In Australia there is a ‘one size fits all’ approach to determining the definition of corporate insolvency. The absence of a clear cut definition can lead to ramifications in the practical management of companies that are in financial distress.
The introduction of the Australian Consumer Law (ACL) was meant to have the desired effect of delivering balance in the market place. To a certain extent, that may be true. However, there is one provision of the ACL in which it appeared to be the case that we found little guidance from court authorities, namely the question of re-supply under section 3(2) of the ACL. Or so we thought…
Recently this office defended a summary judgment application filed by a third party in our client’s case. The case involves the provision of managed services to customers by an IT company being our client’s company. The third party is alleged to have provided defective computer software to our client, which in turn allegedly caused problems in relation to our client’s provision of services to its customers. The third party brought its application for summary judgment on the basis that our client was not a consumer as defined in the ACL, and, accordingly the provisions of the ACL did not apply.
Section 2 of the ACL includes computer software in the definition of “goods”. To qualify as a consumer under section 3(1) of the ACL the goods have to be acquired for an amount less than $40,000.00 or alternatively the goods are acquired for personal, domestic or household use or consumption (the other provision pursuant to section 3(1)(c) of the goods consisting of a vehicle or trailer is irrelevant for the purpose of this discussion). These provisions are clear enough and on their own would not cause any confusion.
However, the difficulty of statutory interpretation of section 3 of the ACL in its application to the IT services industry arises due to the provisions of section 3(2) of the ACL, in particular section 3(2)(a) regarding the exclusion of the application of section 3 if the acquisition of the goods was for the purpose of re-supply. Our client had acquired goods from a major computer software provider for the purpose of performing its role as a managed service provider to its customers. In providing the managed services to its customer, our client would install the software but not provide the license key to the customer. The customer did not have any control over the computer software and they were never given access to the license key. Due to an alleged defect within the programming of the computer software issues allegedly arose for our client’s customers regarding their computers and eventually the business relationship was terminated causing our client loss.
The principal dispute in the proceeding lay between our client and its customer in relation to the customer repudiating the contract entered into with our client. Nevertheless, the issue regarding the alleged defect in the computer software which our client acquired from the computer software provider meant that it was necessary to bring in that software provider as a third party. In adding the third party, our client relied upon the provisions of the ACL. The software provider argued that the provisions of the ACL regarding consumers and the protections provided under the guarantees relating to goods did not apply to our client.
The Supreme Court of Queensland heard the third party’s application for summary judgment. As discussed herein, there was little previous court authority which applied to the question of re-supply under section 3(2) in relation to computer software. In particular, there was very little authority which applied to the unusual factual circumstances of this case. Notwithstanding the paucity of authority to guide the parties and the court, the Supreme Court of Queensland nevertheless agreed with our client’s argument there was a triable issue which necessitated our client’s case against the third party being heard, namely the fact that the exclusion under section 3(2) may not apply as the license key for the computer software was not provided by our client to its customers. The Supreme Court considered that based on the fact that the license key had not been provided the goods (in this case the computer software) had not been re-supplied.