CONTRACTS - Termination - Contract for financial service technology - products not delivered - whether contract was repudiated or terminated for cause - contractual interpretation - compensation
Source
Original judgment source is linked above.
Catchwords
CONTRACTS - Termination - Contract for financial service technology - products not delivered - whether contract was repudiated or terminated for cause - contractual interpretation - compensation
Judgment (76 paragraphs)
[1]
INTRODUCTION
On or about 6 June 2007, the Plaintiff, Chelmer NZ Ltd ('Chelmer'), [1] and the Defendant, Financial & Energy Exchange Ltd ('FEX') [2] entered into an agreement for Chelmer to develop a FIX gateway to connect to the National Stock Exchange [3] equity trades. [4]
FIX is an acronym for Financial Information Exchange. [5]
The "FIX gateway interface" was bespoke software that allowed various software used by different brokers to communicate with the "X-Stream" system using industry standard language. It was described as a translator between the various software platforms and the X-Stream system. It was to be used by FEX to assist it in establishing its own independent market for equities. [6]
The said project was developed together with a second project which required Chelmer to build a browser based interface trading terminal known as "WebFEX" that would connect to the FIX gateway and allow users to carry out trades on the NSX.
On or around February 2008 Chelmer and FEX entered into a second agreement for Chelmer to develop a FIX gateway to connect to the derivatives exchange (the Derivatives Project).
In all, Chelmer carried out work on three projects for FEX namely:
1. the development of a FIX gateway to connect to the X-Stream trading platform used by the NSX (the NSX Project);
2. the development of a browser based user interface trading terminal (WebFEX Project); and
3. the development of a FIX gateway to connect to a derivatives exchange (the Derivatives Project).
Throughout the hearing the NSX Project and the WebFEX Project were referred to collectively as the Equities Project or FEXE/WebFEX. The Derivatives Project was also referred to as the FEXD.
It is not in issue that Chelmer was paid in full for works carried out under the Equities Project.
By Statement of Claim filed on 10 October 2013, Chelmer seeks payment from FEX for cancellation under the contract [7] or in the alternative for the provision of services under quantum meruit [8] for professional software development provided under the Derivatives Project agreement. Chelmer's claim is in the amount of USD$121,654.66 together with interest pursuant to s 100 of the Civil Procedure Act 2005 (NSW). [9]
FEX resists the claim asserting that Chelmer either repudiated the contract, which it accepted, or alternatively it terminated for cause. [10]
It further seeks Damages by way of Cross Claim asserting in respect of both projects:
1. Breach of contract; and
2. Negligence; and
3. Misleading or deceptive conduct [11]
Although FEX pleaded a case in contract and negligence against Chelmer [12] and identified its claim in the statement of issues, [13] in closing submissions it acknowledged that the case in tort was more difficult by reason of a limitation defence raised against it. [14]
[2]
CONDUCT OF PROCEEDINGS
This matter was first set down for hearing on 29 July 2016 to commence on 24 July 2017 with an estimate of 5 days.
Whilst the hearing commenced on 24 July 2017, it was adjourned on 27 July 2017 to 10 August 2017 with a further two day estimate. On 10 August 2017 FEX sought to amend its pleadings. Due to the late filing of the motion its hearing was adjourned to 11 August 2017 to enable Chelmer to respond. This meant that the substantive hearing did not resume until 11 December 2017 with an estimate of four days. The evidence concluded on 13 December 2017. The parties requested time to prepare written submissions before oral addresses. Accepting that the matter involved some complexity, the Court agreed to the parties' timetable and oral submissions were scheduled to be heard on 20 April 2018. On 19 April 2018 the matter was relisted in circumstances where I was advised that due to a fall out in the time table for written submissions, Chelmer was not in a position to address orally the following day. A revised timetable was then ordered and the matter set down for oral submissions on 17 May 2018. The Court sat late on 17 May 2018 to enable the completion of argument. Judgment has been reserved since that time.
Overall the matter occupied significantly above the original estimate of 5 days. It meant the time allocated was not continuous and this in turn led to delays in the finalisation of submissions.
The matter was thereafter relisted to address an issue as to the collation of Exhibit C whose page referencing did not appear to correspond with Chelmer's written submissions. By consent on 18 October 2018, Exhibit C was uplifted by Chelmer's counsel and it was returned the following day.
As these reasons will explain, I have had some difficulty in correlating the arguments advanced with the pleadings on the Cross Claim. On 30 November 2018 my Associate wrote to the parties on my behalf seeking each party to advise the relevant paragraphs of their submissions that referred to the Cross Claim at paragraphs [20]-[23] and the Amended Defence to Cross Claim at [20]-[23]. Responses were received from Chelmer on 16 December 2018 and FEX on 20 December 2018. Thereafter my Associate wrote again raising further questions on 14 January 2019 relating to FEX's negligence claim. Additional written submissions were forthcoming from FEX on 1 February 2019. Chelmer chose not to advance further submissions. Neither party sought a relisting for further oral argument.
Beyond the issues raised, the matter was affected by the circumstances that led to the passing of the amendments to s 44 District Court Act 1973 by the Justice Legislation Amendment Act (No 3) 2018. [15] This matter was raised with counsel on 18 October 2018. However I was informed on 19 October 2018 that neither party wanted a transfer to the Supreme Court pursuant to s 144 of the Civil Procedure Act 2005 (NSW) in circumstances where legislative amendment was anticipated. The amendments ultimately commenced with retrospective effect on 28 November 2018.
[3]
WITNESSES
Chelmer was incorporated in New Zealand in 1988 [16] having its origins as a service and support provider to the financial services industry. In 1996 it diversified its activities into software development and later on, consultancy and support services. [17]
Mr Andrew Robertson was its Managing Director. According to his evidence, Chelmer and its staff were specialists in the financial services technology solutions providing full solutions from outsourcing, professional services, hosting and cloud delivery and a full end to end wealth management and asset management cloud enabled platform. [18]
Apart from Mr Robertson, four other witnesses who worked on the Derivatives Project were called in Chelmer's case. They were Kelly Leslie Cole, [19] Martin Cleland-Pottie, Andrew Hamilton and Michael Keith Holdsworth. Mr Hamilton and Mr Holdsworth worked as contractors. Only Ms Cole remained in employment with Chelmer at the time of the hearing.
In FEX's case, Thomas Price and two further witnesses were called.
The first was John Hulst. He gave evidence of having extensive experience from 1987 in software development and technology, including working a consultant and holding positions in the Australian and Swiss Stock Exchanges. [20] In or around August 2007, Mr Hulst became the Chief Operating Officer of FEX and was engaged to deliver its business objective: to develop an exchange traded derivatives exchange.
Ms Ann Bowering was the second further witness. Around March 2007 she began working for Lucsan Capital Pty Ltd, [21] as the head of Business Development and Operations reporting to Mr Harrold Lucero. [22] Ms Bowering stated that during the period March to November 2017 Lucsan project managed the building of a "market access tool" (WebFEX) for the SIM [23] equites market. She stated that she and Brian Price were involved in liaising with Lucsan and through Lucsan Chelmer about the best way to implement WebFEX. [24] She stated that she was brought into the FEX Project as Lucsan's internal project manager responsible for coordinating tasks and maintaining communications between the various involved parties. [25] Ms Bowering stated that whilst she worked for Lucsan, FEX was the only client of the business she was working on, although she also performed general work for Lucsan. [26] Her interactions with Chelmer were described as being with Brian Price even after Mr Hults was appointed Chief Operating Officer. [27] In around December 2007 she stated that she went to work for FEX. Her title was as Group Executive SIM FEX Ltd. [28]
At the time Ms Bowering joined Lucsan she stated that she was also aware that Thomas Price had approached Mr Lucero with a view to engaging Lucsan as the project manager for the development of FEX's Derivatives Exchange. From around March 2014 until resigning on 1 December 2017 Ms Bowering was a director of FEX. She was also a director of the National Stock Exchange. [29]
Two expert witnesses were also called.
These were Geoffery Williams on behalf of Chelmer and Jeff Yancey on behalf of FEX. Each produced separate reports and a joint report pursuant to orders made by the Court on 29 July 2016. [30] On 13 December 2018 they gave evidence in joint session. [31]
The events the subject of these proceedings occurred a numbers of years past. In assessing the evidence, I am mindful of what was stated by Tamberlin J in Lake Cumbeline Pty Ltd & Ors v Effem Foods Pty Ltd (trading as Uncle Ben's of Australia):-
"[Given the lapse of time] between the events and conversations raised in evidence and the hearing of the evidence before me, the only safe course is to place primary emphasis on the objective factual surrounding material and the inherent commercial probabilities, together with the documentation tendered in evidence. In circumstances where the events took place so long ago, it must be an exceptional witness whose undocumented testimony can be unreservedly relied on." [32]
Accordingly I have carefully examined the evidence of all witnesses. FEX submitted that I should find Mr Robertson not to be a witness of truth on all matters in contention asserting that he was evasive, argumentative and displayed an unwillingness to engage with questions being asked of him and to answer them directly, fairly and openly. [33]
In Sangha v Baxter [34] , Basten JA stated:-
There are risks in making global findings about credibility of any particular witness. Because a witness has not told the truth with respect to a particular matter does not mean that other parts of his or her evidence are untruthful. Where possible, an assessment should be made of the reasons for the untruthfulness in order to see if other aspects of the evidence are likely to be infected by the same concern. Further, evidence may be rejected because it is apparently unreliable, possibly mistaken or deliberately untruthful or capable of being categorised in a variety of ways which are unlikely to be capable of clear delineation in some cases.
Further, findings of credibility are not usually findings with respect to factual issues in the case, but are rather subsidiary findings on the way to determination of issues. Like many aspects of the evidence in a trial, the evidence of a witness who is believed to have lied in a particular respect, will nevertheless be able to bear some weight and should be placed into a balance, with other material evidence, before a conclusion is reached in relation to a critical fact. The rejection of a witness in total, absent corroboration is likely to mean that, even where corroborated, little attention will be paid to the evidence of the witness and less to the possible consequences which might flow from the fact that particular evidence is shown to be truthful: see generally, King v Collins [2007] NSWCA 122 at [44].
I also bear in mind what was stated by Emmett J (as his Honour then was) in Warner v Hung, In the matter of Bellpac Pty Limited (Receivers and Managers Appointed) (In Liquidation) (No 2):
When proof of any fact is required, the Court must feel an actual persuasion of the occurrence or existence of that fact before it can be found. Mere mechanical comparison of probabilities, independent of any belief in reality, cannot justify the finding of a fact. Actual persuasion is achieved where the affirmative of an allegation is made out to the reasonable satisfaction of the Court. However, reasonable satisfaction is not a state of mind that is attained or established independently of the nature and consequences of the fact to be proved. The seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, and the gravity of the consequences flowing from a particular finding are considerations that must affect whether the fact has been proved to the reasonable satisfaction of the Court. Reasonable satisfaction should not be produced by inexact proofs, indefinite testimony or indirect inferences (see Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336 at 361-2). [35]
I do not consider that a global finding as to Mr Robertson's credibility is appropriate. Having assessed Mr Robertson's evidence carefully against that of other witnesses and contemporaneous documents, I am satisfied that he was generally reliable except in one respect where I did not accept his characterisation of an agreement that Chelmer entered into with Lucsan. This is discussed below.
As the time line of the matter commenced with the Equities Project, it is appropriate to consider the events chronologically. Although the SIM-equities market was a market structure that was separate to the FEX Derivatives Exchange, the two were interconnected in a way that will be later explained.
[4]
BACKGROUND TO THE DISPUTE - EQUITIES PROJECT
FEX was conceived in 2005 by two brothers Thomas and Brian Price. Both had the idea of establishing a business comprising an equities exchange and a derivatives exchange as a market for exchange traded and centrally cleared futures and options contracts. [36]
FEX was incorporated in October 2006. [37]
The FEX trading engine was to be a key component of exchange technology that principally managed trading instructions, sent by brokers and traders to the FEX exchange and matched orders subject to pre-set rules. [38]
Thomas and Brian Price undertook extensive research on various service providers and ultimately selected a product provided by OMX software, a Swedish exchange systems provider called X-Stream. "X stream was a software platform used by some financial exchanges to allow price discovery and trading to occur". [39]
Thereafter, Thomas Price looked for a service provider who could manage the customisation, implementation and deployment of the OMX - stream trading engine. [40]
In early 2007 Thomas Price stated that he and Brian Price engaged in discussions with Harold Lucero the managing director of Lucsan Capital Pty Ltd.
This culminated in FEX engaging Lucsan to manage the implementation of the FEX project including customisation, implementation and deployment of the OMX-Stream trading engine. [41]
On 21 March 2007, Thomas Price signed a "Project Services Agreement" on behalf of FEX with Lucsan. [42] Thomas Price stated that thereafter he and Brian Price began involving Lucsan fully in the FEX project. He added that during this period FEX required Lucsan to provide a "market access tool" (WebFEX) for the SIM-equities market.
Thomas Price gave evidence of being a Director responsible for overseeing the operational aspects of FEX's business from February 2007 and April 2009. [43] He stated that he was responsible for managing FEX's day to day relationships with Lucsan including its officers, (in particular Harold Lucero) and individuals within Lucsan who were responsible for different aspects of the project to set up the FEX trading engine. [44]
Thomas Price stated that Mr Lucero informed him that a lot of clients wanted to connect by FIX and they should obtain a FIX gateway and find someone to build it. [45] Thomas Price's description of FIX as a financial industry technology standard allowing many and varied computer systems to "speak" to one another, largely corresponded with Mr Robertson's evidence. [46]
WebFEX was to be the front end system in which trades are affected in SIM-equities market. Thomas Price stated that Ann Bowering and Brian Price were much more involved in the implementation of WebFEX than he was; his involvement being greater in relation to the implementation of the "FIX gateway." In particular he was responsible for the implementation of the derivatives trading platform which also included the development of a FIX gateway. [47]
According to Thomas Price, in or about May or June 2007 based on recommendations and statements from Mr Lucero, he instructed Mr Lucero to begin negotiations with Chelmer and engage them to undertake work on the FIX gateway. [48]
Mr Robertson gave evidence that this occurred around July 2007. This followed a conversation in which Mr Lucero asked him whether he could put together a proposal to develop and implement a FIX gateway interface for X-Stream for FEX. Chelmer asserted that it had previously commenced a project of this nature for the New Zealand Stock Exchange. [49]
Chelmer proceeded to prepare a statement of works which Mr Robertson stated that, to the best of his recollection, he provided to Mr Lucero who then passed it to a representative of FEX. [50]
Thereafter Chelmer and FEX entered into an agreement for Chelmer to develop a FIX gateway to connect to NSX equity trades. That project was developed together with a second project which required Chelmer to build an interface known as "WebFEX".
A history of the FEXE Project was outlined as follows:-
On 6 June 2007 Mr Lucero had sent an email to Mr Robertson that reads as follows:-
"Hi Andy,
Please find attached a revised version of your document. Apologies if we modified your initial thoughts but we think we can move faster if we revise it first.
The following changes were made:
1. We have changed the "project background and purpose" as it did not reflect FEX goals to establish this job.
2. We have added a graph (and text) to illustrate the entire FEX solution as Brian sees it, I think you need to guide us here and let us know if we are on the same page.
3. We have changed the prices to US dollars to present the solution/prices to the FEX Board. Also, we will provide FEX with two options, the first one with the "FUSION" or any other front end, and the cheaper one without 2.4.5 and just using the standard ORMSTW [51] (we assume there is no further charge here if 2.4.5 is not implemented).
4. In the price page, we have included around 7% profit on the development costs and some marginal on the monthly ongoing charge.
5. We have changed the dates on the front page, also the project plan prior to our meeting with FEX today.
6. We have updated the entire document so the contractual relationship is between Chelmer and FEX directly." [52]
Thereafter on 6 June 2007, Chelmer issued the third revision of a document titled "FEX Order Routing Hub and NSX Connectivity." [53] That document noted that it had been updated on Lucsan feedback that day. Relevantly it:-
(a) states that it contains information that is provided for the sole purpose of permitting FEX to evaluate the proposal submitted herewith; [54]
(b) sets out proposal costs for two options each with a fixed price;
(i) option 1 total cost USD$229,700.00
(i) option 2 total cost USD$150,000.00 [55]
Option 1 was a browser based user interface trading terminal. Mr Robertson stated that a user would access this type of interface via an internet browser window. The browser based user trading interface became known as 'WebFEX'. [56]
Option 2 was a trader workstation Windows application that required installation on a user's computer. Mr Robertson described it as similar to the X-Stream trader workstation. [57] It was described as involving an enhancement of the ORMS TW. [58]
Paragraph 2.3 described the scope of the proposal as limited to:
The provision of a technology platform that will route orders from third parties to the NSX and at a later date to the FEX trading system;
Development of an interface to the NSX X-Stream trading system using the OMX proprietary protocol;
Successful accreditation of the NSX connectivity with the NSX
Development if a FIX interface that can accept third party orders and route the orders to the NSX;
Development of a FIX interface that can accept third party orders and route the orders to the NSX;
Creation of Accreditation plans for third parties to connect to the FEX FIX gateway;
Accreditation of 2 third parties to connect to the FEX FIX gateway;
Provision of a Hosting facitlity for the FEX gateway platform with VPN connectivity over the Internet to both the NSX and third parties;
Development of a use interface (FEX TW) that can place NSX orders and view NSX market data. This could be used by third parties rather than passing orders via the FIX gateway;
Unit and functional testing of the NSX gateway, the FIX gateway and the FEX TW;
Implementation of the production system and a DR strategy involving the replication of systems between different cities.
Within the said document was a diagram proving a link from TP [59] (Web IRESS and ORMS TW to FEX). The accompanying text states:
"The diagram below illustrates the overall FEX solution. The NSX uses the X-Stream platform as the trading engine. The FEX equity solution will be as market generic as possible so that it can be easily integrated with the various current technologies of existing ASX market participants. The automatic order-processing engine (AOEI [60] ) will have direct connection to the NSX platform using the API(X-Stream). There is an option to make the FEX AOEI engine (exchange end) FIX compatible, if enabled new participants wanting to connect to the NSX using FIX is possible-ie FEX talk to the NSX via the native API and provide a FIX connection out the other side-then new brokers/participants can connect through a FEX (FIX) gateway. [61]
Paragraph 2.4.1 further stated that:
Chelmer would produce a document which defines the functionality that will be supported for the NSX gateway. The approach taken to define this will be consultation with the NSX with what messages are supported and consultation with the FEX on what business features they wish to provide and what FIX standards exist to support the functionality on to third parties.
Key features of this document are:
• The functionality/data availability to be defined include:
• Order Entry-market order types
• Market data- Market Depth views
• Company announcements
• An overview of the gap between the current state of the ARM system and the desired state
The same day 6 June 2007, FEX signed acceptance of the terms set out in the proposal referred to above. It was forwarded to Chelmer and signed by it on 7 June 2007. [62]
During the period 12 June to 26 June 2007 Chelmer issued four revisions of the FEX Order Routing Hub and NSX Connectivity Project Definition document. [63] Mr Robertson described the Project Definition as a high level document which outlines the nature, structure, approach, schedule, governance and deliverables of the project created by Chelmer and that it was amended from time to time as the project progressed. [64]
In July 2007 Chelmer commenced its development of the project and Mr Robertson in his affidavit gave an outline of the steps taken in this regard. [65]
On 12 July 2007 Mr Robertson sent an email to Lucsan setting out the advantages of using Fusion for the FEX trader workstation (that is WebFEX). [66] It is not in issue the Fusion was a pre-existing product that Chelmer already had. [67]
On 13 July 2007 Mr Kym Sharma from Lucsan responded to Mr Robertson's email stating:-
"Fusion is the best option moving it further and commercially viable for future enhancements." [68]
On 18 July 2007 Chelmer issued a tax invoice for 20% of the overall project fee in an amount of $30,000.00 which was paid by FEX on 30 July 2007. [69] It can be inferred from the amount that at this point in time, the proposal was to proceed with option 2.
On 20 July 2007 Mr Sharma sent an email prior to travelling to New Zealand to see Mr Robertson. He stated:-
"As discussed yesterday Brian has agreed to take on the option 1 which includes solution with ORMS, CAMERON FIX and FUSION web front. [70] Few points to note are:
• Total cost for Option 1 is $229,700.00 which includes Lucsan's share of $26,000"
• Chelmer will stagger these payments and charge accordingly, possibly delay major portion til Nov/Dec 2007
• Lucsan will outline requirement on behalf of FEX and work in conjunction with BA resource from Chelmer to confirm requirements
• Agreed Equity functionality will be built for Sep 14 release and other will be incorporated at a late stage with no additional
• We will forward you official signature of approval from Brian within next couple of days.
• Look forward to see you again in Wed in your office.
Brian would like to see connectivity between FEX gateway and IRESS FIX engine so web IRESS traders are able to trade. Brian understands it is effectively an ECN and is looking forward to a robust solution. He would like to call the "web front" a "WebFEX" rather than FUSION (bummer). Let me know if you would like to clarify anything further." [71]
Development of a FIX interface that can accept third party order and route the orders to the NSX
Creation of Accreditation plans for third parties to connect to the FEX FIX Gateway
Accreditation of 2 professional third parties to connect to the FEX FIX Gateway [93]
The Scope specifically excluded "Retail brokerage activities where the 'trader' is not responsible for settlement." [94]
Under "Risk Description" it stated:
"Currently no market data capability within Fusion or Cameron FIX gateway" "Back up is to use IRESS. Restrict market data messages to core messages required by NSX messages" [95]
[5]
Test Plan
On 18 August 2007 a draft test plan was created by Chelmer updated on 27 August 2007. [96] By way of background the document states at (1.1):-
"FEX had engaged Lucsan Capital and Chelmer Ltd to deliver and an order, a routing hub and trader workstation to provide access for market professionals to a new 'FEX' board on the national Stock Exchange (NSX). The solution is to provide participants with the view of the market and allow placing of orders and trading on the FEX board.
The solution will be based around the FIX protocol which will allow FIX capable applicants to connect directly to the FIX hub as per to the NSX via the FEX gateway. Applicants who are not FIX capable will have the option of taking the WebFEX trader workstation, at browser based TWR that will connect directly to the FEX gateway.
The time table for the project is very aggressive with exchange due to go live on Sept 14 2007. As a result delivery is split into two phases. [97]
Phase 1 will cover FIX messaging, connectivity, WebFEX TW and core messaging flow. Phase 2 will provide enhanced WebFEX functionality and a broader message set.
There is expected to be 3 companies listed on the Exchange for day 1 with volumes anticipated to light up to 10 trades per security per day." [98]
On 11 September 2007 Ms Bowering was working for Lucsan and sent an email to Mr Hulst and Mr Sharma stating that she had reviewed and made a number of amendments and comments about what appeared to be an earlier version of the support implementation and services agreement [99] for the WebFEX interface prepared by Chelmer. Ms Bowering made a number of suggestions for the best method of moving forward. [100] Mr Hulst stated that he was aware that Lucsan's role extended to amending or proposing changes to contracts that FEX was going to enter into. [101]
On 17 September 2007 Mr Sharma sent an email to Mr Hulst which enabled him to access the demo version of the WebFEX interface. [102] Mr Hulst conceded that he may have gained access to the demo version but could not recall it. [103] He stated that he believed he had tried but he was unable to access it but could not be absolutely sure. Mr Robertson's evidence was that Chelmer provided Lucsan with early access to Web FEX whilst it was being developed. [104]
Ultimately, on 28 September 2007 Chelmer issued a tax invoice for USD$15,940.00 to reflect the balance of the 20% overall project fees allowing for the difference in price for Option 2 being FEX's original choice and Option 1 which FEX confirmed with Lucsan was the option it desired. [105] This was paid by 8 October 2007. [106]
By 7 October 2007 Mr Hulst was aware that WebFEX interface needed to be produced and it was his role to ensure that it was delivered as quickly as possible within common sense. [107]
On 14 October 2007, Brian Price sent an email to Mr Lucero and other personnel at FEX and Lucsan asking for a written status update on the WebFEX Project. In his email he requested inclusion as to:-
estimated completion date of a workable version (internet Explorer user friendly version),
the status of the testing,
whether you require any review or testing from us. [108]
On 15 October 2007 National Stock Exchange in an email sent to Chelmer stated that they were prepared to grant official accreditation to both the FIX connection and the WebFEX trading platform. [109]
[6]
Further Development
On 15 October 2007 Mr Lucero responded to Brian Price and other personnel at FEX and Lucsan (but not Chelmer) informing them that:-
1. a workable version will be online tomorrow morning and
2. Chelmer was already vigorously testing the WebFEX interface but Lucsan should conduct its own user acceptance testing. [110]
Attached to the email was a status report that confirmed:-
1. project Phase 1 had been completed and Phase 2 has commenced for enhancement,
2. noted as a key achievement; NSX API accreditation and approvals. [111]
On 24 October 2007 Mr Hamilton asked Lucsan whether its users on WebFEX interface should be only able to view FEX boards. Mr Sharma confirmed that it wanted to restrict the view and the ability of any users to place orders on the FEX board only. [112]
On 26 October 2007 Ms Bowering sent an email to Lucsan and also to Mr Robertson. In that email she confirmed a revised go live date of 15 November 2007 and set out the tasks that needed to be performed and who was responsible for the performance of such tasks. Chelmer was tasked with the responsibility of completing and developing and testing of Phase 2 and providing test results and relevant information to Lucsan, and Lucsan was responsible to complete the tests strategy and plans also to implement the test strategy. [113] This was revised on 29 October 2007. [114]
On 1 November 2007 Ms Bowering sent an email to Chelmer and to Lucsan which referred to a meeting that took place with Mr Hulst the previous week and confirmed that Mr Hulst was happy with the WebFEX interface based on his experience in the system so far. [115] Around this time Ms Bowering began to transition her employment from Lucsan to the FEX [116] . Mr Hulst gave evidence that after November 2007 there was a transitional period where Ms Bowering worked half time at FEX and half time at Lucsan but eventually worked full time for FEX reporting to Brian Price. [117]
On 8 November 2007 Ms Bowering sent an email to personnel at FEX and Lucsan which summarises the position "to bring everyone up to the same page." [118] In that email Ms Bowering states:-
"Lucsan Capital will have completed the WebFEX Design Spec document tomorrow, which will mean that it is available for review and approval by FEX on Monday."
That same day the 1st version of the Business Requirements document is created by Lucsan. [119] It can be inferred that this document was the "WebFEX Design Spec" referred to by Ms Bowering as it was prepared around the same time as when Ms Bowering states the "WebFEX Design Spec" would be completed. There is no document that is otherwise titled "WebFEX Design Spec" and further Ms Bowering conceded this could be the document she was referring to. [120]
[7]
Business Requirements Document
The document history of the Business Requirements document shows that on 12 November 2007 a version (V1.1) is created being amended entirely by Lucsan. [121] A new version (V1.2) of the Business Requirement document was created the same day with the involvement of Mr Hamilton and Mr Robertson on behalf of Chelmer; it being noted as having been "reviewed, comments incorporated". [122] That document (V1.2) appears to have been attached to an email from Ms Bowering on 12 November 2007 forwarded to Mr Hulst, Brian Price, other personnel at FEX and Lucsan. In the email Ms Bowering states:-
"It is important for all parties to treat this document as a hard sign off. Anything at all not explicitly outlined in the document will be treated as the change request (eg volume is currently displayed at ten thousand per user would probably expect ten thousand? the examples of each column display format are provided in the document).
Please review.
If you have any questions or comments, I will arrange a meeting with Kym or Ivan to discuss. If you are satisfied with the document please let me know.
Once the document is signed off Lucsan will complete user acceptance test plan." [123]
During the course of cross examination Mr Hulst was referred to "Business Requirements document" and his answers were as follows:-
"Q. When we're talking about technical solutions do you understand, in general terms, what a business requirements document is?
A. Yes.
Q. And from a software development point of view, is that the document that sets out what the software's supposed to do?
A. Yes.
Q. And if you were going to test the software, at some point in time, it's the document that you would base those tests on?
A. Yes.
Q. So it's an important document?
A. Yes.
Q. It is one of the most important documents from a software development point of view.
A. Yes.
Q. Because if there's something missing in it, the software may not do what you want it do.
A. Correct." [124]
Mr Hulst in cross examination was taken to Ms Bowering's email of 12 November 2007 attaching Business Requirements (V1.2). [125] He accepted that he understood when he received the document that the Business Requirements document was an important document. [126] He further accepted that he would have looked at the document when he received it and checked it carefully to the best of his capability because he knew that it was important. [127] Thereafter Mr Hulst stated that he had an involvement between the period of 12 and 20 November 2007 with the document that ultimately was titled Business Requirements referred to in the email dated 20 November 2007. [128] He stated that whilst he relied on others to do their part he also reviewed the document and accepted that he had taken great care in that regard. [129] Whilst he relied on others to do their part he accepted that he would have made sure that it was a complete document to the best of his ability. [130] Certainly following his input another version of the Business Requirements document (V1.3) was produced. [131]
On 20 November 2007 Mr Ivan Golenkov, of Lucsan, forwarded an email to other personnel at Lucsan, Chelmer and FEX enclosing (V1.3) and setting out action points for each of the parties and seeking responses. [132]
On 22 November 2007 Mr Golenkov circulated a new version of the Business Requirements document (V1.4) and asks for further responses from Chelmer and FEX. [133]
On 27 November 2007 Mr Hulst received a copy of the Project Definition document Revision 5 (earlier referred) to by Chelmer. [134] That document notes its status as a final draft last updated on 16 October 2007. [135] It was sent for sign off by Mr Andrew Hamilton. [136] This document expressly identified the absence of FEX's input to the business requirements as a risk. [137] It noted that this as "high impact" and "high probability" and the mitigation strategy was described as "back up is to use IRESS to restrict market data messages to core messages required by NSX members."
Mr Hulst stated that if he read this document he would have been aware of it but had no reason to believe one way or the other whether he had done so. [138] He accepted that the document was an important document setting out project definitions for a project that he was managing or involved in overseeing. [139] He accepted that he also would have done his best to have taken care to ensure that he adequately oversaw the WebFEX Project and to read important documents such as the Project Definition document when he received it. [140] He accepted that in that document at p110 Chelmer identified as a risk FEX's lack of input into the business requirements. [141]
On 29 November 2007 Mr Hamilton made an inquiry of Mr Scott Evans of the NSX as to:
"any indication of daily volumes on the NSX, in terms of orders and trades? Also do you have a threshold that you use for benchmarking or similar?" [142]
Mr Evans from the NSX responds:
"We have about 10 - 20 trades per day. We have about 20 - 30 orders per day. So not big numbers yet that would crash any systems.
We have sized the system allow 100,000 trades per day, 200,000 orders per day and 200,000 negotiated deals per day." [143]
Mr Hamilton responds:-
"No that's all I need to know really, the reason I ask is we have manually put through about 500 orders so far today under the FEX test user group and they are getting some performance issues with browser speed but I doubt any one user firm would ever hit that level of activity so it is unlikely they will experience this problem."
There is no other clarification of the import that the "500" referred to.
Mr Robertson in his affidavit explained that at no point in time were there any discussions between Lucsan and Chelmer regarding the benchmark performance criteria for user acceptance performance testing of WebFEX or the number or volume of trades WebFEX had to support. He stated that in these circumstances Chelmer made its own inquiries with the NSX as to the volume of trades that occurred each day. On the basis of the information obtained by Mr Hamilton on behalf of Chelmer from the NSX, he understood that in November 2007 the NSX was at a low point in market stock. [144]
In the opinion of Geoffrey Williams (the expert qualified on behalf of Chelmer):-
" … If Lucsan and/or FEX were unable to provide detailed volumetric requirements then it is reasonable for Chelmer to try and determine this requirement. The absence of this information would be considered a major risk in the project so therefore, Chelmer should have tried to mitigate this risk by gathering the necessary information." [145]
Mr Geoff Yancey (the expert qualified on behalf of FEX) agreed with this opinion. [146]
On 29 November 2007 Mr Hulst provides responses sought from him with respect to Business Requirements document V1.4. [147]
In cross examination Mr Hulst accepted that based on the contents of his email to Lucsan of 29 November 2007 he would have read the Business Requirements. [148] He did not offer any explanation as to why the email was not included in his affidavit. [149] He also accepted that he would have been sure when he reviewed the document that it was complete and accurate to the best of his ability. [150]
Subsequent to that correspondence a new version of the Business Requirements document was created by Lucsan on 30 November 2007 being the 1.5. [151]
In his affidavit Mr Hulst asserted that he understood from discussions that he had with FEX as well as Lucsan and Chelmer that WebFEX was" intended to be a product that competed with IRESS, which delivers a product used by many equity market trading participants to access a number of exchanges in Australia and overseas, including the ASX." Whilst he asserted that his email of 11 December 2007 set out his immediate technical concerns in fact Mr Hulst signed off on the Business Requirements document (V1.5) on behalf of FEX. In his email of the same day his only expressed concern to Lucsan was that there was no data validation at the WebFEX, adding:
"Therefore I will sign off on these requirements with the single caveat as follows:
that this version of WebFEX is unsuitable to put in front of any designated trader in a broking organisation who is used to trading ASX stocks and MUST be enhanced before any such exposure occurs. We have already identified the Cookie on the Server design issue that needs to be addressed, this one must too.
I note that I expect most trading desks will want to use a FIX connection more than a GUI and we can reasonably expect/request simple pre-validation to occur before the FIX message is sent to our gateway [152]
Mr Hulst accepted in cross examination that V1.5 would be about the final version [153] and by the time it was settled he probably had the chance to read it numerous times. [154] Mr Hulst also accepted that he understood that these business requirements were to form the basis as to what software was to be tested against. [155] He also accepted that there was nothing stopping him from requesting that those criteria be put into the document. [156]
Mr Hulst was then asked whether at this time he was involved with the document he was aware that FEX wanted to have higher volume orders through the software. He stated:-
"The way the business was explained to me was that the market was to be a young, vibrant market. The implication of that was that (not transcribable) … was clearly going to be an issue because that was the key thing going around the markets at the time." [157]
He said he formed his understanding from discussions with Brian Price on the goals of FEX and his knowledge of the marketplace in Australia. [158] He conceded however that he never had those discussions with Chelmer. [159] As to his discussions with Chelmer on the issue Mr Hulst responded as follows: -
"Q. And you never told Chelmer at any time, any one from Chelmer at any time prior to this business requirements document being signed off on, what you've just informed the Court is your understanding of what this software needed to do?
A. From a performance perspective?"
Q. Correct.
A My-No [160]
Mr Hulst accepted that he signed off on the document with either no load requirement or any type of performance requirements contained in it. [161] He said he did not find it specifically concerning that they were not in this document [162] . He accepted that time was of the essence with the project and the performance and load were important issues. [163] He stated that performance and load should be disclosed to whoever is building the software or requested by that party. [164] When it was put to him that he should have disclosed these details because it was his obligation to tell the person who is building the software what it is he wanted the software to do he responded by stating:-
"The level of detailed knowledge presumption in that statement I think is false. [165]
Mr Hulst accepted that the v1.5 was an important document. [166] He also accepted that he accessed to UAT version of WebFEX interface and tested it for about an hour. [167]
Mr Hulst understood that at some time in the future there would be some load and performance testing. [168] He stated that he took great care to analyse the Business Requirement document V1.5, before he signed off on it [169] and by 6 February 2008 he received an sent an email from Lucsan stating that all functionality and interface test passed and previously raised issues had been resolved. [170]
Mr Hulst accepted that he signed off on the Business Requirements document, despite the fact that he noticed that the document did not have the performance and load requirements in it. [171] He also accepted that it would have been preferred practice for a document to clearly set out performance and load tests that should be measured against. [172] He stated that if he was the technical development manager it would have been a practice that he would have adopted if he was developing the software. [173] Notwithstanding this and his involvement in software development, he stated that he did not raise with Chelmer at any time his concern that there were no performance or load requirements or specifications or matters of that description in the Business Requirements document. [174] He understood that this was theoretically an important aspect of software. [175]
Mr Hulst was questioned on the performance and load requirements being within the knowledge of Chelmer and being driven by its business needs. He responded to questions as follows: [176]
"Q. But the technology supplier can only build what it's told to build, correct?
A. And the business can only express the business requirements that it understands.
Q. Sir, I'm asking the questions. I'd be grateful if you could answer them.
A. I'm trying to.
Q. General proposition: assume you're developing a piece of software. You can only build what you are told to build.
A. How you build it is your responsibility as the technology developer. What you build is driven by the business.
HIS HONOUR
Q. Can I ask you a question. How would the supplier know what the load required by a client is going to be?
A. Ask.
Q. I'm sorry?
A. To ask - just ask what - the client, "What's your expectation of usage?"
Q. Wouldn't that be something that you would specify? You're buying a product. I know you talk about the business requirement; wouldn't you say to them, "I want a product that can do this and have these requirements"? I'm not familiar with purchasing this sort of material, so I'm just trying to understand how you say the process would work.
A. The performance requirements depend on how the technology is going to be built and what the business usage is, so it's a combination of both the technical input and the business input as to what the performance requirements ought to be.
Q. But that would be knowledge that you would have, wouldn't it? Or
A. Part of it, yes.
Q. FEX would have.
A. It would - it's both parties. Both parties know elements that need to be put together to achieve the appropriate performance requirements."
Mr Hulst stated that he presumed that the performance and load requirements had been discussed between Lucsan and Chelmer. [177] He accepted that he took full responsibility for the Business Requirements document [178] and was the last one to approve its contents. [179]
At the time Ms Bowering sent her email to Mr Hulst 12 November 2007, [180] she attached a document being the Business Requirements document for WebFEX being version 1.2. [181] Ms Bowering accepted that she knew this was an important document. [182] She understood what the document was but could not recall whether she had any input into the document or its previous version. [183] She accepted that the document was what the software would be tested against. [184] She further accepted that it was a Lucsan document [185] . She stated that so far as she was aware primary responsibility for the Business Requirements document, so far as Lucsan was concerned, rested with Mr Lucero. [186] She stated that Lucsan and FEX would come up with the Business Requirements and then they would be shared with Chelmer. [187] Ultimately, however she accepted that FEX had to sign off on the Business Requirements document. [188]
[8]
Web IRESS
In 2007 a product said to be similar to WebFEX was in existence called IRESS. Ms Bowering stated that FEX could not use IRESS however, and had to build its own interface because IRESS was partially owned by the Australian Securities Exchange which was FEX's competitor and it was unlikely that IRESS would invest substantial resources into the FEX Project given the size of FEX at the time. [189]
Mr Robertson stated that to the best of his recollection at no point was Chelmer ever made aware that WebFEX had to compete with IRESS. [190] He stated that there was no mention of this requirement in any of the versions of the business requirements/statement of works developed for WebFEX. Further there was no mention of IRESS during user acceptance testing. [191]
I have earlier referred to the "FEX Routing Hub and NSX Connectivity" document signed 7June 2007 that referred to connectivity with Web IRESS" and revision 5 of the "FEX Order Routing Hub and NSX Connectivity Project Definition Document" prepared by Chelmer issued 9 August 2007. [192]
In neither of those documents is it raised that WebFEX is to compete with Web IRESS. The second document mentioned that as a mitigation strategy for the fact that certain capabilities are not available in the FUSION product, "Back up is to use IRESS." [193]
In his affidavit Mr Robertson stated:-
"52 Chelmer was not engged by FEX to develop a user interface that would compete with IRESS.
53 I am not aware of what IRESS software FEX is referring to. IRESS is a computer software program that develops and distributes numerous programs.
54 WebFEX is by definition a browser based user interface solution whereas, to the best of my knowledge and belief, some of the products developed by IRESS at the time were either market data viewing solutions, or free standing applications that are installed on a computer (or other platform) known as an auto management solution (IOS). From my experience:
(a) the IOS could be interfaced with the NSX FIX gateway to be used instead of WebFEX and
(b) whilst WebFEX and some programs developed by IRESS at the time may perform similar functions based on my understanding of the IRESS products at the time, none of the products on offer by IRESS were directly comparable to WebFEX. [194]
Mr Robertson was asked whether he was saying that in the Project Definition document that there was a specific statement that says that it was not to compete with Web IRESS. He responded: -
"A. No, what I'm saying is there's nothing in the project definition which says in scope, is that this product must compete with WebIRESS. In fact, the two products are completely different. WebIRESS was a retail product, WEBFEX, by definition, was a broker product. And you could evidence that by the basis that WEBFEX had negotiate a deal functionality in it, and that type of functionality can only be performed by a broker. [195]
Notwithstanding this, Mr Robertson's attention was drawn to the contents the email referred to earlier from Mr Sharma dated 20 July 2007 where the later stated:
Brian would also like to see some connectivity between FEXFIX gateway and IRESS FIX engine so Web IRESS traders are able to trade. Brian understands it is effectively an ECN and is looking forward to a robust solution. [196]
Mr Robertson denied that he was directed to use Web IRESS functionality as a good reference point. [197] His attention was then drawn to the email from Mr Sharma addressed to him dated 30 July 2007 [198] referring to Web IRESS functionality as a good reference point. [199]
In light of this document Mr Robertson conceded that what he had previously said was untrue. [200]
Following his return to Australia from New Zealand, Mr Sharma sent the email dated 31 July 2007 earlier referred to. [201]
Mr Robertson denied that there was any agreement with Mr Sharma along the lines suggested in the first bullet point referred to in that email. His evidence was as follows:-
"Q. Now, go over the page please, now I'm going to suggest that what appears in bullet point one is what you agreed with Lucsan in relation to the additional cost of WEBFEX portal functionality, you want to read it to yourself? That's what you agreed with Lucsan didn't you?
A. I don't believe this states there's any form of agreement?
Q. Sorry, no formal agreement is that what you're saying?
A. Well, I don't recall any of the conversations but this appears to be a list of him recapping things that were discussed, I can't recollect these discussions.
Q. Mr Robertson you agreed, in conversation with Kym Sharma, either in New Zealand or on the phone, that whatever additional costs Chelmer was going to incur in building this additional functionality for the WEBFEX portal that we were going to put that into the fixed derivatives project?
A. This appears to be an email from Kevin to me, it doesn't appear to be a reply from me agreeing to anything.
Q. We'll get to the reply now in a second, but do you accept that in 2007 July you agreed with Kym Sharma, either on the telephone or when he was there, that you would push the additional cost that Chelmer was going to incur in doing the additional WEBFEX functionally into effects his derivatives project?
A. I don't have any recollection of that conversation.
Q. But you see the reference in that email to that same arrangement, do you accept that there was an arrangement of that kind as described in the first bullet point or do you not?
A. "What there was an arrangement to deliver WEBFEX portal to cater functionality for a retail client investor, punter, as discussed Lucsan realised that some of this additional functionality cost will be factored into derivative enhancement." Again, I have no recollection of that. I've no visibility of an agreement.
Q. Sorry, you don't?
A. I don't believe I've got visibility of an agreement on that.
Q. You agreed with me yesterday that you understood for an agreement to come into place, you don't need a signed formal document, didn't you?
A. That's true.
Q. Just to give - in fairness, your reply is on the page before, the first page of the document that I gave you. Can you just read it to yourself and point out the bit in that email where you disagree with what Kym Sharma had put in the first bullet point - said, "No, no, that's not what we discussed," or, "That's not the arrangement. That's not what we're going to do. We're going to do something else"?
A. It doesn't but it clearly doesn't say I agreed to anything either.
Q. He doesn't say that in the email, I suggest to you, Mr Robertson, because you'd agreed over the phone or in person with Mr Sharma. That's what he was recording in his email. Isn't that right?
A. I don't recall a conversation and I certainly don't recall an agreement of that nature." [202]
Mr Robertson responded to the email on 2 August 2007. [203] In it he did not reject the contents of the first bullet point referred to in the email from Mr Sharma on 31 July 2007 as reflecting the discussions they had had. Mr Robertson denied that he was going to inflate the hours in the statement of works for the Derivatives FIX gateway to incorporate the costs of Chelmer developing additional functionality for the Web FEX. He maintained that WebFEX was delivered as an institutional broker based application, the requirements of which were agreed to by FEX and did not mention anything to do with retail functionality. [204]
Ms Bowering stated that in around November 2007 she managed some of the functional testing of the WebFEX interface with assistance from FEX's technical staff although most of this was done by Lucsan and Chelmer. She stated that by November 2007 the efforts to build the WebFEX had stalled and it appeared to her that the project could not proceed further adding that it was important that to the success of WebFEX that it compete with IRESS. Specifically Ms Bowering stated that although she could not recall all the deficiencies she came to the view at that time that WebFEX in the form that it had been built by Chelmer could not compete with IRESS and was significantly inferior to it. [205] Ms Bowering's opinion was advanced as a lay opinion based on her expectation not on the basis of technical experience. [206]
[9]
Project Status Report
On 18 December 2007 Chelmer prepared and circulated a Project Status Report to Mr Hulst, Ms Bowering and Lucsan personnel. [207] The document identified as a "top risk":-
"Performance of web browser when firm activity reaches > 300 transactions per day".
The mitigation strategy was expressed as:-
"Volumes not anticipated to exceed 100 orders." [208]
Mr Hulst gave evidence that he possibly read this Project Status Report but that this would be a report that Ann Bowering would be particularly focused on. [209] He said that at this point in time he was doing other things as well and Ms Bowering was taking full responsibility at this particular point in time as he did not feel that he ought to be doing her job at that same time as doing his own. [210] He conceded that he was spending less time on FEX at this time because Ms Bowering was more hands on the project and he was busy on other projects. [211]
Ms Bowering's evidence was that she believed reports of this nature were generated monthly. [212] She stated that so far as the Status Report of 18 December 2007 was concerned, she did not specifically recall seeing it but she would have opened the attachment on the email to which it was attached. [213] She acknowledged that the Project Status Report referred to the risks and mitigation referred to earlier. [214] She stated that she did not recall reading the document when she received it. Ms Bowering accepted it was an important document and it was her practise to read important documents when they were sent by email to her. [215] She stated that had she read the document she would have read it carefully. [216] She accepted that she did not know who defined the mitigating conditions whether they were FEX, Lucsan or an assumption by Chelmer. [217]
Ms Bowering further accepted that in relation to the NSX around 29 June 2007 when the WebFEX Project was started there would have been around 23 trades, [218] that for the 2006 calendar year would be around 1,120, [219] 2008 around 991 and for 2009 around 973. [220] She further accepted that on the day that WebFEX failed, the user acceptance performance testing being on 25 March 2008, there were about 4 trades made on the NSX that day. [221]
[10]
Test Plan
On 3 January 2008 Ms Bowering sent an email to Brian Price and Lucsan that confirms that WebFEX was a critical business goal of FEX and that Lucsan would be responsible for developing and providing the test plan and test results. [222]
The test being prepared by Lucsan appeared to make no reference to load or performance. [223] This was unlike the test plan prepared by Chelmer which stated:-
"There are expected to be 3 companies listed on the Exchange for day 1, with volumes anticipated to be light - up to 10 trades per security per day." [224]
On 7 January 2008 Mr Sharma sent an email to FEX (but not to Chelmer) which it acknowledged as a caveat:-
"The UAT scope will only include the Business Specifications as agreed by FEX (with some addition of some load and performance testing)."
[11]
Functionality Testing
On 17 January 2008 Lucsan completed the core functionality testing of the WebFEX interface. [225] It was expressed as a test plan aimed to test functionality outlined in Business Requirements V1.5. [226]
On 29 January 2008 final Project Definition document was signed off by FEX. [227]
By 6 February 2008 WebFEX Interface passed the functionality interface test. [228] On the same day Mr Lucero informed Brian Price of the results. [229]
On 11 February 2008 FEX sent an email to Chelmer in which Ms Bowering thanked Mr Robertson for his team's efforts in completing the design and development of the WebFEX Interface and informed Chelmer that Lucsan would undertake load testing shortly. [230] The email did not record what the parameters would be.
[12]
Lucsan Indicates Load Requirements
On 7 March 2008 Mr Ivan Golenkov informed Chelmer that they were carrying out the performance testing next week and asks Chelmer to provide 20 NSX logons so that they could take place and direct Chelmer to approach the NSX. [231] That same day Mr Robertson on behalf of Chelmer wrote to Lucsan stating that the NSX have asked for details including proposed number of orders and trades per second, per hour and per day. [232]
On 7 March 2008 Ivan Golenkov informed Mr Robertson at Chelmer that the WebFEX Interface tested at 500 orders per hour. [233] Mr Robertson responded:-
"There will be known delays with those order quantities? Most of it is in the browser loading the brokers orders? Even market tests will be an issue. In the absence of requested metrics (which we have given for derivatives) then I would expect that while the system will function? it will be slow. The problem is every user has to pull all the data from the engine? it's not cached anywhere."
Mr Golenkov responded stating that the only official reference to the load requirements are noted in the FEX NSX Accreditation Level B v 0.1 document sent by Chelmer. Referring to (1.1) of that document Mr Golenkov stated:-
"This is exactly the number of orders that we wish to execute per hour, as per my schedule sent to Andy. If Chelmer designer a system that can cope comfortable with only 500 orders per day, then of course there will be problems and a significant subsequent enhancement request for Phase 2."
The email acknowledges that there was no earlier evidence of Lucsan informing Chelmer of the load and performance requirements that FEX expected the software to handle at any time prior to 7 March 2008.
[13]
Load Failure
On 25 March 2008 Lucsan conducted the performance test. It is not in issue in accordance with Mr Robertson's prediction immediately after becoming aware of the expected load and performance requirements WebFEX failed all tests. [234] Subsequent to this occurring Mr Hulst wrote to Mr Robertson on 1 April 2008 copying to Lucsan stating:-
"I understand you have been advised by Harold of these attached results. As you can imagine I was shocked by the poor results to say the least, and asked Harold to come and discuss them with me late last week. I have asked Harold to make sure he provides you with his every assistance in replicating his testing in order to eliminate this as a cause. I am trying not to prejudge the WebFEX solution, but I am very mindful for the possible flow on effect and importance of performance for the Derivatives FIX Gateway to FEX." ….
"Can you please keep a very close eye on this matter and at your earliest convenience advise me of your plans to identify why these results were achieved and if it appears to be a software design issue what action you are going to take to address it. As stated before, it is critical to FEX to ensure high performance levels of the Derivatives FIX Gateway (as well as WebFEX)." [235]
In his response Mr Robertson stated inter alia:-
"Please note that while I agree the Lucsan test results are in no way acceptable, there has also never been any bench mark performance criteria set. The architectural solution used reflects this, which can be seen in the different approach that we are investigating/taking with the Derivatives Gateway to separate Order and market data messages. Once we have established the current benchmarks, rectified any issues that are identified we will need to have a discussion at that stage as to whether they are defined as "acceptable" and what that means in terms of architectural changes if required." [236]
[14]
Further Steps
As at 1 April 2008 Mr Hulst was aware that Chelmer were taking on steps to try and address the load performance issues. [237]
By 1 May 2008 Lucsan and FEX were asking for an update and estimated time frame to rectify the performance issues. [238] Mr Robertson responded that he could not give a time frame on the project as it was largely determined by what is found out after the first set of test results and the plan of attack after that. He suggested talking in the following week to discuss the first results and then plan from there. [239]
On 9 May 2008 Mr Lucero wrote to Mr Robertson copied to Ms Bowering, stating; [240]
"Based on our chat yesterday you mentioned you were hoping to get some results around the performance testing the Equity WebFEX system sometime last night. I know this is your priority list at the moment as it is for the FEX SIM Market dealing process.
Would you be able to provide ANN and myself an update of how things are moving along with the WebFEX performance testing?"
On 9 May 2008, Robertson wrote an email, in which he stated:
Team
The news is not as good as I would have hoped - in that we have not been able to progress the testing to a satisfactory result. The problems are related to getting the NSX fix gateway talking to our test engine, and the NSX FIX gateway interfacing correctly with another in house x stream system which is not the same API as the NSX. It has identified a couple of small things that need to be changed in either the gateway or the published FEXE FIX specification, but nothing yet related to performance. I believe (fingers crossed) that we have development working on the last change necessary to get all the c components talking together that we need to get the results published. To stress all the development work to date has nothing to do with the current FEXE/WebFEX setup, they are all related to getting it connected to a different market platform. The only reason to get it connected to a different market platform is to remove the latency/complication in testing of a component outside our control (ie NSX). We have all possible resource working on this, so as soon as I have something to share I will get it published.
Apologies for the ongoing delays. [241]
Harold Lucero responded on 13 May 2008 and stated:
"We need to address the below as soon as possible. FEX as well as our understanding is that Chelmer is working on 2 separate projects, i.e. WebFEX and FEXD FIX. The below seem to indicate that the 2 projects are inter-related and your team I efforts are addressing multiple issues at the same time.
As you will recall WebFEX plan was to be delivered towards the end of last year, however FEX was able to readjust the plans until all testing was done during the first months of 2008. We are now moving into the second half of 2008 with no results. The WebFEX platform is not yet at a level to be deployed, demonstrated or used by potential clients and investors.
Lucsan finished its Non-functional /performance testing in March and subsequent results were provided to FEX and Chelmer for consideration. On your email dated 1st April 2008 you mentioned Chelmer will do its testing and produce some draft results within a couple of weeks. The FEX SiM business team has readjusted their business plan several times in order to align with the delivery of your robust and table technology platform. These further deals are causing many problems and FEX cannot longer allow moving targeted business timelines any longer.
Can we please discuss your approach taken below. The WebFEX platform (as a separate project) needs to be in production as soon as possible. How can Lucsan and /or FEX work with you / Chelmer so that we achieve this outcome now?" [242]
That email was copied to Ms Bowering and Mr Hulst.
Later the same day, Mr Robertson responded as follows:
By nature the two projects are inter-related. If the FEXD infrastructure is to be built on the FEXE infrastructure to a greater or lesser degree, the clarification of FEXE performance and the setting of the FEXD baseline are by nature largely one and the same.
That all said the fact that the two are inter-related does not impact and has not been the cause for the FEXE delays. When the FEXE project was conducted, there was nothing to meet in terms of defined performance set by FEX, and neither was there a test environment within Chelmer that we could sensibly produce statistical output. Therefore the performance and load testing that was conducted by Chelmer was manual - i.e we got multiple users in the office perform in activity and we took user feedback on performance. Throughout the functional testing there has been inconsistencies on the user experience in testing in Australia and that experienced here in New Zealand - and this culminated in the work that Ivan did.
When dealing with performance related problems the key is to be able to accurately measure where time is being taken, and eliminate variables that we cannot control (or are not in a position to fix). In the testing that Ivan conducted there are the following specific performance related variables.
1. PC/Browser on the test work stations
2. The link, including network and internet (oz to NZ and routes in between) between the test PC and the WebFEX webserver
3. The Webfex webserver and application server
4. ORMS/Chelmer layer to Cameron FIX Server
5. Cameron FIX Server
6. Chelmer Jafa adapter between FIX Server and NSX API
7. The link, including network and internet (NZ to Oz and routes in between) between the jafa adapter and the NSX trading engine
8. The NSX trading engine
And of course the return route in reverse - so to place an order - goes steps 1 to 8 and the acknowledgements 8 to 1.
To address this the Chelmer approach was to be able to get total control of all 8 steps. The problem then is step 8 - as we don't have control or access to the NSX engine - so the approach was to replace the NSX engine with another X-Stream engine that we run in house The benefit is that we could also test the jafa adapter against another API layer that had been written using a different method for OMX/X-Stream - the idea being that it could quickly eliminate that area and or at least validate that it was consistent. The problem is that it required the jafa to be recompiled against another X-Stream API. To further eliminate a possible discrepancy we ported the FEXE jafa which runs on windows to run on linux so we could compare apples with apples. To further improve the validity of the testing we have been using tools that we did not have at the time we developed FEXE. These are expensive and complicated pieces of software, which required a lot of time to write the tests necessary. Early in the process we discovered that the test results were being impacted by the test generation (emphasis added). [243]
Mr Hulst stated that around mid-May 2008 FEX's directors were becoming concerned about the delays in the development of WebFEX however, his conversations with Tom Price regarding the Project were overshadowed by FEX's financial situation. Essentially he stated that FEX needed to conserve financial resources and deprioritise the WebFEX and the FIX Projects was needed was an easy option given his decision given the workmanship demonstrated by Chelmer. [244] Mr Hulst accepted in cross examination that at this time FEX needed more equity investors to increase its funds as it was running out of money. [245] He also accepted that there was no source of income other than investors at this time as far as he was aware. [246] He stated that it was Brian Price that told him about FEX's financial situation. [247] Certainly Mr Hulst accepted that in mid-May 2008 money was tight [248] and that was the reason he decided to deprioritise WebFEX Project. [249] He conceded that he did not recall telling Chelmer. [250] He was nonetheless aware that Chelmer was working away to get the WebFEX up to performance and load requirements. [251] Notwithstanding that he considered that he still wanted to have a product to try and start the market with. [252] He also conceded that he did not tell Lucsan that he was deprioritising WebFEX. [253] At that time Chelmer was still carrying out work with WebFEX to enable it to meet the performances and web criteria. [254]
On 16 May 2008 Mr Robertson informed Lucsan and FEX that the test performed the previous day revealed two issues that Chelmer hoped to resolve and that it hoped to rerun tests within the next 4 days. [255] Mr Lucero copying to Ms Bowering, responded that the results were "very encouraging." [256]
Thereafter on 22 May 2008 Mr Robertson wrote to Lucsan and FEX informing that it had load tested 15,000 and 100,000 orders un-throttled with average results of 1,200 orders per second, placement of 600 orders per second, placement order and acknowledge (3,600 trades). [257] He expressed the view that it was:
"a bit chuffed as these results are considerably better than the FIX Gateways that we now support for NASDAQ, OMEX which we did not originally develop but now enhance and are used in their other exchange clients. So Chelmer's view is that this result is acceptable". [258]
Notwithstanding this FEX had not instructed Chelmer to cease work on the WebFEX Project. [259]
On 16 June 2008 Chelmer sent an email to Lucsan and Ms Bowering who was employed by FEX stating that it had run a full end of 500 orders onto the NSX test board the previous week without any issues. The email stated the issues identified in earlier rounds of performance, and that the stress testing had been fixed and together with other improvements it was scheduled to release the version of WebFEX along with wider components of the Chelmer products suite at the end of the week. [260] Mr Lucero responded stating FEX would like to move forward with the new WebFEX Interface and have it in production "next week". [261]
Ms Bowering was copied into both Chelmer's email and Lucsan's email on 16 and 19 June 2008. Her evidence was that she did not tell anyone at FEX that Chelmer carried out the tests as she expected Mr Lucero would discuss this with Brian Price. [262] Ms Bowering acknowledged that she was aware that no one at FEX had told Chelmer to down tools on the WebFEX Project. Mr Hulst's evidence was that he was surprised that Ms Bowering never informed him of this as it was an important issue on the WebFEX Project perspective and accepted it caused him to doubt Ms Bowering's ability to communicate important issues to him throughout the project that she was involved in. [263]
On 19 June 2008 Mr Robertson sent Lucsan and Ms Bowering an email which stated:-
1. Chelmer had load tested components of WebFEX with single sessions and multiple sessions sending out 100,000 to FIX orders from the FIX test application as fast as it can send/receive;
2. all tests passed;
3. the same test could not be carried out against the NSX as their X-Stream is configured to shut down after 100,000 orders, and
4. Chelmer will be delivering the WebFEX V2.0 in 4 days time. [264]
In his evidence, Mr Hurlst could not recall having a discussion with Ms Bowering about this time in which she told him about the tests that Chelmer was carrying out. [265] He stated that this surprised him. [266] He expected Ms Bowering to tell him something of this nature as it was an important project. [267] Mr Hulst's attention was also drawn to the contents of various email discussions involving Ms Bowering and Mr Robertson in which she was having discussions with Chelmer about the WebFEX products. He stated that Ms Bowering did not tell him about those discussions and that surprised him. [268]
Ms Bowering's evidence is that she did not tell anyone about the email of 19 June 2008, and in particular she could not recall telling Mr Hulst. [269] She stated she had no independent recollection of discussing this with Mr Hulst. [270] However, she said she expected Mr Lucero would raise the issue or discuss the "break through" with Mr Brian Price. [271]
Whether or not Brian Price was informed as to the developments of 19 June 2008 email, it was clear that Ms Bowering was informed as was Mr Lucero who was acting on FEX's behalf. Whatever the situation FEX did not carry out any further internal or external tests on the WebFEX interface.
On 26 June 2008 Chelmer prepared a contract to install and maintain the WebFEX after it had been developed. [272]
On 3 July 2008 Ms Bowering emailed both Chelmer and Lucsan informing them that she had, had "a play in WebFEX" and a number of issues were identified. [273]
On 4 July 2008 Lucsan acknowledged to both parties the response of Chelmer of 3 July 2008 to the issues raised. [274]
On 11 August 2008 Ms Bowering sent an email to Chelmer stating:
I am sorry, I have been distracted by other parts of the business.
I did pass on the webfex details to our designer, but since our access was not consistent, he did not finish the design phase.
Have you guys been able to overcome the access issues ?. [275]
Mr Robertson responded the same day stating:
Appreciate you are busy-the joys of a start up ! there has not been a system upgrade since Sydney- so the same issue with being unable to relogin remains. If your designers need access then please get them to contact the helpdesk (details on the front page) - but I would have thought with the manual and a bit of playing around they would have all they would need.
In the meantime we have pushed ahead with system changes, some of which you raised in your user testing of the last release, and other that will be unseen but allow us to change the configuration and branding dynamically which hopefully reduces the time to deliver changes put forward by your designers. We have also fixed the relogin problem and upgraded some core technology. We expect to get a release for internal testing this week and to you shortly after.
We have looked at that there was an issue with market depth information. We have concluded that we cannot optimises this any further with front end changes so we are now looking at a major systems redesign.
Basically we will have to look at holding an up to date market depth picture for all stocks on the web server, rather than go back to trading system to get it when you click a stock. This is a major change and high risk. If you believe a go live is imminent then I would recommend that we don't do this work until later as the dev and retesting effort is significant, or we should discuss with the other work that you want to prioritise.
The sooner you can get us clarity on what you require the better as we are running a bit blind at the moment. [276]
Ms Bowering thereafter responded stating:
I have just had a quick chat with John Hulst (who by the way apologises for not calling you today!). We have agreed that the best way forward is to resolve all but the market depth issue and the process design changes.
To this end as per my last email can you resend me the login details so that I could set the designer on his way. I will instruct him to call the help desk if he becomes stalled. [277]
Later that same day (11 August 2008), Mr Robertson sent the password and login details sought by Ms Bowering. [278]
When Mr Hulst's attention was drawn to the email of 11 August 2008 in which Mr Robertson provided the access login, [279] Mr Hulst responded that he was not aware that Ms Bowering had told him that she had been given access. This was a matter which surprised him. [280] Mr Hulst stated that he knew from May 2008 that Chelmer was busily trying to bring the product up to the performance load criteria, that he had never told Chelmer to cease work and that he had never told anyone from Lucsan to tell them to cease work. [281] As far as he was aware, no one at FEX had told Lucsan to cease work. [282]
Ms Bowering's evidence was that from August to November 2008 she was not aware of what caused the stall and why it did not progress from that point in time. [283]
Ms Bowering stated that as at August 2008 Mr Lucero as the Chief Technology adviser to FEX was responsible for the WebFEX Project [284]
[15]
Chelmer Submissions
Chelmer argued that the sole responsibility for not taking WebFEX any further rested with FEX in circumstances where:
1. Mr Lucero was informed of the "breakthroughs" Chelmer had made on 16 June 2008 and 19 June 2008, and
2. Chelmer was not aware that Ms Bowering had been given access to WebFEX in August 2008 through no fault of Chelmer.
Chelmer argued that FEX's failure to call Brian Price to give evidence was such that the Court should draw a Jones v Dunkell [285] inference in circumstances where he could have come to Court if he wanted to. [286]
The inference against Brian Price was said to be of significance because:
1. He was responsible for the WebFEX project; [287]
2. Most of Ms Bowering's interactions with FEX (prior to transitioning to FEX in December 2007) were with Brian Price and after transitioning to FEX her primary point of contact was to Brian Price to whom she reported directly. [288]
3. After Ms Bowering transitioned from Lucsan to FEX, Brian Price was the primary point of contact for Lucsan when it needed to contact FEX about the FEXD project generally and for strategic issues and about the WebFEX project. [289]
4. Mr Hulst gave evidence that Brian Price's role was to ensure that the needs of FEX with respect to the WebFex interface (ie what the software had to do) were effectively communicated to Lucsan. [290]
5. Mr Hulst gave evidence that he obtained his understanding that FEX wanted to have a high volume of orders through the Web FEX interface from discussions with Brian Price and his knowledge of the marketplace in Australia; [291]
6. Brian Price (along with Ms Bowering and Mr Hulst) were involved in decisions such what enhancements FEX would take up for the WebFEX interface; [292]
7. Brian Price was involved in the financial side of FEX and Mr Hulst believed that that he made decisions regarding what payments would be made to third party suppliers engaged after Chelmer's contract came to an end; [293]
8. It was Brian Price who decided whether a particular contract proceeded or it was halted for a particular time. [294]
It was argued that the needs of FEX with respect to the Web FEX interface would include load and performance aspects. [295] It was said that Brian Price was the only person who could give evidence on the issue and accordingly adverse inferences could be more confidently drawn by the Court. [296] Chelmer submitted that the Court should make the following findings:
1. FEX was informed about the breakthroughs Chelmer had obtained on 16 June 2008 and 19 June 2008 with respect to the load and performance work it was doing on WebFEX, but that this breakthrough was not communicated to anyone other than Ms Bowering and Harold Lucero.
2. That no one other than Ms Bowering at FEX were not informed of the break throughs because Ms Bowering did not tell anyone, on the basis that she expected Harold Lucero to tell Brian Price (neither of whom gave evidence).
3. Lucsan did not carry out further testing on the WebFEX interface after access was provided by Chelmer on 18 August 2008 because:
1. It had no knowledge of the breakthroughs Chelmer had made; or
2. It was not instructed to carry out further testing; or
3. FEX ran out of money or had other more important commercial objectives. [297]
[16]
FEX Submissions
Referring to the contents of Exhibit K p 34, FEX argued that:
…. Chelmer had not worked through those issues, because he says, "So the same issues with being unable to log in remains." So people can't log in to this system, let alone there being a breakthrough that it could somehow interrogate. In the meantime, "We have pushed…the last release." So we are testing it. They're raising issues with them, they're dealing with it. Still, 11 August 2008. "And others are testing this week." So they have not yet tested the system based on the issues that we had raised in our last set of testing. And to you, shortly after, "We have also looked at the delays in getting market depth information." That's their delays. "We have concluded…major system redesign."
So far from having any breakthroughs, in which Mr Brian Price, Mr Harold [Lucero] Miss Ann Bowering, could have had any input. Chelmer, as of the middle of August 2008, did not have a system to which one could log on or log in, a system that was useable or a system that they had internally tested. And that position, your Honour, remains to this day. And it remained until Chelmer itself stopped working for FEX on the FEX derivatives project in November 2008.
Sensibly, in terms of where the contract was breached, in my respectful submission in terms of the timing issue, your Honour would find that the breach of contract was something that took place at around November 2008. In relation to the WEB FEX. Because whilst we have paid all of those amounts that we were required to under the agreement, the breach - we never got the software but I think the sensible position would be November 2008 was a breach of contract.
Addressing its failure to call Brian Price, FEX argued in oral submissions:
… A submission has been put in relation to Mr Brian Price inferences that are said to be open to your Honour in relation to WEB FEX. Can I just deal with it this way: there is no conversation to which Mr Robertson was a party on the other side of which was Mr Price, in relation to which there's any inference to be drawn.
There's no evidence that Mr Price had any involvement in the - I'm sorry, that Brian Price had any involvement in the testing or otherwise. Most of those matters are actually between Mr Hulst. He gave evidence in relation to that. Ms Bowering, she gave evidence in relation to that. And Mr Robertson, who also gave evidence about that. The critical submission that my learned friends makes is that somehow, somewhere, in the middle of June 2008, there was a breakthrough.
That word breakthrough comes from one of Mr Robertson's emails. I've made some submissions about Mr Robertson's credit. In my respectful submission, whatever he says ought to be disregarded in relation to these matters. Because there was no breakthrough. And the matter that really, in my respectful - completely undermines this idea of a breakthrough, is a communication between Ms Bowering, and Mr Robertson, in August 2008.
……….
That's the matter with Mr Brian Price.
[17]
Determination
There is no evidence of any further communication regarding WebFEX Project after August 2008 and no evidence that Lucsan or FEX carried out further load performance testing on the WebFEX interface after 25 March 2008. Nor is there any evidence that Chelmer charged FEX for any of the work that it undertook to correct the load issues. Chelmer argued that strictly speaking the base load was not specified, Chelmer could have treated the work as change request and charge accordingly but it did not do so. [298]
The position after the login details were supplied to FEX rested on its designers to carry out tests on the WebFEX interface. So much appears to have been accepted by Ms Bowering in her email of 11 August 2008. There is no evidence that this was undertaken. Nor did FEX identify how the Project could be advanced without that work being carried out. Ms Bowering's last email response did not identify the log in as relevantly an issue. Whatever view one takes of the email of 11 August 2008 from Mr Robertson, Ms Bowering was supplied with the login details and determined a forward path with FEX's designers. Mr Robertson made it clear in his email that he was seeking clarity from FEX as he was "running blind at the moment."
I accept that the evidence of Brian Price was important particularly as it was his decision to deprioritise Web FEX in mid May 2008. His absence was not explained. In the circumstances I am satisfied that project was deprioritised at that time in light of FEX's financial position and further that no one at FEX informed Chelmer or Lucsan. So much accords with Mr Hulst's evidence. It is also consistent with the failure of FEX to correspond further regarding issues after August 2008 and Ms Bowering's lack of action notwithstanding FEX's decision to engage Chelmer in relation to the Derivatives Project. These conclusions are drawn more confidently in the absence of Brian Price giving evidence.
Whatever concerns Thomas Price had in 2009 about Chelmer's work on the FIX gateway, I do not accept that he formed the view that Chelmer did not know what they were doing. [299] No such communication was made at the time. The circumstances in mid-November 2009 when he instructed his COO Mr John Hulst to inform Chelmer that FEX wished to terminate the arrangements are discussed below. [300]
[18]
Pleadings
FEX contended that it was a term implied by law that the WebFEX Arrangement that Chelmer would exercise reasonable care and skill in providing services to FEX under the Arrangement in particular;
1. Advising FEX in relation to the design, implementation and configuration of the WebFEX interface;
2. Ensuring that the design, implementation and configuration of the WebFEX interface in accordance with the business requirements of FEX; and
3. Designing, implementing and configuring the WebFEX interface in accordance with the business requirements of FEX. [301]
FEX pleaded that in providing services pursuant to the WebFEX Arrangement, Chelmer failed with reasonable care and skill in each of the aforementioned respects. [302]
The WebFEX Arrangement was pleaded by reference to the "FEX Order Routing Hub and NSX Connectivity Project Definition" document and the email acceptance by Brian Price on 24 July 2007. [303]
Chelmer conceded in its Amended Defence that it owed a duty to exercise reasonable care in providing the services referred to in the FEX Order Routing Hub and NSX Connectivity agreement. [304]
[19]
Chelmer Submissions
Chelmer contended that there was no basis for terms to be implied into the Contract extending to those pleaded in [14] of the Cross Claim as: [305]
1. First, as FEX has not pleaded any terms implied in fact (being a matter that must be pleaded), the Court need only consider the express terms set out in the document titled "FEX Order Routing Hub and NSX Connectivity Project Definition." [306]
2. Second, any work that is not specified in the document titled "FEX Order Routing Hub and NSX Connectivity Project Definition" is not Chelmer's responsibility.
3. Third, the document titled "FEX Order Routing Hub and NSX Connectivity" contains the following express terms:
1. The scope of the project is set out in clause 2.3. None of the matters set out therein require Chelmer to provide any sort of advisory or consultancy services; and
2. Clause 2.4 sets out what Chelmer is obliged to deliver. Chelmer is required to prepare a document that defines the functionality that will be supported for the equities gateway which will be signed off by FEX. Chelmer is then obliged to develop software that meets the requirements identified in the document. [307]
1. Fourth, the express terms make it clear that Chelmer is to prepare the Business Requirements Doc. The document is to be prepared in "consultation with FEX on what business features they wish to provide". In other words Chelmer needs to talk to FEX (or in this case Lucsan) to ascertain what FEX wanted the software to do. Other express terms make it clear that:
1. What FEX needed the software to do would be set out in the Business Requirements Doc;
2. FEX must accept the Business Requirements Doc
3. Chelmer is only required to build software to meet the requirements (and only those requirements) set out in Business Requirements Doc.16
1. Fifth, there is no contest that:
1. Lucsan initially prepared such a document, being the document titled "WebFEX Business Requirements" (the Business Requirements Doc); and
2. After some further input from FEX, Chelmer and Lucsan, FEX signed off on the Business Requirements Document and took full responsibility for its content, armed with the knowledge that the software would be tested against those matters (and only those matters) set out in the Business Requirements Doc.
1. Sixth, clause 2.4.5 is the only clause that deals with WebFEX. It does not contain any express terms that WebFEX is to compete with WebIRESS.
2. Seventh, there are no express terms that require Chelmer to:
1. Provide any type of advisory work; and
2. Design software to meet FEX's general business requirements (i.e. other than those set out in the Business Requirements Document).
1. Eighth, there is no evidence to establish those matters particularised in paragraph 20 of the Cross-Claim such as it was necessary for the WebFEX interface to function and compete with IRESS.
2. Ninth, FEX have made no submissions to support its construction of the WebFEX Arrangement.
[20]
FEX Submissions
FEX drew attention to the fact that the FEX Order Routing Hub and NSX Connectivity document stated that "This proposal is intended in helping FEX with the work defined herein." [308] Referring to scope of the proposal at [2.3] it submitted:
Your Honour will see that every one of those items is expressed in broad terms, and one would expect that the technology provider - it is not one would expect, in a hypothetical sense. It is that it's implied therein, the requirement that advice be provided in relation to the technologies that are being developed. Your Honour will see, for example, that the fourth bullet point, development of a fixed interface that can accept third party orders and route the orders to the NSX.
Now, part of that is the advice provided as to what technologies are appropriate, and needs to be used. Your Honour will recall that there was advice given by Mr Robertson about a program called Fusion. Your Honour might recall that word being used. Fusion was the predecessor to Web FEX. It was a proprietary product that Chelmer had previously prepared, that he wanted to implement in relation to this project.
He provided advice, so that was going to be the proper and the best way forward. Your Honour will find evidence of that in exhibit 9. There is more evidence of advice provided by Mr Robertson in exhibit 10. Pausing there, your Honour has two scopes of work, each of which deals with the delivery of a product. At the end of the day, what my client was engaging Mr Robertson's company to do, was to deliver a piece of software. [309]
FEX further submitted:
But besides the point, is that this relationship was one on one between FEX and Chelmer and in that relationship, there are duties that go well beyond what it specifically says here because those are duties that are implied by law. They are not duties implied as a matter of fact and that is how it's pleaded and particularised in the cross‑claim. [310]
These submissions focused on an asserted obligation to advise and deliver a product. In written submissions FEX drew attention to the fact that Chelmer was directed to develop WebFEX by reference to Web IRESS but failed to do so as WebFEX ultimately did not have the necessary performance functionality and there was no delivery of the FEXE/WebFEX software. [311]
[21]
Determination
The Cross Claim did not assert that Chelmer was directed to develop WebFEX by reference to WebIRESS but failed to do so. Rather it stated that "Chelmer failed to advise that it was necessary for WebFEX to function and to compete with IRESS." No issue was taken in this regard. [312] FEX did not identify the basis on which the term said to be implied extended to the matters it asserted.
Is it not apparent what the terms of any direction were or what characteristics of Web IRESS were sought to be incorporated into FEXE/WebFEX by any direction.
The email of 20 July 2007 from Mr Sharma referred to "some connectivity between FEX FIX gateway and IRESS FIX engine so Web IRESS traders are able to trade." [313] That appears consistent with the FEX Order Routing Hub and NSX Connectivity document. [314] The distinction between WebFEX as a broker product and IRESS as a retail product as described by Mr Robertson was not contradicted by other evidence and I accept it. It is consistent with why connectivity with WebIRESS was being sought at the time.
Subsequent to that however, Mr Sharma's email of 30 July 2007 referred to "advance retail functionality to be developed" as part of WebFEX and "So we can meet the time lines for agreed deliverable Web IRESS functionality is a good reference point." [315] Mr Sharma's further email following his return from New Zealand on 31 July 2007 recognised that FEX/Lucsan would provide 'crude spec for retail client requirements." That was different to the proposed connectivity envisaged in the FEX Order Routing Hub and NSX document that referred to third party connectivity and made no mention of retail functionality within WebFEX particularly in the diagram earlier referred to.
In this context I accept Ms Bowering's evidence as to the reason that FEX could not use IRESS. This may account for the terms of Mr Sharma's email of 30 July 2007, although Ms Bowering's evidence did not refer to timing. Whatever be the position, retail functionality was not part of the WebFEX arrangement as it stood except through connectivity with WebIRESS. Specifically I am satisfied that at no time was it the case that Chelmer was directed to develop a product by reference to WebIRESS. Rather, Chelmer was required to produce a document which defines the functionality that will be supported for the NSX Gateway. The subsequent FEX Order Routing Hub and NSX Connectivity document revision 0. 5 confirmed as much. [316]
On 27 November 2007, Mr Hulst conceded that he received the Project Definition document 0.5 prepared by Chelmer [317] and noted its status as a final draft last updated on 16 October 2007. [318] I have earlier referred to its contents. Mr Hulst accepted that in that document at page 110 Chelmer identified as a risk FEX's lack of input into the business requirements. [319] Yet notwithstanding that, Mr Hulst signed off on a business requirements document on 5 December 2007 that Lucsan and FEX co-authored and which he understood the significance of, making no mention of load requirements. Furthermore Lucsan, on FEX's behalf, signed off on the Project Definition document 0.5 on 29 January 2008.
On 18 December 2007 Chelmer prepared and circulated a Project Status Report [320] to Mr Hulst, Ms Bowering and Lucsan personnel [321] which identified "Performance of web browser" as a "top risk" "when firm activity reaches 300 transactions per day" "but volumes not anticipated to exceed 100 orders." Yet no issue appears to have been raised until 7 March 2008 when Mr Golenkov informed Mr Robertson that the WebFEX Interface was to be tested at 500 orders per hour.
Plainly enough, the arrangement required that FEX identify the business features that it wished to have met. They were not matters that Chelmer could advise on particularly bearing in mind the broader knowledge of Lucsan. Although Mr Sharma in his email of 30 July 2007 stated that FEX/Lucsan would provide 'crude spec for retail client requirements', retail functionality was not provided for in the updated Project definition 0.5 which still stated under "Risk Description" that "Currently no market data capability within Fusion or Cameron FIX gateway" "Back up is to use IRESS. Restrict market data messages to core messages required by NSX messages".
FEX and Lucsan took on the responsibility of settling the business requirements document armed with knowledge that Chelmer had identified as a risk the lack of input into the business requirements and against the background of the events earlier described.
It follows that it was for FEX to identify its business requirements in terms of the Agreement it entered into accepting it wished to provide for retail functionality within WebFEX assuming connectivity with WebIRESS was not an option. There is no evidence that Chelmer had agreed or was required to provide retail functionality which Mr Sharma recognised involved additional cost. Whatever views Ms Bowering had of the importance of competing with IRESS she herself gives no evidence of such a direction being given to Chelmer.
In my view FEX has not demonstrated any breach of Chelmer's obligations. Under the contract the business requirements were for FEX to advise and Lucsan and FEX took on that responsibility. In the circumstances, I cannot find any of the pleaded breach by Chelmer of its contractual obligations.
The circumstances in which the WebFEX/FEXE Project ceased to be delivered were, as earlier discussed, brought about by FEX's own failures to follow through on Chelmer's requests.
[22]
Pleadings
FEX further pleaded that by virtue of the relationship between the parties Chelmer owed a duty to exercise reasonable care and skill to:
1. Advise FEX in relation to the design, implementation and configuration of the WebFEX interface;
2. Ensure that the design, implementation and configuration of the WebFEX was in accordance with the requirements of the FEX; and
3. Designing, implementing and configuring the WebFEX interface was in accordance with the business requirements of FEX; [322]
Despite its particularisation in the Cross Claim [323] the respects in which FEX ultimately advanced its claim in negligence were:
1. Chelmer failed to provide functional specifications for the FIX gateway, which specifications were essential to enable FEX to operate the FIX gateway. [324]
2. The WebFEX interface failed to attain performance functionality reasonably expected by end users and no services or product was delivered in this regard. [325]
The failure to deliver services or product was not specifically pleaded although it can be accepted as implicit.
[23]
Chelmer Submissions
Chelmer argued that FEX could not establish a duty of care and /or breach for the following reasons:
1. First, to succeed FEX must establish that:
1. Chelmer was obliged to provide the services outlined in paragraphs 20(a) (c) and (e) of the Cross-Claim;
2. Chelmer carried out the services outlined in paragraphs 20(a) to (e) of the Cross-Claim; and
3. Chelmer failed to carry out the services outlined in paragraphs 20(a) (c) and (e) of the Cross-Claim with reasonable care and skill. [326]
1. Second, FEX does not make any submissions whatsoever to establish those matters referred to above by reference to the evidence.
2. Third, the evidence demonstrates that many of the services pleaded in paragraph 20 of the Cross-Claim were in fact provided by Lucsan. Chelmer's role for the WebFEX project was limited to developing software that was to be tested against the Business Requirements Doc.
3. Fourth, if the Court accepts Chelmer's construction of the "FEX Order Routing Hub and NSX Connectivity Project Definition", then Chelmer has provided services with reasonable care and skill in circumstances where:
1. Chelmer developed the WebFEX interface and it passed all the functionality requirements set out in the Business Requirements Doc;
2. The Business Requirements Doc did not contain any load requirements and accordingly, any load failure (which on Chelmer's case was eventually resolved in any event) cannot be used to establish a breach of any contractual obligation and/or duty of care owed.
Chelmer further submitted that the evidence established that it was an essential part of Lucsan's role to act as consultant and project manager such that the Court should make the following findings:-
1. Lucsan were required to understand FEX's business objectives and how those business objectives could be implemented by technology;
2. Lucsan was required to effectively communicate to Chelmer what FEX required the WebFEX interface and the FEXD FIX gateway to do in "tech talk";
3. the majority of communications between Chelmer and FEX for the WebFEX project occurred through Lucsan and
4. Lucsan provided directions and instructions to Chelmer on behalf of FEX.
Chelmer drew attention to the fact that Tom Price gave evidence that 90-95% of the time Lucsan communicated directly with Chelmer [327] and the extent of Lucsan's involvement in communicating FEX's needs and instructions to Chelmer was supported by other witnesses called on behalf of FEX. [328]
Chelmer argued that the failure by Lucsan to perform its role was acknowledged in Thomas Price's evidence in 2009 and confirmed during cross examination. [329]
Relevantly Chelmer drew attention to an affidavit filed in Supreme Court proceedings commenced by FEX against Lucsan, in which Thomas Price gave sworn evidence in Supreme Court proceedings against Lucsan which Mr Thomas price stated that he stood by in the present proceedings. [330]
[24]
FEX Submissions
FEX argued that the duty to do things with due care and skill goes to whatever it is that Chelmer did in accordance with the contract. So for example if they gave advice then they were ought to have provided proper advice with due skill and care. [331]
FEX argued that Chelmer sought to wash its hands of all responsibility. It submitted:-
"First, the evidence was clear that Robertson (and others in Chelmer) were in direct contact with FEX at all times throughout those projects. Second, Chelmer's stand is inconsistent with the duties it owed to FEX, which Chelmer admits. Third as Robertson accepted (when questioned), he had the opportunity to contact FEX directly and clarify any matters in relation to which it needed clarification but did not. Further, Chelmer did not lead any evidence that it conducted any reasonable inquiries even from Lucsan, especially, for example, when it came to the load FEX/WebFEX was required to take. Fourth, Chelmer contracted directly with FEX and not with Lucsan. The duties pleaded a road directly to FEX, fifth, Chelmer led no proper evidence to demonstrate any negligence on Lucsan's part. That FEX sued Lucsan for breaches by it of its obligations does not prove Chelmer's case." [332]
FEX further drew attention to the reference in the email of 6 June 2007 [333] from Mr Lucero to Mr Robertson "I think you need to guide us here and let us know if we are on the same page" as undermining Chelmer's contention that it relied solely on Lucsan and what Lucsan told them about FEX's requirements. It was contended that one would expect Chelmer being experts in FIX implementation; its views about the implementation of FEXE would be sought by FEX and Lucsan.
In reference to the Performance and Business Requirements Document FEX's argument was that it was important to ascertain both Mr Robertson's and Chelmer's understanding of the requirements for the FEX/WebFEX in 2007 given that the software that had been developed failed testing in 2008.
FEX drew attention to the evidence of Mr Robertson that he understood in 2007 that FEX were trying to build a business, the business model of which was expansion of a number of trades on the NSX board. Mr Robertson in this regard stated:-
"Q. Could you please perhaps attend to answering the question. If it's a qualifier, I would like you to make that very clear to the Court. If it isn't, then perhaps just attend to answering my questions. At the time you were aware, that is 2007 you were aware, were you not, that FEX was trying to build a business, the business model for which was the expansion of the number of trades on an NSX board? Do you accept that or you do not accept that?
A. I accept that at some point in 2007; I would accept that, yes." [334]
FEX's argument was that Mr Robertson would have had that understanding as at March 2007. [335]
Mr Robertson accepted that is was logical to build a buffer between the maximum volume the system had to deal with and the maximum the system could handle. [336]
Mr Robertson also accepted based on the inquiries made with the NSX that Chelmer made some decisions based on the design, architecture and scale which was not based on the software level but on the hardware level. [337] Mr Robertson accepted it was fundamental for him to know when designing systems the load at which the recipient of the technology need the technology to perform. [338]
When Mr Robertson's attention was drawn to the NSX accreditation requirements, he conceded that he made no inquiries as to what the NSX meant by "500 orders" and nor did he personally inquire from NSX as to what was meant but believed Andrew Hamilton did inquire. [339] He also conceded he did not ask Lucsan what that meant. [340] He accepted that it was fundamental to know the load requirement that the recipient of the technology needs the technology to perform. [341]
FEX argued that the draft document prepared by Lucsan and in evidence entitled "WebFEX Business Requirements" set out "original high level business requirements with a series of informal change requests identified during the development of Phase 1." [342] It argued that when considered objectively, it was a statement of the functionalities (ability to do various things as demonstrated from the "Executive Summary" which described the ability of the user of the WebFEX to do various things). It argued that this characterisation was supported by the document "WebFEX Functionality" created by Chelmer [343] which reflected the contents of Lucsan's document stating that "the purpose of this document is to describe at a high level the functionality that will exist in the WebFEX Browser." [344]
FEX acknowledged that between July and September 2007 Chelmer worked to develop the functionality of FEXE and WebFEX, although the project was delayed numerous times and according to Chelmer's own evidence it never delivered it on time, or sought to deliver it in August of 2008. FEX argued that on 17 September 2007, Mr Sharma sent to Mr Hulst a link to the WebFEX "demo version" [345] and it was around this time that Mr Hulst became involved in liaising with Lucsan and Chelmer concerning FEXE/WebFEX. [346] FEX accepted that via an email dated 19 September 2007, Mr Sharma confirmed that Option 1 had been chosen and told Mr John Hulst the cost of the Project for FEX. [347]
Around this time Chelmer approached the NSX for its accreditation. FEX noted the contents of the document entitled "FEX-NSX Accreditation Level B" [348] which stated "This document contains the output results to support Chelmer and FEX application to be accredited to utilise the NSX X-Stream API". [349]
FEX argued that "Accreditation" by the NSX did not involve any affirmation that Chelmer had produced an acceptable product but demonstrated that accreditation was narrow in scope and concerned only the connection between the FEXE/ WebFEX to the NSX X-Stream. Whilst it acknowledges that on 15 October 2007 the NSX was prepared to grant official accreditation to the "FIX Connection" and the WebFEX [350] both the NSX NET API accreditation procedure [351] and Chelmer's own document [352] noted "limited testing can be up to 500 orders (combined bids and offers)". FEX states Mr Evans correspondence provided the figure of "20-30 per day" but then states:-
"We have sized the system to allow 100,000 trades per day, 200,000 orders per day and 200,000 negotiated deals per day." [353]
FEX argued that at no stage did Mr Hamilton clarify what the importance of "500" meant, [354] yet admitted that Chelmer was considering that figure per day "for any one user group." FEX's argument was that Mr Robertson's evidence in relation to what Chelmer understood to be the load ought to be rejected and the Court should be satisfied that Chelmer knew that the FEX/WebFEX software needed to handle 500 orders per hour. [355] This was contended on the following basis:-
1. Mr Robertson admitted that he knew that FEX's Business Model was to increase the number of trades on the NSX board rather than to maintain it;
2. before WebFEX failed the load testing Mr Robertson was told that FEXE/WebFEX had to be able to handle 500 trades per hour to a maximum of 10,000 orders per market session. [356]
3. FEX pointed out that Mr Robertson in his email at 1:02 on 7 March 2008 did not say that he had a different understanding to Mr Golvenkov. [357] In oral evidence however he rejected the suggestion that when everyone referred to 500 orders he understood that to be 500 orders per hour rather than per day. [358] Whilst Mr Robertson stated that he expressed concern that the system would run slowly he conceded that he expected the system that he built to be able to handle and not crash when faced with 500 orders per hour. [359] He conceded he did not state "don't put 500 orders per hour it's not built for that." [360]
4. FEX argued that regardless of whether Chelmer was told that it need to build a system that could cope with 500 orders per hour Chelmer ought to have made its own inquiries which it simply failed to make. It argues that the contents of the Project Status Report reported on 18 December 2007 presented the matters of Chelmer's failure because despite emails of early 2008 the orders anticipated were not to exceed 100 orders in circumstances were it was conceded that the point of the system was to allow the Exchange to grow. FEX argued the contention that Chelmer satisfied its obligations by catering for volumes the Exchange had in 2007 was "a straw man argument". [361] In this respect FEX drew attention to the following evidence in re-examination by Ms Bowering'
"Q. …… Can you please provide the explanation that you wish to provide as to how WEB FEX, the technology, is used in the strategy of the exchange.
A The reason for seeking the development of a technology such as WEB FEX is to enhance the distribution model for the exchange. So, the low volume of trading, as evidenced by the report provided to the Court, is the problem and the idea was that WEB FEX or some sort of - would provide the distribution model - or contribute to the distribution model, which would bring greater volumes and trading volumes to the exchange and ultimately, enable connectivity for brokers such as CommSec and E-TRADE and also increase the efficiency through which our existing brokers would be able to trade the market. The idea was that it would solve the problem - or go towards solving the issue of low volumes on the exchange." [362]
[25]
Lucsan's Role
In order to determine Chelmer's duties and whether they were breached by it on the FEXE/WebFEX Project it is necessary to consider the role of Lucsan.
Thomas Price gave evidence as follows:-
1. part of the services Lucsan provided was consultancy services for the technology aspects of the exchange; [363]
2. he understood that Lucsan was offering to provide the FEX with far more than technical imput and services and that Lucsan was willing to provide the broader project management role also.
3. Thomas Price accepted that "Lucsan appeared to have the capability required to understand what was meant by derivatives exchange, what it involved, what FEX's business objectives were and how those business objectives could be implemented by technology. [364] Lucsan would provide FEX with a "turnkey solution" for the implementation of the Derivatives Exchange [365] . He stated in his evidence the turnkey solution meant that when you build a Derivatives Exchange there are a lot of components and he wanted to show how the components were all fitted together and Lucsan alluded to him they could basically put all the pieces together so that they could turn the key and it starts. [366]
4. Lucsan's role would be all encompassing (1) in relation to the management and implementation of the derivatives exchange. [367]
5. FEX expected Lucsan to deal with third parties in relation to all technological aspects of the project and to translate the FEX's commercial and business objectives into "technology speak" and pass on those requirements to third parties. [368]
6. FEX relied upon Lucsan to communicate its business requirements to Chelmer in "tech talk". [369]
7. Accepting he had very limited dealings with Chelmer and effectively in simple terms most of the dealings were between Chelmer and Lucsan. [370]
8. By reference to the Statement of Claim filed against Lucsan in the Supreme Court and verified by him he accepted that he alleged: -
"54 Between around March 2008 and September 2008 (Lucsan)
(a) gave directions to Chelmer Ltd on behalf of (FEX);
(b) supervise the work of (Chelmer) on behalf of (FEX);
55 Between around March 2008 and September 2008, (Lucsan)
(a) omitted to give directions to (Chelmer) on behalf of the (FEX) to provide Chelmer with functional specifications (that is a users manual for the FIX gateway);
(b) alternatively, oversaw the provision of services by (Chelmer) to (FEX) without the inclusion of functional specifications." [371]
1. That he did his utmost to ensure that FEX's business requirements (as for the software) was effectively communicated to Lucsan and he expected Lucsan to communicate those requirements and document those requirements where dealt with Chelmer. [372]
2. He relied on Lucsan to interpret the statement of works for the FEX D project to him as Mr Price stated that he does not talk tec and signed the statement of works for the FEX D project after taking advice from Lucsan. [373]
During the course of cross examination, Thomas Price confirmed that he stood by the evidence given in the Supreme Court and did not wish to change it. [374] Thomas Price accepted in cross examination that Chelmer built what it was told to build by Lucsan. [375] It was put to him however that if any failure with WebFEX the failure was Lucsan's he stated: -
"A. Well, the - no, I don't think that's correct. What I would say to that is that is - there was some parts of Luchan(as said) - this is - this is my interpretation of events, to answer your question: some parts of instruction that Lucsan would have given which would not be bespoke to our - our exchange, they would be what I would term "generic knowledge" that any technical provider should have. And Chelmer erred on those - on those work performances as well. So the - I just believe that - that Lucsan would have incorrectly instructed them, as you say, which is correct and which I've sworn in my affidavit, but I would also say that there were parts of the instruction they gave that were not - were - were not bespoke to our - our operation, and Chelmer couldn't do that work either. So I would say they failed in their delivery beyond what Chelmer instructed them as well." [376]
In evidence Thomas Price accepted that he did not make this statement in his affidavit of 6 January 2015. [377] He stated that he did not think to add it in. [378] He accepted that he had very little dealings with Chelmer and effectively and in simple terms most of the dealings were between Chelmer and Lucsan. [379]
Mr Hulst provided evidence as follows:-
1. His understanding was the Lucsan were responsible for issuing directions about WebFEX to Chelmer; [380]
2. With respect to WebFEX Lucsan were required to understand what FEX wanted the software to do; [381]
3. Part of Lucsan's role extended to amending or proposing changes to contract that FEX was going to enter into; [382]
4. The general way FEX conducted its business was that if they wanted a document or information from Chelmer they would ask Lucsan; [383]
5. Most instructions about the WebFEX interface were provided by Lucsan to Chelmer; [384]
6. Lucsan were prepared to test, plan and carry out UAT testing on the WebFEX interface on behalf of FEX. [385] That included functionality testing to determine what the software can do and performance testing as to how fast it could perform those functions; [386]
7. Mr Hulst took advice from Lucsan when approving the Business Requirements documents; [387] and
8. Mr Hulst stated that he assumed Lucsan had sufficiently communicated expected load requirements for the WebFEX interface to Chelmer. He later clarified:-
"A. My presumption was that communications that had previously occurred between Brian and Harold, FEX and Lucsan from a business outcome perspective, had sufficiently communicated expected load for the new market and which had then been sufficiently communicated on to the technology partner, and that the technology partner had a look at those, made its own assessment from a technical design perspective and gone, "Ah, so this is the performance requirements." [388]
1. He doubted Ms Bowering's ability to communicate important issues to him whilst she worked with FEX having transferred from Lucsan in December 2007. This is based on a failure by Ms Bowering to communicate the contents of an email dated 16 June 2008 as to running a full ends test to 5,000 orders on the NSX test board without issues. [389]
2. If any communication occurred between FEX and Chelmer that communication would ordinarily occur through someone at Lucsan for both WebFEX and the FEX D projects. [390]
Ann Bowering stated that she became aware at the time that she worked at Lucsan that Brian Price and Tom Price from FEX had approached Mr Lucero with a view to engaging Lucsan as the project manager for the development of the FEX's Derivatives Exchange. She stated she was brought into the project as the internal project manager and she was responsible for co-ordinating tasks and maintaining communications between the various involved parties. [391] She stated that although she was aware in 2007 of conversations between Mr Lucero and Mr Robertson from Chelmer she did not know the contents of those conversations. [392]
Ms Bowering stated that during the period March to November 2007 Lucsan Project managed the building of a market access tool for (WebFEX) for the SIM Equities market. This she described as a front end system by which trades were effect in the SIM's Equity market. Chelmer was engaged to build the WebFEX. [393]
I have earlier referred to Ms Bowering's evidence as to managing the functional testing of the WebFEX interface and her view by November 2008 efforts to build the WebFEX had stalled and appeared to her that the project could not proceed any further. Ms Bowering accepted in cross examination that Chelmer was engaged to build software and that part of the project management role that Lucsan carried out was to ensure that the needs of the FEX were communicated to Chelmer. [394] She accepted that in general terms Lucsan's role was to ensure that FEX was on the one hand communicating with Chelmer on the other. [395] She also noted that Lucsan carried out UAT testing of WebFEX interface on behalf FEX. [396]
Further she stated that Lucsan carried out contractual amendments to the documents to ensure that these were satisfactory to FEX [397] and that Lucsan had full responsibility for managing and implementing technology projects on behalf of FEX. [398]
[26]
Determination
In order to make out its case in negligence FEX needed to establish that:
1. Chelmer was obliged to carry out the services outlined in paragraphs [20] (a),(c), and (e) of the Cross claim;
2. To the extent Chelmer carried out the services outlined in those paragraphs;
3. Chelmer failed to carry out the services outlined with reasonable care and skill by:
1. failing to provide functional specifications for the FIX gateway, which specifications were essential to enable FEX to operate the FIX gateway. [399]
2. the WebFEX interface failed to attain performance functionality reasonably expected by end users and no services or product was delivered in this regard
In the context of determining the duties of Chelmer, I am satisfied on the evidence that:
1. Lucsan were required to understand the FEX's business objectives and how those business objectives could be implemented by technology;
2. Lucsan was required to effectively communicate to Chelmer what FEX required to do in "tech talk";
3. the majority of communications between Chelmer and FEX for the WebFEX project occurred through Lucsan in accordance with Lucsan's direction and
4. Lucsan provided directions and instructions to Chelmer on behalf of FEX.
The email of 6 June 2007 from Mr Lucero to Mr Robertson stating "I think you should guide us here and let us know if we are on the same page" in its context does little if anything to detract from these conclusions.
On 24 July 2007 Mr Sharma informed Mr Robertson that to keep effective communication channels streamlined emails should be sent to Lucsan. This followed the email sent on the same day by Mr Robertson both to Lucsan and FEX.
Mr Hulst accepted that his understanding was that Lucsan were responsible for issuing directions about WebFEX to Chelmer and that from August 2007 to the end of 2007 his contact with persons from Chelmer were relatively limited and he had more dealings with Lucsan.
Although the Project Definition Document revision 5 was not submitted for sign off until 27 November 2007, Chelmer argued that the Court can infer from the table showing that it was updated on 9 August 2007 following a review meeting involving Mr Robertson and Mr Sharma and that Lucsan was aware that the absence of FEX's input to the business requirements was a risk. [400] I accept that this is so. In any event, it was not signed off by Lucsan until 29 January 2008 in circumstances where the emails leading to it do not indicate anything about the need for the product to compete with WebIRESS or load.
Ms Bowering's email of 11 September 2007 confirmed that she had reviewed and amended a support maintenance agreement demonstrating Lucsan's role extended to amending contracts being an important document, making sure that the terms are satisfactory to FEX. Mr Hulst stated that he was aware of this aspect of Lucsan's role.
The draft test plan created on 27 August 2007 [401] expressly acknowledged that the load requirements were "expected to be 3 companies listed on the Exchange for day 1 with volumes anticipated to light up to 10 trades per security per day." It has a sign off for Lucsan however, there is no evidence as to whether or not this occurred. Nevertheless it does provide evidence as to Chelmer's understanding of the load requirements at an early stage of development.
Ms Bowering's email of 11 September 2007 [402] proposing amendments and comments about what appeared to be an earlier version of the support implementation and services agreement identified that Lucsan's role extended to amending or proposing changes to contracts that FEX was going to enter into.
On 27 November 2007 before Ms Hulst signed off on the Business Requirements document V1.5, he received the Project Definition document prepared by Chelmer which again drew attention to the risk associated with the FEX's lack of input into the business requirements.
Lucsan and FEX had a number of opportunities to settle on the Business Requirements document to ensure that it met FEX's needs. Mr Hulst accepted that he signed off on the Business Requirements V1.5 when it did not have the performance required in it gave him cause for concern. He also accepted that it would have been preferred practice for a document to clearly set out performance and load tests that should be measured against. He accepted that at some time in the future there would be some load and performance testing and stated that he took great care to analyse the Business Requirement document V1.5 before he signed off on it.
Mr Robertson explained that at no point in time were there any discussions between Lucsan and Chelmer regarding the benchmark performance criteria for user acceptance performance testing of WebFEX or the number or volume of trades WebFEX had to support. I do not accept Mr Hulst's evidence to the extent that he suggested that there were discussions with employees of Chelmer that the product was to compete with Web IRESS. [403] There was no identification of who and what was said on behalf of Chelmer in discussions that led to his understanding. As noted earlier Ms Bowering gives no evidence to this end.
I accept that the timing of the receipt of the final draft of the Project Definition document on 27 November 2007 was important because Mr Hulst was being asked to consider a review of the Business Requirement documents which he does over the following 2 weeks armed with knowledge that:-
1. the software would be tested against it and any further changes to the software would generate a formal change request at additional cost to FEX; [404] and
2. Chelmer have identified the lack of input from FEX into the Business Requirements document as a risk. [405]
Yet neither FEX nor Lucsan responded. Whatever be the situation as to discussion regarding Web IRESS functionality there is no issue that neither Lucsan nor FEX provided specifications for retail client requirements in the Business Specification document they produced. They had opportunity and obligation to do so.
During submissions I asked Counsel for FEX what it was that FEX was expecting. The transcript records the following:
AFSHAR: Well, your Honour has the - well, the outcome was to have an interface so that people could trade on the NSX. That was the outcome.
HIS HONOUR: Irrespective of its capacity?
AFSHAR: Well, not irrespective of its capacity but with a capacity to deal with what Mr Robertson understood was the business of NSX, that is, increasing trades. This did not go anywhere near what was expected of a software program of this kind.
HIS HONOUR: So it was for Mr Robertson to make that decision, was it?
AFSHAR: It was for Mr Robertson to
HIS HONOUR: He's over in New Zealand and he's supposed to know what your client was going to do?
AFSHAR: Your Honour, he accepted that he did know what my client was supposed to do and he accepted that. [406]
Even accepting that Chelmer in a broad sense were aware that FEX was trying to build a business for which the expansion of the number of trades on the NSX board it does little to demonstrate that it was aware of the performance requirement that FEX was seeking. To the contrary the fact that Chelmer raised the matter on 27 November 2007 indicated that it was a risk indicates that it was not aware. Yet notwithstanding that Mr Hulst signed off on the Business Requirements despite knowing that there would be load and performance testing in the future.
By the Project Status Report of 18 December 2007 FEX and Lucsan were given express notice exactly 7 days after the Business Requirements document was signed off by FEX of what Chelmer's expectations of loads were. [407]
By Mr Sharma's email of 7 January 2008 to FEX not copied to Chelmer, it must be accepted that :-
1. Lucsan must have been aware (ought be aware) that there were no load or performance metrics in the Business Requirements document;
2. Lucsan who were going to carry out some load and performance testing, but do not inform Chelmer of this, or the type of loads that will be tested; and
3. Lucsan were on notice as to what Chelmer's expectations were regarding load and performance having received the project status report on 18 December 2007. [408]
Further Mr Golvnkov's email of 7 March 2008 expressly acknowledges that there was no earlier evidence of Lucsan informing Chelmer of the load and performance requirements that the FEX expected, the software to handle prior to that time.
Chelmer argued that accreditation was an express objective set out in the document titled "FEX Order Routing Hub and NSX Connectivity Project Definition". [409] It submitted that to obtain accreditation there must have been:-
1. a useable web face interface and
2. WebFEX interface in turn had to rely upon a functioning FEXE gateway for the NSX to conduct tests and award accreditation. [410]
FEX argued that the accreditation provided in accordance with the document title "NSX NETS API Accreditation Procedure" (NSX Procedure) [411] and under "Volume Testing" in Chelmer's own document stated:-
"Volume testing of large numbers of bids or offers. Limit of testing can be up to 500 orders (combined bids and offers)". [412]
FEX points out that Mr Robertson stated that he had no understanding of whether the figure "500" denoted a number of orders per day or per hour. [413] He stated that he did not personally inquire from the NSX as to what they meant by 500 orders but did know there was an approach to the NSX to define the volumes. [414] Mr Robertson stated that he did not ask Lucsan what it meant. [415] He accepted that it was fundamental for him to know when designing a system the load at which the recipient of the technology needs the technology to perform. [416] However, he stated that the person most likely to have found that out was Mr Hamilton. [417]
It was put in cross examination to Mr Hamilton that the testing volume requirements that the FIX gateway had to meet was an average of 500 orders per hour. He stated that he could not recall. [418] The matter was taken no further. However in his email of 29 November 2007 Mr Hamilton's enquires were made on the assumption that the 500 cap referred to daily loads. [419] That bears some correlation with the volume of activity at the time on the NSX and the capacity of the system as referred to in Mr Scott's email of 29 November 2007. [420]
Mr Hulst's understanding that FEX wanted to have higher volume orders through the software was something that he stated came from discussions with Brian Price on the goals of FEX and his knowledge of the market place in Australia. He conceded however that he never had those discussions with Chelmer. Whilst he accepted that performance and load should be disclosed to whoever is building the software or requested by that party he rejected that he was obliged to shared his knowledge with the software builder stating "the level of detailed knowledge presumption in that statement I think is false." He subsequently stated that he presumed that this was discussed between Lucsan and Chelmer.
What is not in issue is that Chelmer did in fact develop the WebFEX interface to the point that it passed the functionality test set out in the Business Requirements Doc. [421]
That did not address what was described in the hearing as the non-functional requirements as to load and performance.
FEX's qualified expert Mr Yancey identified that an experienced software developer could commence software development without the non-functional requirements but would be taking a risk that the ultimate development would not meet ultimate needs. He stated that the experienced software developer would communicate this to the client. Mr Yancey gave evidence as to the importance for a software developer to make every effort to elicit from the client the core non-functional requirements before beginning development. [422]
In cross examination Mr Yancey conceded that sometimes non-functional requirements such as load are not included in business requirements documents. [423] He stated however that this would be an oversight by whoever is doing it and it is unfortunate. [424] He accepted that standard software practice is for the content of the business requirements document or specification to be ascertained through a collaborative process between the developer and the client. [425] He accepted that that included load and capacity and it was usual for a document to be signed off between the software developer and the client. [426] He accepted that it was unfortunate but not unusual for that to occur half way through the project of after works had already commenced. Ultimately he stated that it was the client who had the final say. [427] He accepted that if the developer formed a view as to what the load requirement should be then that should be disclosed to the client. He stated that if the client had some knowledge it may be able to reject that.
Mr Williams accepted Mr Yancey's view that non-functional and functional requirements should be signed off as early as possible in software development. [428] Mr Williams added in relation to WebFEX:
WITNESS WILLIAMS: It's a front‑end client to an exchange system. So I don't necessarily believe a skeleton set of requirements for a back end exchange system necessarily would fit one to one with a client application. I'm not saying that you wouldn't need non-functional requirements. I'm just saying they may not be a necessarily a good fit. The other thing, if you're talking about exchange as a general, not all exchanges are equal. You know, my experience with say, the Nasdaq software that I think both Jeff Yancey and I have experience with is clients use it vastly differently.
Some clients will use it to run hundred or tens of thousand transactions a second where others might only do one or two a day. So, using one set of functional requirements for one system for another implementation may not necessarily make sense. It may perfectly make sense. You'd have to look at each case individually. Going on to the importance of requirements, ultimately, I think the requirements - the clients should define the priority of those requirements. What's important to the client is most important, not what's important to the software developer. So, the client should really define the importance of both functional and non-functional requirements. And, normally, that would be seen as some sort of prioritisation option in the requirements document.
Thereafter the following exchange appeared:
AFSHAR: Can I just also address - ask you a question about that? When you say the client is there to say what is most important, if the client doesn't have the technical expertise, for example, to say that the system needs to in interfacing with an exchange, for example, WEB FEX, needs to be able to handle X number of trades or offers, then you would expect, would you not, for the software developer who has experience in dealing with exchanges, to raise that as a matter to be agreed upon ultimately between the parties, is that right?
WITNESS WILLIAMS: No, I actually disagree. I - I - I agree the software developer doesn't understand necessarily the business they're writing the software for. Ultimately when - when you're talking about load - I mean, I could go into any exchange and say, "Okay, they're doing this load now." But I don't know their business plan. I don't know what they're planning down the track, and as a software developer, I don't know the exchange business. I might know how to write software for exchanges, but I don't know the clients' business
AFSHAR: Well, can I then put it on the assumption. If you didn't know the clients' business as you say, you'd expect that you'd ask, wouldn't you?
WITNESS WILLIAMS: Some things I'd ask, but - I mean, I can't become an expert in that clients' business.
AFSHAR: Quite, but you would ask, would you not, how many trades the client expected would be
WITNESS WILLIAMS: I - I do think that's a reasonable thing to ask.
AFSHAR: And you would ask, similarly, how many offers the client expected to receive on a particular day to effect the number of trades that they want to effect.
WITNESS WILLIAMS: You mean orders?
AFSHAR: Orders. I'm sorry, I apologise, orders. So, the same question in terms of
WITNESS WILLIAMS: I think that would be - trades in orders would be, I agree with Mr Yancey, is very important information that would need to be determined.
AFSHAR: And you would do that before
WITNESS WILLIAMS: I
AFSHAR: picking up the tools and start implementing the software?
WITNESS WILLIAMS: Ideally as early as possible.
AFSHAR: Yes, and you would expect an experienced software developer to do that, wouldn't you?
WITNESS WILLIAMS: I would expect if they had reasonable - reasonable understanding that it would be core to the product that they need to know that. [429]
I accept Mr William's evidence to as to the developer not being aware of the business of the client. That is not technical information; it is a statement of the business plan. FEX's complaint raised by Thomas Price was "that parts of the instruction they gave that were not - were - were not bespoke to our - our operation, and Chelmer couldn't do that work either." However performance and load were bespoke as Mr William's evidence demonstrated. In this case there were time pressures that led to the development of the software without the necessary load and performance expectations being defined. Be that as it may the lack of information was identified as a risk and yet no details were forthcoming until March 2008.
Even accepting that Chelmer's duty as expressed in the Cross Claim extended beyond building the software, bearing in mind the role of Lucsan, it is difficult to understand how it could extend to the advising on how to meet FEX's business requirements as to load and performance when these were matters that Lucsan and FEX undertook to provide.
I accept the opinion expressed by Mr Williams agreed to by FEX's expert Mr Yancey that if Lucsan and/or FEX were unable to provide detailed volumetric requirements then it is reasonable for Chelmer to try and determine this requirement. That is what they did. In the circumstances there was nothing unreasonable in the action that Chelmer took.
FEX contended that the relevant negligence occurred in NSW and that accordingly the Civil Liability Act 2002 applied. FEX did not identify the salient features relevant to the existence of the duty said to arise. Beyond that FEX did not seek to demonstrate breach and causation in terms of s 5B and 5D of that Act.
In my view FEX has failed to demonstrate the duty of care or breach of duty by Chelmer as asserted.
As to the failure to deliver a product, that issue arose in circumstances earlier discussed.
[27]
BACKGROUND TO DISPUTE - DERIVATIVES EXCHANGE
Mr Robertson's evidence was that in or around the time Chelmer commenced and carried out work on the Equities Project, the potential for a future Derivatives Project to support a FIX gateway interfaces was raised. [430] By 21 December 2007 he had not heard anything further about the Derivatives Project and accordingly sent to Mr Lucero an email on 21 December 2007 to find out what was happening. [431]
On 14 January 2008 an email was received from Mr Lucero informing Mr Robertson that the FEX Derivatives Project had been approved by FEX and that Mr Ian Wade would be the point of contact for Chelmer to settle the project scope and documentation. [432] Following receipt of that email, Mr Robertson gave evidence of attending a number of meetings by telephone with the project team of the FEX Derivatives Project.
On 11 April 2008 a copy of the final FEXD FIX Gateway Project Definition document was updated and sent by the Project Manager Mr Martin Cleland Pottie to Mr Lucero and Mr Wade from Lucsan and Mr Hamilton and Mr Robertson from Chelmer. [433]
The meetings that took place comprised employees of Chelmer and Lucsan and involved discussion as to the business requirements for the FEX Derivatives Project including drafting a business requirements document, the scope and architecture of the project as well as the timing and preparation of the formal statement of works for the project. [434]
According to Mr Robertson, the business requirements for the FEX Derivatives Project required Chelmer to publish the specifications and make available the FIX gateway interface to trading participants by a target date that was earlier than the total work estimated in the statement of works. The FEX Derivatives Project was broken into a three phase specification with another work stream which encompassed project administration and other activities required for all three phases. Generally phase one concerned market data and basic orders, phase two concerned more complex orders and phase there concerned administration. [435]
Mr Robertson stated that Chelmer commenced work on the FEX Derivatives Project in February 2008. [436] Due to pressing time frames for the delivery, Chelmer commenced work on the specification work for the FEX Derivatives Project whilst concurrently attending to the business requirements, project design and solution design for the Derivatives Project. [437]
Once Chelmer commenced work on the FEX Derivatives Project, Mr Robertson stated that he attended a number of meetings by telephone with members of the project's steering committee to discuss the drafting of various documents and to hear a report on the status of the project. These meetings were generally held on a weekly basis. They were preceded by the distribution of a meeting agenda and following the meeting the distribution of minutes. [438]
Mr Robertson stated that the business requirements/statement of works was executed on behalf of FEX on 16 July 2008 by Brian Price. [439] On 25 July 2008, Brian Price executed the financial approval section of the business requirements statement of works approving the commitment of funds to commence the Derivatives Project and agreeing that the project would be charged in accordance with s 5.7 of the business requirements/statement of works. The executed document shows that Chelmer only ever received authorisation from FEX to proceed with phase one and two of the Derivatives Project. Mr Robertson also signed the business requirements/statement of works on behalf of Chelmer on 25 July 2008. [440]
According to Mr Robertson, Chelmer's standard practice was to develop the project definition document that set out the scope, roles and responsibilities, project approach, project structure, project governance for the Derivatives Project. On 25 July 2008 Chelmer provided a project definition for the FIX Derivatives Project to Mr Ian Wake on behalf of Lucsan. [441] Mr Lucero on behalf of Lucsan signed the project definition on the same day. [442]
According to Mr Robertson, Mr Wade was the overall project manager that Chelmer would liaison with. Mr Cleland-Pottie was the project manager for the Chelmer resources and the Chelmer stream of work. [443] Working under Mr Clelland Pottie would be Alistair Parsons, Andrew Hamilton and Mike Holdsworth.
Chelmer claims that the contract between the parties for the Derivatives Project is comprised in a document titled "FEX Derivatives FIX Adaptor Project Business Requirements Specification for FIX Gateway for Derivatives Contracts." [444] Throughout the hearing the specifications were commonly referred to as the Statement of Works. [445]
In essence Chelmer described the Statement of Works as proscribing that Chelmer will create an interface (or translator) tool to the end users (that is traders) using their trading systems to communicate with the X-Stream trading platform that FEX was implementing to operate a new derivatives market using the FIX messaging format.
The Statement of Works broke down the Derivatives Project effectively into three separate project phases as earlier described. FEX was obliged to pay 30% of each project phase commencement, 30% upon complete functional testing and the balance 40% upon FEX accepting a release version of the software. [446]
The cost of Phase 1 was USD$100,800.00 broken up into two components of USD$63,100.00 and USD$37,700.00. [447] A more detailed breakdown of those components indicated that:
1. Chelmer would charge USD$1,100.00 per day for a CPS Project Manager;
2. Chelmer would charge USD$900.00 per day for a CPS Developer; and
3. Chelmer would charge USD$900.00 for a CPS Business Analyst [448] .
The rate expressed in the Specifications was a daily rate. Chelmer submitted none the less that this represented USD$137.50 per hour in respect of (a) above, and USD$112.50 per hour in respect of (b) and (c) above. [449]
So far as the daily rates are concerned, Chelmer's expert Mr Geoffrey Williams gave evidence that he would not consider the daily rates referred to above as unreasonable and noted FEX accepted similar rates for the Equities Project. [450] FEX's expert, Mr Jeff Yancey agreed with Mr Williams' answers to this question. [451]
The total cost of Phase 2 was USD$82,400.00 broken up into three components of USD$26,500.00, USD$33,900.00 and USD$22,000.00. [452] A more detailed breakdown of the additional phase described as "Other Project Setup" is broken into:
1. proof of concept totalling USD$18,000.00;
2. project management totalling USD$14,300.00, and
3. employment and release totalling USD$13,500.00 [453] .
The breakdown of those components reveals that Chelmer was charging the same rates for CPS Project Manager, CPS Developer and CPS Business Analyst deployed in "Other Projects Setup" as those deployed for Phases 1 and 2 being USD$1,100.00 and USD $900.00 daily.
The charges for proof of concept under "Other Projects Setup" was summarised as follows:-
"the Phase "Other Projects Setup", will have Proof of Concept work phase charged at the acceptance of the technical design, and the project management and deployment work will be charged prorated during the projects duration. At the time that the client accepts the final release it is agreed that the project management work and deployment work will have been fully charged." [454]
Although FEX disputed there was an agreement to build a Derivatives Exchange in February 2008, [455] Thomas Price effectively concedes the agreement came about "around March 2008 to do the work." [456] Thomas Price stated that he decided which service providers were to be used to implement the various aspects of the Derivatives exchange including the FIX gateway. [457]
Thomas Price stated that during the period immediately before Chelmer's engagement, Chelmer received information concerning the FEX project and the requirements of the FIX gateway from Lucsan. He stated he did not have any substantive discussions with anyone from Chelmer. Lucsan communicated all FEX's business requirements to Chelmer. [458] He acknowledged that in February 2008, Chelmer sent to FEX a document entitled "FEX Derivatives FIX Adaptor Project Business Requirements Specification for FIX gateway for Derivatives Contracts." [459] This was referred to in the Cross Claim as the Specification and during the hearing as the Statement of Works. [460]
Thomas Price acknowledged that he had received confirmation from Mr Lucero as to the document correctly setting out what it was that Chelmer was going to do to put together the FIX gateway. [461] He stated he had a similar conversation with Mr Lucero whenever he received technical documentation from Chelmer. [462] Thomas Price said that he did not have the relevant technical knowledge and relied on Chelmer and Mr Lucero and trusted them to ensure that the contents of the documents were correct and satisfied FEX's business requirements. [463] He stated:-
"If I had known that Chelmer did not have the expertise to build the FEX gateway or did not have experienced people to do the work I would not have decided to engage Chelmer to do the work." [464]
Thomas Price acknowledged signing the document being the specification on or about 16 July 2008. [465] According to his evidence around 90-95% of the time Lucsan communicated directly with Chelmer concerning the implementation of the FIX gateway. He stated he had very few direct communications with Chelmer and cannot recall anyone from Chelmer directly providing advice directly to FEX concerning the FIX gateway. Any advice was communicated through Lucsan given that Lucsan was the project manager for the FEX Project. [466]
The following matters did not appear to be in dispute:-
1. Chelmer commenced work on the Derivatives Project in February 2008: [467]
2. FEX signed the Specification and agreed to be bound by its terms on 16 July 2008: [468]
3. FEX authorised Chelmer to proceed with project Phase 1 and project Phase 2 on 25 July 2008: [469]
4. Chelmer issued a tax invoice in the amount of USD$51,024.00 on 30 May 2008 being:-
1. 30% of the fees payable on commencement of project Phase 1 in the amount of USD$30,240.00
2. all proof of concept costs payable under "Other Projects Set up" in the amount of USD$19,000.00
3. USD$2,802.00 reflecting 20% of the total project management costs payable under "Other Projects Set up" [470]
1. On 8 August 2008 Chelmer issued a tax invoice in the amount of USD$27,138.60 being:-
1. 30% of the fees payable on commencement of project Phase 2 in the amount of USD$24,720.00
2. USD$2,418.16 reflecting 14% of the total project management costs payable under "Other Project Set up" [471]
1. FEX eventually paid both of the above tax invoices issued by Chelmer to the point where Chelmer accepts that the payment was made in full: [472]
Various payments were made progressively between 13 November 2008 and 17 June 2009. According to Mr Robertson no further work was to be performed on the Derivatives Project until payment was brought up to date. [473]
[28]
CROSS CLAIM - FEXD Contract Claim
In its Cross Claim FEX pleaded that it a was a term of the FEX Derivatives FIX Adaptor Project business Requirements Specification for FIX Gateway for Derivatives contract that Chelmer would exercise reasonable care and skill in providing service to FEX in particular:
1. Advising FEX in relation to the design, implementation and configuration of the FIX Gateway;
2. Ensuring that the design, implementation and configuration of the FIX gateway were in accordance with the requirements of the FEX Derivatives Exchange; and
3. Designing, implementing and configuring the FIX Gateway in accordance with the requirements of the FEX Derivatives Exchange. [474]
Chelmer admitted that every service that it was contractually obliged to provide contained an implied term that such services would be completed with reasonable care and skill. [475] However it maintained its contractual duty was confined within the Statement of Works. [476]
Chelmer argued that FEX cannot establish that Chelmer's obligations extended to those pleaded in [18] of the Cross Claim for the following reasons
1. First, as FEX has not pleaded any terms implied in fact (being a matter that must be pleaded), [477] the Court need only consider the express terms set out in the Statement of Works.
2. Second, any work that is not specified in the Statement of Works is not Chelmer's responsibility. [478]
3. Third, there are no express terms in the Statement of Works that require Chelmer to:
1. Provide any type of advisory work; and
2. Design software to meet FEX's general business requirements (i.e. other than those set out in the Statement of Works).
1. Fourth, there is no evidence to establish those matters particularised in paragraph 20 of the Cross Claim such as irrelevant tags and AMP messages.
2. Fifth, FEX have made no submissions to support their construction of the Statement of Works.
Chelmer argued that the gravamen of FEX's complaint is that Chelmer provided no product to FEX whatsoever. [479] It was submitted that the evidence reveals that;
1. Chelmer were obliged to carry out proof of concept work for the FEXD Fix Gateway. [480] This work included benchmarking and performance architecture. [481] The FIX Gateway Solution Design Document and POC Test Results [482] demonstrate that the concept work was not only carried but the FEXD FIX Gateway was developed to a point where it would run for a limited number of tests (which were carried out) and met the performance requirements as specified by FEX.
2. In any event, the second payment milestones for Phases 1 and 2 of the Statement of Works were not reached as there is no evidence to suggest otherwise. This is important as the payment milestones arise only after Chelmer has developed and internally tested that product. Chelmer can then render an Invoice when the product is provided to FEX for user acceptance testing. Plainly, if the second payment milestones did not arise prior to 5 November 2009, then Chelmer was not obliged to deliver any software to FEX prior to the contract being terminated by FEX.
3. That Chelmer did not complete those matters set out in clause 2.2.148 of the Statement of Works wholly and solely caused by FEX when it:
1. Failed to pay Chelmer's invoices in a timely fashion and work on the project was suspended; and thereafter
2. Unlawfully terminated the contract on 5 November 2009 prior to Chelmer reaching the delivery milestone.
FEX advanced no submissions as to [18] of its Cross Claim beyond asserting that Chelmer provided no product. In the circumstances I accept that that circumstance arose consequent to its own decision to suspend the project and (as shall be discussed) cancel the contract on 5 November 2009 resulting in the failure to reach a delivery milestone.
[29]
CROSS CLAIM - FEXD Negligence Claim
In making its claim in negligence FEX relevantly pleaded that Chelmer failed with reasonable care and skill to:
1. Advise FEX in relation to the design, implementation and configuration of the FIX Gateway and WebFEX interface;
2. Ensure that the design, implementation and configuration of the FIX gateway was in accordance with the requirements of the FEX Derivatives Exchange and
3. Designing, implementing and configuring and configuring the FIX gateway in accordance with the requirements of the FEX Derivatives Exchange. [483]
Chelmer argued that the only submission made by FEX as to why Chelmer had failed to provide services pleaded in [20] of the Cross Claim was that it did not deliver a product.
FEX made no submissions based on the pleaded particulars to the extent that they related to the FEXD project. [484] Moreover no evidence was submitted to establish the particularised matters in relation to the FEXD project. In the circumstances this aspect of claim has not been established.
[30]
CROSS CLAIM - MISLEADING AND DECEPTIVE CONDUCT CLAIMS
[31]
Paragraphs 6 and 7 of the Cross Claim
FEX's Cross Claim made a claim for misleading and deceptive conduct based on Chelmer's failure to disclose that in 2007, it entered into negotiations with Lucsan concerning a brokering agreement or entered into a brokering agreement whereby it would pay Lucsan for brokering a commercial arrangement between Chelmer and FEX. [485]
It is not in issue that to show a completely constituted cause of action in misleading or deceptive conduct, FEX must show misleading conduct, reliance on that misleading conduct and damage suffered by the conduct. [486]
[32]
Did Lucsan recommend Chelmer to FEX for the Equities Project?
FEX contended that there was no dispute that Lucsan recommended that FEX engage Chelmer for the FEXE/WebFEX and FEXD Projects. [487] Chelmer contended that this matter was disputed as disclosed in the pleadings. [488]
Chelmer argued that the Court should find that Lucsan did not make any recommendations for the following reasons:-
1. First there is no evidence of any oral recommendation made by Lucsan in or around May 2007 with respect of FEXE/WebFEX;
2. Second there is no evidence that Lucsan made any recommendation to FEX to engage Chelmer for the FEXD Project. To the contrary the evidence that is available discloses that Lucsan expressly informed FEX that "Chelmer does not have expertise in derivatives or the knowledge to make it happen." [489] To the extent that any such recommendation was made it argued that it was an oral recommendation from Harold Lucero to Brian Price [490] neither of whom gave evidence.
So far as the FEXD project was concerned FEX acknowledged that Thomas Price verified a pleading in the Supreme Court where it was asserted that a recommendation was made orally by Mr Lucero to Mr Brian Price. [491] The extent to which that is capable of constituting an admission was discussed in Australian Competition and Consumer Commission v Pratt (No 3). [492]
Although neither Mr Lucero nor Brian Price gave evidence, Thomas Price's evidence was consistent with other evidence.
In particular Mr Robertson stated that around the time that Chelmer commenced and carried out the FEX AOIE Project, the potential of a future Derivatives Project to support a FIX gateway interface was raised. [493]
The circumstances of the engagement of Chelmer to perform the Derivatives Project however do not inform the circumstances of its engagement for the Equities Project.
What is apparent on the evidence is the following:
1. Thomas Price conceded that he was not a tech man and he engaged parties to deal with the technology side of the business. [494]
2. Mr Hulst who had tech experience did not join FEX until August 2007.
3. Thomas Price conceded that FEX engaged Lucsan to project manage a whole raft of projects. [495]
4. Although Thomas Price did not recall when he stated that it was Lucsan who advised Thomas Price that 'we should get a FIX gateway" and find 'someone to build it." [496]
5. FEX initially thought that Lucsan would build the FIX gateway. [497]
6. The evidence of Thomas Price was that if this was beyond Lucsan's capabilities then he expected it to provide FEX with information as to what external resources were required and the associated cost. He stated that Lucsan informed FEX of the need for an external provider but did not provide sufficient notice to enable it to factor in the additional costs involved. [498]
7. Thomas Price stated that in the circumstances he instructed Lucsan to find the best people at the best price to build the FIX gateway. [499]
8. The evidence of Mr Robertson was that he was approached by Mr Lucero in or around early 2007 about a proposal to develop and implement a FIX gateway interface for X stream for FEX. Further it was Mr Lucero who introduced him to Brian Price in or around early 2007.
9. Beyond this Thomas Price stated that whilst he did not precisely recall when, based on the recommendation and statement of Mr Lucero he told him in or about May or June 2007 to "Please begin negotiations with Chelmer and engage them to undertake the work on the FIX gateway." [500]
10. What was proposed was the development of bespoke software and it was acknowledged that there was no evidence of any other potential providers tendering for the Equities Project. [501]
11. It was acknowledged that FEX would not have known of Chelmer otherwise than through Lucsan. [502]
On the basis of the above, I am satisfied that it was more probable than not that Chelmer was engaged by FEX on the recommendation of Lucsan for the Equities Project. I accept Mr Robertson's evidence that Lucsan had intended to contract direct with Chelmer for the services although this subsequently was changed to provide for a contract between Chelmer and FEX. [503] Thomas Price's evidence was that he didn't expect Lucsan to engage third parties to build the FIX gateway. [504]
The decision to change the prices that Chelmer was to charge to USD was as noted earlier requested by Lucsan on 6 June 2007. [505]
[33]
Was there a Brokering Agreement to Pay Lucsan?
It is apparent from the terms of the email sent by Mr Sharma to Mr Robertson on 20 July 2007 ahead of his visit to New Zealand, that the price of option 1 had already factored into it the pricing payment by Chelmer to Lucsan of $US26,000.
The email also stated:
'We will forward you official signature of approval from Brian within next few days. " [506]
On 24 July 2007 Ms Bowering sent Lucsan management and staff including Kym Sharma an email attaching proposed "umbrella agreement" and "service broking agreement.'" Ms Bowering stated:-
"Both of these agreements need to be reviewed by all.
The FEX Service Brokering agreement has been reviewed by Lucsan's solicitors, however the Umbrella agreement has not.
Please let me know your comments as soon as possible as it would be desirable for the contracts to be presented to Chelmer by Kym in person this week." [507]
The recital of the proposed service brokering agreement stated:
Lucsan capital has brokered an agreement between Chelmer and FEX, namely the FEX Order solution 'webFEX", which will facilitate the trading operations of the FEX Equities initiative. In recognition of this, Chelmer will pay Lucsan capital a brokerage fee in accordance with the terms set out in this agreement. [508]
Beyond that the proposed service brokering agreement stated: [509]
2. Obligations of Lucsan
Invoicing
2.1 Lucsan capital will invoice Chelmer on a monthly basis for brokerage fees in accordance with Schedule 1, on the basis of information provided by Chelmer in the Monthly Summary Report
2.2 Lucsan capital is not responsible for the payment or otherwise of amounts owing between Chelmer and FEX.
2.3The payment of amounts owing to Lucsan Capital by Chelmer is not contingent on the collection of monies by Chelmer from FEX
3. Payment
3.1 Lucsan Capital will invoice Chelmer in Australian Dollars calculated using average exchange rale for the invoice period.
….
9 Relationship between Lucsan Capital and Chelmer
Where not otherwise stated in this contract, the terms of the agreement between Lucsan capital and Chelmer should be determined by reference to the Umbrella Agreement
On 27 July 2007 Mr Robertson responded to an email from Mr Sharma, requesting confirmation of Chelmer's understanding as to the deliverables in regard to WebFEX (multi asset/currency/exchanges) web front solution as to the terms outlined. Mr Robertson's reply inserted responses to the email of Mr Sharma dated 20 July 2007. Relevantly Mr Robertson stated:
: "Total cost for Option 1 is $US 229,700 and it includes Lucsan share of $US 26,000. [Andy Robertson] Agreed
…
[Andy Robertson] Lucsan will invoice Chelmer at the sign off of the project from FEX (ie all payments complete)"
Lucsan will outline requirements on behalf of FEX and work in conjunction with BA resource from Chelmer to confirm requirements [Andy Robertson]-agreed this is underway. Key documents to get sign off on the WebTW functionality. [510] (emphasis in original).
There is no reference in that response to the proposed Service Brokerage Agreement or Umbrella Agreement.
In a subsequent email dated 31 July 2007 by Mr Sharma to Chelmer, summarising the discussion points during the visit and the phone call of the same day, it was noted:
Chelmer/Lucsan to formalise agreements to further develop/enhance and exclusive licensing in Australia, North America and South America region to promote and sell Chelmer products including ACE,ARM,CUSTODIAN,FUSHION,WRAPPORT,MARGIN LENDING products. [511]
In her affidavit of 2 March 2015, Ms Bowering referred to being aware of negotiations in or around June 2007 over a brokerage agreement between Lucsan and Chelmer. [512] Ms Bowering stated that she did not know whether the Brokerage Agreement was ever signed by Lucsan or Chelmer and was not aware whether anyone form Lucsan or Chelmer had ever informed anyone from FEX about the Brokerage Agreement or the previous relationship between Lucsan and Chelmer. [513]
Mr Robertson responded to Ms Bowering's affidavit of 2 March 2015 [514] stating:-
"84 In response to paragraphs 9 to 11 of Ms Bowering's affidavit:
(a) the first time I "cited" the existence of the agreement referred to in this paragraph was when it was provided to Chelmer's solicitors in or around 25 September 2014 in response to a request for further and better particulars issued by Chelmer's solicitors. Copy of the agreement provided to Chelmer's solicitors on 25 September 2014 appears at tab 14 of Exhibit AR2;
(b) the agreement referred to Ms Bowering's affidavit seems to be an earlier version of the agreement provided in response to the request for further and better particulars;
(c) at no point in time did I draft, amend or sign any Service Brokering Agreement on behalf of Chelmer with Lucsan's;
(d) in or around September/October 2006 well before Chelmer provided any FIX gateway service to FEX I had some discussions with Harold Lucero of Lucsan regarding the potential for Lucsan to become Chelmer's distributor for areas outside New Zealand for existing software previously developed by Chelmer. The software to be distributed has no relation to any of the software developed or used by Chelmer providing services to FEX. To the best of my knowledge and belief this was the extent of any previous relationship between Lucsan and Chelmer".
……..
(g) I recall being informed by Harold Lucero of Lucsan that Lucsan no longer sought the $26,000.00. Whilst I cannot recall exactly when this conversation took place, to the best of my recollection the conversation occurred after Chelmer commenced work on WebFX. Chelmer did not pay the anticipated $26,000.00 to Lucsan. Chelmer did not receive a tax invoice from Lucsan for the $26,000 (emphasis in original). [515]
The proposed "service broking agreement" [516] appears to be the same document that Mr Robertson said was forwarded to his solicitors in or around 25 September 2014". [517]
Mr Robertson was cross examined in relation to this evidence and in particular whether there was an umbrella agreement with Lucsan. The evidence was:
Q. Now, just going to 84D, you say, "In or around September, October 2006, and well before Chelmer provided any FIX gateway services to FEX, you had some discussions with Harold Lucero of Lucsan regarding the potential for Lucsan to become Chelmer's distributor for areas outside New Zealand, for existing software previously developed by Chelmer." Do you see that?
A. Yes.
Q. Is that the, and then you go on. The last sentence, you said, "To the best of my knowledge and belief, this was the extent of any previous relationship between Lucsan and Chelmer." You see that?
A. Yes.
Q. Is that the extent of your commercial arrangements concerning the subject matter of 84D with Lucsan?
A. If I could clarify, a combination of 84D and 84A, Harold and I had discussed the putting together a partnership agreement, which would be an umbrella agreement which would look to capture the terms of them representing our software in Australia. I believe he might have been trying to tie up some South American country. I don't recall which one. So it was my understanding that that was the document that Ann Bowering was working on.
Q. At the time you made this affidavit, you were aware of the umbrella agreement. Weren't you?
A. Again, it didn't exist. I was aware that Harold had appointed someone within Lucsan to create a document.
Q. You didn't mention the umbrella agreement in your affidavit. Did you, Mr Robertson?
A. Again, I wasn't aware of its actual existence. Harold had said that he was going to have someone work on it.
Q. You did not put into your evidence the fact that you were aware that Lucsan was preparing an umbrella agreement. Did you, Mr Robertson?
A. Specifically, no, but my belief is 84D makes that statement.
Q. Does it? Where does it refer to umbrella agreement, Mr Robertson?
A. Well, okay, it doesn't.
Q. Yes, it doesn't actually refer to the umbrella agreement. Does it?
A. No.
Q. So the answer that you just gave a moment ago was untrue. Wasn't it, Mr Robertson?
A. Sorry, which one?
Q. The one where you said 84D captures it. Is that right, Mr Robertson?
A. I agree it doesn't specifically talk about the creation of a document.
Q. You didn't include it, Mr Robertson, because you don't want to admit that there was a document called an umbrella agreement being prepared by Lucsan. Isn't that right?
A. I'm using the term here umbrella agreement. I have no view as to what Lucsan may have used it internally, and I can only assume based on the evidence of what has been put here that somehow the agreement that I had in my mind has become the services brokering agreement.
Q. Just in relation to the answer that you just gave a moment ago, you knew that it was an umbrella agreement, because you had actually seen a document called, "Umbrella agreement." Isn't that right?
A. No.
…….
Q. You were aware that the brokering agreement was something different to the umbrella agreement. Were you not?
A. At the time, no.
Q. You also didn't put in anywhere in your evidence to this Court, the evidence that you just gave a moment ago, that Harold Lucero approached you and talked to you about putting together an umbrella agreement. Did you?
A. In terms of using those words, I believe not, but it is encapsulated, I would believe in business terms, by having some discussions with Harold Lucero of Lucsan regarding the potential for Lucsan to become Chelmer's distributor.
Q. So just to perhaps go back to where I started with 84D, is it your evidence that what you just gave in Court by way of clarification and 84D encapsulates all of the arrangements in place between Lucsan and Chelmer in relation to the subject matter of this paragraph?
A. That's correct. Yes.
Q. So there was nothing else besides discussions that you would add, now that you have the opportunity, to what's in this paragraph and the answers that you gave?
A. I don't need to clarify the answers that I gave, no.
Q. Do you need to add anything to it?
A. No.
Q. So that's it. What is appearing at 84D, that is that you had discussions with Harold Lucero concerning the subject matter and the answers that you just gave is the sum total of the arrangements between you, with Chelmer and Lucsan. Is that right?
A. Yes.
Q. You haven't produced any documents to show that any discussions took place between you and Harold Lucero in September or October 2006. Have you?
A. I don't recall.
Mr Robertson was questioned as to the brokering agreement and his answers were as follows:
"Q. Well, the discussions between you and Lucsan, well, Chelmer and Lucsan in relation to the distribution of Chelmer's products by Lucsan actually took place in June 2007, not in September or October 2006. Do you accept that?
A. No.
Q. It took place, these discussions, because it was around this time that you were sending your proposal through to FEXE to do the fixed equities gateway. Do you accept that?
A. I'm sorry. Repeat the question?
Q. The discussions about Lucsan distributing the other products of Chelmer, took place in June in the context of you putting a proposal to FEXE--
A. No.
Q. I'm going to suggest to you, and start suggesting to you from now, that indeed by June and July 2007, you had entered into an agreement and agreed certain terms about making a payment to Lucsan for Lucsan sorting out the deal with FEX.
A. Yes.
Q. You had agreed that?
A. Yes.
OBJECTION. QUESTION REFERRING TO DIFFERENT POINT IN TIME. LEGAL ARGUMENT
HIS HONOUR: Just put your question again.
AFSHAR: Thank, your Honour. If your Honour just give me a moment, perhaps. I might, if your Honour pleases, withdraw that question and go about it a different way.
Q. So, Mr Robertson, are you now saying that you had agreed to certain terms with Lucsan, whereby you would pay Lucsan for it to go and get your deal with FEX? Is that what you're saying?
A. I wouldn't use those words.
Q. Is there a "yes" or a "no" to that question?
A. "Yes", with some amendments to the words.
Q. Well, you either accept the question, Mr Robertson, with respect
HIS HONOUR: Well, no, explain what you mean by that.
WITNESS: I can't remember the term they use, but, yes, I
HIS HONOUR
Q. Are you saying that it was a term
A. Yes, I agree that the original proposal that we had put forward was to Lucsan. We believed we were going to be contracting to Lucsan. Lucsan amended the sales proposal and said, "The proposal needs to be going direct to FEX and we want to put on a referral fee," which I agreed to.
AFSHAR
Q. So you agreed to the inflation of the proposal that you were giving to FEX by the amount that you'd agreed to pay Lucsan?
A. Yes.
Q. This is the first time in this proceeding that you have admitted that fact, isn't it, Mr Robertson?
A. I don't recall. I believe there's plenty of evidence discovery to that fact.
Q. Mr Robertson, you were aware at all times that there was a claim that was put against Chelmer that you had agreed this brokering, the terms of a brokering arrangement, with Lucsan, did you?
A. I - we had agreed to a sum of money, that doesn't necessarily represent terms but - or all terms, but yes. And again, I wouldn't use the word "brokering agreement", that was not in my vocabulary at the time.
Q. You know that there's a cross claim against Chelmer in this proceeding?
A. I do.
Q. And you know that there was a defence that Chelmer filed in this proceeding in relation to that cross claim? Is that right?
A. I - I assume so, yes.
Q. Well, did you read it?
A. I - I would've at the time.
Q. Now, do you recall what it said in relation to this claim?
A. I do not.
DOCUMENT SHOWN TO WITNESS
………
AFSHAR
Q. Mr Robertson, can I just draw your attention to paragraph 6 of that document. See it says, "In answer to paragraph 6 of the cross claim, the cross defendant," and then 6.1 to 6.5, you see that?
A. I do.
Q. And in 6.1 you see, "Chelmer is admitting that he entered into discussions initiated by Lucsan concerning a brokering arrangement with respect to the NSX agreement," on there. You see that?
A. I do.
Q. Now, it doesn't say, does it, that you agreed anything with Lucsan concerning a brokering arrangement with respect to the NSX agreement, does it?
A. It does not.
Q. That is in effect what you just admitted in cross examination three or four questions ago. Isn't that right?
A. Yes.
Q. Yes.
HIS HONOUR: Well, in fairness he didn't describe it as a brokering agreement. Not in his answer, anyway.
AFSHAR: I'm sorry, your Honour.
Q. Mr Robertson, the arrangement that you just described a moment ago was that Chelmer would pay Lucsan an amount of money. Is that right?
A. That was an agreement we're working towards, yes.
Q. Lucsan was going to get what you call here the NSX agreement but what we know as the FEX equities FIX gateway agreement with FEX for Chelmer.
A. I don't know that.
Q. So what you're saying is you were going to pay Lucsan a sum of money but you didn't know what Lucsan was going to do for you in return?
A. I don't believe that's what I said. Would you like me to clarify what I thought was going to happen?
Q. Well, what was going to happen.
A. My understanding was Chelmer was putting a commercial proposal forward to FEX that they may or may not approve and if it was approved and went forward then we had agreed that we would pay a sum of money to Lucsan as a referral fee, and I believe there was some email correspondence about when that may fall due, ie only if the project completed. So we were not going to pay them for, you know, an unsuccessful introduction.
Q. It was based on success then, wasn't it?
A. It was based on the project going ahead.
Q. It was based on you getting the project. Isn't that right?
A. That's correct.
Q. So in that sense, they were going to broker a deal for you. Is that right?
A. No, I don't agree with that. [518]
FEX argued that the Court would find that the agreement between Lucsan and Chelmer were those set out in Exhibit 6 comprising the service brokering agreement and an umbrella agreement attached to Ms Bowering's email of 24 July 2007. [519]
FEX argued that there could be little dispute that Mr Robertson had received the draft agreements from Mr Sharma given Mr Sharma's reference to formalising agreements. It was submitted that the Court would find that Mr Sharma gave Mr Robertson the Umbrella Agreement and the Brokering Agreement when he visited New Zealand. [520] It drew attention to the fact that whilst Mr Robertson initially denied that he saw the Brokering Agreement Mr Robertson changed his evidence to say he did not recall seeing those agreements in 2007 when Mr Sharma travelled to New Zealand. [521] It was noted that Ms Bowering's email foreshadowed that Mr Sharma would take drafts with him and Mr Robertson did not deny being shown the agreements. [522]
FEX submitted that the reference to the term "umbrella agreement" in Mr Robertson's evidence was significant and even though he protested that he had "no view as to what Lucsan may have used internally" [523] the fact that he nominated the term unprompted and Lucsan used exactly the same term in its documentation [524] should lead the Court to dismiss Mr Robertson's evidence to the effect that he had not seen the document titled "umbrella agreement" before or was unaware of its existence. It argued that Mr Robertson was not frank and withheld the existence of the "umbrella agreement" and his explanation at page 84D of his affidavit referring as such was a contrived response. [525] It was said to be contrived in circumstances where he subsequently conceded that it was not included in his affidavit response. [526]
Mr Robertson's evidence was that he was aware that Lucsan was preparing a broader agreement to underpin the relationship between the parties described as an umbrella agreement or partnership agreement; yet he failed to make any reference to this in his affidavit as referred to above.
There is no direct evidence that Mr Robertson saw or discussed an umbrella agreement with Mr Sharma on 25 July 2007 beyond the contents of the email of 31 July 2007. According to Ms Bowering that agreement had not been reviewed by Lucsan's solicitors. Mr Sharma met Mr Robertson in New Zealand on 25 June 2008. Ms Bowering the previous day forwarded the proposed agreements for discussion within Lucsan noting that she was to receive comments as soon as possible so they could be presented to Chelmer by Kym Sharma in person that week. There is no evidence of this occurring. Mr Sharma's email of 20 July 2007 was accepted by Chelmer in its terms on 27 July 2007. There is no reference in that correspondence to an umbrella agreement. Mr Sharma's subsequent email of 31 July 2007 talks about discussion of an exclusive licensing agreement which was the understanding that Mr Robertson had as to where the proposed umbrella agreement was to sit. Mr Robertson specifically rejected being shown the umbrella agreement in New Zealand. [527]
I accept that Mr Robertson at some point was aware of the proposal to have an umbrella agreement; so much is apparent from his oral evidence. However, I cannot be satisfied that a document was in fact presented to him or Chelmer in this respect. Ms Bowering gave no evidence that supported such a conclusion and Mr Sharma was not called.
In so far as the brokering agreement was concerned, Mr Robertson stated that he had no recollection of it being shown to him in 2007. However, on the basis that it was a long time ago he could not rule it out. [528]
FEX argued that Mr Robertson having held the position that there was nothing more than "discussions" between Lucsan and Chelmer admitted that there was an agreement between them to inflate the price for FEX/WebFEX Project to provide a payment to Lucsan which Chelmer ultimately did not make. [529] It argued that Chelmer enriched itself by keeping an additional $26,000. The characterisation of this payment was in issue.
Ms Bowering stated in evidence that in or about June 2007 she became aware that Lucsan and Chelmer were negotiating but she did not know whether it was ever signed and was not aware that anyone from either Lucsan or Chelmer informed FEX about the brokerage agreement or the previous relationship between Lucsan and Chelmer. [530]
In Ms Bowering's email of 24 July 2007, [531] the FEX service brokering agreement attached expressly referred to a document "FEX Order Routing Hub and MSX Connectivity Agreement." [532] The contents of the proposed service brokering agreement however, refer to the umbrella agreement which I am not satisfied was shown to Mr Robertson in New Zealand. In light of their interconnectivity, it is unlikely in the circumstances that one agreement was given or shown to Chelmer but not the other. Beyond that, the email of 20 July 2007 from Mr Sharma accepted by Chelmer on 27 July 2007 showed a method of invoicing from Lucsan which was at variance with that set out in the FEX service brokering agreement. In all I cannot be satisfied that the service brokering agreement was in fact submitted to Chelmer on 25 July 2007 let alone agreed to. However, its contents do provide some evidence in the recital as to the intention of Lucsan in seeking payment from Chelmer at the time. That proposed agreement had, according to Ms Bowering, been the subject of legal review.
Notwithstanding the earlier statements by Mr Robertson in relation to status of his discussion with Lucsan as referred to in [84(d)] of his affidavit, [533] he agreed that by June and July he had "entered into an agreement and agreed to certain terms about making the payment to Lucsan" and "sorting out the deal with FEX." [534]
Mr Robertson described his understanding of the agreement as follows:
Q. Well, what was going to happen.
A. My understanding was Chelmer was putting a commercial proposal forward to FEX that they may or may not approve and if it was approved and went forward then we had agreed that we would pay a sum of money to Lucsan as a referral fee, and I believe there was some email correspondence about when that may fall due, ie only if the project completed. So we were not going to pay them for, you know, an unsuccessful introduction.
Q. It was based on success then, wasn't it?
A. It was based on the project going ahead.
Q. It was based on you getting the project. Isn't that right?
A. That's correct.
Q. So in that sense, they were going to broker a deal for you. Is that right?
A. No, I don't agree with that. [535]
Mr Robertson's characterisation was as follows: -
"If we were successful wining the tendering process, then we would have paid the referral fee to Lucsan on the basis that he they not introduced the opportunity to us, we would not have been aware of it." [536]
In support of this characterisation Mr Robertson sought to rely on the contents of Exhibit 5 where it states:
"In the price page, we have included around 7% profit on the development costs and some marginal on the monthly ongoing charge" to suggest that the payment to be made by Chelmer was in respect of a "referral arrangement".
Mr Robertson denied that this was "any sort of brokerage arrangement." [537]
Mr Robertson agreed that nowhere in his affidavits had he previously set out a conversation with Mr Lucero in which he stated "I will refer you to X and you will pay me a referral fee". [538] Ultimately Mr Robertson conceded that before giving evidence he had, had opportunities to disclose the existence of the referral agreement in his affidavits but he had not done so. [539]
FEX submitted that the change in the contractual arrangement so Chelmer was dealing with FEX direct was so as to keep Lucsan one step removed so that they could give the kickback or facilitation.
FEX argued that the claims concerning the brokerage agreement were amply demonstrated by Mr Robertson's evidence. It argued that this was not a representation based on which FEX entered into the contract concerning the FEXE/Web FEX project. It contended that was a deceit which was discovered well into the limitation period and that Chelmer ought to be ordered to pay FEX USD $26,000 by which it inflated that the cost of the FEXE/WebFEX project. [540]
Chelmer admitted that it entered into discussions initiated by Lucsan concerning a brokering arrangement with respect to the NSX Equities Project but denied entering into the brokering agreement and denied entering into any sort of brokering arrangement or agreement with Lucsan whereby Chelmer would pay Lucsan an amount for brokering a deal with FEX. Chelmer admitted that it did not disclose to FEX the discussions that it had with Lucsan concerning a brokering agreement for the NSX equities agreement and denied that it was required at law to disclose the negotiations it had with Lucsan concerning the agreement or any negotiations at all. [541] Chelmer contended that FEX could go elsewhere if it did not like its quoted price although it acknowledged that the project was a bespoke project that was highly technical and not readily able to be purchased. [542]
Mr Robertson conceded that the hours on which the cost of the project were structured were inflated to take account of the $26,000 to be paid to Lucsan over and above other risks structured into a fixed price agreement. [543]
Chelmer conceded that the $26,000 was the most difficult part of its case. [544]
I do not accept Mr Robertson's evidence that that proposed payment of $26,000 was a facilitation or referral fee and not a brokerage fee. There is no document that supports such a contention. Mr Robertson conceded that Chelmer entered into discussions concerning a brokerage agreement in relation to the Equities Project with Lucsan. [545] The "Service Brokering Agreement" envisaged that the basis it was seeking to be remunerated by Chelmer was for brokerage. The reference to 7% margin in Exhibit 5 does not equate to the quantum of $26,000 and does not represent the way the parties agreed that Lucsan would be remunerated. I cannot determine whether Lucsan's request for the contract to be between Chelmer and FEX rather than itself was to distance itself so it could receive the kickback or facilitation as FEX contended.
In Kuligowski v Metrobus the High Court stated:
In general, disbelief in a witness's evidence does not establish the contrary. Similarly, disbelief in the case presented by the moving party does not necessarily permit the court to conclude that the positive case of the opposing party is correct. In particular cases it may not be possible to reach a conclusion either way:
The judge is not bound always to make a finding one way or the other with regard to the facts averred by the parties. He has open to him the third alternative of saying that the party on home the burden of proof lies in relation to any averment made by him has failed to discharge that burden. [546]
A failure to find a matter alleged does not establish the truth of the contrary of that which is alleged. There are many general statements about the operation of issue estoppel, approved in this court, which require more than non-satisfaction to establish an estoppel in later proceedings. [547]
In Fazio v Fazio, [548] in the context of upholding the trial judge's rejection of witness evidence and subsequent drawing of an inference of the existence of a contrary state of affairs, Murphy JA stated:-
[151] … The rejection of the evidence led by the appellant in relation to the '1982 agreement' did not, of course, mean that the judge should necessarily draw the inference that he did. A failure to find a matter does not establish the truth of the contrary of that which is alleged: Kuligowski v Metrobus [2004] HCA 34; (2004) 220 CLR 363 [60]. Nevertheless, in the evaluation of the evidence for the purposes of determining whether to draw inferences, the court may more readily draw an inference which is open according to 'experience and knowledge of human affairs', in the absence of any plausible competing hypotheses: Martin v Osborne (381).
In the circumstances of this case, I am satisfied that Chelmer had agreed to pay the sum of $26,000 to Lucsan in return for it brokering a deal with FEX. Such was the nature of the discussions it conceded having with Lucsan and which Lucsan appears to have acknowledged. There is no evidence that Chelmer rejected or sought to recast the proposal to its contended characterisation. Nor has any explanation been provided as to the reason, if any, why it would have done so.
[34]
Did Chelmer Mislead or Deceive?
The question which now arises is whether Chelmer, by failing to disclose the brokering agreement to FEX, engaged in misleading or deceptive conduct or conduct that was likely to mislead or deceive in contravention of s 52 of the Trade Practices Act 1974 (Cth). [549]
Whilst Chelmer disputed that Lucsan recommended it to FEX for the FEXE/WebFEX project and denied that there was a brokering agreement, it did not contend that if both these issues were determined adversely to it, such conduct would not amount to a contravention of s 52 of the Trade Practices Act 1974 (Cth).
In Demagogue v Ramensky, [550] Gummow J set out the approach to be adopted in determining whether conduct falls within s 52 stating at [41]:
But, consistently with regard to the natural meaning of the terms of s 52, the question is whether in the light of all relevant circumstances constituted by acts, omissions, statements or silence, there has been conduct which is or is likely to be misleading or deceptive. Conduct answering that description may not always involve misrepresentation.
In Miller & Associates Insurance Broking v BMW Australia Finance, [551] the High Court considered an insurance broker's failure to provide information about the nature of loan policy to a lender. French CJ and Kiefel J (as she then was) stated:
[20] In commercial dealings between individuals or individual entities, characterisation of conduct will be undertaken by reference to its circumstances and context. Silence may be a circumstance to be considered (60). The knowledge of the person to whom the conduct is directed may be relevant. Also relevant, as in the present case, may be the existence of common assumptions and practices established between the parties or prevailing in the particular profession, trade or industry in which they carry on business. The judgment which looks to a reasonable expectation of disclosure as an aid to characterising non-disclosure as misleading or deceptive is objective. It is a practical approach to the application of the prohibition in s 52 (61).
[21] To invoke the existence of a reasonable expectation that if a fact exists it will be disclosed is to do no more than direct attention to the effect or likely effect of non-disclosure unmediated by antecedent erroneous assumptions or beliefs or high moral expectations held by one person of another which exceed the requirements of the general law and the prohibition imposed by the statute. In that connection, Robson A-JA in the Court of Appeal spoke of s 52 as making parties "strictly responsible to ensure they did not mislead or deceive their customer or trading partners" (62). Such language, while no doubt intended to distinguish the necessary elements of misleading or deceptive conduct from those of torts such as deceit, negligence and passing off, may take on a life of its own. It may lead to the imposition of a requirement to volunteer information which travels beyond the statutory duty "to act in a way which does not mislead or deceive" (63). Cicero, in his famous essay On Duties, seems to have contemplated such a standard when he wrote (64):
"Holding things back does not always amount to concealment; but it does when you want people, for your own profit, to be kept in the dark about something which you know and would be useful for them to know."
It would no doubt be regarded as an unrealistic expectation, inconsistent with the protection of that "superior smartness in dealing" of which Barton J wrote in W Scott, Fell & Co Ltd v Lloyd (65), that people who hold things back for their own profit are to be regarded as engaging in misleading or deceptive conduct. As Burchett J observed in Poseidon Ltd v Adelaide Petroleum NL (66), s 52 does not strike at the traditional secretiveness and obliquity of the bargaining process. But his Honour went on to remark that the bargaining process is not to be seen as a licence to deceive, and gave the example of a bargainer who had no intention of contracting on the terms discussed and whose silence was to achieve some undisclosed and ulterior purpose harmful to a competitor.
[22] However, as a general proposition, s 52 does not require a party to commercial negotiations to volunteer information which will be of assistance to the decision-making of the other party. A fortiori it does not impose on a party an obligation to volunteer information in order to avoid the consequences of the careless disregard, for its own interests, of another party of equal bargaining power and competence. Yet that appears to have been, in practical effect, the character of the obligation said to have rested upon Miller in this case.
[23] Reasonable expectation analysis is unnecessary in the case of a false representation where the undisclosed fact is the falsity of the representation. A party to precontractual negotiations who provides to another party a document containing a false representation which is not disclaimed will, in all probability, have engaged in misleading or deceptive conduct. When a document contains a statement that is true, non-disclosure of an important qualifying fact will be misleading or deceptive if the recipient would be misled, absent such disclosure, into believing that the statement was complete. In some cases it might not be necessary to invoke non-disclosure at all where a statement which is literally true, but incomplete in some material respect, conveys a false representation that it is complete. (footnotes omitted) (emphasis added)
The general rule is that a party can still engage in misleading or deceptive conduct as contemplated by the strict liability in section 52, without having any intention to mislead or deceive. [552]
I accept that absent the information provided in the agreement as to the number of hours which informed the work, the contract price was misleading and deceptive. Alternatively, the contract did not reveal that part of the contract price was to be remitted to Lucsan for their role in brokering the agreement with Chelmer making the statement incomplete in a material respect.
The basis of FEX's claim in [27] of the Cross Claim is that it lost the opportunity to negotiate with Chelmer in relation to a lower price or alternatively find another independent supplier. Ultimately the case put by FEX was confined to the former. [553] During cross examination, it was put to Thomas Price that the claim that FEX brought against Lucsan in the Supreme Court included a claim in relation to the brokering or side deal between Chelmer and Lucsan. [554] Thomas Price stated that he did not know if this was the same allegation that he was making in this case however he conceded that FEX (in those proceedings) received a net notional settlement amount in respect of its claim in the Supreme Court of $1,658,000. [555]
Chelmer did not contend or plead that the settlement in the Supreme Court estopped the FEX's claim in this Court. Chelmer was the recipient of the $26,000 as it was not paid to Lucsan or returned to FEX.
The relevant principles for determining causation under s 82 of the Trade Practices Act 1974 were summarised in Protec Pacific Pty Ltd v Steuler Services. [556] In this case FEX was deprived of the opportunity to negotiate an alternative transaction that did not include the inflated amount and indeed paid the inflated amount. That amount is ascertained and clearly ascertainable. [557]
I am satisfied therefore that by its conduct Chelmer contravened s 52 in circumstances that caused FEX to incur a loss of $26,000.
[35]
Paragraph 10 (a) of the Cross Claim
FEX contented that between May 2007 and July 2008 Chelmer represented to FEX that Chelmer had extensive experience in providing trading technology solutions for derivative exchanges.
FEX relied on six expertise representations one of which went to Chelmer's experience and the balance addressing experience and expertise of Chelmer's employees.
Chelmer argued that FEX has not referred to any evidence to establish that this representation was in fact made. [558] So far as I can ascertain, FEX relied on the email of 19 June 2008 when Mr Robertson wrote to Mr Hulst in the following terms:
The FEXD gateway is not the first FIX gateway that we are building as you know we do all the xstream FIX gateways now-so this will be our 7th by the time it's finished. So FEX is already benefiting in Chelmer expertise, tools, test, etc that we have already got-the assumption is using another vendor to do the same work would take longer and cost more, so FEX is already benefiting. [559]
Whilst FEX in its submissions referred to Chelmer evidently not having the expertise to develop the FEXE/WebFEX software given what it asserted were the failures of the software [560] it did not refer to evidence of particular representations nor plead any.
The evidence as to representation was as follows.
On 17 March 2008 FEX received the final version of the Statement of Works which expressly stated that Chelmer had no previous experience interfacing to approximately 70 AMP messages [561] required by FEXD. [562]
On 17 March 2008 FEX were expressly informed by Mr Lucero:-
" … FEX (Lucsan) was providing a lot of derivatives expertise for Chelmer to develop a unique solution - Chelmer does not have the expertise in derivatives or the knowledge to make it happen, also this is a separate project from Equities from a business perspective and very little leverage due to different or complex business requirements." [563]
Mr Hulst acknowledged receipt of this email [564] and further he was present when this information was conveyed and discussed with Thomas Price. [565] Mr Thomas Price stated that he could not recall being so informed. [566]
Mr Hulst could not have been misled on this issue. As at 4 April 2008 he conceded as much stating that FEX was aware of the lack of derivatives experience and to use his word "we believed we had that covered." [567]
Mr Robertson acknowledged that in terms of that email all the previous exchanges he had worked on were equities exchanges and he hadn't previously built a derivatives exchange. [568]
However his email of 19 June 2008 made no representation to the effect pleaded that he had extensive experience in providing trading technology for derivatives exchanges.
Thomas Price gave evidence that he could not recall being informed of Chelmer's lack of experience with derivatives exchanges but stated after signing the agreement to engage them:
Q. But they've told you in this document that they haven't done parts of this project before
A. Yep.
Q. some of the aspects are new
A. Good point. Parts of it. I assumed because I was getting recommendations, they could do it. I assumed the parts they couldn't do could be overcome, and they had enough experience to do the whole thing. I mean, if I knew categorically they couldn't do it, I assume I wouldn't have hired them. [569]
FEX in its submissions referred to Mr Robertson's email of 19 June 2008 lending support to Thomas Price evidence was that "you do not want to change technology provider in midstream." In my view Thomas Prices' evidence as expressed can have little if any probative force given the context in which it was given. When asked as to why he decided to engage Chelmer for the Derivatives Project he stated:
A. I don't know. The advice I would have got - well, I can speculate that we were aware, and it's only speculation that Lucsan and Chelmer had an agreement, a backdoor brokering agreement, and so I think that, possibly, Lucsan would have pushed hard for them, in the face for that, saying that they had a bit more experience in derivatives than they did in equity, notwithstanding where they couldn't do those other tags, so I can only assume I was led to believe that they could - with the failings of they, they could still perform on this, and, also, I'm in a position where it's difficult to change, because you're so far down the river with a certain contractor, and it's very difficult, so a confluence of all those facts led me to do that. [570]
I accept Chelmer's argument that even if this representation was made, FEX in any event has not established causation as Chelmer properly disclosed that it had no expertise in derivatives or knowledge to make it happen. In the circumstances of the above mentioned disclosures, the choice to engage Chelmer for the Derivatives Project was made by FEX particularly as there was evidence of an alternative service provider (Metabit) able to carry out the FEXD Project. [571]
[36]
Paragraphs 10(b) to (f) of the Cross Claim
FEX contended that between May 2007 and July 2008 Chelmer represented to FEX that:-
1. Chelmer was able to provide to FEX the services of employees for Chelmer who had sufficient expertise to advise FEX on the design, implementation and configuration of a FIX Gateway and WebFEX Interface;
2. Chelmer was able to provide FEX with services of employees of Chelmer who had sufficient experience and expertise in project managing the design, implementation and configuration of a FIX Gateway and WebFEX Interface;
3. Chelmer was able to provide to FEX the services of employees of Chelmer who had sufficient experience and expertise in the configuration of a FIX Gateway for the FIX Derivatives Exchange;
4. Chelmer was able to provide to FEX the services of employees of Chelmer who had sufficient experience and expertise to advise FEX in relation to the development of a FIX Gateway to plug the FIX Gateway into the X-Stream trading engine used for the FEX Derivatives Exchange and to advise FEX in relation to the required number of AMP messages and FIX messages, and
5. Chelmer was able to provide to FEX the services of employees of Chelmer who had sufficient experience and expertise to advise FEX in relation to the WebFEX Interface in order to allow the interface to function and compete with IRESS (together with expertise representations).
Particulars
1. The expertise representations were partly express and partly implied;
2. The expertise representations were partly oral and partly in writing;
3. So far as the expertise representations were in writing, they were included in the various drafts of the document entitled "FEX Derivatives FIX Adaptor Project Business Requirements Specification" and "FEX Auto Routing Hub and NSX Connectivity".
4. So far as the expertise representation were oral, they were made during conversations between Chelmer's officers, staff or agents to FEX's officers or staff or to Lucsan's officers or staff.
5. In so far as the expertise representations were implied they could be inferred through Chelmer holding itself out at being able to build the FIX Gateway and the WebFEX Interface in a way which could suit the aims and functionalities of the proposed FEX Derivatives Exchange (in the case of the FIX Gateway and FEX's strategic objectives in the case of WebFEX).
6. FEX would provide further particulars after discovery in evidence. [572]
The broader claim as to misleading or deceptive conduct based on expertise representations were set out in paragraphs [25] to [26] of the Cross Claim.
Chelmer contended that the Court should not find that these representations were made (as a matter of fact) for the following reasons:-
1. First, the only representation that goes to a future matter is that in Chelmer "was able to provide the employees" being a distinct and separate question to whether the employees themselves had experience.
2. Second, it is not in issue that the employees identified in the document titled "FEX Auto Routing Hub and NSX Connectivity Project Definitions" and Statement of Works were as a matter of fact, in the FEXE/WebFEX and FEXD Projects, and Chelmer has discharged its onus in this regard.
3. Third, no serious challenge was put to those employees who were cross examined that their experience and expertise did not reflect that communicated by Chelmer when it disclosed who was to be involved in the FEXE/WebFEX and FEXD Projects. [573]
4. Fourth, there is no evidence that the terms of each key persons experience as disclosed by Chelmer in writing FEX [574] is not true and accurate. Nor has FEX adduced any expert evidence that those persons identified as key resources had insufficient experience;
5. There is no evidence that Chelmer was engaged to provide alternative advice to FEX as its only obligation was to provide as per the Statement of Works. The Court should find that it was Lucsan's responsibility to provide technical advice regarding the WebFEX Project and the FEXD Project, and
6. FEX has not referred to any evidence to establish that these representations were as a matter of fact made and it bears the onus in that regard.
I accept Chelmer's submissions. The only representation made as to the future was that Chelmer would provide employees, which was separate to the question of their experience. There was no issue that the employees specified in the documents referred to were supplied and to this extent Chelmer has discharged its onus. There was no challenge to the employees expertise not in fact reflecting what was disclosed and no submissions to this end was made. Nor has FEX argued that the asserted expertise was not truthful and accurate. Nor was any expert evidence adduced to suggest that the persons had insufficient experience. As it was for FEX to establish that any representations as to their expertise was false and misleading and it has not done so, its claim in this regard must fail.
[37]
Damages for Misleading or Deceptive Conduct
FEX particularised its claim for damages for misleading or deceptive conduct on the basis of a contravention of s 52 and s 51A of the Trade Practices Act 1974 (Cth) with respect to expertise representations. Its claims in paragraphs 21(i) and (iii) of the Cross Claim asserted an alternative transaction case whilst paragraph 28 (ii) advanced a "no transaction case." Chelmer argued that there was no evidence to this end. [575] Ultimately, FEX clarified in oral submissions by its Counsel that the basis of its claim was that the money it had expended was completely wasted. [576] That could, as Chelmer pointed out, only succeed if FEX established that it would not have entered into any agreements with Chelmer had the expertise representations not been made.
For the following reasons given this has not been established.
[38]
Background
Aside from asserting breaches of contract by Chelmer, FEX argued that there was no project cancellation by it in relation to the FEXD Project. Rather it asserted that it terminated the FEXD contract for cause or that the contract had been repudiated by Chelmer which FEX accepted. [577]
Mr Robertson stated that around April 2009 he received a telephone call from Daniel Tribe of FEX in which Mr Tribe told him that he needed to get the Derivatives Project back off the ground and asked if he could update him on where things were at. Mr Robertson said that Mr Tribe stated "The project is currently parked but we are ready to kick it off again." [578] This was followed up in an email from Mr Tribe dated 4 May 2009 in which he asked:-
"What will it take from us (FEX) to get the Derivatives Project started again?" [579]
On 2 June 2009 Mr Robertson received an email from Ann Bowering from FEX. In it Ms Bowering states:
I am putting together some financial forecasts for the FEX Derivatives business. One possible line items is annual support charges for the Cameron FIX interface. I can't see any numbers relating to annual charges in the draft documents that I have. Are you able to point me in the right direction. [580]
Mr Robertson responded to that email on the same day. He stated:
As I recall there were no numbers provided by us previously. I believe there are two reasons for this:
1. Cameron royalty/maintenance fees will be determined by the system configuration - ie how many gateways get used, whether they are replicated, the add on options that get used like Market mirror, market data server, FAST etc
2. The Chelmer component of maintenance and support-relates to point1 (ie configuration-whether we were to support the gateway as a whole ,ie hardware, operating system and the application or just the FIX application, and what the Service Levels required would be, there was talk of 24 hour markets etc.
For budgetary purposes it would be a bit of a stab in the dark at this stage but you could allow the following for worst type scenarios.
1. Between 6,000 and 9,000 USD depending on configuration options per month for Cameron software licences. This allows for unlimited number of gateways on one site, and also testing, Dr etc versions.
2. Chelmer support-everything form hardware up 24 hours with 20 minute SLA approx. 6,000 USD per month.
That just leaves the capex costs for buying the hardware and the hosting costs of having the hardware sit somewhere. We can do both those as well as monthlies if required. [581]
On 14 August 2009 Mr Robertson received an email from David Commins of FEX in which he states:-
"… John Hulst and I are reviewing our options relating to the addition of a FIX gateway and was hoping you could provide me with some additional information. I understand you have performed work on FIX for us in the past and have reviewed the emails/documents you have forwarded to John. What I am trying to identify is (a) what exactly has been completed to this point and (b) what you require from us to provide a quote for completion of the FIX gateway and the development support costs from Chelmer and Orc". [582]
Further to that email a telephone conversation was deposed to by Mr Robertson, in which Mr Commins said that he would email him as to his requirements. [583] A number of emails between Mr Commins and Mr Robertson on 19 August were produced to that end. [584]
This culminated on 19 August 2009 at 12.53pm with Mr Commins emailing Mr Robertson in the following terms:
As I am providing management with a high-level report this Friday, I think at this point we progress assuming you will complete the work in its current language (ie no conversion to Java). Once I received your updated project costing, timeframes, Cameron & Chelmer support/maintenance costs, I will note in my report that we have the ability to move to Java. I will outline what benefits this will have for FEX and will ensure they understand this may require additional review/work/cost from you. [585]
On 20 August 2009 Mr Robertson at 3.36pm informed Mr Commins that:
I can confirm that Chelmer will not amend the commercials for the FEXD FIX work, other than changing the payment schedule.
I have also attached the CIR register as it was when work topped. The main outstanding issue us Change Request 10-requiring the addition of the market Mirror in the ORC FIX gateway. We estimate that this will add some complexity and work to the project-which we estimate is approximately $30,000. This brings the proposed Change control costs to $45,000 above the original proposal. Note that if the Market mirror is adopted (and Chelmer believe there is no alternative) then this also has an impact on ORC licence costs.
Licence costs, maintenance and ongoing support costs
$14,000USD per month ……… [586]
Thereafter it appears that there was no communication between the parties during the period 21 August 2009 to 4 November 2009.
On 5 November 2009 an email was forwarded by Mr John Hulst to Mr Robertson stating:-
"Thank you for providing FEX with a response to our most recent request regarding the development of a FIX gateway for the FEX Derivatives exchange and for your interactions with David Commins as we confirmed the details of the proposals. As you are aware, FEX has sought responses from a variety of providers. After careful consideration of the responses received we have decided to proceed with another provider.
Thank you for all your efforts on behalf of FEX as we continue to develop our business." [587]
On 24 November 2009 Chelmer issued tax invoice CH013 in the sum of USD$121,654.66, the due date for payment of 20 December 2009. [588] That invoice was said to be constructed on the basis of a total of 1,725 chargeable hours for the FEX Derivatives Project. It was derived from the report generated from Time disciple. [589] According to Mr Robertson the report was printed out on 24 November 2009. [590]
On 24 November 2009 Mr Robertson replied to Mr Hulst's email of 5 November 2009, enclosing work/timesheets for the FEX/FIX Derivatives Gateway Project and the invoice for work. [591]
Mr Hulst responded on the same day relevantly stating:-
"Hi, I have looked into our records for a signed copy of the Statement of Work and haven't been able to find one (I have a couple of unsigned ones). Would you be able to get someone to scan in the signed page and send it to me? I would also like to understand when the claimed additional work is said to have occurred, is your project effort tracking software able to provide a breakdown on a weekly basis (or monthly if weekly is not available)? Also I know that I will need to tie the effort recorded to deliverables received by FEX so any help you can provide here would be most welcome. I don't believe that we have any FIX gateway software on our servers. [592]
Mr John Hulst accepted that the fact that he asked Mr Robertson in the said email for a signed copy of the Statement of Works for the Derivatives Project would imply that at that time he did not have one when he sent his email of 5 November 2009. [593]
Following on from the email of 24 November 2009, Mr Robertson stated that he understood that he was to deal with Thomas Price regarding the outstanding invoice. On 22 February 2010 Mr Robertson stated that he had a telephone discussion with Thomas Price in which the he told him that he needed to get internal approval before payment. [594]
Shortly following that conversation Mr Price forwarded an email to Mr Robertson seeking clarification as to the amounts paid by FEX. [595] That was responded to by Mr Robertson on the same day. [596] Mr Robertson wrote;
Thanks for your time today. FEX via Lucsan engaged Chelmer in 3 projects-which were quoted for separately. It is only the FEX Derivatives FIX gateway project that is the point of discussion and the outstanding invoice.
The 3 projects were;
1. FEX FIX Hub Routing and NSX FIX gateway connectivity. The NSX accredited this 15 October 2007. Cost $124,000 USD
2. WebFEX- Web trading workstation for FEXSim/NSX $105,700 USD
3. FEX Derivatives
On 1 June 2010 Mr Robertson wrote to Mr Brian Price, the Chief Executive Officer of the FEX Group, stating:
Chelmer has been in discussion with John Hulst and Tom Price regarding outstanding invoice CH013 relating to the Derivatives Fix Gateway Project.
Since 22/2/10 communications between Tom Price and I have ceased; unfortunately my attempts to finalise settlement of the invoice have been ignored.
Although my preference is to resolve this matter directly with Tom, at this stage I do not believe it is possible. Hence this letter, requesting your prompt intervention in the matter.
In summary FEX contracted Chelmer to develop a FIX gateway for the FEX derivatives trading system; FEX confirmed in writing to proceed with Phase One and Phase Two of the proposal.
On 5/11/09 Chelmer was informed via email by John Hulst that were no longer required for the project. Accordingly Chelmer acknowledged the receipt of the official termination notice and issued an invoice as per the signed statement of work for the outstanding hours worked to John Hurst.
The invoice was then referred to Tom Price. I had a telephone conversation on 212/2/10 with Tom in which the invoice detail and Chelmer's involvement in the project were discussed. Tom implied he needed to refer the invoice internally but there has been no correspondence since, despite my best efforts regarding the payment status of the invoice.
Chelmer is seeking a confirmation payment date for invoice CH013.
I you have any queries pertaining to this matte, please do not hesitate to contact me on [redacted] [597] .
…
It is not in issue that the terms of the Specifications stated:
[7.1]
• …
• …
• Cancellation Policy: FEX shall give Chelmer 10 business days advance written notice of project cancellation. Upon receipt of cancellation, all time billed to the project and expenses incurred by Chelmer will be invoiced to FEX. [598]
Chelmer asserts that FEX cancelled the project pursuant to the said clause 7.1 on 5 November 2009 when Mr Hulst sent the email to Chelmer such that it was entitled to payment pursuant to the cancellation policy.
[39]
FEX Submissions
FEX admitted to the sending of the email of 5 November 2009 but otherwise made no further admissions. [599]
FEX argued the correct approach to construction of the agreement commenced with the consideration of the language used by the parties, while the Court could also have regard to the objective surrounding circumstances as an aide in the construction of the terms. It maintained that as the terms of the agreement had been prepared by Chelmer, [600] then they should be construed strictly against it.
FEX argued that the content of "project" informed the Court as to whether there was a "project cancellation". It was stated that the Derivatives Project was not "cancelled" but rather what took place was a termination for cause. FEX submitted that the evidence amply demonstrated serious concerns that John Hulst and others at FEX had in relation to Chelmer's conduct, especially in relation to the FEXE/WebFEX Project and the email of 1 April 2008 from John Hulst. It was argued that in the context of Chelmer's continued failure to deliver on that project, Chelmer's arguments are disingenuous and ought to be rejected.
Whilst FEX concedes that Chelmer might have been entitled to seek its losses on termination, it had not done so and rather relies strictly on the "cancellation policy".
FEX ultimately contended that there had been repudiation by Chelmer of the contract by seeking to change its terms ("other than changing the payments schedule") which were accepted by FEX or termination by FEX for cause.
In written submissions, FEX argued that the proposal of new terms, especially as to payment schedules on 20 August 2009 but also in relation to the cost of the project and the additional costs to continue the project as set out in the email dated 2 June 2009, constituted acts of repudiation. In oral submissions FEX's counsel appeared to narrow its repudiation argument to the change of the payment terms. [601] It was submitted that the repudiation was accepted by FEX on 5 November 2009 [602] such that the contract was terminated as at that day.
FEX relied on the statement of principle referred to by Kunc J in Southern Cross Autoglass Pty Ltd v Protector Glass Industries Pty Ltd: [603]
[123] The relevant legal principles are not in doubt (for what follows see Laurinda Pty Limited v Capalaba Park Shopping Centre Pty Limited [1989] HCA 23; (1989) 166 CLR 623 at 634, 643, 658 and 664-7; Foran v Wight [1989] HCA 51; (1989) 168 CLR 385 at 441). A party will be taken to have repudiated a contract if it manifests the intention no longer to be bound by it or to fulfil it only in a manner substantially inconsistent with that party's obligations and not in any other way. That manifestation may occur before performance is due (known as anticipatory breach) and does not depend upon the existence of an actual intention to repudiate. Rather, the Court looks to how a reasonable person, in the position of the "innocent" party, would view the allegedly repudiatory conduct.
On the analysis of Kunc J as to a letter sent in that case (referred to at [53] of the judgment), FEX argued by way of analogy as to what could amount to repudiation. FEX's counsel stated:
AFSHAR: Yes. Southern Cross. The submissions refer to para 123 of those submissions, which is a statement of principle, which I of course agree with. One can't but agree. But what it leaves out is the analysis that Kunc J had to go through to get to the result that his Honour did, and can I just give your Honour the reference.
That entire case concerned a piece of correspondence that was sent on 23 January that his Honour calls the 23 January letter. It's extracted at para 53 of his Honour's judgment. And if your Honour has a look at that, your Honour would derive from it some comfort, because that is a letter, in very - it's much longer and perhaps a bit more detailed, but in very many ways, it is very similar to what Mr Robertson was saying. He was saying, "I'm not prepared to go ahead with the contract which we have reached."
And my learned friend has made a number of submissions about how important, how high, the threshold is. It isn't. Once your Honour objectively construes that email, if your Honour objectively construes that email as a repudiation, as an intention not to continue with the deal, the bargain that had been reached. Then that is repudiatory conduct based on what his Honour Kunc J found in this case. [604]
FEX alternatively submitted that it terminated the contract for cause, as Mr Hulst stated in his affidavit that there were concerns at around May 2008 arising from the exceptionally poor results of performance testing of WebFEX. [605] Mr Hulst's evidence was that FEX's directors were becoming concerned about delays in the development of the product in conversations with Tom Price, which were overshadowed by FEX's financial situation which led to a decision to conserve financial resources and de-prioritise the WebFEX and the FIX Projects given the workmanship demonstrated by Chelmer. [606] Mr Hulst stated that in or about 20 August 2008, FEX was tardy in its payments to Chelmer but was growing increasingly concerned with the quality of Chelmer's work. Notwithstanding those concerns payment decisions were still being made by FEX's director, Tom Price. [607]
[40]
Chelmer Submissions
Chelmer argued that repudiation was a serious matter and not likely to be found or inferred. It pointed out that the only conduct relied upon by FEX as repudiatory conduct is Chelmer's actions in seeking to change the terms of the payment. [608] It was submitted that Chelmer never sought to resile from the terms of the Statement of Works for the Derivatives Projects signed and accepted by FEX on 16 July 2008 at any time. This was made clear from Mr Robertson's email of 20 August 2009, where he expressly states that "Chelmer would not amend the commercials for the FEX D FIX work, other than changing the payments schedule." [609]
That email was in response to Chelmer's inquiry made on 14 August 2009 for a quote to complete the FEX D Project. [610] Chelmer submitted that the terms of the email demonstrate that Chelmer was ready, willing and able to complete the FEX D Project which fell well short of the conduct amounting to repudiation referred to in Laurinda Pty Ltd v Capalaba Parks Shopping Centre Pty Ltd [611] and Foran v Wight, [612] as referred to by Kunc J in Southern Cross Autoglass Pty Ltd v Protector Glass Industries Pty Ltd. [613]
Chelmer submitted that FEX has not identified any other conduct that it says amounts to repudiation, nor could it, and in the circumstances Chelmer was ready, willing and able to complete the Derivatives Project. Finally, it argued that no criticism could be levelled at Chelmer for not delivering a finished project or code for the Derivatives Project in circumstances where the project was suspended by FEX and thereafter terminated by it prior to Chelmer delivering any software for UAT testing.
Chelmer noted that pursuant to the terms of the Statement of Works, it should have invoiced a further 30% for stages 1 and 2 upon delivering the software to FEX for user acceptance testing. [614] In circumstances were there was no evidence that these invoices were issued by Chelmer or any demand made for payment, it stated that it could be inferred that Chelmer was not obliged to deliver any software to FEX as at 5 November 2009 and were subsequently prevented from doing so due to FEX's unlawful termination of the contract at the time. Accordingly, it is argued that the Court should find that FEX has not lawfully terminated the Derivatives contract and has simply terminated for convenience when it decided to proceed with another technology provider. [615]
Chelmer argued that whether or not cancellation was for cause did not matter, although the Court would find that the termination of the contract occurred on 5 November 2009 as it asserted and that FEX cancelled the contract wholly and solely for its convenience and without proper cause or notice. [616]
Chelmer submitted that the Court should find that FEX cancelled without cause for the following reasons:-
1. There was no suggestion in the pleadings FEX cancelled the contract as a result of any alleged breach by Chelmer.
2. The objective evidence demonstrates FEX did not have any concerns with the work provided by Chelmer under the Derivatives Project. That evidence includes the terms of the email of 5 November 2009. [617] Further FEX sought out Chelmer to provide a quote to complete the Derivatives Project, more specifically:-
1. on 14 August 2009 David Commins an employee of FEX asked Chelmer via email to provide a quote to complete the Derivatives Project [618] . Chelmer noted that Mr Tom Price admitted that as at September 2009 he had no reason to believe that Mr Commins was not good at his job or did not take it seriously and did his utmost as far as he was aware to do a good and proper job [619] .
2. On 19 August 2009 further information was provided by Mr Commins by email [620] .
3. On 20 August 2009 Chelmer sent an email expressly stating that it would not amend the commercials for the FEX work, other than changing the payments schedule [621] .
1. Mr Hulst's evidence in chief was said to not suggest that he or FEX had any concerns whatsoever with the work that Chelmer did on the Derivatives Project prior to 5 November 2009. [622] Whilst Mr Hulst denied in cross examination that he did not have concerns as at 5 November 2009, [623] there was no objective evidence to support such a contention. Moreover there is no evidence as to the type, nature or manner of those concerns.
2. It was inherently improbable that FEX would:-
1. continue to make payments to Chelmer throughout the period March 2009 to June 2009; [624] and
2. actively seek a quote from Chelmer to complete the Derivatives Project,
3. if it was not satisfied that the work Chelmer had already carried out on the project
1. Tom Price's evidence as to the reason why FEX changed providers being that Chelmer lacked efficiency in delivery [625] and because you do not want to change providers midstream [626] should be rejected for the following reasons:-
1. they arose for the first time during cross examination;
2. they were entirely self-serving;
3. they go no higher than bear assertion notwithstanding that relevant persons from FEX, Lucsan and Chelmer were all communicating via email frequently throughout the Derivatives Project;
4. they are not corroborated either by Ms Bowering or Mr Hulst, notwithstanding that Mr Hulst stated that was actively involved in the selection process for a new supplier. [627]
1. The objective evidence indicates FEX may not have been aware as to the pertinent terms of the specification regarding cancellation. So much it was said was evident from the fact that immediately after receiving the tax invoice upon which Chelmer sues on 24 November 2009, Mr Hulst [628] asked for a signed copy of the specifications. [629]
Chelmer in reply further argued that there was in fact no termination for cause because: -
1. FEX cannot rely on any alleged failures of Chelmer to deliver the WebFEX interface in circumstances where there are two separate contracts for the WebFex Project and the FEX D Project but no cost default provisions. It argued that any concerns that FEX may have had with respect to the FEX E/WebFEX Project even if found to exist as a matter of fact do not provide a lawful basis for FEX to terminate the Derivatives Project.
2. FEX has failed to identify what terms it says Chelmer breached, classify those terms for the purposes of determining consequences of any breach and identify the underlying conduct said to found the breach. Such that there was no breach of an essential term sufficiently serious breach of a non-essential term or repudiation or denunciation of the contract by the other party. [630]
3. There was no objective evidence of any complaint being raised at any time with respect to the Derivatives Project. To that end FEX's reliance on Mr Hulst' email of 1 April 2008 was misguided as that email was in respect to WebFEX failing load testing.
4. There was no complaint about the Derivatives Project in the email of 1 April 2008 or at any time prior to the purported termination taking place on 5 November 2009. It noted that the absence of any notice being made about the Derivatives Project was telling in circumstances where FEX, Plaintiff and Luscan were in regular contact via email all through the Derivatives Project.
5. Chelmer noted that FEX entered into a contract in respect of the Derivatives Project freely and voluntarily with full knowledge that WebFEX had failed the load testings done. It argued that it was inherently improbable that if FEX had any genuine concerns as to Chelmer's ability to deliver the Derivatives Project it would not have engaged Chelmer to carry out that project.
6. Chelmer drew attention that it was highly unlikely that FEX would make payments in March, April and June 2009 totalling USD$45,725.60 [631] after Chelmer had ceased working on the Derivatives Project on 13 November 2008 [632] if it had genuine concerns as to Chelmer's ability and/or Chelmer was in breach of a warranty or intermediate term.
7. Further, it argued it was improbable that David Commins, an employee of FEX, as Mr Price admitted took his job seriously and did his utmost to do a good job: [633]
1. would ask Chelmer what it would do to get FEXD "started again" on 4 May 2009 [634] .
2. asked Chelmer to provide a quote to complete the FEXD Project on 14 August 2009 [635]
1. If FEX indeed had a genuine concern about Chelmer's ability and/or Chelmer was in breach of an essential term or sufficiently serious breach of a non-essential term.
2. Finally, Chelmer draws attention to the fact that it was obliged to carry out proof of concept work for the Derivatives gateway. [636] It stated that the FIX gateway solution design document and POC test results [637] demonstrate that concept work was not only carried out but the FEX D FIX gateway was developed to a point where it would run for a limited number of tests (which were carried out) and met the performance requirements as specified by FEX. [638]
[41]
Determination
In Taouk v Assure (NSW) Pty Ltd, [639] Sackville AJA summarised applicable principles in relation to contractual interpretation stating:
"[101] The approach to the construction of contracts was authoritatively stated by the High Court in Electricity Generation Corporation v Woodside Energy Ltd (Woodside):
'[35] Both [parties] recognised that this Court has reaffirmed the objective approach to be adopted in determining the rights and liabilities of parties to a contract. The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding 'of the genesis of the transaction, the background, the context [and] the market in which the parties are operating'. As Arden LJ observed in Re Golden Key Ltd, unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption 'that the parties … intended to produce a commercial result'. A commercial contract is to be construed so as to avoid it "making commercial nonsense or working commercial inconvenience".'
[102] This statement of principle was endorsed by the High Court in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (Mount Bruce). In that case, French CJ, Nettle and Gordon JJ explained that:
'[50] Each of the events, circumstances and things external to the contract to which recourse may be had is objective. What may be referred to are events, circumstances and things external to the contract which are known to the parties or which assist in identifying the purpose or object of the transaction, which may include its history, background and context and the market in which the parties were operating. What is inadmissible is evidence of the parties' statements and actions reflecting their actual intentions and expectations.'
[103] In Mainteck Services Pty Ltd v Stein Heurtey SA (Mainteck), Leeming JA rejected the proposition that the question of whether a contractual provision is ambiguous can and should be resolved before regard is had to the surrounding circumstances and the commercial purposes or objects of the contract. Leeming JA pointed out that the proposition was inconsistent with the reasoning of the High Court in Woodside. His Honour observed that the words of a contract do not have a "natural" meaning that can be determined in isolation from the context in which they are used. Accordingly, a conclusion that language has a plain meaning reflects the outcome of a process of interpretation that has regard to context (emphasis in original)." [640]
FEX's submission that the contract should be interpreted strictly needs to be viewed in this light.
In Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd, [641] Gleeson CJ and Gummow, Heydon and Crennan JJ held:
[44] … The term repudiation is used in different senses. First, it may refer to conduct which evinces an unwillingness or an inability to render substantial performance of the contract. This is sometimes described as conduct of a party which evinces an intention no longer to be bound by the contract or to fulfil it only in a manner substantially inconsistent with the party's obligations. It may be termed renunciation. The test is whether the conduct of one party is such as to convey to a reasonable person, in the situation of the other party, renunciation either of the contract as a whole or of a fundamental obligation under it… Secondly, it may refer to any breach of contract which justifies termination by the other party…. There may be cases where a failure to perform, even if not a breach of an essential term (as to which more will be said), manifests unwillingness or inability to perform in such circumstances that the other party is entitled to conclude that the contract will not be performed substantially according to its requirements. This overlapping between renunciation and failure of performance may appear conceptually untidy, but unwillingness or inability to perform a contract often is manifested most clearly by the conduct of a party when the time for performance arrives. In contractual renunciation, actions may speak louder than words. (footnotes omitted)
[45] In the past, some judges have used the word "repudiation" to mean termination, applying it, not to the conduct of the party in default, but to the conduct of the party relying upon such default. It would be better if this were avoided
Koompahtoo Local Aboriginal Council v Sanpine Pty Ltd was followed in Protector Glass Industries Pty Ltd v Southern Cross Autoglass Pty Ltd, which was an appeal from the first instance decision of Kunc J referred to in submissions of the parties. His Honour's factual finding as to the particular letter in that case was ultimately not accepted. Barrett JA held:
[59] The question whether PGI, by sending the letter of 23 January 2009, repudiated the assets sale agreement is to be answered by deciding whether its conduct was of the quality referred to by Gleeson CJ, Gummow, Heydon and Crennan JJ in Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007] HCA 61; 233 CLR 115 at [44], that is, whether the conduct evinced "an unwillingness or an inability to render substantial performance of the contract" or "an intention no longer to be bound by the contract or to fulfil it only in a manner substantially inconsistent with the party's obligations". Such conduct may, it was said, be termed "renunciation". The test is "whether the conduct of one party is such as to convey to a reasonable person, in the situation of the other party, renunciation either of the contract as a whole or of a fundamental obligation under it".
[60] PGI's conduct was not of this quality. Its letter drew attention to the need for SCA "to resolve the legal matter that is causing uncertainty over the fact that Southern Cross does not seem to have an unqualified right to sell its assets to PGI". The statement in the letter's penultimate paragraph that PGI would "have to terminate the Asset Sale Agreement" did not manifest an intention to renounce the contract. Rather, it put SCA on notice that if at the end of the specified period, SCA had not resolved the "legal matter" regarding ownership of the subject assets, PGI would regard itself as in a position where the subject matter for which it had bargained (and which SCA had promised to give) could not be delivered to it. Taken as a whole, the letter evinced a desire and an intention to see the contract completed according to its terms - emphasising, however, that those terms contemplated the giving of clear and unclouded title by SCA and that it was for SCA to find within a reasonable time means of achieving this in the face of the clearly flagged claims by the liquidators of NMA. [642]
In this light, the email of 20 August 2009 cannot amount to a repudiation of the contract. Its contents made clear that none of the commercials were sought to be changed. The email does not set out any detail as to how the payment schedule would be proposed to be changed. It concludes that Chelmer "is happy to have a chat about any of this…. at a time that suits tomorrow." FEX has not demonstrated how this would convey to a reasonable person in its position renunciation of either the whole contract or a fundamental obligation under it.
Nor do I consider that FEX has demonstrated that it terminated the contract for cause assuming that doing so would avoid the consequences of clause 7.12.
Whatever the performance issues arose in relation to the Equities Project. FEX:
1. Entered into the Derivatives contract notwithstanding;
2. Made no complaint in relation to performance issues arising under it.
3. Paid all outstanding invoices from March to June 2009 notwithstanding the performance complained of in relation to the Equities project.
4. Invited Chelmer to resubmit after the performance issues arose and after it made its suspension decison
5. Did not communicate any performance issues in the email of 5 November 2008 or thereafter in subsequent correspondence.
When challenged about these features FEX's counsel the response was that the case on repudiation was stronger. [643] FEX did not otherwise deny these features.
In light of the objective evidence, I am unable to accept the evidence of FEX's witnesses that the reason for the termination of the Derivatives contract was because of Chelmer's non-performance in relation to the Equities project even accepting their interrelationship.
The evidence of Thomas Price as to why, notwithstanding the performance issues now asserted, FEX approached Chelmer to make a further proposal was expressed as follows:
Q. Can I do it another way. By October 2009, you certainly would accept that FEX had obtained a quote from my client to finish the job.
A. By when, sorry?
Q. By October 2009
A. Yes, yep.
Q. FEX had obtained a quote from client's finished job.
A. Yep.
Q. As at that time, you had no reason to believe that Chelmer couldn't complete the job properly and adequately.
A. Yeah, I did.
Q. Then why did you get a quote from them, sir?
A. I don't know why they quoted from them. I think - if I can recollect, I think we just - I can't remember why they would have put them in there, but I got - I think what - what it was is we knew - I do know about technology that it's very, very difficult to change midstream. You do not want to change your technology provider midstream, right. So, I think if my recollection is correct, what we did was I knew Chelmer was deficient in what they were - were providing, but when you're so far down the river, it's difficult to change providers. It's very difficult, right.
Q. You certainly didn't tell Chelmer about the deficiencies or the problems that you had with Lucsan by October 2009, did you?
A. I don't think I did. [644]
This was an attempted reconstruction expressed somewhat equivocally rather than evidence that accounts for the actual decision that was made. It was not contained in Mr Price's evidence in chief and nor was it supported.
Whatever concerns that Mr Hulst expressed as to the results of the WebFEX testing, I accept that the financial situation of FEX was such that led to the decision to conserve resources and deprioritise the Projects.
It follows that I am not satisfied that Chelmer repudiated the FEXD contract and nor am I satisfied that FEX terminated for cause. In my view FEX cancelled the contract as Chelmer asserted.
[42]
LIMITATIONS
Although I have found against FEX's claim based in contract and negligence, I will proceed to consider Chelmer's limitation defences [645] in respect of these claims and the claim for misleading and deceptive conduct. It is not in issue that FEX's Cross Claim was filed on 15 August 2014.
[43]
Chelmer Submissions
Chelmer argued that the claim in contract was statute barred as any cause of action available in breach first arises when the breach of the contractual term occurred irrespective of when damage occurs or whether the contract has been terminated. In this respect, to the extent that any breach occurred on FEX's case, this must have been on 25 March 2008 when the WebFEX failed load testing and the six year period expiring before six years prior to the Cross Claim being filed. [646]
In relation to the action based on negligence, Chelmer pleaded reliance on s 14(1)(b) of the Limitation Act 1969 (NSW), and in respect of the action for misleading and deceptive conduct, reliance on s 82(2) of the Trade Practices Act 1974 (Cth). It was asserted in each instance that the loss arose more than six years prior to 15 August 2014.
In oral submissions Chelmer argued:
… In very simple terms, the law on negligence is clear, that the limitation period starts to run from when the loss arises. Irrespective of whether you are aware that you have a cause of action in negligence, under the Court of Appeal authority on that issue. The law is somewhat unsettled as to when the loss arises, whether it's when you enter into - it's the date you enter into the contract, or whether it's the date you pay money under the contract. But your Honour doesn't need to determine that issue because all payments for WEB FEX are outside the six year period. So it doesn't matter. Whichever finding your Honour makes, on my client's case, the loss arose outside the six year limitation period.
And this is dealt with at p 63 of the submissions in reply. It's common ground that all payments made for the FEXE project were made during the period 30 July 2007 to 25 March 2008. So that's outside the six year limitation period. My respectful submission is the same principles, with respect to when time starts to run, apply for misleading or deceptive conduct. I understand that's an issue with my friend. But certainly the law is clear with respect to negligence, on my respectful submission, my friend is statute barred in any event. And the same for misleading or deceptive conduct claim. [647]
[44]
FEX Submissions
FEX appeared to accept that its claim in negligence may be statute bared. [648] Nevertheless it contented that its claim based on contract and misleading and deceptive conduct was not. FEX argued that the limitation defence failed because because, first, on Mr Robertson's evidence, the FEXE/WebFEX continued into August 2008 and beyond and, second, because the conduct did not come to light until well after August 2008. [649]
FEX argued that in November 2007, Chelmer circulated a document headed "FEX Order Routing Hub and NSX Connectivity Project Definition" (FEXE/WebFEX Project Definition). [650] The key project phases were described under the heading "Project Approach". [651] The FEXE/WebFEX project never reached the testing level. Work was continuing well into August 2008. [652] Accordingly, FEX's loss did not crystallise until Chelmer failed, in late 2008, to implement the FEXE/WebFEX software. Ultimately, Chelmer stopped using the platforms, on which it had developed the software, [653] which means that it never delivered that software or product to FEX. It was submitted that it was well within the limitation period that FEX's loss arose and continued. [654]
Notwithstanding the earlier referred to comments in respect of the claim in tort in supplementary submissions FEX contended:
The oral submissions at T 740:03 dealt with Chelmer's contention that FEX's claims were time barred. FEX contends that neither the claims in contract nor the claims in tort are time barred. As to the tort claim, it contends that the breaches of duty continued well into August and September 2008 (see [70], [76], [92], [100], [104], [106], [108] to [110], [116]of FEX's submissions in chief dated 7 April 2018, which detail the evidence in support of the proposition that the breaches of duty by Chelmer continued well beyond August 2008, in that WebFEX and the Equities FIX Gateway were inoperable and never delivered). The loss caused by the negligence was the non-delivery of the products, for which FEX had paid. The value of the loss was the amount paid by FEX. [655]
FEX also argued that the claims concerning the brokerage agreement were discovered well within the limitation period. [656]
[45]
Determination
I accept that all payments made by FEX for the FEXE/WebFEX project were made during the period 20 July 2007 and 25 March 2008. Whether the loss was sustained when the contract was entered into or when payments were made, it is clear that the claim in negligence was statute bared by reason of section 14(1)(b) Limitation Act 1969 (NSW). That is so, as on FEX's own pleading, identifies the breach giving rise to the loss as having occurred prior to August 2008. As earlier noted in respect of this claim FEX conceded that its case was more difficult with the relevant limitation period commencing the middle of August 2008.
In so far as FEX's argument is based on breach of contract, s 14(1)(a) of the Limitation Act 1969 (NSW) provides that the expiration of the period of six years runs from the date on which the cause of action first accrues. Relevantly, breach of contract is actionable when it first arises without proof of loss. [657] I accept Chelmer's submission that the breaches which FEX pleads in [20] of its Cross Claim preceded the expiration of the limitation period.
FEX's argument based on misleading and deceptive conduct is that the claim is not statute barred as the relevant loss continued into August 2008 and the conduct of Chelmer did not come to light until well after August of 2008. FEX cited the authority of Wardley Australia Ltd v Western Australia, [658] where the High Court referred to the loss being ascertained or ascertainable. However, the context to which the majority in that case was referring to was "in respect of a contingent loss or liability." [659]
In Christie v Purves and 2 Ors, [660] Ipp JA stated:
[38] In Cartledge v E Jopling & Sons Limited [1963] AC 758, the House of Lords held that the plaintiffs' cause of action arising out of negligent exposure to noxious dust over a period of years resulting in a lung disease arose as soon as the breach of duty by the defendant caused personal injuries to the plaintiffs beyond what could be regarded as negligible (even if that injury was unknown to, and could not be discovered by, the sufferer). Any further damage occurring after the date the cause of action originally accrued was part of the same cause of action.
[39] In Commonwealth v Cornwell, Callinan J (at 162, [57] to [58]) pointed out that some contingencies take a lifetime to play out, but courts do not wait a lifetime. They assess damages once and for all on the basis of the probabilities as to which cogent evidence is called (see also Darley Main Colliery Company v Mitchell (1886) 11 App Cas 127). His Honour was in dissent in Cornwell in that he regarded the contingencies that the majority held had prevented the appellant's cause of action accruing as being capable of resolution, and in his Honour's view the appellant's loss was ascertainable. Nevertheless, nothing said by the majority is inconsistent with the well-established general principles Callinan J expressed in the passages cited.
[40] The general rule can be stated as follows. For economic loss (as with other forms of damage) to be sustained, there has to be some actual, measurable damage that is beyond what can be regarded as negligible. While prospective loss, alone, is not enough, a cause of action of negligence will accrue when the plaintiff first suffers any actual damage of the kind described. The cause of action will then be regarded as having accrued, even if some of the plaintiff's damages are prospective. The plaintiff may then claim for the actual damages that have been incurred and should quantify and claim for the prospective damages (such as, for example, future loss of profits). This, for example, is what occurred in Perre v Apand Pty Limited [1999] HCA 36; (1999) 198 CLR 180. These propositions are well-established and are manifest from Commonwealth v Cornwell (at 152 to 153, [16] to [18]), Wardley Australia Limited v Western Australia [1992] HCA 55; (1992) 175 CLR 514 (at 530 to 531), Hawkins v Clayton (1988) 164 CLR 539 (at 561 and 588), Winnote Pty Ltd v Page [2006] NSWCA 287 (at [40] to [41]), Cheney & Wilson v Duncan [2001] NSWCA 197; (2001) 34 MVR 28 (at 32, [24] to [26]), Scarcella v Lettice [2000] NSWCA 289; (2000) 51 NSWLR 302 (at 306), Law Society v Sephton & Co (a firm) [2006] UKHL 22; [2006] 2 WLR 1091 (at 1108, [60]), Cartledge v E Jopling & Sons Ltd (at 772).
[41] The principles applicable when the claim is for damages for misleading or deceptive conduct under the Fair Trading Act (or the Trade Practices Act 1974 (Cth)) are the same. In Wardley, the High Court, after recognising and discussing the differences between common law damages for negligence and damages under s 82 of the Trade Practices Act, accepted that the general principles governing when time begins to run do not differ in respect of those causes of action. Senior counsel for Mr Christie did not suggest otherwise
As to the question of discoverability following a detailed review of Wardly and subsequent authorities in BodyCorp Repairs Pty Ltd v Holding Redlich, [661] the Victorian Court of Appeal (Whelan JA, Santamaria JA and Forrest JA) summarised the principles regarding the application of a limitation period. It did so stating that identical limitation issues can arise in both negligence claims and in claims for misleading and deceptive conduct, although the respective periods of limitation are different. [662] The plurality stated;
181 It seems to us that the High Court has set out the principles which are applicable here and that the other authorities relied upon should properly be seen as particular applications of those principles. The principles are:
1.The cause of action accrues when damage is first suffered, regardless of whether the damage is then discovered or discoverable: Hawkins v Clayton.
2. Where a detriment is suffered as a result of entering into an agreement:
(a) loss and damage may be suffered immediately in some circumstances, such as where an asset is acquired at a price above its true value: HTW Valuers;
(b) however, if the detriment is exposure to a loss which will only be suffered if events transpire in a particular way, loss and damage will not be suffered until those events do so occur: Wardley, Murphy.
3. In determining when loss and damage is suffered it is necessary to:
(a) analyse the facts of the particular case: Wardley;
(b) identify the economic interest of the claimant which allegedly has been infringed: Hawkins v Clayton, Wardley; and
(c) have regard to the pleaded loss and damage claimed: Wardley.
Chelmer pointed out that FEX provided no authority to support the proposition that failing to be informed about a $26,000 increase in the price somehow suspends the limitation period for all claims it makes against Chelmer in respect of the FEXE, WebFEX and FEXD Project. [663]
The question of potential unfairness in an approach that mandates that time runs notwithstanding that the damage was not been known or discoverable by a claimant has been commented on in respect of misleading and deceptive conduct claims. [664] Whether or not it was open to argue that the running of time could be postponed through the notion of unconscionable reliance on the provisions in the limitations legislation, [665] no attempt was made to do so.
Accordingly on any view, the loss does not arise when it crystallises by Chelmer's failure to perform but on entry into the contract or incurring of the loss by payment of the contract sum. It follows that FEX's case on misleading and deceptive conduct, even to the extent it would otherwise have succeeded, would fail as being statute bared by s 82(2) of the Trade Practices Act 1974 (Cth).
[46]
Evidence
In support of its contractual claim, Chelmer relied on a Work Activity Report to document the hours spent of the Derivatives Project that it said was compiled by its workers. Additional evidence was adduced from Mr Robertson and the following persons:-
1. Ms Kelly Lesley Cole (nee Emanuel), an analyst and system tester [666] who is still currently employed by Chelmer [667] .
2. Mr Martin Cleland-Pottie, the project manager for the Derivatives Project, who no longer [668] works for Chelmer;
3. Mr Andrew Larry Hamilton, an analyst who prepared specification, sequence diagrams and business maps for programmers, who no longer works for Chelmer; [669]
4. Mr Michael Keith Holdsworth, a development manager for the Derivatives Project. He described that his main role was to get the required functionality out on schedule and he was also involved in the technical design of the overall output. [670] He stated that at the time of his evidence he no longer worked for Chelmer. [671]
The process by which that Work Activity Report was generated and it's contents are described below. FEX disputed that the report accurately documented hours claimable under the termination clause and pent argued that its contents included work performed on the Equities Project.
Furthermore as the contract did not disclose an hourly rate by which compensation is payable an issue arose and to whether this could be implied and the relevant rate.
[47]
Andrew Robertson
According to Mr Robertson in December 2005, Chelmer purchased software known as "Time Disciple". A project to implement time disciple was thereafter commenced and implementation of the software was complete in early April 2006. Mr Robertson stated that in March 2006 Chelmer purchased an internal user guide for the use of Time Disciple and provided it to all staff. [672] He stated that from April 2006 it was Chelmer's policy that all staff record all time for each activity they were carrying on at least a daily basis. This would include chargeable and non-chargeable activities. [673] The primary use of the software was to record time spent by employees on particular projects. [674]
According to Mr Robertson the relevant project manager set up the separate projects that Chelmer was working on within Time Disciple and staff were then able to make time entries within each specific tasks settings. It was not possible for a staff member to make a time entry in a pre-existing category that had not already been specifically set up. [675] Accordingly, the six subgroups of the Derivatives Project were mapped to the categories of tasks identified on Time Disciple. [676] Mr Robertson stated that a role base security system was implemented whereby only senior members of the staff were able to create projects or specific categories of tasks within each project. He, however, had unfettered access to all the entries made in Time Disciple. [677]
Mr Robertson stated that senior members of staff would check and approve time entries made by employees at the end of each week. After senior members of staff had checked the timesheet for a particular staff member the timesheet was then locked so no amendments could be made to it. This was done at the end of each week. [678] Mr Robertson stated that it was his role to approve the time of senior staff members and he would check the timesheet for each senior member of staff and then lock it in. [679] Chelmer's employees were stated to be on fixed salaries not dependant on time recorded targets however, Mr Cleland-Pottie, Mr Holdsworth and Mr Hamilton were full time contractors engaged by Chelmer on a daily rate. [680] The manager for the Derivatives Project was Mr Cleland-Pottie who according to Mr Robertson created each task category on the Derivatives Project and reviewed the time recorded against each task at the end of each week. [681] Mr Robertson stated that employees depending on their employment contracts should be doing between 37.5 and 40 hours per week. [682]
Mr Robertson said the main purpose of using Time Disciple was to enable Chelmer to analyse the time spent on various tasks to enable it to provide more accurate quotes and pricing for the future projects. [683] The system enabled a print off of reports as to the time spent on a particular project or task category within that project. Mr Robertson stated that when the report was printed the date would appear on the pages of that report that, however, that did not reflect the date on which the time entries were made. [684] According to Mr Robertson, time entries are usually made immediately around the time and date that appeared next to each entry and each period was closed off at the end of each week so that the longest period of time between when the work is carried out and the entry made is 7 days. [685]
Mr Robertson stated that most of his time was spent developing and finalising business requirements for the Derivatives Project. After the business requirements were agreed to and signed, his primary role was as a support analyst. However, every time that he would spend time on the Derivatives Project he would make a contemporaneous entry in Time Disciple to reflect the time that he had spent. To this end, he was limited by the subcategories that had been created. A copy of the Time Disciple report for what he stated to be chargeable time for the Derivatives Project was annexed to Mr Robertson's affidavit. [686] Mr Robertson stated that a significant amount of his time was spent doing client liaison and chasing up payment for outstanding invoices. These were not recorded as charged to FEX and a recording of non-chargeable work was annexed to Mr Robertson's affidavit. [687] This totalled some 35.25 hours. Mr Robertson stated that at the end of each week he would look at the time entries and no further amendments to those entries would be made and the time entries were locked. The only persons who could unlock the entries were the system administrator and himself however at no time did he unlock and amend any time entries made by Mr Cleland-Pottie, Mr Hamilton, Mr Holdsworth and Mr Parsons. [688]
Mr Robertson also stated that in or around 2007 Chelmer purchased software known as JIRA from Atlassian, a Sydney based software developer. This was a workflow and job management system for software development. [689] He stated that shortly after purchasing JIRA it was installed and used in all software development projects by Chelmer. JIRA he said enabled the creation of projects. Within each project is one of many releases. Each release is a useable piece of software becoming available for use. [690]
According to Mr Robertson the Derivatives Project was created in JIRA and within the Derivatives Project there were separate jobs that were allocated to a particular developer to complete with each job being linked to a release. The jobs were formulated from the business requirements in order to create engineering milestones. [691] He stated that he was able to access the information stored within JIRA for the Derivatives Project and print reports setting out the progress of each separate job and the relevant releases. [692]
On or around 16 April 2014 Mr Robertson said that he accessed the JIRA software and obtained printouts for the FEX Derivatives Project. These were attached to his affidavit. [693] The date the report being was printed appeared in the top left hand corner however this was not the date when entries or events occurred in JIRA those being logged each time work was created. [694]
A job task can be created in JIRA with a person who creates a job task identified as reportable. The date the task is created appears to the right of the reporter's name and each particular task or job had a specified workflow. The particular type of task was identified under the T column on the left of the page. Particulars are set out in a set by JIRA and once selected JIRA automatically generates a workflow for that particular task. [695] The printout in tab 15 related only to development work and did not show any work analysis performed prior to development. Nor did it show any time spent internally testing software after it had been developed. [696] The purpose of the printouts was to record the progress of a particular project and formed part of the internal records maintained by Chelmer. [697] Further, Mr Robertson stated that the tax invoice CH013 indicated that staff members of Chelmer had spent a total of 1,725 chargeable hours on the Derivatives Project. The report generated from Time Disciple printed by him on the date of the tax invoice was annexed to his affidavit. [698] He stated it showed a total of 1,725 chargeable hours was spent on the Derivatives Project.
In cross examination Mr Robertson stated that he had not checked to see that the work recorded on the activity report was work actually performed in relation to the FEX Derivatives gateway projects but instead relied on the process. [699] He conceded that he looked at, but did not check, each individual notation on the work activity report. [700] He nevertheless asserted that it recorded the work done by him and other people at Chelmer on the Derivatives Project. [701] Later he conceded that he could not tell what each person was doing and what that work referred to and he didn't ask people what work they were doing before commencing proceedings. [702] He further stated that he did not personally set up all the sub-categories but imagined they were set up by a combination of the project manager and the analyst. [703] He confirmed that Mr Cleland-Pottie was the project manager who would have checked them. [704]
In recording time Mr Robertson acknowledged that the Derivatives Project was not to be billed off time recording. However he stated that staff were told to record time accurately, although there might be some rounding off. [705]
Mr Robertson stated that the report at tab 15 of Exhibit B was a report from JIRA software that identified issues of a software nature the tasks in the FEX Derivatives Project. [706]
Mr Robertson conceded that veriFIX was used to write tests for the equities gateway but believed it was also used to write tests for the derivatives gateway. [707] He stated that the Derivatives Project involved some upfront testing as part of proof of concept stage, [708] although he did conceded that he may not have so stated in his affidavits. [709] Later he said he could not recall if he had previously given evidence to this end. [710] Mr Robertson drew attention to p 222 of Exhibit B under the heading "Creating veriFIX protocol". He denied that that was a reference to the equities FIX gateway, and not the derivatives. [711] When his attention was drawn to the entry on 4 June 2008 referring to "setting up FEXE protocol", he rejected the suggestion that the entries from 23 April 2008 to 5 August 2008 were to do with the equities FIX gateway. He stated that it must have error of some description (by Ms Cole presumably) and went on recording. [712] Later his attention was drawn to the further FEXE entry above 1 July 2008 (totalling 35.58 hours an amount to be just over US $4000 [713] ). Mr Robertson again rejected the suggestion that Ms Cole was testing the fixed equites gateway and not the derivatives gateway. [714]
He stated that he could not recall whether Mr Cleland Pottie was also the project manager on the Equities Project. This was despite the reference to him as such in the FEX Routing Hub and NSX Connectivity document. [715] Nor could he recall if Ms Cole, Mr Bastiaan de Wit and Mr Holdsworth were working on both projects. He did recall that Mr Hamilton was working on both projects. [716] Later he accepted that Mr Holdsworth was working on fixing the code for the FIX gateway. [717]
Mr Robertson rejected the suggestion that Chelmer was working full throttle on fixing the problems with the Equities Project in May 2008. [718] When his attention was drawn to the email of 13 May 2008 [719] stating that he had put every resource on fixing the FIX gateway Equities Project he stated that he couldn't recall and not everyone at Chelmer was working on the FEX Equities Project at the time. [720]
Mr Robertson accepted that between April and May 2008, his emails indicated that Chelmer was doing extensive work to rectify the problems with the equities FIX gateway and WebFEX. [721] He accepted that the emails indicated that Chelmer was trying to replicate the problems that had been identified in their testing in March 2008. [722] He believed that the references to replication in the FEXD Activity Report on 21 and 22 May 2008 by Ms Cole referred to need to replicate gateways. He explained this in response to my own questions as follows:
Q. Sorry, what else did you say that the replication could refer to?
A. A designer of the FEX derivatives gateway, your Honour, had the idea of replicated gateways. So, you're looking to address an issue where if the FEX gateway was to fall over, then the people connected to it would obviously lose connectivity with the exchange. The derivatives project looked to establish what we call "high availability" which is the basis of replication. And so, what it does is, it has FEX gateways working in parallel, so that if one was to fail the other one was to seamlessly take over the load. So, there was a phase in the statement of work put forward to actually prove that concept.
Q. And why would you refer to that under a bolder heading of, "Performance Testing," and, "Benchmarking"?
A. Because that was, well I can't comment on the way that the project structure was set up but I assume it would relate back to phases and tasks that the project manager had created based on the, you know, statement of work or the project plan. [723]
When it was put to him that the reference to Ms Cole replicating or trying to replicate was a reference to the results that were obtained by Lucsan in their testing in March 2008, [724] Mr Robertson said that he had no direct knowledge although accepted that it totalled 79.92 hours at an analyst's rate of US 112.50 per hour totalling $8991. [725]
Mr Robertson accepted that in his statement of work there was no project definition document but said it would be under project management. He said that FEX was told that Chelmer was going to manage the project and that was a document that was only created after a project has been approved. He accepted that those references in the Activity Report totalled 56.75 hours being an amount of $6,384.37. He maintained his position as to this work being performed notwithstanding that the Project Definition documents were finalised on 11 April 2008 (signed on 31 July 2008) [726] and the Work Activity Report showed the work on it of 56.75 hours from 3 June 2008 to 25 August 2008. [727] When it was put to him that this was exorbitant for a 19 page document, he rejected this and stated that the hours were recorded against the project but this was not the time that was intended to be billed at the time. [728]
Mr Robertson accepted that there was a memory leak with the FEX Equities Exchange when orders got to 7,000 per day. When it was put to him that the reference in the activity report of 15 May 2008 [729] to "Memory Leaks" referred to the fixed equities gateway, he stated that he could not comment on someone else's entry. [730]
Mr Robertson stated that he could not recall if Chelmer delivered anything described as a specification for ISV FEX but rejected the suggestion that someone would make up 113 hours of work in the work activity report referrable to this. [731]
Mr Robertson accepted that the reference to GUI meant graphic user interface, such that it did not have anything to do with the derivatives gateway as that had to do with using WebFEX. [732] Although he stated that there might be a plausible explanation for the reference to GUI in the Work Activity Report, he could not tell by looking at it. [733] No explanation was ultimately given.
Mr Robertson accepted that he could not be sure that the references to "getting gateway going" in June 2008 related to the Derivatives Project. By looking at the entry he stated that when the Derivatives Project started, then the JAFA [734] was already in existence, so by definition it started with a gateway. [735]
He accepted that a portion of the hours in the work activity report was comprised of learning how to do the work. [736]
[48]
Kellie Cole
Kelly Leslie Cole commenced working for Chelmer on or around 1 January 2007. Through that role she said that she developed skills in analysis and testing. [737] According to her evidence, her main role was testing particular versions of software for functionality and reporting defects to developers. [738] Ms Cole stated that she did not supervise anyone working on the FEX Derivatives Project, did not do any programming work and did not have any input into the Project Definition document. [739]
Ms Cole gave evidence that she worked on the Derivatives Project under Mr Robertson who provided her with instructions although she took instructions from Mr Hamilton from time to time. [740] She stated that her main role in the project was Derivatives testing. After testing particular version of the software she would report back any defects to the developers. The main developer that she reported to was Bastiaan De Wit but also to other developers. She stated that she was instructed to enter all time spent on the FEX Derivatives Project and did so to the best of her ability. [741]
Ms Cole stated that she has carefully gone through the entries and confirmed that each of the entries bearing her name would have been made by her on the date that each entry appears bearing her name. She states that she knows this as it was her usual practice to record entries immediately or shortly after completing the particular task. [742]
In cross examination Ms Cole stated that VeriFIX was a tool used to test FIX messaging. She could not recall if FIX gateway programmes have FIX messaging. She specifically could not recall being asked to by Mr Robertson to test the FIX equities gateway or around March 2008. [743] Ms Cole rejected the suggestion that in creating the veriFIX protocol from April to August 2008, she was doing so for the equities gateway. The references to the Work Activity Report "FEXE" she stated was a mistake. [744] Subsequently she acknowledged that she didn't have an ability to recall exactly the work she was performing. [745]
[49]
Martin Cleland-Pottie
Martin Cleland-Pottie gave evidence that in or around early 2005 he took on a fulltime position with Chelmer as head of Professional Services and as a Management Consultant. He described his main duties and responsibilities as being to manage Project Managers, Business Analysts, Software Developers and Test Analysts, define and implement Chelmer's software methodology and work with senior management team to achieve the strategic goals of Chelmer. [746] In early 2007 he left Chelmer to take up a position with Suncorp. Between 2007 and 2013, Mr Cleland Pottie's employment moved back and forth between Chelmer and Suncorp whilst establishing a company of his own in 2007. [747] He gave evidence that whilst employed by Chelmer he was the project manager for the FEX Derivatives Project. [748]
Mr Cleland Pottie gave evidence that he received specific instructions as project manager from Mr Robertson. His role was described to ensure that the tasks and activities for the project met the quality, effort and time expectations as defined in the Project Definition document. He stated that he supervised Mr Holdsworth, Mr Hamilton, Ms Cole, Bastiaan de Wit and John Patrick. [749]
Mr Cleland Pottie recommended that Chelmer implement Time Disciple and was responsible for the professional service tasks set up in time Disciple. He stated that he was responsible for ensuring that those he was supervising were updating Time Disciple in an accurate and timely manner. [750] He instructed employees to enter time on Time Disciple and was responsible for reviewing employees' timesheets in Time Disciple to check that employees are on budget for a particular task of the project. [751] He could not lock in his own times as this was done by a senior staff member. [752]
He stated that he reviewed the Time Disciple Report for the FEX Derivatives Project and confirmed that each of the entries bearing his name would have been made by him on the date that each entry appears on the report. He stated that it was his usual practice to make time entries in Time Disciple immediately or shortly after completing a task. [753]
In cross examination Mr Cleland-Pottie stated that he did not recall the Equities Project and could not recall if he were the project manager for it or not, but didn't believe he was. [754] Nor did he believe that he was deeply involved in the FEX Equities Project. [755] He stated that often it was not feasible to have the same project manager for a similar project because the project manager is tied up on something else. He stated that to the best of his knowledge, he was not the project manager for the FEXE Project. [756]
He accepted that he could not say whether or not the work that is as noted in the report actually related to the Derivatives Project or not. [757] He assumed that it was because of the title of the report, its format as a Time Disciple report and his usual practice as to diligently making entries. [758]
He accepted that the Project Definition document referred to Chelmer seeking where possible leverage from the work done with other FIX implementation when developing the FEXD FIX adaptor. Further it referred to the aim to reduce time and effort for FEXD by reusing code/logic. [759] When it was put to him that if code was to be reused then you had to make sure that the code from the Equities Project is correct, he responded that this could or could not be correct. However he stated that if the satisfactory completion of the FEXE code was a roadblock for FEXD development, then it would be clearly highlighted in the Project Definition document because it's so fundamental [760] and the aim of the document is to build consensus.
Mr Cleland-Pottie was adamant that the Project Definition document was written by him and reflected time spent building consensus around the Project Definition document. [761]
[50]
Andrew Hamilton
Andrew Hamilton gave evidence that in or around February/March 2007 he took a position Chelmer as a full contractor to assist in various projects. [762] In that capacity that he worked on the FEX Derivatives Project under the supervision of Mr Robertson and Mr Cleland-Pottie. [763]
Mr Hamilton stated that his role was to look at the business scenarios and map each scenario into the FIX protocol using messages from the FIX protocol. He would create specifications sequence diagrams and business maps to enable particular transactions to occur and then provide those specifications to the programmers. He recalled having some input into the Project Definition document with his main task being to review it so the business flow charts that he crated were correctly reflected in the messaging system of the Project Definition document. [764]
Mr Hamilton confirmed that having been shown the printout from Time Disciple dated 25 November 2009, he had gone through the entries and confirmed that each of the entries bearing his name would have been made by him on the date that each entry appears in the report as it was his usual practice to make time entries immediately or shortly after completing a particular task. [765]
In cross examination Mr Hamilton stated that he assumed the work activity report was correct as it had the words "Project FIX derivatives gateway" on it and he assumed the entries in the system actually related to the project. He conceded working on the Equities Project but stated that there was a pretty clear closure point. He was aware that in March 2008 the FIX equities exchange failed some tests but was not involved in the trouble shooting for FEX. [766] He said he might have done a small bit of functional testing [767] but the problems were in a specific area and there were other people looking at it. [768] He wasn't sure who. [769]
Mr Hamilton said that in stating that he was instructed by Mr Cleland Pottie to record all time spent on the Derivatives Project that included chargeable and not chargeable work but couldn't recall which was which and was not in charge of business rules around this issue. [770]
[51]
Michael Holdsworth
Mr Michael Keith Holdsworth gave evidence that in 1990 he came to work for a software distribution company Imagineering Pty Ltd. Around that time he came to acquire self-taught skills in database programing. In 1992 he said that he obtained a position as a lead programmer for Picdata Pty Ltd and was involved in the development of a software programme known as Time Disciple; a programme that used to record time against particular projects.
Mr Holdsworth's evidence was that in around March 1999 he developed his own software consulting business. Following discussions with Mr Robertson he stated that he commenced working as a contractor with Chelmer in October 2003 assisting in various projects it had undertaken. He was not under any direct supervision but recalled reporting to Mr Robertson and liaised with Andrew Hamilton who he described as a business analyst. [771] He stated that he worked on building the FIX gateway for the derivative instruments known as the FEX Derivatives Project. He described his role as Development Manager of the FEX Derivatives Project with his main role being to get the required functionality out on schedule. He also stated that he was involved in the technical design of the overall product. [772]
Mr Holdsworth gave evidence that his role was as the Development Manager for the FEX Derivatives Project. He stated that his main role was to get the required functionality out on schedule and that he was also involved in the technical design of the overall product. [773] In this role he programmed and coded in addition to supervising Bas DeWit and John Patrick. [774] He stated that he would ensure the specifications, sequence diagrams and business maps created by Mr Hamilton were programmed into bespoke software being developed by Chelmer. [775] He stated that the standard way that software is developed is for developers to code and create the software which is then tested for functionality by the testers. [776]
Mr Holdsworth stated that for the FEX Derivatives Project, Chelmer used a program called "Subversion" that kept a history of all the code changes made to the software being developed. He stated that each programmer would have to check out the source code they were programming or working on from Subversion. [777] Subversion would provide a history of the changes made to the software, which programmer made those changes and when those changes were made. [778] Whenever he worked on the source code he would check it out of Subversion, carry out work on it and then check it back in when work was completed. [779] He stated that Bas DeWit and John Patrickwould often check out, then check back in, the source code in Subversion in order to be able to code each time they worked on it. [780]
Mr Holdsworth stated that he recommended Time Disciple to Mr Robertson and ultimately Mr Robertson had it installed across all computers at Chelmer by April 2006. [781] He stated that after working on particular activities he immediately recorded in Time Disciple and instructed Bas DeWit and John Patrick to do likewise. [782] He stated that not all activities in Time Disciple were chargeable but was instructed to record all time spent on tasks in Time Disciple. He stated that he would only be able to record his own time but reviewed the entries made by Bas DeWit and John Patrick and then locked those time sheets which he did weekly. [783] He said that he did not recall any abnormal entries being made by either of the two he supervised. [784] He stated that he had carefully gone through the work activity report for the FEX Derivatives Project and confirmed that each of the entries bearing his name would have been made by him on the date that each entry appears on the report. [785]
In cross examination Mr Holdsworth stated that he looked at the work activity report and assumed based on what it said at that point that all of it had to do with the FEX Derivatives Project. [786] He stated that he wasn't sure whether he had any recollection other than looking at the document whether work was allocated to the correct subheading. [787] So far as John Patrick was concerned his attention was drawn to the fact that there were only three entries using his name. He stated that he cannot be sure that when he stated that John Patrick worked on this project often he was mistaken but "I must have been." [788]
[52]
Chelmer Submissions
Chelmer argued that the evidence supported the fact that Chelmer carried out at least 1,725 hours of chargeable work for the Derivatives Project for the following reasons.
First each of the current and former employees of Chelmer gave consistent evidence that it was their usual practice to work on particular activities and then immediately after finishing that activity record the time spent on Time Disciple. It was never put to any of the current or former employees that they did not adopt the process of recording time outlined in each Affidavit, and accordingly it should be accepted by the Court.
Second Mr Robertson gave evidence of a process. That process involved the following 8 components: [789]
1. Separate projects that Chelmer was working on were created in Time Disciple;
2. Within each project pre-existing categories were set up. The clearest example of this are contained in the Basic Time Disciple Report. That document shows a particular task, within which tasks are allocated. By way of example the AMP Message Definition has tasks allocated to it that include Business Analysis, Definition Document, Project Meeting etc. [790] Those tasks also appear in the Detailed Time Disciple Report. [791]
3. Time entries can only be made by employees in a pre-existing category; [792]
4. At the end of each week senior staff members (including Mr Robertson and Mr Cleland-Pottie) would then review entries and lock them so that no further amendments could be made; [793]
5. All employees and contractors engaged by Chelmer were required to record all time; [794]
6. Each employee or contractor recorded time immediately after they carried out a particular task; [795]
7. The Project Manager, Mr Cleland-Pottie, effectively "policed" the process of time recording. Mr Cleland-Pottie provided this evidence, [796] which was completely unchallenged and not explored at all during cross-examination. It is also corroborated by Mr Robertson and other Chelmer staff. [797]
Third, each of the former and current employees corroborated each step in the Process and confirmed that the Process was implemented and followed by them. Critical aspects of the Process are corroborated by objective evidence, such as Chelmer's internal user guide for Time Disciple. [798]
Fourth, at no point in time was it ever put to any of the witnesses that the Process was not followed and/or did not work effectively.
Fifth, there was no challenge in cross-examination at all to the "policing" role Mr Cleland-Pottie carried out together with Mr Robertson. [799] Accordingly, their evidence on a central aspect going to the integrity of the Process, and in turn the reliability of the time entries on the Detailed Time Disciple Report, should be accepted by the Court.
Sixth, Mr Robertson's evidence that he did not unlock or amend time entries [800] was completely unchallenged in cross-examination and should be accepted by the Court. As Mr Robertson was the only person who could unlock and amend time entries, this evidence established the integrity and reliability of the Process;
Seventh, there was nothing in the evidence provided by any of the witnesses regarding the Process and/or the tasks they carried out and recorded in Time Disciple to suggest it was inherently improbable or otherwise unreliable;
Eighth, the Basic Time Disciple Report and Detailed Time Disciple Report are contemporaneous business records created well before any dispute arose and are more reliable than the recollections of witnesses' years later. Moreover, to the extent that they make representations concerning the work that was done and the nature of the work, those representations are admissible under s 69 of the Evidence Act 1995 (NSW). [801]
Ninth, many attacks on the reliability of the entries on the detailed Time Disciple Report cannot succeed in circumstances where:
(a) Whilst raised with Mr Robertson [802] at no point in time during cross-examination was it ever put to Mr Hamilton or Ms Cole that they recording time entries in the Derivatives Project for work carried out on other projects (i.e. Performance Test and Benchmarking); [803]
(b) Whilst raised with Mr Robertson, [804] at no point in time during cross-examination was it ever put to Mr Hamilton that he was recording time entries in the Derivatives Project for work carried out on other projects (i.e. FEXD FIX Specification for ISVs);
(c) Whilst raised with Mr Robertson, [805] at no point in time during cross-examination was it ever put to Mr Hamilton or Mr Holdsworth that they were recording time entries in the Derivatives Project for work carried out on other projects (i.e. FIX GUI) ; and
(d) Whilst raised with Mr Robertson, [806] at no point in time during cross-examination was it ever put to Mr Holdsworth that he recorded time entries in the Derivatives Project for work carried out on other projects (i.e. Task Development: memory leaks).
Tenth, in general terms there are fewer entries in the detailed Time Disciple Report for the period after early September 2008, which is consistent with the uncontested period due to problems with payment being made by FEX. [807]
Eleventh, there is a plethora of objective evidence that establishes that Chelmer was carrying out work on the Derivatives Project during the period set out in the Detailed Time Disciple Report (February 2008 to November 2008). That objective evidence includes:
(a) Various emails, project definition documents, team meeting agendas, change control register (updated throughout the period), issues/actions register, team meeting minutes, project meetings minutes, risk register (updated throughout the period) during the period April 2008 to August 2008; [808]
(b) The JIRA Report; [809]
(c) The final project Definition Document that was not signed until 25 July 2008; [810]
(d) The FEX Derivatives Order Routing Hub FIX Gateway Specification that was created and amended during the period 9 April 2008 to 4 August 2008; [811] and
(e) The solution design document and POC Test Approach document. [812]
Twelfth, Mr Holdsworth was a person involved in the original build of Time Disciple. [813] No questions were asked of him as to its functions, capabilities, reliability and any restrictions.
Thirteenth, various persons including Mr Robertson, Mr Hamilton and Mr Holdsworth recorded more than 35 hours of non-chargeable time in the Derivatives Project; [814]
Fourteenth, no complaint can be made by FEX that they did not receive a useable product in circumstances where they terminated for convenience prior to Chelmer being able to deliver a finished product.
Fifteenth, to the extent that FEX has demonstrated that the reliability of the Detailed Time Disciple Report (which is denied), it is not so unreliable as to be of little or no evidentiary value.
Sixteenth, FEX has not demonstrated that the Process was unreliable, being an essential matter in order to undermine the accuracy and integrity of the entries contained in the Detailed Time Disciple Report.
Seventeenth, the Detailed Time Disciple Report is the best available evidence, short of putting into evidence the product of at least 1,725 hours of work.
Eighteenth, FEX needs to demonstrate more than the mere fact that work was being carried out on the Equities Project and the Derivatives Project at the same time in order to demonstrate that the Detailed Time Disciple Report is so unreliable as to be of little or no evidentiary value.
Nineteenth, all witnesses other than Ms Cole and Mr Robertson have no ongoing relationship with Chelmer. Moreover, it is a testament to the work culture at Chelmer that many of its former employees are prepared to fly overseas to provide evidence on behalf of their former employer.
Twentieth, FEX has not adduced any persuasive evidence that Chelmer's time recording was in any way inflated, sporadic or otherwise unreliable, nor could it in circumstances where a robust Process was followed that ensured the integrity and accuracy of the entries made in the Detailed Time Disciple Report.
[53]
Was there an agreement between Lucsan and Chelmer to factor the costs of additional functionality into the cost of the FEXD project? Lucsan email of 31 July 2007
[54]
FEX Submissions
FEX argued that despite Mr Robertson's denials there can be little doubt that there was an understanding between Chelmer and Lucsan that Chelmer was going to factor some of the costs of the "additional functionality" that is functionality that had not been included in the FEXE/WebFEX agreement which Mr Robertson insisted was a fixed price contract [815] into the "Derivatives Enhancement". It argued that the inference was clear the Mr Robertson was going to cover the cost of additional functionality for WebFEX when he built the FEXD. Moreover it was submitted that the distinction sought to be drawn by Mr Robertson between a 'retail product and a 'broker product should be rejected as Mr Sharma's email of 31 July 2007 stated that WebFex portal was to 'cater functionality for retail client/investor punter.' [816] The inference to be drawn was that Mr Robertson was going to recover the costs of "additional functionality' for the WebFEX when he billed FEX for the FEXD.
FEX contended that the Court would accept that Mr Robertson did so when he generated the activity report because:
1. First, Robertson admitted to inflating figures for the FEXE/WebFEX Agreement to include by US $26,000 meaning that he was a person who was capable of engaging in such conduct. [817]
2. Secondly he had the motivation to do so as he had accepted that the FEXE/WebFEX project was going to "cost more to build than what [he] originally quoted" [818] referring to Chelmer's costs. [819] After FEX chose to continue with another party there was a stronger motive to recover as much of these costs as possible.
3. Thirdly Mr Robertson never denied the conversations with Mr Sharma and affirmed the discussions between them as to other matters, for example, the staggering of payments. [820] Further, Mr Robertson did not dispute any of the matters Mr Sharma set out in his reply on 2 August 2007. [821]
4. Fourth, the Activity Report Mr Robertson generated is replete with references to work relating to FEXE and WebFEX and work that could only be in relation to fixing the failed FEXE/FEXE project.
5. Fifth the Court would find that as Mr Robertson accepted that all of the available resources of Chelmer were being used until August 2008 at least on fixing the problems with the FEXE/WebFEX products, including Mr Robertson, Andrew Hamilton, Kelly Cole and others, whose activities are purportedly recorded on the Activity Report.
6. Finally Chelmer never produced or led into evidence any Time Disciple record pertaining to the FEXE/WebFEX project, to which it at all time had access (or to which it was able to gain access). [822]
In closing submissions FEX submitted :
AFSHAR: It is, I just want to deal with the fact that there's been a criticism levelled against me that certain matters weren't put to him and I pushed back against that because I did put all of these matters to him, in particular, I did put to him that he had shifted the costs from the WEB FEX and the FIX gateway.
HIS HONOUR: Yes, I recall that.
AFSHAR: And the key to that line of cross examination is that Chelmer has never produced the record for the WEB FEX equities gateway. Time disciple, and that is a matter, with respect, that goes someway to give your Honour comfort to draw the inference from that failure, the documents that only Chelmer had access to, to find that what is clear from the face of this document, that some of these relate only to WEB FEX and can only relate to WEB FEX. Now my learned friend says it's something about VeriFIX, he might say something about debugging, but when it comes to the, for example, Linux box, that is a matter that I have juxtaposed next to the emails which relate to Linux. If your Honour reads through my - your Honour has read through, but if your Honour studies that again, your Honour will see that it correlates in time to the work that Mr Robertson was telling everyone his team was doing. He said, "I put all available resources," he accepted that in cross examination. [823]
[55]
Chelmer Submissions
Chelmer argued that any allegation that work contained in the Detailed Time Disciple Report was for work carried out on the Equities Project is unsustainable for the following reasons.
First, the Court is permitted to draw inferences from both the form and content of the document itself. [824] The Detailed Time Disciple Report clearly identifies the project as "FEX Derivatives Project Gateway" on each page; [825]
Second, Mr Robertson's evidence that separate projects are set up in Time Disciple [826] was completely unchallenged, not explored at all during cross-examination and corroborated by other Chelmer staff. The clearest example of this is Mr Hamilton (who worked on both the Equities Project and the Derivatives Project), [827] providing unchallenged evidence that he recorded the time he spent on each project. [828]
Third, Mr Robertson's evidence was that:
(a) Time disciple could generate reports. This evidence was unchallenged,
corroborated by other Chelmer staff [829] and supported by objective evidence; [830]
and
(b) That he generated a report from Time Disciple for the Derivatives Project (and no other project) on 25 November 2009. [831]
Fourth, the Process implemented by Chelmer provided sufficient checks and balances to ensure that the time entries made in the Detailed Time disciple Report were accurate and reflected the actual time spent by employees and contractors who worked on the Derivatives Project.
Fifth, it is inherently improbable that a contemporaneous business record would contain errors, when the Process surrounding how that business record was created was unchallenged and corroborated by all lay witnesses.
Accordingly the Plaintiff argued that the Court should find that Chelmer has established, on the balance of probabilities, that it carried out at least 1,725 hours of chargeable work on the Derivatives Project. [832]
Chelmer contends that Mr Sharma's emails of 24 July 2007 and 31 July 2007 evidences how it was directed to communicate, with Lucsan taking on the responsibility to create a document that communicates FEX's business requirements to Chelmer through "tech talk". [833] It noted that in none of Mr Sharma's correspondence is there a reference to load only to "additional functionality." To the extent that the email of 31 July 2007 refers to additional functionality there is no evidence as to what that was beyond catering for other clients. The reference to Web IRESS does not identify which of the IRESS products available at the time were being referred to nor what loads the Web IRESS product listed Mr Sharma is referring to handle. [834]
Chelmer further argued that FEX's submission that the Court can reasonably infer from the email of 31 July 2007 that Mr Robertson was going to recover the cost of additional functionality for WebFEX when he built the FEXD Project should be rejected for the following reasons:-
1. there is no evidence that Chelmer was made aware as at 31 July 2007 that FEX intended to carry out the FEXD Project with respect to refer to the earliest objective evidence where Chelmer had knowledge of the FEXD being on 21 December 2007 when Mr Robertson enquired as to "What is happening with the Derivatives FIX interface" in an email to Mr Lucero. [835]
2. This was consistent with:-
1. the first version of the Business Requirements for the FEX D Project being issued by Lucsan on 18 January 2008. [836]
2. the first version of the Statement of Works being issued by Chelmer on 12 February 2008. [837] It was not put to Mr Robertson that he was aware of the FEX D project as at 31 July 2007.
1. The email of 31 July 2007 is from Lucsan and there is no evidence that Chelmer ever agreed to its terms.
2. The email of 31 July 2007 does not expressly refer to the FEXD Project but to "Derivatives enhancement".
3. The author did not identify any evidence as to what he may have been referring to.
4. It is improbable that Chelmer would have factored in costs for a prospective project that:-
1. it had no knowledge about
2. it had no certainty of obtaining
3. would want to keep costs down in any tender process to ensure that it was successful in obtaining any additional work from FEX
[56]
Determination
Mr Sharma's email of 31 July 2007 states "additional functionality for retail clients/investor/punter, as discussed Lucsan realised that some of this additional functionality cost will be factored into the Derivatives Enhancement." Chelmer did not respond to this. However the email of Mr Sharma that preceded it on 30 July 2007 referred to the need for" further enhanced for Derivatives functionality as OMX will not provide any X-Stream TW for Derivatives"
On balance I am not satisfied that the email of 31 July 2007 referring to additional functionality meant passing on costs associated with the FEXE/WebFEX project to the FEXD. This is particularly since at the time that there was no certainty the FEX would be contracted to perform work on the prospective project. In my view the reference to additional functionality is more likely to relate to the Derivatives enhancement itself.
The issue of inflating the cost of the FEXE/WebFEX project by $26,000 does not inform what Lucsan intended in the said email. Nor does it inform what the Chelmer staff did in making relevant entries in Time Disciple. In particular, it was not put that they were instructed to make entries relevant to the Equities Project in Time Disciple.
As to the question of motivation, whilst Mr Robertson's email of 12 July 2007 [838] did record that "its going to cost more to build than I originally quoted so it is going to make the loss bigger" he prefaced that statement by saying "if it would help I could try and trim the price" and then referring to the upside being "more marketability both in of advisor wealth management channels and possibly marketed to other exchanges." Mr Robertson's evidence was that he did not recall the conversation referred to in the email or any agreement to the effect contended for. No evidence of any agreement is submitted beyond the contents of the work activity report and the timing of events relating to the two projects.
Whilst it is true that Chelmer never produced the Time Disciple record pertaining to the FEXE/WebFEX project, Counsel for Chelmer pointed out without objection that it was requested for the first time in April 2015, some 7 years after the project ended and nothing was produced. [839] That issue was not pursed in evidence. Beyond that, Mr Robertson's evidence that separate projects are set up for each project in Time Disciple was unchallenged and supported by other Chelmer workers.
I shall later in these reasons deal with issues raised by FEX as to the references to FEXE and WebFEX and the content of the work activity report. It suffices to state that I am not satisfied that its contents are accounted for to the extent FEX submitted. Nor for reasons that follow am I satisfied that references to all available resources of Chelmer were being used on the FEXW/WebFEX entailed charging against work being performed in relation to the FEXD Project.
Accordingly, I decline to reject Mr Robertson's evidence on this issue. At least until 9 August 2007 when Revision 5 of the "FEX Order Routing Hub and NSX Connectivity Project Definition Document" prepared by Chelmer was issued the potential to use Web IRESS as a mitigation strategy to provide additional functionality was still recognised.
[57]
Did the Time Disciple Report include work on the FEXE/WebFEX?
[58]
Use of Code
FEX drew attention to evidence as to the overlap between the FEXE and FEXD Projects.
In particular Mr Robertson had communicated to John Hulst and Harold Lucero on 13 May 2008:
"By nature the two projects are inter-related. If the FEXD infrastructure is to be built on the FEXE infrastructure to a greater or lesser degree, the clarification of FEXE performance and the setting of the FEXD baseline are by nature largely one and the same". [840]
FEX submitted that Chelmer needed to ensure its FEXE FIX Gateway worked before embarking on building a FIX Gateway for FEXD was not only logical but consistent with Harold Lucero's understanding that code was to be "re-used", which was, in turn, consistent with Mr Robertson's 13 May 2008 email. Mr Robertson however, did not agree with this proposition.
Mr Robertson accepted that he had proposed to use code from the equities FIX gateway in the derivatives FIX gateway. [841] However he did not share the Mr Hulst's concern as to consequent impact on the Derivatives Project when testing failed. He stated that he would only be concerned if the failure was repeated or subsequent series of events demonstrated that they were running out of options on how to address the problem. [842] He stated that as at April 2008 he was still happy to reuse the code. [843] Mr Robertson rejected the proposition that he had to make sure that the code in the fixed equities gateway had to be right before it was transposed to build the fixed derivatives gateway. [844]
That proposition was also put to Mr Cleland Pottie who stated that he wouldn't agree with the statement generally. He added that there are situations where that would be correct, and there's situations where you're re‑using the design or the architectural principles but not necessarily the physical code. [845] His evidence was emphatic; that the Project Definition Document did not clearly state that satisfactory completion of the FEXE Code was a roadblock to the FEXD development. If it was he said if this was so he would have clearly stated that as it was fundamental to the success of the project. [846]
Mr Williams when questioned also did not accept that it would be necessary to address the load requirements before code could be reused from one platform to another. He stated:
AFSHAR: Well, might I ask you to then assume for the purpose of answering this question that the WEB FEX - shall I call it "interface"? That's probably a more appropriate term - interface and the equities exchange failed the performance test. Assuming that, you would have expected that those issues would be then rectified by the software developer?
WITNESS WILLIAMS: I think it's important when you're talking about performance issues to identify where the performance issue is. You're - you're talking about a number of components that are interconnected here. Because there's a performance issue, I don't necessarily agree that it's in both components. I would have to say you'd have to look at each one individually to determine where the performance issue is. So I'm just a little bit hesitant to answer saying - I don't want to assume that cause there's a performance in WEB FX, therefore there must be a performance issue in Gateway. I don't believe that to be - I don't - I don't know if it's true or not, but I'm not going to‑‑
AFSHAR: I don't want you to speculate.
WITNESS WILLIAMS: ‑‑speculate.
AFSHAR: But whatever performance issues there were - and assuming that there was performance issue for the moment, assuming that it was with the equities‑‑
WITNESS WILLIAMS: Okay.
AFSHAR: ‑‑gateway, and assuming that the performance issue related to load - you would have expected that if there was a difference between the load requirements from a business perspective for the equities exchange and for the derivatives, that those load requirements would be dealt with before the code was used from one platform in the other.
WITNESS WILLIAMS: Not - not - not - not necessarily. I do believe those issues need to be addressed, but the point you - you're trying to clarify where that - those issues are addressed; if they're in the old code or the new code, so to speak. And I don't necessarily agree that you would - you'd necessarily have to fix the old code. I certainly agree you'd have to fix the new code.
AFSHAR: Well, if the problem was with the old code, assuming that that was the case, you would need to rectify that before you use it in the new code, don't you?
WITNESS WILLIAMS: But you - when you start a new project, what you'd tend to do is copy the code from one place to another place, then that's - you'd - you - you code, basically, a new project and you'd - you would address those issues there. If - potentially you may want to do it in both places, or - depends on a number of project commercial aspects and which way you go. It really would depend. I don't - I can't give you a, "You'd definitely do this," answer. [847]
Mr William's evidence corresponded with what Mr Robertson's evidence where he rejected the suggestion that before you could copy and paste into a second piece of software you need to be sure the first piece was correct. [848]
I accept both accounts and reject the argument put by FEX. Nothing has been demonstrated in the context of this case that made it essential that the issues being addressed by Chelmer in relation to the Equities Project needed to be resolved before the code could be reused on the Derivatives Project. That still leaves the question of whether work on the FEXE/WebFEX project was included on the work activity report matter considered below.
[59]
General Criticisms of Work Activity Report
It was submitted that the Court would find that many of the tasks set out in the work activity report relate not to the FEXD project, but appear to record work in relation to the FEXE/WebFEX project. [849] Given that the Work Activity Report only records scant description for the work allegedly performed, the Court was said not to be in a position to find that, first, Chelmer performed work that was in fact related to the FEXD, second, Chelmer's staff performed the work in the quantities (in relation to hours) set out in the work activity report and, finally, that Chelmer's staff recorded their hours accurately as one would when one in billing a client.
It was argued that the Activity Report ought to be wholly rejected by the Court as evidence of "time billed to the [FEXD] project" for the following reasons.
First, the Court would not consider the Activity Report as proper evidence of time billed to the FEXD project in accordance with the time recording process set out in [50] to [62] of Exhibit B, given that it was shattered during Mr Robertson's cross-examination. It was argued that the Court cannot rely on the Work Activity Report as a record of what Chelmer did in relation to FEXD, because there is no way for the Court to determine whether the work recorded therein was performed, in relation to which aspect of the FEXD project or otherwise and to what extent (i.e. quantity of hours), or whether work completed Chelmer's "process". That was said to follow from admission made by Mr Robertson in cross examination that the Work Activity Report included work that was complete and non-complete and not approved without capacity to distinguish. [850] Mr Robertson accepted that the whole point of the approval process was to ensure the work related to the project. [851]
Q. See that little line in small text? Those are the search criteria that you used to generate this report, aren't they?
A. I can't confirm that. It looks to me that it could be just information that it's resulted in but‑‑
Q. It's the information by reference to which you generated this report. Isn't that right, Mr Robertson?
A. Yes.
Q. You see there that it says, "For all dates, cost information," and then, "Time sheet status"?
A. Yes.
Q. Within the brackets you have, "Not complete; Completed, not approved," and, "Approved". You see that?
A. I do.
Q. This report captures, does it not, all that was not complete; completed, not approved and approved. Isn't that right?
A. It does.
Q. You can't tell which of these tasks was not complete; completed, not approved or approved, can you?
A. No.
Q. There is no way for the Court to find that any of these tasks was not complete; completed, not approved or approved. Isn't that right?
A. Yes.
Q. You can't find - distinguish between those three categories or work because you selected all of them?
A. Not on this report.
Q. There's no other report in evidence, is there?
A. No.
Q. So, basically, if the Court were to look at this document, the Court can't tell, can it, what work was actually approved by any of your project managers or not?
A. No.
Q. And it can't tell which of this work was actually confirmed as having been done by your project manager or not. Isn't that right?
A. Sorry, you need to re‑ask the question?
Q. The court can't tell from looking at this document what work was actually done by your people and approved by a project manager or not?
A. I think that's the same as the previous question. It, it doesn't confirm that the work was approved.
Q. It doesn't confirm that the work was done either, does it?
A. If the cost hours are logged to the system then the work was done, based on the process.
Q. But in your affidavit, you said that the moment you actually - someone can put some work in but it needs to be approved before it is ever billed or considered for internal purposes. Isn't that what the whole purpose of Timedisciple is?
A. No. I wouldn't say that's its whole purpose.
Q. You're saying you're wanting to charge FEX for work that you don't even know whether or not your project manager approved. Is that what you're saying?
A. I would - I would have no - I would have no reason to believe there would be any work on this report that would be unapproved. By definition, if the work was unapproved, it would have been removed from the project.
Q. But, Mr Robertson, you chose to print out a report and put that in your evidence which captures not complete, completed and not approved and approved. You chose to do that, didn't you?
A. I did.
Q. So, you don't say anywhere which one of these items was approved, do you?
A. I do not.
Q. You can't tell at this stage which one was not approved?
A. I cannot.
Q. And the whole point of approval by a project manager was to ensure that the work actually related to that project. Isn't that right?
A. Yes.
…
Q. And indeed, in all of these entries, under the heading, "Project management/set‑up," the Court can't be sure what they refer to; whether they refer to the derivatives project or the equities project or WEB FEX, isn't that right?
A. The Court has its own ability to rely on the information in front of it that I have.
Q. And you can't tell what they're related to at this point, sitting in the witness box, can you?
A. As I've already answered, I have no direct knowledge of every entry that was put into a timesheet system.
Q. So the Court is in as good a position as you are? Is that what you said? You said that a moment ago, didn't you
A. I'm in a slightly better position in that I understand the organisational process and I would have expected it to be followed.
…
Q. But you agree that the search terms capture, also, items that did not complete the process of approval by a project manager.
A. I do.
Q. But you can't tell which ones completed the process and which ones didn't
…
Q. So, you can't tell which one of these items completed the process of approval and which ones didn't complete the process of approval?
A. I can not.
Q. And given that you're in a better position than the Court to do so, the Court can't do that either, can it?
A. It can not (emphasis added).
Second, FEX argued that the Activity Report is replete with references to work that pertained to the FEXE/WebFEX project and not to FEXD. Substantial numbers of the entries on the Activity Report, moreover, relate to a period of time prior to when the Agreement came into being. The Court was said to have no proper evidence on which it could draw a line between work done on the FEXE/WebFEX and any work that pertained to FEXD. Chelmer bore the burden of proving its work. It was argued that it has clearly failed to do so.
Third, FEX asserted that the Activity Report was not populated or generated for billing purposes. That is why it does not provide any of the usual information that one would include in billing reports (e.g. task description etc). Mr Robertson confirmed in cross-examination that the work activity report was not kept for billing purposes. [852] He accepted that there was an element of "rounding", [853] but he would not know what time each staff member spent on the FEXD project, whether the time was accurately reported or whether it was chargeable, because he did not check the Work Activity Report before Chelmer issued the invoice. [854] In any event, Time Disciple, as Mr Robertson described it, was to be used by Chelmer for business intelligence analysis purposes [855] and to ensure that each staff member recorded his/her 37.5 to 40 hours per week. [856] As such, the Activity Report is more akin to a day record than a billing platform with a lesser degree of accuracy accorded to the former than the latter.
Fourth, FEX argued that the Court should dismiss the Work Activity Report. As the document is too replete with anomalies, inconsistencies and problems to merit the Court's reliance. Given the deceit of the person who generated it, FEX contended that the Court would not accept it as an authentic representation of Chelmer's work.
For these reasons it was submitted that the Court should reject the Activity Report as evidence of "time billed to the [FEXD] project". To that end FEX submitted that the evidence of Chelmer's staff does not assist Chelmer. None of them remembered the work they did in relation to the FEXD project (or, indeed, in relation to FEXE/WebFEX). They cannot be expected to remember their work from so many years ago. Chelmer staked its case on the contention that time "billed in the project" was verified through the process Mr Robertson described in Exhibit B and relied on the Activity Report as the documentary record of that "time". In cross-examination, the Activity Report was said by FEX to have been exposed as a wholly inadequate and unreliable document generated by a wholly unreliable witness.
FEX contended that Chelmer never released any updated software to FEX. [857] The FEXE/WebFEX project was never delivered to FEX although it appears work was conducted by Chelmer after the email correspondence in mid-August 2008. [858] As such the FEXE/WebFEX project continued well into and beyond August 2008. FEX argued that its loss was that it never received the software it paid for [859] and its FEX's losses continue to this day.
Chelmer argued that FEX submissions attacking the reliability of the Detailed Time Disciple Report should be rejected for the following reasons.
First, a summary of all entries made in the Detailed Time disciple Report was attached to its submissions. That summary indicates:
(a) That the only person who recorded time on any weekend was Mr Robertson. On the one occasion this occurred Mr Robertson did not round his time up to 4 hours ,notwithstanding the Terms & Conditions of Chelmer permitting this;
(b) Staff members recorded less than 8 hours per day for the majority of the FEXD project;
(c) That the entries that appear on the Detailed Time Disciple Report must be genuine when one sees the time recorded on a day by day basis. The entries made are what one would expect for a sophisticated, bespoke project that at all times had to proceed on an urgent basis. It is inherently improbable that Mr Robertson would conduct such a sophisticated fraud within the short space of time afforded for him to do so.
Second, the submission that there was no real work performed on the project prior to July and August 2008 should be rejected for the following reasons:
(a) The following objective evidence establishes that work was being carried out:
(i) The email from Harold Lucero to John Hulst sent on 4 April 2008 which states that Chelmer is proceeding to work on the FEXD project on good faith alone.
(ii) The email from Andy Robertson to John Hulst sent on 20 August 2008 which states that Chelmer has had 6 people working for four months already.
(iii) The minutes of team meetings that took place throughout this period;
(iv) The Detailed Time Disciple Report;
(v) The project definition document;
(vi) The FIX Gateway Solution Design Document and POC Test;
(vii) The JIRA report;
(viii) The detailed and extensive FIX Gateway Specification document that was amended throughout the relevant period.
(b) Whilst Mr Hulst did not know exactly when Chelmer commenced works on the FEXD project, he conceded it must have started work by at least 4 April 2008.
(c) Those reasons set out in section 10 of Chelmer's written submissions dated 8 March 2018.
Third, the Court can reasonably infer that the FIX Gateway was functional enough for some tests to be carried out, as evidenced by the FIX Gateway Solution Design Document and POC Test.
Fourth, whether or not it takes 56.75 hours to develop the project definition document for such a bespoke and technical project is a matter for expert evidence. FEX did not adduce any expert evidence on this issue. There is no evidentiary basis to support the submission.
Fifth, the fact that the Detailed Time Disciple Report contains work that is not approved does not affect the accuracy of the time entries made by each employee at the time the task was carried out. Whilst some of the time entries may not have been approved by Mr Robertson and/or Mr Cleland-Pottie:
(a) There was no serious challenge put to each employee during cross-examination that they did not accurately record their time; and
(b) Chelmer is entitled to charge for all time spent prior to cancellation, irrespective of whether those time entries have been approved or not.
Sixth, it is inherently improbable that former employees would fly overseas to give evidence for a former employer if they had any doubt as to the work they carried out on the FEXD project. The submission made by FEX require the Court to effectively find that each employee colluded with Mr Robertson to defraud FEX. The evidence does not support such a contention which the Court would need to be satisfied to the Briginshaw standard.
Seventh, those reasons set out Chelmer's written submissions dated 8 March 2018.
[60]
Determination
In dealing with FEX's general argument as to the use to which the Work Activity Report may be put, I have regard to Hayne J's comments in Placer (Granny Smith) Pty Ltd v Thiess Contractors Pty Ltd [860] where His Honour stated:
37. [U]ndoubtedly [the plaintiff] bore the burden of proving not only that it had suffered damage as a result of [the defendant's] breach of contract, but also the amount of the loss it had sustained. It goes without saying that it had to prove these matters on the balance of probabilities and with as much precision as the subject matter reasonably permitted.
38. It may be that, in at least some cases, it is necessary or desirable to distinguish between a case where a plaintiff cannot adduce precise evidence of what has been lost and a case where, although apparently able to do so, the plaintiff has not adduced such evidence. In the former kind of case it may be that estimation, if not guesswork, may be necessary in assessing the damages to be allowed. References to mere difficulty in estimating damages not relieving a court from the responsibility of estimating them as best it can may find their most apt application in cases of the former rather than the latter kind. (footnotes omitted)
Here, Chelmer bore the legal burden of proof in relation to the overcharging claim once a prima facie case had been established. However, FEX bore an evidential burden to advance in evidence any particular matters with which (if relevant) Chelmer would have to deal within the discharge of their overall burden of proof. [861]
Although FEX submitted that there was nothing to test as the agreement for FEXD was signed on 16 July 2008, as I have earlier found Thomas Price effectively conceded that there was an agreement for Chelmer to do the work "on or about" March 2008. Based on the contemporaneous documents in evidence and Thomas Price's acceptance, it can be accepted that work on the FEXD project did in fact commence from February 2008.
The Work Activity Report was created to record time spent by employees on particular projects not for billing purposes to the project. It contained details of both chargeable and not chargeable work. In the context of a fixed price contract such as the FEXD Project, it is not apparent that this distinction would be of any consequence for the purposes of billing. One of the purposes of the report was to see that persons were recording 37.5 hours of work. [862] However the Time Disciple Work Approvals Training Document does provide some guidance as to what is and is not recoverable. [863] In particular, Chelmer administration, leave, no work assigned public holidays and internal Chelmer training were not recoverable. It is apparent on the face of the document that it included both approved and not approved items by the project manager. I do not accept Chelmer's argument that it was entitled to charge for all time spent prior to cancellation of the contract whether approved or not. That argument cannot hold if indeed it did not fall within the description of "all time billed to the project and expenses incurred by Chelmer."
I do not draw anything from the fact that former employees travelled from overseas to give evidence. Ultimately it is necessary to scrutinise the evidence of the witnesses alongside the other evidence to determine whether it should be accepted.
Evidence was given of a process that was followed in devising making entries in it. Although that process was not directly challenged, I am mindful of the limitations of such evidence referred to in Connor v Blacktown District Hospital [864] and Elayoubi v Zipser [865] and the observations made by Beech-Jones J in Neville v Lam (No 3) [866] as to the difficulties in scrutinising such evidence. This is particularly so in circumstances where a long time has passed since the relevant entries the subject of the work activity report were made.
Nevertheless, I accept that the time entries were usually made immediately around the time and date that appeared next to each entry and each period was closed off at the end of each week so that the longest period of time between when the work was carried out and the entry made was 7 days. Such evidence was given by each of the witnesses and not challenged. To that extent, I accept that they are reasonably accurate and I draw nothing from any rounding off as reflecting on their essential accuracy.
It is not in issue that Chelmer was also required to address the load issues in respect of the Equities Project brought to its attention by FEX and these continued into August 2008.
Chelmer submitted a table of the relevant work entries in the Work Activity which was MFI T. It submitted that this demonstrated:
1. That apart from one entry by Mr Robertson no one worked on Saturdays and Sundays;
2. In general terms very rarely do people work more than eight hours a day;
3. It shows that the project had a life of its own from February 2008 to November 2008, consistent with objective evidence and supported by the integrity of the Time Disciple reports. [867]
I accept the thrust of these submissions, although the question of whether the entries related to the FEXE/WebFEX or FEXD projects depended on their correct allocation and approval.
Notwithstanding the representations that Mr Robertson made to FEX about resources employed in fixing the issues involving the FEXE/WebFEX Project, it is apparent that work was being simultaneously being carried out on the FEXD Project. So much is evident from the minutes of the meetings for the Derivatives Project. [868] The fact that those meeting occurred was not challenged.
Beyond that, it appears that both Luscan and FEX were aware of the fact that work was being performed on both projects.
Much of FEX's argument focussed on what it claimed was revealed as tasks relating to FEXE/WebFEX and its correlation with the entries in the Work Activity Report.
I turn now to address the particular challenges made.
[61]
Time Billed to the Project
According to FEX, the use of the word "project" in the agreement limited the scope of Chelmer's work and by extension the content of any invoice issued pursuant to the "cancellation policy". It was argued that the word "project" limited the scope because it provides for the invoicing of "all time billed to the project". That construction, it was said, was in line with the terms of clause 7.2 of the agreement and the fixed price nature of the contracts. It was said that the preposition "to" is expressed as a close connection between the "all time" and "the project". This wording was to be contrasted with broader terms such as "relating to" which were not used. [869]
That submission needs to be viewed in light of the general principles of contractual interpretation earlier referred to.
FEX argued that a large portion of the items on the Activity Report cannot, by definition, be regarded as "time billed to the project". The scope of the "project" is as set out in the Agreement. Indeed, the Agreement expressly excludes "Any work Chelmer has not specified in this Statement of Work" from the "scope of this project". [870] Accordingly, "time" relating to items of work that are not part of the "project" as set out in the agreement cannot be regarded as "time billed to the project". Further, "detailed functional specifications" are specifically set out as being out of scope of the FEXD. Attention was drawn to the Agreement providing:
This section details the Chelmer initial response to the business requirements summarised in this document and covered in the specification, FIX Gateway to Support Electronic Orders for Derivative Contracts. Chelmer has quoted based on previous experience with X-Stream and FIX development, and has broken the estimate down into phases to match the phases defined in the FEXD requirements document.
The quote includes a breakdown of the time in days for each of the components involved in delivering this request. The width of the range reflects the amount of risk or ambiguity in the requirements, which at this time are very high level. Detailed requirements to be defined during the analysis phase may impact the estimate
(emphasis added). [871]
[62]
Statement of Work
FEX further argued that the Court would note that nowhere in the Agreement is there any provision for a number of activities described in the Work Activity Report. For example, the preparation of the "Project Definition" document, the existence of which the Agreement presupposes, [872] is not included as work under the Agreement. Furthermore, there is work recorded as "SOW and billing" on the work activity report. [873] On no view could this work be regarded as work "billed to the project". Indeed Mr Robertson considered the "Statement of Work" as a "proposal". [874]
I would accept that the work under the heading "SOW and billing" is not time billed to the project and is not claimable. This reduces the claim by 3 hours.
FEX submitted that the items in the Activity Report bear an element of inherent unreality. For example, 56.75 hours are recorded against the work description, "Definition document", which FEX asserted denotes Exhibit B tab 6. It argued that on no view could a document of that kind take anyone 7 days to complete and that this expansive approach to recording time supports the submissions that it was not populated or generated for billing purposes. It contended that the entirety of this work was out of scope of the project and the items could not, by definition, be "billed to the project", especially where the project plan annexed to the Agreement accorded "0" hours to the "Definition". [875]
Mr Robertson accepted that in his statement of work there was no project definition document but said it would be under project management. He said that FEX was told that Chelmer was going to manage the project and that was a document that was only created after a project has been approved. He accepted that those references in the Activity Report totalled 56.75 hours. He maintained his position as to this work being performed notwithstanding that the Project Definition documents were finalised on 11 April 2008 (signed on 31 July 2008) [876] and the work activity report showed the work on it for 56.75 hours from 3 March 2008 to 25 August 2008. [877] When it was put to him that this was exorbitant for a 19 page document, he rejected this and stated that the hours were recorded against the project but this was not the time that was intended to be billed at the time. [878]
This matter was raised with Mr Clelland Pottie, who maintained the Project Definition document was written by him and time recorded reflected time spent building consensus around the document.
Chelmer argued that, whether or not it takes 56.75 hours to develop, the Project Definition document for such a bespoke and technical project, is a matter for expert evidence and FEX did not adduce any expert evidence on this issue.
Chelmer made no submission as to whether it otherwise fell within the term "time billed to the project".
The final version of the Project Definition document was produced on 11 April 2008 and was provided to Lucsan by email by Mr Cleland Pottie, the same day. Mr Robertson asserted it was also provided on 25 July 2008. In any event, it is apparent that this is the same version of the document supplied on 11 April 2008. However there is no evidence of what further work was done on it after 11 April 2008 and before it was signed. [879]
The Project Definition document was not specifically referred to in the Statement of Works. Nevertheless I would accept that it was part of the project management which was recorded in the Statement of Works and referenced to Mr Cleland Pottie.
In the circumstances, whilst I would accept that work on the Project Definition was time billed to the project, I would reduce the amount by the time billed relevant to it after 11 April 2008.
[63]
Testing and VeriFIX
FEX drew attention to the fact that on 1 May 2008, Mr Robertson sent an email, in which he referred to using the FIX test tool and the expectation of receiving test results from the test coordinator at the end of the week. The same email also referred to converting WebFEX to run on a LINUX platform enabling benchmarking any differences caused by the operating system. [880]
At around this time, the Activity Report records Kelly Cole as "creating Verifix protocol" (see entries from 23 April 2008 to 1 July 2008), [881] which she said was a tool to test FIX Gateways. The timing of her work on a protocol to use a testing tool was said to match Chelmer's attempts to test the WebFEX/FIX Gateway product and Mr Robertson's correspondence.
FEX also referred to Mr Robertson's email of 9 May 2008 where in reference to the FEXE/WebFEX Project he stated that,
"We have all possible resource working on this." This was a response to Mr Lucero's email of the same day (copied to Ms Bowering), that emphasised the priority of FEXE/WebFEX and seeking an update on performance testing. [882]
Mr Lucero responded on 13 May 2008 stating that Mr Robertson's email suggested that the 2 projects are inter-related and that efforts are addressing multiple issues at the same time". [883]
Mr Robertson's response on 13 May 2008 [884] acknowledged the extent of the interrelationship between the two projects and the steps that would be taken to test the FEXE bearing in mind the lack of control or access to the NSX engine stating:
The problem then is step 8 - as we don't have control or access to the NSX engine - so the approach was to replace the NSX engine with another X-Stream engine that we run in house The benefit is that we could also test the jafa adapter against another API layer that had been written using a different method for OMX/X-Stream - the idea being that it could quickly eliminate that area and or at least validate that it was consistent. The problem is that it required the jafa to be recompiled against another X-Stream API. To further eliminate any possible discrepancy we ported the FEXE jafa which runs on windows to run on linux so we could compare apples with apples. To further improve the validity of the testing we have been using tools that we did not have at the time we developed FEXE. These are expensive and complicated pieces of software, which required a lot of time to write the tests necessary. Early in the process we discovered that the test results were being impacted by the test generation (emphasis added).
At around this time, the Activity Report records:
1. Work to set up a "linux 64 box"; [885]
2. Work described as "Issue Resolution" in relation to "32 Bit Linux issues"; [886]
3. Work on "Performance testing and benchmarking"; [887]
4. Meetings concerning "performance update"; [888] and
5. Work in relation to "XStream API" and "Compile against FEXD API". [889]
Chelmer argues that Lucsan's emails of 9 May and 13 May 2008 evidences knowledge that Chelmer is not working exclusively on the Equities Project during this period. It was argued that the same must be accepted from the fact that Chelmer was also anticipating having other projects during this period [890] and further that Chelmer was using test/performance tools for other projects as referred to in Mr Robertson's email of 13 May 2008 which records "slight bottlenecks". [891] I accept that these documents do provide some support to the Work Activity Report recording work on the FEXD Project on a daily basis and contradicting an assertion that Chelmer was working exclusively on the FEXE/Web FEX Project.
On 16 May 2008 Mr Robertson wrote an email, in which he referred to 'successfully completed changes required to the "JAFA" the need to attend to two issues that require "developmental rectification" being "memory leaks" at around 7000 orders and "the message reply to the FIX adapter is slower than it should be". [892]
At around this time, the Activity Report was said to record:
1. Mike Holdsworth working on tasks to do with "development" (in April 2008, , on "memory leaks" from 11 April 2008 to June 2008 [893] and on "Debug JAFA DLL" in May through to August 2008; [894] (before the Agreement was signed and any real work had begun in relation to the FEXD)
2. Staff working on other tasks related to "JAFA" in May to August 2008; [895] and
3. Various staff working on tasks named "Analysis", which included "mapping for caching", [896] which is what Mr Robertson was concerned about when it came to load.
On 22 May 2008 Mr Robertson sent an email, in which he stated all testing had been completed and there is no further development work on the JAFA component and reporting on the results of testing thus far which focussed on the "Chelmer JAFA adapter between FIX server and NSX." The email also recorded that;
"the next steps we have to make a new release of the modified JAFA (item 6) which is recompiled to use the NSX API - I expect that this build will occur at the end of this week"
These will be published formally but I haven't seen the analyst output at this stage. I know we have completed all the testing that we proposed to do and we have no further development work to do on the jafa component. If we look at the components Involved as detailed in a previous email
1. PC/Browser on the test work stations
2. The link, including network and internet (oz to NZ and routes in between) between the test PC and the WebFEX webserver
3. The Webfex webserver and application server
4. ORMS/Chelmer layer to Cameron FIX Server
5. Cameron FIX Server
6. Chelmer Jafa adapter between FIX Server and NSX API
7. The link, including network and internet (NZ to Oz and routes in between) between the jafa adapter and the NSX trading engine
8. The NSX trading engine
Items 1,2,5,7 and 8 we can't do anything about to directly impact performance- so all the current work has been focused on item 6 as we assume that this is where the greatest amount of processing and work is occurring. The component s in the tests being conducted re items 5,6 and 8 (although using a different X-Stream engine and API). The tests involve using a test application (not webfex to produce orders) - so effectively replace items 3 and 4.
Running both single user and multi user tests of both 15,000 and 100,000 orders unthrottled and averaged we get benchmark results of about 1200 orders per second placement or 600 orders per second order placement and acknowledgement. Actually Chelmer is a bit chuffed as these results are considerably better than the FIX gateways that we now support for NasdaqOMX which we did not originally develop but now enhance and are used in their other exchange clients. So the Chelmer view is that this result is acceptable. We do not believe that this is the best possible result in the given environment (ie no WAN links etc) as there is evidence that the test tool itself is a bottleneck and that the trading engine/hardware is also a bottleneck. What we believe the test shows is that items 5 and 6 should not be the cause of any problems if Lucsan were to run the same tests again and get the same results. To validate the next steps we have to make a new release of the modified jafa (item 6) which is recompiled to use the NSX API - I expect that this build will occur at the end of this week. We will then perform testing expanding out the components to include 3 and 4 - and we still have a bit of thinking to do as to how this can be sensibly achieved and measured. I'm happy that Lucsan could also re run their original tests and see whether anything has changed. So this is the plan for next week (emphasis added).
At around this time, the Activity Report records:
1. "Issue resolution" in relation to "JAFA issues"; [897]
2. Extensive work in relation to "JAFA Gap Analysis"; [898]
3. Extensive work in relation to "Performance Testing and Benchmarking" with specific reference to "setting up CASE JAFA"; [899]
4. "Compile against FEXD API" and "XStream API"; [900]
5. Extensive "project management" where there was no FEXD project to manage yet where Chelmer was dealing with the serious failures of the FEXE/WebFEX software; [901] and
6. Extensive time spent on "project meetings" concerning "FEX project planning meeting", "phone call with Ian [Galenkov]" (which FEX contended can only concern FEXE/WebFEX), "performance update" (which FEX contended can only relate to FEXE/WebFEX as there was no FEXD), and, even in June, "resource planning - discussion on test plan/verifix structure". [902]
By June 2008, the FEXE and WebFEX was still not operational. On 10 June 2008, Mr Lucero wrote to Mr Robertson expressing his concern and seeking infrastructure to be in place and a robust solution to be delivered. [903]
On 16 June 2008, Mr Robertson wrote: [904]
We ran a full end to end test of 5000 orders onto the NSX test board Wednesday last week without any issues. This confirms that we have fixed the two issues we had identified in the earlier rounds of performance and stress testing, and confirms our assumption that the area that was causing the problems was the jafa layer.
…
We have purchased and setup a new server running Linux, which will make it consistent with the FEXD operating system.
…
So the options are for you ? you can have the existing version of WebFEX with the new Linux jafa now, or you have the new version of Webfex (2.0) and linux jafa (1.1) next week…while our intention will always be to deliver the systems in a timely manner, we are not aware of any deadlines that we need to be meeting ? if there are then please let us know in case we need to alter out product release schedules.
Looking further out, in July and August we would expect to make another release of WebFEX (vs 2.1) with some additional features that we have been working on, another version of the Jafa (vs 1.3) which incorporates further changes and some slight FIX message specification changes and core upgrade of some FIX messaging layer (VS63r0) (emphasis added).
FEX point out that at around this time, there are references in the Activity Report to "set up linux 64 box" [905] numerous references to "JAFA" [906] and to "JAFA issues", [907] extensive "performance testing and benchmarking" [908] including work described as "replication" (presumably of errors), extensive "project meetings" with references to "performance update" and "discussion on test plan/verifix structure", [909] extensive "team meetings" (as opposed to "project" meetings) between Mr Robertson, Mr Hamilton [910] and Mr Holdsworth, [911] all of whom were busy working on FEXE/WebFEX issues and references to "JAFA modelling", [912] "modeller" and "modelling". [913]
On 19 June 2008, Harold Lucero responded, confirming that FEX would like to move forward with the new "WebFEX (vs 2.0)" and "Linux jafa (1.1)". He sought certain documents and information. [914] In his reply email dated 19 June 2008, Mr Robertson confirmed that he, Mr Holdsworth [915] and Huber Vandenbrink [916] were both reporting "JAFA"-related matters or testing them. Each of them recorded extensive time between June, July and August 2008 on the activity report. In the email, Mr Robertson referred to extensive testing performed by Chelmer in relation to JAFA and foreshadowed extensive new testing. [917]
At this time, Jonathan Knights-Washbourn was conducting "Testing - JAFA-38" and each of Bastiaan de Wit (who was not called by Chelmer to give evidence), John Patrick (who was also not called) and Mr Holdsworth were conducting working on "JAFA" into July, August and beyond. [918] At the same time, Ms Cole was conducting work to create the Verifix protocol to test the FEXE gateway [919] and running "FIX Test Cases". [920] In June 2008, Mr Robertson recorded an entry "resource planning - discussion on test plan/Verifix structure". [921]
FEX submitted that the Court would find that references all of the abovementioned work could only be in relation to the FEXE/WebFEX project. It was argued that there is no evidence that there was anything to test in FEXD as the Agreement was only signed on 16 July 2008. The appearance of these items on the Activity Report at the same times that Mr Robertson is reporting on ongoing activity by Chelmer's staff was said to be no coincidence and Chelmer provided no explanation of these matters.
Ms Cole's acknowledged references in the Work Activity Report to "FEXE" stating that this was a mistake. [922] Subsequently however she acknowledged that she didn't have an ability to recall exactly the work she was performing. Ms Cole was not listed amongst the resources proposed to be used for the FEXE/WebFEX project. [923]
Mr Robertson conceded that veriFIX was used to write tests for the equities gateway but believed it was also used to write tests for the derivatives gateway. [924] He stated that the Derivatives Project involved some upfront testing as part of proof of concept stage [925] although he did conceded that he may not have so stated in his affidavits. [926] Later he said he could not recall if he had previously given evidence to this end. [927] Mr Robertson drew attention to p 222 of Exhibit B under the heading "Creating veriFIX protocol". He denied that that was a reference to the equities FIX gateway and not the derivatives. [928] When his attention was drawn to the entry on 4 June 2008 referring to "setting up FEXE protocol" he rejected the suggestion that the entries from 23 April 2008 to 5 August 2008 were to do with the equities FIX gateway. He stated that it must have error of some description (by Ms Cole presumably) and went on recording. [929] Later his attention was drawn to the further FEXE entry above 1 July 2008 (totalling 35.58 hours an amount to be just over US $4000 [930] ). Mr Robertson again rejected the suggestion that Ms Cole was testing the fixed equites gateway and not the derivatives gateway.
Chelmer drew attention to the contents of the Project Definition Document, the Gateway Solution Design Document and the FEXD FIX Gateway POC Test Approach Document [931] as evidencing that VerifFIX was to be used on the FEXD Project. [932]
I accept Mr Robertson's and Ms Coles' evidence on this matter. The FEXD FIX Gateway POC Test Approach Document acknowledged that:
"There are a range of software architectural options available for this project. As part of the design phase, Chelmer will test architectural configurations in order to determine the optimal solution design phase, Chelmer will test architectural configurations in order to determine the optimal solution design in order to achieve FEXD defined performance criteria." [933]
Further down it recorded that the test tool to be used was "the VerFIX FIX testing system running on a standalone PC." [934] In the Project Definition document (v0.3) last updated on 11 April it recorded as an assumption that the 'derivatives trading system is currently in testing." [935] The POC Test Approach Document was created in draft on 10 April 2008. The minutes of the meeting of 17 April and 6 May 2008 record matters relating to testing as action points. [936] Overall the timing correlates with the entries in the work activity report referable to "creating Verifx protocol "commencing on 23 April 2008.
The FEXD FIX gateway POC Test Approach document [937] and the test results [938] satisfy me that that the relevant entries in the FEXD Work Activity Report represents time billed to the [FEXD] project. In the meeting minutes of 22 May 2008 there is a reference to:
"No notes from previous meeting-the crux of it was that we agreed that it was becoming evident that a lot of work/effort was required to get JAFA talking to CASE which would be thrown away. So rather than try to run all POC tests we agreed to run 1,2 and 5."
These were in fact the test revealed in the test report of 23 May 3008. [939] The test approach document refers to:
The 1-5-3 build of the CASE FIX gateway running Cameron R38 on 64 bit Linux will be used in testing. [940]
The Solution Design Document last updated in 29 May 2008 recorded the agreed test criteria and the test results. [941] There were also discussion on the test plan and Verifex structure recorded in the Work Activity Report involving participants including Mr Robertson ((25 June 2008), John Patrick (26 June 2008, Andrew Hamilton (3 July 2008) and Jakobus van Niekerk (9 June 2008). [942] The references in the Work Activity Report to "persistence discussion and caching" correspond with the matters raised in the project meeting minutes of 17 July 2008 where it was noted that "FEX requires a level of catching within the Cameron Universal server in order to avoid sending clients masses of unexpected execution reports." [943]
Overall I am satisfied that the relevant references record work falling within the description of "time billed to the project."
[64]
Replication
Mr Robertson accepted that between April and May 2008 his emails indicated that Chelmer was doing extensive work to rectify the problems with the equities FIX gateway and WebFEX. [944] He accepted that his email of 13 May 2008 indicated that Chelmer was trying to replicate the problems that had been identified in their testing on the Equities Project in March 2008. [945] Mr Robertson however, could not explain the references to "replication" in the FEXD activity Report on 21 May 2008 under the heading Performance Testing and Benchmarking. Although, he did express the view that this could refer to the need to replicate gateways.
The entry in the work activity report corresponds with matters raised on 16 April 2008 where it was noted that "FEX would like if possible to have replication for US's [946] (to ensure that if primary US goes down secondary can immediately and transparently take over)". [947] The matter was logged and assigned to Ian Wade. The question of disaster recovery and the options to deal with it were discussed in the Gateway Solution Design Document. [948]
Ms Cole was not asked about the entry in question. Mr Robertson's explanation is plausible and supported by the documents referred to and the timing of the entry. I am satisfied that this is work falling within the description of "time billed to the project."
[65]
Memory Leak
Mr Robertson accepted that there was a memory leak with the FEX Equities Exchange when orders got to 7,000 per day as recorded in his email of 16 May 2008. When it was put to him that the charges from 15 May 2008 (sic) referenced in the work activity report to "Memory Links" referred to the fixed equities gateway, he stated that he could not comment on someone else's entry. [949] The memory leak in the work activity report was documented commencing 16 May 2008. The work was performed by Mr Holdsworth and to a lesser extent, Hubert van den Brink. Mr Holdswoth was a contractor. It was not put to him that he performed work on the Equities project. However, Mr Robertson acknowledged that Mr Holdsworth worked on the code [950] and assumed that he had regular meeting with him to discuss the work of fixing the gateway and WebFEX. Mr Holdsworth was referred to as part of the key resources proposed to be used for the Equities Project project by Chelmer. [951]
The JIRA report records a task entry on 18 April 2008 in the same of "jknightswashbourn' for "messages get rejected from FEXD." That task was reported in 5 May 2008 and closed on 15 July 2008. [952] That time period corresponds with the documented entries under the heading "memory leaks" from 16 May to 4 June 2008. [953] The JAFA number was 5.
Exhibit K does have what appears to be an extract of the JIRA report from Mr Robertson, which records that there was an analysis for memory leaks for the Equities Project which was created on 15 May 2008 and updated on 19 May 2008 and marked as resolved. However, the JAFA number was 11.
Overall, on the state of the evidence, I am satisfied that there was work on memory leaks for the FEXD Project as disclosed in the Work Activity Report.
[66]
Log on references
FEX argued [954] that the references to "logon' and "pass through log on in May 2008 and August 2008 in the work activity report [955] correlated with the access issues with the Equities Project [956] which were acknowledged by Mr Robertson on 17 July 2008 and requests for logons made by Ms Bowering on 11 August 2008. [957]
The log on entries in the work activity report commence on 2 June 2008 under the heading "pass through log on" (Mr Hamilton and Ms Cole) and on 8 August 2008 (Ms Cole) there is a single entry for "testing logon heatbeat" Mr Robertson stated that to establish a session with an X-Stream engine, you must, first, have a FIX connection which means that you need to log on and that FIX connection has to be matched to a log‑on in the X-Stream system. [958]
Mr Robertson acknowledged however that the entries were not his. Nevertheless it was not submitted that as a matter of background his account was implausible and the matter was not pursued with Ms Cole or Mr Hamilton.
Beyond that "pass through log on" was referred to in the issues/action register on 29 May 2008 as item 11. [959] It appears again in subsequent updates until 21 August 2008. [960]
Overall I am satisfied that the relevant entries consitiute "time billed to the project."
[67]
ISVs
Mr Robertson accepted that ISV's (independent system vendor) was software that would interface with the derivatives gateway [961] as WebFEX functionality and code was not going to be used for the derivatives gateway. [962] Mr Robertson stated that he could not recall if Chelmer delivered anything described as a specification for ISV to FEX but rejected the suggestion that someone would make up 113 hours of work in the Work Activity Report referrable to this. [963] Mr Hamilton who was responsible for the relevant entries was not cross examined on the issues. His evidence was that with some small exception he was not involved in the Equities Project. His name was not listed amongst the resources proposed for the FEXE/WebFEX Project. [964]
FEX argued that ISV Work was excluded from the specification for work by clause 2.2.2 of the Statement of Works. [965]
The Project Definition document specifically mentioned the need to develop ISVs. [966] The entry in the Work Activity Report was for "FEXD FIX specification for ISV's. Clause 4 .3 of the Statement of Works stated that "A detailed business requirements specification, message mapping and FIX definition will be created during the detailed analysis phase." A draft document to that end was produced as revised between 9 April and 4 August 2008. [967] The exclusion in clause 2.2.2 was as to the development of a trader workstation which will be supplied by ISVs. On its face the references to ISVs in the Work Activity Report do not fall within that exception and I am satisfied that the relevant work constitutes "time billed to the project."
[68]
GUI
Mr Robertson accepted that the reference to GUI meant graphic user interface such that it did not have anything to do with the derivatives gateway as that had to do with the user using WebFEX. [968] Although he stated that there might be a plausible explanation for the reference to GUI in the Work Activity Report, he could not tell by looking at it. . Mr Robertson stated that his explanation "may sound contradictory". [969] No explanation was ultimately given, although neither Mr Holdsworth nor Mr Hamilton were questioned on this
FEX submitted that the references to GUI begin to appear in the activity report which Mr Robertson admitted was neither relevant to the FEXE (on its own) nor to the FEXD. It argued that taking this as an example the Court could not know from the Activity report or indeed form other evidence led by Chelmer whether or not other work in June, July and August 2008 concerned FEXE/WebFEX or FEXD. [970] I would not accept the broader proposition.
The issue as to GUI was raised in FEX's case and put in issue. [971] It was not re-examined on. Mr Holdsworth and Mr Hamilton were not directly challenged. It was for Chelmer to establish that this was related to the FEXD project having regard to the evidence presented. Based on Mr Robertson's account of what it involved I am not satisfied that it related to FEXD.
I would therefore not allow the claim totalling 5.42 hours
[69]
Log In
Mr Robertson accepted that he could not be sure that the references to "getting gateway going" in June 2008 related to the Derivatives Project but by looking at the entry he stated that when the Derivatives Project started then the JAFA was already in existence so by definition it started with a gateway. [972] The matter was not pursued with other witnesses. The additional project meeting notes of 12 June 2008 refer to the generic usage of a FIX gateway on the assumption it was built. [973] As this matter was taken no further its status as "time billed to the project" has not been put in doubt.
[70]
Learning
Mr Robertson also accepted that a portion of the hours in the Work Activity Report was comprised of learning how to do the work however everything was deliverable work. [974] Taking account that this was bespoke software FEX did not identify what if any work ought to be excluded on such a basis by expert evidence or otherwise.
[71]
HOURLY RATES
Chelmer contended that time billed to the project by each resource that provide the services would be costed at hourly rates of either USD $112.50 per hour or$ USD 137.50. [975] Although the Agreement did not have hourly rates it was said that this could be implied by dividing the daily rates of USD $900 [976] and USD $1100 [977] by 8. In support of its argument Chelmer submitted:
1. First, Mr Robertson gave evidence that the standard working in New Zealand was 37.5 hours. This equates to a 7.5 hour working day. In circumstances where that evidence was unchallenged and not inherently improbable it should be accepted by the Court.
2. There is objective evidence which states that:
in any given week staff are expected to work 37.5 hours
1. It was never put to Mr Robertson or any other lay witness called by Chelmer that they were required to work or actually worked 9.5 hours each working day.
2. There is objective evidence that Chelmer must have allowed its staff to have lunch and tea breaks as staff and tea breaks are expressly excluded when calculating the requirement to work 37.5 hours each week. Seeking an 8-hour working day only requires the Court to allow a modest 30-minute break each day for lunch and tea breaks.
3. Mr Robertson gave evidence that each employee should be recording 37 to 40 hours per week. In circumstances where that evidence was unchallenged, not inherently improbable and consistent with the objective evidence471 it should be accepted by the Court.
4. It is inherently improbable that staff who were required to work for 9.5 hours with no breaks whatsoever would take the time and effort to fly overseas to provide evidence for a former employer.
5. The summary prepared by Chelmer by reference to the Detailed Time Disciple Report show that there are only 13 days out of 304 days, where staff members of Chelmer recorded more than 8 hours of time per day and even then, time is not recorded more than 30 minutes.
6. Whilst the terms and conditions state that staff will not be required to commit to any weekly or daily quota, that clause (when read in its entirety) is directed to how Chelmer's resources are assigned to Lucsan. On that basis it says no more than that Chelmer staff will not be required to commit to any weekly or daily quota whilst working under the direction of Lucsan. The term "or required to be present at the FEX site" which appears in the same clause supports such a construction. On that basis the clause does not support a finding of a 9.5 hour working day. [978]
FEX argued that Chelmer's contention should be rejected.as there is no basis for the implied term. Secondly it contends that the Agreement does not specify any hourly rates. Thirdly and at best the Agreement actually refers to a 9.5 hour day not an 8 hour day. It argued that it was for Chelmer to demonstrate a proper basis in the Agreement for its pleaded case and it have failed to do so. Rather it has sought to navigate around the difficulty by contending that the experts have a particular view on the reasonableness of an hourly rate by reference to expert evidence. It argued that this may be relevant to quantum meruit but did not assist Chelmer on its contract case. [979]
FEX contended that the Agreement described "normal working hours as "being 8 am to 5.30 pm that is 9.5 hours and that Chelmer staff "will not be required to commit to any weekly or daily quota". [980]
In oral submissions FEX added:
AFSHAR: As to whether or not the number of days was eight as opposed to nine and a half, your Honour has my submissions on that point, but can I just say, the evidence of what Mr Robertson, said or didn't say, about what happens in New Zealand is irrelevant. What people did on a day to day basis, is also irrelevant. Your Honour is not there to determine whether or not, by conduct, which was never communicated to us until after termination, or cancellation or termination, or whatever your Honour finds, that somehow that grounds an implied term. There are rules in terms of what could constitute an implied term in fact, and none of those have been addressed by my learned friend. This contract itself, has a term to denote what are normal business hours. So it's not about who worked at what time, who worked for how long, it's what the contract say and how the contract ought to be‑‑
HIS HONOUR: Well that's in the next dot point, isn't it?
AFSHAR: Yes, and this specifically says that it's 8am to 5.30pm. Normal working hours are defined, that ought to be taken as the day, and it needs to be - the evidence that my learned friend, the submission that my learned friend makes or the evidence that he leads, needs to be so strong that it overcomes that express term, and it's Chelmer's document. If Chelmer failed to specify an hourly rate, well that it has consequences for Chelmer, and it is significant because it does reduce the amount by around 25%, and I've provided your Honour some submissions.
Can I just say one other thing about, just before I move on from the activity, my learned friend say something along the lines of, "Well, your Honour should accept from the fact that these people flew over to Sydney to give evidence," as somehow strengthening to chase Chelmer has. With respect, that consideration is completely irrelevant. There's no evidence as to - it actually goes no where, but on one view of the world when one has a paid trip to another country, even if it's for the purposes of evidence, that helps - that's neither here nor there, in terms of whether or not that activity report records what Chelmer in fact did.
[72]
Determination
Chelmer did not seek to develop a submission based on the standard working week in New Zealand to support an implied term based on custom and usage within the criteria referred to in Con Stan Industries v Norwich Winterthur Insurance (Australia) Ltd. [981] Nor did it argue that any statute implied such a term.
However, the Agreement did envisage the charging of an hourly rate as evidenced in the reference to an overtime rate "when a non-complete hour is worked it will be rounded up to an hour" and "During Saturday, Sunday and public holidays, a minimum of 4 hours will be billed".
To argue that such a term should be implied required Chelmer to demonstrate how such an implication met the requirements set out in BP Refinery (Westernport) Pty Ltd v Hastings Shire Council. [982] The test for establishing an implied term outlined in that case was adopted in Secured Income Real Estate v St. Martins Investments Pty Ltd [983] and expressed as follows:
"(1) it must be reasonable and equitable;
(2) it must be necessary to give business efficacy to the contract, so that no tem will be implied if the contract is effective without it;
(3) it must be so obvious that 'it goes without saying;
(4) it must be capable of clear expression;
(5) it must not contradict any express tem of the contract."
Chelmer argued that it should be implied that the daily rate is based on an hourly rate derived by a division daily rate by 8. Were that to occur, it leaves open the prospect that where the hours billed exceed 8 in the period 8 am to 5.30 pm, the amount being charged exceeds the daily rate. To that extent it would not be consistent with the intention expressed in the contract.
Whilst it might be reasonable to assume that the parties envisaged that Chelmer workers would have appropriate rest and lunch break during the day, the Agreement is silent on the matter particularly from the perspective of calculating an hourly rate. The question of what is reasonable is to be assessed within the terms of the parties' agreement. The terms did not specify the provision of breaks but instead a daily rate set within a time frame of working hours. In the circumstances, I am not satisfied that Chelmer has demonstrated meeting the requirements for the implied term in the terms it was seeking. Accordingly, I would accept FEX's argument to the extent that the only implication that should be accepted is based on the calculation using a 9.5 hour day being hourly rates of US $115.79 and US $ 94.74.
[73]
QUANTUM MERUIT
In light of my findings as to Chelmer's contractual claim it is strictly unnecessary to consider the alternative claim it makes on quantum meruit. FEX had asserted however that such a claim is not maintainable.
Were it relevant however, I would not have accepted FEX's argument that such a claim would fail in light of there being no evidence of FEX receiving any benefit. That proposition is inconsistent with authority as I see it. [984]
[74]
Damages Sought By FEX
I turn to consider the substance of FEX's Cross Claim as to damages on the assumption that I am wrong.
The Damages sought by FEX were particularised as:
1. Monies paid to Chelmer in relation to the FEX Derivatives Project: USD $78,180.60
2. Alternatively to (1) above, a portion of the $220,236 FEX paid to EPAM to rebuild a portion of the FIX Derivatives Gateway equivalent of USD $78,180.60.
3. Monies paid to HCL to manage the development of a FIX solution to FEX; AUD $65,738
4. Monies paid by FEX to Chelmer in relation to the WebFEX/FIX Equities Gateway projects; USD $232,100 [985]
The amounts referred to in (2) and (3) were sought to be supported by reference to the annexure of the FEX accounts that were said to show the payments to HCL and EPAM. [986] Mr Hulst, in whose affidavit they were contained, conceded that he was not involved in the processing of invoices or decision making as to what invoices were paid or unpaid. He believed that those decisions were the responsibility of Brian Price. [987] The FEX entries in documents were admitted subject to the original invoices being supplied. [988] Ultimately, what FEX sought to rely on was Master Service Agreements with HCL and EPAM. [989] Chelmer submitted that the claim for damages cannot succeed even if FEX could establish lawful termination, for the following reasons: [990]
1. First, Mr Hulst admitted that the service FEX obtained from other service providers extended past those with which Chelmer was to provide. [991] One of those service providers (EPAM) charged USD $61,860 to design and implement a FIX Gateway required to transmit FEX trades to a clearing House. [992]
2. Second, there are no tax invoices in evidence that establish what the payments made to EPAM and HCL were for. The two schedules FEX rely on [993] were said not to provide sufficient information for the Court to ascertain what those services providers were being paid for and what part of those payments (if any) was for work within Chelmer's scope.
3. Third, FEX paid EPAM USD$50,800.00 for "FixEdge Lic Fee." There is no evidence as to what the licensed software does and why it is required. In any event it could not have been within Chelmer's scope of works which expressly excluded maintenance and support.
4. Fourth, even if FEX could establish lawful termination and that the money it paid other technology providers was for work within Chelmer's scope, it has to deduct USD$246,919.40, being the balance payable to Chelmer under the FEXD project. [994] FEX has not attempted to provide any form of contract reconciliation and such a task should not be left to this Court.
5. Fifth, FEX have provided no authority whereby they are entitled to obtain a full refund from Chelmer of all monies paid in addition to having Chelmer completely indemnify FEX for all costs it incurred to allegedly complete the FEXD project.
6. Sixth, whether the contracts entered into with other technology providers subsequently engaged by FEX and the contract with Chelmer involved the same work is a matter for expert evidence. FEX has adduced no evidence on this issue and the Court should not be left to speculate as to exactly what services other technology providers were engaged to carry out for such a highly technical and bespoke project.
HCL outsourced the developmental work to the FIX engine supplier EPAM. [995] Mr Hulst gave evidence that FEX selected HCL and engaged them to build a FIX gateway from scratch as Chelmer had not completed a useable portion of the Gateway that they had originally been engaged to build and Chelmer' project and operational costs were going to be significantly higher others it had canvased. [996]
Except as indicated earlier, FEX did not respond to Chelmer's submissions. On the evidence it is not apparent what payments were actually made to HCL and EPAM and the extent the work may have interacted with what Chelmer was contracted to perform. FEX's counsel stated in oral submissions:
…….. we're not just saying that we could have gotten someone else. We're also saying that the money that we paid was wasted. So it is actually to do with - I don't need to necessarily demonstrate that, at the time, I could've got someone else. Or that there is evidence for that. It is that that money that was paid, was completely wasted.
Those funds would be USD $78,180.60 and USD $232,100. [997]
[75]
SUMMARY and ORDERS
It follows form the above that Chelmer succeeds on its claim although I would delete the following form the Work Activity Report:
1. 3 hours in relation to the preparation of the Statement of Work
2. All hours in relation to the Project Definition document after 11 April 2008
3. 5.42 hours in relation to the GUI
I would accept that the hourly rates as described above at USD 115.79 and 94.74.
The relevant amounts need to be calculated and converted to Australian Dollars.
FEX has failed on its Cross Claim.
I order the following:
1. Verdict for the Cross Defendant on the Cross Claim.
2. Verdict and Judgment for the Plaintiff against the Defendant in a sum to be calculated.
3. I defer entry of final orders pending the following:
1. Counsel to confer and agree upon the appropriate Consent Order including giving effect to the calculations referred to above, interest and costs.
2. Parties have liberty to lodge with my Associate in Chambers any agreed Consent Order.
3. To the extent the above are not agreed, stand proceedings over to 9.30 am on Friday 8 March 2019 for determination of any outstanding issue as to calculations interest and costs and the making of final orders.
4. Liberty to either party to apply to the Court on 48 hours notice.
[76]
Endnotes
Hereinafter 'Chelmer'.
Hereinafter 'FEX'.
Referred to as NSX (formerly known as the Newcastle Stock Exchange).
Referred to as FEXE.
Exhibit 4 at [17].
Exhibit B at [24].
Statement of Claim at [35].
Statement of Claim at [47].
Statement of Claim (1).
FEX written submissions at [124] and [143].
Cross Claim at [22] and [23].
Amended Statement of Cross Claim at [20]-[23].
FEX's Statement of Issues at [11].
T 740.04-.06.
See The NTF Group Pty Ltd v PA Putney Finance Australia Pty Ltd [2017] NSWSC 1194 and Nova 96.9 Pty Ltd v Natvia Pty Ltd [2018] NSWSC 1288.
Exhibit B, tab 1.
Exhibit B at [9].
Exhibit B at [10].
Formerly Emanuel before 1 May 2010.
Exhibit 2 at [7]-[10].
Hereinafter referred to as 'Lucsan'.
Exhibit 10 at p 4.
This was the branding to be used for the end user in lieu of the NSX; see T 291.32-.42
Exhibit 3 at [11] This was marked MFI A but read see T 462.5
Exhibit 3 at [4]-[5]
T 467.1 -.27.
T 468.28- 469.-7.
Exhibit 2 -JH-1 p122.
T 472.31--.43 (formerly the Newcastle Stock Exchange).
Exhibit A1.
T 590.1-617.25.
(Unreported, Federal Court of Australia, Tamberlin J, 29 June 1995) at 122 - 123 (in a passage cited with approval by the High Court when it upheld his Honour's decision: Effem Foods Pty Ltd v Lake Cumbeline Pty Ltd (1999) 161 ALR 599; [1999] HCA 15 at [15]).
FEX written submissions at [29]-[30]
(2009) 52 MVR 492 at 526 (with whom Handley AJA agreed). See also SAS Realty Developments Pty Ltd v Kerr [2013] NSWCA 56, Ward JA (with whom Macfarlan JA and Sackar J agreed) at [115].
FEX written submissions at [58] and Exhibit 2-JH1;p91
Exhibit C at [52].
T 72.05-.10.
Exhibit 7 see T 71.24-.28.
T 75.25.
Exhibit 8.
Exhibit 8.
T 75.40 - .47.
Exhibit 10 at p 2.
T 108.18 - 109.19.
Exhibit 10 at p 1.
T 109.44 - .50.
Exhibit 3 at [17]-[19]
T 460.17-.28
Exhibit 2-JH1; p 123 - 124.
Exhibit 2-JH1; p 124.
T299.42 - .48.
T300.05 - .07.
T 305.34 - .39.
T 475.38 - .43.
Exhibit 2-JH1; p 123 - 124.
T 497.41 - .50.
T 498.5 - .10.
T 498.12 - .13.
T 498.33 - .35.
T 499.46 - .47.
T 499.33 - .34.
T 499.33 - .40.
T 500.11 - .12.
Exhibit 2-JH1; p 125.
Exhibit 2-JH1;p 128 - 129.
Exhibit K p 13 at [1.1].
Exhibit C-AR2; tab 8 p 125.
Exhibit C-AR2; tab 8 p 128.
Exhibit 2-JH1 p 146; 168.
Exhibit C-AR2; tab 11 p 211.
Exhibit K p 23.
Exhibit 2-JH1; p 175.
Exhibit 17 p 2 & 3.
Exhibit 17 p 2.
Exhibit 17 p 2
Exhibit 2 p 186 - 190.
Exhibit 2-JH1, p 197.
Exhibit 2 -JH1, p 197.
T 319.20 - .26.
Exhibit 12- p 1 & 2.
Exhibit 12-JH1, p 1.
Exhibit 2 -JH1, p 287.
Exhibit 13.
Exhibit 13.
Exhibit 13.
Exhibit 2 at [71].
T 320.31 - .35.
T 320.37 - .39.
T 320.15 - .16.
T 321.18 - .20.
T 321.22 - .23.
T 321.25 - .26.
T 321.27 - .30.
T 321.36 - .39.
T 321.41 - .43.
T 321.45 - .48.
Exhibit 2-JH1, p 207.
Exhibit 2-JH1, p 208.
Exhibit 2-JH1, p 209.
Exhibit 2-JH1, p 209.
T 507.43 - .45.
Exhibit K p 31 [email at bottom of page].
Exhibit K p 31.
T 322.41 - .49; T 508.35 - .45.
T 323.04 - .17.
Exhibit K p 30 - 31.
T 324.24 - .27.
T 324.29 - .30.
T 324.33 - .36.
T 325.01 - .10.
T 511.08 - .23.
T 511.26 - .28.
T 511.30 - .32.
Exhibit C tab p 1.
Exhibit 14 p 3 - 4.
Exhibit 14 p 1 - 2.
Exhibit K p 35.
Exhibit K p 34.
Exhibit K p 33.
Exhibit K p 33.
T326.33 - .38.
T326.4 - .41.
T326.43 - .327.01.
T327.03 - .05.
T517.47. - .50.
T518.35 - .38.
(1959) 101 CLR 298.
T 540.32-.42.
T 542.10-.20.
T 468.28-.46.
T 492.22-.29.
T 274.40.
T 292.10-.25.
T 309.44-.47.
T 451.19-.41.
T 561.28-.30.
Plaintiff's Submissions in Reply at [6.3].
Dilosa v Latec Finance Pty Ltd (1966) 84 WN (Pt 1) (NSW) 557 at 582 (Street J); Australian Securities & Investments Commission v Adler [2002] NSWSC 171 at 449 (Santow J as his Honour then was).
Plaintiff's Submissions in Reply at [6.4].
Plaintiff's Submissions in Reply [7.73] - [7.76].
Exhibit 4 at (26).
Exhibit 4 at (28).
Cross Claim at [14].
Cross Claim at [20].
Cross Claim at [12].
Amended Defence to Cross Claim at [15].
Plaintiff's submissions in Reply at [2.7].
Exhibit C p 66.
Exhibit C p 73 at [2.4.1].
Exhibit C-AR1;tab 2 at p68.
T 698.20-.40.
T 56.8-.12.
FEX's written submissions at [60] and [153.3-.4].
Chelmer's written submissions at [2.11].
Exhibit 7, see also T 71.24-.28.
Exhibit C-AR1, p 66.
Exhibit P.
Exhibit 2-JH1; p91.
Exhibit 2 JH1, p 90.
Exhibit 2 JH1, p 91.
T280.18-.24 and Exhibit 2-JH1, p 110.
Exhibit 2-JH1, p 124.
Exhibit 2-JH1, p 123 - 124.
Cross Claim at [15].
Cross Claim at [20] (a) (c) and (e)
FEX's written submissions at [153.4].
FEX's written submissions at [15], [75.1-.3], [116], [123] and [153.5].
Cross Claim 20(b) and (d) related to the Derivatives Project.
Exhibit 4 at [26].
Mr Hulst T 263.30 - .40, T 282.11 - .27, T 231.34 - .46, T 320.4 - .15; Ms Bowering T 473.13 - .17; Mr Price T 562.3 - .16.
Chelmer written submissions in reply at [5].
Exhibit R, p 22 at (54) - (55); T 459.5 -.29.
T 82.21-.26.
FEX submissions at [46].
Exhibit 5.
T 27.21-.27.
FEX written submissions at [68].
T 29.37 - T30.30.
T 37.8 - .17.
T 38.22 - .25.
T 37.50 - .38.10 and T 38.27-.32.
T 38.15 - .20.
T 38.22 -.25.
Exhibit C -tab 5, p 92.
Exhibit C -tab 6.
Exhibit C -tab 6, p 116.
Exhibit 2- JH 1, p 2.
Exhibit 2 [12] - [14].
Exhibit 2 -JH1, p 4.
Exhibit 20.
Exhibit 20 p 4.
Exhibit 2 -JH1, p 8.
Exhibit V.
Exhibit 20.
Exhibit C- tab 13 p 235.
Exhibit C, tab 13.
FEX written submissions at [75].
Exhibit 17.
Exhibit 17 email at 1:02pm 7/3/2008; T 195.41 - 196.5.
T 196.03 - .05.
T 196.31 - .34.
T 196.36 - .37.
Defendant's Submissions at [17.4].
T 522.10 - .23.
T 535.15-.17.
Exhibit S p5 at [18].
Exhibit S p5 at [19].
T536.18 - 536.46.
Exhibit S p7 at [33].
Exhibit S p7 at [34] and [36] and T 535.10-.16.
T 537.8-.15; T 541.29-.34; T 551.01-.07.
T 545.15 - .21.
Exhibit R, p 22 at (54) - (55); T 459.5 -.29
T 562.10 - .16
T 564.20 - .37
T 542.1-.30 and 544.8-.20.
T 544.23.
T 544.45 - 545.06.(emphasis added)
Exhibit 4; see also T545.10.
T 545.13.
T 545.21.
T 264.08.
T 264.40 - .42.
T 265.46 - .49.
T 270.15 - .20.
T 279.18 - .20.
T 303.30 - .34.
T 303.36 - .43.
T 285.25 - .45.
T 315.35 - .48.
T 322.35 - 323.17 Exhibit K p 31.
T 421.01 - .10.
Exhibit 3 at [5]
Exhibit 3 at [8]
Exhibit 3 at [12]
T 470.9 -.14.
T 470.16 - .17.
T 478.46 - .479.8.
T 473.3 - .35.
T 510.10 - .19.
FEX's written submissions at [153.4].
Exhibit 2 p 33 (box comments next to revision 0.5).
Exhibit K p10-22.
Exhibit 2, JH1 p1.
Exhibit 2 at [40].
Exhibit K p 1.
Exhibit 2 p 110.
T 701.21-.27.
Plaintiff's submissions in reply [5.6].
Plaintiff's submissions in reply [7.48]
Exhibit C tab 2 p71 at (2.2).
Plaintiff's submissions in reply [7.26]
Exhibit V p 27.
Exhibit 20 p 29 at (3.8).
T 38.06.
T 38.12-.13.
T 38.20.
T 38.35.
T 38.32.
T 238.48-239.2.
Exhibit C p 235.
Exhibit C p 235.
Exhibit C p 211.
T 598.20-.26.
T 599.01-.05.
T 599.06-.10.
T 599.20-.35.
T 600.01-.16.
T 600.35.
T 604.12-.17.
T 607.27-.30.
Exhibit B [32].
Exhibit B [33], AR1 at tab 4.
Exhibit B [34], AR1 at tab 5.
Exhibit B-AR1; tab 6 p 17.
Exhibit B at [35] and AR1 tab 6 pp 27-122.
Exhibit B at [37].
Exhibit B at [40].
Exhibit B at [41].
Exhibit B at [42], AR1 at tab 6.
Exhibit B at [44], AR1 at tab 8.
Exhibit B at [45], AR1 at tab 9.
Exhibit B at [46], AR1 at tab 10.
Exhibit B at [47], AR1 at tab 11.
Exhibit B at [48] (a structural diagram is set out in Exhibit B at p 194).
Exhibit B, AR1 at tab 7.
Plaintiff's submissions at [5] pt 1 see also Defendant's final submissions at [7].
Exhibit B tab 7 at [5.7] p168.
Exhibit B tab 7 at [5.7] p168.
Exhibit B tab 7 at (5.4.1) p161 and (5.4.3) p 163.
Plaintiff's submissions at [5.5].
Exhibit A1 p 139.(4.71).
Exhibit A1 p 199.
Exhibit B tab 7 p169.
Exhibit B tab 7 p167.
Exhibit B tab 7 at [5.7] and p 168.
Defence at [3]
Exhibit 4 at [20], T 539.23-.29.
Exhibit 4 at [20].
Exhibit 4 at [21].
Exhibit 4 at [22] being the document to be found in Exhibit B at [7].
See [16].
Exhibit 4 at [23].
Exhibit 4 at [24].
Exhibit 4 at [24].
Exhibit 4 at [24].
Exhibit 4 at [25].
Exhibit 4 at [26].
Exhibit B at [40].
Exhibit B at [44], tab 8 at p174-180 (see particularly p177) and p T 557.35-.47.
Exhibit B at [45], tab 9 T 181-182 and T 557.50-558.13.
Exhibit B at [81], tab 16 T 58.
Exhibit B at (82), tab 17 p 259.
Exhibit B at (88)-(95) and plaintiff's submissions at 6.1[f].
Exhibit B at [96].
Cross Claim at [18].
Amended Defence to Cross Claim at [12] and [14].
Amended Defence to Cross Claim at [18].
Hooker Corporation Ltd v The Commonwealth of Australia (1985) 82 FLR 321 at 325.
Exhibit B, tab 7, p 172 (third last bullet point).
FEX's submissions at [147].
Exhibit B, tab 7, p168 at [5.7].
Exhibit B, tab 7, p167.
Exhibit Y.
Cross claim at [20].
See Particulars [20(i)-(v)].
Cross Claim at [6]-[7] and [24].
Jobbins v Capel Court Corporation Ltd (1989) FCA 538 at [12].
FEX Submissions at [47] and T 541.30 - .35.
Cross Claim at [8] and Amended Defence to Cross Claim at [8].
Quoting Rhesa Shipping O SA v Edmunds [1985] 1 WLR 948 at 955; [1985] 2 All ER 712 at 718 (Lord Brandon of Oakbrook).
(2004) 220 CLR 363 at 385 quoting Rhesa Shipping O SA v Edmunds [1985] 1 WLR 948 at 955; [1985] 2 All ER 712 at 718 (Lord Brandon of Oakbrook).
[2012] WASCA 72 (Newnes and Pullin JJA concurring)
Cross Claim at [24].
(1992) 39 FCR 31 at [41] (Black CJ and Cooper J agreeing).
[2010] HCA 31; (2010) 241 CLR 357.
Parkdale Custom Built Furniture Pty Ld v Puxu Pty Ltd (1982) 149 CLR 191 at 216 (Brennan J).
Defendant's submissions at [154].
Exhibit R at [93]-[97].
T 581.20-582.32.
[2014] VSCA 338 at [540], in particular at [8].
Wardley Australia Ltd v Western Australia (1992) 175 CLR 514; [1992] HCA 55 at [16].
Chelmer's Written submissions in reply at [13.4(d)].
See FEX's written submissions at [153.1].
See FEX's written submissions.
Described as API messages for X stream trading engine (Exhibit 2-JH1;p221). API refers Application Programme Interface T 134.41-.48.
Exhibit 2, JH1, p 223 at (3.6) [last bullet point].
Exhibit 2, JH1, p 215.
Exhibit 2, JH1, p 110.
T 415.30-.40.
T 565.27-.46.
T 423.27-.36.
T 89.46-90.5.
T 566.31-.39.
T 570.36-.45.
Exhibit L, p 15. Chelmer written submissions in reply at [13.5]-[13.6]
Cross Claim at [10].
Exhibit C tab 2 p 82.
Exhibit C tab 2 p 82.
Chelmer written submissions at [14] and T 682.25-685.45.
T 742.11 -.44.
FEX written submissions at [143] and T 708.5-724.18.
Exhibit B at [97].
Exhibit B at [99], tab 18 p 260.
Exhibit B at [99], tab 19,p 261.
Exhibit B at [99], tab 19 p 261.
Exhibit B, tab 20 p 275.
Exhibit B at [101].
Exhibit B at p 277-280.
Exhibit B at p 277.
Exhibit B at p 276.
Exhibit B at [103] tab 22 p 346.
Exhibit B at [104] tab 23 p 347.
Exhibit B at [105] tab 24 p 348-354.
Exhibit B at [105].
Exhibit B tab 25 p 355.
Exhibit B at tab 26 p 364.
T 442.26-.30.
Exhibit B at [109].
Exhibit B at tab 28 p 366.
Exhibit B at tab 28 p 367.
Exhibit B at [12] p 368.
Exhibit B tab 7 (7.1) p 171.
Statement of Claim at [35]; Defence at [30].
T 39.26.
T 709.31-.50 and T 712.3-.714.50.
T 714.20-717.27.
[2014] NSWSC 261 at [123].
T 717.8-.27.
Exhibit 2 at [69].
Exhibit 2 at [71].
Exhibit 2 at [78].
FEX's written submissions at [143].
Exhibit B tab 21 p (276).
Exhibit B tab 20 p (275).
(1989) 166 CLR 623 at 634, 643 and 658 and 664-7.
(1989) 168 CLR 385 at 441.
[2014] NSWSC 261 at [123].
Tab 7 p168 (5.7) [last paragraph].
Chelmer's written submissions in reply at [12.16]
Chelmer's submissions at [7.10].
Exhibit B at [103] tab 22 p 346.
Exhibit B at [100] tab 20 p 275.
T574 .20 -.31.
Exhibit B at [101] tab 21 p 278.
Exhibit B at [101] tab 21 p 276.
Exhibit 2 at [83]-[88].
T 444.20 - .35.
Exhibit B at [89]-[95].
T 579.40-.45.
T 578.40 - 579.15.
T 438.5-15, 441.20-35.
Exhibit B at [107] tab 26 p 364.
Chelmer written submissions at [7].
Koompahtoo Local Aboriginal Land Council v Sandpine Pty Ltd (2017) 233 CLR 115.
Exhibit B at [90]-[94].
Exhibit B at [85].
T 574.10-.13.
Exhibit B at [98] tab 18 p 260.
Exhibit B at [98] tab 20 p 275.
Exhibit B tab 7 p 168 at [5.7] (last paragraph).
Exhibit Y.
Chelmer Submissions in reply at [12].
[2017] NSWCA 227.
[2017] NSWCA 227 at [101] - [103] (Sackville AJA with whom Beazley P and White JA agreed).
(2007) 233 CLR 115.
[2015] NSWCA 16 (Meagher and Gleeson JJA agreeing).
T 720.36.
T 578.33 - 579.05, 580.4.
Amended Defence to the Cross-Claim at [27.2] and [29.2].
Chelmer written submissions at [16.9].
T 681.26-.46.
T 740.3-.11 and T 742.11.
Defendant's written submissions at [15].
See page 90 of JH-1.
Page 97 of JH-1.
For example, see email at page 34 of Ex K.
Page 16 of Ex W.
Defendant's written submissions at [77].
FEX's supplementary submissions dated 1 February 2019 at [7].
FEX's written submissions at [155].
Iverson v Howen [2008] NSWSC 1246 at [12] and Wadgy Hanna and Associates Pty Ltd v National Library of Australia [2014] ACTCA 32 at [52].
175 CLR 514; [1992] HCA 55 at [16].
[1992] HCA 55, [28].
[2007] NSWCA 182 at [38]-[40] (Beazley And Campbell JJA agreeing).
[2018] VSCA 17.
At [133].
Chelmer submissions in reply at [16.6].
GE Dal Pont, Law of Limitation (LexisNexis Butterworths, 2016) at pp125-7; Colin Lockhart, The Law of Misleading or Deceptive Conduct (5th Ed, LexisNexis Butterworths, 2019) at [12.26].
Hawkins v Clayton (1988) 164 CLR 539 at 590 per Deane J.
Exhibit D at [14].
T 207.3.25.
Exhibit E at [18] and (21); T 219.18-.22.
Exhibit F at [22] and [34].
Exhibit G at [25].
T 243.21-.23
Exhibit B at [53], tab 12.
Exhibit B at [54].
Exhibit B at [55].
Exhibit B at [56].
Exhibit B at [57].
Exhibit B at [58].
Exhibit B at [55].
Exhibit B at [60].
Exhibit B at [61].
Exhibit B at [62].
T 47.01.
Exhibit B at [63].
Exhibit B at [64].
Exhibit B at [64].
Exhibit B at [66], tab 13.
Exhibit B, tab 14.
Exhibit B at [69]-[70].
Exhibit B at [71].
Exhibit B at [72].
Exhibit B at [73].
Exhibit B at [74].
Exhibit B at [75], tab 15.
Exhibit B at [75].
Exhibit B at [76].
Exhibit B at [79].
Exhibit B at [80].
Exhibit B at [105], AR1 tab 24.
T 45.25-.33.
T 44.26-.49.
T 44.13-.20.
T 164.10-.25.
T 47.12-.19.
T 45.46-46.06.
T 172.35-173.06.
T 47.26-48.14.
T 138.12-.25.
T 138.35-.38 and 167.46-.50.
T 138.45-.46.
T 175.9-.13.
T 139.1-.38.
T 139.35-140.12.
T 167.37.
T 167.31-.34.
Exhibit C -AR2 p82; see also T 158.30.18.
T 141.15.
T 159.44-.46.
T 162.38-.41.
Exhibit 13.
T 162.48-163.4.
T 153.41-.45.
T 166.08-.11.
T 166.44-167.09.
T 165.35-.48.
T 166.19-.38.
Exhibit B-AR1 tabs 10 and 11.
T 171.46-172.06.
T 172.25-.41.
In fact the first entry was 16 May 2008.
T 173.49-174.9.
T 175.30-.39.
T 184.42.
T 185.1-.13 see Exhibit B p 234.
T 146.35-.40. An acronym for 'Just Another Fixed Adaptor' described as a pieces of software.
T 185.35-186.08.
T 202.01-203.05.
Exhibit D at [14].
Exhibit D at [17].
Exhibit D at [18]-[20].
Exhibit D at [12]-[16].
Exhibit D at [17].
Exhibit D at [31].
T 211.48-.50.
T 213.35.
T215.25-.42.
Exhibit E at [15].
Exhibit E at [17]-[19].
Exhibit E at [20]-[21].
Exhibit E at [22].
Exhibit E at [35].
Exhibit E at [35].
Exhibit E at [37].
Exhibit E at [49].
T 228.02-.05.
T 228.07-.09.
T 228.18-.31.
T 223.01-.05.
T 222.01-.47.
T 226.41-.46.
T 230.24-232.09.
T 224.5-.42.
Exhibit F at [15].
Exhibit F at [18].
Exhibit F at [22]-[25].
Exhibit F at [36].
T 236.24.
T 236.27.
T 237.03.
T 237.06-.22.
T 239.8-.23.
Exhibit G at [21]-[24].
Exhibit G at [25].
Exhibit G at [25]-[26].
Exhibit G at [27]. These person were described as working under Mr Holdsworth in 'Development' see Exhibit B-AR1;tab 10 p194.
Exhibit G at [28].
Exhibit G at [29].
Exhibit G at [30].
Exhibit G at [31].
Exhibit G at [32].
Exhibit G at [33].
Exhibit G at [34].
Exhibit G at [35]-[37].
Exhibit G at [40]-[41].
Exhibit G at [43].
Exhibit G at [46].
T 246.23.
T 246.45.
T 248.07.
Collectively described as 'the Process'
Exhibit B at [105] and tab 24 p 348.
Exhibit B at [66], tab 13.
Exhibit B at [56].
Exhibit B at [60],[62] and [69].
Exhibit D at [31] (Ms Cole);Exhibit E at [34] (Mr Cleland-Pottie) and [49], Exhibit F at [29] and [36], (Mr Hamilton) Exhibit G at [36],[38] and[46] (Mr Holdsworth).
Exhibit D at [24] (Ms Cole) and[31], Exhibit E at [34] and [49] (Mr Cleland-Pottie), Exhibit F at [29] and [36] (Mr Hamilton) and Exhibit G at [36], [38] and [46] (Mr Holdsworth).
Exhibit E at [35].
Exhibit B at [62] and [69], T 45.46-46.6 (Mr Robertson), Exhibit D at [25] and [29], Exhibit E at [35], Exhibit F at [28] and [32] (Mr Hamilton), Exhibit G at [41] and T 246.29-.34 (Mr Holdsworth).
Exhibit B at [53], tab 12 at [1] (first paragraph).
Exhibit B at [62] and T 45.46-46.6 (Mr Robertson) T 246.29-.34 (Mr Holdsworth).
Exhibit B at [70].
See D.R. Design (NSW) Pty Ltd v Grand City International Development Pty Ltd [2017] NSWSC 1778 at [82].
T 174.2-.20 and Exhibit B at p 230.
T 166.32-.38 and Exhibit B at p 230.
T 175.15-.23.
T 185.5-.10 and Exhibit B at p 232.
T 185.5-.10 and Exhibit B at p 232.
Exhibit B at [85] and [86].
Exhibit B at [42] and tab 6.
Exhibit B at [75] and tab 15.
Exhibit B at [47] and tab 11.
Exhibit M (p 4-5 pf 87).
Exhibit Y.
Exhibit G at [34].
Exhibit B at [68] and tab 14.
T 34.40-50.
Exhibit 10 at p 2.
T 70.21-.23.
Exhibit 9.
T 107.4.
T 70.25.
T 108.24-.109.19.
FEX submitted that it sought production of these documents but they were not provided. (See footnote 113 Defendant's written submissions).
T 734.6-.18.
In the Matter of Maiden Civil Pty Ltd [2012] NSWSC 1618 at [20] and authorities referred to therein.
Exhibit B-AR1; tab 13.
Exhibit B at [56].
T 236.01-.04.
Exhibit F at [29].
T 222.1-.12 (Mr Cleland -Pottie), T 235.40-.46 (Mr Hamilton) and T 245.46-246-.18 (Mr Holdsworth).
Exhibit B-AR1; tab 12 at [1] (second bullet point).
Exhibit B at [66].
Chelmer's written submissions at [10.28].
T537.10 - .15 to 541.30 - .35 and 551.01 - 05.
Chelmer's submissions in reply at [7.11 - 7.13].
Exhibit B-AR1; tab 4, p 6.
Exhibit 11, p 4.
Exhibit B, tab 7, p 126.
Exhibit 9.
T 746.13-.26.
Ex 13.
T 130.12.
T 131.09-.14.
T 131.39-.42.
T 153.20-151.16.
T 153.34-.39.
T 230.24-38.
T 611.37-612.34.
T 153.20-35.
Order Management requirements at pages 3 and 4 of the Activity Report; Analysis on page 4 of the Activity Report; Creating Verifix Tool on page 6 of the Activity Report, Development at page 8 of the Activity Report, Draft solution design document on page 10 of the Activity Report; FEX message flow definition on page 10 of the Activity Report, Issue Resolution on page 13 of the Activity Report, JAFA Gap Analysis on page 14 of the Activity Report, Performance Testing and Benchmarking on page 15 of the Activity Report and the extensive Project Management by Robertson and Martin Cleland Pottie on page 15 of the Activity Report.
From T 181.18 onwards.
T 187.15.
T 172.35.
T 173.02.
T 45.40.
T 46.20.
T 47.01.
Given that his evidence at [108(a)] of the Second Robertson Affidavit contradicts his own emails in August 2008, Robertson's attempt again to shift blame to FEX ought to be rejected.
"Issue Resolution" on Exhibit B tab 13; AR1 p229 of the Activity Report, "JAFA Gap Analysis" on page 14 of the Activity Report and work on "JAFA" see page 23 of the Activity Report.
[82] of the Hulst Affidavit.
[2003] HCA 10; (2003) 77 ALJR 768.
Cellarit Pty Ltd v Cawarrah Holdings Pty Ltd [2018] NSWCA 213 McColl AP at [289]-[290].
Exhibit B-AR1; tab 12, p 206.
Exhibit B-AR1; tab 12, p 213.
[1971] 1 NSWLR 713.
[2008] NSWCA 335.
[2014] NSWSC 607 at [103] - [108].
T 647.11-.34.
Exhibit B tab 6.
Defendant's written submissions at [142].
See the fifth bullet point below the heading "7.2 Exclusions" on page 50 of the Agreement.
Exhibit B-AR1; tab 7; p 159.
Exhibit B-AR1; tab 6; p 172.
Exhibit B-AR1; tab 13; p 234.
T35.43.
Exhibit 2- JH1, p 351.
Exhibit B tabs 10 and 11.
T 171.46-172.06.
T 172.25-.41.
T 172.06.
Page 200 of JH-1.
Exhibit B tab 13; AR1 p 222.
Exhibit 2, p 287.
Exhibit 13.
Exhibit 13.
Exhibit B-AR1;tab 13; p 229.
Exhibit B-AR1; tab 13; p 229.
Exhibit B-AR1; tab 13; p 240.
Exhibit B tab 13; AR1 p 235.
Exhibit B tab 13; AR1 p 224.
Exhibit B tab 4 p 6.
Exhibit 13, p 2 (last paragraph of Mr Robertson's email).
Exhibit B tab 13; AR1 p 207.
Exhibit B tab 13; AR1 p 224.
Exhibit B tab 13; AR1 p 217.
Exhibit B tab 13; AR1 p 217.
Exhibit B tab 13; AR1 p 221.
Exhibit B tab 13; AR1 p 229.
Exhibit B tab 13; AR1 p 230.
Exhibit B tab 13; AR1 p 230.
Exhibit B tab 13; AR1 p 224.
Exhibit B tab 13; AR1 p 232.
Exhibit B tab 13; AR1 p 235.
Ex K, p 32.
Ex K, p 32.
Exhibit B-AR1 tab 13; p 229.
See, for example, Exhibit B- AR1 tab 13; pp 238-9.
Exhibit B-AR1; tab 13 p 229.
Exhibit B-AR1 tab 13 p 230.
Exhibit B-AR1; tab 13 p 235.
T141:15; Mr Robertson confirmed Andrew Hamilton was working on both projects.
Exhibit B-AR1 tab 13 pp 236-7.
Exhibit B-AR1 tab 13 p 237.
Exhibit B-AR1 tab 13 p 227.
Ex K p 31.
Mr Robertson said he could not recall whether Mr Holdsworth worked on the FEXE/WebFEX project, but he evidently did extensive work in relation to that project (see page 30 of Ex K); Robertson confirmed in cross-examination that Mr Holdsworth was "working on fixing the JAFA code for the fix gateway": see T159:44; he was also working on "memory leaks": see T173:37 and Ex K p30.
Ex K, p 30.
Page 31 of Ex K.
Exhibit B tab 13; AR1 p 217.
Exhibit B tab 13; AR1 pp 222-3.
Exhibit B tab 13; AR1 p 228.
Exhibit B tab 13; AR1 p 235.
T 213.35.
Exhibit B AR1 tab3 p 82.
T138.12-.25.
T 138.35-.38 and 167.46-.50.
T 138.45-.46.
T 175.09-.13.
T 139.01-.38.
T 139.35-140.12.
T 167.37.
Exhibit Y.
T 681.4-.10.
Exhibit Y at [2.1].
Exhibit Y at [3.3].
Exhibit B tab 6; p 23.
Exhibit B tab 6; p 40.
Exhibit Y.
Exhibit X.
Exhibit X.
Exhibit Yat [3.2].
Exhibit Y at [2.5]-[2.6].
Exhibit B tab 6; p 235.
Exhibit B-AR1; tab 13 at 221.
T 153.41-.45.
T 166.08-.11.
Universal Server.
Exhibit B tab 6; p 47.
Exhibit Y at [2.3].
T173.49-174.09.
T 159.44-.160.06.
Exhibit C -AR 2 tab 2; p 82.
Exhibit B -AR 1 tab 15; p 257.
Exhibit B-AR1 tab 13 p 255.
FEX written submissions at [107]-[113].
ExhibitB-AR1 tab 13; pp227-8; see also Ex 22.
Exhibit K pp 34 and 36.
Exhibit K pp 33 and 35.
T 190.13-.15.
Exhibit B-AR1; tab6 p 47.
Exhibit B-AR1; tab6 p 122.
T 113.8-.23.
T 112.25-.27.
T 175.30-.39.
Exhibit C-AR2 tab2; p 82.
Exhibit B AR1; p128 at [2.2.2].
Exhibit B-AR1; p27 at [4.8].
Exhibit M.
T 184.42.
T 185.1-.13 see Exhibit B-AR1 tab 12; p 234.
FEX's written submissions at [92].
Nu v NSW Secretary of Family and Community Services (2017) 95 NSWLR 577; [2017] NSWCA 221 at [57]-[58] per Beazley P.
T 185.35-186.08.
Exhibit B-AR1;tab 6 at p 60.
T 202.01-203.05.
Statement of Claim at [42].
For work by the Developer and Analysts; Exhibit B tab 7 at p 165.
For work by the Project Manager; Exhibit B, tab 7 at p 165.
Chelmer's written submissions at [19].
FEX's written submissions at [10].
FEX's written submissions at [145].
(1986) 160 CLR 226 at 236-238, See also Byrne v Australian Airlines Ltd (1995) 185 CLR 410; [1995] HCA 24 at [37]-[41].
(1977) 180 CLR 266 at 282-3 (Lord Simon delivering the advice of the majority (1979) 144 CLR 596 at p 606.
(1979) 144 CLR 596 at p 606 by Mason J with the concurrence of other member of the Court.
See Pavey & Matthews Pty ltd v Paul (1987) 162 CLR 221 at [255]-[256] per Deane; J Lumbers v W Cook Builders Pty Ltd (in liq) (2008) 232 CLR 635at [87]-[90] per ; Gummow, Hayne, Crennan and Kiefel JJ; Vasco Investments Ltd v Morgan Stanley Australia [2014] VSC 455, at [337] - [342] per Vickery J and Sun Water Ltd v Drake Coal Pty Ltd [2016] QCA 255, at [41], per Philip McMurdo JA with whom Gotterson JA and Philippides JA agreed.
FEX Schedule of Damages.
Exhibit 2-JH1;p 387 to 389.
T 451.23-.43.
T 250.36.
Exhibit N and O. See FEX written submissions at [130].
Chelmer'swritten submission in reply at [15].
T 447.41-448.26.
Exhibit N p 17-19.
Exhibit 2-JH1; p 388-389.
Derived from the total contract price of USD$325,100.00 (Exhibit B, Tab 7, p 169) less payments made byFEX totalling USD$78,180.60 (Exhibit B, Tab 23 pg 348).
Exhibit 2 at [84].
Exhibit 2 at [86].
FEX's written submissions at [156].
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 27 February 2019
y Ltd & Ors v Effem Foods Pty Ltd (trading as Uncle Ben's of Australia) (Unreported 29 June 1995, Federal Court of Australia, Tamberlin J)
Laurinda Pty Ltd v Capalaba Parks Shopping Centre Pty Ltd (1989) 166 CLR 623
Lumbers v W Cook Builders Pty Ltd (in liq) (2008) 232 CLR 635
Miller & Associates Insurance Broking v BMW Australia Finance [2010] HCA 31; (2010) 241 CLR 357
Neville v Lam (No 3) [2014] NSWSC 607
Nova 96.9 Pty Ltd v Natvia Pty Ltd [2018] NSWSC 1288
NTF Group Pty Ltd v PA Putney Finance Australia Pty Ltd [2017] NSWSC 1194
Nu v NSW Secretary of Family and Community Services (2017) 95 NSWLR 577; [2017] NSWCA 221
Parkdale Custom Built Furniture Pty Ld v Puxu Pty Ltd (1982) 149 CLR 191
Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221
Placer (Granny Smith) Pty Ltd v Thiess Contractors Pty Ltd [2003] HCA 10
Protec Pacific Pty Ltd v Steuler Services [2014] VSCA 338
Protector Glass Industries Pty Ltd v Southern Cross Autoglass Pty Ltd [2015] NSWCA 16
Rhesa Shipping O SA v Edmunds [1985] 1 WLR 948; [1985] 2 All ER 712
SAS Realty Developments Pty Ltd v Kerr [2013] NSWCA 56,
Sangha v Baxter (2009) 52 MVR 492
Southern Cross Autoglass Pty Ltd v Protector Glass Industries Pty Ltd [2014] NSWSC 261
SunWater Ltd v Drake Coal Pty Ltd [2016] QCA 255
Taouk v Assure (NSW) Pty Ltd [2017] NSWCA 227
Vasco Investments Ltd v Morgan Stanley Australia [2014] VSC 455
Wadgy Hanna & Associates Pty Ltd v National Library of Australia [2014] ACTCA 32
Wardley Australia Ltd v Western Australia (1992) 175 CLR 514
Warner v Hung, in the matter of Bellpac Pty Limited (Receivers and Managers Appointed) (In Liquidation) (No 2) (2011) 297 ALR 56; [2011] FCA 1123
Texts Cited: GE Dal Pont, Law of Limitation (LexisNexis Butterworths, 2016)
Colin Lockhart, The Law of Misleading or Deceptive Conduct (5th Ed, LexisNexis Butterworths, 2019)
Category: Principal judgment
Parties: Chelmer NZ Ltd (Plaintiff)
Financial & Energy Exchange Ltd (Defendant)
Financial & Energy Exchange Ltd (Cross Claimant)
Chelmer NZ LTD (Cross defendant)
Representation: Counsel:
Mr M Klooster (Plaintiff/Cross Defendant)
Mr P Afshar (Defendant/Cross Claimant)
On 24 July 2007 Brian Price confirmed on behalf of the FEX that it wished to proceed with option 1. [72] On the same day an email was forwarded by Mr Robertson to Brian Price, Mr Lucero, Ms Bowering and Mr Sharma titled "FEX Equities and WebFEX confirmation." That email stated that: -
"Thanks team. We have been playing around with some components for this for a little while and are now started with working on the user interface and presentation layout to plug into the AOEI work already underway. I am actually really excited about this - we are going to extend the existing Fusion framework using the new components which will provide user interface and presentation and layout functionality that will be industry leading for a web interface. The extended framework is unbelievably powerful so we will be aiming to bring as much of it to bear for September 14 as possible, but expect to be delivering additional usability features in a staged manner throughout the last quarter (no additional charges). Of course, being the web there will be no deployment issues to do this - just every time users log on they will have the new features enabled.
We will be working with Kym the end of the week while he is here to set the minimum requirements and start laying out the user manuals based on the prototypes.
Hope to get you visited here on the interface over the coming weeks.
Obviously of great concern (dealt with in a separate email) there is still no API to support all entries to the NSX. In simple terms this means that the Web TW, ORMS or any other system connecting to the AOEI will not be able to place orders on the NSX. So with approximately 7 weeks remaining we have to:-
get the API delivered (no date has been set by NSX or OMX), develop the Auto Creation, order amendment, Order Cancellation work, receive functionality.
Map the flow of that functionality into the FIX messaging, complete internal testing of FIX, order entry Complete internal testing on the Web TW, entry complete NSX performance testing, confirm functionality to the conformance testing, test plans FEXR, issuing conformance test X brokers for FEX AOEI.
We have plenty of work to keep us busy half of the order entry is fairly clear on the critical path and we close to a point where we simply will not have time because adding resources will only go so far to reduce the duration." [73]
On the same day Mr Sharma replied stating:-
"Thanks Andy, Lucsan is managing several FEX initiatives including Equities NSX access. To keep effective communications channels streamlined, if you can send emails through to Lucsan Capital it would be appreciated. We have stressed the urgency with Brian and there will be some actions followed with the senior management at NSX. Look forward to seeing you guys tomorrow." [74]
FEX pleaded that the contents of the "FEX Order Routing Hub and NSX Connectivity Project Definition" and the email of 24 July 2007 constituted the WebFEX Arrangement. [75]
On 30 July 2007 Mr Robertson sent an email to Lucsan asking whether it expected Chelmer to deliver the ORMSTW and the Web TW or just the Web TW. [76] Mr Sharma responded:-
"Yes, expectation is ORMSTW and WebFEX for retail oriented clients. Both these products will be further enhanced for Derivatives functionality as OMX will not provide any X-Stream TW for Derivatives. Let's call it WebFEX portal with advanced retail client functionality to be developed in the second phase (no additional charge). So we can meet the time lines for agreed deliverable. Web IRESS functionality is a good reference point." [77]
On 31 July 2007 Mr Sharma sent a detailed email to Mr Robertson that email followed the meeting between Mr Robertson and Mr Sharma in New Zealand and summarises discussion points during the visit following a phone call on the same day stating: -
"Thanks for your kind hospitality and insights into the progress of FEX Equities Project. FEX is very excited that it will be an excellent trading capability with advanced technology and features. Just to summarise a few discussion points during my visit and today after your phone call.
• WebFEX portal to cater functionality for retail clients/investor/punter, as discussed Lucsan realised that some of the additional functionality costs will be factored into the Derivatives enhancement.
• FEX/Lucsan to provide crude spec for retail client requirements
• Chelmer/Luscan to formalise agreements to further develop/enhance and exclusive licensing in Australia, North America and South America region to promote/sell Chelmer products, including ACE, ARM, CUSTODIAN, FUSION, WRAPPORT, MARGIN LENDING productions…. [78]
As earlier noted around August 2007 John Hulst was engaged by FEX as Chief Operating Officer. [79] Mr Hulst stated that as part of his operational responsibility for FEX he commenced investigating the WebFEX Project both from a developmental status and managerial perspective. [80] He stated that he did this predominantly by making more general inquiries from Brian Price. [81] At the time he said that he was responsible for management of an estimated 5 projects for FEX which included the WebFEX Project. [82] When he was asked as to what his understanding was of the role of Lucsan with respect to WebFEX as at August or September 2007 he stated:-
"Q. So, what do you say, sir - as at August 2007, or September 2007 for that matter, but that period - was your understanding of Lucsan's role with respect to WEB FEX?
A. They were the project managers.
Q. And what roles and responsibilities would they have had as project managers, as far as you're aware?
A. To drive the outcomes that the business required.
Q. When you say, "Drive the outcomes the business required," I mean, one of those would be to, first of all, have an understanding of what the business required?
A. Yes.
Q. By the "business", I'm referring to FEX.
A. Correct." [83]
Mr Hulst accepted that his understanding was that Lucsan were responsible for issuing directions about WebFEX to Chelmer [84] and that he understood that FEX got its money from investors. [85] Mr Hulst further accepted that from August 2007 to the end of 2007 his contact with Chelmer was relatively limited and he had more dealings with Lucsan. [86]
On 2 August 2007 Chelmer sent an email to Lucsan asking various technical questions and seeking a response. None of these questions referred to load. [87]
On 9 August 2007 revision 5 of the "FEX Order Routing Hub and NSX Connectivity Project Definition Document" was prepared by Chelmer. [88] The document was an updated version of the previous document created on 26 June 2007 and was expressed to follow a "review meeting with Mr Robertson and Mr Sharma and "to include target model." [89] The document stated under "Background and Purpose" that :
"…The FEX initiative is to facilitate the creation of a sustainability and cleantech equities exchange. Chelmer will assist FEX with the implementation of the FEX equity board solution by providing electronic order routing exchange connectivity and trader workstation to professional NSX clients" [90]
Under the heading" Deliverables" it stated
"The approach taken to define this will be consultation with the NSX with what messages are supported and consultation with the FEX on what business features they wish to provide and what FIX standards exist to support the functionality on to third parties, [91]
Under the heading "Market Data" it stated
There is a requirement to be able to display NSX market data to exchange members. The options include the Cameron Net-trader solution, client's own FIX enabled TW's WebFEX or ORMS TW. The fall back is for NSX market data to be available on IRESS [92]
Further into the document it reiterated the Scope in similar terms to that previously expressed including ;