SEMF Pty Ltd v Renown Corporation Pty Ltd

The plaintiff, SEMF Pty Ltd, now known as COVA Thinking Pty Ltd (SEMF), is an engineering and project management consulting company with offices in Melbourne, Sydney and Hobart. It has approximately 100 employees. In late 2012 and early 2013 it was looking at upgrading its project management and accounting software. As part of those investigations, one of its directors, Mr Allan Waitzer, had prepared a paper for the board seeking approval in principle to replace SEMF’s existing software systems with an integrated system based on a software package known as Total Synergy. At about the same time, Mr John Loke, the Finance Director of SEMF, had approached Mr Michael Marosa, who at that time was an Associate Director of the first defendant, Renown Corporation Pty Ltd (Renown), about upgrading SEMF’s systems based on a software product provided by Microsoft known as Dynamics SL 2011. Renown was acquired by the second defendant, Dialog Pty Ltd (Dialog), in about August 2014.

SEMF eventually decided to proceed with the solution proposed by Renown (the Renown System). There were delays in implementing that solution, although SEMF no longer takes issue with those delays. There are also limitations on the Renown System that, according to SEMF, mean the system falls short of what was contractually promised. It will be necessary to say more about the alleged problems later in this judgment. Principally, however, they relate to the inability of employees of SEMF to generate certain real time reports in relation to project invoicing and other project enquiries using a software module known as Microsoft Business Portal for Dynamics SL 2011 (BP). BP is a module that permitted users to have remote access to the Dynamics SL database using a web-based browser.

In these proceedings, SEMF claims loss it says it has suffered as a consequence of the Renown System not performing in accordance with what it says were the contractual specifications. The losses it claims have three components. First, SEMF claims the cost of replacing the existing system with one based on Dynamics SL 2018 (the current version of Dynamics SL) and Microsoft 2018 Web Apps (a replacement for BP), which is said to total $617,308. Second, it claims the cost it incurred in trying to fix or to overcome the problems with the Renown System. Lastly, it claims the value of time said to have been wasted by employees dealing with the problems with the Renown System.

The parties proceeded on the basis that, following its acquisition of Renown, Dialog became a party to the contract for the supply of the Renown System and that it was appropriate that any order for damages be made against both of them. It will be convenient in this judgment generally not to seek to distinguish between Renown and Dialog and to refer to both of them as “Renown”.

Originally, SEMF advanced an alternative claim based on misleading and deceptive conduct which it said induced it to enter into the contract with Renown. However, that claim was abandoned during the course of the hearing.

Renown accepts that there are some faults with the existing system. However, it takes issue with most of the damages claimed by SEMF. It has also filed a cross-claim seeking to recover the amount of certain invoices it sent SEMF, which remain unpaid.

Both SEMF and Renown retained experts to provide reports on the technical issues in the case. SEMF retained Mr Dan Shawver, who is based in the United States. Renown originally retained Mr John Bowling of N2 End Support Services Ltd (N2 End), a company based in the United Kingdom. Mr Bowling is a Project Director with N2 End and is responsible for overseeing the implementation of systems using Microsoft Dynamics SL and associated products. His expertise is in project management and he did not have the requisite expertise to answer many of the questions that the experts were required to address. For that reason, he involved Mr Kevin Finn, a software engineer with N2 End, who did have the relevant expertise. Mr Bowling and Mr Finn prepared a joint report. However, it emerged during the course of the hearing that the important parts of the report were prepared by Mr Finn. Mr Shawver on the one hand and Mr Bowling and Mr Finn on the other also prepared a very helpful joint report following a conclave between them, which was assisted by a facilitator. The effect of that report was to narrow considerably the issue between the experts (and the parties) concerning technical aspects of the Renown System. Again, it emerged that much of what was attributed in that joint report to Mr Bowling and Mr Finn that was most relevant to the technical issues in the case was the work of Mr Finn.

There is a question whether Mr Bowling approached the task of providing expert evidence in a way that was consistent with the requirements of the Expert Code of Conduct or whether he saw his role as that of an advocate for Renown. The same criticism could not be made of the evidence given by Mr Finn. Given that ultimately it was Mr Finn’s opinions that were important, it is unnecessary to consider this issue further.

It is convenient to begin by saying something more about the nature of the Dynamics SL and BP software.

Dynamics SL is a commercial ‘off the shelf’ SQL-based enterprise resource planning (ERP) software which is installed at the customer’s premises and which consists of a number of modules that can be selected and configured to meet the customer’s particular needs. ERP is a process used by organisations to co-ordinate and streamline business activities such as planning, resource management, purchasing, sales, finance and human resources. SQL (Structured Query Language) is a standard programming language used to manage electronic databases. The experts described the Dynamics SL system as a “project-centric management and accounting solution” (at para [20] of Joint Expert Report) which was most suited to mid-sized project-driven organisations, such as professional services and construction management organisations. It included a Customisation Manager module, which enabled the system to be adapted to the specific requirements of an organisation by enabling the modification of any screen in any Dynamics SL module without needing to change the underlying source code. As I have already explained, BP, used in conjunction with other software, permitted users to obtain remote access to the Dynamics SL data base through a web browser.

Dynamics SL also included a module (the experts refer to it as a “reporting engine”) known as ‘Crystal Reports’ which allows the user to generate a range of reports, to modify reports and to create new ones. In addition, another piece of software available from Microsoft known as SSRS (Microsoft SQL Server Reporting Services) enables remote users to obtain real-time access to data in systems such as Dynamics SL. Those data can be displayed in various forms such as paginated reports or reports suitable for display on mobile devices, such as smart phones and tablets.

Although Dynamics SL is described as an ‘off the shelf’ system, it, and associated software including BP, needed to be set up and configured by a person with expertise in the system before it could be used by a customer. In addition, the system could be customised to add particular features that were not part of the standard system. Included in the Renown System was a payroll system supplied by HR3 Pty Ltd and software developed by Renown itself to permit the system to be used for GST processing and reporting (referred to as the “Localisation Module”).

An issue in the case is which documents comprise the contract governing the parties’ relationship and, in particular, which documents identify the features that Renown was required to deliver.

In order to identify the documents that comprise the contract, it is necessary to say something about the history of the negotiations between the parties.

Following some initial conversations and correspondence, on 6 April 2013, Mr Marosa sent Mr Loke an email attaching a document described as “Project Management, Finance, Payroll & HR System Proposal for SEMF”. The details of that proposal are not important because it was revised and resubmitted first on 8 April 2013 and then on 23 January 2014.

After receipt of the second proposal, there were further discussions between representatives of SEMF and Renown during which SEMF provided detailed information regarding its existing hardware, business systems and processes and the number of staff who would be using the new system.

Sometime during the second half of 2013, SEMF decided to put the upgrade on hold. However, in October 2013, SEMF and Renown entered into an agreement in respect of the installation of a specific module known as Dynamics CRM (Customer Relationship Management). In connection with that agreement, Mr Marosa sent Mr Waitzer a copy of Renown’s standard terms and conditions.

On 14 January 2014, Mr Waitzer sent Mr Marosa an email saying that in light of an improvement in SEMF’s revenue, he would like Mr Marosa to “dust off the quotation from last year …”. Mr Waitzer explained that he wanted to get some idea of whether costs had increased since the original quote “so I can go to the next board meeting with some factual information”.

Mr Marosa replied by email on 23 January 2014. The reply relevantly said:

The email attached a revised proposal. As the parties accept, the proposal contained a good deal of promotional material together with an outline of the functionality available using Dynamics SL and a quote for the costs of acquiring Dynamics SL and configuring it for use in SEMF’s business.

The proposal was divided into a number of sections. The first contained an executive summary, which included sections describing the benefits of the system based on Microsoft Dynamics and a section headed “Why Choose Microsoft Dynamics SL 2011 and Renown?”.

Section 1.1 headed “Benefits of Renown and Microsoft Dynamics to SEMF” relevantly stated:

Section 2 of the proposal set out information about Microsoft Dynamics SL 2011. Section 3 set out what was described as a “Solution Investment Summary”, which provided detailed costing for the project. The introduction to that section stated:

Section 4 of the proposal set out information about Renown’s implementation methodology. Section 5 set out information about Renown. Section 6 set out “Proposal Terms and Conditions”. Those terms and conditions were stated to be:

Mr Waitzer and Mr Marosa met to discuss the proposal on 7 February 2014. Following that discussion, Mr Marosa sent Mr Waitzer and email summarising the discussion. The email included the following:

Mr Waitzer replied to that email on 10 February 2014. In that reply he said:

On 12 March 2014, Mr Waitzer sent Mr Marosa an email saying that he had obtained approval to proceed. The email continued:

On 21 March 2014, there was a meeting between representatives of SEMF and Renown described as a “Project Kick Off” meeting. Following that meeting, Renown commenced work on the scope of the project. As part of that work, it provided information about the system requirements for the Microsoft Dynamics SL 2011 package and SEMF provided details of the business reports it used.

On 5 May 2014, Renown provided SEMF with a Statement of Works. That document was signed by SEMF on 19 May 2014. The Statement of Works described the “Scope of Services” in the following terms:

The reference to the “Design Document” in the scope of services appears to be a reference to two documents. One was titled “Microsoft Dynamics SL Setup – Financial Series” and the other was titled “Microsoft Dynamics SL Setup – Project Series”.

Following signature of the scope of works, work commenced on implementing the Renown System. On or about 17 June 2014, a test site for Dynamics SL was set up at SEMF’s office in Sydney. There were delays in implementing the system and a number of problems arose during the implementation. In the meantime, in about August 2014, Dialog acquired Renown.

Problems continued throughout 2015. Neither party suggested that the history and details of those problems are important to the resolution of the current dispute.

On 7 April 2016, Dialog wrote to SEMF saying that it was no longer in a position to provide support for Dynamics SL except on a “best endeavours basis”. The letter stated:

The letter gave SEMF two options. Option 1 was for Dialog to provide maintenance only for the Dynamics SL software. That option was described in the following terms:

Option 2 involved replacing Dynamics SL with either Dynamics NAV or Dynamics AX, which are cloud based enterprise resource planning systems. The letter provided indicative costings for those solutions.

Solicitors engaged by SEMF replied to that letter requesting a meeting with an intention “to find a commercial and reasonable solution to the issues which have arisen”.

In June 2016, SEMF requested assistance from Microsoft. Microsoft referred SEMF to an organisation known as “Plumbline”. After examining the Renown System, Plumbline prepared a report titled “Dynamics Gap Analysis”, which set out an overview of SEMF’s system and what needed to be done to rectify its problems.

During the first part of 2017, further investigations were undertaken by Plumbline. The issues were not resolved and SEMF commenced these proceedings on 22 February 2018.

As I have said, there is an issue between the parties concerning which documents form the contract that governs the relationship between them. SEMF contends that the contract included version 3 of the proposal but did not include Renown’s standard terms and conditions. On the other hand, Renown contends that the contract did not include the Proposal but did include the standard terms and conditions, together with the Statement of Works, the MS Dynamics SL Setup – Financial Series and the Microsoft Dynamics SL Setup – Project Series.

However, as ultimately put, nothing turned on the resolution of these issues. Renown did not rely on any of the provisions of the standard terms and conditions, so whether they were incorporated or not had no effect on the outcome of the case. It was common ground that the Statement of Works required the installation of various modules of Dynamics SL together with the HR3 software and software written by Renown to deal with and to provide reports in relation to GST and that that software had to be written and configured in a way that meant SEMF obtained the benefits that were accepted features of the Dynamics SL and BP software. Those obligations were implicit in the agreement contained in the Statement of Works to provide the relevant software. Accordingly, it was unnecessary for SEMF to prove that various statements in the Proposal concerning the functionality and benefits of the proposed system were themselves terms of the contract. Moreover, as I have said, the defendants concede, in light of concessions made by Mr Finn, that there are some faults in the Renown System. The real dispute is the significance of those faults and what damages SEMF is entitled to recover in light of them.

It is convenient to address those questions by starting with Mr Shawver’s summary of his opinions in the joint report concerning the faults with the Renown System.

In answer to the question whether Dynamics SL and BP had the promised functionality, Mr Shawver summarised his opinions in the joint report that it did not in these terms:

Some further explanation is necessary to understand some of the matters referred to by Mr Shawver. As I have said, at the time that Renown implemented the Renown System there were at least two ways in which information could be extracted from a Dynamics SL database. One was using Crystal Reports, which was a standard reporting module for Dynamics SL. A report produced by Crystal Reports was a batch, not a real-time report. That is, the report would be run manually at a particular point in time and would extract and present information from the database at that time, not at the time the report was viewed. Depending on when the report was viewed (it may only be a few seconds or a few minutes later), the information contained in it may be out of date. The other type of report was one produced using SSRS. SSRS reports were real-time reports. The information contained in them reflected the then current information in the Dynamics SL database. Consistently with representations made in the proposal, Renown chose to configure BP to use or work with SSRS reports, not Crystal Reports. However, for reasons that are not fully explained in the evidence, the SSRS reports as implemented by Renown did not accurately extract information from the Dynamics SL database. Consequently, BP could not be used reliably to generate invoices and provide other project-related information. This problem was never fixed. As a result, employees of SEMF have only been able to use BP to submit timesheets and expense claims, and for managers to approve time, expense claims and customer invoices. According to Ms Katherine Parry, the Finance Manager of SEMF, individual employees on occasions still also encounter problems entering time or expenses, particularly if they are working from a personal computer rather than one supplied by SEMF.

In order to overcome the limitations on BP, Project Managers must log into Dynamics SL itself to create projects, to run basic project reports and to prepare invoices. In order to permit that to happen, SEMF has acquired five additional concurrent licences to use Dynamics SL at a cost of $27,183.38. As a result, much of the billing is done by a limited number of Project Managers and Finance staff. Even then, the number of users who can undertake those activities at any one time is limited to the number of licences held by SEMF, which is a particular problem at the time of end of month billing. A number of other reports (such as a timesheet status report) must be run manually and circulated to staff weekly, instead of SEMF being able to rely on automated systems to perform those functions.

The standard Dynamics SL system required customisation so that it could deal with issues specific to Australia, the most significant of which is the proper recording and treatment of GST. Renown created its own Localisation Module to deal with issues specific to Australia and wrote code to integrate that module into Dynamics SL. There were, however, problems with that module, which have not been fully resolved. According to Ms Parry, the result is that it has been necessary to introduce manual audit and checking procedures, which include (1) physically inputting the GST codes on expense reimbursements claims that have not carried through from BP; (2) manually separating the GST component of transactions entered via the Cash Manager module and entering that amount directly into the general ledger account using an additional row on the input screen. In addition, because of errors, SEMF is unable to use the GST reports generated by the Localisation Module but instead must prepare monthly Business Activity Statements relying on information extracted from the balance sheet.

Mr Finn did not seriously take issue with the problems identified by Mr Shawver; and, as I have said, the defendants did not seriously suggest that the problems with the Renown System fell short of what was contractually promised. In the joint report prepared by the experts, Mr Finn said nothing about the problems Mr Shawver identified and which are extracted above. In cross-examination, Mr Finn accepted that there were some issues with project invoicing, but said that he did not have time to investigate the nature of those issues and whether Mr Shawver’s opinions were accurate. He also accepted that there were some problems with the SSRS reports because the data was not correct. Mr Finn thought that that could be explained either because “the report itself has a coding error, or the SQL Server objects that that report was using had a coding error”. Mr Finn did suggest that much of the project specific information could be obtained through a facility known as “Quick Query”. However, Mr Finn did not examine the Renown System using BP; and there is no evidence that “Quick Query” was a module or facility that was available through BP (rather than through Dynamics SL itself). The evidence of Mr Shawver and Ms Parry is to the contrary. Accordingly, I accept that the Renown System suffered from the problems identified by Mr Shawver. I also accept that those problems meant that the Renown System did not comply with what was contractually promised because no proper implementation of an ERP system using the modules that Renown contracted to deliver would have suffered from those problems.

In their final written submissions, the defendants concede that the proper enquiry is what loss has been caused by the identified failures, which they say should be assessed at the time of breach.

The defendants submit that SEMF should only be entitled to recover the costs of fixing the problems with the existing system and that SEMF has not proved the nature of those problems and the costs of fixing them with sufficient specificity so as to be entitled to recover anything. In the alternative, they submit that if SEMF’s damages are to be measured by replacing the existing system with one based on Dynamics SL 2018 and 2018 Web Apps, then there should be a large discount for betterment.

The defendants’ primary submission rests on two propositions. First, they submit that there is no reason why the Court should depart from the usual principle that damages are to be assessed as at the date of breach: Johnson v Perez (1988) 166 CLR 351 at 367 per Wilson, Toohey and Gaudron JJ; [1988] HCA 64. In this case, that was said to be when the system went live in October 2015. Consequently, the damages should be assessed by reference to the costs of fixing the problems at that time, not by reference to the costs of software that was not available at that time. Second, they rely on the principle that damages must be proved with a degree of precision that reflects the proof that is reasonably available to the parties: State of New South Wales v Moss (2000) 54 NSWLR 536 at [72]; Placer (Granny Smith) Pty Ltd v Thiess Contractors Pty Ltd (2003) 77 ALJR 768 at [38]; Sabouni v Revelop Building and Developments Pty Ltd [2021] NSWSC 31 at [42] per Black J. In this case, SEMF has made no attempt to prove the costs of rectifying the problems with the Renown System in October 2015.

I do not accept the defendants’ submissions. As Wilson, Toohey and Gaudron JJ recognised in Johnson v Perez, the principle that damages are to be assessed at the time of breach is not a universal principle to be applied in all cases but is a rule that yields “if, in the particular circumstances, some other date is necessary to provide adequate compensation” (ibid at 367).

Generally speaking, the purpose of an award of damages for breach of contract is, so far as money can do it, to place the injured party in the position that it would have been in if the breach had not occurred: Robinson v Harman (1848) 1 Exch 850; 154 ER 363; Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272 at 285–6; [2009] HCA 8 at [13]; Clark v Macourt (2013) 253 CLR 1 at 30; [2013] HCA 56 at [106] per Keane J. In this case, that principle requires damages to be calculated by reference to the costs of giving SEMF an ERP system that complied with the contractual specifications: see Bellgrove v Eldridge (1954) 90 CLR 613 at 617 per Dixon CJ, Webb and Taylor JJ; Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272; [2009] HCA 8 at [13]ff. It is not suggested in this case that SEMF delayed excessively in seeking relief so that in some way or another it failed to mitigate its loss. On the contrary, SEMF gave Renown an extended period of time in which to fix the problems. It was Renown who in effect concluded that it could not do so. Nor is it suggested that the Renown System is sufficiently close in functionality to the system for which SEMF contracted that it would be unreasonable for Renown to insist on performance strictly in accordance with the contract. There remain significant problems with the Renown System which have a real effect on SEMF’s operations. Consequently, SEMF is entitled to recover the reasonable costs of fixing the remaining problems. Mr Shawver’s evidence is that that is best done by replacing the existing system with one based on Dynamics SL 2018 and 2018 Web Apps.

Renown take issue with Mr Shawver’s evidence. Its case is that the errors in the coding that apparently cause the problems could be fixed without upgrading the software platform and configuring the system from scratch. There are, however, difficulties with that submission. First, Mr Finn accepted that that could not be done without access to the source code for the Renown System. It is unclear whether that code is available. Whether it is available or not is something within Renown’s knowledge, since it is its source code. It led no evidence that the code is available. Second, there is no evidence that Renown’s solution is a practical one. The evidence is that Renown was unable to fix the problems and decided to withdraw support. It proposed two options. One was to outsource support to external contractors “with no involvement by Dialog”. Renown recognised that that option had a number of problems. One problem (not mentioned by it) is that it appears that there is no other person or organisation in Australia with the necessary qualifications and experience to fix the remaining errors. Renown’s second option was to replace the Renown System with a different system based on Dynamics NAV or Dynamics AX, which are cloud based systems. That option corresponds more closely to what is proposed by Mr Shawver. Third, in their report, Mr Bowling and Mr Finn accepted that the most efficient and cost-effective approach would be to replace the existing system. They said:

Mr Bowling and Mr Finn do, however, disagree with Mr Shawver’s estimate of the costs of a system using Dynamics SL 2018 and SL 2018 Web Apps. Mr Shawver’s estimates of the costs of replacing the Renown System with one based on Dynamics SL 2018 and SL 2018 Web Apps is summarised in the following table:

The amount of $617,308 claimed by SEMF is the amount of Mr Shawver’s estimate converted to Australian dollars at the current exchange rate (which was USD1 = AUD1.37 at the time of conversion). Mr Bowling and Mr Finn give an estimate that is substantially lower. Their estimate is approximately USD160,000. The differences between Mr Shawver and Messrs Bowling and Finn were not explored in the evidence. However, I prefer the evidence of Mr Shawver. It was apparent that he had a more detailed knowledge of the Renown System than either Mr Bowling or Mr Finn. Consequently, he was in a better position than they were to provide an estimate of costs. Moreover, it appears that Mr Bowling and Mr Finn’s estimate assumed that parts of the Renown System could be moved across to the new platform. So, for example, they allowed 15 days to “Investigate/Resolve Open Issues”. But, for the reasons I have given, it is far from clear that it would be practical to investigate the causes of the current problems, since that depends on whether the source code is available. Mr Shawver was cross-examined about some of the items on his list. He gave answers that explained why that work was necessary. He was not challenged on any of his estimates of the number of hours that it would take to complete each task that he identified. I accept those estimates.

In Tyco Australia Pty Ltd v Optus Networks Pty Ltd & Ors [2004] NSWCA 333 at [260]ff, Hodgson JA, in a passage referred to with approval by the Court of Appeal in Walker Group Constructions Pty Ltd v Tzaneros Investments Pty Ltd [2017] NSWCA 27 at [201], said that there were two circumstances in which an allowance for betterment would be made. The first is when a plaintiff chooses to acquire a more valuable asset than the one that is being replaced. The second is when “even if there is no alternative available to a plaintiff other than to acquire a more valuable asset, a plaintiff may have to give credit reflecting the greater value of this asset to the plaintiff, if there is a benefit to the plaintiff which is not remote in time or speculative, and which can be quantified” Tyco at [262].

Applying these principles, and subject to one qualification, I have concluded that no allowance for betterment should be made in this case. This case plainly does not fall into the first of Hodgson JA’s two categories. As I have explained, there is no other practical means of SEMF obtaining the contracted-for system.

In order to understand why this case does not fall into the second of Hodgson JA’s categories, it is necessary to say something more about the position if the Renown System as delivered had met the contractual specifications. In that event, the problems that currently exist with the system would not have been present. On the other hand, SEMF would have paid an annual maintenance fee to Microsoft calculated at 18 percent of the cost of the original software. SEMF stopped paying that fee in 2016. That fee would have entitled SEMF to upgrade to more recent versions of the relevant software — specifically, Dynamics SL 2018 and SL 2018 Web Apps. It was not suggested that, absent the problems with the Renown System, that system could not have been migrated to updated versions of the relevant software. Consequently, if Renown had complied with the contract and SEMF had paid the maintenance fee, SEMF would have ended up with the Renown System running on Dynamics SL 2018 and SL 2018 Web Apps. SEMF accepts that in calculating damages it should give credit for the maintenance fees it has not paid. Allowing for that credit, there is no betterment since the award of damages will put SEMF in the position it would have been in if Renown had delivered the contracted-for system without the current faults or limitations.

The second head of damage claimed by SEMF consists of costs it incurred in trying to fix the problems. Those costs are:

Renown accepts that it is liable to pay for items (c), (d) and (e). It disputes the other items.

Item (a) relates to the additional licences acquired by SEMF to enable more concurrent users of Dynamics SL. Renown submits that those licences were required because Crystal Reports could not be accessed in the BP environment. However, it submits that the absence of access to Crystal Reports from BP was not a breach of contract by it. In its submission, the deployment of SSRS reports (together with the Quick Query module) afforded SEMF project managers with up to date information extracted from the Dynamics SL database.

In my opinion, there are two difficulties with this submission. First, I have found that the Quick Query module was not available through BP. If SEMF project managers had access to it, it was because they had access to Dynamics SL. Second, I accept that Renown did not have a contractual obligation to provide access to Crystal Reports from BP. It did, however, have a contractual obligation to provide remote access to various functions of Dynamics SL including invoicing and project queries using BP. Because of errors in implementing SSRS, that access was not available. The additional licences were required in order to obtain a reasonable level of access to those functions that would have been available if SSRS had been configured properly for BP. Accordingly, in my opinion, the costs of the additional licences are recoverable.

Mr McLean has specific expertise in training in Microsoft Office, Oracle (a type of database) and SQL. He had worked for SEMF between 2005 and about 2008. In October 2015, he was employed by SEMF to assist it in resolving problems with BP and, in particular, setting up a remote portal that would permit access to functions that were not available through BP, such as Crystal Reports. It is apparent that Mr McLean was employed specifically by SEMF to work on solutions to the problems with the Renown System and the implementation of BP in particular. I can see no reason why the fees paid to Mr McLean are not recoverable.

In relation to item (f), SEMF submits that it obtained no benefit from the work referred to in the relevant invoices “given that Dialog walked away prior to contracted functionality being achieved”. Consequently, it says that it is entitled to recover the amount that it paid. The claim appears to be that SEMF paid the invoices expecting the work referred to in them to be completed, that work was not completed and SEMF obtained no benefit from what work was done, with the result that it should be entitled to recover the amount it paid. The evidence, however, is inadequate to justify this claim. It is not clear from the invoices precisely what work was done. SEMF does not point to any evidence that demonstrates that whatever work was done was wasted. Accordingly, in my opinion this claim must fail.

SEMF should be entitled to interest at court rates on each of the amounts that it is entitled to recover from the dates those amounts were paid.

The third head of damage is what SEMF described as “[c]osts incurred by COVA employees resulting from defects in system”. That, however, is not an accurate description of what is claimed. Rather, what is claimed is the time spent by SEMF employees undertaking tasks that it is said would not have been necessary if the Renown System did not have the faults it does.

The Court will permit a plaintiff to recover the cost of the productive time of the plaintiff’s employees that is lost by reason of a breach of contract: Tesrol Joinery Pty Limited v CEFLA Scri [2005] NSWSC 528 at [28] per Einstein J. Moreover, in some cases the Court will be prepared to treat the amount paid to employees as a proxy for the value of that time. As Wilson LJ explained in Aerospace Publishing Ltd v Thames Water Utilities Ltd [2007] EWCA Civ 3 at [86](c):

I am not satisfied that SEMF is entitled to recover the amount it claims in accordance with these principles. That is so for several reasons.

First, I am not satisfied that SEMF has established the extent of the diversion. SEMF seeks to establish the extent of the diversion through evidence given by Ms Parry. In her first affidavit, Ms Parry identifies six employees whose time is said to have been diverted because of faults with the Renown System. They are herself, Ms Belinda Irving, Ms Nicole Deng, Mr John Croxton, Mr Douglas Hall and Mr Allan Waitzer. Ms Parry, Ms Hall and Ms Deng were administrative staff. Ms Parry seeks to identify diverted time from time recording entries. In final submissions, SEMF accepts, based on the description contained in the entries, that some of those entries are unlikely to record diverted time. It excludes those entries to come up with a final figure. However, in my opinion, Ms Parry’s interpretation of time entries made by others does not provide a sufficient basis for concluding that the relevant time arose because of faults in the Renown System. As I have said, I accept that there were faults in the Renown System. I also accept that time was wasted by employees in dealing with those faults and their consequences. However, the relevant time entries simply record time spent on the Renown System. They do not form a reliable basis for determining or estimating how much of that time was wasted. And I do not think that Ms Parry’s interpretation of those time entries (apart from her own) can cure that problem.

In a second affidavit, Ms Parry seeks to identify additional time spent by SEMF employees to overcome the problems with the Renown System since she prepared her first affidavit. In that affidavit, she provided a range based on estimates of time that various project managers and other employees spent on dealing with the problems. For example, Ms Parry estimates that 12 project managers have spent 2 to 6 hours per month dealing with problems with the Renown System. Presumably, those problems relate largely to the extra time spent on billing. However, there is no evidence to that effect and again it is difficult to understand why Ms Parry’s views on those matters provide an adequate basis from which to conclude that the relevant employees’ time was diverted.

Second, a substantial amount of the time for which SEMF makes a claim is the time of administrative staff, including Ms Parry. There is no evidence that SEMF had to employ additional administrative staff because of problems with the Renown System. Moreover, it is unclear what productive work those staff members would have engaged in if they did not do the work that they did. It is important to remember that the cost of staff is recoverable because it is treated as a proxy for lost revenue. That seems a reasonable approach where the relevant staff members are engaged in work that generates income for the business. It seems less reasonable where the relevant staff do not undertake income generating work. That, of course, is not to say that the administrative staff do not perform work that is essential to the business. Moreover, in some cases it may be that the result of diverting the time of administrative staff is that billable time that ought to be captured and billed is not. In that case, it may be appropriate to make allowance for the cost of those staff members. However, in the present case it appears that most of the work in respect of which SEMF seeks to recover is undertaken to ensure that income is not lost for those reasons. There is some evidence that, on introduction of the Renown System, some billable time was lost. There is no evidence that that is a continuing problem.

Third, I am not satisfied on the evidence that the disruption to SEMF’s business was sufficient to justify an award of damages based on employee costs. The transfer to a new computing system was bound to cause some disruptions. The question in this case is whether the faults in the Renown System were so serious that it could be said that those faults themselves caused a significant disruption to the business. I am not satisfied that they were. As the experts pointed out in their joint report, there was no catastrophic failure of the system. It is possible to use, and the system is used, to perform many of the contracted-for tasks. SEMF led evidence concerning continuing problems. It did not, however, lead evidence from which it could be concluded that those problems had caused a significant disruption to its business. Accordingly, in my opinion, SEMF is not entitled to the damages claimed under this head.

Renown seeks to recover the amount of $51,315 in respect of invoices issued by it. The following is a summary of the claim:

In its response to the cross-claim, SEMF advances a number of reasons why the invoices are not payable. They are:

However, no submissions or evidence was advanced in support of those allegations, and it appears that the allegations have been abandoned. SEMF’s primary contention is that it is entitled to set-off the amount claimed by Renown against its damages claim. Renown accepts that that is the case. Accordingly, nothing further needs to be said about the cross-claim.

It follows that SEMF is entitled to recover the following amounts:

Renown are entitled to set-off the sum of $51,315 against the amounts payable to SEMF.

The orders of the Court are: