PACIFIC LONG DISTANCE TELEPHONE CORPORATION LTD v. NEW WORLD TELECOMMUNICATIONS LTD

HCA 1688/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1688 OF 2006

------------------------

BETWEEN

------------------------

-------------------------

J U D G M E N T

-------------------------

1.  This dispute between the above two parties arises out of a series of agreements which they made starting in 2003. The defendant is a telephone service provider while the plaintiff operates a business selling long distance telephone cards.

2.  The arrangement between the parties enabled the plaintiff’s customers to have access to telephone services via the defendant’s fixed and mobile telephone networks.  The plaintiff rented certain telephone lines from the defendant and the plaintiff’s customers would access those lines by dialing access codes. The calls, as the plaintiff’s name suggests were principally overseas calls from Hong Kong however the arrangement involved both local and international components, and there were separate agreements in relation to each. A phone call placed by one of the plaintiff’s customers would start with access to the defendant’s local network. The call would then be routed to the long distance service provider for the international leg of the call. The disputes between the parties relate to the local leg of the service only (“the local service”).

3.  The agreements for the local service took the form of a series of pro‑forma Integrated Digital Access Service Application Forms (“Application Forms”) prepared separately for the various telephone lines allocated to the plaintiff.  They were compiled by employees of the defendant but nominally submitted by the plaintiff.  Charges for the local component were of two types; monthly line rental and a charge per minute of use (a Local Access Charge; “LAC”).  The relevant agreements were made for a specified duration but were thereafter renewed by the parties by way of “Amendment/Termination” forms which referred to the provision of the service as being subject to the defendant’s terms and conditions.  These were the General Terms and Conditions of Service (“the General Terms”).

The proceedings and the issues

4.  Disputes between the parties arose, and became more acute in early 2006.  Sums due from the plaintiff to the defendant for the provision of services were not being paid as they were due.  There were and are issues between the parties as to whether the invoices which were raised by the defendant correctly stated the amount due from the plaintiff.

5.  Matters developed such that the defendant began to issue notices to the plaintiff warning that services would be suspended unless the arrears were cleared.  This threat was ultimately acted on and there is a dispute as to whether the defendant was acting lawfully when it suspended the services on 3 August 2006.

6.  This action by the defendant had serious implications for the plaintiff because without access to the telephone network its customers were unable to make use of their calling/phone cards.  The plaintiff went to court on 4 August 2006 and obtained an ex‑parte injunction against the defendant by which the defendant was required to reinstate the service provided to the plaintiff.  That injunction order was continued following an inter‑partes hearing on 11 August 2006, but was discharged by the Court on 8 June 2007.

7.  In those circumstances, the primary claim made by the plaintiff at the outset of the action was for a declaration that the suspension of the services by the defendant was wrongful.  Damages by way of business losses arising from the suspension were also claimed, as well as the repayment of certain sums of money alleged to have been overpaid by the plaintiff to the defendant.

8.  By the time the matter came to trial however the plaintiff had decided not to pursue its claim for damages.  The issue as to whether or not that suspension was wrongful was, to that extent, largely academic although still relevant to questions of costs.

9.  The defendant does not accept that it was in the wrong in suspending the service in 2006.  According to the defendant the contracts allowed the suspension of services because the plaintiff was by that stage substantially in arrears with its payments to the defendant.

10.  The resumption of services pursuant to the inter parties injunction order was subject to an obligation on the part of the plaintiff to make set monthly payments to the defendant.  These payments were made by the plaintiff but the defendant says that these were insufficient to pay for the charges which were actually being incurred and that by the time the service was ultimately terminated there was an accumulated sum of $2.9 million approximately due from the plaintiff to the defendant.  A substantial part of this arose from increased service charges which the defendant sought to impose from about February 2007.  This sum is the subject matter of a counterclaim by the defendant.

11.  The parties are agreed that the main ‘live’ issue is as to the final account to be drawn up between them.  There are some elements of the account which are undisputed, such as for example the usage of the service in terms of time.  The unit rates to be applied however are in dispute for part of the period as is explained below.

12.  The accounting process between the parties has been complicated by the manner in which payments were made by the plaintiff. Frequently an invoice was met with a corresponding cheque payment.  In such cases no difficulty arises.  However there were many instances when payments (or part payments) were made in cash or by bank deposit.  These are more difficult to correlate with the invoices, and there are factual disputes as to whether some payments were made or received.

13.  Also in dispute is a part of the defendant’s counterclaim which relates to services which, it is common ground, were provided to a company called Netel Technology (Holding) Ltd (“Netel”).  This is the parent company of the plaintiff.  Prior to disputes arising these charges seem to have been aggregated with those billed to the plaintiff and dealt with as one overall account.  The plaintiff says however that so far as these proceedings are concerned, these are, at most, sums due from Netel, not sums due from the plaintiff.

14.  Counsel were invited to summarise and agree the issues for decision and each supplied the court with a formulation of these issues.  Regrettably they did not reach agreement on the formulation although there is no significant difference between the parties as to what has to be decided.  The issues set out below generally follow those formulated by counsel for the plaintiff.

Was the suspension by the defendant on 3 August 2006 wrongful?

15.  The contentions are straightforward.  The respondent submits that the defendant was not entitled to suspend the services because there was no relevant contractual entitlement to do so.  The defendant submits there was such a provision.  This is said to be found in clause 9 of the General Terms, which reads as follows so far as relevant:

“9. Suspension

9.1 The Company shall be entitled to forthwith suspend access to the Service without notice to the Customer if:

(a) in the reasonable opinion of the Company there is or has been fraudulent or unauthorized use and access to the Services;

(b) the Customer fails to pay in full any charges or other sum whatsoever payable by Customer to the Company when due;

(c) …

(d) the Customer is in breach of any of its obligation under the Agreement;

(e) …”

16.  The defendant invoked this provision prior to August 2006 in respect of two telephone lines when there was some unauthorized use of those two lines by the plaintiff.  So far as the August 2006 suspension is concerned however the focus is on the unpaid invoices, and sub‑clause (b) is therefore relevant.  This required the Claimant to pay charges “payable” to the defendant in full.  The Claimant’s case is that all such charges as were payable had been paid at the date of the suspension.

17.  Factually there were invoiced sums which were ostensibly due but which had not been paid.  The plaintiff draws a distinction however between the sums invoiced by the defendant and the sums payable.  This follows what is alleged to have been a ‘practice’ as to payment adopted between the parties.  Notwithstanding the issue of invoices by the defendant, this is said by the plaintiff to have involved the parties discussing both the amount payable and the payment schedule month by month. 

18.  This “practice” as to payment was spoken to in evidence by Ms Chan Pui Sze, the Administration Manager (and former Director, International Wholesale) of the plaintiff.  In her witness statement she described how the plaintiff and defendant would meet monthly “... to determine how much charges the plaintiff would have to pay to the defendant that month.”  She suggested in her witness statement that this process had been in place since 2003.

19.  Under cross‑examination however she accepted that there was no regularity about these meetings, and indeed that they had commenced in 2005 at the earliest.  She accepted that the context for the discussions was the accrued unpaid invoices with the meetings being an attempt to agree the minimum amount to be paid by the plaintiff to avoid suspension of the service by the defendant.  This is obviously a very different matter to any suggestion of a practice of negotiating the amount due for any particular month's service.  These discussions commenced only because of a deterioration in the financial position of the plaintiff which resulted in invoiced amounts not being paid.

20.  On 12 July 2006 Ms Chan sent an e‑mail to the defendant setting out an agreed payment schedule for July 2006 comprising 5 different instalments.  These payments were not all made by the plaintiff, some cheques proffered by the plaintiff having been returned by the bank.  On 1 August 2006 Mr Walton Ip of the defendant sent an e‑mail to Ms Chan giving peremptory final notice that unless a payment of $40,000, by cash or non‑postdated cheque was made by 4 pm that day, then the defendant would suspend the plaintiff’s services.

21.  Ms Chan responded promptly by e‑mail pointing out that various payments had been made during the course of the preceding week, including the provision of two post dated cheques.  She pointed out also that there was a dispute as to the invoiced amounts of about $180,000.  Her e‑mail gives an indication of plaintiff’s understanding of the overall balance as between the parties when it states: “Adding the 180,000 dispute with 200,000 deposit which is almost equivalent to your so said the outstanding amount.”  In other words Ms Chan appears to have been proceeding on the basis that the defendant was facing invoices which had been left unpaid by the plaintiff of about $380,000.  Even acknowledging that approximately half of this sum was disputed, it appears clear that the other half was not the subject of a dispute, and was simply an amount of arrears of payment. In fact it appears the arrears were more substantial.

22.  Mr Ip’s response queried Ms Chan's summary of the payments which had been made, and set out his employer’s overview of the balance which was that there was an outstanding total due from the plaintiff of $760,000.  Reducing that by the disputed amount ($180,000) and post dated cheques which had been received ($80,000) left what was said to be an undisputed balance of $500,000 due from the plaintiff.  Other contemporaneous e‑mails sent on behalf of the plaintiff corroborate this level of overdue payment in broad terms.

23.  Mr Chong, counsel for the plaintiff, nevertheless submitted that in light of the practice which the parties had adopted, and the exchange of e‑mails during the course of 2 August 2006, the only sums which were “payable” as at that date were those described in the plaintiff’s e‑mail sent at 12:47 pm that day, and the defendant’s response sent at 2:26 pm.

24.  I do not accept that there was a practice as claimed by the plaintiff, and therefore I do not accept that the plaintiff could rely on such a practice as limiting the amount “payable” by it. 

25.  Nor do I accept that the defendant has acted so as to be precluded from relying on the provisions of the General Terms.  The plaintiff says that the defendant represented by Mr Ip’s emails that if a payment was made, then the service would not be suspended.  In reliance on that representation the plaintiff says that it made a cash payment.  However, Ms Chan acknowledged in her evidence that no such cash payment was in fact made.  The plaintiff submits this was because the service was suspended before that payment was to be made.

26.  The terms of the payment proposal made by the defendant developed during the course of an exchange of e‑mails on 1, 2 and 3 August 2006.  As referred to above, Mr Walton Ip started out demanding that a cash payment be made on 1 August.  After some debate by email his final word on the subject in writing appears to have been the e‑mail sent on Wednesday 2 August agreeing that a $40,000 cheque in the defendant’s possession would be banked that day and requiring $40,000 in cash “within this week”. If the plaintiff was to insist on other payment arrangements the matter would be left to the legal department. In default of payment Mr Ip stated that the defendant reserved its entitlement to enforce its rights under the Service Agreement.

27.  The plaintiff, through Mr James Ang responded by a telephone call and then an e‑mail sent at 12:11 pm on 3 August 2006 agreeing to settle the cheque and the cash as had been requested in the defendant’s e‑mail.  Mr Ip responded almost immediately to say that the matter had been passed to the defendant’s legal department, and that therefore he was “not in a right position to answer”.  The cheque was banked, but the cash was not paid.  It appears that the service was suspended at about 12:30 pm, almost immediately after the e‑mail exchange.

28.  Clearly, had there been no exchange of e‑mails of this nature the defendant would have been entitled to exercise its rights under the contract and suspend services under clause 9.  The question is whether the exchange of emails has changed the position.  The plaintiff relies on a representation having been made by Mr Ip which the plaintiff acted on such that the defendant ought not to be allowed to rely on those contractual rights.  I do not accept that the evidence of the exchanges described above discloses a clear representation that the defendant would forbear from invoking the suspension provision. There is an implication in the earlier part of the exchange that the defendant might do so, but this was by no means expressly promised.  Mr Ip appears to have passed the matter to his legal department by the time he spoke to Mr Ang on 3 August, before Mr Ang purported to agree to the proposed arrangement.  At that stage, as Mr Ip said in his email, it was out of his hands.  Nor do I accept that there was conduct by the plaintiff in reliance on any such representation.  At most it honoured a cheque that it had previously given to the defendant.

29.  It follows that my conclusion in regard to the 1^st issue is that the suspension by the defendant on 3 August 2006 was not wrongful in the circumstances obtaining.  The plaintiff is therefore not entitled to the declaration it seeks.

Which party is entitled to the costs of the injunction proceedings?

30.  The plaintiff has identified two issues (the defendant rolls these together) relating to the costs of the ex‑parte application that was made on 4 August 2006 and the costs of the inter‑partes application made on 11 August 2006.

31.  In light of the conclusions reached above as to the entitlement of the plaintiff to its declaration, the defendant should be entitled to the costs of the injunction proceedings. 

Was the defendant contractually entitled to increase the LAC rates for mobile and fixed network Traffic to $0.465 on 16 February, 2007?

32.  This issue which accounts for much of the money in dispute in the final account, is the 8^th issue on the defendant’s list, where the rate of $0.465 per occupancy minute is described as the “standard rate”.  So far as the defendant is concerned this issue is straightforward, involving no more than an application of clause 16 of the defendant’s General Terms.  That clause provides:

“ The Company may revise the Agreement and/or introduce additional terms and conditions from time to time and such revision and/or condition shall become effective when displayed, advertised or brought to the attention of the Customer by such means as the Company thinks fit and shall be binding on the Customer if the Customer continues to use any of the Services after the effective date thereof.”

33.  This was a significant increase in the rate. Prior to the variation, the rate for fixed line usage was $0.121 while the rate for mobile lines was $0.036.  The increase was therefore roughly fourfold for fixed line usage, and approximately 13 times for mobile telephones.  The plaintiff says that such increases in rates were not within the ambit of the contract, and were therefore wrongful and not binding upon the plaintiff.  The plaintiff submits that an increase of this magnitude was “ridiculous”.

34.  The first point taken is that the revision goes beyond the terms of clause 16, not only because that provision does not make express reference to revision to these rates, but also because it has to be read together with the provisions of the Application Forms.  The “small print” on those Application Forms provided (at clause 8a) that the defendant reserved the right to “... change the tariff price for monthly rental at any time for the service and cancel any discount ...”.

35.  Construing these together, the plaintiff submits that the reservation of a right to change the tariff price extends only to the monthly rental (which is not in issue) but does not extend to revisions to the local access charges.  I am inclined to agree with the plaintiff as to this construction, and it follows that the defendant was not entitled to raise the rates in the way that it did.  Whether or not that construction is correct however I also agree with the plaintiff’s submission that the purported revision of the rates by the defendant went beyond the legitimate ambit of clause 16.

36.  The plaintiff submits that as a matter of law the variation was wrongful because the magnitude of the rate revision was such as to be outside the presumed contemplation of the parties, and therefore not in accordance with the contract.  It is submitted that the discretion to revise rates conferred on the defendant by the clause was such as could only be exercised for a proper purpose and in good faith.  The defendant’s purported exercise of discretion was made for an ulterior motive, namely to force an end to the commercial relationship with the plaintiff.

37.  In Horkulak v Cantor Fitzgerald [2004] IRLR 942 the Court of Appeal in England reviewed authorities which described the approach adopted by the courts in reviewing whether and how far an ostensibly unfettered discretion provided for in a contract is to be considered as being subject to an implied term regarding its exercise.  Although Horkulak itself was a decision relating to contracts of employment, the principles reviewed and explained by the court in that case clearly extend to other types of contracts.

38.  The starting point in reviewing such clauses in commercial contracts is that the mere fact that the contractual provision places one party in the hands of the other so far as the exercise of discretion is concerned does not mean that there is an automatic implication of a fetter or constraint on the exercise of discretion.  Whether a term constraining the exercise of that discretion is to be implied depends upon the relevant factual circumstances. (See: Gan Insurance v Tai Ping [2001] 2 All ER (Com) 299.)

39.  Taking the contract as made by the parties, and construing it so as to determine the reasonable expectations of the parties in the context of mortgage agreements Dyson LJ held (in Paragon Finance plc v Nash [2002] 1 WLR 685) that the power of a mortgagee to set interest rates was not unfettered but was subject to an implied term that the power should not be exercised dishonestly, for an improper purpose, capriciously, arbitrarily or in a way in which no reasonable mortgagee, acting reasonably, would do.

40.  In Horkaluk Potter LJ observed (at paragraph 30) that the implication of such a term was not the application of a “good faith” doctrine, but rather was “... a requirement necessary to give genuine value, rather than nominal force or mere lip-service, to the obligation of the party required or empowered to exercise the relevant discretion.”  Noting that the parties are likely to have conflicting interests in any situation likely to arise in practice, nevertheless “... it is presumed to be the reasonable expectation and therefore the common intention of the parties that there should be a genuine and rational, as opposed to an empty or irrational, exercise of discretion.  Thus the courts impose an implied term of the nature and to the extent described.”

41.  There are, plainly, constraints on the range of circumstances which could be said to fall foul of such an implied term.  As Dyson LJ observed in Paragon Finance: “It is one thing to imply a term that a lender will not exercise his discretion in a way that no reasonable lender, acting reasonably, would do.  ... It is quite another matter to imply a term that the lender would not impose unreasonable rates.”

42.  On behalf of the plaintiff, Mr Chong submits that a distinction is to be drawn between unreasonable rates (which he accepts might be permissible) and rates which he describes as ridiculous and absurd by anyone's standards.  He relies on the substantial extent of the increase over and above the rates which the parties had adopted for over 4 years of business, and the purported adoption by the defendant of rates which were based upon the market for such services in 1999.  It is submitted that rates for telecommunication services had generally fallen considerably over the intervening period.  The defendant does not really dispute this although there is no evidence one way or the other.

43.  For these reasons it is submitted that the defendant’s decision was made unreasonably or for an improper purpose namely to “get rid” of the plaintiff in circumstances in which the injunction order required the defendant to continue to do business with the plaintiff.

44.  On behalf of the defendant Mr Chow submits that there can be no valid suggestion of an improper purpose having motivated this decision.  This is because the rates which the defendant sought to impose were not simply plucked from the air, but were Gazetted rates which, although dating from 1999, remained effective as of the date of the revision and which were said to be generally known as being the defendant’s standard rates.

45.  Mr Chow points also to the conduct of the plaintiff as justifying the increase.  It is submitted that the plaintiff was dishonest in its dealings with the defendant in that the plaintiff is said to have used certain lines for international calls in contravention of the terms of service and for the purpose of avoiding LAC charges.  Mr Chow also submits that the plaintiff took advantage of obtaining the injunction to obtain the restoration of service under the two lines which had been suspended previously due to this illegal use.  Moreover the plaintiff is said to have been “a very bad customer” being consistently in default of payment, with many payment issues and problems having been experienced. 

46.  It is perfectly possible to have some sympathy for the position of the defendant at about this period of time.  There is plainly force in the complaints which are made as to the lengthy series of payment defaults and other similar problems which were experienced in 2006. However, the defendant did not raise the rates at the time that these problems were being encountered.  It raised these rates some considerable period of time afterwards, and at a time at which the plaintiff was making the regular monthly payments required by the terms of the injunction order.

47.  There is a similar degree of force in the complaint by the defendant as to misuse of two service lines, but also a similar disconnection in time terms between the imposition of the new rates and the misuse and suspension of two of the service lines.

48.  It seems to me to be right that the ostensibly wide terms of clause 16 of the General Terms, if applicable to a revision of these rates, should be subject to an implied term that the rights set out in that clause should be exercised on a commercial footing, reflecting market rates for the provision of such services, but not for any collateral purpose.  The facts suggest to me that the defendant’s objective was indeed to rid itself of a troublesome customer, and not to raise rates on anything resembling a commercial footing.  This increase was not, in my judgement, motivated by a desire to make the rate reflect the various problems with payment which had been earlier exhibited by the plaintiff; it appears to have been a decision intended to terminate the commercial relationship.  I do not accept that clause 16 is to be understood as empowering the defendant to raise rates for that purpose. I note that the contract contained other provisions as to the giving of notice for the termination of services.

49.  Mr Chow points to the fact that the plaintiff did not treat this as a termination; rather it simply carried on using the defendant’s services.  Mr Chow characterises this as a conscious and informed decision made in circumstances in which the plaintiff could readily have switched to an alternative service provider if it had wished to do so.

50.  I do not accept that this is the case.  The plaintiff objected to the revised rates once these were published to it and invoices issued.  This generated a further dispute between the parties; it did not result in an “acquiescence” on the part of the plaintiff.

51.  It follows therefore that for both reasons given above I do not accept that the defendant was entitled to increase its rates in the way that it purported to in February 2006.  The existing rates therefore continued to apply.

Did the Amendment/Termination Form dated 6 June, 2005 provide for a 20% discount on mobile lines only or as well as the fixed lines?

52.  The standard pro forma Application Forms contained a box headed “Remarks”.  It was the practice so far as these parties are concerned, for the defendant to write in to that box any particular terms applicable. So for example, the first Application Form for telephone number 30666333 contained references to an agreement that it was to be a 12 month contract; that the LAC discount was 20% off fixed-rate charge; and that there was to be an LAC deposit of $200,000.00.

53.  In the Application Form dated 6 June 2005 (an “Amendment/Termination Form” since this was a continuation of an existing service), the “Remarks” box stated “20% discount on LAC to mobile phones”.  The issue between the parties is whether this is to be understood as meaning that was the only discount agreed, or whether this was in addition to the existing arrangement which was for a 20% discount on fixed line calls. 

54.  The plaintiff’s case approaches an understanding of this agreement by considering the series of forms by which the telephone line in question was first rented by the plaintiff, and subsequently renewed. As referred to above, the initial application form provided for a 20% discount on fixed line calls.  When renewed the “Remarks” box was left blank and the defendant’s pleaded case is that the implication was that the existing terms continued; that is that the 20% discount continued in relation to the fixed line calls.  The agreement was further renewed, again with no specific mention made in the “Remarks” as to discount, and the same occurred with the subsequent renewal also.  The last of these uncontroversial renewals took place in similar form on 25 February 2005.  The renewal in dispute was made, on 6 June 2005 before the expiry of the period of validity of the previous agreement.  As referred to above the “Remarks” box this time contained a reference to the discount on mobile phones.

55.  The plaintiff says therefore that the background clearly shows that the parties’ intention was to set out in the “Remarks” only the changes to the existing agreement.  In the relevant form the parties did not state that the discount on the fixed line service was being given up. Rather what was said was simply that there was to be a discount on mobile calls.

56.  The plaintiff says that this makes obvious commercial sense because the fixed line rate was considerably higher than the rate for mobile calls and, moreover, was more heavily used.  Accordingly the plaintiff would in fact have been considerably worse off if the change brought about by this amendment took away the fixed line discount in exchange for a discount on mobile calls.  There is no obvious reason why the plaintiff would have agreed to any such arrangement it is submitted.  The implication is of course that there would have been a significant advantage to the defendant in such an arrangement.

57.  The defendant submits that the document speaks for itself and submits that the annotation on the face of the form was clearly intended to switch the discount from being a discount on fixed line calls to one on mobile calls.  There is however no explanation as to why such an arrangement would have been made.

58.  At the end of the day the exercise is one of construction of the document itself having regard to the background facts surrounding its having been made.  Given that factual background, and having regard to the significance to both parties of any foregoing of the fixed line discount by the plaintiff I do not agree that the relevant Amendment/Termination Form is to be understood in the way suggested by the defendant. In my judgement the annotation was made to demonstrate an additional discount having been agreed.  It is not there, in my view to demonstrate an agreement to a transfer of the existing discount from one service to the other.

Discount on monthly rental

59.  The next issue arises in respect of the monthly rental charge for various lines, the first of which is No “31795300”.   The question is whether the defendant is entitled to charge $3,200 monthly rental from 12 April 2006 for this line.  The issue is whether the plaintiff is to pay for the line at the rate agreed in the contract after the contract had expired or whether, in that post contract period the line was to be paid for at the ‘standard’ rate.

60.  The situation differs from that discussed above in relation to the discount on fixed line calls.  In the former case the contract was renewed but was silent as to the relevant discount.  In this case the contract was not renewed expressly, and the parties carried on without any written agreement.

61.  Where there is no express provision for a discount but the parties have otherwise renewed their existing relationship for a fixed term then, as I have found above, a continuation of the discount was a concomitant part of such an agreed renewal for these parties.  Here however the parties seem to have made no express agreement either as to rate or duration for the provision of the service.  In those circumstances I do not see it as implicit that the same, or any, discount would be given to the plaintiff.  It seems to me that, absent a written agreement the plaintiff is obliged to pay a reasonable fee, month by month, for the use of the service provided. 

62.  The defendant recorded it as being common ground between the parties that, absent specific agreement, the defendant’s “standard rates” per minute of $0.121 for fixed line calls and $0.036 for mobile calls would apply.  In the circumstances, and having regard to the evidence as to the standard rate in my judgment it is the standard rate that applies to this part of the account.

63.  Similar issues arise in respect of the monthly rental charge for access nos “3066”, “3172090”, “1636” and “31795300”.  In each case the question is whether the line should be charged at $3,200 following the end of the relevant contract period. 

64.  The issue of principle is the same as for line 31795300, the only difference being the date on which the contract ended and the month by month provision of the service commenced.  For the same reasons therefore I agree with the defendant as to the principle, that the standard rate of $3,200.00 is to be applied to the provision of these services following the expiry of the contracts.

65.  The relevant expiry months, and therefore the dates on which the standard rate for line rental came into effect are as follows:

“          Line	New rate effective
3066	1st March 2006
31720900	6th January 2006
1636	1st March 2006
31795300	12th April 2006  ”

Date of termination of services

66.  The next issue is whether the defendant’s services were terminated on 13 or 16 June 2007.

67.  The parties have, I was told in closing, agreed to ‘split the difference’ in regard to the monetary issues that arise out of this dispute.  Since they are of minor value I simply record that as an agreed approach to the issue.

The balance of account

68.  A number of other matters are in issue between the parties because of the overall balance of accounts exercise.  Each party says that, on the correct analysis of the accounts, it is owed money by the other.  The plaintiff asserts that it has been invoiced $17,712,114.92 by the defendant; disputes liability in respect of $2,695,406.79 of that sum; and has itself invoiced the defendant $4,773,084.05 for services provided by the plaintiff.  The plaintiff also asserts it has in fact paid $10,666,566.66 to the defendant meaning that an overall balance shows $422,942.58 as having been overpaid by the plaintiff.

69.  For its part the defendant pleads that the invoice value of services provided for the plaintiff’s account was slightly higher, at $17,773,264.42.  The defendant accepts the plaintiff’s assertion as to the appropriate reduction in respect of invoices issued by the plaintiff to the defendant ($4,773,084.05) but pleads that it has only received a total of $9,836,959.28 in settlement of the invoices issued.  The defendant does not accept the disputed items and accordingly arrives at a balance sum due to it of $3,163,221.09.

70.  The parties were unable to agree the appropriate approach to the balancing exercise.  The plaintiff proposed that a determination be made only at the level of principle, leaving the parties to resolve the detail between themselves so far as possible.  As an alternative on behalf of the plaintiff it was proposed that an order for an account should be made.

71.  The defendant, for its part, set out in its closing submission details as to the way in which the balance calculation could be made.  This was objected to by the plaintiff on the basis that the plaintiff had not had any prior opportunity to consider the detail of the account as presented by the defendant.

72.  Plainly it would have been advantageous to both parties for a common approach, and so far as possible agreed figures, to be presented to the court.  Since this was not achieved however I indicated that I would address the principles and allow the parties the opportunity to agree or, if appropriate make further submissions as to the detailed calculations.

The total amount invoiced

73.  The plaintiff’s case on the amount invoiced is set out at Attachment A to the Amended Statement of Claim.  It is common ground between the parties that items 5 and 156 of Attachment A to the Statement of Claim in fact do not represent invoices issued to the plaintiff.  These items should be excluded from Attachment A and the amount invoiced.  This reduces the amount invoiced as set out in Attachment A by the aggregate of those 2 items, namely $406,265.09.

74.  It is also common ground that the “correct” value to be attributed to item 34 in Attachment A is that pleaded by the defendant ($14,770.00), not that pleaded by the plaintiff ($13,803.04).  This increases the amount invoiced as set out in Attachment A by the difference between the two sums, namely $966.96.

75.  There is a difference of $1,007.00 between the value ascribed to item 187 of Attachment A by the parties.  As appears above, I accept the defendant’s case in regard to the date on which the discount came to an end.  Accordingly the amount invoiced as set out in Attachment A is to be increased by $1,007.00.

76.  There are 5 invoices (N1, N2, N3, N10, and N12) which, it is accepted, were not included in Attachment A, but which were invoiced to the plaintiff. Including these items increases the amount invoiced as set out in Attachment A by the aggregate of those items, namely $14,424.95.

77.  The defendant submits that item N4 set out in its Appendix 1 to the Defence and Counterclaim should be included also in the invoiced sums.  This item represents the adjustments for the discount in respect of fixed line services which the defendant submits was given in error.  I have elsewhere disagreed with that submission and therefore disagree that this should be treated as a sum payable to the defendant.  The better course, it seems to me, is for this to be excluded from the invoiced totals.

78.  Items N5 and N11 are items which the plaintiff accepts are to be included in the invoiced totals save and except to the extent of the disputed 20% discount.  For the reasons given elsewhere I agree with the plaintiff, and accordingly the aggregate total of these 2 items is to be added to the amount invoiced as set out in Attachment A, that is the amount of $223,569.94.

Netel

79.  The simple issue here is whether the invoices issued by the defendant in respect of services rendered to Netel are to be taken into account in the balance of accounts between these parties.  The defendant’s case is that between March 2003 in January 2005 all coordination and administration of the service provided to Netel was handled by the plaintiff.  Invoices were sent to the plaintiff and were handled by Ms Chan who acted as the principal contact for both companies.

80.  Those invoices were settled, on occasions at least, by the plaintiff.  With one exception however none of those invoices has been referred to in the Statement of Claim.  According to the defendant the value of services provided to Netel was $467,016.12.

81.  There is no issue between the parties as to the value or amount of these invoices.  The plaintiff’s defence to the claim for payment of the unpaid portion of these invoices is simply that Netel is a separate legal entity and that, therefore, the plaintiff has no liability in respect of such invoices.

82.  The defendant says, and it appears not to be disputed, that the accounts in respect of services provided to Netel and to the plaintiff were treated by both parties as a single account.  The correspondence does indeed bear this out although it is fair to say that the majority of documents relied on are those emanating from the defendant.  Moreover the defendant says that payments received by it were from time to time applied in discharge of Netel debts with the agreement of the plaintiff. Mr Wong elaborated on this in his witness statement.

83.  The plaintiff accepts that its defence is “technical”, and there is no challenge to the defendant’s evidence as to the way in which the parties conducted the accounting process.  It is clear from that evidence that payments were not made, in very many instances, against specific or particular invoices.  In particular from the time when the plaintiff went into arrears, on account amounts were paid in respect of the general indebtedness of both the plaintiff and Netel.  In those circumstances it appears to me to have been open to the defendant to appropriate such payments to whichever of the unpaid invoices it chose and in practice this appears to be what happened. Against that background it appears to me now to be wholly artificial to suggest, as the plaintiff does, that the accounting should now be separated on the basis of the separate legal personality of the 2 companies.

84.  I note that there is no explanation as to why Netel were not joined by the defendant. Nevertheless, in my view, the parties have agreed, by conduct if nothing else, to treat these matters as one consolidated account, and I do not accept that the commencement of litigation involves or necessitates a different approach.  Had the defendant chosen to appropriate payments received entirely to Netel invoices it would simply have the effect of increasing the claim against the plaintiff.  It would therefore be a wholly artificial exercise to seek to separate the accounts at this stage.

85.  Accordingly I accept that the Netel invoices are to be taken into account in the overall balance of accounts between these parties.

The defendant’s Invoices N6 to N9

86.  These items are for local access charges said to have been incurred between March and July 2003 in respect of number 30505200, and total $59,473.00.

87.  The question is whether they are to be reckoned in as part of the value of invoices issued.  The four relevant invoices were, according to Ms Chan, never received by the plaintiff. That may explain non payment, but does not mean that there is no liability for the use of the service.  However, when the issue arose in the litigation Ms Chan said that she consulted the plaintiff’s technical staff and was informed that the line in question had not been used, and that therefore no LAC usage charges should have been incurred.

88.  Neither Ms Chan nor Mr Wong had any direct knowledge themselves as to whether the lines had been used or not.  Mr Wong produced a screenshot from a computer showing the defendant’s record for the line as having been in service between March and August 2003.

89.  There is no suggestion that the invoices have been fabricated, and no reason to suppose that there were isolated mistakes in the invoicing process giving rise to these invoices.  On balance therefore I accept that these represent valid claims for payment by the defendant which are to be taken into account in the overall balance of accounts.

90.  The balance of account exercise is to be conducted on the basis of calculation of invoiced sums as described above.  Set against those invoiced amounts are inter-alia the credits for the invoices issued by the plaintiff to the defendant and the sums actually paid by the plaintiff.

Were five specific payments made by the plaintiff?

91.  There are purely factual disputes between the parties as to these five payments (items numbered 5, 10,73, 78 and 82 in Attachment B to the Statement of Claim) which the plaintiff claims to have been paid, but which the defendant says were not paid. 

92.  Each party claims to have checked the overall accounts position although the plaintiff has excluded the Netel invoices from consideration.  The plaintiff’s witness, Ms Chan said in her statement that the accounts position was as pleaded by the plaintiff. Mr Kelvin Wong of the defendant similarly verified the accounts position, and in regard to particular items that he had conducted a detailed check of the defendant’s accounting system and how it was that he had been unable to find any record of the relevant payment having been made.

93.  The difference arithmetically between the amounts received according to the plaintiff and defendant is $829,607.38.  The five payments specifically referred to in this section form only one part of that difference, the specific items being identified by reference to Attachment B to the Statement of Claim as item 5 in the sum of $24,851.26; item 10 in the sum of $48,240; item 73 in the sum of $50,000; item 78 in the sum $50,500; and item 82 in the sum of $10,000.  The 5 items in question have a total value of $183,591.26. 

94.  One thing was clear from the evidence in this case namely that the accounts position was messy.  In part perhaps this has arisen from the way in which the plaintiff dealt with payments to the defendant, especially in the later stages where there were various cash payments which were not associated with particular invoices, and various dishonoured cheques. The position can be illustrated by items 10 and 11 where the plaintiff’s documents are said to show these two invoices as being paid by no less than 6 cash payments made on one day.  Taking these 2 items together, Mr Wong says he has checked the defendant’s ledgers and can find no record of payment having been made. 

95.  So far as item 11 at least is concerned, given the way in which the plaintiff says payment was effected that is perhaps unsurprising.  Mr Chong on behalf of the plaintiff criticises Mr Wong’s evidence that the defendant’s accounting records “were 100% accurate”, and I agree with Mr Chong that Mr Wong is unlikely to be correct in this.  However it appears to me that the defendant’s records, even if imperfect, are preferable evidentially to the plaintiffs, and Mr Wong’s review of the accounts more likely to be thorough. 

96.  The plaintiff points out that there was no dispute about payment for these specific items until the litigation commenced, but given the way in which the accounts were administered I do not find that to be significant.  In regard to items 10 and 11 therefore I accept, on the balance of probabilities, that these items were not paid.

97.  So far as the first of the items is concerned (“item 5”) this is an item which the plaintiff alleges was paid by cheque, the evidence in support being the assertion by Ms Chan confirming the plaintiff’s pleaded case as to the total amount said to have been paid.  She confirms the buildup of that statement which includes reference to a payment of $24,851.26 made by cheque number 975222 drawn on DBS.

98.  No relevant bank statement was in evidence, and nor was the cheque itself although the plaintiff had applied to the bank very late in the day seeking a copy of the cheque.  Given the lapse of time between the cheque being issued and the application being made the bank was unable to help.

99.  Mr Kelvin Wong of the defendant stated that he had been unable to find any record of the relevant payment having been made.  I accept his evidence and find, on balance that the payment was not made.

100.  The 2^nd of the list of items (“item 10”) is an amount of $48,240 which the plaintiff says was paid in cash.  The plaintiff says that this is evidenced by its internal accounting documents and a copy of the relevant sub ledger was put in evidence.  This purports to show a total of $84,044.38 as having been paid on 20 April 2004, the date of the contested item.  This total tallies with the amount of the two payments which the plaintiff has pleaded as having been made on that day, although I note that in the attachment to the Statement of Claim the 2^nd of those two payments is said to have been paid by cheque.

101.  The defendant criticises the reliability of this sub ledger and identifies in closing submissions various discrepancies with the plaintiff’s case on other items.  I agree, and take the view that the sub ledger has to be approached with caution.  It is however the best available document so far as this item is concerned.  On balance I therefore accept the more likely position to be that payment was made as asserted by the plaintiff.

102.  Item 82 is also said by the plaintiff to have been paid in cash, and again this is said to be evidenced by the internal sub ledger.  This shows, wholly inexplicably, 5 payments of $2,000 each having been made on 30 November 2005.  Once again this perhaps explains Mr Wong’s inability to identify the payment in his researches in the accounts of the defendant. For the same reasons therefore I find on balance that this item was paid by the plaintiff.

103.  For the remaining 2 items (“items 73 and 78”) however I am not persuaded that the plaintiff has shown that these items were paid.  Ms Chan’s evidence involved a rather complicated review of certain correspondence emanating from the defendant and referring to balances due in the September to November 2005 period, and essentially amounted to inferences drawn from that correspondence.  In cross‑examination she accepted that the analysis was based on an assumption as to the payments specified in one of the defendant’s letters (that of 13 September 2005) having been made.

104.  As is pointed out by Mr Chow on behalf of the defendant even on that basis there is still a discrepancy in the calculations of $47,000.  Ms Chan attempted to deal with this in cross‑examination by reference to a credit note however the credit note itself predates the correspondence on which she relies by some 9 months.  I do not accept her explanation, and I do not find any evidence that the sums have been paid.

Final account

105.  The question posed here is simply “what is the balance of the account between the parties?”.  The calculation is to be made on the basis of the findings and holdings above. 

106.  The amounts invoiced are the starting point and, for the reasons given these are to be calculated based upon the invoices issued to both the plaintiff and to Netel.  The total is to reflect that items 5 and 156 in Attachment A to the Statement of Claim are not part of the accounting exercise; that the correct value of items 34 and 187 of Attachment A is that pleaded by the defendant; and that items N1, N2, N3, N5, N10, N11 and N12 in Schedule 1 to the Defence are to form part of the invoiced amount but subject to an adjustment of items N5 and N11 for the 20% discount that was not provided for in the invoices.

107.  The invoiced amount is to be reduced by an amount to reflect the finding above that the defendant was not entitled to increase the rates to $0.465 per occupancy minute on 16 February 2007.

108.  The invoiced total is also to be reduced to reflect the agreement of the parties to compromise the dispute as to the date of termination of the services.

109.  The amount paid by the plaintiff is to be calculated based upon the sums alleged by the plaintiff to have been paid to the defendant namely $10,666,566.66 which includes the security deposit paid by the plaintiff.  That sum is to be adjusted to reflect the holdings above in respect to items 5, 10, 73, 78 and 82 of Attachment B to the Statement of Claim, and the agreed payments of $20,500.00 made by the plaintiff but not included in the said sum (paragraph 17D(b)(iii) of the Defence).

110.  The matters of principle in issue between the parties are encompassed in the above findings.  The parties are directed to make submissions in writing, on an agreed basis if possible, as to the calculation to be made consequential upon the above.  These submissions are to be made within 21 days of the date of this Judgment.

Interest

111.  Neither party has made submissions on interest. Accordingly I direct, as an order Nisi that, in accordance with usual principles, interest should accrue on the balance sum at 1% above prime rate.  I take the view that interest should run from the date of termination of the contracts, taken to be 16 June 2007, until the date of this Judgment.

Costs

112.  The parties are to make submissions as to costs in writing contemporaneously with their submissions as to the Final Account.