Satellite broadband operator Ipstar has been ordered to pay back up to $5.2 million to SkyMesh for three separate claims stemming from defective gear and increased data fees.
SkyMesh was Ipstar's second largest internet service provider, using Ipstar's satellite to provide broadband connections to rural Australia.
Ipstar's satellite requires customers to connect using a proprietary user terminal (UT), supplied by Ipstar, which does not work with any other service provider. The UT consists of an outdoor satellite dish antenna and radio frequency transceiver, as well as a modem.
Significant problems came to light in 2010, when customers began to complain about internet dropping out, freezing and hanging.
SkyMesh found that the equipment provided by Ipstar was not properly sealed against water, causing customer's connections to drop out after it rained.
After being presented with 4000 separate customer claims, Ipstar denied responsibility for reimbursing SkyMesh for replacement devices.
Ipstar argued that if goods were defective, then compensation should be directed to end users, rather than SkyMesh as the reseller.
SkyMesh was able to prove in court that the equipment from Ipstar was defective before being sold and that the responsibility for remuneration should fall on Ipstar as the manufacturer.
The court awarded SkyMesh $1.8 million for the defective goods claim.
The second claim from SkyMesh was for compensation for the costs associated with hiring extra support staff to handle an increase in customer complaints. The claim was shot down, however, as it would have only been relevant for damages suffered by SkyMesh's customers.
The third claim stemmed from increased data costs imposed by Ipstar after SkyMesh sought compensation for the replacement UTs.
Ipstar informed SkyMesh that it was raising its fees from $2500 per Mbps per month by an additional $433 per Mbps per month.
When asked why, Ipstar said in an email: “We trust you understand that the new pricing is [a] reflection of the substantial increase in cost of doing business with SkyMesh.”
Ipstar later told SkyMesh director Paul Rees the reason for the price hike was due to the disproportionate number of service calls from SkyMesh. No other ISPs were subject to the same price increase.
Rees claimed he was forced to sign the new agreement under protest, as no other satellite provider could maintain the bandwidth necessary to service its customers at the time. SkyMesh would have also had to purchase $60 million of new hardware to swap from Ipstar.
During the court proceedings, SkyMesh claimed Ipstar was dishonest in its reasoning. The court found that the price increase was broadly calculated on the anticipated cost to Ipstar of meeting its warranty obligation to SkyMesh.
The judge ruled that Ipstar had engaged in unconscionable conduct by charging SkyMesh for the liability it owed itself.
"In imposing that requirement Ipstar did do so in an environment where SkyMesh had no real practical alternative but to accept the price increase because the requisite bandwidth was only available from Ipstar and the cost of new equipment required if SkyMesh changed service provider was prohibitive," he said.
SkyMesh was awarded $3.4 million, bringing the total compensation to about $5.2 million. However, the exact amount of compensation for the first $1.8 million is still being negotiated as to what the correct amount is.
Ipstar has been contacted for comment.