Abstract

This article analyses a District Court of Queensland case, State Mercantile Pty Ltd v Oracle Telecom Pty Ltd [2017] QDC 52, in which Burns & Associates Solicitors acted for the successful plaintiff in a three day trial. This case deals with the plaintiff successfully challenging its liability to pay early termination fees under a standard form contract involving the provision of telecommunication services. Early termination fees are common in commercial contracts. However, they can be challenged on various grounds, including unconscionable conduct, unfair trading terms and as a matter of strict contractual construction. Also, this case shows how the plaintiff can successfully deny liability for common law loss of bargain damages.

Key Points

1. Standard form agreements (SFOA) on websites referred to in other contractual documents can be incorporated as contractual terms even where the customer does not read the SFOA.
2. To claim early termination fees under a contractual term, a party must comply with the procedural requirements such as giving the requisite notice of termination if required by the Early Termination Fees. Otherwise, the contractual right to early termination fees will be lost.
3. A party cannot be said to have repudiated a contract merely because it lawfully exercised its legal rights, even if the effect is that there is little for the contract to do.
4. When terminating an agreement to claim early termination fees, careful consideration must be given to the terms of the contract and the general common law dealing with termination of contracts.

The Facts

1. O was a retail supplier of telecommunication services. O acquired these services from a wholesaler and then on-sold these services to customers in the retail sector.
2. O supplied SM with telecommunication services.
3. The agreement comprised an application form signed by SM and a detailed standard form of agreement (SFOA) which was referred to in the application form, but not read by SM.
4. Clause 12 of the SFOA provided that O could terminate the agreement and services if there was a breach of the agreement or by giving 30 days written notice of the termination. In these circumstances, O was entitled to an Early Termination Free.
5. Also under clause 12, SM could terminate the agreement or the services provided by giving 30 days written notice of termination.
6. Clause 7 provided that SM had the right to transfer the services to another provider, without reference to the obligation to pay Early Termination Fees.
7. Early in the term, O and SM entered into a dispute, resulting in SM arranging with the wholesaler to unilaterally transfer the services to another provider.
8. Neither SM nor O served notices of termination under clause 12 of the agreement.
9. Nevertheless, O assumed that the transfer of the services was a breach or repudiation of the agreement.
10. Accordingly, O issued tax invoices claiming the early termination fees, calculated on an agreed formula for the balance of the term.
11. Alternatively, O also claimed damages at common law for the loss of the bargain.

Decision

1. The court held that O was not entitled to claim early termination fees under clause 12 or common law damages for repudiation or breach.
2. The court held that the SFOA was incorporated by reference into the agreement notwithstanding that SM did not read the SFOA because the application form expressly referred to the SFOA on O’s website and SM signed the application form. By signing the application form, SM was bound.
3. As a matter of interpretation, O could only claim early termination fees if O gave notice of termination in accordance with clause 12.
4. As O did not give notice to terminate under clause 12, it had no right to claim the early termination fees.
5. The court also held that O had no claim for loss of bargain common law damages for repudiation for the following reasons.
6. The court held that clause 7, properly interpreted, gave SM a contractual right to transfer the services to another provider.
7. As such, SM’s transfer of the services was not a breach of contract or a repudiation—SM’s lawful exercise of its right to transfer the services to another provider cannot amount to a repudiation of the agreement, even if the transfer leaves little for the agreement to do.