 8 February 2011, to which I have referred at [56] above, was made in good faith. 11. Senior counsel for Ipstar acknowledged the temporal connection between the notification of the price increase by Mr Cross' email of 4 February 2011 and Mr Leeflang's email of 8 February 2011 rejecting the statutory warranty claims, but stated that this was not inconsistent with genuine work having been done on the claims. 12. Senior counsel for Ipstar referred to Mr Cross' email of 23 February 2011 in which he said that SkyMesh was welcome to make a counter-proposal to Ipstar's proposed addendum, stating that this was not the "language of unconscionability" but rather the language of "commercial negotiation". He referred in that context to Mr Rees' email of 24 February 2011, to which I have referred at [68]-[70] above, which he stated was a recognition by a "man of commerce" that it was a matter for Ipstar as to how it recouped its costs, and noted that the counter-proposal contained in that email stated that SkyMesh would be prepared to consider an increase in cost. He referred to the fact that the final offer made by Ipstar provided for a 5% reduction over the original proposal. 13. Senior counsel for Ipstar submitted that one thing which was of importance was that SkyMesh did not have to purchase from Ipstar and Ipstar was not required to sell to SkyMesh. He said that SkyMesh could have sold its client list to another service provider "who took bandwidth from us at maybe more favourable prices, because they negotiated a better deal or negotiated a longer deal or a better valuable deal [sic]". He submitted that there was no suggestion that SkyMesh signed under duress and that it continued paying the new bandwidth price of $2,933 per Mbps per month until it sold its business. 14. Senior counsel for Ipstar emphasised that this was not a case where Ipstar put SkyMesh in the "predicament or dilemma" of which it complained. He referred to the comment by Mr Rees in his email returning the executed Second Addendum that it was "good to get the issue resolved", which he described as "not a very strenuous complaint". He emphasised that Mr Rees had acknowledged in his email of 24 February 2011 that the decision to recoup costs was a matter for Ipstar. 15. Senior counsel for Ipstar referred to what was said by Allsop CJ in Paciocco v Australia and New Zealand Banking Group Ltd (2015) 236 FCR 199; [2015] FCAFC 50 (Paciocco FC) at [335], that an unconscionability provision "does not transform the Court into a price regulator", although there may be cases where "exorbitant exercises of bargaining power bespeak predation" and may be unconscionable. Senior counsel for Ipstar submitted that this was not the present case. 16. Senior counsel for Ipstar also referred to the judgment of Gleeson CJ in Australian Competition and Consumer Commission v C G Berbatis Holdings Pty Ltd (2003) 214 CLR 51; [2003] HCA 18 (Berbatis) at [11], which stated that a person is not in a position of significant disadvantage merely because of an "inequality of bargaining power". Senior counsel for Ipstar pointed to the fact that, like in Berbatis, the parties in the present case were business people able to protect their own interests and that the contractual disadvantage that SkyMesh suffered was that it had no right to renewal of the agreement. He also referred in that context to what was said on this issue in the High Court of Australia in Paciocco v Australia and New Zealand Banking Group Ltd (2016) 258 CLR 525; [2016] HCA 28 (Paciocco HC) by Gageler J at [185] and [189] and by Keane J at [293]-[294]. 17. Senior counsel for Ipstar also referred to the matters set out in s 22(2) of the ACL. In relation to s 22(2)(a), he pointed to the fact that SkyMesh was a successful business which had lawyers involved in the course of negotiations; in relation to s 22(2)(b), he submitted that nothing Ipstar did required SkyMesh to agree to anything; in relation to s 22(2)(c), he stated that SkyMesh understood the contractual documents; in relation to s 22(2)(d), he submitted that there was no undue pressure applied; in relation to s 22(2)(e) and s 22(2)(f), he submitted that these factors did not make it unlawful to charge different customers different amounts; in relation to s 22(2)(i), he submitted that there was no suggestion that Mr Rees or SkyMesh was misled; in relation to s 22(2)(j), he submitted that there was a willingness to negotiate; and, in relation to s 22(2)(k), he submitted that Ipstar had a right to vary the terms of the contract. Section 22(2)(g) and s 22(2)(h) were said to not be relevant. Senior counsel for Ipstar did not expressly refer to s 22(2)(l). 18. Senior counsel for Ipstar submitted that the primary judge erred in concluding that the existence of s 74K of the TPA affected the position. He submitted that the section was directed to contractual exclusions and did not mean that fixing a price by reference to a potential liability under s 74B or s 74D of the TPA, or their equivalents in the ACL, was unconscionable. 19. In reply, senior counsel for Ipstar submitted that the different pricing arrangements with APN were not of significance in determining the unconscionability question. Senior counsel for Ipstar submitted that the contractual relationship with APN had been set six months before the Second Addendum and, being denominated in US dollars, was subject to exchange rate fluctuations. He also pointed to the fact that there was a minimum purchase requirement in the APN agreement, and that, in relation to warranty claims, APN followed the RMA policy. Senior counsel for Ipstar submitted that the mere fact that a payment of $3 million had been made to APN did not mean there was no outstanding issues between that company and Ipstar in relation to warranty claims. Senior counsel for Ipstar also pointed to the fact that evidence in the proceedings at trial demonstrated that SkyMesh had not lost market share as a result of the price increase. Against that, it must be said that the overall use of Ipstar's terminals had declined significantly by 2014, as I noted at [20] above. 20. In relation to the evidence of Mr Cross, it was submitted in reply that no-one from SkyMesh was misled by his conduct, that Ipstar's conduct "fobbing off" SkyMesh did not form any part of the unconscionability claim in the Court below. That is correct, but it does not seem to me that it precludes the Court from taking into account the existence of the statutory warranty claims and the manner in which Ipstar dealt with them as part of the circumstances in which the unconscionable conduct allegedly occurred. (ii) SkyMesh 1. Senior counsel for SkyMesh submitted that in a statutory unconscionability case, "context is all important". He submitted that the price negotiated, the price increase and the statutory warranty provisions were "inextricably linked" both as to time and context. 2. Senior counsel for SkyMesh submitted that prior to the time that the question of the statutory warranty provisions under the TPA was raised, Ipstar had been providing a 12-month warranty. He referred to the provisions concerning the warranties in the TPA and the ACL, and submitted that the primary judge's approach in dealing with the unconscionability claim in the context of the statutory scheme was correct. In this context, he referred to the decision of the Full Court of the Federal Court of Australia in Australian Competition and Consumer Commission v Lux Distributors Pty Ltd [2013] FCAFC 90 (Lux Distributors), in which Allsop CJ stated at [23] that federal and state legislation directed to the question of fairness in commercial dealings may illuminate the normative standards intended to be set by the legislature. 3. Senior counsel for SkyMesh referred to the fact that the evidence established that SkyMesh and APN were the two largest internet service providers using the Ipstar satellite and equipment. He referred to the fact that in September 2010, APN was provided with a revised price in US dollars which, having regard to the $2,550 Mbps per month which SkyMesh was paying, was less than the SkyMesh price. He pointed out that none of the other service providers who used the Ipstar satellite and equipment were subjected to an increase in price. 4. Senior counsel for SkyMesh stated that what he described as the "scale of the problem" in the present case could be illustrated by what had been paid to other service providers in respect of the water ingress claims. He submitted that most of the $2.9 million paid to Skybridge went to relatively small distributors, whilst APN itself received $3 million. He submitted that this showed that, for some reason, SkyMesh was being treated differently in respect of defective goods. 5. Senior counsel for SkyMesh stated that he did not dispute the finding of the primary judge that there was no evidence that Mr Rees was misled, but said that misleading conduct was not an essential element of a case under s 22 of the ACL. He adopted the proposition that "the difference between transparency and lies" goes at least to the question of whether the supplier was acting in good faith. 6. Senior counsel for SkyMesh referred to the cross-examination of Mr Cross in relation to his email of 4 February 2011, to which I have referred at [101] above, and the cross-examination concerning Mr Chinveeraphan's email of 8 February 2011, which I have set out at [103] above. He also referred to the evidence of Mr Cross in cross-examination that he believed that claims which were valid should have been paid and his evidence that, in his email of 21 February 2011 to which I have referred at [106] above, he did not intend to record the true reasons for the price increase. 7. Senior counsel for SkyMesh also referred to the evidence of Mr Leeflang, which I have summarised at [93]-[96] above. He referred to the fact that one of the problems that existed at the time was that Ipstar would not pay a claim unless the actual part had been returned to it, shipped to Thailand and failed a test in Thailand. He submitted that Mr Leeflang's evidence demonstrated that SkyMesh's statutory warranty claims were being "fobbed off" whilst the price increase was formulated. He submitted, first, that this cross-examination showed that Ipstar embarked on a course of obfuscation and not paying valid claims, second, that there was a deliberate attempt to mislead SkyMesh as to the true reason for the price increase, and third, that the true reason for the price increase was to compensate Ipstar for a liability which it was resisting. He compared the position to the other service providers who he submitted had been compensated and had not been subjected to a price increase. 8. In dealing with s 22 of the ACL, senior counsel for SkyMesh submitted that the starting point was that SkyMesh was in fact vulnerable. He submitted that the reason that SkyMesh was vulnerable was immaterial. He also submitted that it was relevant to consider, as was done by the primary judge, that the statutory warranties imposed a norm of conduct on manufacturers or importers out of which they could not contract. 9. Senior counsel for SkyMesh, citing extensively from the judgment of Allsop CJ in Paciocco FC, submitted that matters to consider in relation to s 22 of the ACL are the existing norms and values recognised in the unwritten law, although he emphasised that the section was not confined to those matters. It was pointed out during the course of argument that s 21 and s 22 of the ACL at the time of the alleged conduct did not contain a provision equivalent to s 21(4)(a), which was introduced on 1 January 2012. As I noted at [116] above, s 21(4)(a) expressly states that s 21 is not limited by the unwritten law. An equivalent provision was introduced in the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act) at the same time. Notwithstanding this, senior counsel for SkyMesh submitted that there was authority to the effect that the section was not confined to unconscionable conduct within the meaning of the unwritten law. 10. Senior counsel for SkyMesh, referring to the judgment of Allsop CJ in Paciocco FC at [330], stated that the conduct should be looked at from the perspective of all the circumstances of the case. He submitted that a price increase of 15% may be acceptable in some circumstances but that it was also necessary to look at the other factors. He emphasised that, unlike the bank customers in Paciocco FC and Paciocco HC, SkyMesh could not walk away from its relationship with Ipstar. He submitted that it was not the mere fact of the size of the increase, but that the primary judge was correct in considering the question having regard to the norms in the statutory scheme established by the TPA and ACL dealing with the supply and acquisition of goods and services. 11. Senior counsel for SkyMesh emphasised that the decision of the High Court in Berbatis concerned unconscionable conduct within the meaning of the unwritten law. He submitted that subsequent cases had made it plain that the decision was confined to those circumstances and that the legislature had sought to expand the concept through provisions such as s 22 of the ACL. 12. In response to Ipstar's submission that Mr Rees had accepted that Ipstar was entitled to recoup its costs in any manner it thought fit, senior counsel for SkyMesh submitted that Mr Rees was dealing with a party which had indicated it was going to increase its price by a significant amount and that all he was seeking to do was to say that, rather than impose the increased price on bandwidth where it could not be recouped by SkyMesh, it should be imposed on the equipment which could be factored into the price charged to the consumer. It is not entirely clear in the present circumstances why it would be any more or less unconscionable to charge an increased price which could not be passed on to a consumer as distinct from one which could. It is important to bear in mind that there was no suggestion made in the present case that Ipstar's object was to put SkyMesh out of business. Consideration (a) Legal principles relating to unconscionability 1. I have set out the relevant legislation at [111] above, and I have also pointed out at [115] above that, notwithstanding s 22(5)(b) of the ACL as in force at the time of the alleged contravention, no point was taken that some of the conduct complained of occurred prior to 1 January 2011. 2. Further, it was not suggested in this appeal that, as s 21(4)(a) only came into force on 1 January 2012, s 22 of the ACL was, at the time of the conduct complained of, limited to unconscionable conduct within the meaning of the unwritten law. That approach was correct for the following reasons. 3. At the time of the alleged contravention, unconscionable conduct within the meaning of the unwritten law was expressly dealt with by s 20 of the ACL. Section 20(2) of that section provided that the section did not apply to conduct prohibited by s 21 or s 22. By contrast, s 21 and s 22 were not expressly limited to conduct which was unconscionable within the meaning of the unwritten law. 4. Sections 21 and 22 of the ACL, as they existed at the time of the alleged contravention, were in the same terms as their immediate predecessors, s 51AB and s 51AC of the TPA. In contrast to s 51AA at the time when those provisions were in force, neither section limited unconscionable conduct to conduct that was unconscionable within the meaning of the unwritten law. The provisions in the ASIC Act dealing with unconscionable conduct were structured in a similar fashion. Section 12CA prohibited unconscionable conduct in relation to financial services within the meaning of the unwritten law, whilst s 12CB and s 12CC did not contain such a prohibition. Section 12CB expressly prohibited unconscionable conduct in respect of the supply of financial services to a person of a kind ordinarily acquired for personal, domestic or household use, and s 12CC expressly prohibited unconscionable conduct in respect of the acquisition or supply of financial services generally from or to persons or corporations other than a listed public company. Neither the provisions of the TPA or the ASIC Act at that time contained a provision similar to s 21(4)(a) of the ACL, as inserted on 1 January 2012, although s 12CB(4)(a), which was in the same terms as s 21(4)(a), was inserted into the ASIC Act by the same amending Act as s 21(4)(a). 5. In Australian Securities and Investments Commission v National Exchange Pty Ltd (2005) 148 FCR 132; [2005] FCAFC 226 at [30], the Full Court of the Federal Court stated that the primary judge erred in concluding that s 12CC of the ASIC Act as it then stood incorporated the limitations imposed by the general law on the concept of unconscionability. Referring to the explanatory memorandum which accompanied the introduction of the section, the second reading speech and a number of first instance decisions, the Court stated that there was no foundation in the language or purpose of s 12CC to impose limitations from the unwritten law. The Court stated at [33] that unconscionable conduct, in its ordinary and natural meaning, meant "doing what should not be done in good conscience". The same comments are equally applicable to s 21 of the ACL as in force at the time of the conduct presently in question. 6. In Attorney-General (New South Wales) v World Best Holdings Ltd (2005) 63 NSWLR 557; [2005] NSWCA 261 (World Best) at [121], Spigelman CJ, in considering the somewhat similar s 62B of the Retail Leases Act 1994 (NSW), stated that, even if the provision was not confined by equitable doctrines, restraint in decision-making remained appropriate. The Chief Justice stated that unconscionability was a concept which required a "high level of moral obloquy". He stated that "if it were to be applied as if it were equivalent to what was 'fair' and 'just'", it would not be "a doctrine of occasional application, when the circumstances are highly unethical, it would be transformed into the first and easiest port of call when any dispute about a retail lease arises". 7. Subsequent cases have sought to explain the concept of unconscionability in somewhat different terms to those used by Spigelman CJ. In Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389 at [291], Allsop P (as his Honour then was), with whom Campbell JA and I agreed, stated that it was neither possible nor desirable to provide a comprehensive definition of unconscionability, and that the range of conduct was wide and could include "bullying or thuggish behaviour, undue pressure and unfair tactics, taking advantage of vulnerability or lack of understanding, trickery or misleading conduct". He further stated at [293] that it was not necessary to decide whether the reference by Spigelman CJ in World Best to a "high level of moral obloquy" was too stringent and whether a "significant" or "real" level may be preferable. 8. In Lux Distributors at [41], to which I have referred at [170] above, the Full Court of the Federal Court at [41] described unconscionability as meaning "something not done in good conscience". The Court further stated that "notions of moral tainting" may be relevant, as long as is recognised that it is "conduct against conscience by reference to the norms of society that is in question". 9. Earlier, in Lux Distributors at [23], the task of the Court was described as "the evaluation of the facts by reference to a normative standard of conscience", a standard which is "permeated with accepted and acceptable community values", which were stated in the context of s 51AB of the TPA as being "honesty and fairness in the dealing with consumers". 10. In PT Ltd v Spuds Surf Chatswood Ltd [2013] NSWCA 446, which was another case involving s 62B of the Retail Leases Act, Sackville AJA, with whom McColl and Leeming JJA agreed, criticised the use of the expression "moral obloquy" in determining whether particular conduct could be said to be unconscionable. He stated at [101] that some of the criteria in s 62B(3), which was the equivalent to s 22(2) of the ACL, did not necessarily involve "dishonesty, sharp practice or conscious wrongdoing". Referring to what was said by Basten JA in Canon Australian Pty Ltd v Patton (2007) 244 ALR 759; [2007] NSWCA 246 at [44], Sackville AJA stated at [103] that the use of the expression was to simply substitute one ambiguous term for another. 11. Extensive consideration was given to the question by Allsop CJ in Paciocco FC. Similar to the approach taken by Sackville AJA, his Honour criticised the use of the expression "moral obloquy" as a substitute for the statutory expression. He stated at [262] that the task involved was not about a choice of synonyms, but rather, it is to identify the values and norms from the text and structure of the Act and from the context of the provision. In that context, he accepted at [264] the importance of legal certainty in evaluating unconscionability, but stated at [267] that the "place of norms, values and principles in commercial law lacking particular precision, but stating a value or general standard, can be seen in the common law, statutes on commercial subjects, in Equity and in other branches of commercial law". He referred to the incorporation of the unwritten law into the ASIC Act, stating at [284] that Parliament can be taken to have adopted the concept of unconscionability as developed in Australian law, and also referred at [287] to the inclusion, as one of the criteria in s 12CC of the ASIC Act, which was the equivalent to s 22(2) of the ACL, of the question of good faith. 12. He concluded at [298] that the "normative standard of a business conscience referred to in the statute is permeated with accepted and acceptable community values". He also pointed at [300] to the fact the provision was a civil penalty provision. He stated at [305] that the task was not limited to finding "moral obloquy", and that doing so may only "divert the normative inquiry from that required by the statute, to another, not tied to the words of the statute". 13. Notwithstanding the criticism of the use of the concept of "moral obloquy" in determining the existence of unconscionability, it does have some support in the authorities. In A v B1 (No 2) (2012) 271 FLR 122; [2012] WASC 383 at [324], Edelman J stated that the reference to "moral obloquy" is not a substitute for the statutory language, but served to "emphasise the base norm of the section which strips the doctrine of the equitable element of some special disadvantage which equity would protect from exploitation". He further stated that "without some moral yardstick against which to measure the relevant factors in the section, the discretion would be unreviewable". He stated that the reference to "moral obloquy" in those circumstances was "a useful yardstick for evaluation". 14. In Paciocco HC at [188], Gageler J described the question raised as whether the "conduct was objectively to be characterised as 'unconscionable' according to the ordinary meaning of the term, requiring as it does a 'high level of moral obloquy' on the part of the person said to have acted unconscionably". 15. It seems to me that it is unhelpful to seek to redefine the statutory concept of unconscionability. However, the use of terms such as "moral obloquy" may be of assistance to the extent that they emphasise that what is required is such a departure from accepted community standards as can objectively be seen to be against conscience. 16. In this context, it is important to bear in mind that the question of whether certain conduct is unconscionable does not involve an idiosyncratic determination of what is "fair" and "just" in a particular case. Rather, it involves a consideration of all the circumstances to conclude whether or not the conduct in question falls below acceptable norms, standards or values such as to warrant it being determined to be unconscionable. 17. In considering that question, it is appropriate to have regard to, first, the terms of the statute itself, second, the approach taken by the courts in dealing with cases under the unwritten law, whilst recognising these cases do not limit the scope of the provision, and third, judgments in related areas including cases involving want of good faith. It is also necessary to have regard to all the circumstances surrounding the transaction. This was emphasised in Paciocco HC by Gageler J at [189] and Keane J at [294]. 18. As Gageler J pointed out in Paciocco HC at [189], the criterion in s 12CB(2) of the ASIC Act, which, prior to 1 January 2012, was the equivalent of s 22(2) of the ACL, spelt out that "circumstances relevant to the determination of whether conduct was objectively to be characterised as 'unconscionable' … might or might not include, in respect of particular conduct, all or any of" the matters in the subsection. It should be noted that s 22(2)(l) expressly incorporates the concept of acting in good faith. In the context of the exercise of contractual powers, the concept is well understood as including, relevantly for present purposes, "compliance with honest standards of conduct" and "compliance with standards of conduct which are reasonable having regard to the interests of the parties": Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349 at 367D-E; Burger King Corporation v Hungry Jack's Pty Ltd (2001) 69 NSWLR 558; [2001] NSWCA 187 (Burger King) at [171]; United Group Rail Services Ltd v Rail Corporation New South Wales (2009) 74 NSWLR 618; [2009] NSWCA 177, although, as was pointed out in Burger King at [172], referring to Garry Rogers Motors (Aust) Pty Ltd v Subaru (Aust) Pty Ltd [1999] ATPR 41-703 at [37], the obligation does not restrict a party from promoting its own legitimate interest. 19. The approach taken in cases dealing with unconscionability under the unwritten law is of assistance in determining whether conduct is unconscionable within the meaning of s 22 of the ACL. To the extent that SkyMesh submitted that Gleeson CJ's statement in Berbatis at [11], that "good conscience does not require parties to contractual negotiations to forfeit their advantages, or neglect their own interests", is irrelevant, that submission is incorrect. Further, as in Berbatis, it is relevant that "all the people involved in the present transaction were business people, concerned to advance or protect their own financial interests", and the critical disadvantage suffered by SkyMesh simply arose from the fact that it was not contractually entitled to the supply of broadband from Ipstar: cf Berbatis at [15]. As Keane J pointed out in Paciocco HC at [293]-[294], "while a disparity in bargaining power may be necessary to attract the operation of the provision, the mere existence of a disparity is not sufficient to do so" and that the relevant provisions do not "proscribe the existence of a disparity in bargaining power as opposed to the manner of its exercise". (b) Was Ipstar's conduct unconscionable? 1. A number of matters cannot be disputed. First, SkyMesh was in a position of commercial disadvantage. It is correct that, as Ipstar pointed out, this resulted from the manner in which SkyMesh conducted its business and the fact that it had no contractual right to bandwidth from Ipstar. If these circumstances stood alone, it would not have been unconscionable for Ipstar to use its superior bargaining position to achieve its legitimate commercial interests. The question remains, however, whether its conduct in imposing the price rise in all the circumstances of the case was unconscionable. 2. Second, as I have noted at [33] above, it was clear that, at least by the early part of 2010, Ipstar was aware that some of the ODUs and modems supplied had water ingress and firmware problems. 3. It was also clear that, by 21 October 2010, Ipstar was aware there was potential liability under s 74H of the TPA as a result of Mr Rees' email to Mr Chinveeraphan of that date, to which I have referred at [38] above. 4. As I pointed out at [51] above, by January 2011, Mr Chinveeraphan had told Mr Cross that he wished to increase the bandwidth price to recoup the costs when the statutory warranty claims arose. At that time, Ipstar had not responded to the claims made by SkyMesh which had arrived on 21 December 2010 and 30 December 2010. 5. In the period from January 2011 to the signing of the Second Addendum, it appears that Ipstar, at the direction of Mr Chinveeraphan, embarked on a course of declining to deal with SkyMesh's statutory warranty claims irrespective of their validity. I have referred at [56] above to the suggestion made by Mr Chinveeraphan that the response to Mr Rees in Mr Leeflang's email of 8 February 2011 should include the comment that Ipstar would not continue to investigate the claims as there were "too many errors" and that Ipstar would reject the entirety of the statutory warranty claims. I have also referred at [82] above to Mr Leeflang's assertion in his email of 21 April 2011 that, of the claims investigated at that time, 2,482 had incomplete information. These remarks and Mr Leeflang's subsequent explanation in his email of 19 May 2011, to which I have referred at [86] above, of the reason that the claims were not honoured must be considered in light of his evidence in cross-examination that he believed some claims were valid but that he had been told by Mr Chinveeraphan to reject the whole of the claims: see at [94] above. It also has to be considered in light of the evidence of Mr Cross that he was aware that some of the claims made by SkyMesh were valid but that he did not question the decision to reject the claims in their entirety: see at [104] above. It is also clear from the spreadsheet enclosed with Mr Cross' email of 19 April 2012, to which I have referred at [91] above, that the price increase in the Second Addendum was based on an estimate of the amount required to recoup the costs of meeting the statutory warranties. The finding made by the primary judge to this effect at [143] was not contested in this appeal. 6. It thus appears that Ipstar had resolved to impose a price increase calculated by reference to its exposure to SkyMesh's statutory warranty claims in circumstances where it was rejecting or refusing to consider those claims even when it recognised that some of them were valid. 7. To these matters, there must be added the conduct of Mr Cross in explaining the reason for the price increase to Mr Rees. I have set out the cross-examination on this issue at [105]-[109] above and it is unnecessary to repeat it. However, Mr Cross acknowledged he did not give a "frank and honest answer" to Mr Rees' inquiry as to the true reason for the price increase because he was uncomfortable with that reason and that he intentionally sought to keep secret the true reason for the increase, namely, the cost of the statutory warranty claims. He acknowledged that this took place in a context where he was aware that SkyMesh was dependant on Ipstar for the supply of bandwidth to continue its business. 8. I agree with Ipstar's submission that, generally speaking and subject to competition law constraints, a party, in dealings between experienced commercial entities taking place at arms' length, is entitled to take advantage of its commercial position in setting "as high a price as it can achieve in a negotiation". As Keane J pointed out in Paciocco HC at [293], the existence of disparity in bargaining power is "an all-pervading feature of a capitalist economy" and its exercise does not of itself establish that the conduct was unconscionable. 9. Further, and with the greatest respect to the primary judge, I do not think the fact that each of the TPA and the ACL prohibited the "contracting out" of liability for the statutory warranties leads to the conclusion that setting a price designed to recoup such an accrued liability of itself amounts to unconscionable conduct. A corporation has a legitimate interest in taking steps to protect itself against any future or accrued liability. The fact that SkyMesh, as a result of its own commercial decisions, was left in a position where it had little choice but to pay the increased price does not alter that position. 10. In that context, it must be remembered that neither s 74K(1) of the TPA nor s 276(1) of the ACL do anything more than prohibit "contracting out" of the statutory warranties. It would be wrong, in my opinion, to directly extend the operation of those sections by reference to the unconscionability provisions in each Act. 11. However, to consider the price increase and its purpose in isolation is not to take account of the whole of the circumstances, which essentially involved imposing a price increase based on an estimated accrued liability whilst taking steps to avoid payment of that liability, including claims which had already been determined as valid. This was done in circumstances where the cross-examination of Mr Cross revealed that he attempted to hide the reason for the price increase, which was unsurprising, considering that all claims made in each of the 14 March 2011 and 28 March 2011 emails sent by Mr Rees had been rejected. In these circumstances, the conduct of Ipstar in requiring the price increase the subject of the Second Addendum was, in my view, unconscionable. It fell well below the standards of conduct expected of commercial enterprises and was not reasonable having regard to the interests of both parties. Ipstar, in these circumstances could not be said to have acted in good faith, one of the matters s 22(2) states the Court may take into account. 12. It is necessary to have regard to some of the other matters in s 22(2). Section 22(2)(a) refers to the relative strength of the bargaining position of the parties. As I indicated at [200] above, a party is generally entitled to exercise its bargaining power to protect its legitimate interests by driving an advantageous bargain. However, it remains relevant, at least to the extent that it put Ipstar in the position of being able to insist on the price in the Second Addendum. The fact that SkyMesh was a successful commercial enterprise and the fact that it was not put in a position of disadvantage by Ipstar do not alter that position. 13. In relation to s 22(2)(b), Ipstar submitted that SkyMesh was not required to agree to anything. This ignores the fact that if SkyMesh was to continue to carry on business under its then current business model, it had to buy bandwidth from Ipstar. 14. So far as Ipstar's submission based on s 22(2)(d) was concerned, it is correct that no undue pressure was applied on SkyMesh to accept the offer. There was no need to. However, the tactics of insisting on the price increase whilst declining to disclose the true reason for it and declining to pay valid claims can only be described as unfair. 15. It is correct, as senior counsel for Ipstar submitted in reference to s 22(2)(e) and s 22(2)(f), that it was not unlawful to charge different customers different amounts. Further, as was pointed out, there were different contractual arrangements between Ipstar and APN which may have been relevant to the price differential. However, that does not affect my conclusion that the price increase in the particular circumstances of this case was unconscionable. 16. In relation to s 22(2)(j), reliance was placed by Ipstar on the fact that the agreed price was one which had been the subject of negotiation. However, that submission must be placed in context. The original price sought was $3,060 per Mbps per month, and, as I noted at [72] above, a counter-proposal by Mr Rees was rejected and a final offer of $2,933 per Mbps per month was made. The extension of the term beyond February 2012 sought by Mr Rees, as well as other substantive amendments, were also rejected, as I noted at [81] above. This could hardly be described as significant negotiation. 17. It is true, as senior counsel for Ipstar pointed out in dealing with s 22(2)(i), that Mr Rees was not misled as to the true reason for the price increase. However, the fact remains that it was not disclosed to him and nor was the decision of Ipstar to pay valid claims disclosed. Further, it does not follow from the fact Mr Rees was not misled that the conduct was commercially acceptable. 18. For these reasons, the primary judge was correct in concluding that the conduct of Ipstar in requiring the price increase the subject of the Second Addendum was unconscionable. (c) The application to amend the grounds of appeal 1. During the course of the hearing, the question was raised whether SkyMesh had suffered any loss as a result of the unconscionable conduct over and above the loss suffered as a result of the breaches of the warranty. Leave was sought to amend the notice of appeal by adding the following grounds: "5A The trial judge erred in assessing the amount of compensation for unconscionable conduct in the sum of $3,482,367 in circumstances where: (i) his assessment of damages for defective goods was $1,837,792. (ii) the 'paramount' basis of his decision was that the increased bandwidth charge was an illegitimate attempt to 'indemnify' the appellant for the liability it 'had' to the respondent. such that any award of damages by reason of contravention of section 21 and 22 of the ACL should not have exceeded $1,837,792. 5B The trial judge's award of damages for unconscionable conduct in the sum of $3,482,367 was penal and not compensatory to the extent of $1,644,575 (being the difference between $3,482,367 and $1,837,792) in contravention of ss.236 and 237 of the ACL." 1. The following additional order was sought: "3A In the alternative to 2 and 3, an order that the judgment be reduced by $1,644,575 and pre-judgment interest be reduced by $76,472.41, being the difference between $856,074.49 and $779,602.08." 1. It should be noted that grounds 5A and 5B raise essentially the same issues and produce the same result. Ground 5A was explained in Ipstar's written submissions filed in support of the amendment that, as the finding of the primary judge was that the price increase was unconscionable as an illegitimate attempt to indemnify it against the warranty claims, the damages for the contravention of s 21 and s 22 of the ACL should not have exceeded the amount of the defective goods claim, which was $1,837,792. Ground 5B contended that the order for damages in relation to the unconscionability claim was not compensatory to the extent it exceeded the amount of the defective goods claim, the relevant difference between the two claims being $1,644,575. 2. Ipstar thus correctly accepts that, if the findings of the primary judge are upheld, SkyMesh is entitled both to damages for breach of the warranties and also damages for unconscionable conduct, but contends that the damages for the latter conduct should be limited to the amount of the price increase which reflected Ipstar's liability for the warranties. That is reflected in the orders sought in proposed order 3A. 3. To put the matter another way, the amended grounds contended that it was only unconscionable for Ipstart to increase the bandwidth price to the extent that the increased price had the effect of offsetting Ipstar's actual liability on the defective goods claim as determined by a court. On this reasoning, Ipstar was entitled to retain that part of the payments made by SkyMesh which exceeded Ipstar's actual liability on the defective goods claim. Since the total payments made by SkyMesh as a result of the price increase amounted to $3,482,367 and Ipstar's actual liability on the defective goods claim was only $1,837,792, Ipstar submitted that it was not unconscionable for it to retain that part of the payments which exceeded $1,837,792. 4. It should be noted that it was not contended that the order for damages for the contravention of s 21 of the ACL was excessive in that it failed to give credit for the amount received in respect of the defective goods claim. If that had been raised and was successful, the damages would be reduced to $1,644,575, not by the amount claimed in proposed order 3A. 5. In its written submissions in support of the amended grounds and proposed order, Ipstar contended in essence that the effect of the primary judge's finding was that the price increase was unconscionable as it imposed the cost of meeting the statutory warranty claims on SkyMesh. It referred to the judge's finding at [143] that this was a factor of "paramount importance" and that to require such an indemnity was not in Ipstar's legitimate interest. It submitted in these circumstances that, contrary to what was said by the primary judge at [147], the amount extracted from SkyMesh was not $3.4 million, but rather, the liability for the defective goods, namely, $1,837,792. 6. The consequences of this submission are unusual. The reason for the price increase was to protect Ipstar against the statutory warranty claims. That was found to be unconscionable and I have agreed that that finding was correct, albeit for somewhat different reasons. The fact that Ipstar extracted more than it needed to indemnify itself against the statutory warranty claims does not lead to the conclusion that the extraction of the additional amount was not unconscionable. 7. As SkyMesh pointed out in its written submissions, the additional amount it was required to pay because of the unconscionable conduct was the sum of $3,482,367. That is the amount it is entitled to recover. 8. The matters raised by grounds 5A and 5B resulted from interchange with the bench during the course of the argument. In these circumstances, I would grant leave to amend the grounds of appeal to add the additional grounds. However, they do not affect my conclusion that the primary judge was correct in the order which he made. The defective goods claim (a) The grounds of appeal 1. Ipstar relied on the following grounds of appeal: "6 Having: a. directed that the appellant obtain instructions as to a proposed regime for the testing of a sample of the claims ('the 102 Representative Items' as described in paragraph 40) which relieved the respondent of its onus to demonstrate liability for each of the approximately 4,000 claims, to which the appellant agreed on the explicitly qualified basis, confirmed by the learned trial judge, that it was meeting a claim based only upon the pleaded allegations against it; and b. correctly held, at paragraph 91, that the particulars identifying water ingress and firmware narrowed the scope of the case against the appellant, the trial judge erred by allowing the respondent to conduct the trial outside of the pleadings and particulars by reason of the appellant's alleged awareness of issues extraneous to the pleadings and particulars (refer to paragraphs 92 and 95) and by allowing matters extraneous to the pleadings and particulars to determine the outcome of the sampling exercise, as set out in paragraphs 103 to 117, and in particular: a. erred in finding that the respondent was entitled to recover damages in respect of the following items which the trial judge held were not defective based on the pleaded and particularised case: i. paragraph 112 in relation to Item 11; ii. paragraph 113 in relation to Item 17; iii. paragraph 114 in relation to Item 24; iv. paragraph 115 in relation to Item 69; and b. erred in failing to determine, for those claims other than the 6 claims dealt with in the judgment and those claims which the appellant admitted [were] due to water ingress, whether the goods were defective based on the pleaded and particularised case." 1. Though not directly raised by the grounds of appeal, Ipstar also contended that the primary judge misinterpreted what he described as "Mr Donaldson's concession", to which I have referred at [137] above. 2. By notice of contention, SkyMesh contended that the primary judge should have found in its favour on the basis the pleading included claims that the ODUs and modems were defective for reasons other than the water ingress or firmware problems. It also contended that the primary judge should have found in its favour on the basis that the equipment the subject of these proceedings was prone to failure. (b) The pleadings 1. In its Third Further Amended Commercial List Statement filed on 16 September 2016, SkyMesh pleaded its defective goods claim in the following terms: "9.1 Prior to 1 January 2011, IPSTAR supplied goods to SkyMesh (through its agent Skybridge (Australia) Pty Ltd) which were resupplied to consumers, and which were not reasonably fit for the purpose of obtaining internet broadband services by satellite within the meaning of s.74B of the TPA. PARTICULARS The goods supplied prior to 1 January 2011 which were unfit for purpose are particularized in Updated Consolidated Schedule AB (September 2016) and Schedule D hereto. The purpose of the goods (which incorporate an IDU and an ODU) is to enable broadband satellite services in remote areas in Australia which can withstand fair wear and tear in the outdoors. The ODUs were not fit for such purpose in that they were not watertight so that water ingress occurred, causing the ODUs to be damaged. Water leaked past faulty seals around the feed horn cap of the ODU causing the feed horn to be partially filled with water degrading the unit's performance. Water also leaked into the Orthomode Transducer (OMT), a part of the ODU, causing severe degradation to the performance of the ODU as well as complete failure. In some cases, the water entering the ODU also leaked down the cables to the IDU causing complete failure of the IDU. Modern firmware, the software which facilitates the modem operating and communicating with the network, had a bug, causing intermittent loss of service (dropouts), which was only partially resolved when consumers were placed onto a Special Class of Service or SCOS (an alternative system). Drop outs are still being experienced till this day. … 10.1 Prior to 1 January 2011, IPSTAR supplied goods in trade and commerce to SkyMesh which were resupplied to consumers, and which were not of merchantable quality within the meaning of s.74D of the TPA. PARTICULARS SkyMesh refers to and repeats the particulars subjoined to paragraph 9.1 hereof." 1. Particulars to paragraph 9.1 were included in the Second Further Amended Commercial List Statement. The only amendment made in the Third Further Amended Commercial List Statement was an update to consolidate Schedule AB referred to therein. 2. The Amended Commercial List Response was dated 21 June 2016, being filed in response to the Second Further Amended Commercial List Statement, and it remained unamended following the filing of the Third Further Amended Commercial List Statement. Its response to paragraphs 9.1 and 10.1 was as follows: "7 In answer to paragraph 9.1 the Defendant: 7.1 denies Skybridge was an agent of the Defendant; 7.2 denies that it supplied goods to the Plaintiff on and from 16 January 2008; 7.3 admits that it supplied goods to Skybridge from time to time on and from 16 January 2008; 7.4 says Skybridge provided goods and services to the Plaintiff on terms and conditions as may have been agreed between the Plaintiff and Skybridge; 7.5 admits that from time to time the Patriot OMT Model TXFD-OMTKUL was not reasonably fit for the purpose of obtaining internet broadband services by satellite in some cases namely, that some of the ODUs ceased working effectively after the ingress of water; 7.6 says that to the extent that the Defendant's goods were: 7.6.1 purchased from the Defendant by Skybridge or the Plaintiff; 7.6.2 returned to the Defendant as faulty goods; and 7.6.3 tested and confirmed to be defective; the Defendant provided replacement goods and/or compensated Skybridge and/or the Plaintiff in relation to those goods; 7.7 does not admit that the he goods particularised in Schedule AB and Schedule D were unfit for their purpose or otherwise contained a defect attributable to the Defendant; 7.8 says that to the extent that goods particularised in Schedule AB and Schedule D have been returned to the Defendant and found to be faulty, they have either been replaced or the sale price refunded to Skybridge; Particulars Third Affidavit of Adam Leeflang dated 4 March 2016. 7.9 otherwise does not admit paragraph 9.1. … 10 In answer to paragraph 10.1 the Defendant: 10.1 repeats the matters pleaded in answer to paragraph 9.1 of the Second Further Amended Commercial List Statement. 10.2 admits from time to time some of the Defendant's goods were not of merchantable quality in particular that some units ceased working effectively after the ingress of water; 10.3 says that to the extent that the Defendant's goods were; 10.3.1 purchased from the Defendant by Skybridge or the Plaintiff; 10.3.2 returned to the Defendant as faulty goods; and 10.3.3 tested and confirmed to be defective the Defendant provided replacement goods and/or compensated Skybridge and/or the Plaintiff in relation to those goods. 10.5 says that to the extent that goods particularised in Schedule AB and Schedule D have been returned to the Defendant and found to be faulty, they have either been replaced [or] the sale price refunded to Skybridge. Particulars Third Affidavit of Adam Leeflang dated 4 March 2016 10.6 otherwise does not admit paragraph 10.1." 1. In the Reply to the Amended Commercial List response dated 7 September 2016, the following matters were asserted: "3 As to sub-paragraph 7.6 SkyMesh says that: (a) any replacement of goods and compensation paid to IPSTAR's agent, Skybridge, to pass on to SkyMesh has been taken into account in the claim for loss and damage; and (b) in claims made in respect of unfitness for the purpose for which satellite units are ordinarily purchased, and for unmerchantable quality, there is no need to identify the precise cause of the failure of the satellite units to continue functioning. … 6 As to paragraph 10 SkyMesh says that: (a) any replacement of goods and compensation paid to IPSTAR's agent, Skybridge, to pass on to SkyMesh has been taken into account in the claim for loss and damage; and (b) in claims made in respect of unfitness for the purpose for which satellite units are ordinarily purchased, and for unmerchantable quality, there is no need to identify the precise cause of the failure of the satellite units to continue functioning." 1. The paragraphs of the Reply to which I have referred do not seem to directly relate to the paragraphs in the Amended Commercial List Response to which they were said to be responding. (c) The representative sample process 1. The representative sample process was designed to overcome the problem of a judge (or referee) having to deal with some 4,000 individual claims. In its written opening submissions at trial, SkyMesh made the following remarks: "83. Consistent with the overriding purpose of the Civil Procedure Act and the [Uniform Civil Procedure Rules], SkyMesh proposes to seek to have the Court determine some sample claims with the parties then being required to apply that determination to the balance of the claims. Failing that course, there will be no alternative but to examine business records for approximately 4,000 small claims that are collected in approximately 24 volumes of Court Book Material. That would not be a just, quick or cheap way of resolving the issues between the parties." 1. Ipstar, in its written opening submissions at trial, made the following remarks: "19 The problems faced by the plaintiff in discharging its onus are not overcome by exhibiting to witness statements electronic copies of what purport to be the 'suite' of records associated with each service call. Even if it were appropriate to suggest that the Court examine the contents of each of the 20,000 records in order to arrive at a conclusion as to whether they establish a defect of the kind alleged in paragraph 9.1 of the [Third Further Amended Commercial List Statement] (which it plainly is not), understanding the significance of the facts recorded in the documents requires expertise. And as the competing opinions of Dr Hamilton and Mr Burns illustrate, those conclusions are matters about which expert minds may differ. 20 Notwithstanding that these proceedings have been on foot for over 5 years, no evidence has been served by the plaintiff concerning the conclusions that might be drawn from the contents of the records associated with service calls apart from a handful of random examples. It is not suggested, nor could it be, that the facts recorded by Skybridge technicians on the small number of records that have been examined facilitate any conclusion as to the contents of the thousands of records that have not been examined. 21 While the defendant accepts that there was a period during which it supplied equipment incorporating a component (the Patriot OMT) that was prone to leaking, it put in place procedures to facilitate the replacement of defective parts at its cost. As far as it is able to ascertain, it has fully discharged its obligations in that regard." 1. At the outset of the trial, senior counsel for SkyMesh made it clear that its case was that it did not matter why the equipment did not work. He made the following comments: "WILLIAMS: It does not matter why they don't work as they're supposed to work, it is the fact that they don't work as they are supposed to work which is the matter that makes them unmerchantable and not fit for purpose." 1. This was consistent with SkyMesh's Statement of the Real Issues in Dispute, which was filed on 3 November 2016, four days before the trial began on 7 November 2016. Relevantly, it contained the following statement: "4. Whether the goods that were manufactured by the defendant (as a deemed manufacturer), and supplied by the plaintiff to consumers as set out in the amended schedules to the Commercial List Statement were: a. of unmerchantable quality; and/or b. unfit for purpose, within the meaning of the Trade Practices Act 1974 (Cth) and/or the Australian Consumer Law (as applicable)." 1. That paragraph did not limit the issue to damage from water ingress or firmware problems. 2. On the second day of the trial, there was discussion as to how the claim would be proved. The following exchange occurred between the primary judge and senior counsel for SkyMesh: "HIS HONOUR: Well who is going to look at the 20,000 documents? That's why I'm coming back to that you know. WILLIAMS: I know, I understand the practical problem and it's been exercised in my mind for quite a long time. But we shouldn't be put to this position. If we are put to it – HIS HONOUR: I hope it can be avoided but it looks like it may not be able to be avoided. WILLIAMS: Well it's not going to be avoided by us abandoning it, your Honour. HIS HONOUR: No, I understand that. WILLIAMS: We've tried to float some creative ways of dealing with it, just quick and cheap, they don't seem to be attractive so we will have to think some more and your Honour might get lots of little packs like we see today. HIS HONOUR: Well if you have to go down that route it won't be a three week case it will be probably a lot longer and what I'll have to do is vacate the hearing date and send you off to another date and probably send you off to a referee and that will cost both parties a lot of money and at the end of the day they'd be far better off spending their money on sorting out an agreement between themselves." 1. The issue was further discussed on the third day of the trial. The following exchange took place: "HIS HONOUR: Yes. So you can't realistic – no sensible commercial person could ever tolerate that situation, therefore, Mr Donaldson, I'm going to say to you, I want you to go your client and get some specific instructions about Mr Williams' proposal for 40 – he said 30 – I'm changing it to 40 – 40 samples taken at random by a process of selection that you, your client agree to, as a way through, not because you have to legally, but because there's a considerable commercial imperative to agree to it. DONALDSON: Can I respond to that – HIS HONOUR: Yes. DONALDSON: – even before speaking to your Honour, I note and agree, with respect, entirely with the commercial imperative, but because of the lack of utility in deciding even 40 claims wherever claim is based on a different document with a different set of facts – I think the way though it is probably something the plaintiff should have done in the first place and that is to look at them all and for us, in turn, to look at them all, and then to determine – let's find out, first of all, whether or not we're still meeting a claim based upon the pleaded allegations – HIS HONOUR: Well, assume for the moment you are. Assume you are. DONALDSON: Assuming that that's the claim we're facing, the first step would be for the plaintiff to look at those 4,000 claims and see how many of them actually relate to the pleaded basis of unmerchantability, namely water ingress into ODUs or – HIS HONOUR: And firmware bug. DONALDSON: – and firmware bug and when that process is gone through, the plaintiff might decide that it's 2,000 instead of 4,000 and we might agree that it's 1,500 instead of 2,000 and the case might contract enormously, but the first step to actually identify the short way home is to identify what the issues are and we can't identify what the issues are on the basis of a random sample. HIS HONOUR: Well, don't worry about any change of issues. This is all predicated on the assumption that the case you're here to meet is the one that's been pleaded against you, because that's a good place to start. DONALDSON: It is. HIS HONOUR: Now, my point is this: you could logically say – and your client could logically agree, look, for them to go through that is another days and days of sorting through material, what's wrong with taking a fair, random sample and saying that will determine – that way we all save a lot of money, one way or the another [sic], if we win or we loss, we're saving a lot of money, it is an option open to the client and it doesn't suffer from any problem about the pleading issue because, on the assumption that the case you're meeting is the one that's pleaded, you will get, let's say the 50 samples or 100, if you want 100, whatever it is, at the moment take 40 which is 1% and if it turns out, when you look at the 40, there's 20 in there where there's a modem problem that's not the bug, firmware bug or not clearly that, you will say, 'Well, they don't get up on that because – the pleaded case is limited to the bug and the water ingress. Those are the things that we're looking for', and if they're not there then they don't make good their case. You've got that open to you to say that and you're not precluded from saying that about the 40 – any of the 40 that meet the criteria. What you want to be sure of is that there's a fair sampling for some of the reasons that I mentioned this morning. That is a commercial way of dealing with it, and, by the way, it is not dissimilar to what you might get physical [sic] you called in an expert statistician or someone very experienced in sampling. I mentioned that mineral water case. In that mineral water case, there were a million bottles of mineral water in a warehouse in Alexandria and we went with the experts to Alexandria and we say, 'What is the way in which we can take a sampling of this that is a fair sampling and we will then look at that and with that sample we will know what, from that, whether there's problem or not?', and he devised a sampling scheme which was used and then they were tested and the result was that a significant number had – not all – but many bottles had the problem. So all I'm saying is there's a way through the thicket, if you wish it." 1. On the eighth day of the trial, the primary judge was informed that the parties had agreed on a representative sample process in dealing with the claims and its terms were incorporated in a document which became Exhibit H. I have summarised that agreement at [123] above. Immediately before its tender, the following exchange took place between the primary judge and senior counsel for Ipstar: "HIS HONOUR: I think the distinction is this, that the pace maker argument says, look, every one of those units was defective because they were, as a group, collectively prone to failure. The second argument doesn't have to do that, it doesn't have to make good that. It just says we're just going to claim every call out was as a result of something in the system not working, why we don't know, for this argument, we just say someone had to go out and do something and it doesn't matter why and we don't have to show it was water ingress or the modem was faulty or something like that, and then the third argument is, well, we'll have to show that these individual items were no good. Is that – that's – DONALDSON: There's always been the understanding this is all within the pleaded case, that he can fit two within the pleaded case, then we'll address it as a separate argument." 1. On the following day, a further exchange occurred: "HIS HONOUR: I just want to explore that. So I assume they both say, 'Yes, it's an equipment failure, but it's not a hanging modem, if the case of a modem, it's some other problem with the modem, not caused by the user, not the consumer problem, or an ODU problem not caused by water ingress, but, nevertheless, a fault', what do I do then, if they say that? DONALDSON: What will your Honour – HIS HONOUR: You'll be saying, 'Well, the pleaded case is limited to those two things.'? DONALDSON: Yes, HIS HONOUR: And, Mr Williams, you'll – WILLIAMS: I'll say it isn't. HIS HONOUR: No, you'll say any fault – WILLIAMS: It isn't and it doesn't matter – sorry. HIS HONOUR: You'll say any fault, if it doesn't work for any reason integral or inherent in the equipment, then it's faulty? WILLIAMS: Yes. And there's another level to that and it's the pure pacemaker and that is the goods as a whole were unmerchantable so if you have to go and do something do [sic] them they get replaced, well, you get it no matter what the immediate issue might have been because you're replacing faulty goods. … DONALDSON: I'm not sure if I misheard my learned friend, I might have, when we were having that little contra-tung about the pleading, I'm not sure if I heard him say he's not restricted by the pleading. We don't accept that that's the position and it hasn't been since we embarked down this course. If what he's really saying isn't the case he wants to put is within his pleading then that's fine. HIS HONOUR: I had understood that to be what he said. DONALDSON: I might have misheard him. Maybe he was uncharacteristically sloppy. WILLIAMS: To be clear we contend that based upon the pleading we're entitled to say that something is unmerchantable or unfit for purpose without ascribing a root cause as to why. HIS HONOUR: I think you said that in your opening. WILLIAMS: We did. DONALDSON: As long as that's understood that that's the platform from which we're working we're content, your Honour. HIS HONOUR: You're not going to say that he can't run that case because of the pleading; are you? DONALDSON: It depends what he means by root cause. HIS HONOUR: He's just made it clear, he did in the opening, he said, 'It's not our job to ascertain a root cause. If we show that it wasn't working, modem or outdoor unit, that's sufficient' he claims. DONALDSON: What's what he claims. HIS HONOUR: Does the pleading support that? DONALDSON: Earlier when we were discussing these propositions I went to the pleading, no, we say it doesn't support it and Mr Williams stood up in response to that and says, yes, it does and that's what divides us. HIS HONOUR: You mean the issue is does the current pleading support such a – DONALDSON: Precisely. HIS HONOUR: In other words he's not saying he is seeking or has sought to amend. DONALDSON: No, and when the proposal for this proportionate approach came up I made it very clear that it was on that basis and Mr Williams made very clear that he thought I was misconstruing the pleading and that's fine, we can have a debate about that but that's all I wanted to make clear." 1. Finally, on the eleventh day after the conclusion of the evidence, senior counsel for Ipstar made the following submission: "DONALDSON: We will treat that as abandoned, your Honour. The first matter that I might address is my learned friend's observation that we are taking an arid pleading point, and his reliance upon conduct, including payment of some claims and the wording of questions to the experts prior to the commencement of the hearing. There is a well-established principle that while part [sic] are bound by the case they plead, a case may be conducted in such a way as to expand the issues beyond those strictly pleaded so as to leave it open to a party at the end of a case to rely on things that weren't pleaded. But you couldn't imagine a more profoundly different case than this one, where about day 3 or 4, when it became absolutely obvious that this case hadn't been prepared in a way that was capable of sensible and economical determination, your Honour requested of me that I obtain instructions to adopt an unorthodox but pragmatic solution to the problem that everyone faced. And I made it absolutely clear, and there was no demur from anyone about this, that if we were going to go down the track of me effectively receiving all of the expert evidence in connection with these 102 sample claims that hadn't even been selected before in the course of the trial, and adopt a procedure of that time, it was going to be on the basis that the allegations we met were the ones that were identified in the pleading. I identified what those allegations were, and we proceeded with a completely unorthodox, but pragmatic and sensible, approach to getting this litigation over with on that express understanding. Now that is the absolute antithesis of a trial conducted on the basis that the issues were wider than those pleaded, and there could be no stronger case for binding someone to, not only what is pleaded, but in effect an agreement as to how we were all to find our way through the thicket, as your Honour put it, and get this case resolved. So if there is any arid, there is an argument to the effect that there was conduct pre-dating those events by weeks or months or years which indicated that some other course of action was contemplated by the parties." (d) The concession 1. The concession referred to by the primary judge was made in the context of closing submissions by Ipstar in relation to Exhibit U tendered during the hearing. Exhibit U was a document identifying the 102 representative items. The concession was as follows: "1. The Sample Claims Document Summary (Exhibit U) (the Table) was tendered on 24 November 2016 in the course of the plaintiff's submissions in reply. The defendant's response to the document is as follows. 2. The defendant accepts that, in connection with the sample cases highlighted in yellow in the Table, the plaintiff has proven that the items were affected by water ingress. 3. As regards the uncoloured entries and the items coloured orange (number 43) and blue (number 73), the defendant's position is that: a. With the exception of: i. items 69 and 75 in respect of both the ODU and the modem; and ii. items 1, 11, 17 and 24 in respect of the modem, the expert evidence establishes that at the time that they were replaced in the course of the relevant service call, their functioning was impaired by a defect; b. However, there was insufficient evidence in respect of any of the uncoloured entries to enable the experts to identify the cause of the defect, notwithstanding that they were asked to do so (question 2); c. The Court cannot, without such expert assistance, arrive at a reliable conclusion as to the cause of any such defect by reference to the material extracted from the service records by the plaintiff and reproduced in the table; d. If the plaintiff is correct in its submission to the effect that the onus of establishing that the defendant supplied unmerchantable goods is established by proof of the matters referred to in subparagraph (a) coupled with evidence of the timing of the failures (as to which see paragraphs 20 to 28 of the defendant's written outline), there is no need for the Court to have regard to the detailed service records; e. If the plaintiff is incorrect in that regard then, by reason of the matters set out in subparagraphs (b) and (c), consideration by the Court of the detailed contents of the Table cannot assist it." The document in which the concession was said to be made attached a table which set out the 102 representative items. A large number of the items fell within the uncoloured category. (e) The parties' submissions 1. Senior counsel for Ipstar submitted that its claim on this issue was simply one of a denial of procedural fairness. He submitted that SkyMesh had come to the case without a full analysis of all of its claims. He referred to the exchange which took place on the second day of the trial, to which I have referred at [241] above. He submitted that the references to the trial transcript in Ipstar's written submissions, some of which I have referred at [241]-[245] above, showed it was clearly a condition of the agreement that Ipstar be confined to its pleaded case. He pointed out there was no obligation on Ipstar to agree to the course which was proposed. 2. Senior counsel for Ipstar referred to the discussion which took place on the third day of the trial, which I have set out at [242] above. He said that the agreement followed, but, as his predecessor confirmed in closing oral submissions at the trial which I have extracted at [245] above, it was on the basis that it was confined to the pleaded case. 3. Senior counsel for Ipstar submitted that there was no challenge to the primary judge's conclusion as to the scope of the pleadings, namely, that they were confined by the particulars in paragraph 9.1 of the Third Further Amended Commercial List Statement. With respect, this does not appear to be correct. Ground 2 of the notice of contention expressly raised this issue and it was argued in the submissions in this appeal both written and oral. 4. Senior counsel for Ipstar also referred to the findings of the primary judge at [111]-[112] and [114]-[115] that four of the 102 representative items would not be recoverable if water ingress or firmware problems were required to be proved. 5. Ipstar submitted in writing that the primary judge misconstrued Ipstar's concession which I have set out above at [246] above, stating that it was limited to defects generally, and not the causes of such defects, which had to be determined in accordance with the particularised case. In reply, senior counsel for Ipstar submitted that SkyMesh's Reply to the Amended Commercial List Response did not expand the pleadings. 6. In those circumstances, it was submitted by Ipstar that the question of damages should be remitted to the primary judge for further consideration. 7. Senior counsel for SkyMesh submitted that the pleadings included both the Third Further Amended Commercial List Statement and the Reply to the Amended Commercial List Response, and that the issue which divided the parties was whether it was necessary to prove the underlying cause of the defect or not. He submitted that this issue was expressly raised in the Reply. He noted that the primary judge accepted at [92(9)] that SkyMesh in the Reply to the Amended Commercial List Response pleaded that it was not necessary to establish why the equipment was not working. 8. Senior counsel for SkyMesh submitted that the essential requirement of pleading was to put the other party on notice of the case it had to meet. He submitted that the pleading including the Reply did so. He accepted that the allegations in the Reply may not have been put in the most logical part of the pleading, but said that Ipstar was on notice of the allegation. 9. Senior counsel for SkyMesh submitted that, having regard to the structure of the judgment, the primary judge had already made his findings before dealing with Ipstar's concession. He stated that the concession was designed to protect Ipstar if it was concluded that SkyMesh was only entitled to succeed on the basis of defects caused by water ingress or firmware problems. Consideration 1. The real difficulty raised by this ground of appeal is that there was no discussion as to what precisely encompassed "the pleadings" in the discussion which led to the representative sample process. The pleadings in paragraphs 9.1 and 10.1 simply allege that the goods were not reasonably fit for purpose and not of merchantable quality. However, as the primary judge pointed out, their generality was limited by the particulars, which allege the specific defects of the water ingress and firmware problems. 2. However, as I indicated at [234]-[235] above, paragraphs 3 and 6 of the Reply to the Amended Commercial List Response, although not directly responsive to the paragraphs in the Response to which they were directed, expressly raised the proposition that SkyMesh was not obliged to identify the precise cause of failure. No application was made to strike out these paragraphs of the Reply. 3. It thus appears that the claim of unfitness for purpose and lack of merchantable quality was limited to the water ingress and firmware problems by the particulars which were included in the Second and Third Further Amended Commercial List Statements. However, the Reply sought to extend that claim to defects irrespective of whether they were caused by those particular faults. 4. In that context, it also must be remembered that, as the primary judge pointed out at [92(1)], SkyMesh's case was opened widely, making it clear that it was not limited to the water ingress or firmware problems, and SkyMesh's Statement of the Real Issues in Dispute filed shortly prior to the commencement of the trial made no reference to the water ingress or firmware problems. 5. Proceedings in the Commercial List of the Supreme Court are commenced by summons and are governed by Practice Note SC Eq 3, which does not specifically refer to the filing of a reply to a commercial list response. If these proceedings were commenced by statement of claim, the filing of a reply would be permitted by r 14.4 of the Uniform Civil Procedure Rules 2005 (NSW) (the UCPR). Further, a "pleading" is relevantly defined in the dictionary to the UCPR to include "a statement of claim, defence, reply and any subsequent pleading for which leave is given". Although Part 14 of the UCPR does not directly apply in proceedings commenced by summons (see r 14.1), a commercial list statement and a commercial list response stand in the place of pleadings. In circumstances such as the present case where a reply to the commercial list response was permitted, it would seem to me that such a reply forms a part of the pleadings. 6. In these circumstances, the pleaded case did encompass the allegation that Ipstar was liable for defects irrespective of whether they were caused by the water ingress or firmware problems. 7. Ipstar put its case primarily on the basis that it was denied procedural fairness. I do not think that this was the case. It had the Reply to the Amended Commercial List Response for some two months prior to the commencement of the trial and was aware that not only was SkyMesh seeking to conduct the case on the basis that it did not have to establish that the defects were due to the water ingress or firmware problems, but that it was contending that this claim fell within the pleadings. The fact that Ipstar may have believed to the contrary does not mean that it was denied procedural fairness. 8. It has been pointed out on many occasions that the function of pleadings is "to state with sufficient clarity the case that must be met" in order to "ensure the basic requirement of procedural fairness that a party should have the opportunity of meeting the case against him or her": Banque Commerciale SA en Liquidation v Akhil Holdings Ltd (1990) 169 CLR 279 at 286; Dare v Pulham (1982) 148 CLR 658 at 664. SkyMesh's pleading in the present case, which includes the Reply to the Amended Commercial List Response, adequately put Ipstar on notice that SkyMesh was contending it was entitled to compensation for defective equipment irrespective of the cause. 9. So far as the concession was concerned, it seems to me that its terms, which I have extracted at [246] above, are entirely clear. Paragraph 3(d) states that, if SkyMesh was correct in establishing that it satisfied its onus by proof of the matters in paragraph 3(a), then there was no need to have regard to the detailed service records for each of the 102 representative items. Paragraph 3(a) contains the concession that, in respect of the 102 representative items, for all but six of the items, the expert evidence established that at the time of replacement the functioning was "impaired by a defect". It follows that the effect of the concession was that, if SkyMesh was correct in its assertion that all it had to prove was that each of the 102 representative items was defective, then there was no need for the primary judge to go to the detailed service records for each item. Subject to the pleading issue, it was not contended in this appeal that, to establish liability, SkyMesh had to go further and prove the reason that each piece of equipment was defective. 10. The primary judge concluded at [108] that, on the basis of that concession, that he did not have to go into the detail of the 102 representative items. Once it is appreciated that the pleading extended to claiming that Ipstar was liable for defects beyond those resulting from the water ingress or firmware problems, then, in my opinion, he was correct in adopting this course. 11. It follows that the grounds of appeal in relation to the defective goods claim have not been made out. Conclusion 1. In the result, I would make the following orders: 1. Grant the appellant leave to amend its notice of appeal in terms of the draft amended notice of appeal dated 30 August 2017. 2. Order the appeal be dismissed. 3. Order the appellant pay the respondent's costs of the appeal. 1. BEAZLEY P: I agree with the reasons of Bathurst CJ and the orders his Honour proposes. 2. LEEMING JA: I agree with the orders proposed by the Chief Justice, and with the entirety of his Honour's reasons. What follows is by way of elaboration, not qualification, on the principal point in the appeal, which was whether Ipstar's conduct contravened s 22 of the Australian Consumer Law. 3. First, in an appeal challenging the evaluative conclusion of the primary judge that Ipstar's conduct was unconscionable contrary to the Australian Consumer Law, there is no escape from a close consideration of the facts: Thorne v Kennedy [2017] HCA 49; (2017) 91 ALJR 1260 at [41]-[43]. This reflects the characteristic approach of equity, as described by Dixon CJ, McTiernan and Kitto JJ in Jenyns v Public Curator (Q) (1953) 90 CLR 113 at 118-119; [1953] HCA 2. As the Chief Justice's reasons make plain, consideration is required of not merely the communications between the parties leading to the second addendum, but also the market conditions under which they were operating, and the matters which in fact were motivating Ipstar (which, in this case, were contrasted with what Ipstar said at the time were its reasons). I mention this because Ipstar maintained that "a party's reasons for seeking an increased price are not relevant". I disagree. The submission sits ill with the words "in all the circumstances" in s 22(1), finds no support in the long list of matters to which a court may have regard in s 22(2), and, more fundamentally, is contrary to Jenyns. There is nothing to suggest that the statute in applying and expanding the equitable doctrine in any way curtailed the approach to be adopted in evaluating whether the party's conduct contravened it. 4. Secondly, it is true that a commercial party is ordinarily entitled to extract the highest price it can for the supply of its product. It is also true that a commercial party can and should set its price having regard to that party's liabilities, including in the present case Ipstar's liability for the defective products it had supplied in the past. And it is true that mere inequality of bargaining power, such as was present in the dealings between Ipstar and SkyMesh, is of itself unremarkable and does not engage the statutory proscription of unconscionability. Ipstar rightly emphasised as much. 5. However, Ipstar's conduct went considerably further. On Ipstar's own case, Ipstar determined the price it would charge SkyMesh by reference to the likely cost to it of the defective goods it had previously supplied to SkyMesh's customers. Ipstar did not raise its price to other purchasers of bandwidth. Instead, it sought to pass on the entirety of its liability generated by defective supplies to SkyMesh's customers to SkyMesh. Then, after the claims had been made and pressed, Ipstar did not pay them. It did not, prior to the commencement of proceedings, pay any of the claims for defective equipment which it used to determine the price increase, even those which it thought were valid. On Ipstar's case, it had calculated a price increase based on a liability to pay claims, while at the same time refusing to pay any of them. The impression from the documents is that Ipstar appears to have taken quite extreme steps to prolong the claims adjudication process. And at the same time as Ipstar was refusing to pay any claims, which on its case were incorporated into the increased price charged to SkyMesh, Ipstar insisted on SkyMesh paying the increase immediately. All this took place in circumstances where SkyMesh was effectively locked in to dealing with Ipstar, because SkyMesh could only change supplier at a cost of tens of millions of dollars in replacing equipment which could only be used for the Ipstar service. Finally, throughout this time, Ipstar intentionally kept secret the real reason for the price increase, by giving explanations which those officers which it called accepted were known by it to be false at the time they were given. 6. Mr Supoj Chinveeraphan determined the stance taken by Ipstar. He did not give evidence. Although there was no discovery, it was plain from one email chain, inadvertently sent to SkyMesh by Ipstar, that he was closely involved in settling the wording of the correspondence between the parties. Ipstar's officers who gave evidence, Messrs Leeflang and Cross, accepted as much. It was Mr Chinveeraphan who drafted the words "IPSTAR rejects the total claim submitted" in its response to SkyMesh, notwithstanding that its officers believed that some of the claims were valid, and notwithstanding the way Ipstar maintained the increase had been calculated. 7. It is not necessary in order to determine this appeal to address the advantages enjoyed by a trial judge in reaching the evaluative conclusion that the conduct falls within that proscribed by statute. I agree with the Chief Justice that Ipstar's conduct was so far removed from what is acceptable in Australia that it should be regarded as contrary to s 22. 8. Finally, Ipstar's written submissions (although not those made orally) maintained that "unconscionability requires a high level of moral obloquy". I have not found any assistance in asking whether Ipstar's conduct involved a "high level of moral obloquy", and I respectfully do not accept the submission, notwithstanding the use of that term by Spigelman CJ in Attorney-General (New South Wales) v World Best Holdings Ltd (2005) 63 NSWLR 557; [2005] NSWCA 261 at [121], and its endorsement in Paciocco v Australian and New Zealand Banking Group Ltd (2016) 258 CLR 525; [2016] HCA 28 at [188]. 9. The passage in World Best in its context is as follows: "Even if the concept of unconscionability in s 62B of the Retail Leases Act is not confined by equitable doctrine, as the decisions under s 51AC of the Trade Practices Act suggest, restraint in decision-making remains appropriate. Unconscionability is a concept which requires a high level of moral obloquy. If it were to be applied as if it were equivalent to what was 'fair' or 'just', it could transform commercial relationships in a manner which the Minister expressly stated was not the intention of the legislation. The principle of 'unconscionability' would not be a doctrine of occasional application, when the circumstances are highly unethical, it would be transformed into the first and easiest port of call when any dispute about a retail lease arises." 1. I do not think that Spigelman CJ was purporting to gloss the statute when his Honour referred to a "high level of moral obloquy". Rather he was concerned to emphasise that to find that conduct was not "fair" or "just" was insufficient, and that the doctrine was one of "occasional application, when the circumstances are highly unethical". The essence of each of the four sentences in the passage reproduced above is that the doctrine is unlikely to be available in ordinary cases. It is important not to read the second sentence reproduced above in isolation, or as if it were a statute. As was said in Stewart v Atco Controls Pty Ltd (in liq) (2014) 252 CLR 307; [2014] HCA 15 at [32], it is necessary to bear in mind that "the words of a principle stated in a judge's reasons for decision require consideration of what those reasons convey about the principle and are not to be applied literally." A unanimous High Court there cited what had been said by Gummow J in Brennan v Comcare (1994) 50 FCR 555 at 572: "The frequently repeated caution is against construing the terms of those judgments as if they were the words of a statute. The concern is not with the ascertainment of the meaning and the application of particular words used by previous judges, so much as with gaining an understanding of the concepts to which expression was sought to be given." 1. Sackville AJA, with whose reasons McColl JA and I agreed, regarded invocation of the phrase "high level of moral obloquy" as unhelpful in PT Ltd v Spuds Surf Chatswood Ltd [2013] NSWCA 446 at [101]-[102]. That view accords with what has subsequently been said (without attempting to be exhaustive) in Colin R Price & Associates Pty Ltd v Four Oaks Pty Ltd [2017] FCAFC 75 at [52] and in Commonwealth Bank of Australia v Kojic [2016] FCAFC 186; 341 ALR 572 at [54]-[60], [69]-[72] and [88]. "Moral" is a notoriously imprecise adjective: "someone under a moral obligation" was the example of conceptual uncertainty chosen in Re Baden's Deed Trusts (No 2) [1973] Ch 9 at 20. When combined with "obloquy", which is scarcely a word in common parlance, the imprecision is heightened. To insist on the presence of a "high level" of such an imprecise quality does not, in my respectful opinion, assist in the task of giving legal meaning to unconscionable in s 22 of the Australian Consumer Law. But even if the epithet were less imprecise, there would be no warrant to construe s 22 as being subject to some threshold requirement. Instead the statutory language falls to be applied in terms. ********** Amendments 15 February 2018 - [184] Change "Section 12CA prohibited conduct" to "Section 12CA prohibited unconscionable conduct" [184] Add after "s 12CC expressly prohibited" - "unconscionable conduct in respect of" [184] Change "to persons" to "from or to persons" [211] Change "indicted" to "indicated" 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. Decision last updated: 15 February 2018