BSO Network Inc v EMClarity Pty Ltd
[2021] QSC 73
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- BSO Network Inc v EMClarity Pty Ltd[2021] QSC 73
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BSO Network Inc v EMClarity Pty Ltd[2021] QSC 73
BSO Network Inc v EMClarity Pty Ltd[2021] QSC 73
SUPREME COURT OF QUEENSLAND
CITATION: | BSO Network Inc & Anor v EMClarity Pty Ltd (No 2) [2021] QSC 73 |
PARTIES: | BSO NETWORK INC (first plaintiff) & APSARA NETWORKS INC (second plaintiff) v EMCLARITY PTY LTD ACN 88 139 128 180 (defendant) |
FILE NO: | BS12112 of 2019 |
DIVISION: | Trial Division |
PROCEEDING: | Originating Application, continued as if commenced by way of Claim |
ORIGINATING COURT: | Supreme Court at Brisbane |
DELIVERED ON: | 9 April 2021 (restricted to the parties) 28 July 2021 (redacted version for publication) |
DELIVERED AT: | Brisbane |
HEARING DATES: | 20 – 23 July 2020, 19 August 2020; 21 and 22 October 2020 (further written submissions) |
JUDGE: | Ryan J |
ORDERS: | The parties having agreed upon a less redacted version for publication of my Reasons delivered on 9 April 2021, I now publish those less redacted Reasons. |
CATCHWORDS: | CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – PARTICULAR PARTIES – PRINCIPAL AND AGENT – CREATION OF RELATIONSHIP OF AGENCY – FORMATION AND PROOF OF AGENCY – where alleged principal wholly owned subsidiary of alleged agent – where alleged principal undisclosed to other contracting party – whether holding company negotiating “on behalf of” subsidiary created agency relationship CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – IMPLIED TERMS – whether contract an unconditional contract for supply of goods or a development contract, with supply to follow only if development successful – where, if an unconditional contract for supply, the contract was silent as to when the goods were to be delivered – whether a term requiring delivery within a reasonable time ought to be implied – determination of period of reasonable time – whether there had been failure to supply the goods within a reasonable time CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – DISCHARGE, BREACH AND DEFENCES TO ACTION FOR BREACH – REPUDIATION AND NON-PERFORMANCE – REPUDIATION – DELAY AND PROVISIONS AS TO TIME – where defendant agreed to supply goods to second plaintiff – where defendant then unilaterally implemented a “Quality Review” of all its products and a pause on shipping until the review was complete – where defendant informed plaintiffs about Quality Review and pause on shipments but would provide no information to plaintiffs about when the review might be completed – where defendant cancelled orders for components for second plaintiff’s product –– whether conduct of defendant repudiatory CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – DISCHARGE, BREACH AND DEFENCES TO ACTION FOR BREACH – where contract between first plaintiff and defendant contained obligation of confidence – where plaintiffs’ competitor acquired defendant – where, prior to acquisition, during due dilignce, defendant provided redacted versions of plaintiffs’ confidential information to plaintiffs’ competitor – where, after acquisition, defendant provided un-redacted copies of plaintiffs’ confidential information to plaintiff’s competitor – whether confidential information provided in breach of contractual obligation of confidence – whether contractual exceptions to obligation of confidence applied EQUITY – GENERAL PRINCIPLES – equitable obligation of confidence – whether equitable obligation of confidence co-exists with contractual obligation of confidence – whether, if co-existing, equitable obligation broader in scope than contractual obligation EQUITY – GENERAL PRINCIPLES – equitable obligation of confidence – where competitor of plaintiffs acquired defendant – where, during due dilignce, prior to acquisition, defendant provided redacted versions of the plaintiffs’ confidential information to the plaintiffs’ competitor – where, after acquisition, defendant provided un-redacted copies of the plaintiff’s confidential information to the plaintiff’s competitor – whether confidential information provided in breach of equitable obligation of confidence CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – DISCHARGE, BREACH AND DEFENCES TO ACTION FOR BREACH – contractual obligation of confidence – contractual exclusivity terms – whether defendant likely to breach contractual obligation of confidence or exclusivity terms of the contract EQUITY – GENERAL PRINCIPLES – equitable obligation of confidence – whether defendant likely to breach equitable obligation of confidence Apotex Pty Ltd v Les Laboratoires Servier (No 2) [2012] FCA 748 Astea (UK) v Time Group [2003] EWHC 725 Bell Group Ltd (in liq) v Westpac Banking Corp (No 9) (2008) 39 WAR 1 BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 Branwhite v Worcester Works Finance Ltd [1969] 1 AC 552 Bridlington Relay Ltd v Yorkshire Electricity Board [1965] Ch 436 Byrne v Australian Airlines Ltd (1995) 185 CLR 410 Coco v AN Clarke (Engineers) Ltd [1969] RPC 41 Coghlan v Pyoanee Pty Ltd [2003] QCA 146 [2003] 2 Qd R 636 Colonial Mutual Life Assurance Society Ltd v Producers and Citizens Cooperative Assurance Co of Australia Ltd (1931) 46 CLR 41 Commissioner of Taxation v Sara Lee Household & Body Care (Australia) Pty Ltd (2000) 201 CLR 520 Commonwealth Bank of Australia v Barker (2014) 253 CLR 169 Corporate Farming Pty Ltd v Eden Bay Pty Ltd (Unreported, Supreme Court of Western Australia, Murray J 28 January 1992). Curwen & Ors v Vanbeck Pty Ltd [2009] VSCA 284 Dan v Barclays (1983) 46 ALR 437 Del Casale v Artedomus (Aust) Pty Ltd [2007] NSWCA 172 Faccenda Chicken Ltd v Fowler [1985] 1 All ER 724 Freeman & Lockyer (a firm) v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 Gold Coast Oil Co Pty Ltd v Lee Properties Pty Ltd [1984] QSCFC 85 [1985] 1 Qd R 416 Gold & Copper Resources Pty Ltd v Newcrest Operations Ltd [2013] NSWSC 281 Global Advanced Metals Pty Ltd v Metallurg Inc [2017] WASCA 188 GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd [(1986) 40 NSWLR 631 Hart v MacDonald (1910) 10 CLR 417 Hick v Raymond & Reid [1893] AC 22 Kazakstan Wool Processors (Europe) Ltd v Nederlandsche Credietverzekering Maatschappij NV [2000] CLC 822 King Tide Company Pty Ltd v Arawak Holdings Pty Ltd [2017] QCA 251 Koompahtoo Local Aboriginal Council v Sanpine Pty Ltd (2007) 233 CLR 115 Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623 Links Golf Tasmania Pty Ltd v Sattler (2012) 213 FCR 1 Maynard v Goode (1926) 37 CLR 529 Moorgate Tobacco Co Ltd v Philip Morris Ltd (No 2) (1984) 156 CLR 414 Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104 Neeta (Epping) Pty Ltd v Phillips (1974) 131 CLR 286 Optus Networks Pty Ltd v Telstra Corporation Ltd (2010) 265 ALR 281 Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537 Questband P/L v Macquarie Bank Limited [2009] QCA 266 Rossiter v Miller (1878) 3 App Cas 1124 Sequel Drill & Blast P/L v Whitsunday Crushers P/L [2009] QCA 218 Saltmann Engineering Co Ltd v Campbell Engineering Co Ltd [1963] 3 All ER 413 Shawton Engineering v DGP International [2006] BLR 1 Streeter v Western Areas Exploration Pty Ltd (No 2) 92011) 278 ALR 291 Streetscape Projects (Aust) Pty Ltd v City of Sydney (2013) 85 NSWLR 196 Tate v Freecorns Pty Ltd [1972] WAR 204 Telina Developments Pty Ltd v Stay Enterprises Pty Ltd [1984] QSCFC 43 [1984] 2 Qd R 585 Weemah Park Pty Ltd v Glenlaton Investments Pty Ltd [2011] QCA 150 [2011] 2 Qd R 582 |
COUNSEL: | D O'Brien QC with F Lubett and L Wick for the plaintiffs G Beacham QC with G Coveney for the defendant |
SOLICITORS: | Johnson Winter & Slattery for the plaintiffs Ashurst Australia for the defendant |
- [1]On 9 April 2021 I delivered my Reasons in this matter. Because of the commercial sensitivity of the subject matter, publication at large of my Reasons was limited to a heavily redacted version of them.
- [2]Since that time the parties have agreed that a less redacted version of my Reasons may be published at large. They are attached and marked “Annexure A”.
ANNEXURE A
SUPREME COURT OF QUEENSLAND
CITATION: | BSO Network Inc & Anor v EMClarity Pty Ltd (No 2) [2021] QSC 73 |
PARTIES: | BSO NETWORK INC (first plaintiff) & APSARA NETWORKS INC (second plaintiff) v EMCLARITY PTY LTD ACN 88 139 128 180 (defendant) |
FILE NO: | BS12112 of 2019 |
DIVISION: | Trial Division |
PROCEEDING: | Originating Application, continued as if commenced by way of Claim |
ORIGINATING COURT: | Supreme Court at Brisbane |
DELIVERED ON: | 9 April 2021 |
DELIVERED AT: | Brisbane |
HEARING DATES: | 20 – 23 July 2020, 19 August 2020; 21 and 22 October 2020 (further written submissions) |
JUDGE: | Ryan J |
ORDERS: | The parties are directed to confer about the next steps in this litigation and to contact my associate by no later than 23 April 2021 with agreed draft directions or orders; or a request for a date for a review of the matter. Until further order, I will restrict publication of these reasons to the parties and to their solicitors and counsel (subject, in the case of the defendant, to the orders made by Brown J on 27 November 2019, and varied by me on 4 August 2020). |
CATCHWORDS: | CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – PARTICULAR PARTIES – PRINCIPAL AND AGENT – CREATION OF RELATIONSHIP OF AGENCY – FORMATION AND PROOF OF AGENCY – where alleged principal wholly owned subsidiary of alleged agent – where alleged principal undisclosed to other contracting party – whether holding company negotiating “on behalf of” subsidiary created agency relationship CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – IMPLIED TERMS – whether contract an unconditional contract for supply of goods or a development contract, with supply to follow only if development successful – where, if an unconditional contract for supply, the contract was silent as to when the goods were to be delivered – whether a term requiring delivery within a reasonable time ought to be implied – determination of period of reasonable time – whether there had been failure to supply the goods within a reasonable time CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – DISCHARGE, BREACH AND DEFENCES TO ACTION FOR BREACH – REPUDIATION AND NON-PERFORMANCE – REPUDIATION – DELAY AND PROVISIONS AS TO TIME – where defendant agreed to supply goods to second plaintiff – where defendant then unilaterally implemented a “Quality Review” of all its products and a pause on shipping until the review was complete – where defendant informed plaintiffs about Quality Review and pause on shipments but would provide no information to plaintiffs about when the review might be completed – where defendant cancelled orders for components for second plaintiff’s product –– whether conduct of defendant repudiatory CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – DISCHARGE, BREACH AND DEFENCES TO ACTION FOR BREACH – where contract between first plaintiff and defendant contained obligation of confidence – where plaintiffs’ competitor acquired defendant – where, prior to acquisition, during due dilignce, defendant provided redacted versions of plaintiffs’ confidential information to plaintiffs’ competitor – where, after acquisition, defendant provided un-redacted copies of plaintiffs’ confidential information to plaintiff’s competitor – whether confidential information provided in breach of contractual obligation of confidence – whether contractual exceptions to obligation of confidence applied EQUITY – GENERAL PRINCIPLES – equitable obligation of confidence – whether equitable obligation of confidence co-exists with contractual obligation of confidence – whether, if co-existing, equitable obligation broader in scope than contractual obligation EQUITY – GENERAL PRINCIPLES – equitable obligation of confidence – where competitor of plaintiffs acquired defendant – where, during due dilignce, prior to acquisition, defendant provided redacted versions of the plaintiffs’ confidential information to the plaintiffs’ competitor – where, after acquisition, defendant provided un-redacted copies of the plaintiff’s confidential information to the plaintiff’s competitor – whether confidential information provided in breach of equitable obligation of confidence CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – DISCHARGE, BREACH AND DEFENCES TO ACTION FOR BREACH – contractual obligation of confidence – contractual exclusivity terms – whether defendant likely to breach contractual obligation of confidence or exclusivity terms of the contract EQUITY – GENERAL PRINCIPLES – equitable obligation of confidence – whether defendant likely to breach equitable obligation of confidence Apotex Pty Ltd v Les Laboratoires Servier (No 2) [2012] FCA 748 Astea (UK) v Time Group [2003] EWHC 725 Bell Group Ltd (in liq) v Westpac Banking Corp (No 9) (2008) 39 WAR 1 BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 Branwhite v Worcester Works Finance Ltd [1969] 1 AC 552 Bridlington Relay Ltd v Yorkshire Electricity Board [1965] Ch 436 Byrne v Australian Airlines Ltd (1995) 185 CLR 410 Coco v AN Clarke (Engineers) Ltd [1969] RPC 41 Coghlan v Pyoanee Pty Ltd [2003] QCA 146 [2003] 2 Qd R 636 Colonial Mutual Life Assurance Society Ltd v Producers and Citizens Cooperative Assurance Co of Australia Ltd (1931) 46 CLR 41 Commissioner of Taxation v Sara Lee Household & Body Care (Australia) Pty Ltd (2000) 201 CLR 520 Commonwealth Bank of Australia v Barker (2014) 253 CLR 169 Corporate Farming Pty Ltd v Eden Bay Pty Ltd (Unreported, Supreme Court of Western Australia, Murray J 28 January 1992). Curwen & Ors v Vanbeck Pty Ltd [2009] VSCA 284 Dan v Barclays (1983) 46 ALR 437 Del Casale v Artedomus (Aust) Pty Ltd [2007] NSWCA 172 Faccenda Chicken Ltd v Fowler [1985] 1 All ER 724 Freeman & Lockyer (a firm) v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 Gold Coast Oil Co Pty Ltd v Lee Properties Pty Ltd [1984] QSCFC 85 [1985] 1 Qd R 416 Gold & Copper Resources Pty Ltd v Newcrest Operations Ltd [2013] NSWSC 281 Global Advanced Metals Pty Ltd v Metallurg Inc [2017] WASCA 188 GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd [(1986) 40 NSWLR 631 Hart v MacDonald (1910) 10 CLR 417 Hick v Raymond & Reid [1893] AC 22 Kazakstan Wool Processors (Europe) Ltd v Nederlandsche Credietverzekering Maatschappij NV [2000] CLC 822 King Tide Company Pty Ltd v Arawak Holdings Pty Ltd [2017] QCA 251 Koompahtoo Local Aboriginal Council v Sanpine Pty Ltd (2007) 233 CLR 115 Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623 Links Golf Tasmania Pty Ltd v Sattler (2012) 213 FCR 1 Maynard v Goode (1926) 37 CLR 529 Moorgate Tobacco Co Ltd v Philip Morris Ltd (No 2) (1984) 156 CLR 414 Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104 Neeta (Epping) Pty Ltd v Phillips (1974) 131 CLR 286 Optus Networks Pty Ltd v Telstra Corporation Ltd (2010) 265 ALR 281 Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537 Questband P/L v Macquarie Bank Limited [2009] QCA 266 Rossiter v Miller (1878) 3 App Cas 1124 Sequel Drill & Blast P/L v Whitsunday Crushers P/L [2009] QCA 218 Saltmann Engineering Co Ltd v Campbell Engineering Co Ltd [1963] 3 All ER 413 Shawton Engineering v DGP International [2006] BLR 1 Streeter v Western Areas Exploration Pty Ltd (No 2) 92011) 278 ALR 291 Streetscape Projects (Aust) Pty Ltd v City of Sydney (2013) 85 NSWLR 196 Tate v Freecorns Pty Ltd [1972] WAR 204 Telina Developments Pty Ltd v Stay Enterprises Pty Ltd [1984] QSCFC 43 [1984] 2 Qd R 585 Weemah Park Pty Ltd v Glenlaton Investments Pty Ltd [2011] QCA 150 [2011] 2 Qd R 582 |
COUNSEL: | D O'Brien QC with F Lubett and L Wick for the plaintiffs G Beacham QC with G Coveney for the defendant |
SOLICITORS: | Johnson Winter & Slattery for the plaintiffs Ashurst Australia for the defendant |
Table of Contents |
Overview....................................................................16
The parties..................................................................20
The terminology of wireless networks...............................................21
The provision of wireless network services in the NJ Equity Triangle.........................22
Key individuals................................................................22
Agreements between BSO, McKay Brothers and EMClarity................................24
Events leading up to McKay Brothers’ acquisition of EMClarity.............................24
BSO informed of the takeover and the “Quality Review”.................................26
The parties’ cases..............................................................27
The relief claimed by the plaintiffs.................................................28
Credibility issues..............................................................29
Structure of these reasons.......................................................29
Relevant background facts.......................................................30
2017 – 2018: Discussions between Mr McGowan and Dr Baines..........................30
The agency issue............................................................31
The W Band Radio Development Agreement – key terms...............................32
Milestone 1: The “kick off”.....................................................39
Milestone 2: The Preliminary Design Report (August – November 2018)....................40
Milestone 3: Commencement of final design (November 2018 – January 2019)...............41
The critical correspondence......................................................42
Late January 2019...........................................................42
February/March 2019........................................................45
Observation about the operation of the WBRDAT....................................51
Late March and April 2019.....................................................52
BSO’s/Apsara’s “new” (or alternative) strategy......................................53
Delivery estimates...........................................................54
Quotes including statements about delivery times....................................55
Purchase orders.............................................................57
Invoices (May/June 2019)......................................................58
Observation about payment terms...............................................58
Observation about warranty terms...............................................59
Mr Boyle’s invitation to the W Band Project Meeting....................................60
Delays from July 2019..........................................................60
BSO informed of McKay Brothers’ acquisition of EMClarity................................63
Status of development and production of a W Band radio................................65
Cancellation of orders for components..............................................66
Progress of the Quality Review....................................................66
Issue 1: Did BSO enter into the WBRDAT as agent for Apsara (the undisclosed principal) or in its own capacity?.....67
Discussion and conclusion.....................................................69
Issue 2: Did Apsara and EMClarity enter into agreements in May and June 2019, for the supply of E Band and W Band radios?.....72
Plaintiffs’ submissions........................................................72
Defendant’s submissions......................................................74
Plaintiffs’ submissions in reply..................................................75
Discussion.................................................................75
Principles................................................................75
What was to happen to the WBRDAT if new agreements were made?...................76
Was a varied WBRDAT the agreement which made good commercial sense?..............78
Inferences to be drawn from the parties’ communication and other conduct..............80
Inferences to be drawn from conduct after the 2019 Agreements.......................86
Conclusion.................................................................88
Issue 3: Alternatively to Issue (2), was the W Band development agreement varied?.............88
Defendant’s submissions......................................................89
Plaintiffs’ submissions........................................................89
Discussion.................................................................90
Conclusion.................................................................91
Issue 4: Did the Supply Agreements (or the WBRDAT as varied) contain an implied term that the E Band and W Band radios would be supplied within a reasonable time?.....91
Discussion and conclusion.....................................................91
Issue 5: If there was such an implied term, what was a “reasonable time” for the supply of the radios?.....92
Plaintiffs’ submissions........................................................92
Defendant’s submissions......................................................93
Discussion.................................................................94
Practical guidance from the authorities..........................................94
Applying that practical guidance...............................................97
Meaning of delivery of the radios within a reasonable time in the circumstances of this case...97
The use of estimates.......................................................97
Conclusion.................................................................101
Issue 6: Did EMClarity breach the implied term by failing to supply the E Band and W Band radios within a “reasonable time” being by October 2019, or alternatively 31 January 2020, 6 May 2020 or at the latest the date of the trial?.....101
Issue 7: Was a Quality Review in the terms instituted by EMClarity permitted by the terms of the 2019 Agreements or the WBRDAT?.....101
Issue 8: Was the Quality Review a genuine and/or necessary review of the E Band or W Band products? Or was it a “go-slow” in order to prioritise the interest of McKay Brothers/disadvantage the plaintiffs?.....102
Plaintiffs’ submissions........................................................102
Defendant’s submissions......................................................104
Discussion and conclusion.....................................................104
Issue 9: By subjecting the order of W Band and E Band radios to the Quality Review, and/or delaying the development and shipment of the order, did EMClarity breach the terms of the Supply Agreements or the WBRDAT?.....106
Issue 10: Was EMClarity’s conduct, in subjecting the order of W Band and E Band radios to the Quality Review, and/or delaying the development and shipment of the order a repudiation of the 2019 Agreements or the WBRDAT?.....106
Plaintiffs’ submissions........................................................106
Defendant’s submissions......................................................108
Plaintiffs’ reply..............................................................108
Discussion and conclusion.....................................................109
Issues 11 – 16: Breaches of confidence - Overview......................................110
Issue 11: Were the “W-Band project, the terms of the WBRDAT, the Customer Material under the WBRDAT, the Alternative Strategy, the Quote and the Purchase Orders” (together, the “Material”) confidential?.....112
Issue 12: Was the Material disclosed to McKay Brothers?.................................114
Invitation to meeting about the W Band Project and following emails – was confidential information disclosed?.....114
The redacted material – was confidential information disclosed?.........................115
The redacted copies of the WBRDAT............................................115
The redacted Quote and Purchase Orders........................................116
The un-redacted material – was confidential information disclosed?.......................117
Issue 13: Was there a contractual obligation under the WBRDAT to keep the Material confidential and not disclose it to McKay Brothers?.....117
Issue 14: Was there an equitable duty of confidence to keep the Material confidential and not disclose it to McKay Brothers? What is the scope of any such equitable duty?.....118
The equitable obligation or duty of confidence......................................118
Whether contractual and equitable obligations of confidence co-exist?....................118
Del Casale v Artedomus (Aust) Pty Ltd [2007] NSWCA 172..............................118
Streetscape Projects (Aust) Pty Ltd v City of Sydney (2013) 85 NSWLR 196...................120
Optus Networks Pty Ltd v Telstra Corporation Ltd (2010) 265 ALR 281.....................121
Academic text..............................................................123
The parties’ arguments........................................................123
Discussion and conclusion.....................................................125
Issue 15: Was the contractual duty breached?.........................................126
Issue 16: Was the equitable duty breached?..........................................128
The equitable duty of confidence................................................128
The plaintiffs’ submissions.....................................................129
The defendant’s submissions...................................................129
Discussion and conclusion.....................................................129
Issue 17: Does BSO/Apsara hold a belief that EMClarity will further delay the development/shipment of the radios? Is that belief reasonable?.....130
Issue 18: Does BSO/Apsara hold a belief that EMClarity will, in the future, breach the confidentiality provisions of the WBRDAT or the equitable duty of confidence? Is that belief reasonable?.....130
Discussion and conclusion.....................................................135
Issue 19: Does BSO/Apsara hold a reasonable belief that EMClarity will, in the future, breach the exclusivity provisions of the WBRDAT or the 2019 Agreements?.....135
Overview
- [1]In broad terms: the plaintiffs claim that the defendant failed to perform its contractual obligations, under four contracts, to supply certain products to Apsara Networks within a reasonable time, or alternatively, repudiated the contracts. The defendant contends that the contracts are contracts for development and supply. Supply is conditional upon successful development. There has not yet been successful development. Therefore, the contractual obligation to supply products has not yet arisen and the contracts have not been breached.
- [2]Nineteen issues were presented for my determination. My conclusions as to each are stated briefly in the table below.
- [3]Critically, I have concluded that the second plaintiff and the defendant entered into contracts in pursuance of which the defendant agreed unconditionally to supply products to the second plaintiff; which the defendant has repudiated by manifesting an intention to perform the contracts only “if and when” it suited the defendant to do so. Whether the second plaintiff has or will terminate the contracts was not an issue for me.
Issues | Conclusion |
W Band Development Agreement | |
| BSO entered into the W Band Radio Development Agreement in its own capacity. |
Supply Agreements | |
| Yes. |
| No – Apsara and EMClarity entered into new agreements and the W Band Radio Development Agreement was terminated. |
Implied Terms | |
| The Supply Agreements (referred to by me as the 2019 Agreements) are unconditional agreements to supply radios, which contained an implied term that the radios would be delivered within a reasonable time. |
| On the evidence, it was impossible for me to determine, on a reasoned basis, and without speculating, the date upon which a reasonable time for the supply of E Band or W Band radios would elapse. |
| It was tempting to conclude that there had been a failure to supply by, at the latest, the date of trial. But I was concerned that such a finding would involve speculation. On the evidence I was not able to answer this question. |
The Quality Review | |
| The Supply Agreements did not permit the “Quality Review”. It was unnecessary for me to answer the question whether the W Band Radio Development Agreement permitted the Quality Review. |
| The plaintiffs acknowledged that it was unnecessary for me to make a finding that the Quality Review was in effect a sham. I was not prepared to make an unnecessary finding. |
| Having found that EMClarity breached the Supply Agreements by repudiation, I did not need to reach a finding on this issue. |
Repudiation | |
| EMClarity repudiated the Supply Agreements. EMClarity and BSO terminated the W Band Radio Development Agreement. |
Confidentiality | |
| The W Band Project, the terms of the W Band Radio Development Agreement and the Customer Material under the agreement were “Confidential Information” as defined in the agreement. The Alternative Strategy, the Quote and the Purchase Orders were information and documents in relation to which equity would impose obligations of confidence. |
| There was disclosure of BSO’s information, including “the Material” but not all of the disclosed information was confidential. |
| Yes – in so far as the W Band Project, the terms of the W Band Radio Development Agreement and the Customer Material was concerned. |
| Yes – in relation to the Alternative Strategy, the Quote and the Purchase Orders. As to the balance of the Material, to which a contractual obligation of confidence also applied, the law goes both ways – but regardless, the equitable duty would not operate to convert disclosure which was authorised by the contract into unauthorised disclosure. |
| No. |
| Yes. |
Apprehended breach | |
| Yes. |
| Yes. |
| I have found that the W Band Radio Development Agreement is at an end – which means exclusivity ends in accordance with clause 2. EMClarity has repudiated the Supply Agreements. The second plaintiff may choose to terminate the Supply Agreements. The exclusivity provisions do not survive termination. It is preferable to defer the answer to this question until the second plaintiff has indicated whether it will elect to terminate the Supply Agreements. |
- [4]An outline of the evidence and my reasons for these conclusions follow.
- [5]My conclusions do not resolve matters between the parties, but they will inform the next steps of this litigation.
- [6]The parties are directed to confer about the next steps and to contact my associate, by no later than 23 April 2021, with agreed draft directions or orders; or a request for a review of the matter.
- [7]At this stage, I will restrict publication of these reasons to the parties and to their solicitors and counsel (subject, in the case of the defendant, to the orders made by Brown J on 27 November 2019, and varied by me on 4 August 2020).
The parties
- [8]BSO Network Inc (BSO), the first plaintiff, is an American company which provides IT and telecommunications services globally. Since December 2017, Apsara Networks Inc, the second plaintiff, has been one of its wholly owned subsidiaries.
- [9]BSO provides wireless network services to the New York Stock Exchange (NYSE), the NASDAQ[1] and the Chicago Board Options Exchange (CBOE). These three exchanges are in a geographical area known as the New Jersey (or NJ) Equity Triangle.[2] Mahwah, Carteret and Secaucus (towns in NJ) are the three “points” of the triangle.
- [10]BSO’s major competitor in the market for wireless services in the NJ Equity Triangle is McKay Brothers.[3]
- [11]EMClarity, the defendant, is a Brisbane-based company with global reach, which designs, develops, produces and supplies microwave and millimetre wave radio technology.
- [12]McKay Brothers acquired EMClarity in September 2019. Thus, BSO’s major competitor in the NJ Equity Triangle market acquired the company which was the source of the radios they each needed to provide wireless network services in that market.
The terminology of wireless networks
- [13]Some understanding of terminology is necessary to understand these reasons.
- [14]Radio waves travel across different frequencies of the radio spectrum – known as bands. Radio wave frequency is measured in hertz. In the USA, the Federal Communications Commission (FCC) is responsible for granting licences to entities to permit them to transmit information using radio waves in certain bands with assigned frequencies.
- [15]Bands are enabled through radio technology.
- [16]A network is a medium for radio wave communication.
- [17]A path is the connection between two points in a network. The word “path” might also be used to describe a shorter segment (a “hop”), which, together with other segments, makes up an overall circuit.
- [18]High frequency trading networks are designed to create the most efficient path possible between (for example) the NYSE, NASDAQ and CBOE, to enable financial market participants to automate the collection of pricing information and action (such as to buy or sell securities) in accordance with a participant’s trading strategy.
- [19]Two of the most important features of a network are its latency and its bandwidth. Generally, the lower the latency, the faster the data may be sent from one place to another. The higher the bandwidth, the greater the volume of data which may be transmitted over a network.
- [20]The use of millimetre wave spectrum bands for the provision of fixed, point to point, wireless services allows for lower latency than a fibre connection. (Before it acquired Apsara, BSO operated a fibre optic network.)
- [21]The amount of spectrum available within a particular band also affects network performance. Bands with fewer users are generally better because there is less signal interference.
The provision of wireless network services in the NJ Equity Triangle
- [22]Apsara specialises in the provision of wireless networks to financial markets, including those in the NJ Equity Triangle.
- [23]BSO’s acquisition of Apsara allowed it to compete in the market for wireless network services in the NJ Equity Triangle and other financial capitals.
- [24]The primary spectrum allocations in the NJ Equity Triangle include the E Band and the W Band.[4] The E Band has a large number of users and is highly congested (causing a propensity for greater signal interference). BSO’s current network is the overcrowded E Band. (Upon BSO’s acquisition of Apsara, Apsara’s E Band licence was transferred to BSO.)
- [25]There are few users of the W Band in the NJ Equity Triangle so it does not suffer from the same congestion or interference issues as the E Band. However, there is less spectrum available in the W Band than in the E Band. [redacted]
Key individuals
- [26]The table below identifies the key individuals associated with BSO, Apsara and McKay Brothers.
Callum McGowan | Director of Radio Frequency Networks at BSO. Mr McGowan had been the Director of Network Engineering at Apsara since 2012. He joined BSO when it acquired Apsara in December 2017. |
Michael Ourabah | Sole Director of Apsara and the Chief Executive Officer of BSO and Apsara. |
Emmanuel Pellé | Chief Operating Officer and Senior Vice President of BSO. Mr Pellé has held these roles since March 2016. His responsibilities include reviewing and approving BSO’s entry into major or significant contracts. |
Dr Peter Baines | Chief Executive Officer of EMClarity. Dr Baines has held this role since January 2019. In late February 2019, he was also appointed Managing Director and Company Secretary of EMClarity. Prior to his appointment as CEO, he had been the General Manager of EMClarity since 1 June 2017. Notwithstanding changes in his title, Dr Baines agreed that he was (as General Manager) and is (as Managing Director) the “face for [actual or potential] customers” when negotiating a contract. |
David White | Head of Operations at EMClarity (with “Operations” comprising production, installation and support). |
Dr Ashoka Halappa | Chief Engineer at EMClarity. Dr Halappa replaced James McDougal as Chief Engineer in March 2019. |
Dr John Ness | Chairman and Executive Director of EMClarity. |
Barry Dench | Production Quality Manager at EMClarity. |
Timothy Boyle | Mr Boyle joined McKay Brothers as a director in December 2016 and holds the title of Director of Operations. He became a director of EMClarity following McKay Brothers’ acquisition of it on 27 September 2019. |
Dr Stephane Tyc; Dr Robert Meade; Paul Kennard | Directors of McKay Brothers who were appointed to the board of EMClarity after McKay Brothers’ acquisition of it. |
Agreements between BSO, McKay Brothers and EMClarity
- [27]The services provided by BSO and McKay Brothers in the NJ Equity Triangle require the radios which EMClarity is in the business of developing, producing or supplying. These radios are classified by their band and include LMDS, E Band and W Band radios.
- [28]LMDS and W Band radios have the potential for better performance in the NJ Equity Triangle (in terms of speed and clarity) than E Band radios.
- [29]Obviously, a competitor in the market for the delivery of wireless network services to the NJ Equity Triangle will gain an advantage if they acquire and deploy “better” radio technology than others in the market.
- [30]In 2016, with a view to gaining a competitive edge in the market for wireless network services in the NJ Equity Triangle, McKay Brothers entered into an agreement with EMClarity, in pursuance of which EMClarity agreed to develop and supply LMDS radios to McKay Brothers.
- [31]In June 2018, with a view to gaining a competitive edge in the same market, BSO entered into an agreement with EMClarity, in pursuance of which EMClarity agreed to develop and, assuming successful development, supply W Band radios to BSO (the “W Band Radio Development Agreement”).
- [32]In 2019, after further negotiations with BSO, EMClarity entered into four agreements to supply W Band and E Band radios to Apsara (the “2019 Agreements”). The characterisation and effect of these four agreements are contentious.
- [33]For obvious reasons, each competitor wished to keep confidential the timing of, fact of, and detail of, their agreement with EMClarity for the development of radio technology.
Events leading up to McKay Brothers’ acquisition of EMClarity
- [34]In May 2019, Tim Boyle (of McKay Brothers) was sent by EMClarity, by mistake, an invitation to a “W Band Project Meeting”. On 28 May 2019, Mr Boyle contacted Dr Baines and asked him whether EMClarity was pursuing a W Band radio. His email read –
Hi Peter –
Is EM Clarity pursuing a w-band radio? I built these once upon a time in the US, and am quite interested in their possible commercialization.
- [35]Then followed a series of emails between them.
- [36]Dr Baines told Mr Boyle that EMClarity were “looking into it” –
Hi Tim,
Yes, we are looking into that.
Your previous experience with W-band sounds interesting. How far did you get with that?
- [37]Mr Boyle said he “[g]ot a couple [of] links working in the field”. He continued (my emphasis) –
… 10Gbps OOK. Tricky thing was getting band flatness when I was being lazy about modulation schemes because of latency aversion.
Lots of licencing risk in the US which was uncomfortable at the time.
Would love to talk through product interest there. You’re nearly competing with FSOs at 100+GHz from a reliability and beamwidth/tracking perspective.
- [38]On 30 May 2019, Dr Baines told Mr Boyle that he could not discuss the details of the Band project (my emphasis) –
Interesting approach you took.
Unfortunately, I can’t discuss the details of our project. It’s under disclosure. In fact I shouldn’t even have acknowledged we were looking at this band but I knew we had made a slip-up with a meeting invite sent to you when it was supposed to be internal only.
- [39]On 2 June 2019, Mr Boyle asked Dr Baines whether there was a way they could work together on a W Band radio (my emphasis) –
We’re looking at rebooting my past efforts in this regard, if there’s a way we can work together here instead of my using who I did previously, I would be interested in talking about it.
- [40]On 3 June 2019, Dr Baines said that he did not think they could “from our side”.
- [41]The next day, 4 June 2019, McKay Brothers approached Dr Baines about acquiring EMClarity. On BSO/Apsara’s case, the timing of McKay Brothers’ interest in the acquisition of EMClarity was not a coincidence: it was triggered by their belief that EMClarity was developing a W Band radio for a competitor.
- [42]Relevant to that misdirected invitation is the following evidence from BSO’s Mr McGowan –
On or about 27 July 2019, I met with Timothy Boyle of McKay Brothers in Chicago. We had been working on a separate (unrelated) project together and he had earlier contacted me and asked if I wished to have a coffee catch-up with him, to which I agreed. In the conversation on 27 July 2019 we discussed the industry in general and as part of that I said words to the effect “I know you guys [by which I meant McKay Brothers] are doing a fair bit in 28Ghz.” Mr Boyle said words to the effect “I understand someone’s going to be doing something in W Band”. I was surprised by this statement. It was not clear to me whether Mr Boyle knew that BSO had engaged EMC to develop W Band radios. I suspected at the time that he was “fishing” for confirmation that BSO was looking at W-Band technology. Mr Boyle went on to ask me if I wanted at [sic] job with McKay Brothers in the RF space. I responded with words to the effect “what kind of position do you have in mind”, to which he responded with words to [sic] effect “whatever you want, you can write your own cheque”.
- [43]McKay Brothers purchased EMClarity on 27 September 2019.
BSO informed of the takeover and the “Quality Review”
- [44]On 8 October 2019, EMClarity informed BSO that it had been taken over by McKay Brothers. EMClarity informed BSO that it had decided to undertake a “Quality Review” of EMClarity’s processes and products and that there would be, therefore, a “pause” on all shipments of radios.
- [45]EMClarity did not tell BSO when it expected its Quality Review to conclude or when it expected to supply radios to Apsara.
- [46]EMClarity is yet to supply any radios to Apsara. In fact, it cancelled orders for the parts required to build the radios.
- [47]BSO/Apsara contend that, having learnt that EMClarity was pursuing a W Band radio for BSO/Apsara, McKay Brothers acquired EMClarity and implemented a sham quality review which was designed to cause EMClarity to prioritise its LMDS radios over the radios ordered by Apsara – thereby assuring McKay Brothers a competitive advantage in the NJ Equity Triangle.
The parties’ cases
- [48]At the core of the plaintiffs’ case are allegations of breach and repudiation of supply agreements between EMClarity and Apsara.
- [49]In general terms, the plaintiffs’ case is that in May/June 2019, the W Band Radio Development Agreement was replaced by four new agreements between Apsara and EMClarity, in pursuance of which EMClarity agreed to supply to Apsara a mix of E Band and W Band radios (referred to by me as “the 2019 Agreements”; referred to by the plaintiffs as “the Supply Agreements”).[5] The 2019 Agreements did not state the date by which the E Band and W Band radios were to be supplied. BSO/Apsara submit that the law would therefore imply a term that the radios were to be supplied within a reasonable time.
- [50]The plaintiffs’ primary case is that the 2019 Agreements are separate from the W Band Radio Development Agreement and ought to be simply construed as contracts to supply. In the alternative, the plaintiffs’ case is that the W Band Radio Development Agreement was varied by the 2019 Agreements between Apsara and EMClarity to “take out the notion of development [and instead] … to actually deliver the radios”.
- [51]In its defence, EMClarity notes that –
- there are two stages or phases of the W Band Radio Development Agreement: the development stage and the production and supply stage; and
- its production and supply obligations under the W Band Radio Development Agreement were conditional upon successful development of the W Band radio.
- [52]EMClarity submits that –
- the agreements between it and Apsara in May/June 2019 were not “new” agreements to supply radios – rather, they were variations of the W Band Radio Development Agreement;
- the 2019 Agreements varied only the production and supply phase of the W Band Radio Development Agreement;
- the 2019 Agreements had no effect on the development phase of the W Band Radio Development Agreement;
- the 2019 Agreements concerned what EMClarity would deliver to Apsara after, and only if there were, a successful development phase; and
- the development phase has not concluded.
- [53]EMClarity says that, although the hope may have been that the variations made to the W Band Radio Development Agreement by the 2019 Agreements would achieve truncated delivery times for the supply of the “product”, supply of the product was always subject to the successful completion of the development stage. Both parties “sign[ed] on to” the risk that development might not be successful. Also, the Quality Review was genuine.
- [54]EMClarity argues that the W Band Radio Development Agreement, including as varied, is a contract of a class different from the class of contracts into which reasonable time terms are implied. It is a research/development and supply contract which anticipates uncertainty in the research/development stage.
- [55]Further, the implication of a reasonable time term for delivery of the W Band radios is inconsistent with the express terms of the W Band Radio Development Agreement, which included a term that time estimates were non-binding. Even if a “supply within a reasonable time” term were implied, the quantification of that reasonable time had to take into account that the W Band radio is a sophisticated product which is difficult to produce to its required specifications.
The relief claimed by the plaintiffs
- [56]By their amended originating application the plaintiffs seek, as final relief, orders –
- (i)requiring specific performance by EMClarity of the agreements to supply W Band and E Band radios;
- (ii)restraining EMClarity from taking any steps to deliver or supply to McKay Brothers (or any of its related entities) “the Product”, as defined in the 8 June 2018 W Band Radio Development Agreement; that is the W Band 92-95 GHZ low latency radio; and
- (iii)permanently restraining EMClarity from disclosing information about the ‘Product’ or the ‘Project’ and other specified related matters to McKay Brothers or its related entities.
- [57]In the alternative to orders for specific performance, the plaintiffs seek a declaration that EMClarity has repudiated the W Band Radio Development Agreement; “and further and in the alternative” the W Band Supply Agreement and the E Band Supply Agreement.
- [58]The plaintiffs also seek damages for breach of the agreements, equitable compensation for breach of confidence, and any other order the Court sees fit to make.
- [59]The trial before me concerned the question of the defendant’s “liability” only.
Credibility issues
- [60]Four witnesses were called to give evidence – two for each side. Their examination in chief was by way of affidavits.
- [61]The cross-examination of the plaintiffs’ two witnesses, Emmanuel Pellé and Callum McGowan, left me with no concerns about their credibility. Nor was I concerned about any aspect of their affidavit evidence.
- [62]The defendant called Peter Baines and Timothy Boyle.
- [63]Insofar as his oral testimony was concerned, I found Dr Baines a careful witness who appeared to be replying truthfully, though not expansively, to the questions asked of him. However, as will appear below, I found some of the claims in his affidavit to be inherently incredible.
- [64]I found Mr Boyle an unimpressive witness. For example, I found that he deliberately minimised his understanding of McKay Brothers and BSO/Apsara as competitors in the NJ Equity Triangle market. And I found his evidence about his knowledge of Mr McGowan’s employment untruthful. I formed the view that he understood the “line” he had to hold (to benefit the defendant’s case) and that he tailored his evidence to hold that line.
- [65]Mr Boyle’s performance in the witness box caused me to have serious reservations about the assertions he made in his affidavit – especially those which were completely in the defendant’s interests.
- [66]Overall, I considered the contemporaneous documents, such as emails, notes of conversations or minutes of meeting, to provide the most reliable evidence of relevant matters.
Structure of these reasons
- [67]It will be apparent from the above that one of the critical issues for me to decide is whether, in 2019 –
- the parties varied the 2018 W Band Radio Development Agreement, retaining its development stage but altering the products which were to be supplied in pursuance of it, assuming successful development; or
- BSO and Apsara entered into new agreements which required EMClarity to supply W Band and E Band radios to Apsara unconditionally.
- [68]The determination of that issue has a significant impact on the “supply within a reasonable time” and repudiation issues. It also bears upon the confidentiality issues.
- [69]The parties’ accepted that I was to determine this critical issue having regard to the context in which the parties dealt with each other before and after their 2018 and 2019 agreements.
- [70]My identification and analysis of relevant communication and conduct follows. I then deal with each of the 19 issues in turn.
Relevant background facts
2017 – 2018: Discussions between Mr McGowan and Dr Baines
- [71]In early 2017, it was rumoured that McKay Brothers was developing a lower-latency network in the NJ Equity Triangle. At that time, Mr McGowan worked for Apsara, which was interested in competitively “refreshing” its network. Mr McGowan was aware that the radios which EMClarity developed and produced could, with some adaptation, be used in the provision of ultra-low latency circuits between stock exchanges. He began to deal with Dr Baines in about June 2017. At the time, EMClarity’s E Band radios were subject to “exclusivity arrangements” which meant that they could not be supplied to Apsara. Accordingly, Dr Baines and Mr McGowan discussed other options, including the development of a new radio in W Band.
- [72]After BSO acquired Apsara, Mr McGowan made it clear to BSO’s board that, to remain competitive, it had to develop an ultra-low latency, high capacity, wireless network. With the board’s approval, he continued discussing a W Band network with Dr Baines, having informed Dr Baines that BSO had acquired Apsara. I accept that Mr McGowan made it clear to Dr Baines that his objective was to develop a better network than McKay Brothers’ network and that a W Band product was necessary (from BSO’s point of view)[6] for it to do so.
- [73]On 10 February 2018, Mr McGowan told Dr Baines, in effect, that the success of the new network was vital to BSO and that BSO needed to deploy it within the next six months.
- [74]On 14 March 2018, Dr Baines sent a proposal to Mr McGowan describing a certain approach to the development (which would involve a third party) and stating, in effect, that, on that approach, development time would be six months. Dr Baines told Mr McGowan that the work was not considered “high risk” and elaborated on the reasons why that was so. He proposed a “preliminary design phase” which would “quickly” prove the design approach. He said the preliminary design phase “would take one month from the placement of order”.
- [75]Mr McGowan continued to negotiate with Dr Baines and, ultimately, Dr Baines sent Mr McGowan a final proposal on 20 April 2018. The proposal (entitled “Information and Pricing for BSO Networks Ultra-Low Latency W Band Equipment in 92-95 GHZ Band”) included the following (my emphasis). I note the optimistic tone of this proposal when it comes to time frames and its description as “low risk” –
[redacted]
- [76]
- [77]BSO’s board determined to proceed with the proposal on 3 May 2018. An agreement reflecting the proposal, entitled the “W Band Radio Development Agreement Terms” was executed by BSO and EMClarity on 14 June 2018 (referred to in these reasons as the “W Band Radio Development Agreement” or the WBRDAT).
The agency issue
- [78]It is expedient to mention now that agency is an issue in the plaintiffs’ alternative case.
- [79]The plaintiffs contend that BSO acted as Apsara’s agent – Apsara being its undisclosed principal – in the formation of the WBRDAT. The defendant urged me to conclude that the plaintiffs had never discussed agency prior to the formation of the WBRDAT and that BSO contracted with EMClarity on its own behalf.
- [80]The plaintiffs evidence about their “agency” discussions included the following in Mr McGowan’s affidavit (my emphasis) –
Given the significant value of the investment that Apsara and BSO were making with EMC and the size of the payments that needed to be made up front, BSO’s management was concerned to manage the cash flow. I had a number of discussions about the staged payments with Mr Ourabah and Mr Pellé, including the tax implications and accounting treatment of the payments. Over a number of conversations with Mr Ourabah and Mr Pellé it was agreed that the W Band project would be paid for and owned by Apsara, although BSO, as Apsara’s parent company, would continue with the negotiations on its behalf.
- [81]In his affidavit, Mr Pellé said (my emphasis) –
As BSO’s Director of RF, Mr McGowan was responsible for negotiating the technical requirements and terms of an agreement to develop W Band radios. As COO, my role was to provide direction and support to Mr McGowan in negotiating the agreement and, along with Mr Ourabah, provide high-level approval of the terms and pricing of the agreement. I was also ultimately responsible for signing the contract. In that regard, I discussed with Mr Ourabah and Mr McGowan and the effect of what was said was that Apsara would pay for and own the product developed under the contract but that BSO would execute the contract on behalf of Apsara.
…
I executed the W Band Radio Development Agreement … on behalf of BSO on 8 June 2018 …
The agreement was executed … in the name of BSO but with the intention that Apsara would be the end user of the services (and owner of the assets, being the W Band radio product) and pay for these services accordingly. I had discussions with Mr Ourabah and Mr McGowan in which this was discussed. During the course of the [W Band Radio Development Agreement], Apsara has paid the invoices issued to it under that agreement, and also invoices issued in respect of the supply of certain E Band radios issued in connection with the [W Band Radio Development Agreement]. This expenditure is recorded in Apsara’s accounts.
The W Band Radio Development Agreement – key terms
- [82]The following terms of the W Band Radio Development Agreement are the important ones in this case (my emphasis). The “Customer” is the first plaintiff.[8]
[redacted]
…
Agreed Terms
1 Project
…
Research
1.4 The parties acknowledge and agree that the outcome of research projects such as the Project cannot be guaranteed. However, individual component technologies required to increase the likelihood of the Project’s successful conclusion have been proven to a large degree … Design activity including simulation modelling and the use of other methods will identify potential critical points of failure which can then be designed out. Prototype manufacture and unit/system testing in a lab environment will provide measurement data to uphold forecast performance indicated by modelling to indicate early in the Project how likely a successful conclusion will be. EMC does warrant that it has the requisite engineering capability to undertake the Project in a competent and professional manner and that it will manage the Project in a way which aims to identify risks and issues that can be mitigated by regular review and decision making by EMC and Customer.
1.5 The estimated completion dates in the Project Plan (and any other estimated dates provided to Customer by EMC) are estimates only and are not binding on EMC.
…
2 Exclusivity
[redacted]
If any one of these criteria is false then the Exclusivity does not apply.
2.3 EMC agrees not to accept any orders or ship any product, which would contravene the Exclusivity criteria, to other customers while Exclusivity applies.
2.4 Exclusivity starts when Customer places its order for the NRE [non-recurring engineering] development and the [redacted], and makes the defined payments according to the Sale Terms.
…
2.6 Exclusivity may be extended for periods of 12 months at a time by either: -
- (a)Placing an order for a subsequent batch of [redacted] …
- (b)Placing one or more orders for EMClarity in-house products where the combined total of said orders is at least [redacted], and with the payment terms of each order being the same as the Sale Terms, and where delivery on all such products ordered must be within the coming 12 months and EMC accepts the order; or
- (c)Making a payment of [redacted].
…
3 Acceptance
3.1 Unless Customer and EMC mutually agree to modify the Acceptance Criteria for documentation, design information, tests and performance measurements … prior to the commencement of work of each Milestone as described in the Schedule, such Acceptance Criteria shall be the basis upon which Customer shall have no less that fourteen (14) days to conduct Acceptance testing (where applicable) following delivery of such Milestone. Notwithstanding the foregoing, the Customer and EMC shall negotiate and agree in good faith on acceptable variances to the Acceptance Criteria for the documentation, design information, tests and performance measurements that need to be achieved to meet the Milestone, based upon Customer’s stated performance objectives and network specifications. Any such mutually agreed upon changes shall be the basis for Customer’s Acceptance testing once such changes are memorialized in writing executed by EMC and Customer in a relevantly amended Milestone Payment Deliverables in the Schedule.
…
5Term and termination
…
5.4Termination due to failure of Development Stage of Project (Before Acceptance of Milestone 4)
- (a)The parties may terminate this agreement up to the Acceptance of Milestone 4 by mutual written agreement if the parties conclude that the Project cannot be successfully completed.
- (b)The parties may mutually agree to delay the project up to the Acceptance of Milestone 4 at any time by written agreement if the parties conclude that a reasonable external cause, such as for example a delay in sourcing input components, warrants a delay to work and Milestones.
- (c)Customer may terminate this Agreement up to the end of Milestone 4 for Good Reason.
…
7 Confidential Information
Obligations of confidence
7.1 Each party agrees to keep confidential, and not to use or disclose, other than as permitted by this agreement, any Confidential Information of the other party before or after entry into this agreement.
Exclusions
7.2 The obligations of confidence in clause 7.1 do not apply to Confidential Information:
- (a)that is required or requested to be disclosed by applicable law …
- (b)that is in the public domain otherwise than as a result of a breach of this agreement or other obligation of confidence by the receiving party; or
- (c)that is already known by, or rightfully received, or independently developed, by the recipient of that Confidential Information free of any obligation of confidence.
Restrictions on disclosure
7.3 Each party may use and disclose Confidential Information of the other party only:
- (a)with the prior written consent of the other party; or
- (b)to that party’s directors, agents, professional advisors, employees, contractors and permitted sub-contractors solely for the exercise of rights or the performance of obligations under this agreement; or
- (c)to auditors, lenders (or potential lenders), investors (or potential investors) of such party.
…
9 Amendments to the Project
9.1 The parties may agree on changes to the Project, Project Plan and the Fees in writing from time to time.
…
14 Definitions and Interpretation
…
Confidential information means the terms of this agreement, including any pricing information, and in the case of EMC, includes EMC Material and in the case of Customer includes Customer Material.
...
Project means the project described in the Schedule.
Project Plan means the project plan specified in the Schedule.
…
Schedule means the W-BAND RADIO DEVELOPMENT AGREEMENT SCHEDULE, as it (or any portion thereof) may be amended and/or restated in writing by the parties from time to time. For the avoidance of doubt, in the event of any conflict between the terms of this agreement and the terms of the Schedule, the terms of the Schedule shall control and govern.
…
Customer Material means any material provided by or to which access is given by Customer to EMC for the purposes of this agreement, including documents, equipment, reports, algorithms, technical information, know how, studies, plans, charts, drawings, calculations, tables, trademarks, logos, schedules and data stored by any means.
- [83]The Schedule described the Project as follows –
The project involves developing and then providing a production batch of a new radio for use by the Customer to provide communications services. This Schedule is subject to the terms and conditions of the W BAND Radio Development Agreement Terms. Any terms used but not defined herein shall have the meanings as set forth therein.
The target specification of the new radio is provided in this Schedule. The concept design for the radio on which the quote for the project works is illustrated in the Sales Quote.
The project will be in 3 stages.
Stage 1: Will be for preliminary design which prototypes digital IF up conversion (to E Band) on a two-hop repeat and proves SNR and jitter expected, with report provided. The parties may mutually agree upon deviations that are necessary to meet agreed requirements.
On completion of the preliminary design the Customer can at their discretion choose to discontinue the project if it believes the project will not fill operational requirements. If the Customer wants to continue to the next stage of detailed design, the Customer will pay Milestone 3.
Stage 2: Will be conducted if the Customer decides to continue with the development after Stage 1. Prior to start the customer must pay Milestone 2. In this stage, EMC will develop and test the modem and W band up and down converters and conduct FCC compliance testing.
On completion of the detailed design the Customer can choose to discontinue the project. If Customer wants to continue to the next Stage, it must order the production radios and pay the production deposit payment.
Stage 3: [redacted]
- [84][redacted]
- [85]The Project Plan was as follows –
Milestone | Estimated completion date (Month) | Milestone Payment (excluding GST and any other taxes, customs duties, levies or imposts) (US$) |
1Signing of this agreement for Conduction of Preliminary Design Work | M0 | [redacted] |
2Submission of Preliminary Design Report | M0 + 1 | [redacted] |
3Commencement of Final Design | M0 + 1 | [redacted], in advance on acceptance of Milestone 2 |
4Successful Design Review of Final Design | M0 + 6 | [redacted] |
Total of the development | [redacted] | |
5[redacted] Production Order | M0 + 6 | [redacted] |
6Factory Acceptance testing of [redacted] Order | M0 + 9 | [redacted] |
7Acceptance on Delivery in USA | M0 + 10 | [redacted] |
Total of the Production lot | [redacted] |
- [86]The Schedule also included the “Milestone Payment Deliverables” as follows –
Milestone | Deliverables – Milestone Payment Acceptance |
1 Signing of this agreement | Signed contract (this agreement) and approval to conduct preliminary design. Customer must accept and pay EMC’s Invoice for Milestone 1 prior to work starting on preliminary design. |
2 Preliminary Design Review | Delivery of a report describing the successful prototyping of digital IF up conversation (to E-band) on a two-hop repeat and proving SNR and jitter expected. |
3 Commencement of Final Design | Customer must Accept Milestone 2 prior to work starting on the Final design. Customer can discontinue further work prior to making such payment and forfeit Milestones 1 and 2 payments. |
4 Final Design Review | Successful review of the finished design. Customer must Accept Milestone 4 prior to work starting on the Production Build. Customer can discontinue further work prior to making such payment and forfeit Milestone 1, 2 and 3 payments. |
5 [redacted] Production Order | Kick off payment on approval by Customer to begin [redacted] batch build. Customer must accept EMC’s Invoice Milestone 5 prior to work starting on manufacture of the Production Units in accordance with the Sale Terms. |
6 Factory Acceptance Testing of [redacted] Production Order | Successful testing of the [redacted] order to production specification. Customer must Accept Milestone 6 prior to shipment in accordance with the Sale Terms. |
7 Acceptance on Delivery | Final Acceptance on delivery of production units to Customer Depot in USA. Acceptance and final payment on invoice will be in accordance with the Terms of Sale. |
- [87]A document entitled “Exhibit A – to W Band Development Agreement Product Offer Terms” stated that the price (for the product) was [redacted]. The “Payment Terms” were –
60% of batch price on order, 30% of batch price on completion of Factory acceptance testing and packaged ready for shipping and 10% on Acceptance of Delivery. No agreement for supply of follow-on batch orders exists between EMClarity and Customer until (1) EMClarity has received an official purchase order from Customer, (2) EMClarity has returned a purchase order confirmation to customer with an invoice for the kick-off payment, and (3) the customer has paid any product kick-off payment into EMClarity’s bank account in accordance with the invoice where applicable.
- [88]These payment terms correspond to the Milestone 5, 6 and 7 payments – which are in the amount of 60 per cent, 30 per cent and 10 per cent of “batch price” respectively.
Milestone 1: The “kick off”
- [89]The invoice for Milestone 1 was originally issued by David Watson of EMClarity to BSO. Mr McGowan asked Mr Watson to re-issue the invoice to Apsara – which he did. According to Mr McGowan, the request to re-issue the invoice to Apsara was consistent with BSO’s determination that Apsara would be the corporate entity within the BSO group which would “own” the project and the radios supplied in pursuance of the WBRDAT.
- [90]On 19 July 2018, Dr Baines chased Mr McGowan for the “kick-off payment”. He said, “We will do our best to accelerate the development so would appreciate it if BSO could also keep the milestone/payment side moving as well”. In emails to Dr Baines about payment on 30 July and 2 August 2018, Mr McGowan referred to the project coming out of the Apsara books.
- [91]Apsara paid the Milestone 1 invoice on 6 August 2018.[9] After the receipt of the Milestone 1 payment, EMClarity began work on the Proof of Concept prototype.
Milestone 2: The Preliminary Design Report (August – November 2018)
- [92]Progress to Milestone 2 involved testing a prototype for “digital IF[10] conversion” for an E Band radio. If digital IF conversion could not be achieved for an E Band radio, then it could not be achieved for a W Band radio.
- [93]On 19 August 2018, Dr Baines told Mr McGowan that EMClarity expected the “whole development to be finished some time in the first quarter next year”.
- [94]On 11 September 2018, Dr Baines told Mr McGowan that if he were to visit EMClarity in October 2018, he would be able to “inspect the modem working on the lab bench showing up conversion to E-Band and simulation of a two hop link (first milestone in the development plan)”. If things went “well”, he might be able to see “a W-Band prototype”.
- [95]On 9 October 2018, Mr McGowan went to EMClarity’s premises. A “Proof of Concept Prototype” was tested for him but it was not successful. Based on that test, Mr McGowan was of the view that BSO/Apsara would not see the first production of the W Band radios until “early Q2 of 2019”.
- [96]On 1 November 2018, Mr McGowan emailed Dr Baines and asked him whether there was “any news of a graceful recovery from the bench test failure” (of 9 October 2018). He also said, “I really need to see some forward progress here”.
- [97]In reply, Dr Baines told him that he believed that the recovery was “virtually done”. He said that the error rates for “data passing over RF” were “better than the spec” and that EMClarity was “only a couple of days away” from sending Mr McGowan the preliminary design report for RF at E Band. Dr Baines expressed positive views about the future progress of project.
- [98]The Preliminary Design Test Report – that is, the deliverable for Milestone 2 – was sent by Dr Baines to Mr McGowan on 15 November 2018. Dr Baines informed Mr McGowan that the preliminary design feasibility study had been “useful in determining the design approach for the W Band product, to rule out some approaches that won’t deliver the result and confirm those that support the goals”. He continued –
We’ve shown data being transmitted over RF at 64QAM within the error rate specs, and have justification to believe that continuing with the W-Band product development is feasible.
- [99]“QAM” – quadrature amplitude modulation – is a way of representing digital signals as analogue signals so that they can be transmitted through the air. The number before the “QAM” is related to data throughput: the higher the QAM, the higher the radio’s data throughput. “64QAM” was one of the target specifications in the WBRDAT. Before the execution of the WBRDAT, EMClarity had never achieved a digital IF conversion with a 64QAM modulated signal in the E Band or the W Band.
Milestone 3: Commencement of final design (November 2018 – January 2019)
- [100]In accordance with the WBRDAT, EMClarity was next to work on the “Final Design” in pursuance of Milestone 3. The Milestone 3 payment was to be paid in advance.
- [101]In November 2018, Mr McGowan and Dr Baines discussed the Preliminary Design Test Report and relevant technical matters. Between late November 2018 and March 2019, at Mr McGowan’s request, EMClarity prepared path analyses and latency calculations for BSO.
- [102]A “path analysis” involves a prediction of signal strength in certain specified circumstances and the likely interruption of signal transmission due to atmospheric moisture. A “latency calculation” (at its simplest) is a calculation of the time it takes for a signal to travel through the air. These analyses and calculations are relevant to the design of a network. Dr Baines understood that their results would assist BSO in deciding whether to proceed with W Band development.
- [103]On 21 December 2018, Mr McGowan emailed Dr Baines (copying in Mr White and Mr Dougal), requesting an update, including on the build timeline. The replies he received did not include an update on the build timeline but did include the latest path analysis and calculations.
- [104]On 9 January 2019, Mr McGowan emailed Dr Baines, asking for an update on the “state of the production phase”. He told Dr Baines that he had management “yelling” at him that the project was “super late” putting them “significantly behind the competition”. Dr Baines proposed a “conference call with the guys to go through the material we sent just before Christmas”.
- [105]According to his affidavit, in fact, Dr Baines found “bizarre” Mr McGowan’s question about the “production stage” because there could be no production without a working prototype (Milestone 3) and BSO had not then indicated whether it wished to proceed to Milestone 3 or not. He said that, having submitted the “Milestone 2 Report”, the “ball was in BSO’s court on whether it wanted to proceed with Milestone 3 or not”.
- [106]On 11 January 2019, Dr Baines, Mr Dougal and Mr White (all from EMClarity) had a telephone conversation with Mr McGowan. They discussed the calculations and “fade margins”. A “fade margin” is a measure of how much excess signal strength is predicted at a receiver radio under normal conditions. According to Dr Baines, Mr McGowan considered that the fade margin in contemplation was not high enough to meet BSO’s requirements.
- [107]According to Dr Baines, he told Mr McGowan during this telephone conversation that if he wanted to “get on” with the production phase, then EMClarity had to get the development done first. But, he said, “I did not say to Mr McGowan that the question in his email to me of 9 January 2019 … was “bizarre” because I did not want to say anything to upset Mr McGowan, who was a representative of EMC’s customer, BSO”.
- [108]I find remarkable the suggestion that Dr Baines was unwilling to remind Mr McGowan that development had to precede production so as not to “upset” him. Dr Baines and Mr McGowan are mature, well-educated, professional representatives of their companies. They were in discussions about the progress of an expensive agreement for the development and supply of a new product which, by its terms, hinged upon EMClarity’s ability to develop such a product. I find unpersuasive Dr Baines’ explanation as to why he did not more forcefully remind Mr McGowan of the need for development (indeed successful development) before production.
- [109]On 14 January 2019, Dr Baines sent an email to Mr McGowan and others attaching “the cut down path analysis and latency calc” for BSO’s network.
- [110][redacted]
- [111]On 17 January 2019, Dr Baines and Mr McGowan spoke again about the path analyses and latency calculations. They discussed the antenna sizes needed to yield the desired performance of the network. Mr McGowan sent Dr Baines details of the maximum antennas permitted at relevant sites.
- [112]According to Dr Baines, at the failed demonstration and in telephone calls after the delivery of the Milestone 2 Report, Mr McGowan said words to the effect that the development project was “pretty risky”. I note that Mr McGowan said something similar in an email to Dr Baines on 29 January 2019 (“95G is still high risk”) referred to below.
The critical correspondence
- [113]In the paragraphs under this heading, I have considered the (mostly email) discussions between Dr Baines and Mr McGowan which ultimately led to the 2019 Agreements. All emphases in the quoted extracts under this heading are mine.
Late January 2019
- [114]On 29 January 2019, Mr McGowan emailed Dr Baines, attaching a pdf of “39 band” and asking whether that band was anything EMClarity could make use of.
- [115]The email chain continued:
- From Dr Baines to Mr McGowan –
[redacted]. The amount of spectrum that is designated in this document would make it tight – only 1.4GHz for A and B – but could just be do-able.
I had previously had my eye on this band because I am aware that at least one of the big Telcos has a chunk of the spectrum in this band – thinking of 5G fronthaul/backhaul.
- From Mr McGowan to Dr Baines –
…
I think you and I might need to toss the options around a little. 95G is still high risk.
- [116]On 30 January 2019, Dr Baines sent Mr McGowan a spreadsheet showing the recommended W Band configuration and budget under cover of an email which said –
…
We’ve finished looking at what configuration would suit a W-Band network and I have attached that. This gives good fade margins on all hops, and includes our recommended antenna sizing.
…
Happy to go into the risks in different options. We’ve put quite a lot of work into the 95G development so that has to be seen as mitigating some of the risks there, versus starting from scratch in a different band [that is, the 39GHz].
- [117]On 31 January 2019, Mr McGowan emailed Dr Baines, copying in Mr Pellé, informing him that BSO had lost a customer on the Apsara network –
We have just received notice of our first service cancellation due to competitive pressure. We believe that the new network will be extremely competitive, and in fact I think we can retain our market leadership.
However, this is not a good position to be in, especially as going into this project we expected to be deploying radios now. This would bolster our story and potentially delay some of the further terminations we expect.
As discussed we really do need to accelerate this programme and start getting product in the field. What is the current timeline for deliveries?
- [118]According to his affidavit, Dr Baines found Mr McGowan’s statements about “accelerating” the program and starting to get product “in the field” “bizarre” because the development project was not at production phase and BSO had not yet indicated its acceptance of Milestones 2 and 3. Dr Baines said that he said nothing to Mr McGowan about how “bizarre” his statements were because he did not want to “upset” him. I find that assertion incredible. It was, according to Dr Baines, his second experience of Mr McGowan saying “bizarre” things.
- [119]While Dr Baines made much of the “design challenges” experienced by EMClarity in his affidavit, his correspondence with Mr McGowan in 2019 about the project and the prospect of its success was positive – including in his reply (below) to the “bizarre” email about getting product “in the field”. In his reply, Dr Baines acknowledged the delay and proposed an “out-of-left-field” alternative, that is, deploying E Band radios –
Hi Callum,
I agree with you that this new network will be extremely competitive. It will be based on world leading technology – no-one else will have a high data throughput, ultra low latency solution in this band, to the best of our knowledge. You will have a high performance system in clear spectrum.
Yes, we are late compared to where we wanted to be at this time. The clock started with the initial payment on 6 August 2018. We therefore had planned to be at the final design review milestone early February 2019. In reality, we are round about milestones 2 and 3 at the moment. We have completed the preliminary design work, we have a solid design specification to achieve good network performance which has been modelled, and we know what the product cost will be.
Realistically, if BSO confirms the design specification and the accurate costs then we are looking at another three months to complete the development. The original plan had five months between milestones 2/3 and completion of design but we have anticipated those decisions being made and have already done some work in the final design. I don’t want to create too much of an overhang there because strictly speaking we need your confirmation to proceed.
Once we have a design completed, the nominal lead time on production units is three months from order. This doesn’t necessarily have to be sequential with the design phase as certain of the longer lead time parts can be ordered in advance.
I suggest we have a call to discuss this as soon as you are available.
The options as I see them are:
- Confirm the design specification, the proposed network design, and the product costing and we proceed with the next phases of development.
- Consider an alternative. This has come out of left field – [redacted] has advised that they will not be renewing the exclusivity on our E-band products. You may wish to consider our E-band radios for your network but spectrum licenses could be an issue. Our 5Gbps radio needs 2.1 GHz of channel and the 10Gps radio needs 4.2Ghz.
Anyway, let’s have a call as soon as possible to discuss this.
We are committed to doing our best to support BSO with a world leading network.
Kind regards,
Peter.
- [120]Nothing in this reply suggests any doubt about the successful development of the W Band radio or its production – it is all positive, although it conveyed that development and production would take several months. Indeed, by his use of phrases like “strictly speaking” and “nominal” lead times, Dr Baines was, in my view, conveying that the caution built into the WBRDAT was unnecessary including because EMClarity had “modelled” a “solid design specification to achieve good network performance”; anticipated that the design specification would be confirmed; and done some work on the final design.
- [121]In my view, it is more likely that Dr Baines said nothing in this reply about Mr McGowan’s “bizarre” statements because he was, as at January 2019, either –
- genuinely confident of EMClarity’s ability to deliver on the design and prototype; or
- motivated to minimise any difficulty EMClarity was having, or might have, with the project to encourage BSO to progress it.
- [122]Using E Band radios (as proposed in option 2) had not been an option at the time BSO entered into the WBRDAT because they were then exclusive to [redacted]. Once they were available as an option, Mr McGowan considered that their use would be a “viable solution to improving BSO’s current networks simultaneously with developing the new W Band network”.
February/March 2019
- [123]On 1 February 2019, Dr Baines provided to Mr McGowan (and Mr Pellé) the path analysis utilising the E Band radios.
- [124]Between 1 and 6 February 2019, Mr McGowan and Dr Baines discussed (via telephone and email) the E Band radios; BSO’s requirements; and BSO’s strategy for integrating them with, or instead of, W Band radios, including the adaptations BSO would need to make to its network. Their discussions focused on ways to reduce latency in the E Band, as reflected in the email correspondence between Mr McGowan and Dr Baines (copying in Mr Pellé) on 4, 5 and 6 February.
- [125]There is nothing in this correspondence which suggests that the supply of E Band radios is dependent upon any aspect of development of the E Band radios, which presumably had been previously deployed exclusively by [redacted] –
[redacted]
- [126]On 5 February 2019, Dr Baines sent Mr McGowan and Mr Pellé an “apples for apples” comparison of the latencies on the “MAH-CAR path”[11] using W Band and E Band. In his email, Dr Baines encouraged BSO to progress the WBRDAT. He said –
[redacted]
- [127]In his reply on 6 February 2019, Mr McGowan (copying in Mr Pellé) said (excluding some technical detail) –
[redacted]
I’ve even said to you if you need to buy some units in I am happy to issue POs to cover. Let me know what you need to do.
- [128]In the next email in the chain, Dr Baines set out options to reduce latency as follows –
[redacted]
- [129]On 7 or 8 February, Mr McGowan and Dr Baines spoke over the telephone. Mr McGowan told Dr Baines that option 2 (that is, the development of another product: [redacted]) was not feasible. He had only considered purchasing the existing (16QAM) E Band radios on the basis that they could be immediately deployed.
- [130]In his email to Mr McGowan (copying in Mr Pellé) on 8 February 2019, Dr Baines discussed the notion of developing and producing units concurrently and indicated that EMClarity “believed” it could “have working product” of W Band and E Band radios in three months. He said –
We seem to be on the same page with respect to the options. Number 2 will be a lot more fruitful and will really give BSO something unique in the market.
We’ve been thinking about the timelines and believe that we can have working product of both W-band and E-band in about three months if we push the go button now. We’ve been working out how we can do both converter developments in parallel …
We normally advise that production orders can be filled in 3 to 4 months from receipt of order. In the past, we have normally completed development then the customer has placed their production order, so the development and production timelines add together. With your interest in purchasing devices … early, then we could build the quantity of pre-production units you need for the first path in the design phase so when development is completed and they have passed compliance testing we can ship these units to you for deployment, saving a lot of time. The production unit design revision level may change once the design is complete but this can be effectively managed with the right selection of spares being carried.
We suggest we get this all under way now by advancing to the final design stage. I’ve attached here the two invoices related to milestones 2 and 3 under the contract, for the W-band development. We have raised these on Apsara Networks as per the commercial vehicle you instructed us to use last time.
We should talk about your interest in purchasing long lead time components in advance, as well as your intentions for equipment purchasing over the rest of the triangle and in other jurisdictions, because I am thinking about offering you that we will develop the E-band converters/new radio at our cost, provided there will be enough business in it for both of us.
- [131]This email does not contemplate anything other than the successful design of W Band radios. It proposes building deployment-ready units in the design phase – conveying confidence about EMClarity’s ability to design radios which would work, even if some revision of their design might be required.
- [132]To this email, Mr McGowan replied (on Saturday, 9 February 2019) –
I think I’ve missed something.
What E-Band development? I thought this was off the shelf.
- [133]On Monday, 11 February 2019, Mr McGowan arranged for the Milestone 2 and 3 payments to be paid (as per the WBRDAT). He spoke to Dr Baines about “the utility of the E-Band radios in BSO’s existing network”.
- [134]On 12 February 2019, Dr Baines emailed Mr McGowan (copying in Mr Pellé). Dr Baines said (after providing some technical information including about the hand off between the “W-Band and the current E-Band radios”) –
With time being of the essence for your project, I think we really need to advance through the current milestones, and get on with the final development phase, at least for the W-band development.
I note your comment about the development of an [redacted] adding more risk. While there are always unknowns with development of a new product, I do think we have mitigated some of the bigger risks in the preliminary design work that has been done. If we build some 16QAM E-Band radios for you now you may wish to replace them in the future with [redacted]. No change of antennas would be needed.
- [135]After further correspondence about technical matters, Mr McGowan arranged to be in Brisbane on 27 February 2019.
- [136]On 13 February 2019, by email, Dr Baines asked Mr McGowan for his “thoughts on proceeding with the W-Band development”. Dr Baines said, “We are sitting at the point where we need BSO’s confirmation to do that and payment of the next invoices for the development”. Mr McGowan replied, “We’re going ahead with W-band. I’ve submitted the invoices for processing and payment. E-band is giving me grief, however”. Their exchange continued –
[redacted]
- [137]In my view, in this exchange, Dr Baines implies that E Band 16 QAM radios were “proven” in the relevant environment (by not suggesting otherwise) and available to be shipped “in short order”.
- [138]Dr Baines provided the quote for the 16QAM radios, as foreshadowed, on 14 February 2019. It was introduced with the following, “Callum, Please receive below our quotation for the Exomux E-Band Ultra Low Latency links with associated accessories”. Its payment terms were “50% on order, 30% on completion of Factory acceptance testing and packaged ready for shipping and, 20% on Acceptance of Delivery”. I note that this quote was issued to Mr McGowan at “BSO Networks” (plural) – which is not the first plaintiff’s name. The parties did not explore whether Dr Baines’ reference to BSO Networks was significant (because, for example, he intended it to reflect his understanding of Apsara’s involvement in the project).
- [139]The quote was in a certain format which Mr McGowan found helpful. On 15 February 2019, he asked Dr Baines to provide a quote for the W Band equipment in the same format. That quote “for the Exomux W-Band Ultra Low Frequency links with associated accessories” was provided on 26 February 2019. It was addressed to Mr McGowan of “BSO Networks”. The payment terms were identical to those above.
- [140]On 27 February 2019, Mr McGowan (and another) met with Dr Baines in Brisbane to discuss the progress of the project.
- [141]On 4 March 2019, Mr McGowan told Dr Baines that he had approval to make the Milestone 2 and 3 payments. In reply, Dr Baines thanked him and said “All our stuff for you is coming together. Should be able to send it in the next day or so”.
- [142]On 5 March 2019, Mr McGowan asked Dr Baines for his “notes from last week”. He continued, “I want to start screwing together the project plan on our side. Any ETA on the final design?” In reply, Dr Baines provided his notes and said that the path analysis was “expected to be ready by the end of our day today” including the equipment for the final design. I note Dr Baines’ statement that he understood the reference to “final design” above was not a reference to the final design of a radio or radio prototype – but rather a reference to the final design of BSO’s network.
- [143]The notes of the 27 February 2019 meeting included the following –
…
- [redacted]
BSO is willing to pay for both these developments. Action – EMC to quote for these.
…
[redacted]
- [144]There was a further exchange of emails about technical matters – including emails internal to EMClarity. On 7 March 2019, David White emailed Dr Baines about his latency calculations and said, “Going through this process has also raised several other questions that need to be answered by BSO for us to complete the production build”. I note the reference to the “production build”.
- [145]On 8 March 2019, Dr Baines emailed Mr McGowan “latency tables with some drawings that assist in understanding the interfacing and modes”. He continued –
[redacted]
- [146]Reading this email, in the context of the notes of the meeting above, it seems that the development of the implementation of the [redacted] was something which had not been contemplated when the W Band Radio Development Agreement had been negotiated – hence the reference to BSO’s willingness to pay for it in the meeting notes and Dr Baines’ foreshadowing a quote for it.
- [147]On 11 March 2019, in the course of emails between Dr Baines and Mr McGowan discussing technical matters, Dr Baines’ answers to some of Mr McGowan’s questions refer to EMClarity’s being able to deliver “today” certain options for the W Band project; and the latency available “now” in relation to the W Band development –
Actually the latency will be equal in both directions. In the cells that have Comments we discuss the ULL options. We’ve only included the options that we can deliver today (including the W-band project) in the actual latency numbers. Other options are possible and are under investigation. We are confirming feasibility and will quote for them. The Comments describe the additional latency gains that are expected when these new features are delivered.
…
The latency calcs advise what is available now (including the W-band development). [redacted] The latency reflects the more conservative approach.
- [148]Dr Baines’ affidavit does not elaborate on this email.
- [149]Apsara paid the Milestone 2 and 3 invoices on 12 March 2019.
- [150]In his affidavit, Dr Baines says that, before 12 March 2019, EMClarity had undertaken some work on “component selection and refinement” for a “W Band Functional Prototype”. He says that, after receipt of the Milestone 2 and 3 payments, EMClarity began working on the design of the W Band Functional Prototype (Milestone 3). He says there are two stages for the process of developing a functional prototype, namely, the design stage and the development stage. To develop a functional prototype, EMClarity needed to order and receive the components for it. A functional prototype establishes whether or not a stable design has been developed for (in this case) a W Band radio (to specifications). He says –
… a successful W-Band Functional Prototype is a necessary precursor to the production of W-Band Radios. A developed and built W-Band Functional Prototype that passes testing would also then provide the model or template for production of any W-Band Radios …
- [151]He states in his affidavit that (as at the date of it) the design and development of the W Band Functional Prototype had not been finalised. That remains the case.
- [152]Returning to the relevant chronology, Dr Baines sent the “Network Equipment Quote” to Mr McGowan on 14 March 2019 under cover of an email which recommended that BSO “issue[] purchase orders and make[] initial payment for this equipment as soon as possible to manage the delivery timelines”. He continued –
Lead times in the industry are generally stretching out right now. A large number of the parts used had a 12-14 week lead time, and some even longer. If we order right now we will be able to start production (having already received all parts) immediately after the design and prototypes are finished. If BSO waits until the prototyping phase is complete this will impact delivery by adding another 3 months.
I’ll be on leave in NZ for the next two weeks but will still be responding to emails so we can keep this moving.
- [153]Dr Baines also explained that EMClarity was working on –
[redacted]
- [154]The quote itself was introduced by the following, “Please receive below our quotation for the equipment needed for the network configuration we have agreed, comprising a mix of ExoMux E-Band and W-Band Ultra Low Latency links with associated accessories”. The quote was sent to Mr McGowan of “BSO Networks”.
- [155]The radios were identified as follows –
[redacted]
- [156][redacted]
- [157]The “Terms and Conditions” of the quote included the following –
…
4) No agreement for supply exists between EMClarity and customer until (1) EMClarity has received an official purchase order from Customer, (2) EMClarity has returned a purchase order from Customer and an invoice for the first part payment, and (3) the customer has paid the first part payment into EMClarity’s bank account in accordance with the invoice.
5) Payment Terms. 60% on order; 30% on completion of Factory acceptance testing and packaged ready for shipping and, 10% on Acceptance of Delivery.
6) EMClarity’s test plans for Production Factory acceptance testing will be defined by EMClarity to ascertain functionality of components and systems to specification. Customer may request limited additional compliance tests during final testing. Customer may not unreasonably withhold payment once final testing has been successfully completed in a way that demonstrates products are in accordance with specification. Customer accepts that testing every product to specification is not warranted and type of sample testing within batches is suitable to prove batch or supply compliance.
…
7) New product and Extended Warranty terms are in accordance with the addendum below.
- [158][redacted]
- [159]I note that Dr Baines’ email referred to production occurring “after the design and prototypes were finished” (emphasis added). However, it contained nothing to suggest that production was conditional upon there being successful design or the construction of a successful functional prototype.
- [160]In the course of other emails discussing technical matters, Dr Baines informed Mr McGowan (on 14 March 2019) that the power consumption details he had provided for the ExoMux E Band were “accurate” but the power consumption details for the W Band were “+-20%” “based on current design”. He continued, “We are looking at ways to further reduce these but unknown at the moment. This will be worst case”.
Observation about the operation of the WBRDAT
- [161]Under the WBRDAT, Milestones 1 – 4 are the development milestones, which operated in the following way.
- [162]If, after –
- making the “kick off payment” (Milestone 1);
- reviewing the preliminary design (Milestone 2); and
- paying [redacted] USD,
the Customer wished EMClarity to commence the final design, then it had to pay [redacted] USD “in advance” (the Milestone 3 payment).
- [163]If the Customer was satisfied with the final design, and wished the Production Build to commence, then it was required to pay Milestone 4 ([redacted] USD). The “Deliverable” for Milestone 4 (“Final Design Review”)[12] is expressed as follows (my emphasis) –
Successful review of finished design.
Customer must Accept Milestone 4 prior to work starting on the Production Build. Customer can discontinue further work prior to making such payment and forfeit Milestone 1, 2 and 3 payments.
- [164]The production milestones commenced with Milestone 5.
- [165][redacted]
- [166][redacted]
- [167]Under the WBRDAT, EMClarity would not begin work on the Production Units until the Milestone 5 payment was made; and it would not ship the units until the Milestone 6 payment was made.
- [168]Neither Dr Baines nor Mr McGowan expressly referred to Milestones 4, 5, 6 or 7, or (expressly or implicitly) to their requirements or to their payment, in the discussions leading up to the 2019 Agreements.
Late March and April 2019
- [169]On 27 March 2019, David White emailed Mr McGowan and asked for certain details to enable him to complete a path analysis and advise on the correct radios for each hop of the [redacted].
- [170]On 28 March 2019, Mr McGowan sent to Dr Baines (copying in Mr Pellé) an email with the subject line “Price requirements”. It read –
[redacted]
- [171]On 29 March 2019, Mr White sent Mr McGowan the updated path analysis for the W Band path. The path analysis was introduced in this way: “This report is an analysis of the following proposed BSO networks using EMClarity E-Band and W-Band radios…”
- [172]Dr Baines sent Mr McGowan a “cost optimised proposal for D1 and D2”, under cover of an email which included the following –
The 64QAM W-band radios have a materially higher cost to produce than the E-band radios [for technical reasons].
We would be pleased to give you pricing at these discounted rates on all the radios you need for the full network, if you order the equipment required for the full network triangle before 1 April.
David is working out the delivery timeframes for D1, assuming your order is placed before the end of this quarter. We will advise those in the formal quote (see below) but you can be assured that we would do everything in our power to expedite delivery.
We would recommend stocking spares of at least one of each variant or radio …
If you accept this discounted pricing then we will produce a quotation for the full network equipment at the discounted rates.
- [173]I note that, obviously in response to Mr McGowan’s statements that he needed the 64QAM within three months and the 16 QAMs “immediately”, Dr Baines said that he would advise Mr McGowan on timeframes in the “formal quote”.
BSO’s/Apsara’s “new” (or alternative) strategy
- [174]Mr McGowan set out the BSO/Apsara strategy in an email to Dr Baines and David White on 4 April 2019 –
[redacted]
- [175][redacted]
- [176]After further clarification, a BoM (I assume “Bill of Materials”), dated 5 April 2019, for the four phases was prepared and sent to Mr McGowan. The BoM comprised “a mix of ExoMux E-Band and W-Band Ultra Low Latency links with associated accessories”.
- [177]I infer, from emails between Dr Baines to Mr Pellé on 9 April 2019, that Mr Pellé had some concerns about EMClarity’s quote. To “make it work” for Mr Pellé, Dr Baines created a new quote, which included “exclusivity for BSO in the use of this W-band equipment”. He followed up with an email on 10 April 2019, with other options, including –
..
2 [redacted]
3 I will offer a further 5% discount on the total price of the equipment you purchase for this network, provided you order the full network now, and also that you agree to limit the exclusivity to six months when we ship the first W-band units to you.
- [178]Mr Pellé emailed Dr Baines on 16 April 2019 (after being asked for his thoughts on Dr Baines’ options) with the following (errors as per original) –
Peter
To be honest with you, I am not comfortable with these #give and taken choice (Price vs Exclusivity). Callum hardly championed you internally and we feel trapped between price and exclusivity. May be we shall have done an RFP [I assume, “Request for Proposal”] and put supplier in competitions as price points does not work in our current revenue/cost model
best
Emmanuel PELLÉ
- [179]I infer, from emails between Dr Baines and Mr McGowan between 17 and 22 April 2019, that Mr Pellé ultimately indicated that he would accept EMClarity’s quote on certain terms.
Delivery estimates
- [180]On 24 April 2019, Mr McGowan emailed Dr Baines the network build sequence and asked for Dr Baines’ “best estimate” for deliveries. Mr McGowan said (omitting technical details) –
[redacted]
- [181]Dr Baines gave the following delivery estimates in an email dated 26 April 2019 –
Hi Callum,
OK, here are our most up to date thoughts on timing of deliveries.
Timing Estimates
These assume that we complete the contractuals and you place your orders next week.
Phase 1 Delivery: 9 Weeks – 1 July 2019
Phase 2 Delivery: 9 Week E-Band – 1 July 2019, 22 Weeks W Band (after design complete) 30 Sep 2019
Phase 3 Delivery: 22 Weeks W-Band (After design complete) 30 Sep 2019
Phase 4 Delivery: 22 Weeks W-Band (After design complete) 30 Sep 2019
We expect the development of the prototype W-band 64QAM to be finished in 8 weeks. We could build an extra prototype link and then you could install that one. The risk in this is that this one link is a little bit of an orphan compared to the others that will be delivered, but when you think about [sic], the differences would only be minor hardware ones, if any, and it would be fully compatible when it comes to modem software and control software, so it’s actually not a bad option. If we went down this route, and I like the idea, then the possible delivery on phase 2 W-band might be 10-11 weeks ARO for the 1 link, meaning mid July. That means you would have the equipment for the first two phases in July.
As I mentioned when we last spoke, we anticipated the demand for long lead time items with our suppliers and have placed our orders. This is a large financial commitment and will have to be confirmed by 8 May Aus time (7 May in USA). If we had to delay or re-order then we go back to standard lead times, meaning an additional 7 weeks. This impacts the delivery of the E-band units and the first W-band link.
If we can confirm everything next week then the way we will arrange production is to build all of the W-Band MODEM halves at the same time as building the E-Band links then with the W-Band design complete building the W-Band components and adding to the unit.
I am also working on the contractuals as I promised Michael and Emmanuel. I will give you a new quote reflecting what you have put below on the phases and also a contract containing all of the terms we have collectively been discussing.
- [182]Nothing in that email suggested that EMClarity had any doubts about being able to complete the design or build the W Band components.
Quotes including statements about delivery times
- [183]
- [184]The quote was addressed to Mr McGowan of “BSO Networks”. It was broken into the phases of the “overall project”, reflecting “your deployment strategy”. It identified the radios (and related accessories) to be supplied at each phase and proposed an amount to be held as spares. The quote also included other tasks to be performed by EMClarity, [redacted], which tasks were “included in this overall project”. In its “terms and conditions”, it included a certain “Exclusivity/First Right of Refusal Condition”. I note that the WBRDAT did not cover the implementation of the ULL protocol in the 64QAM W Band radios.
- [185]Dr Baines’ email, accompanying the quote, set out the expected delivery times for each of the phases on the assumption that “we complete the contractuals and you place your orders next week”. It included the following note on “Phase 2 W Band delivery” (my emphasis) –
We expect the development of the prototype W Band 64QAM to be finished in 8 weeks. We will be building an extra prototype link to achieve this timing for Phase 2 and you can install that one.
- [186][redacted]
- [187]The email continued –
We will have to confirm by 8 May Aus time (7 May in USA) with our suppliers on the high value long lead time items. If we had to delay or re-order then we go back to standard lead times, meaning an additional 7 weeks. This impacts the delivery of the E-band units and the first W-band link.
…
Given our lead times and wanting to get this delivered for you as soon as possible, receipt of your order will be the trigger to build. That’s when we will have to commit with our suppliers. Usually our trigger to ship is passing FAT [Factory Acceptance Testing]. Is that what you had in mind?
…
To manage the request from Michael, for BSO to pay 50% this year and 50% next year, we will need all orders placed together and the first 50% paid at that time …
- [188]I note Dr Baines’ statements in his emails of 26 April 2019 and 2 May 2019 that he expected the development of the prototype W Band 64QAM to be finished in eight weeks. Although it is hard, on the evidence, to know, this statement seems inconsistent with Dr Baines’ affidavit evidence – especially at paragraphs 118-126 – which paints a picture of painstaking progress in the development of such a prototype.
- [189]On 4 May 2019, Mr McGowan directed Apsara’s accountants to prepare purchase orders for the first three phases of the quote as above.
- [190]The final quote, for the supply of E Band and W Band radios plus spares, was dated 10 May 2019. This version included a revised exclusivity term (in clause 12(f)), after the intervention of Mr Ourabah. The exclusivity offered by the quote initially was in these terms (my emphasis) –
f) [redacted]
- [191]Mr Ourabah pointed out that his understanding was that “any spend in excess of [redacted] USD per year with EMClarity would cound [sic] for ensuring we extend our exclusivity in these geographies, as per the initial PO I had signed for the R & D. Can you please amend accordingly?”
- [192]Mr Ourabah’s understanding reflects one of the exclusivity conditions under the WBRDAT – namely that stated in clause 2.6(b), which extended exclusivity of the relevant product under the WBRDAT (the W Band 92-95 GHZ low latency radio developed during the Project) for 12 months upon BSO placing one or more orders for EMClarity in-house products where the combined total of the said orders is at least [redacted].
- [193]The paragraph was then amended as follows (my emphasis) –
f) Exclusivity. BSO shall have exclusive access in a given calendar year to the Product in the Application in the Territory while the total of all purchases from EMClarity exceed [redacted] in that calendar year.
- [194]“Product” in the quote is defined as “64QAM W-band radio with latency less than one micro second”.
- [195]After that amendment to the exclusivity paragraph, Mr Ourabah told Dr Baines that it was “all good” and that Mr McGowan would proceed.
Purchase orders
- [196]The Quote also included the following clause 4 –
No agreement for supply exists between EMClarity and customer until (1) EMClarity has received an official purchase order from Customer, (2) EMClarity has returned a purchase order confirmation to customer and an invoice for the first part payment, and (3) the customer has paid the first part payment into EMClarity’s bank account in accordance with the invoice.
- [197]On 11 May 2019, Mr McGowan emailed two purchase orders (in Apsara’s name, on Apsara’s letterhead) to Dr Baines for phases 1 and 3. He indicated that phase 2 was “on hold” and explained that he realised he needed equipment from phase 2 for phase 3, but wanted to “firm up the timing and deployment plan first”. He said he might reallocate equipment from phase 2 and would need to realign the quote accordingly.
- [198]In his affidavit, Mr McGowan explained that Apsara placed its purchase orders before seeing the finished prototype “to ensure that we would have all of the necessary components available to minimise delays, given that much of the componentry had a long lead-time”. For what it is worth, Mr McGowan said he understood from Dr Baines’ communication that the W-Band radio had reached the ready-for-production stage, but EMClarity needed an injection of cash to source the materials to produce it.
- [199]In his affidavit, Dr Baines says that he “suggested to Mr McGowan that these orders be placed, ahead of the final design for the W-Band Functional Prototype being completed and tested, because of long lead times for some of the parts that I thought would ultimately be required to manufacture W-Band radios”. He continued, “I did not suggest to Mr McGowan that these orders be placed because EMC was ready to start production of W-Band radios”. He also said that he made no communication to Mr McGowan to the effect that W Band radios had reached the ready for production stage. That is probably right: his emails suggested that the development of the W Band radios would take eight weeks. However, his statement about obtaining parts which he thought would ultimately be required to manufacture the W Band radios is not consistent with any uncertainty about EMClarity’s ability to come up with a successful design and prototype. Nor did Dr Baines say anything about what EMClarity would do with the parts if it could not achieve a successful design or prototype. In my view, even though Dr Baines did not suggest that EMClarity was immediately ready to start production of W Band radios, he conveyed that production of W Band radios was in fact going to happen.
- [200]Mr McGowan emailed Dr Baines the purchase order for phase 2 on 16 May 2019. On 20 May 2019, Dr Baines chased Mr McGowan for the phase 4 payment –
Any update on the initial payment?
Also just waiting on your order for phase 4 to complete the deal we agreed.
- [201]Apsara sent the purchase order for phase 4 on 7 June 2019.
Invoices (May/June 2019)
- [202]Having received the purchase orders, EMClarity issued Invoices to Apsara (in US dollars) –
[redacted]
- [203]The invoice amounts were 50 per cent of the amount of each purchase order, in accordance with the quotes’ payment terms of “50% due on order, 50% due on January 31st, 2020”.
- [204][redacted]
Observation about payment terms
- [205]The quotes’ payment terms were more absolute than the production lot payment terms under the WBRDAT. Under the WBRDAT –
- the Customer was required to indicate that it was satisfied with the “final design” for the W Band, and to make the relevant payment, before EMClarity would commence the production build;
- the Customer had to then pay the kick off payment (60 per cent of the total) before EMClarity would commence the production build; and
- there had to be successful factory testing of the ten piece order before the second payment (30 per cent of the total) was due.
- [206]Apsara’s obligation to pay under the quotes did not depend on “BSO Networks” being satisfied with the final design or there being, from “BSO Networks’” point of view, successful factory acceptance testing.
Observation about warranty terms
- [207]I note the difference between the “Standard Warranty or Warranty Included in the Purchase Price” in the WBRDAT and the “New Product Warranty” term in the quotes.
- [208]Under the WBRDAT, the warranty included the following (my emphasis) –
Customer understands that First Production hardware as delivered in the Project and anticipated in the Schedule will not be fully mature and may experience faults and outages above that considered normal for product in general availability. Customer will work with EMC to help to quickly identify and remedy faults including providing onsite resources for testing, fault diagnosis and module replacement, and providing engineering level remote access for diagnosis and software/firmware repair and reconfiguration by remote EMC staff. Although EMC will endeavour to ensure that this settling in period is as short as possible, the Customer accepts that this higher than normal level of support activity may continue for more than 3 months after first installation. During this period of introduction of prototype or pre-production equipment into the field, Customer will work with EMC to find solutions to any and all issues rather than exercising its rights to return and replacement.
- [209]Under the quotes, the warranty was as follows (my emphasis) –
New Product Warranty
New Product Warranty is 24 months from delivery date and includes spares service on terms described below.
New Product Warranty does not include fault diagnosis or field replacement work unless separately contracted.
New Product Warranty does include general phone-based engineering support for all operational, installation and fault diagnoses issues. This support is provided without limitation during office hours … Requests for support are managed through EMS support ticketing and response tracking systems.
Warranty includes (at Customer request) monitoring of the equipment within the EMC NOC at Tennyson. This is the preferred level of support for greatest operational efficiency.
Spares Service
EMC/EMS have been supplying microwave link products since 1999 and continue to support equipment deployed since then. For in-full-production products, EMC holds multiple spares for all major electronic parts and will ship a replacement spare (at customer cost) on the same day of a confirmed failure during the new product warranty period …
In the case of multiple failures of the same component within a very short period of time …EMClarity may not be able to immediately supply spares of individual units but will provide a priority repair and return module service …
EMClarity guarantees to provide spares support for all equipment supplied for a period not less than 10 years from date of shipment.
As a requirement of providing spares through the spares service, the customer is required to return the failed unit (at customers [sic] cost). EMClarity will repair this unit and hold it as part of its spares stock.
Extended Warranty Maintenance Contract (Optional)
… EMC offers an extended maintenance option …
- [210]The differences between the warranties offered are obvious. The WBRDAT anticipated more than the usual number of faults and outages. The 2019 Agreements do not.
Mr Boyle’s invitation to the W Band Project Meeting
- [211]Meanwhile, on 19 May 2019, unbeknownst to BSO/Apsara, Tim Boyle was sent the invitation to a “W-Band Project Meeting” as discussed above.
Delays from July 2019
- [212]On 24 July 2019, Dr Baines provided Mr McGowan with an update on delivery times. He said (my emphasis) –
…
When we negotiated the equipment purchase at the beginning of May, we were signalling an expected delivery of late July, if the orders were placed at that time, including the up-front payments being received at the same time. That represented a compressed delivery time of 12 weeks.
The way things worked out with the purchase orders and the initial payments, it was 20th June when the last stage was locked in … [and] some of our orders couldn’t be confirmed until we had the full network locked in.
Nevertheless, we will still be able to achieve a 12 week time frame. We plan to start shipping you your E-Band links for the first phase beginning mid September, and the other phases will follow progressively. The first W-Band units are expected to be on their way to you from early November.
Along the way, we have encountered some engineering issues that have now been addressed … [T]he end result is there is increased stability in the design of the product destined for BSO. We also had to deal with some component obsolescence …Again, I’m pleased this has been dealt with before we have shipped anything to you.
…
Davis and Joey are in NJ at the moment and will reach out to you to see if they can catch up. I think it’s good if we can work as closely as possible on the details of the network configuration as it may impact upon the configuration of the equipment we are producing for you.
- [213]In his affidavit, Dr Baines says that, at the time of composing this email (July 2019), he believed that EMClarity had fixed the engineering issues which it had encountered with W Band radios but that in fact, the changes made in July 2019 did not solve the problems. It is not clear from Dr Baines’ affidavit when EMClarity realised that the issues had not been solved but regardless they were not raised with Mr McGowan. The significant point is that Dr Baines believed they had been fixed and that EMClarity had a workable design for the W Band radios.
- [214]Dr Baines and Mr McGowan discussed Mr McGowan receiving training from EMClarity for the E and W Band radios. Mr McGowan also wished to undertake factory acceptance testing of the radios. On 26 July 2019, Mr McGowan informed Dr Baines that it would suit him to visit EMClarity in the second week of September 2019 and that his proposed agenda included inter alia confirming the radio performance is “as expected” and understanding the “eccentricities” of the new equipment.
- [215]From EMClarity’s perspective, supplier “issues” arose causing delay; requiring the postponing of Mr McGowan’s visit and pushing out the expected date for delivery of product. On 20 August 2019, Mr White told Mr McGowan that planning for the worst would mean delivery of the first radios in the first week of October 2019, which would mean radios available for training purposes in the last week of September. However, by 30 August 2019, Dr Baines informed Mr McGowan that things were looking “a bit tight” for the last week of September. He continued (my emphasis) –
If we are looking at the third or fourth week of October then we should already have a number of E radios built and some of the first W radios assembled, so we would suggest the second half of October. It would be a very productive visit at that time.
- [216]Mr McGowan pushed back, reminding Dr Baines (in an email dated 30 August 2019) that Dr Baines told him “just this Tuesday” that shipments would begin at the end of September but now there was a supplier delay. The reference to “this Tuesday” seems to be a reference to a telephone call between Dr Baines, Dr Halappa and Mr England, all of EMClarity, and Mr McGowan on 28 August 2019 (although that was a Wednesday), during which Dr Baines said[14] “words to the effect that EMC ‘hoped to start shipping the first E Band radios at the end of September’”.
- [217]EMClarity provided explanations for the delay and, on 3 September 2019, Mr White suggested that he could train Mr McGowan in the USA –
… I’ll be in the USA in the 2nd week of October. By the time I get back to Australia you would have received your first shipment of links. If you wish I could do the training in the USA and in fact help you with your first link …
Let me know if that works any better for you so we can get you up and running ASAP.
- [218]After further discussions, it was agreed that Mr McGowan’s training would be at EMClarity’s premises in Brisbane on 16 – 18 October 2019. The itinerary suggested by Mr White included Mr McGowan looking at the W Band prototypes and the E Band radio terminal on day 1. As things turned out, Mr McGowan was unable to travel to Australia on those dates.
- [219]Other email correspondence suggests that EMClarity was working towards delivering radios to BSO/Apsara and was prepared to bear the risk of any issues with their design. On 20 September 2019, in an email from Mr White to Dr Halappa, Mr White said (my emphasis) –
[redacted]
- [220]There is evidence of EMClarity pursuing their suppliers, in the months after the 2019 Agreements, for the components necessary to enable them to produce radios for BSO/Apsara. For example, Barry Dench sent a purchase order to [redacted] on 4 June 2019 and asked for the “ETD” (I assume, estimated or expected time of delivery). He asked again for delivery details on 12 June 2019 and 19 June 2019. He was told, on 22 June, that the “scheduled ship date” was 28 August 2019 but that that was subject to change, based on material availability and lead-times from [redacted] suppliers. Mr Dench sought an update on the shipment on 15 September 2019 and was told it had been “revised” to 31 October 2019, “due to one of the materials”. Mr Dench replied (on 16 September 2019) (my emphasis) –
[redacted]
This is a 2 month delay? This [sic] have major consequences for us, it will seriously affect our ability to supply our customer on time. Is there anything at all that can be done to bring this order forward?
- [221][redacted] said that she had “reached out” to see if anything could be done but the tone of her email (dated 17 September 2019) suggested it was unlikely. Then, on 10 October 2019, she informed Mr Dench that “unfortunately” the “ship date” had been “revised” again. She continued –
… It is currently December 16th. The supplier of one [sic] the parts (carrier) has been asked to perform a test, and if it passes, the supplier will be able to confirm the delivery date. We do apologise for the inconvenience this news presents.
Your business is important to us and we will work to improve this shipment date as opportunities present themselves.
- [222]Mr Dench replied –
Hi [redacted]
This has now been moved out three months? This will mean that we fail to deliver our commitment to our customers and as such will incur financial losses. Is there anything that can be done to improve please?
- [223]After McKay Brothers’ acquisition of EMClarity, this order, and others were cancelled.
- [224]Also consistent with an intention to supply the radios after the May 2019 Agreements: on 9 September 2019, Mr White informed Mr McGowan that he had some E Band antennas ready to ship. They were received (in the USA) on 5 October 2019.
BSO informed of McKay Brothers’ acquisition of EMClarity
- [225]On 8 October 2019, by way of a telephone call, Dr Baines, in the presence of others from McKay Brothers (namely, senior executives Dr Stephane Tyc and Dr Robert Meade), told Mr McGowan and Mr Ourabah that McKay Brothers had acquired EMClarity.
- [226]In the course of the telephone call, according to Mr McGowan, Dr Meade said that McKay Brothers was not happy with the quality of the products being delivered; McKay Brothers would begin a quality assessment project; shipments of radios had been stopped; and it was not known how long the pause on shipments would last.[15]
- [227]Mr McGowan asked what confidential information EMClarity had given to McKay Brothers. Dr Baines said that McKay Brothers had been given a “name-reacted” copy of the WBRDAT before their acquisition of EMClarity and an un-redacted copy afterwards. Mr Meade said that BSO could assume that anything discussed with Dr Baines would be shared as well. (According to Dr Baines, Dr Meade said “shared with himself and Dr Tyc”.) Dr Baines recalled saying words to the effect that EMClarity would need to consider how it could delete or destroy BSO’s confidential material. Dr Baines said neither Mr McGowan nor Mr Ourabah responded to that statement.
- [228]Mr McGowan asked for formal written notice of the audit. He was told that his request would be taken “under advisement”.
- [229]Mr McGowan knew that EMClarity was looking for investors, but he was surprised at the acquisition.
- [230]Dr Baines had a separate telephone conversation with Mr Ourabah on 8 October 2019. During that conversation he said that he understood that McKay Brothers’ acquisition of EMClarity could be unfortunate or inconvenient for BSO. Mr Ourabah asked Dr Baines when he would get his radios. Dr Baines said that he believed BSO would get its radios, but he was not sure when. For what it’s worth, Dr Baines said that he did not say that he was “embarrassed” during that conversation (as put to him).
- [231]On 18 October 2019, Dr Baines told Mr McGowan that he was “able” to tell him that the Board of EMClarity passed a resolution confirming the pause of all shipments of radios pending a review of product quality and production processes. He continued –
The first phase of the review is to create a quality plan. There is no ETA available at this time as to when the quality plan or review will be completed.
I will ensure you get any further news as soon as it is available.
- [232]I note that Dr Halappa assumed that the prototype builds were going ahead for W Band radios, notwithstanding the Quality Review, as revealed in this email from Barry Dench to David White, dated 23 October 2019 –
Hi David
Can I have some direction on the wombat production, as we don’t all seem to be on the same page. As far as I am aware we [sic] awaiting a review from McKay before proceeding with anything else (as notified by Peter/yourself), but Ashoka is asking who is and when are we doing the prototype builds for W Band.
We have heaps of components that need to be purchased for this, and depending on who does it, what we buy.
[redacted] If we purchase for the prototype, do we buy these components at the same time as it would make economical sense?
Please advise how you would like me to proceed.
Kind regards
Barry Dench
- [233]On 4 November 2019, it seems that the intention was that Dr Halappa would complete the prototype for the purposes of the Quality Review. An email from Mr White to Mr Dench and Dr Baines said, (my emphasis) –
Barry
After speaking with Peter we’ve confirmed that we will build the [redacted] Wombat prototype terminals as originally planned. These prototypes are also subject to the quality review, however this will be most successful after these units are built which is why we should proceed despite the current hold. The main change is that for now we will NOT be ordering additional components for the production. The reason for this is that despite the customer’s request that we fast-track the production, we feel we can only provide a quality product by first prototyping and then going to production. Additional production components will be ordered after the prototype design has been confirmed experimentally and the quality review on the design has been completed.
Please proceed and order the components required to complete the prototype units….
- [234]Of particular significance is that this email acknowledges the customer’s request for fast-tracked production and a change in EMClarity’s approach from one which accommodated fast track production to one involving first prototyping, then producing.
Status of development and production of a W Band radio
- [235]Notwithstanding the intention stated in November 2019 to build a W Band prototype, development of the prototype ceased.
- [236]Dr Baines’ affidavit sets out the detail of that which must occur to complete development and, assuming the achievement of a functional prototype, the slow and laborious process of production thereafter.
Cancellation of orders for components
- [237]Dr Baines says in his affidavit that, after McKay Brothers acquired EMClarity, the EMClarity board asked him to review, and cancel if possible, orders for component parts which had not been fulfilled and to determine whether it was possible to return any inventory which had been acquired but which was not likely to be used in a final design “based on the findings of the Quality Review”.
- [238]Notwithstanding the implication in that statement that there were “findings” of the Quality Review which identified inventory which would not be required, as Dr Baines acknowledged in his affidavit, the Quality Review is travelling more slowly than expected. It is difficult to understand how then he was meant to identify inventory which was not likely to be used. Regardless, he states that the board’s preference is to issue fresh purchase orders when the parts are required and the specifications for the parts are settled.
- [239]In accordance with the board’s preference, on 16 January 2020 Barry Dench cancelled the [redacted] order which he had been chasing for months, explaining –
Unfortunately our business circumstances have changed significantly over the past few weeks, and as such our management have directed that we put production qty’s [sic] of W Band product on hold.
As a result of this directive, please accept this “request for cancellation” …
- [240]Whilst taking care not to place too much weight upon it, I note the reference to “production quantities” being put “on hold” in this email, which is consistent with Mr Dench’s understanding that EMClarity was about to embark upon the production of W Band product.
- [241][redacted] was not told the real reason for the cancellation. Instead, by email dated 9 March 2020, Mr Watson from EMClarity told [redacted] that their client had decided to postpone the development program indefinitely.
- [242][redacted], another supplier, was told something similar on 9 March 2020 –
Due to lengthy delays in connection with the delivery of parts for a project, the customer has delayed the project indefinitely. As a result we no longer require items … and request that the order be cancelled …”
Progress of the Quality Review
- [243]As at the date of his affidavit, 11 June 2020, Dr Baines reported that the work on the LMDS issues was “progressing well”, but taking longer than expected. He detailed “further issues” which had been encountered with LMDS radios. In June 2020, Dr Baines believed that it was “likely that addressing E Band issues would be completed by around the end of 2020”. He said that because LMDS and E Band radios had some features common to W Band radios he expected Quality Review work on LMDS and E Band radios would “progress the development” of W Band radios. He provided no other information about the expected resumption of development of the W Band radio.
- [244]Having outlined that relevant evidence, I will turn now to the issues.
Issue 1: Did BSO enter into the WBRDAT as agent for Apsara (the undisclosed principal) or in its own capacity?
- [245]The plaintiffs’ primary case was one which treated the 2019 Agreements as agreements between EMClarity and Apsara; to be construed independently of the WBRDAT. If the plaintiffs were successful in their primary case, then the WBRDAT was essentially irrelevant, no matter who the parties to it were or the capacity in which they contracted.
- [246]The plaintiffs had to rely upon the concept of agency to advance their alternative case: that is, that the 2019 Agreements, made between EMClarity and Apsara, varied the WBRDAT, to which EMClarity and BSO were parties, in such a way as to allow the parties to ignore the development aspect of it. It was only if BSO had been acting as Apsara’s agent in the formation of the WBRDAT that an agreement between EMClarity and Apsara could vary the agreement between EMClarity and BSO.
- [247]Although the plaintiffs have succeeded in their primary case, I will express my views about agency in case it becomes relevant.
- [248]The plaintiffs submitted that Apsara was BSO’s “undisclosed principal”. They observed that the “doctrine” of the undisclosed principal was difficult to understand but submitted that that was not a reason not to apply it (of course). It was described in Freeman & Lockyer (a firm) v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 by Diplock LJ as follows (my emphasis) –
An “actual” authority is a legal relationship between principal and agent created by a consensual agreement to which they alone are parties. Its scope is to be ascertained by applying ordinary principles of construction of contracts, including any proper implications from the express words used, the usages of the trade, or the course of business between the parties. To this agreement the contractor is a stranger; he may be totally ignorant of the existence of any authority on the part of the agent. Nevertheless, if the agent does enter into a contract pursuant to the “actual” authority, it does create contractual rights and liabilities between the principal and the contractor …
- [249]The plaintiffs submitted that the evidence of Mr McGowan and Mr Pellé (at [77] – [80]) established that BSO, as agent, entered into the WBRDAT on behalf of Apsara, as the undisclosed principal. They submitted that I ought to find that Apsara and BSO each “manifested assent” to BSO acting on Apsara’s behalf to enter into a contract with EMClarity.
- [250]The defendant submitted, inter alia, that the plaintiffs’ witnesses’ evidence that Apsara would “own” any W Band equipment and would be the “end user” of it did not make out a conferral of authority by Apsara upon BSO which would allow BSO to enter into contractual relations with EMClarity on Apsara’s behalf. Further, the phrase “on behalf of” was not an expression which was capable only of meaning that BSO acted as Apsara’s agent. The plaintiffs had to show that the functions entrusted to BSO were those of representing Apsara so that it stood in its place, acting in its right, and not acting in any independent capacity (referring to Colonial Mutual Life Assurance Society Ltd v Producers and Citizens Cooperative Assurance Co of Australia Ltd (1931) 46 CLR 41 at 48 – 50).
- [251]The defendant also submitted that Mr McGowan’s evidence under cross-examination was inconsistent with the agency asserted. Mr McGowan’s evidence was as follows (my emphasis) –
MR BEACHAM: All right. So your point in paragraph 93[16] is that you discussed BSO acting on behalf of Apsara. That’s correct --- Yes.
Have a look then … [at] page 10 of Mr Piesiewicz’s affidavit. Have a look at subparagraph (e) there? --- Okay.
And it says there that BSO, through Apsara, issued purchased orders for the non-recurring [engineering] …? --- Yes.
All right. I suggest to you that that’s inconsistent with what you say in paragraph 93 of your affidavit. In fact, it’s the opposite? --- No.
You don’t accept that? --- It’s very consistent. I mean, Apsara is 100 per cent owned entity of BSO. Apsara is an operating entity and actually has no staff. All the staff of Apsara are BSO’s staff. So BSO is the owner of Apsara and whatever Apsara owns and, therefore, can negotiate on behalf of Apsara.
…
… The only point I’m making in paragraph 93 of my affidavit is the reporting structure of Apsara through to BSO.
MR BEACHAM: Would it be fair to say that in your mind you see no distinction between BSO and Apsara at all? --- I think I’ve explained that. Apsara is an operating entity. I’m employed by BSO to make Apsara work. End of story.
…
Well it [the plaintiffs’ reply to the defence] says:
In carrying out the acts in 1(a) above, Apsara acted as the plaintiff’s agent.
That is, BSO’s agent. I suggest to you that’s inconsistent with what you say in paragraph 93 of your affidavit? --- No.
You understand that what this reply is saying is that Apsara did something on behalf of BSO? --- Yes.
And what you’re saying in paragraph 93 of your affidavit is that BSO continue with negotiations on behalf of Apsara. That’s the inconsistency I’m putting to you? --- Again, I don’t – I don’t see the inconsistency.
All right? --- Apsara is an operating entity of BSO.
- [252]In the context of questions about invoices in Apsara’s name, Mr McGowan’s evidence was as follows –
Now … if the contract has been negotiated on behalf of Apsara by BSO, that would be the time to say it, wouldn’t it, by way of explanation as to why the invoice was different? --- Are you implying as part of the contract negotiations or - - -
Well, no. This comes after the contract. You say - - -? --- Right, but you said – could you repeat your question, please.
Sorry. It was unclear. You don’t say in that email, “Please change to Apsara Network, because we negotiated the contract on behalf of Apsara”? --- Correct.
And that’s because you didn’t negotiate the contract on behalf of Apsara? --- The contract was negotiated by BSO for BSO’s entities.
Discussion and conclusion
- [253]The most common way in which a relationship of agency arises is in pursuance of the express or implied assent of both principal and agent. To create an agency relationship, it is not necessary that there be a legally binding contract of agency, but there must be an instruction or request from the principal to the agent to do “something” and the agent’s undertaking to do that something. Bare assertions by an alleged agent that they are acting for an alleged principal are not enough. There must be conduct on the part of the alleged principal from which an agency relationship might be inferred.
- [254]Generally, the existence of agency is grounded in intention. And whether an agency relationship exists is to be determined objectively.
- [255]The parties need not to have used the language of agency for the law to infer an intention to create an agency relationship. The parties may not even appreciate the legal concept of agency but may nevertheless create an agency relationship: see Branwhite v Worcester Works Finance Ltd [1969] 1 AC 552. As Dal Pont explains in The Law of Agency[17] (at 4.7, footnotes omitted, my emphasis) –
An intention to create an agency may be manifested ‘simply by placing another in a situation in which, according to the ordinary rules or law, or … according to the ordinary usages of mankind, that other is understood to represent and act for the person who has so placed him’. It need not involve a positive act by the principal, but may be created by the principal’s acquiescence. Jordan CJ explained this in Bonette v Woolworths Ltd as follows:
Evidence that a person is purporting to do acts on behalf of a principal in some capacity in such circumstances that the knowledge and approval of the principal may fairly be inferred is evidence that the principal has authorised him to act in the particular capacity. If there is evidence justifying such an inference, it justifies the further inference that the person has authority to do such acts as would be done, as a matter of ordinary business practice, by a person acting in such a capacity.
- [256]The agent’s authority is derived from the principal, also as explained by Dal Pont (at 4.12, footnotes omitted, my emphasis) –
The essence of an agency relationship … is that the agent be in some way, however minor, authorised to act on behalf of the principal. For this purpose, authority can be ‘express’, being specific authorisation given by express words whether oral or written to engage in a particular form of conduct, and/or ‘implied’ being authority inferred from both the conduct of the parties and the circumstances of the case, the latter including the office or position in which the agent is placed.
A useful starting point in addressing whether a person has authorised another to do one or more acts on his or her behalf is to consider on whose benefit or in whose interest it was intended that the act(s) should be done. The scope of this authority determines the extent to which the agent’s actions can, without personal liability for so doing, impact on the principal’s affairs. It moreover determines the scope of the legal obligations and entitlements between the agent and the principal per se.
- [257]The relationship between a holding and subsidiary company is not prima facie one of principal and agent (although the plaintiffs in the present case assert that the holding company was the agent of the subsidiary). That one company controls another may throw some light on the issue of agency, but is not decisive. A close analysis of the facts must be made to identify the true relationship: Tate v Freecorns Pty Ltd [1972] WAR 204 at 208. Agency will arise if the proper inference to be drawn from the facts is that one company is carrying on the business of the other and on behalf of the other.
- [258]“Agency” was not discussed, in name or conceptually, by Mr McGowan, Mr Ourabah and Mr Pellé. And there is no evidence of Apsara formally authorising BSO to act as its agent in negotiations over the WBRDAT. However, as Dixon J observed in Colonial Mutual Life at 50, the language used to create the purported agency relationship is not decisive (citations omitted, my emphasis) –
Some of the difficulties of the subject arise from the many senses in which the word “agent” is employed. “No word is more commonly and constantly abused than the word ‘agent’. A person may be spoken of as an ‘agent’ and no doubt in the popular sense of the word may properly be said to be an ‘agent’, although when it is attempted to suggest that he is an ‘agent’ under such circumstances as create the legal obligations attaching to agency that use of the word is only misleading” … Unfortunately, too, the expressions “for”, “on behalf of”, “for the benefit of” and even “authorize” are often used in relation to services which, although done for the advantage of a person who requests them, involve no representation.
- [259]In my view, Mr McGowan’s oral testimony reflected BSO’s sense of autonomy, and its power of, and control over, Apsara when it came to the WBRDAT. BSO decided to use Apsara as a “vehicle” for tax and accounting purposes in the conduct of its own business, as pursued through the WBRDAT.
- [260]I acknowledge that one may interpret Apsara’s making of the milestone payments as manifesting its knowledge and approval of the agency arrangement. And I acknowledge that, because of their holding company/subsidiary relationship, it could be said that both companies would benefit from the task undertaken by BSO. However, having taken into account that –
- BSO described Apsara as the “operating company” which owned the assets for the NJ Equity Triangle network;
- BSO used Apsara’s network to deliver services to its clients;
- The decision to proceed with EMClarity’s April 2018 proposal was BSO’s;
- It was BSO which determined that the best way to structure things, from cash flow, accounting and tax perspectives, was for Apsara to “own” the project and to be the end user of the developed product; and
- Clearly, on the evidence, BSO (via Mr McGowan in particular) did not think of Apsara as its principal – although I acknowledge that BSO’s understanding of the legal arrangement between them is not determinative,
I am not satisfied to the requisite standard that BSO acted as Apsara’s agent in the formation of the WBRDAT.
Issue 2: Did Apsara and EMClarity enter into agreements in May and June 2019, for the supply of E Band and W Band radios?
Plaintiffs’ submissions
- [261]The plaintiffs submitted that, although the WBRDAT provided for production and supply of W Band radios, conditional upon their successful development, “the parties” entered into new agreements in May and June of 2019 for the unconditional supply of E Band and W Band radios. The plaintiffs submitted that the establishment of the new agreements fell within the traditional framework of contract formation –
- There was an invitation to treat by EMClarity – by way of its Quote to BSO for the supply of radios (and associated equipment and accessories);
- Four offers were then made to purchase the radios as per the Quote – by way of Apsara’s issuing four purchase orders; and
- Those offers were accepted – by way of EMClarity issuing invoices to Apsara and accepting part payment from Apsara (as per the terms of the Quote).
- [262]The plaintiffs submitted that there was no confusion about the entity to whom EMClarity was to supply the radios, namely Apsara, even though the Quote was sent to BSO. Clause 4 of the Quote provided that a contract for supply would be formed between EMClarity and the “Customer” when the Customer did certain things.[18] Apsara, as the Customer, did those things thus creating a contract for supply to it.
- [263]In support of this argument, the plaintiffs relied upon Rossiter v Miller (1878) 3 App Cas 1124 at 1147, in which Lord O'Hagan observed as follows –
The parties to a contract in writing must, no doubt, be specified, but it is not necessary that they be specified by name. The whole course of decision and practise shews that it is not. If they are so indicated, by description or by reference, as to be ascertained, or certainly ascertainable, the exigency of the statute in that respect is satisfied. Here the vendors are called proprietors, and described as proprietors in possession. There could be no mistake as to their ownership of the premises to be conveyed, and their identity for all practical purposes was as clearly and unequivocally established as if their names and designations had been set out in the conditions of sale.
- [264]As I understood the plaintiffs’ argument, it was that “the Customer” referred to in the quote was, or could be, Apsara. And there could be no mistake about the entity with whom EMClarity in fact contracted to supply the equipment listed in the Quote. that is, Apsara.
- [265]The plaintiffs submitted that, even though the development of the W Band radio was discussed by the parties before the 2019 Agreements were made, the 2019 Agreements did not contain a term which suggested that supply was conditional upon development. While, from EMClarity’s perspective, it might have been unwise not to include such a term, it was not included and the parties were to be held to the unconditional bargain which they struck. In any event, the conduct of EMClarity post the 2019 Agreements suggested nothing other than that it was working towards the delivery of the radios to Apsara.
- [266]The plaintiffs referred me to well-known authorities about the construction of commercial contracts including Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104. The plaintiffs also referred to the decision of the Queensland Court of Appeal in Watson v Scott [2016] 2 Qd R 484 in which the Mount Bruce principle was restated as follows –
[E]vidence of surrounding circumstances is admissible to assist in the interpretation of a contract only if the language is ambiguous or susceptible of more than one interpretation; it is not admissible to contradict the language of the contract when it has a plain meaning …
- [267]Referring to Bell Group Ltd (in liq) v Westpac Banking Corp (No 9) (2008) 39 WAR 1 at [2665], the plaintiffs observed that it was important to draw a distinction between –
- deciding whether a contract exists at all – and if it does, what are its terms; and
- construing or interpreting the terms of a contact known or admitted to be in existence.
- [268]The former often requires consideration of the wider circumstances and the conduct of the parties. The latter does not permit recourse to extrinsic evidence where the identified terms of the contract are plain and unambiguous in their meaning.
- [269]The plaintiffs submitted that there was no ambiguity about the terms of the 2019 Agreements. Determined objectively, by reference to the terms of the Quote (especially clauses 4 and 7) and the Purchase Orders, and bearing in mind the purpose to be secured by the transaction, the key obligation imposed upon EMClarity was to supply W Band and E Band radios to Apsara. They submitted –
- clause 4 of the Quote referred specifically to an agreement for supply;
- nothing in any of the terms of the Quote suggested EMClarity had any discretion or option about carrying out its obligation to supply;
- the Quote did not refer to the WBRDAT; the concept of development; or supply being conditional upon the successful completion of a final prototype;
- nor were there any qualifications on supply introduced by the written terms of the 2019 Agreements and the court ought not to find the existence of such qualifications by a process of construction.
- [270]The plaintiffs submitted that the 2019 Agreements impliedly discharged[19] the WBRDAT. It did not matter that the Quote did not expressly provide for discharge or termination of the WBRDAT: the question was whether the parties had that intention. The plaintiffs’ position, in summary, outlined in oral submissions, was that it was “implicit, when you consider the supply agreements over the top of those development agreements, that what they were doing was discharging that and entering into their final contract, saying, ‘Yes. Now I can supply you radios. Send me a purchase order, I’ll send you an invoice, pay me some money and you’ll get some radios at the end of the day’. That’s what’s been concluded”.
Defendant’s submissions
- [271]EMClarity submitted that there were no new agreements formed between it and Apsara in 2019. Rather, there was an agreement between BSO and EMClarity, in terms of the Quote, to vary the WBRDAT by altering the products that were to be delivered under it (and its price and exclusivity terms) but only after the development phase. EMClarity noted that, in deciding whether a later contract terminated an earlier one, the determining factor was the parties’ intention.[20] It submitted that I would find that the parties intended to vary, rather than “rescind” (I assume EMClarity meant terminate), the WBRDAT because only variation would ensure that existing rights remained protected.
- [272]In more detail, EMClarity argued –
- the “All good … Callum will proceed” email from Mr Ourabah on 10 May 2019, signified the point at which BSO and EMClarity had reached agreement on the terms of the quote;
- the agreement was entered into by BSO in its own right;
- the purchase orders issued by Apsara – a separate entity – could not have had any bearing upon the arrangements being made to alter the contractual obligations between BSO and EMClarity;
- there was no basis for concluding that the parties intended to create a new, separate, agreement between Apsara and EMClarity as the creation of a new, separate agreement between Apsara and EMClarity would leave completely unanswered the issue of what was then to happen with the W Band Radio Development Agreement between BSO and EMClarity;
- there should thus be a finding that there was a contractual agreement reached between BSO and EMClarity, in terms of the Quote; and
- it made “good commercial sense” that –
- BSO and EMClarity agreed on the terms of the Quote which altered the products that would be delivered when the development phase of the W Band Radio Development Agreement concluded (and some other associated terms, such as exclusivity and price); and
- Apsara, as the entity paying the money, issued a purchase order to formally request an invoice and invoices were issued to it in response.
- [273]Of course, the E Band radios referred to in the Quote did not require development. Nor did the accessories. In this regard, I acknowledge EMClarity’s concession that its pleaded variation “would have the effect of creating [in EMClarity] an obligation to deliver [E Band radios] within a reasonable time”.
Plaintiffs’ submissions in reply
- [274]The plaintiffs submitted that I ought to reject the defendant’s characterisation of the 2019 Agreements as agreements to vary the WBRDAT. They said –
[EMClarity] appears to accept that the [2019 Agreements] were created by virtue of the Quote and Purchase Orders but says that BSO, not Apsara, was party to those “contractual arrangements”. However, [EMClarity] does not plead (and has not explained) how BSO in fact “placed” the orders when the Purchase Orders were in the name of Apsara and made on Apsara letterhead. For instance, [EMClarity] does not plead that Apsara acted as BSO’s agent in issuing the Purchase Orders, nor does it plead any additional facts to show that these orders were “placed” by BSO.
[redacted]
Discussion
Principles
- [275]The defendant’s written outline contained the following accurate summary of the principles relevant to the question whether a contract has come into existence –
Whether a contract has come into existence is determined by reference to the intention of the parties as disclosed by the language used by the parties which is said to constitute the contract. The intention of the parties is determined objectively. Thus, it is determined by reference to:
- (a)what the relevant communications would have conveyed to reasonable persons in the position of the parties; and
- (b)the intention that reasonable people would have had if placed in the situation of the parties.
…
Evidence of the parties’ prior negotiations and subsequent conduct (that is conduct subsequent to the alleged contract) is relevant and admissible on the question of whether they have formed a contract.
An analysis in terms of offer and acceptance is not always necessary to establish a contract …
- [276]Further, as Muir JA explained in Weemah Park Pty Ltd v Glenlaton Investments Pty Ltd [2011] 2 Qd R 582 at [45] and [46],[21] where an exchange of correspondence is relied upon to establish the existence of a contract, it is not merely the communications alleged to constitute the offer and the acceptance which are to be looked at. The intention of the parties is to be objectively ascertained from the terms of the documents when read in the light of the surrounding circumstances including the chain of correspondence and the parties’ relevant dealings. The emphasis is on what the relevant communication would have conveyed to reasonable persons in the position of the parties, rather than on “a pedantic analysis of language and emphasis on form over substance” (at [49] and [50]). His Honour referred to Heydon JA in Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153, endorsing statements from other authorities to the effect that, the relevant test is “whether viewed as a whole and objectively from the point of view of reasonable persons on both sides, the dealings show a concluded bargain”.
- [277]Before considering the objective effect of the relevant communications between the parties, I will address particular arguments made by the defendant.
What was to happen to the WBRDAT if new agreements were made?
- [278]The defendant’s argument, that the suggestion of new agreements made “no sense at all” because it would leave the question of what was then to happen with the WBRDAT “completely unanswered”, overlooked the fact that the WBRDAT was a staged agreement, marked by milestones – the payment of which triggered progress to the next stage – which anticipated the possibility of termination at the end of several of its stages.
- [279]Relevantly, under clause 5.4(d) of the WBRDAT, the Customer could terminate it “up to the end of Milestone 4 under the circumstances set forth in the ‘Milestone Payment Deliverables’ section of the Schedule” (see above).
- [280]Apsara made the Milestones 1, 2 and 3 payments. It did not make the Milestone 4 payment – nor was it ever asked to.
- [281]At the very least, in a practical sense, the answer to the question: “what would happen to the WBRDAT if new agreements were made”, was that EMClarity was not obliged to take any further step under it because the Milestone 4 payment was not made. But in my view, at or by the time the 2019 Agreements were made, the WBRDAT was or had been terminated.
- [282]As both the plaintiffs and the defendant appreciated, only the parties to the WBRDAT could vary or terminate it. I have found that the parties to the WBRDAT were EMClarity and BSO – acting in its own right. EMClarity and BSO did not expressly terminate the WBRDAT. But –
- BSO/Apsara did not make the Milestone 4 payment;
- EMClarity did not pursue it;
- after Apsara made the Milestone 2 and 3 payments, neither party made any reference to Milestone 4 or Milestone 5; and yet
- the production of W Band radios commenced regardless.
- [283]In my view, EMClarity and BSO’s conduct, considered objectively in the circumstances–
- reflected a recognition on their part that the WBRDAT had been overtaken by the 2019 Agreements between EMClarity and BSO’s subsidiary;
- reflected a common intention that they be discharged from their obligations under the WBRDAT; and
- achieved termination of the WBRDAT under clause 5.4(d).
- [284]After termination of the WBRDAT, clause 5.8 of the WBRDAT dealt with the rights and remedies of the parties and answered the “what would happen to the WBRDAT if new agreements were made” question.
- [285]I am not therefore persuaded by the defendant’s argument that I ought not to find that new agreements were made because the parties would not have left the WBRDAT, in effect, “hanging”.
- [286]Even if I am wrong, and the creation of new agreements between EMClarity and Apsara left the WBRDAT “hanging”, it is important to recognise that the 2019 Agreements were the product of negotiations between engineers not lawyers. The engineers may well have reached agreement on terms which were not legally “perfect”. Their agreement may not have, for example, disposed of loose ends; ensured no reduction in a contracting party’s former rights; been entirely consistent or cohesive with other relevant contracts or arrangements; or anticipated or dealt with issues which may have been obvious to lawyers. But, as the parties in this case acknowledged, contracting parties may reach an agreement which may be considered, objectively, unsatisfactory.[22]
Was a varied WBRDAT the agreement which made good commercial sense?
- [287]The defendant urged me to find that the WBRDAT had been varied rather than terminated because variation made “good commercial sense”.
- [288]In determining the effect of a commercial contract, courts favour a commercially sensible construction as a commercially sensible construction is more likely to give effect to the intention of the parties. Accordingly, I have considered the commercial sense of the varied WBRDAT.
- [289]Paragraph 23 of EMClarity’s defence included assertions that BSO and EMClarity reached agreement (by way of the Quote) to inter alia –
- vary Milestones 5, 6 and 7 “by Phases 1 to 4 of the Alternative Strategy [that is, the staged rollout of the network deploying E Band and W Band radios]” (23(a)(i)(A));[23]
- replace the Milestone payments for Milestones 4 to 7 with the sums set out in the Quote for each phase (23(a)(i)(B));
- vary the number and kind of radios to be supplied in the manner set out in the Quote, subject to completion of Milestones 1 to 4 of the WBRDAT (23(a)(i)(E)).
- [290][redacted]
- [291]The replacement of the payments for Milestones 4 to 7 with the sums set out in the Quote for each phase makes less commercial sense insofar as the replacement of the Milestone 4 payment is concerned.
- [292][redacted]
- [293]Under the WBRDAT, BSO was only obliged to make the Milestone 4 payment if there was a “successful review” of the “finished design” of the W Band radio. If the review was not successful, then BSO could terminate the project.
- [294]Milestone 4 was thus a significant milestone at the critical point of the development stage of the WBRDAT. The Milestone 4 payment was the final payment for the development stage of the WBRDAT and it indicated “the Customer’s” satisfaction with the final design.
- [295]The suggestion that the parties agreed to replace the Milestone 4 payment with the payment required for the first stage of the network rollout implies that the parties agreed to remove from the WBRDAT a provision which recognised and dealt with the possibility that EMClarity might not be able to design/develop a “successful” W Band radio, or that BSO might not be satisfied with the final design. That implication was inconsistent with the defendant’s case.
- [296]The defendant may have intended to refer only to Milestones 5, 6 and 7 in paragraph 23(a)(i)(B) of its defence and the reference to Milestone 4 might have been in error. However, even on that basis, the varied agreement proposed by the defendant did not make good commercial sense.
- [297]The W Band radio was the critical component of BSO’s new network. If the WBRDAT was varied only in relation to the equipment to be supplied in pursuance of it, and subject to the completion of Milestone 4, it made no commercial sense to require the Customer to pay EMClarity 50 per cent of the total cost of the network’s equipment before it was asked for the Milestone 4 payment – that is, before it was asked to confirm its satisfaction with the final design of the W Band radio.
- [298]Also, in the context of an agreement to supply which was conditional upon successful development of one of the products to be supplied, it did not make good commercial sense for “the Customer” to pay, up front, 50 per cent of the total cost of producing W Band radios,[24] which were still in development, if the parties contracted on the basis that the success of the development was uncertain.
- [299]Even if there were a legitimate need to order, and require the Customer to pay 50 per cent of the cost of, all of the equipment needed for the whole of the new network up front, it made no commercial sense not to provide for a refund of the 50 per cent paid (perhaps less the cost of any equipment used in the pursuit of W Band development) if the development of W Band radios was not successful.
- [300]I am not persuaded by the defendant’s arguments that the variation it contended for made good commercial sense.
Inferences to be drawn from the parties’ communication and other conduct
- [301]The inferences to the drawn from the parties’ communication and other conduct support the plaintiffs’ case that BSO and Apsara entered into new agreements in 2019 to unconditionally supply a network’s worth of radios and associated equipment.
- [302]The terms of the Quote did not provide for the possibility that the final design would not be successfully reviewed. Nor did payments under the Quote complement the milestone payment regime under the WBRDAT. If the Quote was intended to vary only the deliverables of the WRBDAT, then one would have reasonably expected some discussion between the parties of Milestone 4 which signalled success in achieving a suitable final design for the W Band radio. There was none.
- [303]The evidence discussed above reveals that, after a complaint by BSO in January 2019 about the slow speed of the project, Dr Baines encouraged Mr McGowan’s understanding that, while the development of the W Band radio might take time, it would be successfully developed.
- [304]Dr Baines minimised the need for the stepped, milestone approach of the WBRDAT and the focus of his conversations with Mr McGowan shifted from a focus on the parties’ obligations under the WBRDAT (particularly BSO’s obligation to make milestone payments) to a focus on the speed with which W Band radios could be deployed by BSO.
- [305]Rather than insisting upon the Milestone 4 payment, conveying BSO’s acknowledgment that a “successful” W Band radio had been developed, before producing W Band radios, EMClarity agreed to treat the receipt of an order for W Band radios and other products as “the trigger to build”. This signalled a move away from a cautious agreement to produce W Band radios only if they could be successful developed (that is, the WBRDAT) to a “new” unqualified agreement to build and supply W Band radios, E Band radios and other equipment.
- [306]In more detail, the evidence establishes the following matters.
- It may be inferred, from Dr Baines’ dealings with Apsara, McKay Brothers and BSO, that he had a reasonable understanding of the market for wireless networks. And it may be inferred, from Dr Baines’ educational and occupational background; his senior role at EMClarity; and his dealings with Apsara, McKay Brothers and BSO, that he had sufficient commercial nous and common sense to understand the competitive advantage achieved by those offering network services in the NJ Equity Triangle who were able to secure new, faster/clearer radios for deployment on their networks.
- Whatever Dr Baines subjectively thought of the prospects of success of the W Band project, his communication with Mr McGowan about it was overwhelmingly optimistic – from the very first proposal. He did not ever suggest that the development of the W Band radio was not feasible. Whatever the reality of the W Band design challenges (described by Dr Baines in his affidavit), to the limited extent to which Dr Baines raised them with Mr McGowan, he minimised them.
- In late January 2019, BSO was not pleased that it had been left in “not a good position”. It had expected to be deploying EMClarity’s W Band radios in its network by then and lost a customer to a competitor, presumably because the competitor was able to offer a “better” network. Under market pressure, BSO wished to “accelerate” the creation of a new and better network deploying W Band radios.
- Dr Baines did not discourage in Mr McGowan an understanding that, while development was slower than expected, the W Band radios could and would be successfully developed (including by his silence in the face of statements by Mr McGowan which he found “bizarre”). In particular, Dr Baines’ email of 31 January 2019 conveyed only that the W Band radio was a valuable reality and that EMClarity was well placed to provide BSO with “world leading” W Band technology, which it expected to successfully develop within three months.
- Dr Baines told Mr McGowan that, while “strictly speaking”, EMClarity needed BSO’s “confirmation” to proceed with the final design, EMClarity did not anticipate BSO’s not confirming – further conveying the expected success of the development project.
- Dr Baines conveyed that he was so confident in EMClarity’s ability to complete the final design that production units could be produced during the design phase.
- Dr Baines also offered an E Band alternative (on 31 January 2019) which could be deployed “in short order”, which was of interest to BSO and in respect of which EMClarity prepared, for BSO, path analyses and latency calculations.
- On 5 February 2019, their recent discussions having been about E Band radios only, Dr Baines asked Mr McGowan what he needed to feel comfortable “in progressing” to the next milestone of the WBRDAT – obviously reflecting EMClarity’s desire to keep BSO engaged in the W Band project.
- On 6 February 2019, Mr McGowan told Dr Baines that W Band “need[ed] to happen”. [redacted]
- Dr Baines’ email of 8 February 2019 implied that EMClarity –
- was confident of its ability to produce successful W Band radios; and
- did not need to take the more cautious, sequential approach.
Those implications arose of the strength of Dr Baines’ –
- (a)stating his belief that EMClarity would have working W Band and E Band radios in about three months, if the “go button” was “pushed” at that time;
- (b)conveying that the W Band radios would be successfully designed and produced and would pass compliance testing; and
- (c)conveying that the “normal” sequential stages, of development/design then production, were not necessary: and that development/design and production could occur at the same time.
- On 12 February 2019, Dr Baines encouraged Mr McGowan to consider [redacted] (which required development by EMClarity), but indicated that EMClarity was in a position to build 16QAM E Band radios immediately.
- On 13 February 2019, Dr Baines told Mr McGowan that EMClarity was “sitting at the stage” where it needed BSO’s confirmation to proceed with the W Band development and payment of its next invoices (Milestones 2 and 3) “for the development”. On 13 February 2019, Mr McGowan told Dr Baines that “we” were going ahead with W Band.
- On 14 February 2019, Mr McGowan told Dr Baines that he “need[ed] to put product into the field now” and that he was in a position to start issuing purchase orders for product which EMClarity could ship “in short order”. That same day, Dr Baines sent Mr McGowan a quote for E Band equipment and product information (broken down in a certain way) – implying that EMClarity was in a position to ship E Band radios “in short order”.
- On 15 February 2019, Mr McGowan asked for a similar breakdown of the W Band equipment. On 22 February 2019, Mr McGowan chased Dr Baines for this breakdown. The similar breakdown for W Band equipment was sent by Dr Baines to Mr McGowan on 26 February 2019 in the form of a quote for the W Band links with associated accessories. The quote said nothing about the supply of W Band radios being conditional upon their successful development. The WBRDAT provided only for the ultimate supply/purchase of the “Product” – that is, a production batch of “W Band 92-95 GHZ low latency radio[s]”. It did not provide for the supply/purchase of E Band radios, antennas, [redacted] or extended warranties, which were included in the quote.
- In February/March 2019, Dr Baines and Mr McGowan communicated about the various options for BSO’s new network. Their discussions anticipated the deployment of W Band radios, built by EMClarity, in BSO’s new network.
- Some of the proposed components of the new network had to be developed by EMClarity, including the implementation of the [redacted] in the W Band radio.
- On 8 March 2019, Dr Baines told Mr McGowan that he would translate “all of this” – that is, all that was proposed for the new network – into a/the Quote which would allow Mr McGowan to “push the go button”. The use of the phrase “push the go button” suggested that a new agreement would commence upon Mr McGowan’s acceptance of the Quote and payment of 50 per cent of the invoiced amount.
- The Milestone 2 and 3 payments were made on 12 March 2019 after which milestone payments under the WBRDAT were not mentioned again. It is particularly significant that Milestone 4 was not mentioned. Nor was it ever suggested that BSO had a right to discontinue the project after the development stage – as had been its right under the WBRDAT.
- Further discussions about the new network, and the radios required for it, took place in March 2019.
- While Dr Baines’ email of 14 March 2019 referred to production following immediately after “the design and prototypes are finished”, it did not suggest that production was conditional upon successful design and development of a functional prototype. Indeed, that email implied that nothing about the design or development of the prototype would derail delivery of the equipment in accordance with the timelines which had been discussed, if BSO were to issue purchase orders and make payments for the equipment “as soon as possible”. Also, nothing was said, after the Milestone 2 and 3 payments, about BSO’s right to discontinue with the agreement after the final design stage.
- The path analyses prepared by EMClarity for BSO were analyses of BSO’s proposed new network “using EMClarity E Band and W Band radios”. They were provided without any suggestion or reminder that using W Band radios for BSO’s new network was conditional upon their successful development.
- On 29 March 2019, Dr Baines encouraged Mr McGowan to order “the equipment required for the full network triangle before 1 April 2019” to take advantage of a certain discount offered by EMClarity.
- Dr Baines’ email dated 29 March 2019 referred to the cost of producing 64QAM W Band radios – reasonably implying that EMClarity was able to produce such a radio at that cost. The email spoke about ‘David” working out delivery timeframes – reasonably implying that EMClarity was in a position to calculate those timeframes unburdened by the risk of unsuccessful development of W Band radios.
- [redacted]
- Dr Baines and Mr Pellé’s emails in April 2019 are in pursuance of “a deal” which will work for both of them – consistent with the evolution of a new agreement.
- Dr Baines’ “best estimates” for delivery of the W Band and E Band radios (as per his email dated 26 April 2019) conveyed no suggestion that delivery of the W Band radios (or the E Band radios for that matter) was conditional upon the successful development of, or creation of a functional prototype for, a W Band radio. While the email conveyed that there was a need for EMClarity to “complete” the “design” of the W Band radios, nothing in the email suggested any uncertainty about EMClarity’s ability to complete it. Indeed, the email suggested that there was a way to accelerate the delivery of at least one W Band radio (for use in phase 2) from September to July 2019 – namely, if EMClarity were to build a second prototype during the W Band “development”. Also, the second last paragraph of the email expressed EMClarity’s plan to produce the radios in an unqualified way.
- The language of Dr Baines’ email of 26 April 2019 is consistent with the parties entering into a new agreement for the supply of all the equipment required for BSO’s network which recognised that development of the W Band radio was ongoing but which assumed successful development. It included the following –
Note on phase 2 W Band delivery.
We expect the development of the prototype W Band 64 QAM to be finished in 8 weeks. We could build an extra prototype link and then you could install that one … If we went down this route, and I like the idea, then the possible delivery on phase 2 W Band might be 10–11 Weeks ARO for the 1 link, meaning mid-July. That means you would have the equipment for the first two phases in July.
…
If we can confirm everything next week then the way we will arrange production is to build all of the W Band MODEM halves at the same time as building the E Band links then with the W Band complete building the W Band components and adding to the unit.
I’m also working on the contractuals as I promised Michael and Emmanuel. I will give you a new quote reflecting what you have put below on the phases, and also a contract containing all the terms we have collectively been discussing.
One would reasonably expect, under the heading “Note on Phase 2 W Band delivery”, a statement about the supply of W Band radios being conditional upon their successful development if that is what the parties intended.
- The reference to “a contract containing all the terms we have collectively been discussing” is consistent with the formation of a new agreement. Not once was it described as a variation of the WBRDAT; nor were there any discussions which suggested the parties were contemplating a variation of the WBRDAT.
- The quote dated 30 April 2019 (sent 2 May 2019) and the final Quote, dated 10 May 2019, said nothing about supply of W Band radios being conditional upon successful development.
- Dr Baines’ statement, in his email of 2 May 2019, that the trigger to build would be the receipt of an order, reflects a change from the cautious approach of the WBRDAT, which required first the payment of Milestone 4, signifying acceptance of the final design, then the payment of Milestone 5 to “trigger” or “kick off” the build.
- Dr Baines’ email dated 24 July 2019 suggested, without qualification, that E Band and W Band radios would be delivered in September and November 2019, respectively. While Dr Baines referred to “engineering issues”, he said nothing to suggest that those issues might get in the way of successful development of the W Band radio. Rather, he informed BSO, in effect, that the resolution of those issues had improved the stability of the “product destined for BSO”.
- The emails about Mr McGowan receiving training in the W Band and E Band radios obviously assume the production of those radios.
- [307]Drawing together all of the evidence, and in particular the evidence outlined above, and the inferences to be drawn from it, a reasonable bystander would conclude that EMClarity first encouraged BSO to stick with it (after BSO lost a client) by alleviating BSO’s concerns about EMClarity’s delay in producing W Band radios which could be deployed “in the field”. It did so by –
- introducing deployable-at-short-notice E Band radios into the mix;
- conveying no doubt about EMClarity’s ability to develop and produce W Band radios; and
- abbreviating the time frame for the delivery of W Band radios by proposing to produce them in parallel with their development.
- [308]A reasonable bystander would have observed that then EMClarity and BSO moved away from conversations focused on milestone payments, and the development and design of the W Band radio, to conversations about BSO’s new network as a whole and the radios and other equipment required for it.
- [309]A reasonable bystander would conclude that the conversations about the new network proceeded on the basis that EMClarity could and would produce the W Band radios needed for it – without any suggestion that their production was conditional upon successful development.
- [310]The fact that EMClarity did not pursue the Milestone 4 payment before indicating that it was in a position to supply W Band and E Band radios and other products as per the Quote is objectively consistent with the parties agreeing to proceed to production and supply in a manner other than the one provided for under the WBRDAT.
- [311]A reasonable bystander would conclude that BSO and EMClarity discharged or terminated the WBRDAT and that EMClarity and BSO’s subsidiary contracted for the unconditional supply of all of the equipment needed for BSO’s network.
- [312]It is not necessary for me to reach a view about the reasons why EMClarity was prepared to move away from the WBRDAT, which gave it (and, for that matter, BSO) protection against the unsuccessful development of W Band radios, but EMClarity’s reasons may have included financial ones. In oral submissions, Queen’s Counsel for the defendant accepted that there were “financial drivers” in the background during Dr Baines negotiations with Mr McGowan.
Inferences to be drawn from conduct after the 2019 Agreements
- [313]The statements and conduct of EMClarity and BSO/Apsara after the 2019 Agreements were entirely consistent with their obligations under “new” 2019 Agreements, not under the development stage of the WBRDAT.
[313A] BSO was not required to participate in a “Final Design Review Meeting” in Brisbane to “sign-off” on the detailed design – something which it was obliged to do under the WBRDAT –[25] before the W Band units would be “on their way”[26] to Apsara. Apsara paid 50 per cent of the total cost of the equipment, and EMClarity embarked immediately upon acquiring the components required for the whole of the network, including for the radios which had to be built.
- [314]Not once, after the 2019 Agreements were formed, did EMClarity attempt to explain away any delay on its part on the basis of slow or unsuccessful development. To the contrary – it blamed its suppliers.
- [315]Other conduct of EMClarity after the 2019 Agreements were made, consistent with its understanding that it had newly agreed to unconditionally supply equipment, including W Band radios, to Apsara, included –
- Dr Baines’ reference to the “initial payment” in an email dated 17 May 2019 – consistent with the formation of a fresh, new agreement, commencing with a first (that is, “initial”) payment;[27]
- Dr Baines’ reference to “the deal we agreed” in a follow up email dated 20 May 2019 – in context, consistent with a recently formed new agreement;
- Dr Baines’ email of 24 July 2019, which –
- (a)referred to negotiating “the equipment purchase” – consistent with EMClarity and Apsara reaching unconditional agreements to supply;
- (b)noted that, initially, EMClarity was signalling expected delivery of the equipment in July – consistent with EMClarity unconditionally agreeing to supply the equipment;
- (c)signalled EMClarity’s intention to ship W Band links from early November, without mention of the need for successful development – consistent with EMClarity unconditionally agreeing to supply the equipment;
- (d)explained that, whilst EMClarity encountered some “engineering issues”, those issued had been addressed and there was (as a result of addressing the issues) “increased stability in the design of the product destined for BSO” – consistent with EMClarity unconditionally agreeing to supply the equipment;
- (e)explained that EMClarity was able to deal with “some component obsolescence” before it shipped anything – consistent with EMClarity working towards the shipment of product; and
- (f)referred to equipment it is “ producing” – consistent with an unconditional agreement to supply the equipment;
- (a)
- Mr White’s email of 13 August 2019 to Mr McGowan indicating that “everything else” (apart from a particular supplier) was “on track – consistent with an unconditional agreement to supply equipment by a certain time;
- Dr Baines discussing training with Mr McGowan – consistent with EMClarity producing (workable) equipment unconditionally;
- The estimates of the time it would take EMClarity to build W Band (and E Band radios) outlined in Dr Baines’ 30 August 2019 email – inconsistent with a need to confirm that W Band radios could be successfully developed before they would be supplied;
- Dr Baines predicting that a visit by Mr McGowan in October 2019 would be “very productive” in the sense that he could then be trained in the equipment – inconsistent with a need to confirm that W Band radios could be successfully developed before they would be supplied;
- Other statements by Dr Baines about the expected delivery dates for the W Band radios (for example, that they would be coming off the production line in September) – consistent with EMClarity unconditionally agreeing to supply the equipment;
- Dr Baines communicating with Mr McGowan about getting him “up and running” – consistent with EMClarity unconditionally agreeing to supply the equipment;
- Mr White and Dr Halappa’s emails in September 2019 in which Dr Halappa indicated, in effect, that EMClarity was prepared to take the risk of ordering the parts for the W Band radios required for BSO’s network, even though it had not built a W Band radio; and
- Mr White’s email to Mr Dench and Dr Baines, dated 4 November 2019, in which he said, “… despite the customer’s request that we fast-track the production, we feel we can only provide a quality product by first prototyping and then going to production”. This email was consistent with the 2019 Agreements being agreements to produce without first building a prototype (that is – the fast track); and then a unilateral decision by EMClarity to change its approach.
Conclusion
- [316]I find that the Quote issued to BSO by EMClarity was an invitation to treat – inviting a request for it to produce and supply all of the equipment BSO needed for its new NJ Equity Triangle network. Having regard to their previous dealings, and EMClarity’s awareness of the way in which BSO used Apsara, I find that EMClarity was prepared to enter into contracts reflecting that invitation with either BSO or its subsidiary, and ultimately entered into supply agreements with Apsara that were separate to the WBRDAT.
- [317]Applying the principles from Weemah and Brambles Holdings, I find that, objectively viewed, the circumstances, communications and conduct of the parties reflected their common intention to move away from a focus on the potential development of W Band radios under the WBRDAT to a focus on the equipment required for the configuration of BSO’s new network.
- [318]In the context of that “new” focus, I find that BSO and EMClarity terminated the WBRDAT and that EMClarity and Apsara entered into a new agreement for the unconditional supply of the equipment needed for BSO’s new network, including W Band radios, to Apsara.
Issue 3: Alternatively to Issue (2), was the W Band development agreement varied?
- [319]As I was not satisfied that BSO acted as Apsara’s agent in the formation of the WBRDAT, the plaintiffs would not have succeeded in their argument that the 2019 Agreements varied the WBRDAT so as to remove the development stage of it.
- [320]However, I have tested my conclusion that the 2019 Agreements were “new” agreements independent of the WBRDAT against the defendant’s arguments about the variation which suited its case – that is, variation of the WBRDAT so as to preserve its development phase (notwithstanding the plaintiffs’ complaint about the way in which the defendant pleaded, or did not plead, this variation case).
- [321]The defendant’s defence – essentially, that it was under no obligation to supply W Band radios because successful development had not yet occurred – relied upon my being satisfied that the 2019 Agreements varied only Milestones 5 to 7 of the WBRDAT, leaving the balance of the agreement intact and thereby rendering supply conditional upon successful development.
Defendant’s submissions
- [322]The defendant submitted that the 2019 Agreements did not expressly rescind[28] the WBRDAT, nor did they rescind the WBRDAT by necessary implication. It submitted that the 2019 Agreements effected a change to the project as anticipated by clause 9.1 of the WBRDAT. As above, that clause stated, “The parties may agree on change to the Project, Project Plan and the Fees in writing from time to time”. The “Project Plan” set out the milestones, their expected completion dates and their respective payment amounts.
- [323]The defendant submitted that rescission of the WBRDAT would have resulted in the objectively unlikely “jettisoning” of contractual terms which were “obviously valuable to both parties” (including the benefits conferred by clauses dealing with confidentiality, intellectual property, the granting of a licence, the limitation of liability, and indemnity). Also, the 2019 Agreements omitted some of the target specifications of the WBRDAT – which were important to BSO (such as, for example, the bit error rate specification).
- [324]The defendant submitted that the email communications (which were not in any event pleaded as extrinsic facts) did not support the contention that the 2019 Agreements rescinded the WBRDAT. Rather, they showed that it was contemplated that the development of the W Band radio under the WBRDAT would continue in parallel with ordering parts for the production orders. There was an explicit reference to the parallel development in Mr McGowan’s email of 24 April 2019 and there was a reference to the completion of design and the prototyping phase in Dr Baines’ emails of 26 April 2019 and 2 May 2019 reflecting the parallel progress of the WBRDAT.
- [325]The defendant submitted that the WBRDAT was varied, from 10 May 2019, but only in relation to the obligation to supply product. [redacted] The price and exclusivity terms were also varied, but subject to those variations, the WBRDAT remained on foot.
Plaintiffs’ submissions
- [326]The plaintiffs emphasised clause 4 of the Quote and observed that the defendant’s arguments were “curiously silent” as to the effect of the Purchase Orders, the issuing of the invoices and the [redacted] paid by Apsara to EMClarity. In oral submissions, Queen’s Counsel for the defendant submitted that I could find that there were no new agreements for supply made in May/June 2019, notwithstanding clause 4 of the Quote – referring to authorities which said that the parties may waive those sorts of requirements.
- [327]The plaintiffs complained about the defendant’s pleaded case on the variation for which it contended, which I will not repeat, and submitted that the defendant’s argument about variation was bound to fail in any event. If I held up a lens to the circumstances, I would not discern a mutual intention to vary the earlier development agreement by the terms of the Quote. The plaintiffs relied on the decision of Bond J in King Tide Company Pty Ltd v Arawak Holdings Pty Ltd [2017] QCA 251 in which his Honour discussed the circumstances in which a contract might be inferred from the acts and conduct of the parties and emphasised the need to take care to ensure that the objective assessment of the relevant conduct in all of the circumstances unequivocally pointed to the existence of a contract in the terms alleged.
Discussion
Would termination of the WBRDAT jettison its valuable terms?
- [328]The defendant’s argument that terminating the WBRDAT would have “jettisoned” its valuable terms overlooks the fact that the WBRDAT preserved valuable rights post termination.
- [329]Clause 5.8 of the WBRDAT provided that a party’s accrued rights or remedies were not affected by termination. Clause 5.9 provided that termination or expiry of the WBRDAT “would not affect clauses 5.8, 6, 7, 8 or 13, the warranty, extended warranty and escrow provisions” of the WBRDAT, or “any other provision of the agreement which is expressly or by implication intended to come into force or continue on or after the termination or expiry”. Clause 6 dealt with intellectual property and the licencing of customer material. Clause 7 dealt with obligation of confidence. Clause 8 dealt with limitation of liability and indemnification. Clause 13 dealt with general matters including the laws governing the agreement; the effect of representations; and interest accruing on overdue amounts. The point is that termination would not have resulted in the jettisoning of terms which were beneficial to the parties.
The significance of differences in the specifications
- [330]Although I am able to compare the specifications as per the WBRDAT with the specifications as per the Quote and note the differences, the evidence does not allow me to reach any conclusion about the importance, or otherwise, of the omission of certain of the WBRDAT specifications in the Quote. I note though that there were many discussions about technical matters prior to the drafting (and revising) of the Quote. I infer that the specifications for the equipment were informed by those discussions and that the Quote was for equipment which met BSO’s technical needs.
Did the defendant’s proposed variation make commercial sense?
- [331]I have already analysed the suggested variation for its commercial sensibility under the previous heading. That analysis also supports my conclusion that the WBRDAT was not varied by any agreement between any of the parties in 2019.
Conclusion
- [332]Having considered the defendant’s submissions in support of its argument that the WBRDAT, though varied, remained on foot, I remain of the view that the parties reached a new agreement which required EMClarity to unconditionally supply W Band radios (and other equipment) to Apsara.
Issue 4: Did the Supply Agreements (or the WBRDAT as varied) contain an implied term that the E Band and W Band radios would be supplied within a reasonable time?
- [333]The defendant did not suggest that I would not imply a “supply within a reasonable time” term into the 2019 Agreements, if I found them to be unconditional agreements to supply equipment, including W Band and E Band radios. Its primary challenge to the implication of a “supply within a reasonable time” term was based on the premise that the WBRDAT had been varied by the 2019 Agreements but that its development stage remained in place. The defendant argued that it was not appropriate to impose a “reasonable time” term upon the development part of the WBRDAT because there was uncertainty around new development;[29] production of the W Band radio was conditional upon its successful development; therefore it was not appropriate to imply a term that the radios would be supplied within a reasonable time.
- [334]The defendant submitted that, even if the reasonable time obligation was considered by reference only to the production/delivery stage of the WBRDAT, the assessment of a reasonable time would need to take into account the time it would take to successfully develop the products which required development.
Discussion and conclusion
- [335]Because I have found that the parties’ 2019 negotiations culminated in new agreements for the unconditional supply of W Band radios and other products, I do not need to consider the implication of a reasonable time term into any stage of the WBRDAT.
- [336]I consider that a “supply within a reasonable time” term ought to be implied into the 2019 Agreements.
- [337]I have reached that conclusion taking into account the parties’ positions as well as relevant legal principles including that the implication of a term as a matter of law into contracts of a certain type involves “a search, based on wider considerations, for such a term as the nature of the contract might call for, or as a legal incident of this kind of contract”. To imply a term, it must be “necessary” – in that without it, the enjoyment of the rights conferred would be “rendered nugatory, worthless, or … seriously undermined”: per Kiefel J in Commonwealth Bank of Australia v Barker (2014) 253 CLR 169 at [56]. It is not enough, to imply a term, for the court to consider it a reasonable one, a fair one, or one the parties would have agreed to had it been suggested to them. The court is not entitled to re-write the bargain to achieve what it thinks would be a more reasonable result (Kazakstan Wool Processors (Europe) Ltd v Nederlandsche Credietverzekering Maatschappij NV [2000] CLC 822 at 831).
- [338]The 2019 Agreements were unconditional agreements to supply the equipment listed in the purchase order. I agree with the plaintiffs that the implication of a term that the equipment would be supplied within a reasonable time was straightforward. I find that as a matter of law, EMClarity was obliged to supply the E Band and W Band radios to Apsara within a reasonable time.
- [339]Also, in my view, the “supply within a reasonable time” term should be implied as a matter of fact, because its implication satisfied the test outlined in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266. It was -
- reasonable and equitable to both parties because circumstances outside of EMClarity’s control could be taken into account;
- necessary to give business efficacy to the contract because without it the obligation to supply was open-ended and the defendant would be under no contractual imperative to progress the work;
- obvious;
- capable of clear expression; and
- not inconsistent with a term of the agreement – indeed, it had to be implied because there was no time limit term.
Issue 5: If there was such an implied term, what was a “reasonable time” for the supply of the radios?
- [340]I found this a difficult issue because of the state of the evidence.
Plaintiffs’ submissions
- [341]The plaintiffs submitted that a reasonable time for the supply of W Band radios had elapsed by, at the latest, the date of trial; alternatively, 31 January 2020 (the due date for final payment of the equipment); or 6 May 2020 (the date upon which the Amended Statement of Claim was filed). In the case of E Band radios, the plaintiffs submitted that a reasonable time for their supply had elapsed by any of the above dates or, at the earliest, 30 November 2019.
- [342]Relying on, inter alia, Maynard v Goode (1926) 37 CLR 529 at 538 – 539, the plaintiffs submitted that estimates given about when the radios would be delivered; or what was foreseeable; or what the parties contemplated; were relevant to a court’s assessment of reasonable time.
- [343]The plaintiffs submitted that I should therefore assess reasonable time by reference to the various estimates for delivery given by Dr Baines or Mr White which included estimates that E Band radio would be delivered as soon as 1 July 2019, and W Band radio as soon as 30 September 2019. They also included more conservative estimates that E Band radios would be shipped by mid-October and W Band units would be “on their way” from early November.
- [344]The plaintiffs submitted that I ought to place significant weight upon these estimates. Dr Baines admitted that his estimates were carefully considered ones – formulated after consultation with EMClarity’s engineers. And EMClarity had contemporary experience of LMDS radio development and was therefore in a position to give reliable estimates.
- [345]In support of their 31 January 2020 date, the plaintiffs relied upon Dr Baines’ evidence that EMClarity’s usual practice was to require final payment upon delivery and that the 31 January 2020 was selected because it was anticipated that delivery would be completed by that date.
- [346]The plaintiffs submitted that the following considerations were irrelevant –
- the facts known to the defendant (the party in breach) but not disclosed to the plaintiff which would impact upon their ability to perform the contract;
- the defendant’s decision to prioritise other work; and
- the impossibility or impracticability of supplying the products which the contract obliged the defendant to supply.
Defendant’s submissions
- [347]The defendant submitted that EMClarity’s estimates were of little use: they were too optimistic and unguarded. Further, the plaintiff had not established a basis for using them in the calculation of a reasonable time – including because the assumptions upon which the estimates were based had not been identified, or proved. The plaintiffs were inviting me to guess.[30]
- [348]Relying on Hart v MacDonald (1910) 10 CLR 417, the defendant submitted that, if the plaintiffs wished to rely upon estimates, then they had to prove that the assumptions upon which the estimates were based persisted at the relevant time. That had not been done; therefore the estimates were not available to assist the plaintiff and there was little other evidence upon which the court could base its calculation of reasonable time.
- [349]Further, the defendant submitted, a reasonable time had not yet elapsed having regard to–
- the ongoing nature of the Quality Review;
- the unavailability of parts/supplier delays; and
- the risks associated with the development of new technology which were disclosed to the plaintiff.
Discussion
- [350]What is “reasonable time” is a question of fact, the answer to which depends upon the circumstances including the context in which the contract was made (Hick v Raymond & Reid [1893] AC 22).
- [351]The relevant considerations which govern the reasonableness of the time taken must be determined as at the date of the contract (per Connolly J held in Telina Developments Pty Ltd v Stay Enterprises Pty Ltd [1984] 2 Qd R 585, cited by Fraser JA in Sequel Drill & Blast P/L v Whitsunday Crushers P/L [2009] QCA 218 at [17]).
- [352]What is reasonable will fall to be assessed by reference to circumstances as at the date on which the obligation to be performed falls, viewed in context of the contract as a whole (Byrne v Australian Airlines Ltd (1995) 185 CLR 410 at 450). But a party is not entitled to justify its delay by relying upon the materialisation of a risk which that party was contractually obliged to bear (Sequel Drill & Blast at [17]). And the circumstances which are relevant in determining a reasonable time do not include those which were under the control of the party performing the services (Sequel Drill & Blast at [17]).
- [353]The limit of a reasonable time is determined by reference to what is fair to both parties (Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537 at 567-8). A relevant fact is delay by the party complaining about the lapse of time (Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1988 – 1989) 166 CLR 623 at 638-9).[31]
Practical guidance from the authorities
- [354]Hick v Raymond & Reid and Maynard v Goode are worth considering in further detail for the practical guidance they provide about a court’s approach to this issue.
- [355]In Hick v Raymond & Reid, Hick’s ship was chartered by the respondents to transport grain from a certain European port to London. In London, the respondents were obliged to unload the grain (that is to “discharge the cargo”). Because the bill of lading did not specify the time within which the discharge was to be completed, the respondents were obliged to discharge the cargo within a reasonable time.
- [356]The ship arrived in London on 14 August 1889. Unloading began on 16 August and proceeded with “due despatch” until 20 August 1889, when the labourers unloading the grain went on strike. Their strike lasted until 16 September 1889. Unloading was completed on 18 September 1889. Were it not for the strike, the cargo would have been discharged within six days. The appellant sued the respondents for wrongful detention of his ship for an unreasonable time.
- [357]At first instance, the respondents were held to have failed to discharge the ship within a time that was reasonable “under ordinary circumstances”, and judgment was entered against them. That decision was reversed on appeal by the Court of Appeal. The decision of the Court of Appeal was affirmed by the House of Lords.
- [358]Lord Herschell LC at 28-30 said that the answer to the question whether the appellant had proven that a reasonable time had been exceeded was dependent upon what was reasonable under the existing circumstances, as long as any extraordinary circumstances were not the respondent’s fault (my emphasis) –
The respondents … contend that the question is not what time would have been necessary or what time would have been reasonable under ordinary circumstances, but what time was reasonable under existing circumstances, assuming that, in so far as the existing circumstances were extraordinary, they were not due to any act or default on the part of the respondents.
… I would observe, in the first place, that there is of course no such thing as a reasonable time in the abstract. It must always depend upon circumstances. Upon “the ordinary circumstances” say the learned counsel for the appellant. But what may without impropriety be termed the ordinary circumstances differ in particular ports at particular times of the year. As regards the practicability of discharging a vessel they may differ in summer and winter. Again, weather increasing the difficulty of, though not preventing, the discharge of a vessel may continue for so long a period that it may justly be termed extraordinary. Could it be contended that in so far as it lasted beyond the ordinary period the delay caused by it was to be excluded in determining whether the cargo had been discharged within a reasonable time. It appears to me that the appellant’s contention would involve constant difficulty and dispute, and that the only sound principle is that the “reasonable time” should depend on the circumstances which actually exist. If the cargo has been taken with all reasonable despatch under those circumstances I think the obligation of the consignee has been fulfilled. When I say the circumstances which actually exist, I, of course, imply that those circumstances, in so far as they involve delay, have not been caused or contributed to by the consignee …
- [359]In Maynard v Goode, a question for the court was whether repudiation, on the basis that a transfer of land had not happened within a reasonable time, was lawful.
- [360]Goode entered into a contract to sell a block of land to A, with possession to be given on “on or before” 7 March 1924. On 1 February 1924, Goode entered into a contract to buy a block of land from C on the condition that the transfer of his block to A “[went] through in reasonable time”. C repudiated his contract with Goode and, on 11 February 1924, he agreed to sell his block of land to M.
- [361]There were some issues with the transfer of Goode’s land to A and it was not successfully registered until 22 July 1924.
- [362]On 19 May 1924, Goode successfully sued C for specific performance of the contract of 1 February 1924. That decision was affirmed.
- [363]At 538 – 539, Isaacs J explained why the primary judge was correct in concluding that the transfer had gone through in reasonable time. I note his Honour’s emphasis on the knowledge of the parties at the date of the contract (footnotes omitted, my emphasis) –
The … only question … is whether the stipulation was fulfilled. The learned primary Judge held that it was fulfilled. I agree with him. The question of what is “reasonable time” is always relative; that is, it means “a reasonable time under the circumstances” (Postlethwaite v Freeland and Hick v Raymond) … Construction of the contract is not affected by circumstances subsequent, but only by those which are contemporaneous with its creation. What, then, were those circumstances here? … [They included that] [t]he transfer of the purchaser’s block, though the terms of Goode’s contract were not disclosed to C and are not fully disclosed now, was necessarily subject to the requirements of [relevant legislation]. Both parties, therefore, knew that official procedure was necessary with, possible, unexpected delay. They must have contemplated that delivery of possession might take place before the purchaser’s block was transferred in law. Possession was to be given “on or before the seventh day of March 1924”. Looking, for this purpose, at the position of the parties as they reciprocally stood on 1st February 1924, the date of the contract, the words “in reasonable time” should be interpreted as meaning within such time as might enable the purchaser with ordinary despatch to comply with any possible requirements of the law and administration of the [relevant legislation], but not such delay as to cause or threaten prejudice to the position of the vendor under the contract. The transfer was actually registered on 18th June 1924. The circumstances establish a bona fide endeavour to get it through much earlier, but the exigencies of law and official requirements brought the matter down to the date mentioned. The position of the vendor was not actually or potentially affected by the lapse of time, and the stipulation should therefore be held … to have been substantially performed. It follows that at no time could the vendor lawfully repudiate.
Applying that practical guidance
- [364]Approaching Issue 5 in a similar way, on the basis of the correspondence and communications between Dr Baines and Mr McGowan, I find that when the 2019 Agreements were formed, the parties knew that BSO wished to have product “in the field” relatively quickly. The parties knew that the W Band and E Band radios had to be built, and that that would take some time. And I infer, on the basis of their knowledge of the industry, and common sense, that they knew there might be delays in the supply of component parts for the builds of the W Band and E Band radios, adding to the build time.
- [365]The correspondence between Dr Baines and Mr McGowan revealed that they knew that there was a need for “development” of W Band radios (but not the 16QAM E Band radios) before they could be built. I infer, from their knowledge of the industry, and common sense, that they contemplated that the speed of development might be affected by issues encountered during the development process. However, consistently with my Issue 2 conclusions, I do not find that the parties contemplated the possibility of unsuccessful development in the formation of the 2019 Agreements. EMClarity was obliged to carry the risk of unsuccessful development of the W Band radios.
Meaning of delivery of the radios within a reasonable time in the circumstances of this case
- [366]Guided by the approach of the authorities above, delivery of the radios within a reasonable time in this case means delivery within such time as would allow EMClarity to build the radios “with ordinary despatch”, allowing for reasonable delays in the supply of components and, in the case of the W Band radios, reasonable delay in its development, but not such delay in the time taken to develop or build it as to prejudice the position of Apsara as the owner of the “new” network which BSO wished to have in the field.
- [367]That invites the question “what is ‘ordinary despatch?’”. In this context, the estimates given by Dr Baines and Mr White are relevant.
The use of estimates
- [368]The defendant relied upon Hart v MacDonald for its submission that I could not rely upon the estimates because the assumptions which underpinned them were not established, nor was it established that those assumptions held true at the time by which reasonable time was said to have elapsed.
- [369]It is worth considering Hart v MacDonald in detail. MacDonald entered into a contract to build a dairy plant and butter factory on Hart’s land. The plant was to be paid for by the proceeds of sale of the defendant’s cows’ butter. After the contract was made, the land suffered drought. There was insufficient feed for the cows and they were unable to produce butter, or enough butter, to pay for the plant. MacDonald sued to recover the cost of the plant. On the conditions existing at the date of the contract, a reasonable time had elapsed for the production of enough butter to pay for the plant. MacDonald was successful at first instance and that decision was affirmed on intermediate appeal. It was reversed in the High Court because the plaintiff had failed to discharge his onus of proof that a reasonable time had elapsed for Hart to fulfil her promise to pay for the plant. The relatively lengthy extracts from the judgments which follow illustrate the court’s approach to the question of whether a reasonable time has lapsed and emphasise the importance of the onus.
- [370]At page 421 – 426, Griffith CJ said (my emphasis) –
It was a condition precedent of the plaintiff’s right to recover that a reasonable time should have elapsed to enable the defendant [Hart] to produce butter from the proceeds of which payment could be made for the plant, and on this issue the onus of proof was on the plaintiff. The question whether it had or had not elapsed was a question of fact depending on the particular circumstances of the case. In the case of some contracts mere lapse of time might be sufficient proof. The circumstances of each case must be considered. The material circumstances in this case were that the defendant intended to embark upon the enterprise of dairying in a part of New South Wales which is subject to droughts. It was in the contemplation of both parties when the contract was entered into that dairying should be carried on by means of the natural grasses. Different considerations might apply to a contract couched in similar terms with reference to a well watered part of England. The material conditions which actually prevailed are another element to be regarded in determining whether a reasonable time had elapsed for the fulfilment of the contract. The burden being upon the plaintiff to prove what these conditions were, he endeavoured to discharge it. The only oral evidence which he offered relevant to this point was of a conversation that took place between a witness for the plaintiff called Anderson and the defendant and her husband before the contract was made. At this conversation Anderson said that he thought that a pound of butter per cow per day would be a fair average yield, and that his estimate would be twelve and a quarter boxes per week for 100 cows. Hart said, turning to the defendant (sic), “you can safely make it fourteen boxes.” Anderson said: “On that basis they could have paid for the plant in 8 to 9 months.” That is said to be some evidence that 8 or 9 months would have been a reasonable time for payment. Very likely it was, if that was all that had to be considered. But that assumed an average season. It is suggested by the plaintiff that an ordinary good season should be assumed to have continued unless the contrary is shown, but I am not sure that that is so. The plaintiff also tendered a batch of correspondence that passed between the parties, from which it appeared that the defendant had continually informed the plaintiff that in consequence of drought it had been impossible to do any dairying, and that there was not sufficient natural feed to allow the cows to produce milk, and that the plaintiff never disputed the truth of these statements. This correspondence continued up to a week or two before the action was brought …
…
[At first instance] [t]he defendant … adduced evidence the effect of which, if believed, was to show conclusively that under the actual conditions it was quite impossible to start a dairy except by adopting extraordinary measures which were never in the contemplation of the parties to the contract. Upon the plaintiff’s own evidence, then, which was strongly corroborated by evidence for the defence, it appears that at the date of commencing the action a reasonable time for payment had not elapsed ...
- [371]At 428, O'Connor J, agreeing with Griffith CJ, said (my emphasis) –
It may be conceded that it is physically possible to carry out dairying, so long as it is physically possible to obtain feed for the cows … [T]he contract must be construed with reference to the circumstances and conditions in the contemplation of the parties at the time they enter into it. Here both parties were dealing with one another on the basis of what would be the method adopted of producing butter by an ordinarily competent farmer in that part of the country, and it was stipulated that the machinery should be paid for out of the butter so produced. One necessary foundation for a contract of that kind is that the country is in such a condition as to produce sufficient grass for dairying to be carried on in the ordinary way, by using the natural growth of grass. If after the dairy began working a dry time came, there might be imposed on the defendant an obligation to make some special effort to keep things going. But the obligation to start the dairy must be based on the assumption that the country is in such a condition that an ordinarily prudent man would be justified in starting the dairy with some reasonable prospects of producing marketable butter on a business footing. It is clear that the onus was upon the plaintiff to prove the contract and that a breach had been committed by the defendant. The breach alleged was that under the circumstances then existing the defendant did not commence and carry on the business of dairying. But she was not bound to commence and carry on the dairy unless under the conditions then existing dairying could be reasonably carried on. In order, therefore, to establish a breach the plaintiff was bound to prove that conditions existed under which dairying could reasonably be carried on. It may be that mere prima facie evidence of that fact would change the onus, and cast upon the defendant the burden of excusing herself, but in order to constitute a prima facie case the plaintiff must give some evidence to show that the defendant in not staring the dairy has acted unreasonably.
- [372]His Honour found that on the evidence, it would have been unreasonable to expect the defendant to start the dairy or attempt to carry it on under the conditions then existing.
- [373]Isaacs J said (at 431 – 432) –
… a writing dealing with a matter of business must be considered in a “reasonable and business manner” …
Thus reading the present agreement, it is plain the parties meant that there should not be an immediate out-and-out sale for a price instantly payable, but that the plant itself should assist the purchaser to pay for it. The factory was to be started, butter was to be manufactured from milk produced by the purchaser’s cows and the proceeds were to be appropriated to pay for the plant.
No doubt that necessarily involved an undertaking – on the principle stated above – that the purchaser would commence factory operations – but when and in what circumstances?
The fact that she was not expected to pay for the machine independently of the proceeds of the butter of course negatives any assumption that she was to do so in circumstances of drought, when no sane dairy farmer would think of operating. Consequently the reasonable time which the law interweaves into such an agreement necessitates an inquiry as to whether, after the erection of the plant, natural conditions were such as would not merely sustain the appellant’s cows alive but enable them to produce milk. The necessity of establishing that fact must be borne in mind throughout. Of course, the respondent cannot prove the breach alleged without establishing that fact by some means …
- [374]His Honour considered that the evidence led was to the effect that under favourable conditions, the plant would be paid for in eight to nine months. But that did not satisfy the onus which rested upon the respondent. In other words, the respondent was bound to show that those favourable conditions came into being. Substantially, the evidence led was against him.
- [375]I find the estimates given by Dr Baines and Mr White reliable and considered ones. I infer that they were based on assumptions about “ordinary” development/build times and “ordinary” supplier delays.
- [376]I am prepared to proceed on the basis that the starting points for the calculation of a reasonable time for the delivery of the E Band and W Band radios, assuming “ordinary” “conditions”, are the most conservative estimates given – that is, the date for the payment of the balance of the invoices, 31 January 2020.
- [377]In my view, EMClarity acted with “reasonable despatch” in the months immediately after the 2019 Agreements were made, until it was acquired by McKay Brothers. Until its acquisition, EMClarity was reasonable in its attempts to develop the W Band radio (with a view to building first a prototype and then the others required for the network) and in building the E Band radios.
- [378]EMClarity disclosed no issues with the development of W Band radios which impacted upon the build and therefore there could be no postponement of the date upon which reasonable time would elapse for that reason.
- [379]EMClarity’s internal correspondence of 20 September 2019, conveyed that it was aiming for delivery of the W Band radios by January 2020. However, emails a few days earlier between Mr Dench and [redacted] established that a certain part would not be shipped until 16 December 2019. This meant that the radios could not be delivered by 31 January 2020.
- [380]I am prepared to proceed on the basis that there was an extraordinary delay in the delivery of these components, for reasons outside EMClarity’s control, and that EMClarity acted, at least at this point, with reasonable despatch in response to this supplier delay (even though they did not cancel that order and seek out another supplier). I am therefore prepared to proceed on the basis that this supplier delay postponed the date upon which a reasonable time for delivery would have elapsed beyond 31 January 2020. But, on the evidence, it is impossible for me to nominate a date in the future, at which a reasonable time for delivery would elapse, in any reasoned way.
- [381]Reasonable inferences about timing, which might have been available to me based on the date upon which components were actually delivered, are not available because the defendant cancelled its orders for relevant components. No other evidence was called on this issue. Nor does the evidence assist me with alternatives to the suppliers originally engaged.
Conclusion
- [382]It is tempting to conclude that a reasonable time for delivery had elapsed by the date of trial, but I am concerned that to so conclude would involve some speculation on my part.
- [383]However, as will appear below, in my view, after EMClarity was acquired by McKay Brothers, it clearly manifested an intention to repudiate the 2019 Agreements.
Issue 6: Did EMClarity breach the implied term by failing to supply the E Band and W Band radios within a “reasonable time” being by October 2019, or alternatively 31 January 2020, 6 May 2020 or at the latest the date of the trial?
- [384]I am unable to answer the question whether EMClarity failed to deliver the radios within a reasonable time because on the evidence I am unable to identify the date upon which a reasonable time for supply would have elapsed without speculating.
Issue 7: Was a Quality Review in the terms instituted by EMClarity permitted by the terms of the 2019 Agreements or the WBRDAT?
- [385]No. The 2019 Agreements were straightforward agreements to supply equipment on certain terms within a reasonable period of time. A Quality Review was not permitted by the 2019 Agreements.
- [386]In my view, the WBRDAT was terminated and superseded by the 2019 Agreements. There is therefore no need for me to consider whether a Quality Review was permitted by the WBRDAT.
Issue 8: Was the Quality Review a genuine and/or necessary review of the E Band or W Band products? Or was it a “go-slow” in order to prioritise the interest of McKay Brothers/disadvantage the plaintiffs?
- [387]The plaintiffs acknowledge that it is not necessary for me to make a finding about the genuineness or necessity of the Quality Review to find that EMClarity repudiated the 2019 Agreements. However, the plaintiffs seek such a finding on the basis that it would –
- demonstrate the reasonableness of the beliefs held by the plaintiffs regarding EMClarity’s apprehended breaches; and
- provide a further basis upon which I might find that EMClarity repudiated the 2019 Agreements.
Plaintiffs’ submissions
- [388]The plaintiffs submitted that I should infer that the Quality Review was a sham, designed to slow down the development and production of the plaintiffs’ radios, to achieve for McKay Brothers a competitive advantage. They submitted that that inference was available on the basis of certain facts including (but not only) that –
- before 8 October 2019, there was no indication that there were any issues with either the E Band or the W Band radios other than minor ones which were resolved;
- before the takeover, EMClarity had never considered a Quality Review and Dr Baines agreed that ceasing the production of radios for an indeterminate period of time for any type of quality review would be “commercial suicide”;
- Dr Baines was not consulted about the Quality Review – rather he was required to implement it by the directors of McKay Brothers who were on EMClarity’s board;
- Mr Boyle did not say that McKay Brothers acquired EMClarity because it was a profitable business in its own right. The main driver for the acquisition of EMClarity by McKay Brothers was “to make sure EMClarity focused on and gave complete priority to the LMDS radios”, implying that it was not invested in the quality of radios for other EMClarity customers;
- the Quality Review was in reality only a review of the LMDS product. The evidence was to the effect that the “EMClarity Advisory Committee” resolved to prioritise the review of the McKay Brothers’ LMDS radios. Dr Baines’ notes indicated that the W Band radios were not considered a priority at all;
- it was made clear to Dr Baines that he was under no pressure to accelerate, or work on the radios the subject of, the 2019 Agreements;
- McKay Brothers’ did not produce any documents which identified the reasons for the implementation of the Quality Review, its conduct, management and progress, or status. The plaintiffs asked me to infer (for reasons which I will not detail) that McKay Brothers was aware of the existence of relevant documents, but chose to withhold them because they would not assist its case.
- [389]The plaintiffs asked me to draw a similar conclusion about the absence of evidence of the ongoing nature of the Quality Review. They observed that no minutes of the Advisory Committee’s meetings had been tendered. All that was tendered were Dr Baines’ notes of October 2019, November 2019 and February 2020. Dr Baines’ evidence was that the central document for recording the progress of the Quality Review was a document called the “Quality Issues Register”. However, that document shows that issues were only populated in the register from the end of November 2019 – after the commencement of the proceedings. The Quality Review Team updated the document until the end of January 2020 but it had not been updated since 28 January 2020.
- [390]Also, on 5 December 2019, well after the proceedings had been commenced, and after BSO filed its statement of claim, Dr Baines sent an email to the Quality Review Team which said –
…In the issues tracker can we please ensure that any issues that relate to W-band are explicitly tagged as such. This most likely will apply to issues in common across shared modules, say for instance modem boards, because as yet there is no data from testing W-band in either the lab or the field. Let’s make it clear and explicit which product families each issue applies to in our documents and records.
I am sure you can work out why I am making this request.
…
- [391]That email revealed, according to the plaintiffs, a desire to generate “evidence” of the genuineness of the Quality Review.
- [392]Further, there was an absence of evidence that the Quality Review had been imposed indiscriminately on all of EMClarity’s customers.
- [393]Finally, the plaintiffs submitted that EMClarity failed to call a number of critical witnesses in connection with the Quality Review and a “Jones v Dunkel inference” could be therefore drawn against the defendant.
Defendant’s submissions
- [394]The defendant submitted that the plaintiffs’ arguments overlooked a body of objective evidence which showed that the Quality Review was being undertaken at a cost to EMClarity, in that it was not selling radios. I interrupt here to note that whilst the Quality Review and the pause on shipments obviously came at a cost to EMClarity, that fact was unlikely to have been lost on EMClarity’s directors. Indeed, Mr Boyle admitted that he was aware of the risk of litigation over the decision to pause shipments. It is reasonable to infer that the decision to pause shipments was expected to yield a greater benefit to EMClarity/McKay Brothers than its cost.
- [395]The defendant submitted that the problems with the LMDS and W Band radios were real.
- [396]It emphasised that the suggestion that the Quality Review was a sham was not put to any witness. It made other arguments to rebut the suggestion that I ought to draw Jones v Dunkel inferences against it, which I will not detail here, but which listed the matters about which Dr Baines and Mr Boyle had not been cross-examined.
Discussion and conclusion
- [397]I am not prepared to make a finding in this case which is unnecessary.
- [398]And even if a finding were necessary, I would have found it difficult to make one because I was not assisted by cross-examination which explicitly put the plaintiffs’ case.[32] Sometimes, it got close. For example, Queen’s Counsel for the plaintiff referred Dr Baines to his email of 5 December 2019. Dr Baines agreed that the reason he was making the request to explicitly tag W Band issues was because he wanted issues with W Band radios to be documented. He could not recall “exactly” whether the McKay Brothers’ directors on EMClarity’s board told him to do so. He couldn’t say that it was true that, prior to the litigation commencing, EMClarity had not been generating lists of W Band radio defects.
- [399]He was then asked the following question and gave the following answer –
The reason you were doing it was because you wanted to have some documents that you could point to to say that there were issues with W Band radios. That’s right, isn’t it? --- To make it clear, yes. I mean we understood internally, because of commonality in modules, that it’s likely a certain issue would apply to W Band in the same way it applied to, say, LMDS or E Band.
- [400]However, it was not suggested to Dr Baines that he had made the request so that there would be a note of a problem with W Band which could be relied upon in this litigation as false evidence of a genuine quality review of W Band radios. Nor was it expressly put to Dr Baines that the Quality Review was a sham. I therefore do not have the benefit of his answer to those sorts of questions.
- [401]The plaintiffs submitted, in effect, that it was suspicious that Dr Baines was not consulted about the Quality Review. If, by “consulted”, the plaintiffs meant that his views about it were not sought before the decision to implement it was made, then it is probably right that his views were not sought.
- [402]Dr Meade and Dr Tyc spoke with Dr Baines about the possibility of a “fulsome” review of EMClarity’s design and manufacturing processes during his meeting with them on 2 October 2019. But Dr Baines was told at the same meeting that Dr Meade and Dr Tyc were of the view that the right thing to do was to pause production and conduct a comprehensive review of EMClarity’s products and processes and asked to implement it.
- [403]It is clear from Dr Baines’ affidavit that the scope of the review was influenced by Dr Meade and Dr Tyc. The motivation for the Quality Review included McKay Brothers’ issues with its LMDS radios and other customers’ issues with E Band radios. It was not prompted by concerns about the W Band radio in development. And there was no implementation of the plan, stated in November 2019, to build W Band prototypes for the purposes of their submission to the Quality Review.
- [404]I note the report to the EMClarity Board date 15 January 2020. Some of the report has been redacted. But I assume it relates to LMDS and E Band radios. The report suggests a genuine need for a Quality Review of those radios. It states that: 31 of the 36 links shipped between July 2018 and October 2019 had been returned for repairs; and the E Band failure rate had been approximately 60 per cent. The report identifies pervasive issues, from design to quality control of the components.
- [405]It is however a surprise that the Quality Issues Register has not been updated since the end of January 2020. It is also a surprise that there are no minutes of the meetings of the Quality Review Advisory Committee.
- [406]I do not accept Mr Boyle’s evidence that it “did entertain” the “mind” of the EMClarity board to have a conversation with Apsara about the way in which their radios could be supplied in the near future (after the “pause” on shipping). Mr Boyle’s suggestion that the board did not have a chance to discuss matters with Apsara because litigation was commenced is unpersuasive. There was nothing stopping the board from discussing the Quality Review with Apsara before it was implemented – especially if the board genuinely believed it was in Apsara’s interests. Mr Boyle said that he appreciated the risk of litigation ensuing upon the implementation of the Quality Review. Litigation might have been staved off by discussions with Apsara beforehand. If anything, the commencement of litigation might have been expected to motivate EMClarity to discuss matters with Apsara (through their lawyers).
- [407]It is of concern that EMClarity has not informed Apsara about the progress of the Quality Review or its expected timetable. Dr Baines’ notes of the meeting of the Quality Review Advisory Committee on 29 October 2019 list W Band radios as the third priority of the review and include the following question –
Tell BSO will be > one year?
But BSO were not told anything.
- [408]I reject Mr Boyle’s evidence to the effect that McKay Brothers/EMClarity did not appreciate that ceasing production of Apsara’s radios would generate an “obvious commercial advantage” to McKay Brothers. The advantage was obvious. I reject his evidence that he did not accept that any delay in the rollout of Apsara’s new network would advantage McKay Brothers. The advantage was obvious. I reject his evidence that it was never made clear to Dr Baines to give priority to the LMDS radio during the Quality Review. Dr Baines’ notes of 29 October 2019 (see below) makes the priority obvious.
- [409]Sham or not – it is clear that the Quality Review delivered an advantage to McKay Brothers.
Issue 9: By subjecting the order of W Band and E Band radios to the Quality Review, and/or delaying the development and shipment of the order, did EMClarity breach the terms of the Supply Agreements or the WBRDAT?
- [410]This issue relates to the plaintiffs’ arguments that Apsara was entitled to terminate the 2019 Agreements because –
- EMClarity had breached the condition that the radios (and other equipment) the subject of the 2019 Agreements would be supplied within a reasonable time;
or
- if the implied term was not a condition, EMClarity’s conduct was otherwise repudiatory because it amounted to a sufficiently serious breach of an innominate term as to give rise to Apsara’s right to terminate the 2019 Agreements
- [411]In my view, the evidence falls more easily into a repudiation narrative, rather than an actual breach narrative. Indeed, in my view, EMClarity’s repudiatory conduct is indisputable. It is not therefore necessary for me to reach a conclusion about Issue 9.
Issue 10: Was EMClarity’s conduct, in subjecting the order of W Band and E Band radios to the Quality Review, and/or delaying the development and shipment of the order a repudiation of the 2019 Agreements or the WBRDAT?
Plaintiffs’ submissions
- [412]The plaintiffs submitted that EMClarity clearly repudiated the 2019 Agreements by implementing the Quality Review, ceasing development of the W Band prototype, pausing all shipping and cancelling orders for relevant components. This conduct easily met the description of repudiatory conduct spelt out in the authorities. It was conduct which, as per Koompahtoo Local Aboriginal Council v Sanpine Pty Ltd (2007) 233 CLR 115 –
- evinced EMClarity’s unwillingness to perform its obligations under the 2019 Agreements; or
- evinced EMClarity’s intention to fulfil its obligations under the 2019 Agreements only in a way that was substantially inconsistent with those obligations.
- [413]Alternatively, the totality of EMClarity’s conduct evinced a clear intention to carry out its obligations under the 2019 Agreements only if and when it suited EMClarity.
- [414]Either way, the plaintiffs submitted, the conduct fell clearly within the conduct described as repudiatory in the following statements of principle in Laurinda, at 658 – 659, per Deane and Dawson JJ; and Gold Coast Oil Co Pty Ltd v Lee Properties Pty Ltd [1985] 1 Qd R 416, at 420, per Connolly J, with whom Thomas and Derrington JJ agreed.
- [415]In Laurinda, their Honours said (my emphasis) –
It is not necessary for repudiation of a contract that the repudiator make plain that he will never perform his contractual obligations at all. What Lord Dunedin described as an assumption of ‘a shilly-shallying attitude in regard to the contract’ and what Lord Shaw of Dunfermline called ‘procrastination … persistently practiced’ can, in some circumstances, reach the stage of repudiation even though accompanied by assurances of ultimate performance at some future time … ‘the question whether the stage has been reached when procrastination or non-performance’ constitutes repudiation is essentially one of fact. That question will, as has been said, only be properly answered in the affirmative when procrastination or non-performance has marked the stage of conveying to a reasonable person, in the situation of the other party, repudiation or disavowal either of the contract as a whole or of a fundamental obligation under it.
- [416]In Gold Coast Oil, his Honour said (my emphasis) –
… the situation is altogether otherwise where the other party has evinced an intention not to be bound by the contract. This intention is to be judged from the acts of the party and is made out where a reasonable man would infer that that party does not intend to take the contract seriously and that he is prepared to carry out his part of the contract only if and when or, as I have recently had occasion to say, if and as it suits him. When such an intention is shown the innocent party is entitled to rescind …
- [417]In oral submissions, counsel for the plaintiffs clarified that their arguments about repudiation did not change whether the Quality Review was genuine or not, but that all that had occurred by the time of trial was a review of the LMDS radios – rather than a review of all of EMClarity’s radio products and products in development. Further, internal documents indicated that there was “no hurry” with a review of W Band products.
Defendant’s submissions
- [418]The defendant submitted that repudiation was a serious matter and not something to be lightly found or inferred, relying on, inter alia, Laurinda at 643 (per Brennan J) and 657 (per Deane and Dawson JJ).
- [419]The defendant framed the repudiation question in this case as follows: whether a reasonable business person in the position of the plaintiffs would conclude that EMClarity had, by undertaking the Quality Review or otherwise not delivering radios, placed itself in a position where it did not intend to, or was not able to, perform its obligations under the relevant contracts.
- [420]The defendant’s detailed arguments boiled down to the following –
- The plaintiffs’ repudiation claim fell to be determined on the basis of the general allegation that there had been sufficient delay as to allow the court to conclude that there had been repudiation.
- Such a conclusion was rare in the case of a contract in which time was not of the essence (relying on Neeta (Epping) Pty Ltd v Phillips (1974) 131 CLR 286 at 302).
- Where time is not of the essence, and where the party said to be in breach by delay is nevertheless making an effort to perform the contract, it is intrinsically difficult for the other party to establish a fundamental breach (relying on Shawton Engineering v DGP International [2006] BLR 1 at [32] per May LJ).
- The gross and protracted delay necessary to establish repudiation had not been made out because the plaintiffs failed to prove that a reasonable time had expired or that the Quality Review was not genuine or necessary or otherwise.
- “… [I]f considerable work has been done in performance of a party’s contractual obligation and what is alleged to amount to a repudiation is not a flat refusal to perform, but an indication of an intention to continue to perform at a speed considered by the other party to be unreasonably slow, it may be very difficult to conclude that in those circumstances what is being offered will deprive the other party of substantially the whole benefit of the contract”: Astea (UK) v Time Group [2003] EWHC 725 at [151] per Seymour QC.
Plaintiffs’ reply
- [421]In reply, the plaintiffs submitted that I was not simply dealing with slow progress, I was dealing with no progress. There had been a total cessation of development of the W Band radios and the shipping of any product, and prioritisation of a competitor’s radios. Dr Baines’ evidence went only as high as saying that the work presently being done during the Quality Review might benefit future projects. At the least, there was evidence of EMClarity’s “shilly-shallying” approach to its obligations. Further, there had been repudiation of the WBRDAT because of the cessation of development.
Discussion and conclusion
- [422]The internal documents to which the plaintiffs referred included notes made by Dr Baines during an “EMC Advisory Committee” meeting on 29 October 2019. Those notes listed the Quality Reviews’ priorities as follows –
*Priority1.LMDS
2.Quality on E-band
3.W-band not at all Q 3, Q 4
next year or later
- [423]Dr Baines clarified under cross-examination that the McKay Brothers’ directors on EMClarity’s board made it clear to him that the priorities were as above.
- [424]The evidence revealed that EMClarity said nothing to the plaintiffs about –
- the expected duration of the Quality Review, or its progress – despite many requests for this information;
- when the plaintiff might expect the resumption of development/production;
- its intention with respect to the components it had ordered; or
- its intention with respect to the substantial amount of money already paid by Apsara.
- [425]Mr Boyle admitted that the defendant was aware that the implementation of the Quality Review might expose it to litigation – yet it did nothing to stave off that risk, including by discussing the review with BSO/Apsara before it was implemented, providing a timeframe for it, or keeping BSO/Apsara up to date with its progress.
- [426]Nothing in the evidence suggested that the defendant was making any effort to perform the 2019 Agreements to supply W Band, or for that matter, E Band radios. Development of a functional W Band prototype has ceased. Apsara’s E Band radios are not being build. Orders for components have been cancelled. And the review of the W Band product is not a priority for EMClarity at all.
- [427]Whilst the result of the Quality Review (assuming it is continuing) might ultimately be to the benefit of the development of W Band radios, that is not its purpose. The instruction in Dr Baines email of 5 December 2019 is concerning.
- [428]The 2019 Agreements were straightforward agreements to supply certain products within a reasonable period of time. They did not contemplate an indefinite delay in the development or delivery of products whilst a Quality Review – genuine or otherwise – of an indefinite duration was undertaken.
- [429]Applying the approach contended for by the defendant, I find that the defendant’s conduct in –
- implementing the Quality Review, which contemplates a review of W Band product as its lowest priority and in respect of which there is no end in sight;
- ceasing the development of a W Band prototype;
- ordering an indefinite pause on shipments of products; and
- cancelling orders for component parts,
viewed objectively, would convey to a reasonable person that EMClarity had repudiated its obligations under the 2019 Agreements by manifesting an intention to perform them only if and when it suited EMClarity.
- [430]Having earlier found that the WBRDAT was terminated, it is unnecessary for me to consider whether it was repudiated by the defendant.
Issues 11 – 16: Breaches of confidence - Overview
- [431]The plaintiffs’ pleadings and their written submissions about these issues left me a little confused and almost nothing was said in oral submissions about them.
- [432]The WBRDAT contained clauses imposing a contractual duty or obligation of confidence upon EMClarity in relation to “Confidential Information” as defined in the WBRDAT. The term “Confidential Information” included “Customer Material”, also defined under the WBRDAT. By clause 5.9 of the WBRDAT, the contractual obligation of confidence survived the termination of the WBRDAT.
- [433]The plaintiffs plead, in clause 7A of the Amended Statement of Claim, that an equitable duty of confidence attaches to the W Band project, the terms of the WBRDAT and the Customer Material particularised in the pleading.
- [434]The “W Band project” was defined in the plaintiffs’ Amended Statement of Claim in these terms –
Prior to June 2018, the First Plaintiff entered into discussions with the Defendant to develop new radio equipment utilising the W-band (95GHz), which was to be deployed into a wireless network of the Plaintiffs’ design.
- [435]The W Band Project falls within the definition of “Customer Material” because it was “material” provided by BSO for the purposes of guiding the terms of the WBRDAT.
- [436]The equitable duty of confidence pleaded in paragraph 7A co-exists with the contractual duty of confidence.
- [437][redacted]
- [438]The Alternative Strategy was revealed by the Quote and the Purchase Orders.
- [439]In paragraph 30C(c) of the Amended Statement of Claim, the plaintiffs assert that “the Duty of Confidence owed by the defendant extended to the Alternative Strategy, the Quote, the Purchase Orders and the W-Band and E Band Supply Agreements”. The Duty of Confidence that was “extended” was the equitable duty pleaded in paragraph 7A of the Amended Statement of Claim.
- [440]As I understand the plaintiffs’ case, they plead that a contractual and an equitable obligation of confidence attaches to all of the Material and that both were breached.
- [441]They plead, at paragraph 45(a) of the Amended Statement of Claim, that the defendant breached clause 7 of the WBRDAT in providing information to McKay Brothers which disclosed “the existence of the W-band Project, the terms of the W-band Development Agreement, the confidential Customer Material, and further the Alternative Strategy, the Quote and the Purchase Orders” (my emphasis).
- [442]The pleadings thus imply that the contractual duty of confidence under the WBRDAT attached to the Alternative Strategy, the Quote and the Purchase Orders. But that material does not obviously fall within the definition of Confidential Information under the WBRDAT.
- [443]At paragraph 45(b), the plaintiffs plead that the defendant breached the equitable duty of confidence by providing the same information as that recited in paragraph 45(a) to McKay Brothers.
- [444]The plaintiffs asserted three instances of the disclosure of confidential information by EMClarity to McKay Brothers –
- The first by way of EMClarity’s sending an invitation to the W Band Project meeting to Mr Boyle and the emails between Mr Boyle and Dr Baines which followed it.
- The second by way of EMClarity providing redacted copies of the WBRDAT, the Quote and the Purchase Orders to Mr Boyle during McKay Brothers’ due diligence.
- The third by way of EMClarity providing un-redacted copies of the WBRDAT, the Quote and the Purchase Orders to EMClarity’s “McKay Brothers affiliated directors” – Mr Boyle, Mr Kennard, Dr Meade and Dr Tyc – on 27 September 2019, after McKay Brothers’ acquisition of EMClarity.
- [445]It seems that the plaintiffs’ position is that, in breach of clause 7 of the WBRDAT and the equitable duty of confidence –
- As to the first instance above, EMClarity disclosed to Mr Boyle that it was developing a W Band radio for BSO; and
- As to the second and third instances above, EMClarity disclosed to Mr Boyle/McKay Brothers that it was developing a W Band radio for BSO and BSO’s Alternative Strategy.
- [446]The defendant’s position is that the contractual obligations of confidence – including the “carve outs” in clause 7.2 and 7.3 of the WBRDAT – applied, and that its disclosure to Mr Boyle/McKay Brothers of any of the Material was authorised by the carve outs.
- [447]Further, the defendant submitted, any co-existing equitable obligation of confidence was subject to the same carve outs.
- [448]The plaintiffs denied any such constraint on the equitable obligation of confidence.
Issue 11: Were the “W-Band project, the terms of the WBRDAT, the Customer Material under the WBRDAT, the Alternative Strategy, the Quote and the Purchase Orders” (together, the “Material”) confidential?
- [449]The answer to the question whether “the W Band project, the terms of the WBRDAT and the Customer Material under the WBRDAT” are “confidential” is simply “yes” in accordance with the relevant definitions of Confidential Information and Customer Material in the WBRDAT.
- [450]I am also of the view that the Alternative Strategy, revealed by the Quote and Purchase Orders, is confidential – even though that material does not fall within the definition of “Customer Material” under the WBRDAT without unnaturally straining the language of the definition.
- [451]The essential attribute of confidential information is “relative secrecy”. Information will not have the necessary quality of confidence if it is something which is public property or public knowledge. The “fairly undemanding”[33] “test” from Coco v AN Clarke (Engineers) Ltd [1969] RPC 41 at 47 – 8, per Megarry J is whether the information –
- has the necessary quality of confidence about it; and
- has been imparted in circumstances importing an obligation of confidence.
- [452]As to communicating the information in circumstances importing an obligation of confidence, Megarry J said at 47 – 48 (my emphasis) –
However secret and confidential the information, there can be no binding obligation of confidence if that information is blurted out in public or is communicated in other circumstances which negative any duty of holding it confidential. From the authorities cited to me, I have not been able to derive any very precise idea of what test is to be applied in determining whether the circumstances import an obligation of confidence … It may be that that hard-worked creature, the reasonable man, may be pressed into service once more; for I do not see why he should not labour in equity as well as at law. It seems to me that if the circumstances are such that any reasonable man standing in the shoes of the recipient of the information would have realised that upon reasonable grounds the information was being given to him in confidence, then this should suffice to impose upon him the equitable obligation of confidence. In particular, where information of commercial or industrial value is given on a business-like basis and with some avowed common object in mind, such as a joint venture or the manufacture of articles by one party or the other, I would regard the recipient as carrying a heavy burden if he seeks to repel the contention that he was bound by an obligation of confidence … I doubt whether equity would intervene unless the circumstances are of sufficient gravity; equity ought not to be invoked to protect trivial tittle-tattle, however confidential.
- [453]The statements in bold above are apposite here.
- [454]In my view, BSO’s [redacted], was commercial information of high value to BSO, which was not otherwise in the public domain. It was intended as the means by which BSO/Apsara would gain a competitive edge against their rivals in the NJ Equity Triangle. Any reasonable person would have appreciated that any edge would be lost were the alternative phased network rollout not treated as confidential information. The information was communicated to EMClarity “on a business like basis”: EMClarity was the entity which BSO would engage to produce or supply the equipment required for the Alternative Strategy.
Issue 12: Was the Material disclosed to McKay Brothers?
Invitation to meeting about the W Band Project and following emails – was confidential information disclosed?
- [455]The plaintiffs submitted that there was, in the invitation and the emails which followed it, sufficient information to disclose the fact that EMClarity was working on a W Band project for a customer; especially because of Dr Baines’ statement that it was “under disclosure” which Mr Boyle would have understood as a reference to its being subject to a non-disclosure agreement with a customer.
- [456]The plaintiffs asserted that EMClarity’s customers were “primarily” those in the high frequency trading market. The plaintiffs submitted that a reasonable person with knowledge of EMClarity’s customers would conclude that the customer, impliedly referred to in the emails, was “very likely” to be a competitor of McKay Brothers in the high frequency trading market space. The plaintiffs did not go so far as to submit that a reasonable person would have deduced from the invitation and the emails which followed it that EMClarity was working on a W Band radio for BSO.
- [457]The defendant submitted that the definitions of Confidential Information and Customer Material in the WBRDAT were exhaustive definitions, which meant that not everything with a remote connection to the WBRDAT or the work being performed under it was confidential. The fact that EMClarity was working on a W Band project was not a term of the WBRDAT. Nor was the concept of the W Band confidential – it was a matter of public record. Further, it was nothing more than speculation to suggest that a reasonable person would have concluded that the customer was “very likely” a competitor of McKay Brothers.
- [458]In my view, the terms of the WBRDAT would encompass broadly the fact that EMClarity was developing a W Band radio for BSO (as well as its specific terms). However, I am not persuaded that anything confidential was disclosed by the sending of the invitation or in the emails which followed.
- [459]While it was careless for EMClarity to send the invitation to Mr Boyle and unprofessional of Dr Baines to have said anything more about a W Band project to Mr Boyle, I am not persuaded on the evidence that a reasonable person would have concluded that the customer to whom Dr Baines referred was “very likely” a competitor of McKay Brothers. Nor would a reasonable person have concluded that that competitor was BSO.
- [460]The relevant evidence about EMClarity’s customers included Dr Baines’ evidence that EMClarity was a “world leader” in the production of E Band and W Band radios for “high frequency trading data markets”. But, he said, it also provided those products to “military and defence forces” and “telecommunication companies”.
- [461]Other relevant evidence included the material about EMClarity in the “Plaintiffs’ Additional Tender Documents” bundle. That material refers to EMClarity’s introducing a product for “ultra-fast financial trading applications” but nothing suggested that this product was EMClarity’s dominant product or that it was provided to customers deploying it in the NJ Equity Triangle only. Indeed, the material claims that EMClarity supplied ultra-low latency wireless communications to “network operators around the world”. It also boasts a range of customers from the military, telecommunications, government and resources sectors.
- [462]I am not persuaded on the evidence that EMClarity’s primary work was the production of radios for the NJ Equity Triangle high frequency trading market – which undermines the plaintiffs’ argument that Mr Boyle would have assumed the customer to be one of its competitors.
- [463]Even if I were to conclude that EMClarity’s primary business was in the NJ Equity Triangle, at best for the plaintiffs, EMClarity providing the invitation and the emails to Mr Boyle might have caused Mr Boyle to speculate that EMClarity was working on a W Band project for one of its competitors. Mr McGowan thought he was fishing for information about who the customer was. But I am not persuaded that the information conveyed by the invitation and the emails following it disclosed that EMClarity was working on a W Band project for deployment in the NJ Equity Triangle – let alone that it was working on a project for BSO. I am not persuaded that confidential information was conveyed via the meeting invitation or the emails which followed.
The redacted material – was confidential information disclosed?
- [464]For the purposes of due diligence, EMClarity provided to Mr Boyle –
- a redacted the copy of the WBRDAT (redacted by using a black pen to obscure certain details); and
- a redacted, executed copy of the WBRDAT; and
- a copy of the Word versions of the Quote and Purchase Orders which omitted certain information which was contained in the originals.
The redacted copies of the WBRDAT
- [465]The plaintiffs submitted that the redactions to the WBRDAT were ineffective: the obscured details (such as the name of the customer) were still visible through the black ink. That may be right. But regardless, there was no redaction (or attempt) of Mr McGowan’s name as the “Customer Representative” in the schedule to the WBRDAT. Mr Boyle understood that Mr McGowan was associated with BSO and Apsara. The redactions were not effective to disguise and keep confidential the fact that BSO had asked EMClarity to develop a W Band radio with certain specifications. Also, the disclosure of the schedule to the WBRDAT, and the disclosure of the date upon which the WBRDAT was signed, conveyed the expected timing of the production of W Band radios. EMClarity disclosed confidential information via the provision of the copies of the WBRDAT to Mr Boyle.
The redacted Quote and Purchase Orders
- [466]The redacted Quote omitted, inter alia, the name of the customer (“BSO Networks”) and replaced it with “Customer B”. It omitted the recital that the customer had settled on a “phased deployment strategy”.
- [467]The redacted Quote listed a large amount of equipment. It referred to the “overall project” and made reference to latency savings. It stated that the prices quoted were in US dollars. And it nominated the territory (for the purpose of exclusivity) as “New Jersey, Chicago, Toronto, London, Sydney”.
- [468]The four separate redacted Purchase Orders listed the equipment necessary for each separate phase of the rollout but did not, in terms, reveal that each Purchase Order related to a separate phase.
- [469]EMClarity submitted that the plaintiffs had not established that the provision of the redacted versions of the Quote and Purchase Orders to McKay Brothers during due diligence disclosed the Alternative Strategy or sufficient information as to allow McKay Brothers to deduce the alternative strategy. EMClarity submitted that all that was disclosed was the fact that orders of a certain quantity of E Band and W Band radios and associated equipment had been made. The defendant also submitted that whether McKay Brothers might deduce the alternative strategy from the documents was irrelevant. The focus was on the nature of the information disclosed, and whether it was confidential.
- [470]I found the question whether there had been disclosure of the Alternative Strategy, by way of the provision of the redacted Quote and Purchase Orders, difficult. The following email correspondence between Mr Boyle and Dr Baines about the disclosed documents is also relevant –
- (a)Mr Boyle emailed Dr Baines with the subject line “wband” and said: “is the exclusivity really just a 200K per year again?”
- (b)Dr Baines responded: “No, that’s been superseded by the terms in the Quote document (same folder).”
- (c)Mr Boyle said: “Interesting. Seeming then we could sell a 32 QAM w-band radio that’s otherwise identical. And this would not involve ROFR or break exclusivity. Same with a 128QAM, or a QPSK w-band etc. So is that development agreement unexecuted and that exclusivity language has never been enforceable?”
- [471]The reference to “exclusivity” in (a) is a reference to a term of the WBRDAT. As above, by failing to redact Mr McGowan’s name from the WBRDAT, it was disclosed to Mr Boyle, and thereby to McKay Brothers, that BSO or Apsara had entered into an agreement with EMClarity to develop a W Band radio.
- [472]EMClarity told Mr Boyle (via (b) above) that the WBRDAT had been “superseded” by the terms of the Quote.
- [473]On one view, the content of the Quote, and the information that the WBRDAT had been superseded, conveyed to McKay Brothers that the development of W Band radios for BSO/Apsara had reached the point where the radios could be built. Also, the volume and nature of the equipment listed in the Quote and Purchase Orders may have conveyed that a network utilising W Band and E Band was in contemplation, for deployment in territory which included New Jersey and Chicago. [redacted]
- [474]With some hesitation, I have concluded that, while the provision of the redacted documents came very close to disclosing the Alternative Strategy, it fell just short of doing so. However, the Alternative Strategy was later disclosed to the McKay Brothers affiliated directors of EMClarity.
The un-redacted material – was confidential information disclosed?
- [475]The plaintiffs assert that the provision of the un-redacted Quote and Purchase orders to the McKay Brothers affiliated directors of EMClarity disclosed the existence and content of the proposed phased roll out to McKay Brothers. That is undoubtedly true, and the defendant does not suggest otherwise.
Issue 13: Was there a contractual obligation under the WBRDAT to keep the Material confidential and not disclose it to McKay Brothers?
- [476]The short answer is “yes” as per the terms of the WBRDAT for the “Material” covered by it – that is the W-Band project, the terms of the WBRDAT, and the Customer Material under the WBRDAT; but not the Alternative Strategy, the Quote and the Purchase Orders”.
- [477]The plaintiffs’ position in submissions seemed to be that the contractual obligations of confidence did not apply to the strategy and those documents (although this seems inconsistent with its pleading). The defendant’s position was that it did.
- [478]On the basis that the 2019 Agreements were separate to the WBRDAT, it seems to me that the strategy and those documents would only be covered by the contract if they fell within the definition of “Customer Material”. “Customer Material” is limited to material provided by BSO for the purposes of the WBRDAT.
- [479]When it came to the question of whether there had been the disclosure of confidential information by way of sending the meeting invitation and the emails which followed it, the defendant’s position was that the definitions of Confidential Information and Customer Material were exhaustive. Not everything with a remote connection to the WBRDAT, or the work performed under it, was confidential. Nor was information gained by EMClarity during the course of working in pursuance of the WBRDAT, which was not provided by BSO, or to which access was given by BSO, for the purposes of the WBRDAT, within the definitions.
- [480]Applying the defendant’s own arguments, it is stretching the language of the contract too far to suggest that a discussion about an alternative to the WBRDAT and the documents reflecting that alternative were provided for the purposes of the WBRDAT – even if the discussion related to the WBRDAT and the work to be performed under it.
- [481]In my view, the contractual obligation of confidence therefore covered the W-Band project, the terms of the WBRDAT and the Customer Material. It did not cover the Alternative Strategy, the Quote and the Purchase Orders.
Issue 14: Was there an equitable duty of confidence to keep the Material confidential and not disclose it to McKay Brothers? What is the scope of any such equitable duty?
The equitable obligation or duty of confidence
- [482]Equity enforces a duty not to misuse information that is disclosed in circumstances giving rise to an obligation of confidence, as confirmed in Moorgate Tobacco Co Ltd v Philip Morris Ltd (No 2) (1984) 156 CLR 414. Of the equitable obligation not to misuse confidential information, Deane J said (at 437 - 438, footnotes omitted, my emphasis) –
It is unnecessary, for the purposes of the present appeal, to attempt to define the precise scope of the equitable jurisdiction to grant relief against an actual or threatened abuse of confidential information not involving any tort or any breach of some express or implied contractual provision, some wider fiduciary duty or some copyright or trade mark right. A general equitable jurisdiction to grant such relief has long been asserted and should, in my view, now be accepted: see The Commonwealth v John Fairfix & Sons Ltd. Like most heads of exclusive equitable jurisdiction, its rational basis does not lie in a proprietary right. It lies in the notion of an obligation of conscience arising from the circumstances in or through which the information was communicated or obtained. Relief under the jurisdiction is not available, however, unless it appears that the information in question has the “necessary quality of confidence about it” (per Lord Greene MR, Saltman) and that it is significant, not necessarily in the sense of commercially valuable … but in the sense that the preservation of its confidentiality or secrecy is of substantial concern to the plaintiff …
Whether contractual and equitable obligations of confidence co-exist?
- [483]In the present case, the parties argued about whether an equitable obligation of confidence could arise when a contractual obligation of confidence was in existence – referring me to competing authorities. I will refer first to the authorities, and then to the parties’ submissions about them.
Del Casale v Artedomus (Aust) Pty Ltd [2007] NSWCA 172
- [484]Del Casale concerned the obligations of confidence of employees. Artedomus was the sole importer of modica stone into Australia. Its best-selling product was a modica stone it called “Isernia”, which was obtained from the Ragusa district in Sicily. Although it could be readily ascertained that modica stone came from the Ragusa district, the source of Isernia and the fact that it was modica stone could not be easily ascertained.. Artedomus emphasised to the appellants, Del Casale and Savini, whom it employed, that the source of Isernia was not to be disclosed.
- [485]Ultimately, Del Casale and Savini resigned from Artedomus. Del Casale agreed that he would “keep confidential any commercially sensitive information he may be in possession of or have become aware of during his employment” and not compete with Artedomus for three years.
- [486]Del Casale set up a business called Stone Arc and Savini became a director of it. They travelled to Italy and, the primary judge found, used confidential information (that Isernia was obtained from the Ragusa district) to rapidly locate alternative suppliers of Isernia.
- [487]A question for the primary judge was whether the information about the source of Isernia was protected without an agreement. The primary judge found that it was. On appeal, it was submitted that, in the absence of a contractual agreement, the information did not have the degree of confidentiality that would attract protection after employment had ended.
- [488]The appeal judgment relevant to the present matter is Campbell JA’s. His Honour found, inter alia, that there had been no relevant breach of the obligation of confidentiality. In analysing relevant authority about “trade secrets”, Campbell JA mentioned that the judgment of Goulding J in Faccenda Chicken Ltd v Fowler [1985] 1 All ER 724, made reference to the judgment of Lord Green MR in Saltmann Engineering Co Ltd v Campbell Engineering Co Ltd [1963] 3 All ER 413 at 415. His Honour considered that worth mentioning because, inter alia, Saltman was concerned solely with an equitable obligation of confidence, but Goulding J applied it where the only cause of action sued on was for breach of contract. His Honour continued (my emphasis) –
- [117]… That was recognised by counsel and the Court in the Court of Appeal, as one of the submissions made to the Court of Appeal is recorded as being:
“… though the obligations of an employee [concerning confidence] were based on an implied term of the contract of service, this was immaterial because the scope of the implied term was coextensive with the obligations imposed by equity on a person to whom confidential information was entrusted in circumstances where no contact existed between the parties.”
- [118]If there was a contractual obligation that covered the topic, there would, of course, be no occasion for equity to intervene to impose its own obligation. This was recognised by Megarry J in [Coco] when he said at 47:
“In cases of contract, the primary question is no doubt that of construing the contract and any terms implied in it. Where there is no contract, however, the question must be one of what it is that suffices to bring the obligation into being …”
- [489]His Honour concluded that while the information was given in confidence, and there was an obligation of confidentiality around it, it was information of a nature which a reasonable and honest person could have been, at the least, in doubt about whether he or she was entitled to use it after leaving Artedomus.
Streetscape Projects (Aust) Pty Ltd v City of Sydney (2013) 85 NSWLR 196
- [490]Del Casale was referred to in obiter remarks in Streetscape. Streetscape was an appeal from the decision of the primary judge that it had breached: its contract with the council of Sydney; fiduciary duties it owed to the council; and its duty of confidentiality.
- [491]Streetscape and the council were parties to an agreement which included confidentiality clauses under which Streetscape was not to use the Intellectual Property of the council other than for the purposes of their agreement.
- [492]The Court of Appeal found that, because the primary judge had wrongly refused to admit certain evidence, the issues of the existence and breach of an equitable duty of confidence were to be remitted to the Equity Division for re-trial.
- [493]In discussing the equitable duty of confidence, Barratt JA, with whom Meagher and Ward JJA[34] agreed, referred to Del Casale in the context of considering whether the equitable duty could co-exist with a contractual one. His Honour said (citations omitted, my emphasis in bold) –
- [149]The licence agreement contained detailed confidentiality provisions …
- [150]There is a question whether an equitable duty of confidence arises against one party and in favour of another where those parties have given and received contractual promises of confidentiality creating equal or greater protection of the same subject matter. The Full Court of the Federal Court, in Optus … decided that the two kinds of obligation could co-exist (reference was there made to an earlier case in which a contractual duty was described as “parasitic upon” the equitable duty: Australian Medic-Care Company Ltd v Hamilton Pharmaceuticals Pty Ltd) …The contrary view was taken by Gordon J in Coles Supermarkets Australia Pty Ltd v FKP Ltd …, citing the observations of Campbell JA in Del Casale … at [118] that, if there is a contractual obligation covering the topic, there is no occasion for equity to intervene to impose its own obligation (Campbell JA as a judge of the Equity Division, has expressed similar views in AG Australia Holdings Ltd v Burton … and Mid-City Skin Cancer & Laser Centre Pty Ltd v Zahedi-Anarak …). The approach preferred by Gordon J and Campbell JA accords with the residual nature of the equitable duty as recognised by Deane J in Moorgate … at 437 – 438. Deane J referred to “the equitable jurisdiction to grant relief against an actual or threatened abuse of confidential information not involving any tort or any breach of some express or implied contractual provision, some wider fiduciary duty or some copyright or trade mark right” (emphasis added). It is also consistent with the notion of equity’s “supplementing” role discussed above in relation to fiduciary duties.
- [494]However, the question of the co-existence of contractual and equitable duties of confidence did not arise in Streetscape because the proceedings were fought on the basis of co-existing contractual and equitable duties, and that position was not challenged on appeal.
Optus Networks Pty Ltd v Telstra Corporation Ltd (2010) 265 ALR 281
- [495]Optus argued before the primary judge that Telstra had –
- breached the provisions of an “access agreement” which, by clause 15, restricted the disclosure and use of Confidential Information as defined therein;
- breached the duty of confidentiality which it owed to Optus; and
- engaged in unconscionable conduct under the Trade Practices Act.
- [496]The primary judge allowed the contract claim but dismissed Optus’ claim in equity because the contract dealt with the obligation of confidence exhaustively. Optus successfully appealed against that decision.
- [497]The primary judge said (paragraph numbers from the primary judgment, quoted in [27] of the judgment of the Full Court, my emphasis) –
- [4]… where, as here, there is not only a contract between the parties, but a contract which, in its terms, defines “Confidential Information” on an exhaustive basis … and regulates the obligations of each party in relation to the Confidential Information of the other party on a comprehensive basis … there is, in my view, no reason for the intervention of equity for the simple reason that there is no need for its intervention to achieve justice between the parties for conduct which is common to both the finding of breach of contract and the ground relied upon for equitable intervention.
- [5]Moreover, the conclusion expressed at [4] above is reinforced where, as here, the contract contains a provision such as cl 16.1 …
- [6]In these circumstances, I decline to find any breach of a duty of confidentiality owed by Telstra to Optus overlapping or concurrent with my finding of Telstra’s breach of contract.
- [498]Clause 16.1 stated what it called a “General Principle” –
Save to the extent that another provision of this agreement expressly provides for (or expressly excludes or limits) a remedy, a liability or a form of compensation in relation to an act, omission or event, this clause 16 shall regulate the liability (whether arising in contract, in tort, under statute or in any other way and whether due to negligence, wilful or deliberate breach or any other cause) of a party to each other party under and in relation to this agreement and in relation to any act, omission or event relating to or arising out of this agreement.
- [499]In deciding whether the access agreement excluded equitable obligations of confidence, the Full Court (in a joint judgment) studied the terms of the agreement in detail.
- [500]The Full Court found that, although “Confidential Information” was defined in an exhaustive fashion, it did not indicate an intention to exclude equitable obligations. Nor did a clause which comprehensively regulated the obligations of each party in relation to Confidential Information. Indeed, Clause 15.6 pointed in the other direction. It stated (my emphasis) –
Each party acknowledges that a breach of this clause 15 by one party may cause another party irreparable damage for which monetary damages would not be an adequate remedy. Accordingly, in addition to other remedies that may be available, a party may seek injunctive relief against such a breach or threatened breach.
- [501]An account of profits was an obvious other remedy.
- [502]Clause 20.22 was also relevant. Generally, it provided that the rights, powers and remedies provided in the agreement were not exclusive of the rights, powers or remedies provided by law independent of the agreement. Further, clause 16.8 anticipated other proceedings.
- [503]The Full Court held that clause 16.1 did not reinforce the primary judge’s view that the intervention of equity was excluded by the agreement. The primary judge had thereby erred.
- [504]The Full Court then considered Telstra’s reliance on the observations of Gordon J in Coles, where her Honour rejected an argument that equitable and legal obligations of confidence could coexist, relying on Del Casale. The Full Court found that Campbell JA’s statement in Del Casade did not apply in Optus because the contractual obligations did not “cover the topic”. Optus wished to seek an account of profits and the clauses of the contract permitted it to do so.
- [505]After considering other authority, the Full Court said at [37] (my emphasis) –
… the access agreement (in particular clauses 15.6 and 20.22) preserves equitable rights. We can discern no reason why parties cannot agree that one who claims that its confidential information has been misused can elect to sue either for damages for breach of contract under clause 15 or for an account of profits under clauses 15.6 and 20.22.
- [506]More generally, the Full Court observed that the notion that no equitable duty of confidence arises where there is a comparable contractual duty was “opposed to much authority”, which it listed.
Academic text
- [507]The learned authors of Equity: Doctrines & Remedies,[35] acknowledge the significance of the terms of a contract and that which may be gleaned from them about the availability of recourse to equitable remedies.
- [508]At [42-050] they state (some footnotes omitted, my emphasis) –
The subject of this chapter is the jurisdiction in equity to restrain breaches of confidence – not in the auxiliary jurisdiction as an aid to contractual rights, but in the exclusive jurisdiction where the plaintiff has no legal rights. Where there is a contract then it is necessary to look to its express words or necessary implication. Those legal rights may be sufficient, and indeed they may exclude recourse being had to equitable concepts [here, the authors refer to Campbell JA in Del Casale at [118]]. However, just as contract may be (and often is) the source of a fiduciary obligation, contractual provisions are apt to be highly significant in determining whether information has the necessary quality of confidence, and was imparted in circumstances importing an obligation of confidence, so as to attract equitable intervention. Indeed, where contracting parties have made elaborate provision to protect information regarded by them as confidential, there is often no good reason to conclude that they should have been taken to excluded equitable principle. For example, not lightly should parties be taken to have denied recourse to an account of profits in the event of a misuse of information which is both inherently confidential and which is protected by their contract. Thus, a Full Court of the Federal Court has confirmed that ‘the notion that no equitable duty of confidence arises where there is a comparable contractual duty is opposed to much authority [referring to Optus at [38]] and has approved Dean’s statement that ‘[e]quitable protection … may be used in preference to an existing contractual obligation, or alongside a contractual obligation [referring to R Dean, The Law of Trade Secrets, 2nd ed, Lawbook Co, Sydney 2002, [2.55]].
The parties’ arguments
- [509]As I understood things, the plaintiffs relied upon an equitable obligation of confidence to, in effect, override clause 7.3 of the WBRDAT.
- [510]The plaintiffs submitted that “the only circumstances in which equitable and contractual obligations cannot co-exist is where the contract ‘covers the topic’ and evinces an intention that ‘equitable principles are excluded’ and the contract provides all of the necessary remedies to deal with the conduct to which a party is exposed”.
- [511]The plaintiffs submitted that Optus demonstrated that such a conclusion should not be readily drawn, even where parties have entered into complex and detailed commercial contracts. They continued, “The mere “codification” of certain matters, for example, by defining what is treated as confidential for the purpose of a contract, does not demonstrate an intention to exclude the Court’s equitable jurisdiction”.
- [512]The defendant, who wished to rely upon clause 7.3 of the WBRDAT, submitted that only the contractual obligation applied, and even if there were room for an equitable obligation of confidence, it was no broader than the contractual one.
- [513]The defendant acknowledged that the cases which suggested that no equitable obligation arose where a contractual obligation of confidence exists (for example, Del Casale) were questioned in Optus. However, it observed that Streetscape was a unanimous decision of the New South Wales Court of Appeal which considered Optus but decided to “follow” Del Casale. It submitted that “Optus expresses doubt about Del Casale but does not decline to follow it in a reasoned way. In Optus, the express terms of the contract contemplated the availability of equitable remedies, which is a feature not present in the [WBRDAT]”.
- [514]The defendant submitted that I ought to follow the reasoned position of the Court of Appeal in Del Casale and Streetscape rather than the obiter of the Full Court and conclude that because the WBRDAT included obligations of confidence, no co-existing equitable obligation of confidence arose. And even if there were room for a co-existing obligation of confidence, the defendant submitted that it was no wider than the contractual obligation (which was tempered by clause 7.3), referring to Coco at 590, at which Megarry J said that, in cases of contract, the primary question was no doubt one of construing the contract and its terms.
- [515]The defendant elaborated on these submissions further and made the following points –
- The authorities which concluded that contractual and equitable obligations could co-exist did not support the proposition that the equitable obligation could extend further than the contractual one or be inconsistent with it;
- The residual nature of equity was at least consistent with the proposition that any co-existing equitable obligation ought not to be inconsistent with, or broader than, the contractual one;
- A conclusion that any equitable obligation was limited by, and had to conform to, the relevant contract was consistent with the position in the cognate area of fiduciary duties (referring to Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 97);
- The WBRDAT exhibited an intention to exclusively define the parties’ rights and obligations on the topic of confidentiality – including by way of its definitions of “Confidential Information” and “Customer Material”. Also, clause 13.6 provided that the WBRDAT embodied “the entire agreement between the parties related to the subject matter hereof”. Such a clause was thought to have supported the application of Del Casale in Gold & Copper Resources Pty Ltd v Newcrest Operations Ltd [2013] NSWSC 281.
- [516]The authorities which stated that the equitable obligation ought to go no further than the contractual one included Corporate Farming Pty Ltd v Eden Bay Pty Ltd, an unreported decision of the Supreme Court of Western Australia on 28 January 1992, in which Murray J held as follows –
I think it is the law that in circumstances where there is a contractual relationship between the parties a duty of confidentiality may nonetheless arise in equity and be owed by one party to the other …
But as I understand the law, such an equitable duty may be relied upon where it would result in a position consistent with that provided for by the contract or where the contract is silent on the matter, but not to give a party a remedy in circumstances where the result would be directly inconsistent with the contractual arrangements.
Discussion and conclusion
- [517]Streetscape expressed a preference for Del Casale and noted its consistency with Deane J in Moorgate but the issue of the co-existence of contractual and equitable obligations did not arise because of the way in which the parties had proceeded on appeal.
- [518]In Optus, the access agreement clearly contemplated remedies for breach of its terms beyond those provided in the contract. Whilst expressing doubt about the approach in Del Casale, the Full Court resolved matters by reference to the terms of the parties’ agreement.
- [519]Other authorities to which I was referred go either way.
- [520]My preference is for the approach in Del Casale, because of its consistency with Moorgate.
- [521]But assuming that the correct approach is one which permits a co-existing equitable obligation of confidence, the more relevant question is whether that equitable obligation supersedes or overrides clause 7.3.
- [522]The authorities to which I was referred emphasised the significance of the contract. The parties here were free to agree that certain conduct would not amount to a breach of the obligation of confidence. In my view, the equitable obligation would not operate to convert contractually authorised disclosure into unauthorised disclosure. In other words, in my view, paying due regard to the parties’ agreement, where certain disclosure would not amount to a breach of contract because it is authorised by clause 7.3, equity would not intervene to render that same conduct a breach of a broader equitable obligation.
Issue 15: Was the contractual duty breached?
- [523]The defendant asserts that none of the Customer Material, which EMClarity received from BSO (including the Site Location Data and the Path Analyses Information), was disclosed to McKay Brothers. The plaintiffs have made no submissions to me about the provision of Customer Material in breach of contract. I will therefore say nothing more about it.
- [524]With respect to the provision of the ineffectively redacted, and un-redacted, copies of the WBRDAT, the defendant relies upon clause 7.3 of the WBRDAT. The defendant also observes that, because of clause 7.3, it was under no obligation to redact, or attempt to redact, the WBRDAT before providing it to Mr Boyle during due diligence.
- [525]The defendant pleads that McKay Brothers was a potential investor from 15 July 2019 and an investor from September 2019. Therefore, EMClarity was entitled to disclose copies of the WBRDAT[36] to Mr Boyle and to the McKay Brothers affiliated directors. The plaintiffs made no submissions to the contrary in the context of the contractual obligation.
- [526]It follows that the disclosure of the WBRDAT during due diligence was authorised by clause 7.3(c) and the disclosure of the WBRDAT to the McKay Brothers affiliated directors was authorised by clause 7.3(b).
- [527]In reaching agreement on the terms of the WBRDAT, the parties could have anticipated a potential investor rival – but did not do so. In this context, the defendant referred to Global Advanced Metals Pty Ltd v Metallurg Inc [2017] WASCA 188 at [90], in which the Court of Appeal of Western Australia rejected a submission that a disclosure clause should be read to provide for an unexpressed limit on disclosure to “trade rivals”. I found this authority useful.
- [528]Metallurg is a wholly owned subsidiary of “AMG” which is the holding company for a global group of metallurgical and engineering companies (“AMG Group”). Global is a tantalum company. Tantalum is a metal. Global is the holding company for a global group of other tantalum companies (“Tantalum Group”).
- [529]Metallurg acquired shares in Global and became a party to a Shareholder Deed which, by clause 7.1, granted “Relevant Shareholders” access to Global’s books and records. Clause 7.2 of the deed required the person accessing/inspecting the books and records to sign a confidentiality agreement. Clause 4.1 of the Shareholders Deed also provided that a Relevant Shareholder agreed not to use Confidential Information in a way which would damage or be likely to damage the Tantalum Group. Clause 16.3 of the Shareholders Deed imposed obligations of confidence upon Relevant Shareholders.
- [530]Metallurg made several requests for access to, and inspection of, Global’s books and records – in accordance with clause 7.1 of the Shareholder Deed. Global resisted Metallurg’s requests for access/inspection. It was concerned about allowing access because certain entities in the AMG Group carried on business in competition with entities in the Tantalum Group. Attempts to come up with an arrangement which would impose confidentiality obligations on Metallurg were unsuccessful. Metallurg commenced proceedings seeking orders which would allow it the access it sought; including a declaration that it was entitled to access Global’s books and records under the Shareholders Deed.
- [531]Global argued that, if Metallurg’s request for access and inspection were met, then commercially sensitive information belonging to the Tantalum Group would be obtained by a trade rival – thereby destroying the confidence in that information. The information would inevitably be deployed to the commercial disadvantage of the Tantalum Group, even if Metallurg agreed not to use it to Global’s disadvantage, because it would remain in the knowledge of the AMG Group. Metallurg argued that the clause 7.1 should operate in accordance with its terms and not be read down in the manner contended for by Global.
- [532]The primary judge preferred Metallurg’s construction of the Shareholders Deed.
- [533]On appeal, it was argued that the primary judge erred in finding that the Shareholders Deed conferred, in effect, an unfettered right upon a Relevant Shareholder, being a trade rival, to access and use the Tantalum Group’s commercially confidential information for a permitted purpose. It was argued that it was inherently unlikely that Global contracted to provide commercially sensitive information to a Relevant Shareholder/trade rival, protected only by confidentiality undertakings which were, in the context of trade rivals, practically worthless.
- [534]The appeal was dismissed by way of a judgment of the Court. It was held that the primary judge had not erred in his construction of clause 7.1 including because Global’s construction of clause 7.1 sought to incorporate into it concepts such as “trade rivals” and “commercially sensitive information” which had no foundation in the clause read on its own or in the context of the instrument as a whole. Nor did the primary judge’s construction of the clause produce commercial inconvenience. It was plainly in the interests of shareholders to acquire relevant information. The language of the instrument did not treat differently, or make an exception for, a Relevant Shareholder who was also a trade rival. The Court said, at [91] and [93] –
Where there is nothing in the terms of the Shareholders Deed or in the mutually known background circumstances to indicate that the parties contemplated that the Relevant Shareholder may be, or become, a trade rival, the commercial operation of a suite of measures for the provision of relevant information to a Relevant Shareholder, and for the protection of Confidential Information, cannot be assessed by singling out that particular eventuality.
…
As to the objective factual matrix, the fact that cl 7 had its origins in an earlier deed in which none of the Relevant Shareholders was a competitor of the other tends against, rather than in favour, of Global’s construction. That is because it makes it less likely that, objectively, the parties to the Shareholders Deed, prior to the execution of the Assumption Deed by Metallurg, intended that cl 7 be read as subject to the kind of limitation for which Global now contends …
- [535]Nothing in the WBRDAT suggests that, when it comes to the disclosure of confidential information, potential investors or directors who are trade rivals are to be treated differently from potential investors or directors who are not trade rivals.
- [536]But of course, the situation does not end with clause 7.3. Clause 7.4 applies. It states –
If either party discloses Confidential Information under clause 7.3, that party must ensure that such information is kept confidential by the person to whom it is disclosed and if disclosed under clause 7.3(b), is only used for the purposes of performing the project under this agreement.
- [537]In short, EMClarity did not breach clause 7 of the WBRDAT by providing the WBRDAT to Mr Boyle or the McKay Brothers affiliated directors because that disclosure was authorised.[37] But once in the hands of Mr Boyle or the McKay Brothers affiliated directors, they were obliged to keep it confidential and not misuse it.
Issue 16: Was the equitable duty breached?
- [538]The equitable duty of confidence attaches to the Alternative Strategy, the Quote and the Purchase Orders.
The equitable duty of confidence
- [539]A claim that there has been a breach of the equitable duty of confidence has four elements, namely –
- the alleged confidential information must be identified with specificity;
- the information must have the necessary quality of confidence;
- the information must have been received by the defendant in circumstances importing an obligation of confidence; and
- there must be actual or threatened misuse of the information without the plaintiffs’ consent.
The plaintiffs’ submissions
- [540]The plaintiffs submitted that the information disclosed in the Quote and Purchase Orders was highly sensitive information about how “Apsara” intended to upgrade its network. It was information which was not otherwise in the public domain. The circumstances in which that information was communicated to EMClarity clearly imported an obligation of confidence. Its disclosure to McKay Brothers amounted to a misuse of that information. EMClarity was aware that McKay Brothers and BSO/Apsara competed in the NJ Equity Triangle. It would have been “abundantly clear” to EMClarity that disclosure of the Alternative Strategy could have “potentially disastrous consequences” for BSO/Apsara.
The defendant’s submissions
- [541]The defendant submitted that the allegation of breach fell to be determined “by reference to the obligations and exceptions in the contractual framework”. No other facts pleaded could be argued to broaden the obligation. There was no allegation that the commercially sensitive/valuable information was communicated to EMClarity and no allegation that EMClarity knew this was the case. Nor were these propositions put to Dr Baines in cross-examination.
- [542]The defendant also submitted that it would be a wholly surprising result if an equitable obligation imposed upon EMClarity prevented it from disclosing the Alternative Strategy to its own directors. The defendant further submitted –
The Plaintiffs seek to make something of the fact that [EMClarity] was acquired by McKay Brothers. Having regard to the fact that [EMClarity] was working on a LMDS product for McKay Brothers, and had been actively seeking investment in the company since at least July 2017, which Dr Baines had raised with representatives of both McKay Brothers and BSO, this does not have the sinister connotation which is suggested by the Plaintiffs. The provision of agreements to which EMClarity was a potential investor in confidential due diligence and to the New Directors following their appointment was entirely consistent with commercial practice, a practice that is expressly recognised by way of clause 7.3 of the Agreement.
Discussion and conclusion
- [543]I find the first three elements of the “breach of the equitable duty of confidence” claim established.
- [544]The Alternative Strategy was of commercial significance to BSO/Apsara. Mr McGowan (and EMClarity) had spent some time settling it. It had the necessary quality of confidence. It was the way in which BSO hoped to achieve a competitive advantage in its NJ Equity Triangle market, and after it lost one customer, it was likely to have been concerned about losing more.
- [545]The commercial risk to BSO/Apsara in the disclosure of the Alternative Strategy to the McKay Brothers’ affiliated directors is obvious. Indeed, I infer from the fact that EMClarity redacted, or attempted to redact, the documents provided to Mr Boyle during due diligence, it appreciated the need to treat the Alternative Strategy as confidential.
- [546]I find that EMClarity breached its equitable obligation of confidence when it disclosed the Alternative Strategy to the McKay Brothers affiliated directors.
- [547]I appreciate that EMClarity’s board, post the McKay Brothers’ takeover, may have had a legitimate reason for wishing to understand EMClarity’s contractual obligations. But there were ways in which EMClarity could provide relevant information to its board – including its new members – while at the same time abiding by its equitable duty of confidence insofar as the Alternative Strategy was concerned. Those ways included providing the board with redacted documents, or engaging an independent third party to summarise them in such a way as to protect the confidentiality of the Alternative Strategy.
Issue 17: Does BSO/Apsara hold a belief that EMClarity will further delay the development/shipment of the radios? Is that belief reasonable?
- [548]Mr McGowan and Mr Pellé believe that there will be a further delay in the development and shipment of the radios.
- [549]It follows from my finding that EMClarity has repudiated the 2019 Agreements that I consider it reasonable to believe that EMClarity will further delay the development and shipment of Apsara’s radios.
- [550]Additionally, Dr Baines gave evidence to the effect that it was made clear to him that there was to be no discussion with BSO/Apsara about the supply of their radios. Nor was any pressure placed on EMClarity to accelerate work on the 2019 Agreements.
Issue 18: Does BSO/Apsara hold a belief that EMClarity will, in the future, breach the confidentiality provisions of the WBRDAT or the equitable duty of confidence? Is that belief reasonable?
- [551]I am satisfied that BSO/Apsara believes that one or the other of these breaches will occur.
- [552]The plaintiffs urged me to find the belief reasonable, in the light of the disclosure which had already taken place and notwithstanding what Dr Baines and Mr Boyle have said will occur especially when there has been no undertaking not to disclose confidential information offered by them.
- [553]According to Mr McGowan, during the telephone call informing him that McKay Brothers had acquired EMClarity, when he asked Dr Baines about the confidential information which had been given to McKay Brothers, Mr Meade told him to assume that anything discussed with Dr Baines would be shared “with them as well”.
- [554]Dr Baines, who acknowledged during the call that he had supplied BSO’s confidential material to McKay Brothers, said EMClarity would need to consider how “practically” it could return BSO’s confidential material or how it could be deleted or destroyed.
- [555]Dr Baines said in evidence that he was aware of EMClarity’s obligations of confidence under the WBRDAT in respect of Confidential Information and Customer Material and that he intended to continue to perform and observe those observations on behalf of EMClarity.
- [556]It is worth considering Mr Boyle’s affidavit evidence in some detail because of its relevance to this issue and to Issue 19.
- [557]In his affidavit, Mr Boyle said that McKay Brothers received its first batch of LMDS Radios from EMClarity in July 2018. McKay Brothers did its own testing to supplement EMClarity’s in-house testing. McKay Brothers found the batch of LMDS radios to have pervasive and severe issues, which varied from radio to radio, which may have been caused by manufacturing variances. In Mr Boyle’s experience, the volume and impact of the issues McKay Brothers was experiencing with the LMDS radios was unusually high. His affidavit elaborates upon this issues.
- [558]In January 2019, Mr Boyle sent representatives from McKay Brothers to EMClarity to “oversee trouble shooting” of the LMDS radios.
- [559]In around May of 2019, EMClarity informed McKay Brothers that it had identified the root cause of many of failures of the LMDS radios – namely, the digital modem board. After fixing that issue (in October 2019), according to Mr Boyle, the LMDS radios were still not performing to the standard expected. The persisting issues could not be put down to typical “teething”. According to Mr Boyle, the LMDS radios have downtime every day and did not meet the specifications of the agreement between McKay Brothers and EMClarity to develop the LMDS radios.
- [560]Mr Boyle is negative about W Band. He says that McKay Brothers has no commercial incentive to prevent BSO from moving into it. However, his opinion of W Band, as expressed in his affidavit, is inconsistent with his interest in W Band as expressed to Dr Baines in their conversations in May and June of 2019.
- [561]His explanation for his inquiries of Dr Baines about W Band are not persuasive. He says (in his affidavit) that he had previously looked into the development of a W Band radio but the project did not progress because he was not satisfied of the technical capabilities of a W Band radio. He said he had a “personal curiosity” in someone else trying to develop it. He continued –
… Given my assessment that it was technically inferior to both E-Band and 28GHz Band radios, I was interested in why EMC thought there was a case that made it worth investing in W-Band development. I was also concerned that EMC was spreading itself thin developing a W-Band product when there were ongoing problems with McKay Brothers’ LMDS Radios, and that this might delay McKay Brothers receiving fully functional LMDS Radios.
For those reasons, on 28 May 2019, I emailed Dr Peter Baines … to enquire whether EMC was developing a W-Band radio …
…
Although I was interested in hearing about EMC’s work in W-Band … McKay Brothers was not pursuing a W-Band project at that time and had no intention to do so. Part of my role at McKay Brothers requires me to continually research and evaluate any and all technologies in all bands. My enquiry to Dr Baines was something of a fishing expedition … it was not of interest to McKay Brothers … My only interest in pursuing the topic with Dr Baines was seeking an understanding of what the product map was for EMC, and ensuring that existing resources were not being used up on more complex and costly projects in new bands when the existing radios being delivered to McKay Brothers were experiencing unresolved issues. From Dr Baines’ reply it was apparent to me that he was not going to provide any further information, so I did not pursue the matter of W-Band any further.
- [562]Frankly, had Mr Boyle been “only” interested in the deployment of EMClarity’s resources and any diversion from the LMDS radios, then it is reasonable to expect he would have raised that matter directly with Dr Baines. He did not need to know details about the W-Band project to express his concern that EMClarity’s resources were not being deployed for the benefit of McKay Brothers.
- [563]Mr Boyle explained the reasons behind McKay Brothers’ acquisition of EMClarity as follows –
- Dr Baines mentioned to him in around August 2018 that he was interested in obtaining further funding for EMClarity;
- They had several conversations about the matter in late 2018/early 2019;
- “In around June 2019” Dr Baines told him that there was a potential buyer for EMClarity’s parent company, E M Solutions (EMS);
- The potential buyer did not have an existing interest in the high frequency trading (HFT) market and might not be interested in maintaining EMClarity’s commercialisation efforts in the HFT market;
- He was concerned that, if the acquisition went ahead, and EMClarity ceased its HFT operations, then it would not be available to fix McKay Brothers LMDS radios (which were significantly underperforming);
- He raised his concerns with Dr Baines, who asked him to “just put in a bid” for EMClarity;
- McKay Brothers was interested in acquiring EMClarity to ensure continuity of supply and support for its LMDS radios; and
- He also “believed that McKay Brothers could help [EMClarity] identify and pursue opportunities to commercialise its products with telecommunications providers.
- [564]McKay Brothers moved quickly because it wanted to ensure that its acquisition of EMClarity was completed before EMS was acquired.
- [565]Dr Baines’ evidence is to similar effect – Mr Boyle was concerned about what the acquisition of EMS meant for the future of EMClarity and Dr Baines suggested that if he was concerned about that, he should buy EMClarity.
- [566]Mr Boyle said that he had no interest in the plaintiffs’ Customer Material nor any use for it. He said that McKay Brothers was not interested in W Band nor would be it a substitute for McKay Brothers LMDS network.
- [567]The defendant noted that neither Dr Baines nor Mr Boyle were challenged about their statements. However, in my view, their self-serving evidence is of little weight. Also, as I have said earlier, Mr Boyle was an unimpressive witness. I do not accept his evidence that his interest in W Band was unrelated to his role at McKay Brothers. The content of his emails to Dr Baines about it was to the contrary.
- [568]As for Dr Baines, I find that he was aware of confidentiality issues around the WBRDAT and the Alternative Strategy – which is why he provided, or attempted to provide, redacted versions of them during due diligence. And why he was concerned about how EMClarity might delete or destroy or “practically” return BSO/Apsara’s confidential information after its acquisition by McKay Brothers.
- [569]But it is clear from the evidence that Dr Baines does as he is told by the McKay Brothers affiliated directors – who are four of the six directors of EMClarity. For example, he had to “clear” any communications with Apsara through the McKay Brothers affiliated directors.
- [570]The defendant reminded me of the court’s cautious approach to these matters. It referred me to Apotex Pty Ltd v Les Laboratoires Servier (No 2) [2012] FCA 748 at [42], where Bennett J said (my emphasis) –
A quia timet injunction may be granted if the applicant can show that what the respondent is threatening and intending to do will cause imminent and substantial damage to the applicant. The degree of probability of future injury to the applicant is not an absolute standard. The likelihood of the conduct occurring must be weighed against the degree of seriousness of the injury, the inconvenience to the respondent and the requirements of justice between the parties. However, it must be shown that there is some likelihood that the conduct will occur.
- [571]The defendant observed that the onus was on the plaintiffs to establish that the conduct which might occur was such as was likely to amount to an actionable breach of the relevant agreement. Also, the damage had to be “imminent” in the sense that the remedy sought was not premature.
- [572]The defendant submitted that the court ought not to conclude that there was a reasonable basis for fearing a breach of EMClarity’s obligations having regard to the evidence that –
- According to Mr Boyle, McKay Brothers has no interest in W Band;
- even though there were McKay Brothers directors on EMClarity’s board, that provided no basis for an inference that EMClarity might breach its obligations of confidence – the court should presume the directors would act in accordance with their duty (to EMClarity);
- no conflict is to be assumed just because directors hold positions on boards of competitor companies (citing Links Golf Tasmania Pty Ltd v Sattler (2012) 213 FCR 1 at [562] – [563]; Streeter v Western Areas Exploration Pty Ltd (No 2) 92011) 278 ALR 291 at [69]);
- EMClarity had put in place protective measures to secure the Customer Material, including containing it in password protected computers; and proposing that it not be disclosed to the McKay Brothers directors – who would excuse themselves from board discussions about the material (which is “above and beyond” what is required) – and this evidence was not challenged, nor were these measures suggested to be inadequate;
- EMClarity’s refusal to undertake not to disclose confidential information was not a matter which supports an inference that it intended to breach its obligations of confidence (EMClarity provided other potential explanations for its refusal to give the undertaking).
- [573]The defendant also submitted –
The fact that [EMClarity] does not intend to disclose any Confidential Material is an important consideration, because in quia timet proceedings the court will not grant an injunction to compel a defendant to do something which it appears willing and able to do without the imposition of an order of the court (citing Bridlington Relay Ltd v Yorkshire Electricity Board [1965] Ch 436 at 445). The corollary is that “… the Court never grants an injunction on the principle that it will do the defendant no harm if he does not intend to commit the act in question”.
Discussion and conclusion
- [574]I note the voluntary measures which EMClarity has put in place to protect the confidentiality of the Customer Material. But, on the evidence, Dr Baines and EMClarity do as they are told by the McKay Brothers affiliated directors, who control the board, including by not following through on the intention to build a W Band prototype for submission to the Quality Review.
- [575]On the evidence, McKay Brothers is making no concessions to BSO/Apsara – nor would I expect it to. While it is not necessary for me to make a finding about the sham nature of the Quality Review, I find that McKay Brothers is happy to take whatever advantage it can from it – including the advantage to be gained by requiring EMClarity to prioritise the review of its LMDS radios over anything else.
- [576]It is reasonable to assume that McKay Brothers wishes to obtain or maintain dominance in the NJ Equity Triangle market for its network services. If the LMDS radio issues are as significant as claimed, then it is reasonable to assume that McKay Brothers will explore alternatives, including those which involve matters touching upon the Customer Material. While W Band (or a mix of W Band and E Band) might not be something McKay Brothers “intends” to consider now – that may change.
- [577]The McKay Brothers affiliated directors will control EMClarity’s response to its exploring alternatives to LMDS for McKay Brothers. EMClarity is thereby at risk of breaching the duty of confidence it owes to BSO/Apsara insofar as information about proposed network paths, layouts and design and know-how generally is concerned.
Issue 19: Does BSO/Apsara hold a reasonable belief that EMClarity will, in the future, breach the exclusivity provisions of the WBRDAT or the 2019 Agreements?
- [578]I accept that BSO/Apsara believes that McKay Brothers will use their control of EMClarity to seek to commercially exploit the W Band radio designs in breach of the exclusivity conditions of the WBRDAT and the 2019 Agreements.
- [579]The plaintiffs argued that such a belief is reasonable having regard to –
- Mr Boyle’s interest in re-booting McKay Brothers’ efforts with W Band technology;
- Mr Boyle’s emails to Dr Baines regarding the commercialisation of the W Band radio and how to get around the exclusivity provisions of the WBRDAT; and
- the uncertainty around McKay Brothers’ LMDS network.
- [580]The defendant submitted that there was no basis for the finding sought. There had been no breach of the exclusivity conditions; there was no W Band product in existence – not even a prototype; Dr Baines gave evidence that EMClarity had no intention of entering into an agreement to supply anyone else with a W Band prototype or radio; according to Mr Boyle, McKay Brothers has no interest in a W Band radio (although Mr Boyle himself, in his personal capacity might have been interested) and has taken relevant steps to secure its right to use the LMDS frequency over at least the medium, if not long, term; the Quality Review is genuine and not a deliberate slowing down of the production of W Band radios – and even if it were a sham, it does not follow that it would lead to a concern that EMClarity would supply W Band radios to someone else.
- [581]I have found that the WBRDAT has been terminated under clause 5. Exclusivity under the WBRDAT only applies while it is not terminated.
- [582]The operation of the exclusivity provision of the 2019 Agreements is a long way off. They “start” only when the last W Band link ordered is “commissioned in the production network and accepted as functioning according to specification”. That may never happen. The exclusivity provisions of the 2019 Agreements do not survive termination. In my view, it is preferable to defer the answer to this question until the second plaintiff has indicated whether it will elect to terminate the 2019 Agreements.
Footnotes
[1] The National Association of Securities Dealers Automated Quotations System Stock Market.
[2] There are other financial markets and trading houses within or near the NJ Equity Triangle.
[3] Although Mr Boyle for the defendant was not prepared to describe BSO as McKay Brothers’ major competitor, Mr McGowan was not challenged on the proposition that they were. Also, as I have indicated below, where there was a conflict in the evidence between Mr Boyle and another witness, I preferred the evidence of the other witness.
[4] There is another primary spectrum allocation known as the V Band which is irrelevant to this matter.
[5] I have chosen a neutral defined term. The plaintiffs’ selection of the term “the Supply Agreements” reflects their contention that the 2019 Agreements required the defendant to supply W and E Band radios, within a reasonable time.
[6] In his affidavit, Mr Boyle expressed a negative opinion about a W Band product.
[7] And technical detail.
[8] The “Customer” was defined in the schedule to the WBRDAT as “BSO Networks LLC”. That is an error – there is no such entity.
[9] While he communicated his approval to proceed with the agreement, Mr McGowan does not believe that he communicated a formal approval as required by the “Milestone 1 Deliverables” – nor was he requested to.
[10] Intermediate Frequency.
[11] That is the path from Mahwah to Cartaret.
[12] I note the use of “Final Design” here.
[13] The quote was dated 30 April 2019.
[14] According to his affidavit.
[15] I note that Dr Baines disagreed with Mr McGowan’s recollection of the conversation, but only to the extent of suggesting that Dr Meade did not say “McKay Brothers was not happy …” or “McKay Brothers would start …”. Rather, according to Dr Baines, Dr Meade said, “we are not satisfied with the quality of products being delivered” and “we would be starting a quality review”.
[16] Paragraph 93 of Mr McGowan’s affidavit is repeated here for convenience: “Given the significant value of the investment that Apsara and BSO were making with EMC and the size of the payments that needed to be made up front, BSO’s management was concerned to manage the cash flow. I had a number of discussions about the staged payments with Mr Ourabah and Mr Pelle, including the tax implications and accounting treatment of the payments. Over a number of conversations with Mr Ourabah and Mr Pelle it was agreed that the W-Band project would be paid for and owned by Apsara, although BSO, as Apsara’s parent company, would continue with the negotiations on its behalf.”
[17] 3rd Edition, 2013.
[18] That is, issued a purchase order and paid the relevant invoiced amounts.
[19] Not rescinded.
[20]Commissioner of Taxation v Sara Lee Household & Body Care (Australia) Pty Ltd (2000) 201 CLR 520, per the majority of the High Court at [22] – [24]; Dan v Barclays (1983) 46 ALR 437, per Wilson and Dawson JJ at 448 Coghlan v Pyoanee Pty Ltd [2003] 2 Qd R 636 per McPherson JA said at [5], after citing Sara Lee.
[21] Referring to GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd [(1986) 40 NSWLR 631 at 634.
[22] Queen’s Counsel acknowledged in oral submissions that he could not say that it was not an “open possibility” that Dr Baines and Mr McGowan just did not think about the implications of rescinding the WBRDAT during their negotiations, and reached a new agreement regardless. However, he submitted that I ought to be very clear that this was what the parties intended – rather than the more commercially sensible outcome for which he contended.
[23] In final submissions, the defendant admitted to an error in paragraph 23(a)(i)(A) of its defence insofar as that paragraph referred (wrongly) to Milestones 4 to 7, instead of 5 to 7.
[24] And the rest of the equipment required for the whole of the network.
[25] Under “Customer Tasks” in the schedule to the WBRDAT.
[26] As per Dr Baines’ email of 24 July 2019.
[27] This email is only included in Mr McGowan’s affidavit. A copy of this email is not included in Dr Baines’ affidavit.
[28] Although the defendant used the words “rescind” and “rescission”, I assume it meant “terminate” and “termination”.
[29] Counsel for the plaintiff indicated that she would not take issue with the defendant’s contention that a court would not imply a reasonable time term into a development/research contract.
[30] It argued also that clause 1.5 of the WBRDAT did not permit the estimates to be used in the calculation of a reasonable time. For reasons I have already given, this clause of the WBRDAT is irrelevant to the reasonable time question.
[31] From the extract of the reasons of the primary judge in Questband P/L v Macquarie Bank Limited [2009] QCA 266, referred to by Fraser JA at [32].
[32] I have borne in mind of course the need to ensure that the rule in Browne v Dunn is not misapplied cf Curwen and Others v Vanbreck Pty Ltd (2009) 26 VR 335.
[33] As per Campbell JA in Del Casale v Artedomus (Aust) Pty Ltd [2007] NSWCA 172 at [103].
[34] As her Honour Justice Ward was then known.
[35] Heydon, Lemming and Turner, Meaghaer, Gummow & Lehane’s Equity: Doctrines & Remedies, 5th ed, LexisNexis Butterworths, 2015.
[36] Ineffectively redacted, and un-redacted.
[37] The plaintiffs also pleaded that two emails, sent in late 2019, involved breaches of confidence. The plaintiff made no submissions about these emails and I will say nothing more about them.