Skyscanner Limited v Hotels Combined Pty Ltd - [2016] NSWSC 183 - NSWSC 2015 case summary — Zoe

NSWNSWSC

Skyscanner Limited v Hotels Combined Pty Ltd

[2016] NSWSC 183

Supreme Court of NSW|2015-10-23|Before: Slattery J, Ms P, Mr J

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At a glance

Source facts

Court

Supreme Court of NSW

Decision date

2015-10-23

Before

Slattery J, Ms P, Mr J

Source

Original judgment source is linked above.

Judgment (18 paragraphs)

[1]

Judgment

Skyscanner Limited ("Skyscanner") applies to set aside orders Registrar Walton made on 8 July 2015. The Registrar ordered that Skyscanner, the plaintiff/cross-defendant, give discovery to Hotels Combined Pty Ltd ("Hotels Combined"), the defendant/cross-claimant, of the documents falling within the categories identified in paragraph 1 of a Notice of Motion filed on 16 April 2015 ("the Disclosure Motion").
When the Registrar made that order Hotels Combined had not served lay or expert evidence in support of its Cross Claim. Applying Practice Note SC Eq 11 ("the Practice Note"), the Registrar found that there were exceptional circumstances necessitating disclosure of documents prior to Hotels Combined filing its evidence.
Skyscanner now seeks to review the Registrar's decision. By its Notice of Motion filed on 4 August 2015 ("the Review Motion"), Skyscanner seeks orders: that the Registrar's decision be set aside; that Hotels Combined's Disclosure Motion be dismissed; and, an order for costs.
Shortly stated, the issues are: whether the categories of documents sought on discovery are relevant to the assessment of damages Hotels Combined claims on its Cross Claim; and, whether there are exceptional circumstances within Practice Note SC Eq 11 necessitating disclosure at this stage of the proceedings before the service of evidence.
The Review Motion was efficiently argued over one day on 23 October 2015. Ms P. Wass SC appeared for Skyscanner instructed by DLA Piper Australia. Mr J. Williams appeared for Hotels Combined instructed by Allens.

[2]

[3]

The Operations of Skyscanner and Hotels Combined

Skyscanner and Hotels Combined operated interconnected businesses. Skyscanner operates global internet travel search websites (collectively the "Skyscanner Sites"). A list of these websites is set out below with the discovery orders being sought. Skyscanner's core business is the provision of a travel "metasearch" platform, accessible both online and through mobile device applications.
A "metasearch", or comparison internet search, involves the simultaneous search of multiple databases or web resources enabling the user to compare information available from various databases and other sources in a matter of seconds, or less.
The Skyscanner Sites allow users to conduct metasearches for flights, for hotel accommodation and for car hire services. They allow users to search for and compare the travel options offered by third party travel providers such as airlines, hotels or online travel agents ("Third Party Providers"). The homepage of each Skyscanner Site contains "online comparison tools" which appear on separate tabs. These tabs, labelled "flights", "hotel" or "hire car", direct users to the relevant comparison tool and allow the user to search for flights, accommodation or car hire services across a specified set of parameters.
The role of a travel metasearch provider is as an intermediary. The metasearch provider in the travel industry searches the available travel options offered by Third Party Providers according to the user's designated criteria, then returns details of those travel options in a sortable and accessible way, and finally connects the user with the selected Third Party Provider's online reservation website to complete a booking. The travel metasearch provider does not take bookings itself. Rather it facilitates the making of the booking between the potential travel service consumer referred to in these reasons as "the user" and the Third Party Provider ultimately selected by the user via the metasearch platform.
As a metasearch provider Skyscanner earns revenue not from charging the user but rather by entering into agreements with individual Third Party Providers, from which it obtains its search data. These agreements vary but operate principally through a "lead generation" model in which the metasearch provider is paid an agreed amount for referrals or acquisitions generated by users of its search platform.
Prior to 2009, Skyscanner Sites offered an online comparison tool only for flights. In 2009, Skyscanner expanded its offering through an online comparison tool for hotel accommodation, with the assistance of Hotels Combined, which operates hotel price comparison websites.
Skyscanner commenced offering a hotel metasearch platform to users, via a "hotels" tab on the homepage of Skyscanner Sites, through a service that was actually provided by Hotels Combined (and is called in these reasons "the Hotels Combined Solution"). Hotels Combined maintained the content offered to users through the comparison tool for hotel accommodation on Skyscanner Sites but it appeared to the user that Skyscanner controlled the website offering the searched information to the user. This structure for the Hotels Combined Solution is described in the evidence as a "white label" solution, presumably because Hotels Combined is providing its service in a form somewhat like a white label, available for Skyscanner's use and onto which Skyscanner effectively writes its name. But the Hotels Combined Solution did not provide any content to the car hire or flight sections of the Skyscanner Sites. Skyscanner has at all times used its own solution for the flight section of the Skyscanner Sites.
On 9 July 2013 Skyscanner and Hotels Combined agreed in writing to regulate the basis on which Hotels Combined provided the Hotels Combined Solution to Skyscanner ("the Affiliate Agreement"). The Affiliate Agreement permitted Skyscanner to use URLs or other weblinks that Hotels Combined provided in order to access Hotels Combined's hotel price comparison website. This access was provided through a mechanism described as an "affiliate control panel" that Hotels Combined maintained. The Affiliate Agreement entitled Skyscanner to earn a fixed commission from its access on a "qualifying lead" basis. A "qualifying lead" is defined as each occasion where, using a Skyscanner Site, a user enters a hotel search conducted by Hotels Combined's search platform, selects a hotel and is redirected to the site of the Third Party Provider for the purpose of making a booking.
After about 4 months of operating under the Affiliate Agreement, on 15 November 2013 Skyscanner gave Hotels Combined formal written notice of its termination with effect from 14 May 2014.
Then on 5 December 2013, Skyscanner commenced using its own hotel comparison metasearch platform ("the Skyscanner Solution") on a number of its sites and disabled the hyperlinks to the Hotels Combined Solution between 5 and 12 December 2013 and Skyscanner ceased using the service previously provided by Hotels Combined.
One issue in the proceedings, which was reflected in the argument on the Review Motion, is whether the Skyscanner Solution is different from the Hotels Combined Solution.
On 28 December 2013 Hotels Combined suspended Skyscanner's access to its affiliate control panel and withheld commission payments from Skyscanner claiming that it was entitled so to do under the terms of the Affiliate Agreement. Skyscanner contests Hotels Combined's right to withhold these commissions and has sought their recovery in the Statement of Claim.

[4]

Relevant Procedural History

On 24 November 2014 Skyscanner commenced these proceedings against Hotels Combined by Statement of Claim alleging breach of the Affiliate Agreement and seeking the recovery of the commission payments that Hotels Combined had withheld from Skyscanner. The matter first came before Registrar Musgrave on 17 December 2014 when consent orders were made for the filing of a defence and cross claim.
On 6 February 2015 Hotels Combined filed its Defence and Statement of Cross Claim. Skyscanner filed its Reply on 20 February 2015.
On 27 February 2015 the Registrar in Equity, Registrar Walton, made orders by consent for the filing of amended pleadings. She also ordered that Hotels Combined provide Skyscanner with "details of the basis on which it would seek an order for discovery" on or before 10 April 2015.
On 20 March 2015 Hotels Combined filed an Amended Defence and an Amended Cross Claim. On 23 March Skyscanner filed an Amended Reply and a Defence to the Amended Cross Claim.
Hotels Combined's Amended Cross Claim alleges that Skyscanner's removal from the Skyscanner Sites of links to the Hotels Combined Solution and the introduction of a competing hotel metasearch platform was a breach of the Affiliate Agreement. It claims damages in respect of these breaches (particularised in its Amended Statement of Cross Claim at [28]-[30]). The damages claimed fall into two classes: 1. the loss of opportunity to receive revenue from Qualifying Leads generated through the Skyscanner Sites; and 2. the amount of revenue lost as a result of customers using the Skyscanner Solution as opposed to the Hotels Combined hotels search solution.
Hotels Combined pleads in its Defence that it is entitled to set-off the amount of any judgment Skyscanner obtains against it, against the amount to which it claims to be entitled pursuant to its Cross Claim.
Hotels Combined filed the Disclosure Motion on 16 April 2015, seeking orders including, the orders for the discovery of five categories of documents as follows: 1. On or before 6 June 2015 the Cross-Defendant (Skyscanner) to give discovery to the Cross-Claimant (Hotels Combined) of documents falling within the following categories: 1. documents that evidence or record the number of referrals to third party online accommodation reservation providers (Booking Providers) generated through the following sites (for each site): 1. www.skyscanner.ru; 2. www.skyscanner.net; 3. www.skyscanner.com.au; 4. www.skyscanner.co.uk; 5. www.skyscanner.com; 6. www.skyscanner.com.nz; 7. www.skyscanner.de; 8. www.skeyscanner.fr; 9. www.skyscanner.es; 10. www.skyscanner.it; 11. www.skyscanner.gr; or 12. www.skyscanner.dk; (the Skyscanner Sites), including, but not limited to, referrals generated through the use of Skyscanner's hotels search function referred to at paragraph 12 of the First Cross-Claim Statement of Cross-Claim (the Skyscanner Solution) and referrals generated through the use of Skyscanner's flight search function, from the date on which Skyscanner commenced operation of the Skyscanner Solution on the Skyscanner Sites to 14 May 2014. 1. documents evidencing or recording the revenue received by Skyscanner or any of its related entities as a result of referrals to Booking Providers generated through the use of the Skyscanner Solution on the Skyscanner Sites (for each site) from the date on which Skyscanner commenced operation of the Skyscanner Solution on the Skyscanner Sites to 14 May 2014; 2. documents recording any contractual arrangements agreed between Skyscanner and Booking Providers in relation to the Skyscanner Solution, including documents recording agreed referral rates to 14 May 2014; 3. for the period 14 September 2010 to the date on which Skyscanner removed hyperlinks to the Hotels Combined sites (as referred to in paragraph 14 of the Cross-Claim), documents that evidence or record the number of users, visit sessions and/or flight search queries generated through the Skyscanner Sites (for each site); and 4. for the period from when Skyscanner removed hyperlinks to the Hotels Combined sites (as referred to in paragraph 14 of the Cross-Claim) to 14 May 2014, documents that evidence or record the number of users, visit sessions and/or flight search queries generated through the Skyscanner Sites (for each site). 1. Such further or other order as the Court thinks fit.
Ms Mason explained in her 16 April 2015 affidavit in support of the motion, the need for the disclosure of these various categories of documents, as follows: "[10] In order to quantify the value of the Damages Claim, it is necessary for Hotels Combined to have access to documents in Skyscanner's possession that identify the number of queries generated through the Skyscanner Sites prior to the removal of the hyperlinks to the Hotels Combined sites, the referrals to third party booking providers generated through the use of the Skyscanner Solution, and the revenue earned by Skyscanner as a result of the use of the Skyscanner Solution. These documents are solely in the possession of Skyscanner. [11] Hotels Combined proposes to engage Mr Michael Potter, a forensic accountant … to provide evidence in relation to the quantification of the Damages Claim. [12] I have been informed by Mr Potter and I believe that the documents sought in the Disclosure Categories are necessary to enable Mr Potter to provide evidence regarding the quantification of the Damages Claim."
At a directions hearing on 17 April 2015 the Court granted Hotels Combined leave to engage an expert, Mr Potter, to provide expert evidence in the proceedings and made orders that Skyscanner make (and Hotels Combined respond to) a request for further and better particulars in relation to Hotels Combined's claim for damages on its Cross Claim.
At further directions hearing on 8 May 2015 the Court fixed a timetable for the filing of evidence on the Disclosure Motion and fixed the Motion for hearing with an estimate of 1 hour on 18 June 2015.
On 29 May 2015 Hotels Combined filed a second affidavit of Alexandra Mason. Her affidavit annexed a letter from Ms Mason to DLA Piper, the solicitors for Skyscanner, which enclosed a letter from Mr Potter, the accounting expert Hotels Combined had engaged to prepare an independent expert report. This letter sets out the basis for Mr Potter's opinion: that each category of disclosure documents is likely to contain information relevant to an assessment of the economic loss Hotels Combined suffered as a result of the matters pleaded in Hotels Combined's Cross Claim; and that he would require that information in order to undertake such an assessment.
Registrar Walton heard the Disclosure Motion on 18 June 2015. The Registrar delivered reasons for judgment on 8 July 2015. At paragraph 48, the Registrar summarised her conclusions as follows: "[48] For the reasons set out above, in particular that the expert has said he would require the documents, taking into account the role of an expert in court proceedings and given I have found the discovery is not oppressive, I find that there are exceptional circumstances necessitating disclosure and that disclosure is necessary for the resolution of the real issues in dispute in the proceedings, being, in particular the claims at paragraph 28 & 29 of the amended cross claim."
Skyscanner was ordered to provide discovery of documents falling within each of the 5 categories set out above by 7 August 2015. At the same time the Registrar extended time for Skyscanner to serve all its evidence in chief to 24 July 2015. Skyscanner complied with this order so its evidence is now all filed.
Skyscanner filed the Review Motion on 4 August 2015 seeking orders that the Registrar's decision be set aside.
When the Review Motion was heard on 23 October 2015 Skyscanner read the affidavits of Simone Mitchell of 22 May, 11 June, 4 August, 9 October and 20 October 2015, and tendered Exhibit SM1 being the exhibit to the affidavit of 4 August 2015. Hotels Combined read three affidavits of Alexandra Mason of 16 April, 29 May and 17 June 2015, together with Exhibit AJM1 being the exhibit to the affidavit of 16 April 2015.
As at 23 October 2015, Hotels Combined had not served any lay or expert evidence in the proceedings.

[5]

The Two Issues on the Review Motion

The Review Motion raises two main issues. Hotels Combined raises the first or threshold issue: whether Skyscanner has demonstrated any proper basis for the Court to intervene in a discretionary decision of the Registrar in a matter concerning practice and procedure. Hotels Combined has the benefit of the Registrar's decision below in its favour and says that Skyscanner must demonstrate error in the Registrar's decision in the sense explained in House v The King (1936) 55 CLR 499, before the Court can now properly intervene. Mr Williams for Hotels Combined submitted that this is an important principle of case management and that the applicable law is set out in the decision of the Court of Appeal in Tomko v Palasty (No 2) [2007] NSWCA 369; (2007) 71 NSWLR 61 ("Tomko").
Assuming that the Court can intervene, Skyscanner raises the second issue, which itself comes in two parts. The first part is whether the categories sought were ever discoverable. Here Skyscanner submits that Hotels Combined has failed to establish how the various categories of documents for disclosure are relevant to a fact in issue in the proceedings.
The second part of the second issue concerns the application of the Practice Note to the circumstances of this case and whether Hotels Combined has demonstrated (a) exceptional circumstances necessitating disclosure before it serves its evidence both in defence of Skyscanner's Statement of Claim and in support of its Cross Claim and (b) that disclosure is necessary for the resolution of the real issues in dispute.
On the second issue, Hotels Combined submits: that the documents requested are all relevant, as their disclosure is necessary for it to make out its damages case on the Cross Claim; and, that it satisfies the exceptional circumstances exception in the Practice Note, necessitating disclosure before it serves its evidence.
Here is an overview of Skyscanner's response. Skyscanner accepts that if Hotels Combined is successful on its Cross Claim in alleging breach of the Affiliate Agreement, then Hotels Combined would be entitled to damages calculated by reference to the revenue it would have earned under the Affiliate Agreement from Skyscanner's use of the Hotels Combined Solution on each of the Skyscanner Sites. But Skyscanner says that Hotels Combined is not entitled to disclosure so as to undertake an analysis of Skyscanner's actual revenue from early December 2013 to May 2014, the period during which Skyscanner was using its own very different metasearch solution, the Skyscanner Solution, in place of the Hotels Combined Solution. Skyscanner submits that this request for disclosure turns the Hotels Combined Cross Claim into a claim akin to one for an account of profits rather than a claim for damages for breach of contract. Skyscanner submits that the correct approach for Hotels Combined is to calculate the revenue it would otherwise have earned by extrapolating Skyscanner's continued use of the Hotels Combined Solution from the past and into the future.
Skyscanner also resists a disclosure order on the basis that Hotels Combined's motion is premature and that the disclosure being sought is oppressive.
Hotels Combined concedes that it is seeking Skyscanner's confidential business information in this application and consequently will consent to any reasonable regime of orders to preserve the confidentiality of any of Skyscanner's information disclosed to it.

[6]

The Submissions

Hotels Combined submits that the Registrar's decision is one of a discretionary nature in relation to practice and procedure concerning case management, and that therefore Skyscanner should now show an error of the type identified in House v The King (1936) 55 CLR 499 before the Court can interfere with the decision. Hotels Combined submits that Skyscanner should not be given a second opportunity to re-agitate the discovery issue, the Registrar having already determined it adversely to Skyscanner, and particularly where all of the evidence upon which it now relies on its Review Motion could have been put before the Registrar before her decision was made.
Hotels Combined accepts that the Court's power to review a registrar's decision under UCPR, r 49.19 is not wholly constrained by a requirement to demonstrate House v The King error. But it submits that this does not mean the Court should treat the present application as if it were a de novo hearing of its application for pre-evidence disclosure. It submits that the proper approach in this case is that indicated by the Court of Appeal in Tomko. Hotels Combined says that the applicable law is set out in the following passages of the reasons of Hodgson JA in Tomko, with whom Ipp JA agreed: "[6] I agree that a review of a decision of a registrar is not an appeal, subject to s.75A of the Supreme Court Act; and that in such a review a court must exercise its own discretion. [7] In my opinion, this discretion extends to a discretion as to whether, and if so how, to intervene; and in my opinion, there is an onus on a person seeking to have a court set aside or vary a registrar's decision to make out a case that the court, in the interests of justice, should exercise its discretion to do so. [8] In the case of a decision on practice or procedure, this will normally require at least demonstration of an error of law, or a House v. The King error, or a material change of circumstances, or evidence satisfying the strict requirements for fresh evidence. Even then, a court may not think that the interests of justice require intervention. This could be so, for example, if the error of law is a deficiency of reasons and the result is on its face not an unreasonable one. [9] In the case of a decision which finally determines a party's rights, or which (albeit one of practice or procedure) has a decisive impact on those rights, a court may be more willing to intervene. It may permit further evidence to be led which does not satisfy the strict requirements for fresh evidence, if it is satisfied that the interests of justice require this. It may decide to substitute its own discretionary decision for that of the registrar, even though no House v. The King error is shown, again if it is satisfied that the interests of justice require this. To that extent, the review may be considered a de novo hearing. [10] In my opinion, this approach is consistent with the position that such reviews are not appeals and involve the exercise of discretion by the reviewing body; and with the policy considerations referred to by Jordan CJ in In Re the Will of Gilbert (1946) 46 SR(NSW) 318 at 323. It is also consistent with the general principles concerning interlocutory applications: they do not finally decide matters, and successive applications can be brought for the same orders; but generally, a later application for orders that have previously been refused will be summarily dismissed unless a change of circumstances is shown or there is evidence satisfying the strict requirements for fresh evidence."
Mr Williams submits for Hotels Combined that the repetition of the arguments already put before the Registrar that has occurred in this case is a classic illustration of the reason why the rule is that the Court will not intervene in the ordinary course in relation to a decision relating to practice or procedure, unless a party demonstrates House v The King error. And Mr Williams submitted that the principles of Tomko prevent litigants re-agitating procedural disputes and serve the overriding objective of the just, quick and cheap resolution of the real issues in proceedings.
Hotels Combined submitted that the Tomko principles are also consistent with the approach that courts take to successive interlocutory applications for the same relief: that a material change of circumstances is required since the original application was heard, or the discovery of new material, which could not reasonably have been put before the court on the hearing of the original application.

[9]

Relevance

Skyscanner submits that the categories of documents sought by Hotels Combined are irrelevant to any fact in issue and specifically to the issue of damages as pleaded by Hotels Combined in its Cross Claim; and that Hotels Combined has "misconstrued the application of the relevant test for the calculation of damages for breach of contract".
The starting point of Skyscanner's argument is the established principles governing the award of damages for breach of contract. The object or purpose of an award of damages for breach of contract is compensatory and is to place the plaintiff so far as money can do in the same position as if the contract had been performed: Commonwealth v Amann Aviation (1991) 174 CLR 64; (1991) 104 ALR 1 ("Amann"), at 80, 98, 117, 134, and 148. In Amann, Deane J explained (at 116) how this general principle may work out in practice: "The application of that general principle ordinarily involves a comparison, sometimes implicit, between a hypothetical and an actual state of affairs: what relevantly represents the position in which the plaintiff would have been if the wrongful act (ie the repudiation or breach of contract or the tort) had not occurred and what relevantly represents the position in which the plaintiff is or will be after the occurrence of the wrongful act."
Skyscanner then puts its submission in the following principal steps: (i) the Skyscanner Solution is different to the Hotels Combined Solution; (ii) once the "phased switch off" was undertaken by Skyscanner in December 2013, the nature of the service it provided via a hotels metasearch platform changed materially; for example, Skyscanner says the hotels being offered were different, the order in which they were being offered and the numbers of hotels were different. (iii) the correct measure of Hotels Combined's damages is simply an hypothetical calculation of what Hotels Combined would have otherwise obtained from Skyscanner had Skyscanner continued to use the Hotels Combined Solution. Ordinarily, that would simply be done by looking at the revenue stream Hotels Combined had received in the past and extrapolating that into the future. And that, for example is what would have to be done if Skyscanner had simply stopped using the Hotels Combined Solution and not begun to use the Skyscanner Solution. (iv) data concerning the revenue that Skyscanner actually earned via the Skyscanner Solution is irrelevant because of the differences the Skyscanner Solution that continued after December 2013 and the Hotels Combined Solution that was termianted; and (v) therefore the discovery sought by Hotels Combined, insofar as it pertains to the Skyscanner Solution (in revenue, number of users, contractual agreements with Third Party Providers and the like), amounts to an impermissible fishing expedition.
Hotels Combined contests Skyscanner's submissions. Hotels Combined submits that this Court should come to the same conclusion as the Registrar did. It explains why the discovery it seeks is relevant to the proceedings: "[24] This is an entirely orthodox contractual damages claim. If Hotels Hotels Combined makes good its alleged breach of contract it is entitled to be put, as good as money can do, in the position as if the Affiliate Agreement had been performed. That would mean Hotels Hotels Combined is entitled to compensation calculated on the hypothesis that Skyscanner did not disable the links to the Hotels Hotels Combined website and that any hotel booking made through the Skyscanner sites would have been routed through the Hotels Hotels Combined search solution with the result that Hotels Hotels Combined would have earned commission on any such booking. It is a claim for lost commission revenue from bookings which would have been made through the Hotels Hotels Combined website but for Skyscanner's breach. [25] Obviously, the starting point in estimating Hotels Hotels Combined's lost revenue is the bookings in fact made by users of the Skyscanner websites after the links to the Hotels Hotels Combined website were disabled. These are bookings which, all things being equal, would have been routed through the Hotels Hotels Combined website had Skyscanner not disabled the links to the Hotels Hotels Combined site. [26] Estimating the lost commission revenue then involves consideration of metrics underlying booking creation, specifically the number of users, visit sessions and flight search queries on the Skyscanner websites before and after the removal of Hotels Hotels Combined's links; identification of the revenue earned by Skyscanner on hotel bookings received during the period between December 2013 and 14 May 2014; and the contractual basis on which that revenue was determined. All of this information will enable a comparative assessment of the revenue that Hotels Hotels Combined would have earned from the same or similar bookings based on the contractual arrangements in place with its third party travel providers."
Mr Williams on behalf of Hotels Combined explained its argument another way. Hotels Combined says that its counter factual case in damages really amounts to this: when someone comes to the Skyscanner site between early December 2013 and May 2014 after the hyperlinks have been severed and enters details for a search, rather than the Skyscanner site undertaking the search entirely through its own platform and bringing the results back, resulting in Skyscanner getting a commission, the counter factual would be that the search query would actually be run through the Hotels Combined search engine (which on the damages hypothesis would still be actively operational in response to searches by Skyscanner users) and that the same users would click on one of the third party providers found through the Hotels Combined search engine, resulting in Hotels Combined earning a commission if the user clicked on one of them.
Hotels Combined submits that this case is similar to claims for a commission or royalty that is said to be payable on a musical or literary work. It submits that in such a commission or royalty claim, as a plaintiff, it would be entitled to know how many works were sold and how much revenue was received so the commission could be calculated. It submits that Skyscanner's response to its requests for disclosure of information here really amounts to a statement, "you can work it out yourself" by looking at past earnings and extrapolating from them into the future and is really an attempt to dictate to Hotels Combined a single method by which it must calculate its damages. Hotels Combined submits that it is not required to adopt that methodology, because it is based on the commissions Hotels Combined earned in the past, and it would present a simplistic and potentially flawed prediction of the future commissions, because the future may not be the same as the past.

[10]

Consideration

The core of Skyscanner's relevance argument is the differences between the post December 2013 operations of the Skyscanner search engines using the Skyscanner Solution and the pre December 2013 Hotels Combined Solution. So great it is said are these differences that Skyscanner's post December 2013 data is unusable for the purposes of establishing damages on Hotels Combined's Cross Claim. In my view this argument fails, although Ms Wass SC sought persuasively to advance it in every possible way that it could be presented. Upon consideration, its defects appear to me to be the following.
It contains a misunderstanding. A number of times in written and oral submissions Skyscanner framed its submission in terms: "I think what [Mr Potter] is saying is we [Skyscanner] would automatically have got the revenue from Hotels bookings from Skyscanner"; and again "the loss and damage suffered by Hotels Combined cannot be the revenue receipt by Skyscanner from the Qualifying Leads". Stated in the latter of these forms Ms Wass SC's submission is undoubtedly correct. But the submission somewhat misses the subtlety of the case being made on the other side. Mr Williams in answer accepts that there will undoubtedly be differences between the way that the Skyscanner Solution operated post December 2013 and the way that the Hotels Combined Solution operated before that. He accepts that Skyscanner's revenue information after December 2013 cannot be used as a raw unadjusted proxy for the revenue that Hotels Combined would have earned if the Affiliate Agreement had not been terminated and the Hotels Combined Solution continued to operate.
There will inevitably be differences that will require adjustment. As Ms Simone Mitchell has pointed out in her comprehensive affidavit of 9 October there are indeed (see especially [19]) a number of important differences between what Skyscanner Solution did after December 2013 and the operations conducted through the Hotels Combined Solution before December 2013. Principal among these are: that the Skyscanner Solution includes a metasearch tool that allows searching on mobile devices and not just computers (although Hotels Combined contests that this was available before August 2014, and is therefore outside the relevant period up to May 2014); and, that Skyscanner had an expanded full time dedicated team of employees engaged in marketing activities promoting and generating traffic to the Skyscanner Solution, which it did not have when Skyscanner was using the Hotels Combined Solution which involved more limited marketing activities. Other differences are said to be the larger numbers of travel providers that Skyscanner has signed up and differences in the way that the Skyscanner Solution algorithm works in arranging and ordering preferences and presentations of search results and indeed the scope of those search results.
All of these differences can be accepted and the precise extent of them debated. The more differences there are and the more these differences tend to show that there are differences between the Skyscanner Solution revenue generated after December 2013 and the Hotels Combined revenue before December 2013, the weaker will be Hotels Combined's damages case that revenue from Skyscanner Solution is any kind of proxy for the revenue and profits it would have earned had the Hotels Combined Solution continued until May 2014.
But these are all debatable issues for final hearing. It may well be that at final hearing Skyscanner can show: that there is no significant overlap in Third Party providers between the two Solutions; that the differences in the search algorithms and search results prioritisations do not make a great difference to user preferences between the two systems; that Skyscanner's mobile device platform was not ready until August 2014, outside the relevant period; and, that Skyscanner's different marketing structure did not cut in until some time well after December 2013. One does not know the answers to these questions. They are contestable matters of difference between the two systems that are matters for trial. If Skyscanner succeeds in showing the differences between the two systems are so great that no aspect of Skyscanner's Solution revenue is any kind of reliable proxy for the Hotels Combined revenue between December 2013 and May 2014 then Hotels Combined will be confined to extrapolating its loss from its own pre December 2013 records. But if the differences between the systems that are established at trial do not turn out to be very great, then it is at least arguable that the hypothetical Hotels Combined Solution revenue post December 2013 can be analysed as a function of the Skyscanner actual revenue after the same date.
Without denying the importance of the differences that Simone Mitchell has raised in her 9 October 2015 affidavit, supplemented by her 20 October 2015 affidavit, the Hotels Combined damages case is in my view a reasonably available form of argument, and accords recognisably within the principles stated in Amann, to attempt to postulate the position that Hotels Combined would have been in if the alleged wrongful breach of contract had not occurred and the Affiliate Agreement had continued to operate between December 2013 and May 2014. Neither Hotels Combined nor the Court should have to accept that important debate as already being foreclosed now by Simone Mitchell's affidavit in advance of the trial taking place. To deny this discovery application would be to shut down the whole debate. This would ultimately be a denial of procedural fairness to Hotels Combined.
Skyscanner also submits that Hotels Combined's request for documents amounts to impermissible fishing and is analogous to what happened in ICAP Pty Ltd v Moebes [2009] NSWSC 306 ("Moebes"). In Moebes documents had been sought by subpoena at the request of an expert (indeed Mr Potter himself) in order to enable him to form a view about the loss suffered by the plaintiff consequent upon breach of an employment contract. Nicholas J held that there was no justification for ordering the production of the documents because it was impermissible to calculate damages for a breach of contract by reference to the profits or revenue of another company. Skyscanner submits that the circumstances of this case are analogous, except that here Skyscanner submits that Mr Potter is "not even sure that he needs the documents".
Using such cases Ms Wass SC argued, by way of example, that if Woolworths had a lease over a particular site which was breached and it lost its lease and Coles moved in instead, then one does not look at what Coles earned in revenue after that date as its measure of loss, because it would have had different products in different places with different brand awareness, different geographical reach and the like.
But this case is not quite so extreme. Prior to the removal of the hyperlinks in early December 2013, the white label solution meant that the Skyscanner's name was being used on the Hotels Combined Solution. So at least one important element of commonality existed between the revenue information that Hotels Combined is now seeking and its pre December 2013 business: namely, it was all revenue generated by users who were searching under the name Skyscanner at least for hotels. This makes the present case somewhat different from Ms Wass SC's otherwise useful example.

[11]

Practice Note SC Eq 11

Skyscanner uses the Practice Note in its remaining arguments. The Practice Note was published by the Chief Justice on 22 March 2012 with effect from 26 March 2012. It therefore applies to these proceedings. The relevant paragraphs of the Practice Note are as follows: "Purpose 3. This Practice Note is for the guidance of practitioners in preparing cases for hearing in the Equity Division with the aim of achieving the just, quick and cheap resolution of the real issues in dispute in the proceedings. Disclosure 4. The Court will not make an order for disclosure of documents (disclosure) until the parties to the proceedings have served their evidence, unless there are exceptional circumstances necessitating disclosure. 5. There will be no order for disclosure in any proceedings in the Equity Division unless it is necessary for the resolution of the real issues in dispute in the proceedings. 6. Any application for an order for disclosure, consensual or otherwise, must be supported by an affidavit setting out; the reason why disclosure is necessary for the resolution of the real issues in dispute in the proceedings; the classes of documents in respect of which disclosure is sought; and the likely cost of such disclosure."
Skyscanner submits that Hotels Combined's requests for disclosure: cannot satisfy the exceptional circumstances requirement of Practice Note clause 4 for disclosure now before the evidence is closed; and cannot satisfy the clause 5 requirements of necessity for resolution of the real issues in dispute for disclosure at any other time.
A number of authorities have discussed the rationale of the Practice Note. In Armstrong Strategic Management and Marketing Pty Ltd v Expense Reduction Analysts Group Pty Ltd [2012] NSWSC 393 at [66], Bergin CJ in Eq explained its intended operation as follows: "The ambit of that disclosure is confined to the real issues between the parties as defined by not only the pleadings, but also the evidence. This process will require the proofing of witnesses at a very early stage of the litigation with the need for forensic judgments to be made as to the existence of admissible evidence in support of the respective claims. This will of course require the client and/or witnesses to provide the relevant documents to the lawyers in support of the particular claims in their evidence. However it is envisaged that the process will engender a far more disciplined analysis of the need for disclosure by reference to those real issues, compared to the carte blanche gathering in of every document the respective clients have generated in their lengthy relationship for "review" by teams of lawyers and students in the absence of any knowledge of the proposed evidence."
These remarks were repeated by McDougall J in Leighton International v Hodges [2012] NSWSC 458 at [15]. His Honour there observed that: "The practice note is intended to set out the general approach that the court will take to the exercise of its discretion under the rule. Of course, it cannot be suggested that the practice note sets out in any exhaustive or definitive way the discretionary considerations that may be appropriate in a particular case."
And in Graphite Energy Pty Ltd v Lloyd Energy Systems Pty Ltd [2014] NSWSC 1326, Brereton J said (at [13]) that the intent of the Practice Note is to avoid unnecessary and burdensome discovery and to avoid the mischief of parties constructing their affidavit evidence around the discovered documents, by requiring them to first commit their case to affidavits; and his Honour further said at [14]: "[T]he Practice Note provides guidance as to the practice of the Court in respect of disclosure. It is not a statute, nor is it a rule of the Court. It guides, but does not govern, the disclosure process. It must yield to the requirements of the individual case, although the importance of its purpose means that it will be in a rare case that the Court will depart from its guidance."
In Leda Manorstead Pty Ltd v Chief Commissioner of State Revenue (No 2) [2013] NSWSC 89 (at [19]) (Manorstead) the Court said that in exercising its discretion on the question of discovery it must take care to ensure that it is not depriving a party of access to documents essential to the presentation of its case at any early stage if the interests of justice require it.
If an expert engaged by one of the parties reasonably and genuinely holds the belief that the documents sought to be disclosed are necessary for the expert to complete his or her report, that is sufficient to establish the relevance of the documents and, in that sense, the necessity for their disclosure: RSA (Moorvale Station) Pty Ltd v VDM CCE Pty Ltd [2013] NSWSC 534.
The Practice Note does not list conditions which are sufficient to obtain disclosure. Rather it lists conditions that must be satisfied before the Court will order disclosure under UCPR, r 21; and the Court still retains a discretion to require or limit discovery and in exercising that discretion will have regard to Uniform Civil Procedure Act, ss 56 and 57: Bauen Constructions Pty Limited v New South Wales Land and Housing Corporation [2014] NSWSC 684.

[12]

Clause 4 - Application of the Practice Note and Exceptional Circumstances

Skyscanner submits that Hotels Combined has failed to establish the requirements under the Practice Note that there be exceptional circumstances necessitating disclosure and that disclosure is necessary for the resolution of the real issue in dispute.
Skyscanner first submits that it accepts the principle that exceptional circumstances may be made out if the facts that found a proper damages calculation are solely in the knowledge of the party from whom they are sought: Bauen Constructions Pty Limited v New South Wales Land and Housing Corporation [2014] NSWSC 684.
Skyscanner says that before the Registrar, Hotels Combined relied upon and relies now in the Review Motion on the contention that the documents in the various categories requested are solely in the possession of Skyscanner and are required before Hotels Combined's expert evidence can be served.
But Skyscanner says that this is not a case in which the information necessary for Hotel's Combined's claim for damages is solely within Skyscanner's knowledge. Skyscanner says that all the documents that establish what revenue Hotels Combined received during the time that it is accepted that Skyscanner was performing the Affiliate Agreement are already in the possession of Hotels Combined and therefore need not be discovered.
Skyscanner's submissions on this issue are partly correct. Hotels Combined does have the documents that would establish the revenue that was received during the time of the Affiliate Agreement, and before the removal of the hyperlinks in early December 2013. But the exceptional circumstances that Hotels Combined claims arise, not in the documents that it does have, but in the Skyscanner documents that it does not. I accept the Hotels Combined argument that its expert would not be able to advance its damages case on the Cross Claim unless it receives the disclosure that it now seeks. And in my view it is necessary now, rather than later, because it will facilitate the smooth production of one set of expert evidence on each side in the light of all the available facts, rather than Hotels Combined being required to put on some expert evidence and then ask for information for a second tranche of expert evidence. To assist this process of the mutual exchange of one tranche of expert evidence it may well be that Hotels Combined should also provide to Skyscanner any pre December 2013 information about the operation of the Hotels Combined Solution, of which Skyscanner does not presently have present visibility.
Skyscanner next submits that discovery is premature and that exceptional circumstances cannot be made out. It says what is now sought is premature in circumstances where: (i) Skyscanner has filed all of its evidence in chief; (ii) Hotels Combined has not filed any evidence in the proceedings; (iii) Hotels Combined has not filed any evidence in support of its Disclosure Motion addressing the issue of whether Mr Potter can quantify Hotels Combined's damages using documents within Hotels Combined's current possession; and (iv) Mr Potter has stated that he may require additional information beyond the specified categories of disclosure that discovery should not yet be ordered. Skyscanner submits that the appropriate order of events would be for Mr Potter to consider, by reference to the pleadings, what methodology he intends to adopt in calculating damages, to disclose that methodology and then give consideration to what documents, if any, are "necessary and that Hotels Combined does not already have".
Hotels Combined submits in reply that the principal evidence that it seeks to advance on the Cross Claim is the expert evidence of Mr Potter, in evidence of the kind sought to be supported by its present disclosure application. Its principal contention on the Amended Cross Claim, that Skyscanner is in breach of the Affiliate Agreement, can probably be made out factually on the correspondence and subject to legal argument, because it seems not to be in dispute that Skyscanner did terminate the Affiliate Agreement in writing. If the outcome of this disclosure application were adverse to Hotels Combined, it would find itself in the position of having to put on such expert evidence as it could with the materials presently available to it and then apply for disclosure again later in the proceedings, once all evidence had been filed, and then finally attempting to recast its expert evidence based upon new material received since the original expert evidence had been settled. It submits that it is potentially highly wasteful and would have an irretrievably negative impact on its rights.
In my view Hotels Combined's submission on this is persuasive for the reasons it gives. But I will nevertheless direct Hotels Combined, as was foreshadowed in the course of argument, to put on all its lay evidence on the Cross Claim, including all the non-expert evidence necessary to provide the foundation of the damages claim on the Cross Claim, within the next 4 weeks. This will then enable the parties to understand the true debate between them about the differences between the Skyscanner Solution and the Hotels Combined Solution between December 2013 and May 2014, before the expert damages evidence goes on. The parties should agree upon suitable directions to achieve this.

[16]

The Categories of Documents

Each of the five categories of documents (a) to (e) that Hotels Combined seeks is also the subject of more specific objections and argument as to their relevance.
Category (a). This category comprises documents recording the number of referrals to Third Party Providers utilizing the Skyscanner Sites and generated via the Skyscanner Solution from the date Skyscanner replaced the Hotels Combined Solution with its own solution up until 14 May 2014 (referred to in the analysis below as "the relevant period"). The argument concerning category (a) documents repeats many of the issues analysed earlier in relation to the relevance or otherwise of the documents being requested.
Hotels Combined explained the importance of the discovery of category (a) documents to it as follows. Hotels Combined makes clear in its submissions that within this category it seeks referrals that include those referrals generated through the use of Skyscanner's flights search function. Hotels Combined says that it wants discovery of hotel referrals that are generated when a user booking a flight is asked if the user wants to make a hotel booking, as distinct from referrals made when a user clicks on the "hotels" tab, because in both cases, Hotels Combined says, the hotel referral would have been routed to the Hotels Combined website had Skyscanner not disabled the links.
Hotels Combined submits that the number of hotel booking referrals in fact generated through the Skyscanner sites in the period in issue is the best evidence of the number of booking referrals which would have been generated through the Hotels Combined search solution by the same users, had Skyscanner not replaced the Hotels Combined Solution with its own solution. Put another way, Hotels Combined submits that on the counterfactual forming the basis of Hotels Combined's damages claim, accommodation bookings made by users of the Skyscanner Sites would have been routed through the Hotels Combined website and Hotels Combined would have earned commission on those bookings. Hotels Combined further submits that identifying the number of such booking referrals is directly relevant to quantification of its cross claim.
Skyscanner contests this argument. Skyscanner submits that the Hotels Combined and Skyscanner Solutions are substantially different in both their content as well as in the ways in which they generate different traffic to each of the platforms. So Skyscanner submits that as a consequence of these differences there is no correlation between the traffic to, or leads generated by, the Skyscanner Solution and the traffic and leads that were no longer being generated by the Hotels Combined Solution, but would have been had Skyscanner continued to use the Hotels Combined Solution.
Skyscanner challenges as without any basis Mr Potter's statement that "the number of referrals generated through the Skyscanner Solution would be considered reflective of the number of referrals that Hotels Combined would have otherwise received from Skyscanner". And Skyscanner submits that because the two solutions differ in material respects, the documents sought in category (a) cannot reflect the true hypothetical that is relevant to the assessment of Hotels Combined's alleged loss.
Skyscanner is critical of Mr Potter's alleged failure to demonstrate how referrals generated through the use of Skyscanner 's flight search function, which is not the subject of the Affiliate Agreement, are relevant to the issues in dispute. Skyscanner points out that at no stage did the Hotels Combined Solution provide content for the flight sections of the Skyscanner Sites. Rather Skyscanner has always used its own solution for the flight section of the Skyscanner sites and Hotels Combined and Skyscanner have never had any commercial relationship in respect of a flight search function. It is said that it is up to Hotels Combined to establish that the solutions are sufficiently similar to allow comparison and extrapolation by Mr Potter.
Skyscanner is also critical of the Registrar: for allegedly misunderstanding the concept of "cross-selling" and how it arises in the context of both solutions; and, for inferring that for the relevant period of the request for category (a) documents a user on the flight section of the Skyscanner site could refer the user to the Hotels Combined Solution to find a hotel. Skyscanner points out that during the relevant period, and specifically from 5 December 2013, it had commenced a phased switch off of the Hotels Combined Solution on a market-by-market-basis; so Skyscanner says, it was not using the Hotels Combined Solution in some markets, and the assumptions behind the Registrar's reasoning were incorrect.
Skyscanner's arguments with respect to category (a) documents are unpersuasive for the reasons explained earlier in these reasons.
And in relation to the flight search function: the documents sought are discoverable. The flight search function could generate leads for the operation of the Hotels Combined Solution. So activity within the flight search solution may bear upon the number of Qualifying Leads generated in the Hotels Combined Solution during the relevant period.
Category (b). This category comprises documents recording the revenue received by Skyscanner as a result of booking referrals generated through the use of the Skyscanner Solution on the Skyscanner Sites, from the date Skyscanner replaced the Hotels Combined Solution with its own solution up until 14 May 2014 (the relevant period).
Hotels Combined submits that the revenue earned by Skyscanner from hotel bookings in the relevant period is directly relevant to the quantification of Hotels Combined's loss. Hotels Combined says that the commission that it would have earned on hotel bookings generated by searches conducted through the Skyscanner sites is based on the value of bookings referred from the Hotels Combined website. Hotels Combined points out that it is not enough to know how many booking referrals were made in the relevant period; it is also necessary to know the value of the bookings. Hotels Combined says that it is seeking this information to account for the differences that may occur in the value of bookings depending on variables such as the type of hotel, the length of stay and the like.
Hotels Combined says that knowing the revenue that Skyscanner earned on hotel referrals in the relevant period will assist it to estimate the revenue that it would have earned in the period had hotel searches made on the Skyscanner sites been routed through the Hotels Combined website.
Hotels Combined concedes that the revenue earned by Skyscanner on hotel referrals will not be a direct proxy for the revenue which would been earned by Hotels Combined had hotel searches been routed through the Hotels Combined website. Skyscanner's revenue is an inefficient proxy because revenue is in part a product of the contractual arrangements in place between each of Skyscanner and Hotels Combined and the respective Third Party providers. Hotels Combined says that is why it also seeks the category (c) documents, referred to below, so that it may better quantify the actual revenue forgone.
Skyscanner contests the relevance of category (b) material. Skyscanner's main criticism of the Hotels Combined claim to category (b) documents is the lack of precision in Mr Potter's claim to relevance. Mr Potter contends that category (b) documents "may" be indicative of the revenue that would otherwise have been received by Hotels Combined in the relevant period. Skyscanner is critical that Mr Potter does not yet appear to have a precise methodology, and is not certain that any possible methodology based on the information requested will assist him to quantify the alleged loss suffered. Skyscanner says that the uncertainty in Mr Potter's approach is an indication that he does not understand the differences and similarities between the Hotels Combined Solution and the Skyscanner Solution.
Hotels Combined's arguments with respect to category (b) documents are persuasive for the reasons that it gives. In my view for the reasons already given Hotels Combined is entitled to this information.
Category (c). This category comprises documents recording the contractual arrangements in place between Skyscanner and its Third Party Providers, including agreed referral rates, during the relevant period, from early December 2013 up until 14 May 2014.
Hotels Combined submits that knowing the rates at which Skyscanner earned commissions from hotel bookings generated through the Skyscanner Solution prior to 14 May 2014 will enable Hotels Combined to extrapolate from the revenue earned by Skyscanner an estimate of the revenue that would have been earned by Hotels Combined on bookings generated through the Hotels Combined website.
Hotels Combined then argues by example. It submits that it should be assumed, for example, that the user of a Skyscanner website during the relevant period (early December 2013 to 14 May 2014) enters a hotel search and proceeds to make a hotel booking for $1000. If the contractual arrangement in place between Skyscanner and the hotel provider was that Skyscanner would receive a commission of 2% of the booking value, it can be determined that Skyscanner earned commission revenue of $20 on the booking. This rate of commission can then be compared to Hotels Combined's commission rates. Assuming that the Hotels Combined's negotiated commission rates for the same or similar hotel provider is 1%, it can then be estimated that Hotels Combined's loss of revenue from the example booking would not be the $20 in fact earned by Skyscanner but would be $10.
Hotels Combined concedes that whether this sort of comparison can be conducted on a booking-by-booking basis, or only on aggregated basis using total revenue and average commission rates, will depend upon the information contained in the documents to be discovered. Nonetheless, Hotels Combined submits, the contractual arrangements in place between Skyscanner and its hotel booking providers are relevant to the quantification of Hotels Combined's claimed loss.
Hotels Combined's expert, Mr Potter, himself explains why the category (c) documents are necessary for his work. He says that "the referral rates that Skyscanner was able to negotiate with booking providers may be indicative of a loss of opportunity that Hotels Combined has suffered". But Mr Potter accepts that the extent of the lost opportunity is contingent on two assumptions:(1) whether Hotels Combined would have had access to the same booking providers as Skyscanner; and (2) whether Hotels Combined would have been able to negotiate comparable terms and referral rates with the booking providers.
Skyscanner submits that the assumptions that Mr Potter is making are both false and even on his own admission they may be incorrect. Moreover Skyscanner says that Hotels Combined does not advance any factual basis upon which those assumptions might be made.
In my view and in light of the Court's earlier reasoning Hotels Combined's arguments with respect to category (c) documents are persuasive for the reasons that it gives.
Category (d) and (e). These categories comprise documents recording the number of users, visit sessions and or flight search queries generated through the Skyscanner Sites for the two periods, from 14 September 2010 up to the date on which Skyscanner removed hyperlinks to the Hotels Combined sites [category (d) documents], and then, from that hyperlink removal date up to 14 May 2014 [category (e) documents].
As to category (d) documents, during this first period Skyscanner says that although the hotels section of the Skyscanner Sites was branded "Skyscanner" it was in fact hosted, operated and maintained by Hotels Combined, which means that Hotels Combined had the ability to monitor and record visitor numbers, referrals and Qualifying Leads on those sites among other things. In contrast Skyscanner says that because of this Skyscanner itself did not have the ability to monitor or track user numbers or Qualifying Leads or any other activity taking place on the Hotels Combined Solution and was reliant upon obtaining such data from Hotels Combined. Accordingly, Skyscanner submits that the information that Hotels Combined seeks in respect of documents in Category (d) is already within its own knowledge (apart from documents relating to Skyscanner's flight search solution which for reasons already given sky scanner submits are irrelevant). Therefore Skyscanner says disclosure of these category (d) documents is not necessary.
This argument has already been dealt with above and determined adversely to Skyscanner. Skyscanner does not have to give discovery of documents already in Hotels Comined's possession. But it should give discovery of any documents answering the category (d) description that are in its own possession.
As to category (e) documents, Mr Potter contends that he needs documents in this category, and in category (d), to "undertake tests of the reasonableness of the data provided and whether there has been any significant changes in the number of referrals to booking providers prior to and following the removal of hyperlinks". Mr Potter says that if there emerge consistent trends then the loss assessment may be reliable. But he acknowledges that if the trends are not consistent, then the methodology will need to be reconsidered. He says he cannot form an opinion about whether the methodology may need to be reconsidered until he receives the discovered documents.
Skyscanner seeks to answer this by submitting that it should not be compelled to provide discovery so Mr Potter can merely test whether his suggested methodologies may work, or so that he can form an opinion as to whether or not the documents may be relevant to a fact in issue.
Hotel Combined's arguments with respect to categories (d) and (e) documents are persuasive. As earlier stated in these reasons, Mr Potter's description of his methodology is as reasonably complete as it could be expected at this stage. And Hotels Combined is entitled to data in order for Mr Potter to make a professional judgment about the reliability of the data trends he is analysing.