Federal Court of Australia

AIBI Holdings Pty Ltd v Virtual Technology Services Pty Ltd [2022] FCA 696

ORDERS

THE COURT ORDERS THAT:

1.    The application is dismissed.

2.    The parties are to file and serve any affidavits relating to the question of costs within 7 days.

3.    The parties are to file any written submissions on the question of costs within a further 7 days.

4.    The question of costs is to be resolved on the papers.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

PERRAM J:

Introduction

1    This is a contractual dispute. The Respondent (‘VTS’) is a provider of IT services. The Applicant (‘AIBI’) is a provider of vocational education services. During the course of their business relationship, VTS and AIBI entered into three contracts: the 2016 contract (‘the first agreement’), the 2017 contract (‘the second agreement’), and the current contract which was executed on 20 February 2020 but backdated to 1 October 2019 (‘the third agreement’). Each of the agreements took the form of a standard set of boilerplate terms and conditions attached to two front pages which set out some particular terms, as well as the fee structure and the duration of the agreement. There was also a schedule to each agreement which identified the services which were to be provided by VTS. The present litigation concerns the third agreement. In short, AIBI says that certain terms within the third agreement are unfair terms within the meaning of Pt 2-3 of the Australian Consumer Law (‘the ACL’), being Sch 2 to the Competition and Consumer Act 2010 (Cth) (‘the unfair terms case’) and that, for other reasons which I will come to shortly, it was entitled to terminate the contract (‘the contract case’).

2    Underpinning the dispute is the fact that AIBI says that it became dissatisfied with the quality of VTS’ services. There was also a dispute as to whether AIBI was required to make an additional payment calculated by reference to the number of Chromebooks which AIBI was using. Chromebooks are a form of low cost computer. AIBI eventually withheld payment in relation to the Chromebooks. Shortly afterwards, for 36 days between 20 July 2020 and 25 August 2020, VTS suspended its helpdesk services and ceased processing ‘tickets’, that is to say, dealing with requests for IT assistance. It did so on the basis of a clause in the third agreement entitling it to withhold its services in the event that its invoices went unpaid.

3    As I have outlined above, AIBI’s case depends principally on the unfair contracts terms provisions in Pt 2-3 of the ACL. By s 23(1) of the ACL, a term of a small business contract is void if it is unfair and the contract is a ‘standard form contract’. There is no dispute in the present case that the third agreement is a small business contract, but VTS does contend that s 23(1) has no application because the third agreement is not a standard form contract. The concept of a standard form contract is delineated in s 27 of which more later. The first issue in this case is therefore whether the third agreement is a standard form contract under s 27. The second issue is whether certain nominated terms in the third agreement are also unfair within the meaning of s 24(1) and hence void under s 23(1).

4    The third issue is separate from the first two issues. As outlined above, for 36 days between 20 July 2020 and 25 August 2020, VTS ceased providing helpdesk services to AIBI after (so VTS alleges) AIBI failed to pay its invoices in full in a timely fashion. AIBI claims that this was a breach of an intermediate term of the third agreement and that it is thus entitled to terminate. Whilst it makes that allegation, it has not however purported to terminate the agreement. The third issue is therefore whether AIBI is entitled to terminate the third agreement for breach of an intermediate term.

5    For the reasons that follow, I conclude that the third agreement is not a standard form contract and that the unfair terms case therefore does not arise. Had it arisen, I would have concluded that two of its terms were unfair: cl 11.9, which permitted VTS to increase its fees as it saw fit on 30 days’ notice; and cl 11.12, which permitted VTS to withhold its services if AIBI failed to pay to VTS amounts due to it under other contracts (i.e. not under the third agreement). In relation to the contract case, I conclude that AIBI is not entitled to terminate the third agreement. It is convenient to begin with the facts.

Factual Background

6    To understand the nature of the third agreement, it is necessary to understand where it fits into the contractual history of the parties. Evidence was given on behalf of AIBI by Ms Laura Mao who is one of its owners and its general manager. Subject to one matter to which I will return, I found Ms Mao to be a satisfactory witness. She explained that in 2016, AIBI had desired to have an IT company take over its IT services and provide support. She was introduced to a Mr Glenn Kennedy who is the founder of VTS and its Chief Executive Officer. A meeting between Ms Mao and Mr Kennedy took place sometime in July 2016. He suggested that any contract would be of a three year term. Ms Mao said that negotiations about the first agreement did take place. In her affidavit evidence, she nominated two of AIBI’s employees as being the persons who on behalf of AIBI conducted the negotiations. These were Mr Fabio Gallego, AIBI’s operations manager, and another person called Lincoln. Lincoln negotiated the technical aspects whereas Mr Gallego was to negotiate the prices and the technical issues. Mr Gallego’s evidence was a little different. He felt that he was brought into the negotiations at the end of the negotiation process. His role was to provide technical input and details for VTS so that it could come up with a price. He dealt with Mr Kennedy. Eventually a price was worked out between Mr Kennedy and Mr Gallego. Mr Gallego took this price to Ms Mao and she gave her approval.

7    Ms Mao’s evidence was that she did not seek legal advice about the contract at that time because she felt that she could trust VTS. This was because VTS had come recommended to her from someone else. She says that ‘we’ (I interpolate, AIBI) read the first agreement and considered that it looked fairly standard. She also says, at §10 of her first affidavit, that ‘I did not know precisely what they all meant, however I did not feel that I wanted to negotiate any other terms at that point in time. The only thing we were then concerned with was the price per device’. In her reply affidavit (at §6), Ms Mao says that she had not felt the need to negotiate the terms because Mr Kennedy had left her feeling assured that any issues which arose would be smoothed over. Under cross-examination by Mr O’Sullivan of counsel for VTS, Ms Mao accepted that her predominant concern was pricing. She was content to leave the negotiation of the non-price terms to Mr Gallego and Lincoln. I conclude that Ms Mao was not particularly concerned by the non-price terms during these negotiations.

8    On 25 July 2016, Mr Gallego signed the first agreement. The front page for the agreement suggests that this agreement related to the provision and support of 70 managed desktops and 2 managed servers. Although, as will be seen, VTS’ services extended well beyond the provision of these computers, their significance for present purposes is that generally VTS used the number of devices a client nominated as the basis for the fees it charged. In effect, the size of a client’s nominated fleet of devices operated as a proxy for the extent of the services VTS expected to provide and hence also as a basis on which VTS saw fit to calculate its fees.

9    It is useful to pause at this juncture to observe an aspect of AIBI’s need for IT services. As the cross-examination of Ms Mao revealed, she was beset by conflicting commercial imperatives. On the one hand, she wished to have on hand sufficient devices to be able to provide education services to the students who enrolled with AIBI. Whilst this number was hopefully on an upward trajectory, it was inherently unpredictable and, as the events of the COVID-19 pandemic unfortunately showed, not necessarily always upward. It was nevertheless in AIBI’s interests to estimate its needs for IT equipment on a basis which would be commensurate with what it thought its likely student numbers would be. On the other hand, the larger the number of devices which were nominated in the agreement, the more AIBI would have to pay for VTS’ services.

10    Returning then to the first agreement. The attachment to the first agreement defined the services which VTS was to provide more precisely as having a number of individual elements. These elements included things such as the management of the local area network (LAN) and wide-area network (WAN) as well as security and back up. The contract price was $7,420.00. A field relating to the term of the agreement was left blank although it was said to commence on 25 July 2016. After the covering page, there were then some detailed terms and conditions under the heading ‘Terms and Conditions’ which were set out in two columns in fine print.

11    There were some issues between the parties during the first 12 months but none is material for present purposes. Even though the first agreement did not have a specified term, the parties entered into a fresh agreement in October 2017 which was expressed to be for a five year period. It was signed this time by Ms Mao. It was subject to the same terms and conditions as the first agreement and contained the same description of the services. However, it now covered 2 managed servers, 118 managed desktops and 47 Chromebooks. On the second page there were also these additional terms:

Note: By signing this Schedule, and accepting the attached Terms & Conditions, the Client expressly acknowledges and agrees:

(i)    That VTS has incurred fixed costs to establish and maintain the Supported Environment and the Services on the basis that the Client commits to paying the Fees for the duration of the Term; and

(ii)    Unless this contract is terminated in accordance with the Terms & Conditions, this contract will automatically roll over for a further period of 12 months after the expiry of the Initial Term.

12    In her first affidavit (at §22-23), Ms Mao says that she was ‘quite happy’ to sign the second agreement and that it was signed ‘after some negotiation’. The negotiations related to certain price reductions sought by AIBI. In her reply evidence however, Ms Mao gave evidence of having sought to negotiate some of the non-price terms. I return to this aspect of Ms Mao’s evidence shortly.

13    On the face of it, this second agreement was for a term of five years and would expire on 1 October 2022. Ms Mao says that one of the reasons she was happy with this contract was because of the price drop and the fact that the term had been extended for an additional year.

14    After the second agreement came into effect, there were disputes between the parties about various matters. One of the disputes related to whether VTS should be charging AIBI for Chromebooks. The second agreement certainly stated that it should be paying for them but there were matters tending in the opposite direction according to AIBI. It is not necessary to resolve this but merely to note that this is one of the disputes that existed.

15    Further negotiations then took place in 2019 between Mr Kennedy and Ms Mao principally about pricing. It is apparent from Ms Mao’s evidence in reply, and particularly Annexure LM2-2 thereto, that by October 2019, Ms Mao and Mr Kennedy were seeking to reach some kind of agreement on rates. On 1 October 2019, Mr Kennedy emailed Ms Mao and said this:

‘Hi Laura,

As discussed in our recent meeting I was to look at a new pricing structure for ACBI. The reason for the review was that you and your management team were concerned, not with the quality of the support, but with the potential cost increase as the company grows. I was to come back with a solution that might assist with this issue.

I have reviewed your current contracts and costs so as to clearly see what can be done to assist. Please see Table 1 for details:

…

16    On the same day, Ms Mao replied:

Hi Glenn,

Thanks. I need to read it and discuss with my team. I will get back to you next week.

…

17    On 10 October 2019, Ms Mao sent this email to Mr Kennedy:

Dear Glenn,

I will be happy with your quote if the following are confirmed:

1.    This quote is an amendment of our current contract and as a continuous of our initial term of current contract.

2.    There are no fee including CPI increase until the end of the term (as per we previously agreed at 2017)

3.    For HAAS agreements, we would like to finish our HAAS for all computers/workstations when the HAAS’s initial term finish. could you please also provide a table including all HAAS’s item finish date so that we can arrange some new computers.

[errors in original]

18    Mr Kennedy replied in these terms on 11 October 2019:

Hi Laura,

Let me respond intern;

1.    I can not accept that it is not under a new contract. You have been given the highest discount available it is equivalent to Educo rates. Educo has over 900 devices under management and they have just signed a new contract for 5 years six weeks ago. Also, they have last week signed HaaS agreements for the replacement of 685 new PC’s. Out of good faith, I elevated you to this the highest discount rates even though your device count is less than 30% of Educo.

2.    The CPI is there because like yourself we need to stay in line with costs. All customers receive this charge.

3.    The HaaS agreement is not part of this discussion.

[errors in original]

19    Ms Mao’s evidence is that Mr Kennedy had rejected her proposed amendments to his pricing model, which is true. It is worth noting that Mr Kennedy did not reject her suggestions on the basis that negotiation was out of the question, but rather on what he saw as the merits of each proposed change. Further, it is to be noted that Ms Mao had sought a decrease in the prices. As I explain shortly, that is in fact what Mr Kennedy gave her.

20    After Mr Kennedy quoted this new price structure, Ms Mao says that he suggested that a fresh contract should be signed. Ms Mao thought she was signing an agreement in the same terms as the second agreement but with the new price and that it would end on the same date as the second agreement would have ended (1 October 2022).

21    Ms Mao was emailed two versions of the proposed third agreement on 3 February 2020 by a Mr Graham. The difference between these two agreements is that one may have charged AIBI for Chromebooks and one did not. Whether this is actually so is disputed.

22    Ms Mao says that there were no negotiations between her and Mr Kennedy about the non-price terms of the third agreement. At §37 of her first affidavit, she said that when she was negotiating the terms with Mr Kennedy, ‘I did not get the impression that I could not discuss the other terms, it was just that they were never raised’. This evidence is inconsistent with her later evidence in reply where she gave evidence of her unsuccessful attempts to negotiate the non-price terms in relation to the second agreement (as I have explained above).

23    Ms Mao signed the version of the agreement which, at least in VTS’ eyes, provided for a charge for the Chromebooks. It was backdated to October 2019 and was said to be for a term of three years. The final pages also contained these explicit terms:

Note: By signing this Schedule, and accepting the attached Terms & Conditions, the Client expressly acknowledges and agrees:

(i)     That VTS IT has incurred fixed costs to establish and maintain the Supported Environment and the Services on the basis that the Client commits to paying the Fees for the duration of the Term; and

(ii)     This contract is signed in line with the email to Laura Mao by Glenn Kennedy on Tuesday, 1 October 2019 7:27 AM.

(iii)     Unless this contract is terminated in accordance with the Terms & Conditions, this contract will automatically roll over for a further period of 3 months after the expiry of the Initial Term.

24    The email of 1 October 2019 was attached to the contract. That email demonstrates that the nature of the dispute about the Chromebooks lay in the different perception that the parties had about their significance. Mr Kennedy thought that the overall number of devices of any kind that a customer had was a proxy for the size of its business and hence fit for the purpose of determining a fee. Ms Mao, on the other hand, had a strongly held view that there were little or no costs to VTS in providing the Chromebooks so that a fee in relation to them was not reasonable. It is not necessary to say which of these is right.

25    The balance of the third agreement was largely the same as the other agreements, that is, subject to the same ‘Terms and Conditions’ with a description of the services in the attachment at the end. As I later note, there were some subtle differences between cll 11 and 15 of the second and third agreements.

The Evidence

26    As I will explain in further detail below, AIBI’s unfair terms case turns first upon whether the third agreement is a standard form contract. Section 27 of the ACL outlines a number of matters which the Court must take into account when determining whether a contract is a standard form contract. This includes, inter alia, whether a party was ‘given an effective opportunity to negotiate’ certain terms of the contract (s 27(2)(d)) and whether a party was ‘in effect, required either to accept or reject’ certain terms (s 27(2)(c)). Much of the parties’ evidence, therefore, was directed to the question of whether AIBI had such an opportunity and whether or not it was, in effect, required to accept certain non-price terms. It is convenient first to outline this evidence.

Ms Mao’s Evidence about Her Ability to Negotiate

27    At §37 in her first affidavit, Ms Mao gave evidence that when she was negotiating the third agreement with Mr Kennedy, ‘the focus was only on the price, and not on the other terms. Again, I did not get the impression I could not discuss the other terms, it was just that they were never raised’. The reference to ‘again’ is a reference to Ms Mao’s earlier evidence about the negotiations leading to the first and second agreements. Her evidence about the first agreement was that she never felt the need to negotiate any of the terms in the ‘Terms and Conditions’ because she had been left feeling reassured by Mr Kennedy that any issues which arose would be smoothed over by him: Ms Mao’s affidavit in reply at §6. In respect of the second agreement, Ms Mao said she was ‘quite happy to sign’ the agreement essentially because ‘it all sounded reasonable – a longer commitment for a lower price’.

28    Ms Mao’s evidence at §37 in relation to the negotiations leading to the third agreement is forensically significant because it suggests that Ms Mao perceived that she was not prevented from negotiating the Terms and Conditions with VTS.

29    However, the picture is complicated somewhat by Ms Mao’s evidence in reply. In her affidavit in reply, Ms Mao said that during the negotiations leading to the second agreement she had sought to negotiate a number of non-price terms but had been rebuffed. This evidence consisted of three emails and Ms Mao’s account of a conversation she had with an employee of VTS, Ms Jin Kyung Kim, which she says took place between the second and third of these emails. The first email of 26 September 2017 was sent by Ms Mao to Mr Kim and sought amendments to some of the non-price terms for what would become the second agreement. This email was as follows:

Dear Glen and Jin,

Thank you for the agreement. Our solicitor has proposed the following minor changes:

1.     Initial term is for 60 months/5 years

2.    Clause 14.2 – Once the period of 60 months expires, ACBI will need to say for another 12 months, please have this clause deleted and replaced with “if the Client does not give notice to renewal the Agreement before the expiry of the Term, the Agreement will automatically come to an end at the expiry of the Term.”

3.     Clause 1(z) – Replace with the words “Term means the Initial Term.”

4.     Clause 4 – VTS should not agree to proportionally increase their costs should ACBI increase their requirements. Eg, if they charge ACBI $9.50 per Chromebook and $75 per PC now, then in the future whilst on the same Agreement, they should stillcharge ACBI $9.50 per Chromebook and $75 per PC.

5.     Clause 8.2 – change the meeting to monthly

6.     Clause 11.9 – ACBI fees will remain unchanged during the term of the agreement

7.     Clause 11.10 – VTS may increase their fees with 30 days’ notice. I propose the following: “Should VTS increase their fees outside of clause 11.9, the Client will have 30 days to terminate the Agreement. Should the client not terminate the Agreement within 30 days, the Agreement will continue.”

8.     Clause 15 – the Client should be able to terminate the Agreement should VTS “strike” out 3 times (breach of contract agreement). We need the conditions reciprocated for ACBI should VTS go bankrupt etc.

9.     Clause 15.4 – change to 14 days

10.     Please change the contract to be between VTS IT and AIBI Holdings Pty Ltd (ABN: 83 619 923 125).

…

[errors in original]

30    Ms Kim responded the same day and said she had forwarded Ms Mao’s email to VTS’ solicitors and would speak to her the next day when she had heard back from them. This exchange occurred on the Tuesday. Ms Mao says that on the Friday, 29 September 2017, she had a telephone conversation with Ms Kim in the following terms:

Jin:     I have checked with Glenn about the changes AIBI wants in the agreement. Unfortunately, these are standard terms and we will not be able to change any of them. All of our other clients have the same terms as well.

Me:     Okay then, I guess I have no choice.

Jin:     Alright, I will send an email to confirm that you agree to these terms.

31    Shortly afterwards, Ms Kim sent Ms Mao an email in these terms:

Hi Laura,

Thank you for your time on the phone.

Just to recap, you have confirmed that you agree to our terms and conditions and no longer wish to have them changed as suggested in your previous email.

With regards to changing the new contract to be between VTS IT and AIBI Holding Pty Ltd (ABN: 83 619 923 125), the business structure will need to be reviewed by our lawyers. We will come back to you on this once we hear back from our lawyers, hopefully soon.

…

32    There is a direct tension between this evidence and her evidence in chief that she was happy to sign the second agreement because ‘it all sounded reasonable – a longer commitment for a lower price’. There is also an indirect tension between this evidence (which is about the negotiations leading to the second agreement) and her evidence in chief about the negotiations leading to the third agreement (about which she did ‘not get the impression I could not discuss the other terms’).

33    Ms Mao was cross-examined about her conversation with Ms Kim (where she says was told that it was not open to negotiate the non-price terms). The cross-examination went as follows at T72.35-18:

Mr O’Sullivan:     It’s just not true that you had a conversation with Jin in the terms you have alleged at paragraph 10, is it?

Ms Mao:     It is very true.

Mr O’Sullivan:     Okay?

Ms Mao:    No, look, when I say it is very true, I’m not saying I agree with you. I said the conversation, it is very true.

Mr O’Sullivan:     Yes. Well, okay. Well, then, if we go to page 658 – sorry – 659. You have requested certain amendment and you say:

    Thank you for the agreement. Our solicitor has proposed the following minor changes.

    Do you see that?

Ms Mao:     Yes.

Mr O’Sullivan:     And just over the page on 658, Jin says:

    Just to recap, you confirmed that you agree to our terms and conditions and no longer want to have them changed as suggested in your previous email.

    Do you see that?

Ms Mao:     Mmm.

Mr O’Sullivan:     And that’s what you told Jim in the conversation you had with him. You told Jim words to the effect, “I agree to your terms and conditions and I don’t want any changes to them”, that’s what you told Jin isn’t it?

Ms Mao:     That’s correct, because I got rejected. I had got no other choice.

Mr O’Sullivan:     Well don’t – don’t worry about the reasons why you felt no had choice. I’m just asking you what words you said so, to be clear, the words that you said to Jin, and I’m not really asking you why or what you thought they meant, the words you said to Jin in the conversation you have referred to at paragraph… were words to the effect, “I confirm that I agree to your terms and conditions and I don’t wish to make any changes to them.” That’s –

Ms Mao:     That’s correct.

34    Over objection, I permitted Mr Soon to ask Ms Mao about this in re-examination. This exchange occurred at T76.46-79.11:

Mr Soon:     Now, when did you have – what time did you have the conversation with Jin on 29 September on the telephone?

Ms Mao:     The time is at lunchtime or – I can’t exactly remember. I remember I was having the conversation in level 5, outside of our meeting room. I think I receive a phone call from her.

Mr Soon:     Okay. Can you remember which came first: the email or the – or the     telephone conversation?

Ms Mao:     The email. I sent the email to her. Then she – she called me. She set it up.

Mr Soon:     Right

His Honour:    Hang on. Hang on.

Mr O’Sullivan:     Could I just – I respectively object. I need to clarify which email is being referred to.

Ms Mao:     Okay

Mr Soon:     Okay

His Honour:     So hang on a sec, Mr Soon. When you were being asked questions by Mr O’Sullivan, he asked you about the email of 29 September, which Jin sent to you at 12.12 pm. Do you remember him asking you some questions about that?

Ms Mao:     Yes. Yes. Yes.

His Honour:     And if you look at that document, which is at page three – 658 of the bundle?

Ms Mao:     658. Yes.

His Honour:     And Mr O’Sullivan asked you about the sentence beginning with:

    Just to recap, you have confirmed that you agree to our terms and conditions and no longer wish to have them changed as suggested in your previous email.

    ?

Ms Mao:     Yes

His Honour:     Do you see that?

Ms Mao:     Yes

His Honour:     And I think you agreed with Mr O’Sullivan – and, Mr O’Sullivan, please feel free to correct my recollection of what the answer was. I think you agreed with Mr O’Sullivan that because that’s what appeared in Jin’s email to you, you had told her during that – the telephone call that you agreed to the terms and conditions and no longer wishes to have them changed?

Ms Mao:    Yes. That’s correct.

His Honour:     So do you remember giving that evidence?

Ms Mao:     Sorry.

His Honour:     Do you remember giving that answer to--?

Ms Mao:     Yes.

His Honour:     -- Mr O’Sullivan?

Ms Mao:     Yes. Yes.

His Honour:    So now, have you got your affidavit there?

Ms Mao:     Yes.

His Honour:     Paragraph 10 of your reply affidavit? Which page?

Mr Soon:     652.

His Honour:    652?

Ms Mao:    Yes.

His Honour:    Now, you see there you give a version of what you said to Jin?

Ms Mao:     Yes.

His Honour:    Okay. And it’s different to the answer you gave to Mr O’Sullivan?

Ms Mao:    What is different?

His Honour:     All right. Mr Soon, you’re on your own from here.

Mr Soon:    Okay. Ms Mao, can you please check – could you please look at papge 658 of your affidavit which contains the email dated 29 September 2017?

Ms Mao:     Yes.

Mr Soon:    You’ve got that ---?

Ms Mao:     Six ---

Mr Soon:     -- clear in your head, right?

Ms Mao:     Yes.

Mr Soon:     Okay. Now, you will see at the second sentence it says:

    Just to recap: you have confirmed that you agree to our terms and conditions and no longer wish to have them changed as suggested in your previous email.

    Can you see that?

Ms Mao:     Yes.

Mr Soon:    All right. Going back to page 652 ---

Ms Mao:     Yes.

Mr Soon:    --- Can you see at paragraph 10 ---

Ms Mao:     Yes

Mr Soon:    --- You have said that you have had a conversation ---

Ms Mao:     Yes.

Mr Soon     --- and in certain words?

Ms Mao:     Yes

Mr Soon:     And those words are said there; right?

Ms Mao:    Yes.

Mr Soon:    Now, the question I want to ask you is: what caused you to write the email which is at 658 of your affidavit?

His Honour:    That doesn’t make sense. She didn’t write the email at 658.

Mr Soon:    Sorry. Sorry. I apologise.

His Honour:     Why are your two versions different, Ms Mao?

Mr Soon:    Yes. Why is what’s said in 10 different to what 658 says?

Ms Mao:    It’s not different. It’s – the sequence is: first, I sent the email to – on 26 September, Tuesday 2 pm, to Jin and Glenn, to ask for the term changed. Then I had a conversation which is in my affidavit at 10 saying she has changed – she has talked to Glenn. So that’s – she said we can’t change it. So I said, “Okay then”. So then she want to confirm what our conversation is, so she write me again in the email to confirm what was – we talk about on the phone. This the sequence.

Ms Soon:    Okay. Your Honour, I think that’s as far as I can take it to assist with any clarification.

35    So Ms Mao’s evidence was that there was no difference between what Ms Kim’s email recorded as having taken place in the conversation and the evidence she gave about that conversation at §10 of her affidavit in reply. I do not accept Ms Mao’s evidence about this. The latter involves Ms Kim telling Ms Mao that negotiation was impossible, the former does not. That conclusion nevertheless leaves unresolved how this aspect of Ms Mao’s evidence is to be approached.

36    In his closing address, Mr O’Sullivan submitted that Ms Mao’s sworn evidence in her first affidavit was that in relation to the negotiations for the third agreement, ‘the focus was only on the price, and not on the other terms. Again, I did not get the impression I could not discuss the other terms, it was just that they were never raised’. The Applicant had neither sought not to read that part of her affidavit nor to elicit evidence in chief from Ms Mao that the statement had been made in error. Both of these points are correct.

37    In his closing address, Mr Soon submitted that I should conclude that Ms Mao’s initial evidence had been given in error. The error was to be inferred from the fact that several matters showed that Ms Mao had, in fact, sought to negotiate the non-price terms in relation to the second agreement and had been unsuccessful.

38    This submission centred on a complaint that Ms Mao had made to the Fair Trading Commission sometime in 2019. I was not taken to the terms of this complaint. However, it appears that following the making of the complaint, the Commission wrote to VTS which in turn provoked an email from Mr Kennedy to Ms Mao on 2 September 2019. An exchange of emails ensued. Mr Soon submitted that this exchange of emails showed that Ms Mao had attempted to negotiate cl 11.9 of the Terms and Conditions to the second agreement. Clause 11.9 provided for an increase in the fees due to VTS by the CPI on each anniversary of the contract.

39    Mr Kennedy’s email of 2 September 2019, which informed Ms Mao that the letter had been received from the Commission, does not touch upon this topic but does bristle with a certain degree of annoyance. Ms Mao’s response to that email did touch upon the CPI in these terms:

Firstly, our service discount rate was not locked in for five years as promised. Prior to signing the current agreement I asked you to give me the discount rate you gave Educo, and you stated that because I was not a long term member, I was not entitled to this discount rate unless I sign up for a new five years’ service agreement. I did sign a new five years’ agreement without any hesitation. Last year I did get a waiver for the increase but this year Sharon insisted that I have no choice but to accept it. I have checked with my accountant and was told this year’s CPI is lower than the rate of the increase you charged me. I am very disappointed that not only have you overcharged me, but that even charged this increase at all.

40    Mr Kennedy’s response to Ms Mao’s email dealt briefly with the CPI issue in these terms:

If the recent price rise implemented by VTS IT indeed varies from the actual CPI increases, I would be happy to review this. As for the implication that VTS IT has overcharged you – that is ridiculous. You are receiving, and have always received, a significant 50% discount.

41    In response Ms Mao said:

In terms of the price increase and your “review”, you can let us know what the outcome is and not just state you will review.

42    Mr Kennedy responded ‘Price increase stands no need to review it’.

43    I do not accept Mr Soon’s submission that this contretemps should be regarded as an attempt by Ms Mao to negotiate cl 11.9 of the Terms and Conditions of the third agreement. It is a complaint by Ms Mao that the clause was not being correctly applied. Consequently, I do not accept that this evidence is capable of providing support for his submission that I should understand as erroneous Ms Mao’s evidence in her first affidavit that she did not get the impression that she could not negotiate the terms of the third agreement. Indeed, given that Ms Mao could easily have been asked in chief whether she wished to correct this aspect of her evidence and was not, it seems to me that I should conclude that her initial evidence was not in error.

44    That leaves unresolved the inconsistency which exists between this evidence and her evidence in reply where she says she was told by Ms Kim that the terms of the second agreement were not open to negotiation. Because this was given as evidence in reply, VTS was given no opportunity to call Ms Kim to give evidence about what had been said. However, Ms Kim’s contemporaneously written email does exist and it does not contain any reference to what Ms Mao now alleges that Ms Kim said. Counsel for VTS nevertheless put to Ms Mao that the conversation with Ms Kim had not occurred in the terms that she suggested in her reply affidavit. Ms Mao denied this.

45    I consider that Ms Mao’s evidence in her first affidavit is more reliable than the evidence she gave about Ms Kim in her second affidavit. I am not affirmatively satisfied that the conversation which Ms Mao alleges took place with Ms Kim did take place in the terms Ms Mao suggests. Consequently, I am affirmatively satisfied that her evidence in her first affidavit was not in error. I therefore conclude that in relation to the third agreement, Ms Mao did not get the impression that she could not negotiate its terms.

46    Mr Soon also relied upon four answers given by Ms Mao under cross-examination. The first of these was at T47.18-26 and was in these terms:

Mr O’Sullivan:     At the time of this email ---

Ms Mao:     Yes.

Mr O’Sullivan:     The only thing you were worried about in terms of VTSs service was the service discount rate not being locked in for five years, the instalment payments for equipment and the Chromebooks. They were the only issues concerning you about your relationship with VTS?

Ms Mao:    No. No, not – I can’t say that. That is, like, quite a major concern, but I can’t say, like, only issues, because there might be other issues. But at this stage, I can’t remember other issues. But here and there there were other issues, yes.

47    I do not consider that this assists AIBI. The second was at T48.16-26:

Mr O’Sullivan:     Okay. But it’s the case, isn’t it, that during the almost six years of the business relationship between VTS and AIBI that VTS has only ever increased prices in line with what it says is the CPI rate or to pass on third-party software provider licence fee increases at cost. They’ve been the only price increases under the three contracts, haven’t they?

Ms Mao:    That’s not exactly my impression, because my impression, six years, the relationship with VTS is sometimes they increased things the way they want and they have the power to do it. We have no power to say no. And there’s always reason they had this. They always say because of this. Even we said the CPI increase was – like, there’s no increase overall. But they still have the reason behind this. This way, we feel like we don’t have power. They always have a superpower to us.

48    The most compelling part of this answer is Ms Mao’s evidence that she had no power to say no to the CPI increase. However, I do not consider that this assists AIBI. Unquestionably, AIBI had no power to prevent VTS from increasing prices in line with the CPI because cl 11.9 permits VTS to increase its fees by any amount including by the amount of the CPI. It does not follow, however, that this means that when Ms Mao was negotiating the terms of the third agreement that AIBI had no bargaining power.

49    The third was at T53.1-5:

Mr O’Sullivan:     Okay. But there was no reason why you could not have raised any concerns about the terms and conditions of the third agreement that appear at pages 421 to 425. If you just have a look at those. If you had any concerns about those terms and conditions, there was no – nothing to stop you from raising those concerns with Glenn, was there?

Ms Mao:     I think I raised these things in my agreement 2 and I got rejected, so I didn’t bring it up again.

50    In this answer, Ms Mao attributes her failure to seek to negotiate the non-price terms in relation to the third agreement to her unsuccessful attempt to negotiate them in relation to the second agreement. However, as I have explained above, I do not accept Ms Mao’s evidence that she was told by Ms Kim that the non-price terms for the second agreement were not up for negotiation. Once that evidence is rejected, it follows that this evidence must also be rejected. I have considered whether this evidence provides some basis for revisiting my conclusion above that Ms Mao’s evidence about the conversation with Ms Kim ought not to be accepted. I do not think that it does. By the time of Ms Mao’s reply evidence, the need to show that Ms Mao felt she had no ability to negotiate the non-price terms had become obvious. Matters were no different when she was cross-examined.

51    The fourth was at T58.1-5:

Mr O’Sullivan:     And the only issue concerning you in September 2019 was the price and not the terms and conditions of the – any contract. That’s right, isn’t it?

Ms Mao:     It – it seems like I was always concerning discussion between me and Glenn with the pricing, and actually, that’s not the only thing I concern. I concerned a lot of things but I was limited. I’m only able to negotiate with him is the pricing and the term.

52    To the extent that this suggests that Ms Mao wished but was unable to negotiate the non-price terms, I reject this evidence. I do so for the same reasons given in the preceding paragraph.

The Evidence of Ms Lindsay

53    Evidence was given for VTS by Ms Sharon Lindsay, the Chief Financial Officer of VTS. Ms Lindsay gave evidence that the terms and conditions of the third agreement were very commonly used by VTS in the majority of its client agreements. I accept this evidence. It is obvious that the terms and conditions are VTS’ usual terms of trade.

54    During his cross-examination of Ms Lindsay, Mr Soon obtained from Ms Lindsay a concession that a number of the terms of the terms and conditions (generally speaking) were not open for negotiation. These clauses were cll 10.7, 11.2, 11.10 and 11.12. On the other hand, the cross-examination also established that cl 11.9 was in principle open for negotiation. Undeterred by the answer he received in relation to cl 11.9, Mr Soon also asked Ms Lindsay whether cll 14.2, 15.2 and 15.8 were open for negotiation and received the affirmative response that they were: see T160.1-23. Ms Lindsay also said that whether any of these clauses were, in fact, the subject of negotiation depended upon the particular customer.

55    The position of particular customers was brought more keenly into focus by Exhibit 1 which consisted of a number of other contracts which VTS had entered into with its customers. Ms Lindsay gave evidence in her affidavit that it was not VTS’ policy or practice to offer its clients services on terms and conditions that were on a ‘take it or leave it basis’: §12. She also gave evidence that in the case of at least six customers, several of the standard terms and conditions had in fact been varied as a result of negotiations of this kind. Subsequently, AIBI obtained production of a much larger set of VTS’ client agreements. These became Exhibit 1. It would be fair to say that the overwhelming majority of the contracts extracted in Exhibit 1 do not appear to have had any variations made to the terms and conditions.

56    This led Mr Soon to submit that it showed that in most cases the evidence suggested that the terms and conditions were not open to negotiation. I do not think that this is correct. This is because the evidence is equally consistent with the proposition that the customers in question did not seek to negotiate the terms and conditions. I do not think, therefore, that it would be safe to draw the inference for which Mr Soon contends.

57    Mr O’Sullivan submitted that the position of other customers was irrelevant to the analysis called for by s 27(2) of the ACL. In principle, I accept that this is correct and, with it, the correctness of its corollary that the same terms and conditions might be a standard form contract for the purposes of one customer but not so for the purposes of another. This flows from the terms of s 27(2), which are focussed on the parties to the contract. However, I would accept at a forensic level that the fact that the party providing a set of terms and conditions has refused to negotiate or, perhaps more relevantly, has been in a position where it did not have to negotiate the terms and conditions with other customers, may indirectly throw light on its ability in a particular case not to have to negotiate.

58    In this case, because the cross-examination of Ms Lindsay clearly demonstrated that in relation to some clauses of the terms and conditions, VTS did in fact sometimes negotiate, this means that this indirect use is not particularly useful for AIBI. The fact that a number of the agreements do not appear to have the terms and conditions amended proves nothing without some knowledge of the underlying negotiations. Further, the fact that some of them were amended makes it difficult to draw an inference that VTS was in a position with its other customers (and therefore perhaps also with AIBI) not to negotiate. I therefore conclude that in this case, the other agreements with VTS’ customers do not assist AIBI’s case.

The Withdrawn Contract

59    Mr Soon also submitted that AIBI’s lack of bargaining power could also be discerned from something which occurred as the third agreement loomed for execution. In February 2020, Mr Graham had sent Ms Mao a copy of the proposed third agreement. This version of the agreement did not deal with the position of the Chromebooks separately and charged monthly rates on a sliding scale depending on the number of devices. The devices were described as ‘Workstation/Server/Chromebook (Devices)’. The last entry on the sliding scale was for ‘500+’ devices and the rate was to be $45.50 per device. The lowest price, which was for 269-299 devices (including Chromebooks), was to be $13,624.85. Taking the highest number, 299, this implies that the minimum conceivable rate for the devices including Chromebooks was $45.56.

60    Ms Mao says that before she could sign this version of the third agreement, Mr Graham sent another version of the agreement. I was not taken to the emails by which Mr Graham did this but I am prepared to accept Ms Mao’s evidence about this since it was not suggested that I should not. The second agreement maintained the charging rate of $45.50 per device for 500+ devices but the devices were now said to be ‘Workstation/Server (Devices)’. However, this second version also included a new line which said that Chromebooks would be charged at the rate of $9.69 per Chromebook.

61    Ms Mao says that she took this to mean that if there were more than 500 devices then a separate rate for Chromebooks would be charged at $9.69 per Chromebook. In any event, this was the version she signed. Subsequently, there was a disagreement between the parties as to whether Chromebooks were to be charged for or not. It is not necessary to resolve that debate because VTS eventually accepted that there should be no charge for the Chromebooks.

62    In any event, the point for present purposes is that Mr Soon submitted that the unilateral withdrawal of the first version and the supply of the second version, showed that AIBI had no bargaining power. I do not accept this submission. Both versions of the third agreement were expressly subject to the pricing terms which were set out in Mr Kennedy’s email of 1 October 2019. It was that pricing structure which had been agreed between Mr Kennedy and Ms Mao. I do not accept that in signing the second version of the agreement sent through to Ms Mao by Ms Graham that Ms Mao believed either that Mr Kennedy (through Mr Graham) had altered that agreement or that she was agreeing to an amendment to the pricing structure set out in the email of 1 October 2019. Had she believed that to have been the case, then she would have had no occasion to argue with VTS some months later that what VTS was charging was not in line with the 1 October 2019 email. Yet this is what occurred between 27-28 May 2020. In this email chain, VTS sought to impose an additional charge upon AIBI in respect of Chromebooks. This was disputed by AIBI. The dispute concluded at 3.25 pm on 28 May 2020 when VTS informed AIBI that its interpretation of the third agreement was correct and that there would be no additional charge for Chromebooks.

63    Mr Graham’s unilateral switching of the first version of the third agreement for the second version of the third agreement could not, therefore, have been understood by Ms Mao as VTS flexing its negotiating muscles. Rather, she simply did not understand the second version of the agreement to involve any change to the underlying price agreement embodied in the email of 1 October 2019. Had she actually understood the second version to have changed the pricing structure then the debate which occurred on 27-28 May 2020 about the Chromebooks would never have occurred. As such, I do not accept that Mr Graham’s actions in switching the first version for the second version is evidence of VTS’ superior negotiating power to which Ms Mao was forced to yield. In signing the second version of the third agreement, Ms Mao was not yielding to anything and did not understand herself to be yielding to anything.

64    Mr Soon submitted that I should infer that Mr Graham had done what he had at the instigation of Mr Kennedy and called in aid of this submission on Jones v Dunkel (1959) 101 CLR 298 (‘Jones v Dunkel’) since Mr Kennedy was not called to give evidence. Without recourse to Jones v Dunkel, I am prepared to infer that Mr Graham did what he did at the instigation of Mr Kennedy.

The Bargaining Strength of AIBI

65    Mr Soon accepted that when AIBI was dealing with VTS in relation to the first agreement, the parties had equal bargaining strength which I accept. Presented with VTS’ proposed terms and conditions, AIBI could have elected not to deal with VTS. However, once it signed the first agreement it was bound by provisions which required it to pay out the fees due for the life of the contract if it wished to walk away from the agreement. This was the effect of cl 15 (I return to cl 15 below). Thus, when AIBI embarked upon seeking to amend the rates under the first agreement, its negotiating position was contractually circumscribed by the existence of the first agreement. The same is true of the third agreement. AIBI could not simply walk away from the second agreement when negotiating the third.

66    Even in these difficult contractual circumstances, Ms Mao nevertheless procured an improvement on the position of AIBI. Under the second agreement, AIBI had agreed to pay VTS monthly fees on the following basis:

Managed servers (P)                             2                $280

Managed desktops (20+) (P)               118            $8,850.00

Chromebooks                                       47              $446.50

Total                                                                      $9,576.50

67    Under third agreement, the pricing structure was as follows:

68    If one calculates the price per device under the second agreement, it will be seen that it works out at $57.34. Under the third agreement, the highest price (implied by the first line) is $50.65 per device ($13,624.85/269) and the lowest price is $45.50 (set by the second last line in the table for 500+ devices). The pricing of the third agreement was therefore an improvement for AIBI. If one adds to that Ms Mao’s eventual success in excluding Chromebooks altogether from the picture, the position is even better. Further, because the second and third agreements both had the same end date, 1 October 2022, this rate reduction was not secured at the price of having the contract extended. This may be contrasted with the second agreement where Ms Mao agreed that she received a better rate and, in return, agreed to VTS’ request for a longer term.

69    Whilst I accept that AIBI’s bargaining position was circumscribed by its contractual obligation to pay out the balance of the second agreement if it wished to walk away, it has to be said that this disability does not seem to have affected its ability to secure from Mr Kennedy improved pricing terms. Thus, whilst I was initially attracted to the notion that Mr Kennedy held all the cards in his negotiations with Ms Mao, the detailed facts do not appear to bear this out. The fact is that VTS brought its prices down at Ms Mao’s request.

The Front Pages

70    It is evident that the first two pages of the third agreement are not themselves in a standard form. Page 1 of the third agreement includes a particular pricing structure for VTS. Page 2 contains the term of the agreement and three particular express terms. One of those express terms incorporates the terms of Mr Kennedy’s email of 1 October 2019 into the agreement. In principle, these are not standard terms. I do not think, however, that these matters would prevent the third agreement from being a standard term contract within the meaning of s 27(2) if the matters in that provision otherwise suggested that it was: c.f. Australian Competition and Consumer Commission v CLA Trading Pty Ltd [2016] FCA 377 at [54] and the cases there collected; Poole v Australian Pacific Touring Pty Ltd [2017] FCA 424 at [80]. I accept Mr O’Sullivan’s submission that the sui generis nature of the first two pages is an indicator that the third agreement is not a standard form agreement but, in my view, it is minor indicator. It is in the nature of many standard form agreements that they have covering pages with terms specific to the particular customer.

Issue 1: Is the Third Agreement a Standard Form Contract?

71    Part 2-3 of the ACL is entitled ‘Unfair Contract Terms’ and regulates certain consumer and small business contracts. Section 23(1) provides relevantly that a term of small business contract is void if the contract is a standard form contract and if the term is unfair. The ACL does not define what a standard form contract is but it provides a list of mandatory matters which a court must take into account when determining whether a contract is a standard form contract. These are set out in s 27 as follows:

27     Standard form contracts

(1)     If a party to a proceeding alleges that a contract is a standard form contract, it is presumed to be a standard form contract unless another party to the proceeding proves otherwise.

(2)    In determining whether a contract is a standard form contract, a court may take into account such matters as it thinks relevant, but must take into account the following:

(a)     whether one of the parties has all or most of the bargaining power relating to the transaction;

(b)     whether the contract was prepared by one party before any discussion relating to the transaction occurred between the parties;

(c)     whether another party was, in effect required either to accept or reject the terms of the contract (other than the terms referred to in section 26(1)) in the form which they were presented;

(d)     whether another party was given an effective opportunity to negotiate the terms of the contract that were not the terms referred to in section 26(1);

(e)     whether the terms of the contract (other than the terms referred to in section 26(1)) take into account the specific characteristics of another party or the particular transaction;

(f)     any other matter prescribed by the regulations.

72     I was not taken to any regulations which have been made for the purposes of s 27(2)(f).

73    As will be seen above, s 27(1) creates a rebuttable presumption that a contract is a standard form contract once that allegation is made. At §13 of its Statement of Claim, AIBI avers that the third agreement was a standard form of contract. Section 27(1) is therefore enlivened and it is presumed unless the contrary is shown that the third agreement is a standard form contract. Is the third agreement a standard form contract? In determining whether it is or not, the Court must take into account the six matters set out in s 27(2).

74    The first of these is whether one of the parties has all or most of the bargaining power relating to the transaction. At the time the third agreement was negotiated, the parties were already bound to each other by the terms of the second agreement and AIBI’s ability to terminate the second agreement was constrained by its terms. Termination was dealt with in cll 15.1, 15.2, 15.4, 15.5 and 15.6:

15 Termination

15.1    Client expressly acknowledges that VTS has incurred up-front costs in establishing the Supported Environment and initiating the Services, which cost is amortised over the Term in order to offer the Services to the Client in return for a relatively low monthly fee. The Client agrees that VTS is entitled to reasonably recovery of these costs and compensation for lost profits in the event that Client terminates this Agreement before the expiry of the Term. The Termination Amount in clause 15.6 is agreed by the parties to be a genuine pre-estimate of these losses and costs.

15.2     This Agreement may only be terminated in accordance with Clause 15 by the Client giving 90 days’ written notice of termination to VTS accompanied by payment in cleared funds in full of the Termination Amount, and all other amounts owing by Client to VTS.

…

15.4    Client may terminate this Agreement by written notice to VTS, with effect from the date specified in such termination notice, if VTS commits any material breach of this Agreement and fails to rectify such breach within 30 days of written notice from Client to do so.

15.5    On termination:

(a)     Client must pay VTS all fees and charges for Services performed by VTS up to the date of termination in accordance with this Agreement and all amounts outstanding become immediately due and payable;

(b)    Client must immediately return to VTS all Supplied Equipment to VTS;

(c)    Except where Client validly terminates this Agreement pursuant to clause 15.4, Client must immediately pay VTS the Termination Amount;

(d)    Each party must return to the other or, at the option of the other party, destroy all Confidential Information of the other party and ensure that it does not retain any Confidential Information of the other party.

15.6     Termination Amount means an amount equal to the greater of:

(a)     75% of the Fees payable for the unexpired period of the Term; or

(b)     three (3) times the monthly Fee payable at the time of termination.

75    (For the purposes of avoiding confusion it should be noted that similar clauses appear in the third agreement which I deal with below. There are, however, material differences between the two sets of provisions in the two agreements).

76    The effect of these provisions in the second agreement was that AIBI could terminate the second agreement without cause but would have to pay the fee in cl 15.6. It could also terminate for cause under cl 15.4 without having to pay the fee. Without a material breach by VTS, however, the effect of cll 15.2 and 15.6 was that AIBI could not walk away from the contract without paying 75% of the balance of the fees due for the life of the contract or three times the amount of the monthly fee payable as at the date of early termination, whichever was greater. AIBI submitted that the second agreement contained an explicit term on the front page (set out above) which extended the contract for a further 12 months after it expired. I do not accept this submission. The 12 month extension did not occur unless the second agreement remained on foot. AIBI would have been able to avoid the 12 month extension by terminating the agreement under cl 15.2. This would have required it to give 90 days’ notice before 1 October 2022. AIBI’s submissions elided the notice of termination to be given 90 days before the date of termination with the termination itself.

77    If notice were given 90 days before the nominal expiry date, AIBI would then have been required to pay the Termination Amount required by cl 15.6. In that scenario, the date of the termination would have been 1 October 2022, being the date notice of which would have been given 90 days before. On the date of termination (as opposed to the date of the notice of termination), the amount of the monthly fee which would have been due would have been nil since the agreement would have expired.

78    Since cl 15.2 required the Termination Amount to be paid at the time that the notice of termination was given and not at the subsequent date of the termination itself, it follows that in this scenario, the amount required by cl 15.6(a) would have been 75% of the fees due over the remaining three months. By cl 15.2, this was paid to be paid on the day the notice was given, not the date the agreement terminated by reason of the notice.

79    For the remaining three months of the second agreement, at least at first blush, AIBI would nevertheless have still remained obliged to pay the monthly fee on presentation of an invoice by VTS. This might follow from cl 11.1 and 11.3:

11 Fees and Payment

11.1     The Client must pay VTS:

(a)     the Fees during the Term;

(b)     where this Agreement is terminated by Client in accordance with Clause 15.2(b), the Termination Amount;

(c)     where this Agreement is terminated by VTS in accordance with Clause 15.3, the Termination Amount.

…

11.3     VTS will invoice the Client monthly in advance for the Fees.

80    In his submissions about the third agreement, Mr Soon advanced an argument that cl 11.1 of that agreement (which is similar but not identical to this clause) was unfair. It was unfair because where the agreement was terminated at its expiry, AIBI would be required to pay both the Termination Amount on the date the notice was issued (ex hypothesi three months before the end of the agreement) and continue to pay the monthly invoices as they arrived for the last three months. I reject that argument below at [123].

81    A similar argument is available in relation to cl 11.1 and cl 15.6 of the Second Agreement. The argument is that where notice is given 90 days before the expiry of the Second Agreement, AIBI must pay the Termination Amount which will be 75% of the monthly fees due for the last three months of the agreement. Further, it must make this payment 90 days before 1 October 2022 since that is the date of the notice and the time when, by cl 15.2, the amount must be paid. But, having done so, cl 11.1 would continue to operate for the last three months and AIBI would remain obliged to pay the monthly fees due for each of the last three months on presentation of an invoice. This would be so notwithstanding that it had already paid 75% of the last three months’ invoices in the form of the Termination Amount.

82    So construed, AIBI ends up paying VTS 175% of the monthly fee for the last three months of the agreement if it seeks to terminate the second agreement by giving 90 days’ notice before that date.

83    I would not be disposed to read the contract that way. I would construe the reference to ‘Fees’ in cl 11.1(a) as a reference to fees which have not already been paid. If it is not read in that way, then cll 15.2 and 15.6 operate as a penalty by requiring AIBI to pay 75% of the monthly fees for three months in advance as the price for bringing the agreement to an end at its expiry, and then having to pay the same three months’ fees again under cl 11.1(a). Rather than read cls 15.2 and 15.6 in that way and therefore as void, the word ‘fees’ in cl 11.1(a) can easily bear the meaning ‘fees which have not already been paid’: on penalties generally, see Andrews v Australia and New Zealand Banking Group Ltd [2012] HCA 30; 247 CLR 205 and Paciocco v Australia and New Zealand Banking Group Ltd [2016] HCA 28; 258 CLR 525 (‘Paciocco’).

84    I do not accept therefore that AIBI would have faced any difficulties in bringing the second agreement to an end on 1 October 2022. It had only to issue a termination notice 90 days in advance, pay 75% of the last three months’ fees in advance, and then pay the outstanding balance of 25% for each of the last three months on presentation of each invoice.

85    Nevertheless, the ability of AIBI to extract itself from the second contract was impeded at least in the sense that if it decided to terminate before the expiry of the agreement, it could not walk away without having to pay the Termination Amount in cl 15.6. This was, no doubt, a deterrent for AIBI in ending the arrangement embodied in the second agreement. The extent of that deterrent increased the earlier in the term that AIBI sought to terminate the agreement.

86    It was in that context that AIBI sought to renegotiate the fee structure under the second agreement. As it happens, at VTS’ insistence, the amendments took the form of a new contract with the same termination date, 1 October 2022. In assessing the relative bargaining power of the parties, it is appropriate to take into account the legal position in which they found themselves. It is also relevant to consider the actual course the negotiations took.

87    As to the legal position that the parties occupied in relation to each other, AIBI was seeking to amend a pre-existing arrangement and was therefore dependent upon VTS to secure its consent to do so. That contractual reality might suggest that the bargaining power lay mostly with VTS. It could refuse to negotiate at all if it wished and maintain the second agreement. Alternatively, as the price for its consent to enter into a fresh agreement, it could make any stipulation it liked. Its practical ability to do this, if it were so minded, was circumscribed only by the distant possibility that AIBI could end the contractual relationship on 1 October 2022. From a legal perspective, that was not much of a bargaining chip.

88    However, the legal realities must be viewed in light of the practical realities as well. Although VTS could have refused to negotiate at all, this it did not do. Whilst it was not minded to amend the second agreement and insisted instead that a third agreement should be entered into if amendments were to be made, it did not demand an extended term for the third agreement. And when the agreement was finally consummated in the form of the third agreement, it had the same end date as the second agreement, 1 October 2022. More importantly, AIBI was successful in having VTS agree to what was, in fact, a superior arrangement in relation to VTS’ fees. The fact is that Ms Mao sought, and was granted, a price reduction.

89    The legal framework in which the negotiations took place is therefore apt to suggest a greater level of bargaining power on the part of VTS than in fact was actually exercised by it. Why did Mr Kennedy give Ms Mao a price reduction? I do not think that Ms Mao was an easy customer for VTS to work with. Whilst Mr Kennedy could have refused point blank to deal with Ms Mao, the correspondence between Mr Kennedy and Ms Mao suggests that Mr Kennedy, whilst frustrated by her various demands and the tone of her correspondence, nevertheless desired to keep her as a customer. I conclude therefore that VTS had the upper hand in terms of bargaining power but that it was not an overwhelming advantage.

90    The next matter is that referred to in s 27(2)(b), namely, whether the contract was prepared by one party before any discussion relating to the transaction had occurred between the parties. The third agreement was prepared by VTS. Indeed, Mr Graham prepared two versions of it. The price terms had been the subject of successful negotiations by Ms Mao as embodied in Mr Kennedy’s email of 1 October 2019. The terms and conditions were largely the same as in the first and second agreements (although there were differences: see particularly cll 11.1 and 15).

91    Ms Mao had sought to negotiate some of those in relation to the second agreement but ultimately did not press the matter. For the purposes of s 27(2)(b), therefore, the answer would appear to be that whilst the contract was prepared by VTS, it is not open to say that this took place without any prior discussion between the parties. Far from it. The pricing structure was discussed in emails passing between Mr Kennedy and Ms Mao. Nor do I think that it would be correct to consider the last minute switch of contract by Mr Graham as mandating a different outcome. The differences between the two versions as sent by Mr Graham differed only at the margins for the purposes of s 27(2)(b).

92    The third matter is that in s 27(2)(c): ‘whether another party was, in effect, required either to accept or reject the terms of the contract’. As I have explained above it was Ms Mao’s impression that she was not prevented from seeking to negotiate the non-price terms. However, I do not think that Ms Mao’s subjective understanding of the situation is relevant to the question posed by s 27(2)(c). I do not think, objectively viewed, that AIBI had to accept or reject the terms of third agreement. So to conclude would be to ignore the fact that Ms Mao had successfully negotiated a superior price structure in the email of 1 October 2019.

93    The fourth matter, in s 27(2)(d), is whether ‘another party was given an effective opportunity to negotiate the terms of the contract’. The answer to this must be that AIBI was given an effective opportunity to negotiate the terms of the third agreement. Indeed, not only was the opportunity effective, it was successful.

94    The fifth matter, in s 27(2)(e), is whether the terms of the contract take into account the specific characteristics of another party. In this case, the terms of the agreement take into account the number of servers and computers for which AIBI required support. It is also took into account Ms Mao’s request for a price reduction.

95    In addition to the mandatory matters set out in s 27(2), the Court is also empowered to take into account such matters as it thinks are relevant. There is one matter which is relevant in this sense. Although I have concluded for the purposes of s 27(2)(a) that VTS had the upper hand in terms of the bargaining power, it must be borne in mind that the power it had arose from the existence of the second agreement. AIBI does not seek to impugn the first or the second agreements and, in particular, it does not allege that either was unfair for the purposes of s 24. Consequently, the inequality of bargaining power which did exist may be seen to derive from consensual acts taken by AIBI, namely, entry into the two earlier contracts. Although this does not erase the inequality of bargaining power, it does put it in a different light. AIBI might well have been wearing the handcuffs of the second agreement when it sought to amend the arrangement, but it voluntarily put those handcuffs on. Whilst a case might readily be imagined challenging the fairness of those handcuffs, AIBI’s case did not strike out in that direction.

96    Having regard to the evidence to which I have referred and to the considerations I have taken into account above, I conclude that VTS has discharged its burden of demonstrating that the third agreement was not a standard form contract.

Issue 2: Did the Third Agreement Contain Unfair Terms?

97    Since the third agreement was not a standard form contract, it follows that AIBI’s case that certain clauses of third agreement were void because they were unfair does not arise. Section 23 only applies to a small business contract (which the third agreement was) if it was a standard form contract (which it was not). However, lest the matter be taken further, it is useful to record my findings on this aspect of the matter. The clauses challenged were cll 10.7(a), 11.2, 11.9, 11.10, 11.12, 14.2, 15.2 and 15.8. Although not challenged, cl 15.4 is also relevant. These are as follows:

10.7     Subject to clause 10.8, during the Term the Client must not, without he written consent of VTS:

(a)     enter into any agreement with any other person for or permit the provision to the Client of, the same or similar services to the Client, either in respect of the Supported Environment or in respect of any other equipment wherever such equipment is located.

…

11.2     The Fees shall continue to accrue until such time as the VTS Supplied Equipment is made available for collection pursuant to clause 10.9 at the expiry of the term.

    …

11.9     VTS may increase the Fees at any time by providing not less than 30 days’ notice to the Client. Any such increase will apply from the next due payment of the Fees after expiry of the 30-day notice period.

11.10     If the Client fails to pay any amount payable under this Agreement within 15 days of such amount becoming due (other than non-payment of a Disputed Amount in accordance with clause 11.13), VTS may, at its discretion, suspend the provision of the Services until such time as the Client pays all unpaid Fees, including those payable in respect of the period of suspension. For the avoidance of doubt, the Fees for the Services continue to accrue during any period of suspension.

    …

11.12     If Client fails to pay any amount payable by Client pursuant to a Tax Invoice issued by VTS for additional services or equipment provided not contemplated by this Agreement within 14 days of such amount becoming due (other than non-payment of a Disputed Amount in accordance with clause 11.13), VTS may, at its discretion, suspend the provision of the Services until such time as the Client pays all unpaid amounts, including those payable in respect of the period of suspension. For the avoidance of doubt, the Fees for the Services continue to accrue during any period of suspension.

    …

14.2     At the Expiry of the then current Term, the Term shall continue on the same terms and conditions as this Agreement for a further period of 3 months.

    …

15.2     This Agreement may only be terminated in accordance with this Clause 15 by the Client giving 90 days’ written notice of termination to VTS accompanied by payment in cleared funds in full of the Termination Amount, and all other amounts owing by Client to VTS.

    …

15.4     In order to prevent continuation of this agreement in accordance with clause 14.2, the Client must provide to VTS notice of termination of this Agreement no less than 90 days before the Expiry of the then current Term.

    …

15.8     Termination Amount means an amount equal to the greater of:

(a)    the total of all outstanding Fees payable for the duration of the Term; or

(b)     three (3) times the monthly Fee payable at the time of termination.

98    Section 24 provides:

24     Meaning of unfair

(1)    A term of a consumer contract or small business contract is unfair if:

(a)     it would cause a significant imbalance in the parties’ rights and obligations arising under the contract; and

(b)     it is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and

(c)     it would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.

(2)     In determining whether a term of a contract is unfair under subsection (1), a court may take into account such matters as it thinks relevant, but must take into account the following:

(a)     the extent to which the term is transparent;

(b)     the contract as a whole.

(3)     A term is transparent if the term is:

(a)     expressed in reasonably plain language; and

(b)     legible; and

(c)     presented clearly; and

(d)     readily available to any party affected by the term.

(4)     For the purposes of subsection 1(b), a term of a contract is presumed not to be reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term, unless that party proves otherwise.

99    For a term to be found unfair it must satisfy each of the requirements of ss 24(1)(a) to (c). The onus is on AIBI to prove the matters in ss 24(1)(a) and 24(1)(c) and it is for VTS to prove the matter in s 24(1)(b). By s 24(2), the Court is take into account such matters as it thinks are relevant but must take into account the transparency of the impugned terms and the contract as a whole. On the question of what a significant imbalance is for the purposes of s 24(1)(a), Gilmour J said this when discussing s 12BG of the Australian Securities and Investments Commission Act 2001 (Cth) (which is identical to s 24 of the ACL) in Australian Competition and Consumer Commission v CLA Trading Pty Ltd [2016] FCA 377 at [54]:

54.     There are some differences between these regimes. Nonetheless, some of the principles found in those cases are of assistance in the interpretation and application of Pt 2, Div 2, Subdiv BA of the ASIC Act:

(a)     the underlying policy of unfair contract terms legislation respects true freedom of contract and seeks to prevent the abuse of standard form consumer contracts which, by definition, will not have been individually negotiated: Jetstar Airways Pty Ltd v Free [2008] VSC 539 at [112];

(b)     the requirement of a “significant imbalance” directs attention to the substantive unfairness of the contract: Director-General of Fair Trading v First National Bank plc [2002] 1 AC 481 at [37];

(c)     it is useful to assess the impact of an impugned term on the parties’ rights and obligations by comparing the effect of the contract with the term and the effect it would have without it: Director-General of Fair Trading v First National Bank plc at [54];

(d)     the “significant imbalance” requirement is met if a term is so weighted in favour of the supplier as to tilt the parties’ rights and obligations under the contract significantly in its favour — this may be by the granting to the supplier of a beneficial option or discretion or power, or by the imposing on the consumer of a disadvantageous burden or risk or duty: Director-General of Fair Trading v First National Bank at 494 [17] per Lord Bingham, applied in ACCC v ACN 117 372 915 Pty Ltd (in liq) (formerly Advanced Medical Institute Pty Ltd) [2015] FCA 368 at [950];

(e)     significant in this context means “significant in magnitude”, or “sufficiently large to be important”, “being a meaning not too distant from substantial”: Jetstar Airways Pty Ltd v Free at [104]–[105] per Cavanough J: Cf Director of Consumer Affairs Victoria v AAPT Ltd [2006] VCAT 1493 at [32]–[33];

(f)     the legislation proceeds on the assumption that some terms in consumer contracts, especially in standard form consumer contracts, may be inherently unfair, regardless of how comprehensively they might be drawn to the consumer’s attention: Jetstar Airways Pty Ltd v Free at [115]; and

(g)     in considering “the contract as a whole”, not each and every term of the contract is equally relevant, or necessarily relevant at all. The main requirement is to consider terms that might reasonably be seen as tending to counterbalance the term in question: Jetstar Airways Pty Ltd v Free at [128].

AIBI’s Claims

100    AIBI’s attack on these provisions of the third agreement may be grouped into three classes. These are: first, provisions said to operate unfairly in relation to unpaid but disputed amounts; secondly, unilateral fee increases; and thirdly, termination payments.

Class 1: Unpaid but Disputed Amounts

101    The first attack made by AIBI was on the combined effect of cll 10.7(a), 11.2, 11.10 and 11.12. AIBI submitted that the effect of these clauses was that VTS was entitled to cease providing its services if AIBI failed to pay any invoice, even if the amount of the invoice was subject to a bona fide dispute. Further, in that circumstance, cl 10.7(a) would prevent AIBI from engaging any other IT service provider whilst such a shutdown was in progress. Finally, where the agreement came to an end, by cl 11.2 AIBI would remain liable to pay the fees until VTS’ equipment was made available for collection by AIBI.

Clause 11.10

102    The lynchpin of the submission was cl 11.10. Clause 11.10 would appear to permit VTS to stop providing its services where, loosely speaking for now, fees remain unpaid. In principle, there is nothing unfair about such an arrangement. However, AIBI submitted that cl 11.10 permitted VTS to withhold services where a disputed amount went unpaid.

103    Tending against that submission is the carve-out in cl 11.10 which means that VTS cannot withhold its services for ‘the non-payment of a Disputed Amount determined in accordance with cl 11.13’. The third agreement does not define the expression ‘Disputed Amount’ and for its part cl 11.13 does not provide any machinery by which such an amount might be determined. What cl 11.13 actually provides is this:

11.13     If Client fails to pay any amount payable pursuant to a Tax Invoice issued by VTS for additional services or equipment provided not contemplated by this Agreement within 30 days of such amount becoming due (other than non-payment of a Disputed Amount in accordance with clause 11.13), VTS may, at its discretion, terminate this Agreement by notice in writing to the Client. VTS may terminate the Agreement under this clause irrespective of whether the Services are currently suspended pursuant to clause 11.12.

104    It will be seen that cl 11.13 perpetuates the same myth that it provides for the determination of a ‘Disputed Amount’. This suggests the presence of a drafting error. Since ‘Disputed Amount’ is not defined in the third agreement and cl 11.13 does not touch on the topic of disputed amounts, prima facie the expression ‘(other than the non-payment of a Disputed Amount determined in accordance with cl 11.13)’ makes no sense. This infelicity led Mr Soon to submit that those words were void for lack of contractual certainty.

105    The advantage of this submission from the perspective of AIBI is that if those words were struck through with a blue pencil this would leave VTS with an unfettered contractual entitlement to withhold its services for non-payment even where the payment was disputed. Mr Soon built on this submission to suggest that it was this quality which made cl 10.7(a) unfair. It might not generally be unfair to require AIBI only to use the services of VTS, but if VTS could stop providing its services for non-payment of disputed fees this was quite a different proposition.

106    VTS submitted that the Court should interpret the expression ‘the non-payment of a Disputed Amount determined in accordance with cl 11.13’ in a sensible commercial way and should strive, if possible, to avoid the conclusion that the phrase was void for uncertainty. I accept this submission. As Barwick CJ observed in Upper Hunter County District Council v Australian Chilling & Freezing Co Ltd (1968) 118 CLR 429 at [9]:

So long as the language employed by the parties, to use Lord Wright's words in Scammell (G.) & Nephew Ltd. v. Ouston (1941) AC 251 is not "so obscure and so incapable of any definite or precise meaning that the Court is unable to attribute to the parties any particular contractual intention", the contract cannot be held to be void or uncertain or meaningless. In the search for that intention, no narrow or pedantic approach is warranted, particularly in the case of commercial arrangements. Thus will uncertainty of meaning, as distinct from absence of meaning or of intention, be resolved.

107    Mr O’Sullivan submitted that cl 11.10 should be read as referring to the dispute resolution mechanism in cl 18. Clause 18 provides:

18     Dispute Resolution

18.1     This clause 18 applies to each dispute which arises between the parties in connection with this Agreement or this clause 18 (a “Dispute”).

18.2    Subject to clause 18.9, a party must not commence or maintain any action or proceeding in any court, tribunal or otherwise regarding a Dispute without first giving a Dispute Notice and complying with the provisions of this clause 18.

18.3     If a party considers that a Dispute has arisen, it may notify the other party in writing, setting out in reasonable detail the facts of the matter in dispute.

18.4     The parties must promptly hold good faith discussions after issue of a Dispute Notice to attempt to resolve the Dispute and must (without prejudice to the privilege against the production of any such information to a court) furnish to the other party all information with respect to the Dispute which is appropriate in connection with its resolution.

18.5     If the Dispute has not been resolved within 28 days after the giving of a Dispute Notice, either party may by notice to the other party refer the Dispute to mediation administered by the Australian Commercial Disputes Centre.

18.6     The mediation must be conducted in accordance with ACDC Mediation Guidelines.

18.7     The costs of mediation must be shared equally between the parties.

18.8     If the Dispute has not been resolved within 14 days after commencement of mediation, either party may pursue its rights and remedies under this agreement as it sees fit.

18.9     Notwithstanding anything in this clause 18, a party at any time may commence court proceedings in relation to any dispute or claim arising under or in connection with this agreement where that party seeks urgent interlocutory relief.

18.10     This clause 18 shall not apply if this Agreement has been terminated.

108    On this view, a Disputed Amount in cl 11.10 would be an amount which was the subject of a Dispute Notice under cl 18.3. I accept this submission. Consequently, I do not accept that cl 11.10 permits VTS to withhold its services in relation to an amount in respect of which a dispute notice has been served under cl 18.3. For the purposes of s 24(1)(a), the provision does not cause a significant imbalance in the parties’ rights and obligations arising under the contract. It does protect the legitimate interests of VTS in that it gives it a practical way to ensure that its invoices are paid: s 24(1)(b). I do not think for the purposes of s 24(1)(c) that it causes detriment to AIBI. Where an invoice is disputed, AIBI may protect itself by invoking the dispute resolution mechanism in cl 18. Thus, in the context of the agreement as a whole, I do not think that this is unfair. Whilst I do not think that cl 11.10 is ‘transparent’ within the meaning of s 24(3), this does not cause me to alter my assessment of its unfairness.

109    Once that is accepted, I am also unable to perceive any unfairness in the operation of cl 10.7(a) in the context of the agreement as a whole. It is relevantly transparent for the purposes of s 24(2)(a). The only effect of the clause is that the arrangement is exclusive. Because VTS may not withdraw its services whilst disputed fees remain unpaid, so long as the dispute resolution mechanism in cl 18 is enlivened, I do not see any imbalance in the parties’ rights and obligations. VTS must provide its services to AIBI and AIBI must not use any other service provider: s 24(1)(a). I do not perceive anything unfair in the arrangement merely because AIBI has promised not to use the services of anyone else during the currency of the third agreement. As Ms Lindsay noted, there would be security issues in having two different sets of IT support providers operating on the same network. Indeed, it is difficult (although perhaps not impossible) to imagine what an office environment would be like where the IT services were coming from two different organisations. VTS has therefore demonstrated a legitimate interest for the purposes of s 24(1)(b). I detect no detriment to AIBI in cl 10.7(a) unless it fails to pay an invoice in which case it exposes itself to the potential of a shutdown and an inability to engage a third party. However, it is able to avoid this outcome merely by disputing the amount of an invoice under cl 18. Any shutdown which occurred (and any concomitant inability to engage a third party) would, in that circumstance, be the result of AIBI’s failure to utilise cl 18. Clause 10.7(a) is not unfair for the purposes of s 24(2).

110    Nor am I able to perceive any unfairness in cl 11.2. Clause 11.2 bound AIBI to continue to pay the monthly fee until VTS’ equipment was made available for collection at the expiry of the agreement. Once the agreement had expired, AIBI had no entitlement to the equipment which belonged to VTS. The clause did not require AIBI to deliver the equipment to VTS but only to make it available for collection. Given that the expiry of the agreement was a fact known to AIBI years in advance, I struggle to see what is unfair in requiring it to continue to pay VTS for its services until the equipment was made available for collection. Mr Soon submitted that AIBI might not be able to locate the equipment straightaway. That may well be so but that would be AIBI’s problem. There is nothing unfair about cl 11.2. In reaching that conclusion I have assessed the alleged unfairness of cl 11.2 in the context of the whole agreement and taken into account my conclusion that it is transparent for the purposes of s 24(2)(a). For the purposes of s 24(1), the provision does not create an imbalance on the parties’ rights and obligations, is reasonably necessary in order to protect VTS’ legitimate interest in getting its equipment back, and does not cause detriment to AIBI so long as it makes the equipment available for collection at the expiry of the agreement.

111    Mr Soon also attacked cl 11.12. This provision permits VTS to suspend the provision of its services whilst an amount not arising under the third agreement remains unpaid. It has the same carve-out for disputed amounts as cl 11.10 which should be interpreted in the same way. I do not think that cl 11.12 is transparent for the purposes of s 24(2)(a). For the purposes of s 24(1)(a), it does create a potential for a significant imbalance in the parties rights and obligations. In effect, it permits VTS to suspend its services under the third agreement as a bargaining chip over AIBI in respect of a dispute arising under a different contract. I am unable to assess whether it is reasonably necessary to protect VTS’ legitimate interests without having some idea of what the other contracts are or what their relationship with the third agreement might be. Thus I do not accept that VTS has discharged its burden under s 24(2)(b). I am satisfied that it would cause detriment to AIBI in that its business would be exposed to the risk of having its IT services shut down. Viewed in the context of the third agreement as a whole, I am satisfied that cl 11.12 is unfair.

112    Although Mr O’Sullivan submitted that there was nothing to suggest that there had ever been any dispute between the parties which touched upon cl 11.12, and hence that relief should be declined, if the question had arisen, I would have declared cl 11.12 void.

113    I conclude that cll 10.7(a), 11.2 and 11.10 are not unfair but that cl 11.12 is.

Class 2: Unilateral Fees Increases

114    Clause 11.9 permits VTS unilaterally to increase its fees on 30 days’ notice. It is possible that such a provision may have problems as a matter of contract law, but it is not necessary to linger on that issue. Whether it is valid or not at common law, it is plainly unfair within the meaning of s 23(1)(a). For one party to reserve to itself the unfettered right to change the price for its services does not seem to serve any legitimate commercial interest. If it were drawn more modestly and provided for increases of a particular character or upon the happening of certain events there might not be a problem. For example, if the clause only permitted increases where some fixed cost borne by VTS was itself increased this would not be unfair. Nor would it be unfair to permit VTS to increase its fees in line with inflation. As I understood it, the way in which cl 11.9 had been utilised in practice was only to effect increases in line with the CPI. That, however, does not affect the meaning of the clause.

115    For completeness, the term is transparent for the purposes of s 24(2)(a). It causes a significant imbalance in the parties’ rights and obligations, is not reasonably necessary to protect the legitimate interests of VTS, and it would cause detriment to AIBI if it were to be relied upon by VTS.

116    At trial, VTS tendered an open undertaking to AIBI not to rely upon cl 11.9 other than for CPI increases or increases in fixed costs (Exhibit 2). In circumstances where I have concluded that s 23 does not apply because the third agreement is not a standard form agreement, it is not necessary to enter upon whether AIBI would have been entitled to relief. Had that been necessary, it would have been appropriate to take account of the fact that VTS was willing to promise not to use the clause in an unfair way. Without expressing a concluded view, it is likely that an appropriate remedy would have been to vary clause 11.9 so that it permitted price increases only in line with the CPI or where there was an increase in some fixed cost input. The Court has the power to order such a variation to a contract under s 243(b)(i) of the ACL.

Class 3: Termination Payments

117    There were two limbs to this argument. The first concerned cl 14.2. It was said that the effect of cl 14.2 was that it continued the agreement for another three months after it expired. This sounds unexceptional. However, AIBI’s point was that it was unable to prevent this happening and hence the agreement would continue in perpetuity. I reject this submission. The agreement can be terminated on 90 days’ notice under cl 15.4.

118    AIBI’s answer to this was that if notice were given under cl 15.4 then it would be required to pay the amounts in cl 15.8. I accept this argument but there is nothing unfair about it. Where a notice is given 90 days before the expiry of the agreement, the amount in cl 15.8(a) is the fees due for the final three months of the agreement. The amount in cl 15.8(b) is three times the amount due at the time of termination. The time of termination (as opposed to the time of the notice of termination) is nil since at the expiry of the agreement no further fees will be due. Consequently, where a notice of termination is given 90 days before the expiry of the agreement, AIBI is required to pay the remaining three months of fees in advance.

119    There does not appear to be much which is unfair about that state of affairs. To overcome that problem, AIBI then submitted that having paid these fees in advance it would still remain liable to pay the monthly invoices. On this view, AIBI would have to pay these amounts twice.

120    The relevant clause is cl 11.1 which provides:

11.1     The Client must pay VTS:

(a)    the Fees including the Monthly Service Fee for the duration of the Term or until all Fees are paid, whichever occurs last;

(b)     where this Agreement is terminated by Client in accordance with Clause 15.2, the Termination Amount; and

(c)     where this Agreement is terminated by VTS in accordance with Clause 15.4, the Termination Amount.

121    This contains a drafting error. Contrary to cl 11.1(c), cl 15.4 does not give VTS an entitlement to terminate the agreement. Both cl 15.2 and 15.4 deal with the entitlement of AIBI to terminate the agreement. Clause 15.2 deals with termination at any time. Clause 15.4 deals with termination 90 days before the expiry of the agreement. On its face, the effect of cl 15.1(a) is to require the monthly fees to be paid. Clause 11.3 provides for invoices in these terms:

11.3     VTS will invoice the Client monthly in advance for the Fees and the Monthly Service Fee and provide to the Client a monthly statement of all outstanding Fees incurred under this Agreement. VTS may issue to the Client any invoices or statements through the Portal.

122    Mr Soon submitted that cl 15.1(b) and (c) also require the termination amount to be paid. On this view, where 90 days’ notice is given under cl 15.4 of termination at expiry, the combined effect of cl 11.1(a) and (c) is to require AIBI to pay three months of fees in advance (‘all outstanding Fees payable for the duration of the term’) and then to pay the monthly fees on invoicing (under cl 11.3).

123    I do not accept this submission. The obligation under cl 11.1(a) is to pay ‘the Fees including the Monthly Service Fee for the duration of the Term or until all Fees are paid, whichever occurs last’. The intended effect of this would appear to be that the monthly service fee continues to be payable where any fees remain unpaid. Where, however, all of the outstanding fees have been paid under cl 15.8(a), the effect of the words ‘whichever occurs last’ means that the monthly service fee will continue to be payable until the expiry of the agreement. Read that way, it is clear that cl 15.8 would operate to impose a penalty on AIBI simply for seeking to bring the agreement to an end at its expiry. VTS could have no legitimate interest in deterring AIBI from bringing the contract to end on its expiry date: c.f. Paciocco at [270] per Keane J. Rather than conclude that cl 15.8 is invalid as a penalty, it would be preferable to read the fees referred to in cl 11.1(a) as being a reference to fees which have not yet been paid. So read, the payment of three months’ fees in advance means that no further fees will be due under cl 11.1(a) for those three months.

124    Construed in that fashion, there is nothing unfair about cll 14.2, 15.2 or 15.8. For completeness, the provisions are not transparent for the purposes of s 24(2)(a). They do not cause a significant imbalance in parties’ rights and obligations, they are necessary to protect the legitimate interests of VTS, and they would not cause detriment to AIBI if relied upon by VTS. Viewed in the context of the whole agreement (as required by s 24(2)(b)), the provisions are not unfair.

Conclusion on Claims under s 24

125    AIBI’s claim under s 24(1) fails. The third agreement was not a standard form contract. Had it been a standard form contract, two of its terms were unfair, cll 11.9 and 11.12.

Issue 3: The Breach of Contract Case

126    The third agreement had been signed on 20 February 2020 but was retroactive to 1 October 2019. On 11 March 2020, the World Health Organization declared COVID-19 to be a pandemic. On 19 March 2020, Australia closed its borders to non-citizens and non-residents. The lockdown in Sydney commenced on 23 March 2020. These developments had an impact upon the business of AIBI which was heavily dependent on the enrolment of overseas students. The impact on its bottom line forms part of the backdrop to the events which then followed.

127    Soon after the third agreement was signed, it became clear that the parties were not on the same page on the question of the Chromebooks. In May 2020, Ms Mao says that she told Mr Kennedy that VTS was not entitled to charge for Chromebooks. She says that Mr Kennedy accepted the correctness of her position. I accept Ms Mao’s account of this conversation which is corroborated by Mr Kennedy’s email of 1 October 2019. That email set out the pricing structure for the third agreement (and eventually became part of it). It makes no mention of any separate charge for Chromebooks which corroborates Ms Mao’s version of events. In any event, it is now accepted by VTS that AIBI was not to be charged for the Chromebooks.

128    From February 2020, AIBI ceased paying that portion of each monthly invoice which related to the Chromebooks. It was not until 28 May 2020 that VTS confirmed in writing that there would be no charge for the Chromebooks.

129    That might have been thought to have resolved the issue between the parties except for four further developments. The first concerned an unsuccessful attempt by the parties to agree a reduction in VTS’ fees due the COVID-19 pandemic. Various possibilities were discussed including one which involved VTS deferring payment of its invoices by 30% but making provision for the repayment of the deferred amounts over the following 12 months. These negotiations did not result in any deal between the parties. Nevertheless, AIBI unilaterally reduced its payment of an invoice dated 1 April 2020 in the amount of $20,971.25 by 30% (as well as excluding the Chromebook element). AIBI was not entitled to do this and it meant that it was in arrears on that invoice.

130    The second development concerned AIBI’s contention that it was entitled to a credit for the Chromebook payments that it had been making prior to the execution of the third agreement. That agreement was of course retroactive. I accept the logic of AIBI’s position. Once VTS accepted that the third agreement did not permit it to charge for the Chromebooks, this conclusion necessarily applied retroactively to 1 October 2019.

131    The third concerned a miscellaneous payment made by AIBI on 22 June 2020 of $1,087.64.

132    The fourth development was that during this period, VTS demanded that Ms Mao herself should execute a guarantee of AIBI’s indebtedness to VTS. It had no contractual entitlement to do this. In any event, Ms Mao refused to provide the requested guarantee.

133    The net effect of the first three of these matters is that, from a purely arithmetical perspective, AIBI was not in arrears. When the amounts relating to the Chromebooks are removed from all of the invoices and combined with the miscellaneous credit they exceed the 30% wrongfully deducted by AIBI from the invoice of 1 April 2020.

134    If it was legally open to AIBI to proceed as it did in relation to these amounts, then it would follow that it was not in breach of its obligation to pay the invoices. If it were not in breach of its obligation to pay the invoices then it would also follow that VTS had no power to cease providing its services under cl 11.10 (above).

135    On 20 July 2020, VTS ceased processing ‘tickets’, that is to say, dealing with requests for assistance. The shutdown lasted for 36 days and came to an end on 25 August 2020. Neither party made any detailed submissions about the effects of the shutdown, either in their closing addresses or in their written submissions.

136    The questions which arise are: first, did AIBI have entitlement to set off the amounts due by VTS to it against the amounts due by it to VTS; secondly, assuming that it did and that the 36 days shutdown was not authorised by cl 11.10, was this a breach of an intermediate term of the third agreement; thirdly, if it was, has AIBI lost any entitlement to rely upon VTS’ breach of contract because the breach has since been remedied; fourthly, in circumstances where AIBI has not actually purported to terminate the third agreement because of the breach, should the Court withhold any relief?

Set-Off

137    As to the question of set-off, there are two variants of this argument. The first is that the express terms of cl 11.10 entitled AIBI not to pay the disputed amounts if the dispute resolution mechanism in cl 18 had been activated. Since it was not activated, it followed that the face value of each invoice was payable in full. The second variant of the argument involves the proposition that debts due to AIBI by VTS could be set off against debts owed by VTS to AIBI.

138    As to the first argument, there is no doubt that the dispute resolution mechanism had not been activated and hence that cl 11.10 did not relieve AIBI of its obligation to pay. AIBI did not allege a case that VTS was estopped from relying upon cl 11.10 in relation to the Chromebook charges, although such a case may be readily enough be imagined. Had it been put, questions of detrimental reliance would have become relevant. None of AIBI’s witnesses were cross-examined about what AIBI would have done if VTS had not represented to it in May 2020 that the Chromebook charges were not due. Possibilities include that Ms Mao would have enlivened the dispute resolution mechanism in cl 18, that she would have commenced proceedings, or that she would have done nothing. Other possibilities may exist too. Given that uncertainty, it is simply not possible to fashion an estoppel case this late in the piece. In any event, Mr Soon did not seek to do so.

139    As to the second limb of the argument, the outcome is foreclosed by the answer to the first limb. Regardless of what the position at common law might be, the parties had agreed on cl 11.10.

140    It follows that the first question should be answered adversely to AIBI. VTS did not act in breach of the third agreement by withholding its helpdesk services during the lockdown.

141    The remaining three issues do not arise but I should record some brief observations on them.

Intermediate term

142    I accept that the obligation that VTS had to provide its services was an intermediate term. Depending on how serious the withdrawal of services was, it might justify AIBI in terminating the third agreement. Had the shutdown not been authorised by the terms of the third agreement, I would have accepted that the 36 day shutdown of helpdesk services was sufficient to justify AIBI in terminating the third agreement: Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007] HCA 61; 233 CLR 115.

Loss of Entitlement to Terminate due to the Fact that the Breach was Remedied

143    On this hypothesis, the breach by VTS has long been remedied since the helpdesk services were restored on 25 August 2020. Had the question arisen, I would have concluded that since the breach has been long cured, no continuing right to terminate remains extant. Even if it were extant, I would have concluded that by failing, even now, to terminate the third agreement, AIBI has waived the breach.

Relief

144    As to the fourth matter, there are some potentially difficult questions as to whether the Court should grant a declaration that a party is entitled to terminate a contract for breach of an intermediate term in circumstances where the party has not attempted before judgment to terminate the agreement. I would prefer to express no view on this issue.

Alternate Basis: Repudiation

145    Mr Soon also put the case on the basis that the shutdown constituted a repudiation of the third agreement. For the reasons I have given, VTS was entitled to act as it did in accordance with the terms of the third agreement. The question of repudiation therefore does not arise. If it had arisen, I would not have accepted that VTS’ conduct constituted the manifestation of an intention not to be bound by the terms of the agreement. It was merely seeking to get its invoices paid which it (correctly) believed itself entitled to do: DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423.

Outstanding Objections to Evidence

146    The parties’ objections to evidence were determined at trial. I directed the parties to record the outcome of each objection and to provide my Chambers with an updated table of objections and marked up copies of the evidence which reflected those outcomes. The parties are unable to agree on three of these outcomes: §18 of the affidavit of Hang Lau (9 June 2021), §25 of the affidavit of Laura Mao (9 June 2021), and §30 of the second affidavit of Laura Mao (27 September 2021).

147    The outcomes on the objections made to those paragraphs of the evidence were as follows:

    Mr O’Sullivan withdrew his objection to §18 of Mr Lau’s first affidavit: T81.12-14;

    Neither of Mr O’Sullivan’s objections to the fifth sentence of §25 of Ms Mao’s affidavit were pressed: T9.15-18; and

    The second and third sentences of §30 of the second affidavit of Laura Mao were not read: T15.45-T16.5.

Result

148    AIBI’s application should be dismissed. The parties indicated that they wished to be heard on the question of costs. The parties are to file any affidavits relating to the question of costs within 7 days of these reasons. They are to file any submissions on the question of costs within a further 7 days. The issue of costs will then be resolved on the papers.

Associate:

Dated:    16 June 2022