FEDERAL COURT OF AUSTRALIA

Australian Competition and Consumer Commission v Valve Corporation (No 3) [2016] FCA 196

ORDERS

THE COURT ORDERS THAT:

1.    The matter be listed for a hearing as to remedies.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

EDELMAN J:

Introduction

1    The respondent, Valve, is a company based in the State of Washington in the United States of America. Valve operates an online game distribution network known as Steam. The Steam online game distribution network contains approximately 4,000 video games with names ranging from “Plants vs Zombies GOTY Edition” to “Thirty Flights of Loving”. Valve has more than 2 million Australian subscriber accounts. Many customers buy or download multiple games from Valve. Valve operates and controls a website (the Steam website), an online video game delivery platform (the “Steam Client”), and an online support assistance service known as “Steam Support” which is accessible from Steam or the Steam website.

2    The applicant, the ACCC, alleges that Valve made misrepresentations in relation to the acceptable quality guarantee in s 54 of the Australian Consumer Law which, by s 64, could not be modified or excluded. The ACCC says that Valve (i) contravened s 18(1) of the Australian Consumer Law by making representations which were misleading or deceptive or likely to mislead or deceive, and (ii) contravened s 29(1)(m) by making false or misleading representations about the existence or effect of the consumer guarantees. At the heart of these alleged misrepresentations were statements by Valve, such as the statement in its terms and conditions in capital letters: “ALL STEAM FEES ARE PAYABLE IN ADVANCE AND ARE NOT REFUNDABLE IN WHOLE OR IN PART”.

3    Valve defended these proceedings on a variety of grounds. Three of the grounds involved submissions that the consumer guarantees of acceptable quality in s 54 of the Australian Consumer Law did not apply to Valve.

4    First, Valve said that its conduct did not occur in Australia and that it does not carry on business in Australia so the Australian Consumer Law did not apply to it. There are some difficult issues involved in determining whether “conduct” is in Australia, but even if Valve’s conduct was not conduct in Australia, the Australian Consumer Law would apply if Valve carried on business in Australia. Valve said that it does not carry on business in Australia despite Valve (i) having more than 2 million user accounts in Australia, (ii) generating potentially millions of dollars in revenue from Australia, (iii) owning, and using, servers in Australia, with original retail value of US $1.2 million, (iv) having relationships with businesses in Australia, and (v) paying tens of thousands of dollars monthly to Australian companies in expenses for running its business in Australia.

5    Secondly, Valve submitted that the Steam Subscriber Agreement (SSA) it entered with consumers was not a contract to which the consumer guarantees in the Australian Consumer Law, Division 1 of Part 3-2 (Chapter 3) apply because the law which has the closest and most real connection to the SSA is the law of Washington State. There is no express provision which limits the operation of Division 1 in this way. Valve effectively submitted that such an implication derived from the conflict of laws provision, s 67, which contains terms to prevent a consumer from attempting to contract out of the Division by choosing a foreign proper law. The effect of Valve’s submission is that if it contracted with Australian consumers, but (possibly unknown to the consumer) made the supply through an Australian subsidiary supplier, then the consumer guarantees would be impliedly excluded by Division 1 because of the connection between the contract and Washington State. In other words, by implication but not by express terms, Division 1 would not apply even where an Australian consumer received a supply of Australian goods from an Australian subsidiary in Australia.

6    Thirdly, Valve submitted that it does not “supply goods” within the meaning in s 2(1) of the Australian Consumer Law. The definition of “goods” in the Australian Consumer Law includes “computer software”. The core of the supply by Valve was computer software. Valve said that it provided a “service” (by a Licence Agreement) rather than “goods” and that its supply to consumers of software was part of its service. Valve also said that a licence agreement for a use of goods is a service not a supply of goods even though (i) the term “supply” is defined to include a hire and an agreement to hire and (ii) the Australian Consumer Law expressly provides that a reference to a supply of goods includes goods supplied with services.

7    For the reasons below, each of these submissions must be rejected. The issue then becomes whether the representations made by Valve contravened ss 18(1) and 29(1)(m) of the Australian Consumer Law.

8    The misleading representations were said to have been made in (i) the SSAs, (ii) the Steam Refund Policies displayed on the Steam website from 1 January 2011, and (iii) during online “chats” between three Australian consumers (Mr Miller, Mr Miles, and Mr Phillips) and Steam Support staff. The ACCC said that the alleged misleading representations were all displayed to consumers on computer screens or electronic devices in Australia.

9    Valve said that it did not contravene the Australian Consumer Law because the ACCC did not prove that the representations as pleaded were made and even if they were made they were not false, misleading or deceptive or likely to mislead or deceive. In relation to all of the statements in the SSAs and all but one of the representations concerning Valve’s refund policy I accept that the statements amounted to misleading representations within s 18(1) and s 29(1)(m). But the statements in chats with the three Australian consumers, who were reasonably well informed of their rights, did not involve these contraventions.

The witnesses

10    The ACCC relied upon evidence from four people. The first was an investigator and ACCC employee, Ms Liskov. A key part of her affidavit evidence concerned how she obtained various terms and conditions, and policies used by Valve. She also described the process by which games are purchased from Valve. The other three witnesses relied upon by the ACCC were Australian consumers who had experienced problems with games that they had purchased from Valve and used. None of the ACCC’s witnesses was cross examined. Their evidence was not disputed, although its legal effect was contested.

11    Valve relied upon evidence from two witnesses. The first was its Business Development, Infrastructure and Operations Manager, Mr Dunkle. The second was its General Counsel, Mr Quackenbush. Both gave evidence honestly and with a genuine effort to assist the court. Their answers were clear. Their evidence was reliable.

12    Since there was no clash in any evidence and, after rulings on objections, no submission was made that any evidence should be rejected, it is convenient for me to set out my findings of fact independently of the witnesses. However, in my discussion below, I rely particularly upon the evidence of Ms Liskov as to what a consumer would have seen or done (including her careful inclusion of screenshots of many of these steps). For the technical detail behind each step, I rely particularly upon the evidence of Mr Dunkle. Although he was not an expert independent from Valve, he has worked in the gaming industry for 14 years and, previously in the semiconductor and telecommunications industry for 10 years. He was one of the original members of the team at Valve which developed what he described as the “online game distribution network” known as Steam.

Valve’s provision of video games to consumers

The process of installing Steam and purchasing a video game

13    There are three discrete processes that a consumer must follow to obtain games Valve offers on Steam. First, they must download and install the Steam Client. Secondly, they must create a Steam account. Thirdly, they must download and install a game.

14    The first step in obtaining games from Valve is that a consumer goes to the Steam website and clicks on the hyperlink “Install Steam”. A process then follows by which the consumer installs the Steam Client to the consumer’s computer. Steam Client is a software program without which video games cannot be played (ts 97).

15    During that process the consumer is taken to a window entitled “License Agreement”. The preamble to the Licence Agreement contains a reference to the SSA, which appears as a blue hyperlink. To continue the installation, the consumer must click on a box beside the words “I accept the licence agreement AND I am 13 years of age or older”.

16    After installation, a pop up window appears notifying the consumer that Steam has been installed. An icon also then appears on the consumer’s desktop.

17    Consumers can also access the SSA online by a link on the Steam website. When they click on this link, they are taken to a webpage which holds the terms and conditions of the SSA. This webpage is stored on the Washington Servers. The SSA is published (and made accessible to customers) in 21 different languages.

18    The second step towards obtaining and using a Steam game is that the consumer must have a Steam account. A consumer can create a Steam account either on the Steam website or through the Steam Client. When the Steam Client is used to open an account, a new window opens containing the SSA. The consumer must agree to the SSA before being taken to a window entitled “Create a Steam Account”. From there, the consumer can choose an account name and password, and must enter an email address. Clicking the “Next” button will take the consumer back to their desktop.

19    The third step towards obtaining and using a Steam game is to download a game. By opening the Steam Client, the consumer will be taken to their “Library” within Steam. This displays all the Steam video games that the consumer has purchased and downloaded. Within the consumer’s library, there is a “Store” where games can be purchased or downloaded. The consumer can search through the games in the Store, access game developer information, read peer or community group reviews and reviews of games. The consumer can then select games to download, after purchasing the game if it is not free. There is a “Review + Purchase” page where the consumer must accept the SSA before they can click “Purchase”. The SSA can be read before being accepted by clicking on the words “Steam Subscriber Agreement”. During the purchase the consumer is required to inform Steam of the country in which the consumer is located (ts 120).

20    In addition to credit card and other methods of payment, subscribers can also pay for games using “Steam Wallet”. Steam Wallet is an account which a subscriber can use to store value for later use for Steam purchases (ts 120).

21    Once a consumer has purchased a video game, a link to that game will appear in their Library. The game must then be installed. But no further agreement to the SSA is required before installation. During the installation process of a game which has been authored by a third party, the consumer may be required to accept an end-user licence agreement and any separate account registration requirements required by the third party.

22    Once a game is installed on a consumer’s computer, the consumer can play it online or, if the publisher of the game has created it in that way, in “offline mode”. When the game is run online for the first time, Steam checks to confirm that the user owns a subscription to the game. And after a subscriber quits an online Steam session, on the next online occasion the subscriber must login again to authenticate himself or herself. The Steam Client also checks for, and downloads, any updates to the games on these subsequent online occasions.

23    To access the offline mode, the consumer double clicks on the Steam Client. If the computer has no internet connection, a “Connection Error” message will appear on their screen, which contains a button entitled “START IN OFFLINE MODE”. The consumer can see his or her Library offline and can play some games offline. If the consumer is offline then he or she (i) cannot interact with others in multi-user games, (ii) cannot download updates to the game, and (iii) cannot save progress, score or achievements to the Steam Cloud for use on another computer.

The Steam games

24    Steam offers more than 4,000 games. But only around 26 of these games are authored by Valve. Almost all of them are authored by third party developers who receive a royalty from any sales of their game by Valve. Valve does not receive any of the source code of the video games from third party game developers. Instead, the game developers provide Valve with executable file software for the games to be uploaded in Washington State.

25    When a problem arises with a game developed by a third party, Valve often puts the customer in contact with the third party developer. If Valve ultimately chooses to give a refund to the customer, then Valve will ordinarily deduct the refund from the royalties which it pays to the third party developer.

26    The top three games developed by Valve are all multi-player games. They have a common theme of either battle (Dota 2, a free game), terrorism (Counter-Strike Global Offensive, priced at US $14.99) or shooting (Team Fortress 2, a free game). The consumer who downloads a free game commonly discovers that there are opportunities for purchases of digital items within the game.

27    The top three games developed by third party developers are Grand Theft Auto V (single or multi-player which needs no further description, priced at US $74.99), the Elder Scrolls V (a fantasy video game, priced at US $34.99), and Sid Meier’s Civilisation V (a single or multi-player strategy game to become Ruler of the World, priced at US $69.99).

28    Apart from the approximately 4,000 games available for purchase or free download, the Steam Client also provides consumers with many other functions including friends lists, chat, user groups, community groups, Steam cloud, Steam music player, video driver updates, and user profiles. Valve’s evidence referred to many of these other functions and many Steam products in detail. It is sufficient to observe that many of Steam’s non-game offerings are very closely associated with Steam’s core provision of games. Some examples follow.

(1)    Steam Wallet, as I have explained, is a method of paying for Steam games.

(2)    Steam subscribers can “create content” that can be used in Valve’s games and sold to other subscribers, for which Steam receives a portion of the sale proceeds. Senior counsel for Valve gave examples of such content as a digital “hat” or digital “sword” (ts 199).

(3)    Steam subscribers have a licence to make modified versions of Valve games and to distribute them for free.

(4)    Steam curators are individuals or organisations who make recommendations to others about video games.

(5)    Steam Wish list is an ability for subscribers to add games on to a wishlist.

(6)    Steam Greenlight is a forum where Steam subscribers can submit an unreleased game for the Steam community to rate according to whether they would like to see the game on Steam.

(7)    Steam Play is a feature that allows subscribers to purchase subscriptions to games.

(8)    Steam Cloud is a feature which stores the game data of a subscriber when a game is concluded so that when the subscriber goes online again, from any computer, he or she can access this information including for sharing with friends online. Steam Cloud is made available by third party service providers such as Microsoft Azure or Amazon Web Services.

(9)    Steam Support has a website published to the world at large for inquiries by way of a ticket received in servers located in Washington State.

The operation of the Steam servers

29    Steam is supported by a global network of servers and associated information technology. Nearly a thousand servers are located in Washington State. The servers can broadly be classified in the following groups.

(1)    Steam website servers in Washington State: used to host and support the Steam website and Steam store.

(2)    Steam Client Software and subscription servers in Washington State: the communications which permit a subscriber located in Australia to download the Steam Client software (including any updates) onto his or her local computer, create a Steam account, select a game subscription, and pay the purchase price. These servers also include the authentication of subscribers and, in this role, were sometimes referred to during the trial as “authentication servers”.

(3)    Steam content servers: host the content of Valve’s video games and all third party video games and other content available on Steam. Steam has content servers in Washington State as well as other locations around the world including Australia. The three of Valve’s content servers that are in Australia are located in commercial rack spaces leased from Equinix Australia Pty Ltd (Equinix). These content servers provide content to Australian customers as well as other customers, particularly in the Asian region.

30    The way that the Steam content servers in Australia (like others outside Washington State) operate is that when a consumer seeks to download a game, the servers in Washington State provide the content to the Australian content server. If that content is not requested again within a limited period of time (ranging from about 1 to 18 days in Australia, depending upon the server), it is automatically removed from the Australian content server.

31    One reason why Steam uses content servers in Australia and elsewhere in addition to its Washington State servers is efficiency. Steam aims to ensure that a consumer can download content as fast as possible. In fact, as Mr Dunkle explained (ts 107), the Steam Client knows how to download from multiple sources, including content servers and content delivery networks.

32    The content delivery networks are commercial third parties with whom Valve has business arrangements. These third parties permit Steam to have access to their networks to deliver Steam content to subscribers all around the world at agreed bandwidth and delivery capacity. Members of content delivery networks obtain the advantage of being able to provide their customers with fast, direct downloads without having to obtain the download from Washington State or other servers. Some of these third parties, such as a “key partner” called Highwinds, have servers in Australia.

33    In addition to Valve’s contracts with global content delivery network providers, Valve also has arrangements with smaller providers throughout the world. Two of those in Australia are Internode and ixaustralia.

34    Steam’s content servers, and the content delivery networks, hold a mirror image, or “proxy cache” of the software. However, a foreign content server (such as an Australian content server) will still need to communicate with the servers in Washington State to obtain authentication of the subscriber in relation to its communications with a subscriber (ts 109).

35    The content server which is chosen for a download by the Steam Client depends on an algorithm. The algorithm is designed to calculate the most efficient means of downloading based on available server capacity and to project download speed of available servers within the global network. Mr Dunkle said that it was “possible but not guaranteed” that the most efficient method for an Australian subscriber to obtain contention would be to use a server in Australia (ts 112).

36    Although Steam’s algorithm selects the server calculated to be the most efficient server to deliver the content, the algorithm can be overridden by a choice by the Steam subscriber of a particular server. The subscriber might choose a server which that subscriber knows to be located close to him or her or which is known to have a large bandwidth.

37    Steam game servers are servers that host specific multiplayer games and connect users who play against each other. Valve owns 4,341 of these game servers. There are also game servers operated by users independently of Valve but using Valve’s software. Some of the game servers are operated by third party developers of games sold or available for free download on Steam. A user anywhere in the world can choose whichever game server he or she wants to use anywhere in the world, or the user can let the game’s software choose the server.

38    Eighty of Valve’s game servers and supporting equipment are located in Australia. The original retail value of Valve’s Australian servers was US $1.2 million. The servers are stored within rack spaces leased in Australia from Equinix and host two specific Valve developed multi-player games (previously a third was also hosted). From September 2012, Valve has paid Equinix for floor space and server racks, power, connectivity, and exchange linkages to Equinix’s exchange. Valve pays Equinix approximately US $26,000 per month.

Valve’s SSAs and Refund Policies

39    Later in these reasons I consider in much more detail the terms of Valve’s SSAs and Refund Policies. It suffices at this point to explain that there are three relevant SSAs and Refund Policies to these proceedings.

40    As to Valve’s SSAs, the three relevant SSAs are as follows:

(1)    the 2011/2012 SSA (1 January 2011 to 2 August 2012) (Court Book pp 483-486);

(2)    the 2012/2013 SSA (3 August 2012 to 2 July 2013) (Court Book pp 493-497); and

(3)    the 2013 SSA (3 July 2013 to 10 November 2014) (Court Book pp 529-533).

41    As to the Steam Refund Policies, the three relevant versions of those refund policies are as follows:

(1)    the 2011-2013 refund policy (1 January 2011 to April 2013) (Court Book p 553);

(2)    the 2013-2014 refund policy (April 2013 to 23 July 2014) (Court Book p 555); and

(3)    the 2014-2015 refund policy (24 July 2014 to 18 March 2015) (Court Book p 349).

Sections 18(1) and 29(1)(m) of the Australian Consumer Law

The terms of ss 18(1) and 29(1)(m)

42    Section 18(1) provides:

Misleading or deceptive conduct

(1)    A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.

43    Section 29(1)(m) provides:

False or misleading representations about goods or services

(1)    A person must not, in trade or commerce, in connection with the supply or possible supply of goods or services or in connection with the promotion by any means of the supply or use of goods or services:

...

(m)    make a false or misleading representation concerning the existence, exclusion or effect of any condition, warranty, guarantee, right or remedy (including a guarantee under Division 1 of Part 3-2)…

The dependency of the representations upon s 54

44    The conduct and representations alleged by the ACCC to contravene ss 18(1) and 29(1)(m) concerned matters arising where goods are not of “acceptable quality”. The ACCC also pleaded that the representations were misleading for reasons including that s 64 prevents consumer guarantees from being modified or excluded. The ACCC accepted that ss 18(1) and 29(1)(m) could only apply in this case if the s 54 guarantee of acceptable quality was capable of applying to a supply by Valve. Section 54 falls within in Division 1 of Part 3-2 (Chapter 3) of the Australian Consumer Law. The ACCC assumed that s 54 must apply because the alleged misrepresentations related to acceptable quality (the concern of s 54). The assumption was that if s 54 did not apply then the alleged representations could not be misleading conduct or false representations concerning whether goods were of acceptable quality. I also proceed on that assumption.

45    Section 54(1) provides for a guarantee that goods are of acceptable quality if (other than a sale by auction) a person supplies, in trade or commerce, goods to a consumer.

46    Section 54(2) provides that:

Goods are of acceptable quality if they are as:

(a)    fit for all the purposes for which goods of that kind are commonly supplied; and

(b)    acceptable in appearance and finish; and

(c)    free from defects; and

(d)    safe; and

(e)    durable;

as a reasonable consumer fully acquainted with the state and condition of the goods (including any hidden defects of the goods), would regard as acceptable having regard to the matters in subsection (3).

47    There are separate provisions concerning when goods will not fail to be acceptable quality, and matters to which regard must be had in determining acceptable quality. I will refer to those later in these reasons.

48    Section 259 is concerned with failures of compliance. Different conditions are imposed on whether the goods can be rejected for major, or non-major, failures of compliance. Section 259 provides:

Action against suppliers of goods

(1)    A consumer may take action under this section if:

(a)    a person (the supplier) supplies, in trade or commerce, goods to the consumer; and

(b)    a guarantee that applies to the supply under Subdivision A of Division 1 of Part 3-2 (other than sections 58 and 59(1)) is not complied with.

(2)    If the failure to comply with the guarantee can be remedied and is not a major failure:

(a)    the consumer may require the supplier to remedy the failure within a reasonable time; or

(b)    if such a requirement is made of the supplier but the supplier refuses or fails to comply with the requirement, or fails to comply with the requirement within a reasonable time–the consumer may:

(i)    otherwise have the failure remedied and, by action against the supplier, recover all reasonable costs incurred by the consumer in having the failure so remedied; or

(ii)    subject to section 262, notify the supplier that the consumer rejects the goods and of the ground or grounds for the rejection.

(3)    If the failure to comply with the guarantee cannot be remedied or is a major failure, the consumer may:

(a)    subject to section 262, notify the supplier that the consumer rejects the goods and of the ground or grounds for the rejection; or

(b)    by action against the supplier, recover compensation for any reduction in the value of the goods below the price paid or payable by the consumer for the goods.

(4)    The consumer may, by action against the supplier, recover damages for any loss or damage suffered by the consumer because of the failure to comply with the guarantee if it was reasonably foreseeable that the consumer would suffer such loss or damage as a result of such a failure.

(5)    Subsection (4) does not apply if the failure to comply with the guarantee occurred only because of a cause independent of human control that occurred after goods left the control of the supplier.

(6)    To avoid doubt, subsection (4) applies in addition to subsections (2) and (3).

(7)    The consumer may take action under this section whether or not the goods are in their original packaging.

49    If the consumer is entitled to reject the goods, s 263 applies and makes relevant a right to refund:

Consequences of rejecting goods

(1)    This section applies if, under section 259, a consumer notifies a supplier of goods that the consumer rejects the goods.

(2)    The consumer must return the goods to the supplier unless:

(a)    the goods have already been returned to, or retrieved by, the supplier; or

(b)    the goods cannot be returned, removed or transported without significant cost to the consumer because of:

(i)    the nature of the failure to comply with the guarantee to which the rejection relates; or

(ii)    the size or height, or method of attachment, of the goods.

(3)    If subsection (2)(b) applies, the supplier must, within a reasonable time, collect the goods at the supplier’s expense.

(4)    The supplier must, in accordance with an election made by the consumer:

(a)    refund:

(i)    any money paid by the consumer for the goods; and

(ii)    an amount that is equal to the value of any other consideration provided by the consumer for the goods; or

(b)    replace the rejected goods with goods of the same type, and of similar value, if such goods are reasonably available to the supplier.

(5)    The supplier cannot satisfy subsection (4)(a) by permitting the consumer to acquire goods from the supplier.

(6)    If the property in the rejected goods had passed to the consumer before the rejection was notified, the property in those goods revests in the supplier on the notification of the rejection.

50    The ACCC does not allege that there was a major failure in compliance. Instead, it says that the representations were made to consumers concerning their rights whether or not there was a major failure in compliance.

The integers of ss 18(1) and 29(1)(m)

51    There are two integers within these two sections which are, uncontroversially, satisfied. The first is that Valve is a corporation, and therefore a person to whom the Australian Consumer Law applies (see s 131 Competition and Consumer Act 2010 (Cth)). The second is that Valve was acting in trade or commerce.

52    However, there are four matters that are controversial:

(1)    Whether ss 18(1) and 29(1)(m) have any application where the alleged conduct or representation concerned matters relating to s 54 and any supply of goods occurred in the context of an agreement which had an objective proper law which was not the law of any part of Australia?

(2)    Whether Valve “supplied goods” such that s 54 could be engaged?

(3)    Whether Valve’s conduct was in Australia? (The ACCC assumed that it was necessary for it to prove that Valve’s conduct was in Australia for s 29(1)(m) as well as s 18(1)) or if Valve’s conduct was not in Australia, whether Valve was “carrying on business within Australia” under the extended application of the Australian Consumer Law?

(4)    Whether ss 18(1) and 29(1)(m) were contravened?

53    Each of these issues is addressed separately below.

(1) Issue 1: The proper law of Division 1, Part 3-2 (Chapter 3) of the Australian Consumer Law

The terms of s 67

54    The first significant issue raised by the parties was whether ss 18(1) and 29(1)(m) have any application in this case. As I have explained, the ACCC accepted that ss 18(1) and 29(1)(m) could only apply in this case if s 54 was applicable. Valve’s submission that s 54 did not apply was based upon its construction of s 67 of the Australian Consumer Law.

55    Sections 54 and 67 both appear in Division 1 (consumer guarantees) of Part 3-2 (consumer transactions) of the Australian Consumer Law. Section 67 provides:

Conflict of laws

If:

(a)    the proper law of a contract for the supply of goods or services to a consumer would be the law of any part of Australia but for a term of the contract that provides otherwise; or

(b)    a contract for the supply of goods or services to a consumer contains a term that purports to substitute, or has the effect of substituting, the following provisions for all or any of the provisions of this Division:

(i)    the provisions of the law of a country other than Australia;

(ii)    the provisions of the law of a State or a Territory;

the provisions of this Division apply in relation to the supply under the contract despite that term.

56    In its written submissions, Valve submitted that the proper construction of s 67 required that “the guarantee in s 54 has no application where … any ‘supply’ takes place pursuant to a contract the proper law of which is [not the law of any part of Australia]”.

The meaning of the “proper law of a contract”

57    The terms of s 67(a) are very similar to those of s 8(2) of the Insurance Contracts Act 1984 (Cth) which were considered by the High Court of Australia in Akai Pty Ltd v People’s Insurance Co Ltd [1996] HCA 39; (1996) 188 CLR 418. In Akai, a Singaporean insurer had refused a claim by an insured New South Wales company. The insured commenced proceedings in New South Wales and in England. In the New South Wales proceeding, the insured relied upon s 54 of the Insurance Contracts Act which restricted the circumstances in which the insurer could refuse payment of the claim. The insurer sought to have the New South Wales proceedings stayed pending the determination of the English action. The insurer relied upon cl 9 of the policy which contained a choice of English law and an English jurisdiction clause.

58    The High Court considered the effect of s 8(2) of the Insurance Contracts Act which provided that:

… where the proper law of a contract … would, but for an express provision to the contrary … be the law of a State or of a Territory in which this Act applies … then, notwithstanding that provision, the proper law of the contract is the law of that State or Territory.

59    The High Court also considered the effect of s 52 of the Insurance Contracts Act which provided that:

(1)    Where a provision of a contract of insurance (including a provision that is not set out in the contract but is incorporated in the contract by another provision of the contract) purports to exclude, restrict or modify, or would, but for this subsection, have the effect of excluding, restricting or modifying, to the prejudice of a person other than the insurer, the operation of this Act, the provision is void.

(2)    Subsection (1) does not apply to or in relation to a provision the inclusion of which in the contract is expressly authorized by this Act.

60    A majority of the High Court (Toohey, Gaudron, and Gummow JJ) held that the New South Wales proceedings should not be stayed. Their Honours held that effect should not be given to the choice of jurisdiction in cl 9 of the policy, which was the courts of England and Wales. This was for two reasons. The first reason was the “policy” of the Insurance Contracts Act, independently of any express or implied statutory prohibition (447). The second reason was that the text of s 52 rendered the jurisdiction clause void (447-448). It is necessary to return later to each of these reasons.

61    In the course of their reasons, the majority explained the way in which s 8(2) of the Insurance Contracts Act operated. Their Honours explained, at 440-442, that the process of identification of the proper law of the contract is twofold.

62    The first stage involves considering “the system of law by reference to which the contract was made”. That requires consideration of the express or the “inferred” choice of law in the contract. This involves one question: “whether, upon the proper construction of the contract … the court may conclude that the parties exercised liberty given by the common law to choose a governing law for their contract” (442).

63    The reference to an “inferred choice” as part of the process of construction was said by their Honours not to be a question of implying a term as to choice of law (442). That statement should not be understood as suggesting that implication is irrelevant to the overall question at the first stage. The question at the first stage is whether, as part of the process of construction, applying “the ordinary rules of the common law relating to the construction of contracts” (441), the words of the contract express a choice of law to a reasonable person in the position of the parties a choice of law. As French CJ, Bell and Keane JJ observed in Commonwealth Bank of Australia v Barker [2014] HCA 32; (2014) 253 CLR 169, 186-188 [22]-[25], implications can be part of the process of construction.

64    On the majority’s approach, if there is no answer to the first question, because no express or inferred choice can be identified, then the second stage involves considering the system of law with which the transaction has its closest and most real connection. As their Honours described the second stage, “the law itself will select a proper law” (442).

65    The test for “the system of law with which the transaction has its closest and most real connection” (438) is usually attributed to the speech of Lord Simonds in Bonython v Commonwealth [1951] AC 201, 219 although it was used earlier in the writings of Professors Westlake and Cheshire, and Dr Morris. Whilst the language of “closest and most real connection” trips off the tongue, the underlying concept is far from clear.

66    The second stage (“closest and most real connection”) is commonly contrasted with the first stage on the basis that the first concerns the “objective intention of the parties” but the second is just an “objective test”. That was how Valve approached the test in this case. In at least one sense, this is a false distinction. “Objective intention” is an oxymoron. Although it is commonly used in the law of contract, “intention” is a word which involves subjectivity of decision making. If the question is one of construction of a contract then, in truth, the question has nothing to do with the “intention” of the parties in the sense of their subjective decisions. The question of “objective intention” really involves the (objective) meaning of the contract, by the process of construction. The second stage of the test is also an objective test but, on the authority of Akai, it must be concerned with something other than solely considering the meaning of terms of the contract.

67    It was not always the case that there were two stages involved in the determination of the proper law of the contract. As Dr Mann observed, a debate raged for some time concerning which stage was the only test (Mann FA, “The Proper Law in the Conflict of Laws” (1987) 36 Int’l & Comp LQ 437, 444). Dr Mann said:

The problem was whether in the absence of an express or implied choice the presumed intention of the parties had to be ascertained by construing the contract, i.e. by objective means as opposed to evidence about the subjective intentions of the parties, or whether it was for the court to ascertain the country with which the contract was most closely connected. (Footnotes omitted)

Dr Mann continued, explaining that “the practice had followed the former course” (ie objective meaning of the contract) until the decision of Lord Denning in Boissevain v Weil [1949] 1 KB 482, 490-491, which was then followed by Lord Simonds in Bonython v Commonwealth [1951] AC 201, 219. Dr Mann considered that the rise of the closest connection test was, in part, due to the influence of Dr Morris who had asserted that the only single test that could be applied to determine the proper law of the contract was the question of the closest and most real connection: Morris JHC, “The Proper Law of a Contract: A Reply” (1950) 3 Int’l & Comp LQ 197.

68    The question of “closest and most real connection” is a question which is usually further deconstructed when considering the “conflict of laws”. Indeed, as Dr Mann said at 438, at a high level of generality the “whole of the conflict of laws is concerned with the question: which, in a given situation, is the legal system closely or most closely connected with the matter in issue?”

69    Without further deconstruction into the nature of the enquiry, a difficulty with the second stage of the test (the “closest and most real connection” with the transaction) is that different factors will often point in different directions. Some of those factors are said to be of little weight. Some are said to be of substantial weight. But without a governing principle it is difficult to determine why some matters are more important for a close connection than others. For instance, one factor relied upon by the ACCC was the presence of proxy servers in Australia which create a “mirror” of the data contained on servers in Washington State. But how much weight should this factor have in determining the closest and most real connection with the transaction? Without the subsequent conduct by Valve which gave the consumer a choice of proxy server for download, at the time of contracting it is very unlikely that any consumer would know, or could reasonably know, of the existence of Australian proxy servers. And if this factor were ultimately the decisive matter that made the difference, would the proper law of the series of transactions subsequently change if the proxy servers were relocated or abandoned?

70    Professor Briggs has argued that in the assessment of the different weight given to different connecting factors, the “common law developed an unarticulated reflection of how far, if at all, each allowed the court to read something of the parties’ minds as regards intended proper law”: Briggs A, The Conflict of Laws (3rd ed, Oxford University Press, 2013) 242. The reference to reading something of the parties minds has an echo of the words of Lord Wright in Mount Albert Borough Council v Australasian Temperance and General Mutual Life Assurance Society Ltd [1938] AC 224, 240:

the Court has to impute an intention, or to determine for the parties what is the proper law which, as just and reasonable persons, they ought or would have intended if they had thought about the question when they made the contract.

71    It may be that, eventually, the common law rules concerning the proper law of the contract will come full circle and the test for “closest and most real connection” will be seen as involving, at its core, questions of construction of the contract (ie the meaning which reasonable persons in the positions of the parties would give to the words of the contract). But the basis upon which s 67(a) of the Australian Consumer Law was enacted, and the decision of the majority of the High Court in Akai, requires the question of closest and most real connection to be considered as an objective question, separate from the question which is concerned with construction of the contract. It must be approached independently from the construction question, as an evaluative exercise which takes into account all of the relevant matters connected with the transaction with the exception of those matters prohibited by s 67(a).

The law which has the closest and most real connection to the SSA is Washington State

72    The various versions of the SSA contained jurisdiction and choice of law clauses which chose the jurisdiction and proper law as Washington State. For instance, cl 14 of the 2011/2012 SSA provided as follows:

14 APPLICABLE LAW/JURISDICTION

The terms of this section may not apply to European Union consumers.

You agree that this Agreement shall be deemed to have been made and executed in the State of Washington, and any dispute arising hereunder shall be resolved in accordance with the law of Washington. You agree that any claim asserted in any legal proceeding by you against Valve shall be commenced and maintained exclusively in any state or federal court located in King County, Washington, having subject matter jurisdiction with respect to the dispute between the parties and you hereby consent to the exclusive jurisdiction of such courts…”

73    Both the ACCC and Valve proceeded on the assumption that this Court should disregard each of (i) the choice of law, (ii) the choice of jurisdiction, and (iii) the deeming of place where the SSA was made. This assumption was consistent with the approach of the majority in Akai that the words “but for an express provision to the contrary” in the Insurance Contracts Act “embrace those provisions of the contract from which, or by recourse to which, it would be determined that the parties to the contract had selected or chosen a proper law which was not the law of a State or a Territory” (436). Otherwise, as the majority concluded, there would be “an extreme artificiality in first, as required by the statute, disregarding that express choice, and then proceeding by analysis of other provisions in the contract to infer the making by the parties of a choice of governing law” (440).

74    The assumption by the ACCC and Valve is also supported by the history of amendment of s 67. When the Australian Consumer Law was enacted, the predecessor provision to s 67, which was s 67 of the Trade Practices Act 1974 (Cth), referred to the Division applying to the contract notwithstanding “a term that it should be the law of some other country or a term to like effect”. That wording was amended to use similar language to that considered in Akai. The amended words had the effect that the Division would apply despite “a term of the contract that provides otherwise” than the law of any part of Australia: see Trade Practices Amendment (Australian Consumer Law) Act (No 2) 2010 (Cth).

75    The majority in Akai explained that in determining the law which has the closest and most real connection with the transaction, it is proper to have regard to matters including (i) the places of residence or business of the parties, (ii) the place of contracting, (iii) the place of performance, and (iv) the nature and subject matter of the contract (437). Each of these is considered in turn.

76    As for (i), the places of residence and business of the parties, the Australian consumers who gave evidence in this proceeding were located in New South Wales, Victoria, and Tasmania. The ACCC made no submission about which of these jurisdictions was said to be the proper law.

77    In contrast with the divergent places of residence of the consumers, although Valve conducts business in Australia, its residence and the locus of its business is in Washington State. That is where its registered office is located. It owns no subsidiary in Australia. The importance of Valve’s residence as the locus of connection with the contract is bolstered by the fact that any reasonable person in the position of a consumer would realise that Valve was entering into contracts on the same, or nearly the same, terms with consumers in countries other than Australia including the United States and the European Union to which reference is made in the SSA.

78    As to (ii), the place of formation of a contract, this must be determined by reference to the characterisation rules of the forum. If it were necessary to determine this point, I would conclude that the place at which the contract was formed was where the consumers’ electronic acceptances were received (Washington State) rather than the place from which they were sent (Victoria, Tasmania, and New South Wales). As a matter of basic principle any bilateral contract generally requires the receipt of a communication of acceptance in order to be effective: Tallerman & Co Pty Ltd v Nathan’s Merchandise (Vic) Pty Ltd [1957] HCA 10; (1957) 98 CLR 93, 111 (Dixon CJ and Fullagar J). The basis of this general principle is the usual expectation of reasonable persons in the position of contracting parties that they will be told whether an offer has been accepted. The various versions of the SSA contained cl 1 which provided that the SSA (offer) takes effect “as soon as you indicate your acceptance of these terms”.

79    The conclusion that the contract was formed where electronic communication is received is consistent with, and (importantly for the principle of coherence) provides coherence with, the provisions in Australian legislation concerning electronic transactions, based upon the United Nations Commission on International Trade Law, UNCITRAL Model Law on Electronic Commerce 1996 with additional article 5 bis as adopted in 1998 (adopted 12 June 1996, United Nations), which provides for the place of receipt of electronic communications which is generally where the addressee has its place of business: Electronic Transactions Act 1999 (Cth) s 14B; Electronic Transactions Act 2000 (NSW) s 13B; Electronic Transactions (Victoria) Act 2000 (Vic) s 13B; Electronic Transactions Act 2000 (SA) s 13B; Electronic Transactions Act 2000 (Tas) s 11B; Electronic Transactions Act (Queensland) 2001 (Qld) s 25(1)(b); Electronic Transactions Act 2001 (ACT) s 13B; Electronic Transactions Act 2001 (NT) s 13B; Electronic Transactions Act 2011 (WA) s 15.

80    However, this conclusion that the SSA became binding at the place of receipt of acceptance says nothing about questions concerning whether, and when, electronic (and usually near-instantaneous) communication is received and the timing of such receipt: see Christensen S, “Formation of Contracts by Email – Is it Just the Same as the Post?” (2001) 1(1) Queensland University of Technology Law and Justice Journal 22. See also see Olivaylle Pty Ltd v Flottweg GMBH & Co KGAA (No 4) [2009] FCA 522; (2009) 255 ALR 632, 642 [25] (Logan J).

81    Although I would, if necessary, conclude that Washington State is the place where the contract was formed, this factor has very little weight. In Amin Rasheed Shipping Corp v Kuwait Insurance Co [1984] AC 50, 62, Lord Diplock remarked that the place of contracting was of little weight in an age of modern telecommunications. In Nygh’s Conflict of Laws the authors remark that this proposition is even more pronounced four decades later: Davies M, Bell AS and Brereton P, Nygh’s Conflict of Laws in Australia (9th ed, LexisNexis Butterworths, 2014) 454 [19.33]. In particular, in Fleming v Marshall [2011] NSWCA 86; (2011) 279 ALR 737, 751 [64], Macfarlan JA said that in general in the case of a transactional contract “the place of contracting will only be of real significance where a transnational contract has been concluded at a face-to-face meeting at the place of residence or business of one of the parties.”

82    As to (iii), the place of performance of the contract, the data emanates from servers in Washington State, including the SSA (whether it comes through the Steam website or the Steam Client: ts 93) although there is also use of servers located in Australia and elsewhere. The authentication process occurs in Washington State. Subscriber complaints and enquiries are dealt with in Washington State. All client information is held on servers in Washington State. Payment is made in United States dollars. It is received on servers in Washington State. In contrast with these strong links with Washington State, the video games are purchased, downloaded and played all over the world. Even in this litigation alone, performance of the contract occurred in Tasmania, Victoria, and New South Wales.

83    As to (iv), the nature and subject matter of the contract, although the video game is played in various different jurisdictions in Australia and abroad, a significant aspect of the core subject matter is the ability for multi-player engagement which can take place anywhere in the world. The SSA is a standard form contract. The nature of that contract favours a single proper law (Washington State) rather than a proper law of many different jurisdictions throughout the world.

84    For these reasons, even but for the terms of the contract that provide otherwise, the proper law of the contract for the supply of goods or services by Valve to a consumer is the law of Washington State.

Section 67(b) prevents Valve relying upon Washington State law

85    The ACCC submitted that if the law with the closest and most real connection to the SSA was the law of Washington State then s 67(b) had the effect that Division 1 of the Australian Consumer Law would still apply. The submission by the ACCC (ts 72, 151) was as follows:

(1)    in the absence of s 67(b), the provisions of Division 1 would apply to the supply under the SSA (this was common ground: ts 181); and

(2)    the choice of law clause in the SSAs purports to substitute Washington State law for the provisions of Division 1 or, alternatively, has the effect of substituting Washington State law in light of Mr Dunkle’s evidence that Washington State law (i) does not prohibit a clause of an agreement making non-refundable the subscriber purchases of video game content, and (ii) leaves consumers free to enter contracts that disclaim all guarantees for online services or software.

86    The question raised by the ACCC is whether the SSA clause involving a choice of Washington State law “purports to substitute” or “has the effect of substituting” Washington State law for the provisions of Division 1 of Part 3-2 (Chapter 3) of the Australian Consumer Law. If s 67(b) is read literally then it may be satisfied. A provision of the SSA has substituted Washington State law for the law of Division 1 which would otherwise have applied.

87    Valve submitted that s 67(b) was concerned only with circumstances where the proper law of the contract is a law of some part of Australia in the sense of the law with the closest and most real connection. Senior counsel for Valve submitted that s 67(b) was “dealing with simply some terms of some system of law that is to be substituted for the provisions of this division … So the parties could [not provide that] ‘The proper law of this contract is otherwise Australia but, in respect of consumer protection [some other law]…’” (ts 164).

88    The difficulty with this submission by Valve is that it requires s 67(b) to be read as though it were conditioned upon the proper law of the contract being Australian law. Section 67(b) would need to be read, on Valve’s submission, as if the following words in italics were included when the section refers to the provisions being substituted: “(i) the provisions of the law of a country other than Australia where the proper law would include Division 1; (ii) the provisions of the law of a State or a Territory where the proper law would include Division 1”. There is no warrant for such a large implication for three reasons. The first reason is that (as I explain below) the criterion of operation of Division 1 is no longer the proper law of the contract. The second reason is that the purpose of s 67(b) is to form part of a scheme together with s 67(a); it would defeat that scheme to read down s 67(b) in the manner that Valve submitted. The third reason is that such an implication would contrast sharply with s 67(a) where that condition was expressly included.

89    I conclude, with one assumption, that the inclusion of a Washington State choice of law clause purported to substitute Washington State law for all or any of the provisions of Division 1. The effect of s 67(b) is that, as it says, “the provisions of this Division [1] apply in relation to the supply under the contract despite that term”: see also Laminex (Aust) Ltd v Coe Manufacturing Co [1999] NSWCA 370 [32] (Meagher JA; Cole AJA agreeing). The assumption underlying this conclusion, however, is that the Division is not otherwise limited to apply only to instances where the law with the closest and most real connection to the contract is the law of a part of Australia. I turn then to that issue.

Reasons why s 67 does not limit Division 1 of the Australian Consumer Law

90    Contrary to Valve’s submission, s 67 does not limit the operation of Division 1 of the Australian Consumer Law by confining its operation only to cases where the closest and most real connection to the contract is the law of a part of Australia. There are four reasons why Valve’s submission must be rejected. It is inconsistent with the text of s 67. It is inconsistent with the context of s 67. It is inconsistent with the history and purpose of s 67. And it is inconsistent with the policy of s 67.

(i) The text of s 67 is contrary to Valve’s submission

91    The first reason why Valve’s submission should not be accepted is that it is inconsistent with the text of s 67. Valve essentially submitted that the concluding words of s 67 should be read as though they contained the words in italics: “the provisions of this Division apply in relation to the supply under the contract despite that term but they do not apply if the law with the closest and most real connection to the contract is other than the law of a part of Australia.” Valve submitted that this conclusion arose by construction rather than implication. But this is a false dichotomy. Implications can be part of the process of construction: Commonwealth Bank of Australia v Barker [2014] HCA 32; (2014) 253 CLR 169, 186-188 [22]-[25] (French CJ, Bell and Keane JJ).

92    The submission by Valve must be concerned with an implication into the Australian Consumer Law rather than an express term. Division 1 of Part 3-2 (Chapter 3) of the Australian Consumer Law contrasts with the Insurance Contracts Act where the joint judgment of the majority in Akai described the latter Act as being “so framed that its application to any other particular contract of insurance turns upon the treatment by the Act of the governing law of the contract in question” (432). The Insurance Contracts Act, s 8(1), provided that

the application of this Act extends to contracts of insurance and proposed contracts of insurance the proper law of which is or would be the law of a State or the law of a Territory in which this Act applies or to which this Act extends.

93    There is no express provision in Division 1 of Part 3-2 (Chapter 3) of the Australian Consumer Law which is equivalent to s 8(1). Nor is there a provision such as that contained in s 17(3) of the Contracts Review Act 1980 (NSW) which is otherwise in near-identical form to the original version of s 67 of the Australian Consumer Law: “This Act applies to and in relation to a contract only if the law of the State is the proper law of the contract”. The Australian Consumer Law, Division 1 of Part 3-2 (Chapter 3), like the legislation considered in Freehold Land Investments Ltd v Queensland Estates Pty Ltd [1970] HCA 31; (1970) 123 CLR 418, is an example where, as Walsh J (with whom Barwick CJ agreed) said (at 440) “the Act does not contain any express statement by which its general words are confined by some territorial limitation”.

94    In Taylor v Owners - Strata Plan No 11564 [2014] HCA 9; (2014) 253 CLR 531, French CJ, Crennan and Bell JJ said that “it should not be accepted that purposive construction may never allow of reading a provision as if it contained additional words (or omitted words) with the effect of expanding its field of operation” (548 [37]). But their Honours continued (548 [38], footnotes omitted)

The question whether the court is justified in reading a statutory provision as if it contained additional words or omitted words involves a judgment of matters of degree. That judgment is readily answered in favour of addition or omission in the case of simple, grammatical, drafting errors which if uncorrected would defeat the object of the provision. It is answered against a construction that fills “gaps disclosed in legislation” or makes an insertion which is “too big, or too much at variance with the language in fact used by the legislature”.

95    One decision to which their Honours referred was Marshall v Watson [1972] HCA 27; (1972) 124 CLR 640. In that case, s 42 of the Mental Health Act 1959 (Vic) contained express powers for the admission of a person to a psychiatric hospital including on the recommendation of a medical practitioner. But this did not impliedly permit the police officer to move the plaintiff under compulsion to a psychiatric hospital. Justice Stephen (with whom Menzies J agreed) said (at 649):

Granted that there may seem to be lacking in the legislation powers which it might be thought the Legislature would have done well to include, it is no power of the judicial function to fill gaps disclosed in legislation…

96    The joint judgment in Taylor referred to the three matters identified by Lord Diplock in Wentworth Securities Ltd v Jones [1980] AC 74, 105-106 (as reformulated in Inco Europe Ltd v First Choice Distribution [2000] 1 WLR 586, 592 (Lord Nicholls). Those matters may be more in the nature of guidelines, which might not be sufficient even if they are established ([39]-[40]). Specifically:

(1)    the court must be able to identify the precise purpose of the provision(s) in question;

(2)    the court must be satisfied that the drafter and Parliament inadvertently overlooked an eventuality that must be dealt with if the provision is to achieve its purpose; and

(3)    the court must be abundantly sure of the substance of the words that Parliament would have used had the deficiency been detected before enactment.

97    The implication sought by Valve is very significant. None of the guidelines from Wentworth Securities is met. And even if they were, the implication would be little more than an attempt to fill a perceived gap in the legislation.

98    As to the first of the guidelines, it is hard to understand the purpose for implying the words sought to be implied by Valve. Why would the legislation go to such lengths to extend the operation of provisions including Division 1 by techniques such as those in s 5 for conduct outside Australia, only to cut back the reach of Division 1 for all contracts with the closest and most real connection to an overseas jurisdiction? And why would this restriction apply only to contracts and not to all other arrangements and understandings covered by Division 1?

99    As for the second guideline referred to in Wentworth Securities, the implication could not be inadvertent in circumstances in which the draftsperson chose to refer to the proper law of the contract in s 67(a) but not in s 67(b) or in the closing words of s 67.

100    Further, there is no separate provision that provides that Division 1 is concerned only with contracts governed by the proper law of a State or Territory of Australia. In circumstances in which s 67 was re-enacted with changes in 2011, it is material that such a separate provision existed in s 8 of the Insurance Contracts Act which was considered in the leading decision on a comparable provision, namely the Akai decision.

(ii) The context of s 67 is contrary to Valve’s submission

101    There are four matters of context which militate against Valve’s submission that Division 1 of Part 3-2 (Chapter 3) does not apply if the law with the closest and most real connection to the contract is other than the law of a part of Australia.

102    First, not only does s 67 contain no such express provision but no other provision of Division 1 supports this submission. As senior counsel for Valve conceded, in the absence of s 67, Division 1 would apply to any contract irrespective of its proper law (ts 181). That concession should be accepted. The same point has been made about the application of s 52, in a different Division of the former Trade Practices Act which contained no provision concerning conflict of laws. In Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways (1996) 39 NSWLR 160, 164, Gleeson CJ (Meagher and Sheller JJA agreeing) said:

The fact that the proper law of the contract is the law of a foreign country does not prevent the conduct of one party to the contract from falling within the purview of section 52, if it would otherwise do so. The conduct of a party to a contract can amount to a contravention of section 52 even though the proper law of the contract is foreign law, provided it is conduct in trade or commerce as defined. There is nothing in the Trade Practices Act 1974 (Cth) which, in the case of trade or commerce carried on under a contract, limits the application of the Act to cases where the relevant contract has local law as its proper law.

103    Secondly, an important matter of context is that Division 1 is not limited to contracts. The Division extends to supplies generally, whether by contract, or arrangement, or understanding or even by gift. For instance, s 51 provides that if a person supplies goods to a consumer other than by limited title, “there is a guarantee that the supplier will have a right to dispose of the property in the goods when that property is to pass to the consumer”. This provision would extend to circumstances where goods are supplied to a consumer as a gift for promotional purposes (s 5(1)(a)) or where there is a failure of consideration arising from a supply in anticipation of a contract or where a contract is void. This context makes it extremely difficult to see why s 67 would exclude the s 51 guarantee in a case where there is a contract with the closest and most real connection to Washington State, but not in any other instance where it is also the case that “the lex causae will generally be the law of the place with which the failure of consideration has its closest and most real connection”: Panagopoulos G, Restitution in Private International Law (Hart Publishing, Oxford, 2000) 171.

104    Thirdly, another matter of context is the breadth of operation provided in the Australian Consumer Law for its provisions, including Division 1 of Part 3-2 (Chapter 3). Section 5 of the Competition and Consumer Act extends the operation of the Australian Consumer Law (other than Part 5-3 “Country of origin representations”) to the engaging in conduct outside Australia by (i) bodies incorporated within Australia, (ii) bodies carrying on business within Australia, (iii) Australian citizens, and (iv) persons ordinarily resident within Australia. As I explain later in these reasons, these are provisions of considerable breadth. This extended operation militates significantly against a construction of Division 1 that would disapply the operation that the Division would otherwise have in all of these categories wherever there was a contract with the closest and most real connection to an overseas jurisdiction.

105    The extended operation of the Australian Consumer Law by s 5 of the Competition and Consumer Act is a context which also militates against Valve’s submission for another reason. One of the few exceptions to the breadth of s 5(1), and a rare instance in which the breadth of the Competition and Consumer Act is constrained by reference to the state of a foreign law, is where a person seeks damages under s 236 of the Australian Consumer Law. In such a case, the consent of the Minister is needed (s 5(3)) but consent will be given unless it is not in the national interest or “the law of the country in which the conduct concerned was engaged in required or specifically authorised the engaging in of the conduct” (s 5(5)). That exception by reference to a foreign law is narrowly confined (only to s 236). Again, this militates against an implication of a broad, unarticulated, foreign law exemption in s 67.

106    Fourthly, the context of s 67 also includes the provisions discussed below: ss 64 and 276. As counsel for the ACCC rightly submitted, those provisions must be read together. When they are read together they establish a legislative scheme to restrict any attempt to reduce the scope of operation of the Division. It would defeat that scheme if s 67 were read as imposing a restriction on the operation of the Division.

(iii) The history and purpose of s 67 is contrary to Valve’s submission

107    Prior to 1 January 2011 (when the Australian Consumer Law came into operation) the predecessor legislation to the Australian Consumer Law (the Trade Practices Act 1974 (Cth)) provided for similar consumer guarantees to those contained within Division 1. However, under the Trade Practices Act those consumer guarantees were imposed as statutory implications into a contract.

108    As statutory implications into a contract, a question that might arise would be whether those statutory implications could be excluded by the contract. The Trade Practices Act created a regime in similar terms to the regime of the Insurance Contracts Act considered in Akai. Like the Insurance Contracts Act, that regime was twofold. First, it prevented a term of the contract from excluding or modifying the statutory implied terms. Secondly, it provided in s 67 that the Division would apply notwithstanding a term of the contract that applied a foreign law or that purported to substitute, or had the effect of substituting, other provisions for the operation of the Division.

109    The Australian Consumer Law departed from the scheme of implication of terms into contracts. As the Explanatory Memorandum explained, one of the “features of the current law which contribute to its uncertainty” was that “the existing statutory implied terms regime is based on the law of contract”: Explanatory Memorandum, Trade Practices Amendment (Australian Consumer Law) Bill (No 2) 2010 (Cth) 600 [25.28].

110    The Explanatory Memorandum explained that (at 602 [25.33]):

It may, therefore, come as a surprise to many consumers to learn that, in the event of a dispute with a retailer, they are currently required to enforce their contract rather than seek redress under the law. Many consumers lack sufficiently comprehensive knowledge of the law of contract to know how to enforce their rights, or lack the resources to obtain expert advice to do so.

111    The Explanatory Memorandum explained that the new regime was intended to be simpler. It compared the previous scheme of implications with the new scheme which was described as one in which “If a person supplies goods to a consumer, the following guarantees apply”. There was no suggestion that the guarantees would only apply if a person supplied goods to a consumer where the law which is the real and closest connection to the supply is a part of Australia. Given the emphasis on simplicity and clarity, this is unsurprising.

112    With this goal, the Australian Consumer Law maintained the two-part scheme which had existed in the Trade Practices Act. The two sections are ss 64 and 67. As the Explanatory Memorandum that introduced the Australian Consumer Law described these two sections (184 [7.17]):

The guarantees cannot be excluded by contract […section 64]. This ensures that consumers cannot be pressured or tricked into surrendering their rights by agreeing that the guarantees do not apply. It is also not possible to avoid providing consumer guarantees by agreeing that the law of another country applies […section 67].

113    Section 64 (which had previously been s 68 of the Trade Practices Act) provides:

Guarantees not to be excluded etc. by contract

(1)    A term of a contract (including a term that is not set out in the contract but is incorporated in the contract by another term of the contract) is void to the extent that the term purports to exclude, restrict or modify, or has the effect of excluding, restricting or modifying:

(a)    the application of all or any of the provisions of this Division; or

(b)    the exercise of a right conferred by such a provision; or

(c)    any liability of a person for a failure to comply with a guarantee that applies under this Division to a supply of goods or services.

(2)    A term of a contract is not taken, for the purposes of this section, to exclude, restrict or modify the application of a provision of this Division unless the term does so expressly or is inconsistent with the provision.

114    The Australian Consumer Law also introduced a new provision, s 276, in the Part concerned with remedies related to guarantees. Section 276 further complements s 64 by providing as follows, subject to various exceptions which are not relevant in this case:

This Part not to be excluded etc. by contract

(1)    A term of a contract (including a term that is not set out in the contract but is incorporated in the contract by another term of the contract) is void to the extent that the term purports to exclude, restrict or modify, or has the effect of excluding, restricting or modifying:

(a)    the application of all or any of the provisions of this Part; or

(b)    the exercise of a right a conferred by such a provision; or

(c)    any liability of a person in relation to a failure to comply with a guarantee that applies under Division 1 of Part 3-2 to a supply of goods or services.

(2)    A term of a contract is not taken, for the purposes of this section, to exclude, restrict or modify the application of a provision of this Part unless the term does so expressly or is inconsistent with the provision.

(3)    This section does not apply to a term of a contract that is a term referred to in section 276A(4).

115    In summary, the history and purpose of s 67 shows that it was included in the Australian Consumer Law as part of an amendment process designed, in part, to make consumers’ rights simpler and more transparent. The consumer guarantees no longer had to be implied into a contract. They applied generally to a supply of goods to a consumer. And s 67 was explained as part of a scheme, together with s 64, to ensure that it was not possible to exclude the consumer guarantees by contract. That scheme was further strengthened in the Australian Consumer Law by the addition of s 276 which makes a term of a contract void to the extent that it attempts to modify or exclude a remedy for breach of a consumer guarantee.

(iv) The policy of the Australian Consumer Law is contrary to Valve’s submission

116    As I have explained, in Akai the majority of the High Court gave “the policy of the Insurance Contracts Act” as one reason for the refusal to give effect to a jurisdiction clause. The reference by the High Court to the “policy” of the legislation as a matter to be taken into account independently of the express or implied terms of the legislation was not, and is not, new. It was relied upon in various judgments in Nelson v Nelson [1995] HCA 25; (1995) 184 CLR 538, 552 (Deane and Gummow JJ) 611 (McHugh J) (referred to by the majority in Akai at 447). More recently, it was relied upon in Equuscorp Pty Ltd v Haxton [2012] HCA 7; (2012) 246 CLR 498, 514 [25] (French CJ, Crennan and Kiefel JJ).

117    In Akai (at 433), the majority explained the policy of the Insurance Contracts Act in the course of describing the relationship between s 8(2) and s 52 of the Insurance Contracts Act (footnotes omitted):

Taken together, ss 52 and 8 manifest a legislative intent not only that there should be no power to contract out of the provisions of the Act, but also that the regime established by the Act should be respected as regards contracts the proper law of which is, or but for selection of another law would be, that of a State or Territory. This defeats evasion of the legislative regime by the choice of some other body of law as the governing law of the contract. “In the language of conflict-of-laws specialists, the policy of [this statute] has been made part of [Australian] ordre public interne and ordre public international”.

118    At 434, the majority explained that the Insurance Contracts Act was designed to operate upon contracts of insurance which had “the law of a State or a Territory as the proper law”. The point being made by the majority in the quotation in the paragraph above was that the legislative regime, which operated on contracts with a proper law of some part of Australian law, was designed to be complete. The legislation operated to ensure that there could be no departure from it. In other words, without s 8(2), the criterion of operation of the Insurance Contracts Act (“the proper law of the contracts”) “would give scope to evasion” (443).

119    Like the “legislative intent” of the Insurance Contracts Act underlying ss 52 and 8 to which the High Court referred in Akai, the legislative intent underlying ss 64, 67, and 276 was to comprise a “legislative regime” to ensure that the operation of the provisions in Division 1, Part 3-2 (Chapter 3) are within the reach of the Australian Consumer Law. It was a scheme introduced for reasons including simplicity and clarity. Section 67 is not a redundant part of this regime. And I do not accept Valve’s submission that s 67 has no effect unless it is construed as limiting the operation of Division 1. Rather, the section does exactly what it says. It ensures that there can be no possibility of varying the operation of the Division by contractual terms. If there is such a term, s 67 requires that the provisions in the Division “apply in relation to the supply under the contract despite that term”.

120    In Kay’s Leasing Corporation Pty Ltd v Fletcher [1964] HCA 79; (1964) 116 CLR 124, 143, Kitto J said that:

Where a provision renders an agreement void for non-compliance by the parties or one of them with statutory requirements, especially where the requirements can be seen to embody a specific policy directed against practices which the legislature has deemed oppressive or unjust, a presumption that the agreements in contemplation are only those of which the law of the country is the proper law according to the rules of private international law has no apparent appropriateness to recommend it, and indeed, for a reason of special relevance here, it would produce a result which the legislature is not in the least likely to have intended. It would mean that provisions enacted as salutory reforms might be set at nought by the simple expedient adopted in the present case of inserting in an agreement a stipulation that validity should be a matter for the law of some other country.

121    Although these remarks were made in the context of considering avoidance of a statutory policy by express agreement, if Valve’s submission were accepted then the policy of Division 1 of the Australian Consumer Law would also be defeated. It might enable suppliers to avoid the effect of Division 1 by using one of the very provisions which was included to prevent them avoiding the operation of the Australian Consumer Law.

122    For instance, if Valve’s construction were correct there is a real prospect that companies could, by careful drafting of their contracts and arrangement of their business affairs, ensure that the Australian Consumer Law guarantees in Division 1 did not apply. As Mr J L R Davis said in 1980 in relation to the Contracts Review Act 1980 (NSW), a New South Wales corporation might be able to cause the proper law of a contract to be that of a different jurisdiction by setting up a subsidiary to enter contracts with consumers. His example concerned a different Australian State or Territory. But the same point could be made about contriving to ensure that the closest and most real connection to a transaction is an overseas jurisdiction. As Mr Davis explained “it is a simple matter of drafting to ensure that it is the customer … who makes the offer, and the acceptance is made by the subsidiary company at its place of business” (572). He also suggested that it would be a relatively simple drafting matter to require that performance of obligations, delivery of goods such as to an agent (and, I would add, passage of risk) and payment for goods would take place at the place of business of the subsidiary: see Davis JLR, “The Contracts Review Act 1980 (NSW) and the Conflict of Laws” (1980) 54 Australian Law Journal 572-573.

123    Valve’s submission would also introduce considerable complexity to a provision which was included in a Division of the Australian Consumer Law aimed at simplicity.

124    Finally, if Valve’s submission were correct it could also have other surprising results contrary to the policy of the Australian Consumer Law. If Valve contracted with Australian consumers, but (unknown to them) operated through an Australian subsidiary supplier, then, on Valve’s approach, the consumer guarantees would be impliedly excluded by Division 1 because of the connection between the contract and Washington State. In other words, by implication but not by express terms, Division 1 would not apply even where an Australian consumer received a supply of Australian goods from an Australian subsidiary in Australia.

Conclusion on the first issue

125    In summary, Valve’s submissions on this first issue must be rejected for these textual, contextual, purposive, and policy reasons. As Buchanan JA said in The Society of Lloyd’s v White [2004] VSCA 101 [19], in a dispute about jurisdiction but in remarks which are equally applicable in this case:

When it entered a foreign jurisdiction Lloyd’s was required to deal with the legal system it found. In my view, names in markets without effective consumer protection laws have no legitimate complaint about the operation of laws in other jurisdictions simply because they may produce different results. It is one thing to require claims to be determined by the courts of one country; it is another to require all claims to be determined by the same laws whether or not they are the appropriate laws to govern the transaction giving rise to a claim.

(2) Issue 2: Whether there was a “supply of goods”

126    The second issue is whether there was a “supply of goods” by Valve. Valve accepted that if “goods” were provided by it to consumers then the goods had been “supplied” (ts 218). The question of whether there was a “supply of goods” can, and (in light of the statutory definitions) should, be considered as a single question.

The proper approach to the definitions of goods and services

127    Section 2(1) of the Australian Consumer Law defines “goods” with an inclusive definition in the following way:

goods includes:

(a)    ships, aircraft and other vehicles; and

(b)    animals, including fish; and

(c)    minerals, trees and crops, whether on, under or attached to land or not; and

(d)    gas and electricity; and

(e)    computer software; and

(f)    second-hand goods; and

(g)    any component part of, or accessory to, goods.

128    The definition of “goods” is inclusive. It supplements the ordinary meaning of “goods”: ASX Operations Pty Ltd v Pont Data Australia Pty Ltd (No 1) (1990) 27 FCR 460, 468 (the Court). The definition emphasises an important aspect of a “good”. That aspect is sometimes described in theoretical studies as “thinghood”: eg Penner J, The Idea of Property in Law (Clarendon Press, Oxford, 1997). The legal meaning of “goods” can be analogised to the strict definition of “property” which is “a description of a legal relationship with a thing”: Yanner v Eaton [1999] HCA 53; (1999) 201 CLR 351, 365-366 [17] (Gleeson CJ, Gaudron, Kirby, and Hayne JJ describing the word “property”). This explains why a chose in action, such as a debt, is not a “good”. A chose in action is a right against a person. It is not a right in relation to a thing. The notion of rights to the various “things” in the inclusive definition complements the definition of “supply” in s 2(1) of the Australian Consumer Law. That section incorporates the concept of legal rights in relation to things by providing that when “supply” is used as a verb a “supply of goods” includes “supply (including re-supply) by way of sale, exchange, lease, hire or hire purchase”.

129    Services is also defined in the same section in an inclusive way as follows:

services includes:

(a)    any rights (including rights in relation to, and interests in, real or personal property), benefits, privileges or facilities that are, or are to be, provided, granted or conferred in trade or commerce; and

(b)    without limiting paragraph (a), the rights, benefits, privileges or facilities that are, or are to be, provided, granted or conferred under:

(i)    a contract for or in relation to the performance of work (including work of a professional nature), whether with or without the supply of goods; or

(ii)    a contract for or in relation to the provision of, or the use or enjoyment of facilities for, amusement, entertainment, recreation or instruction; or

(iii)    a contract for or in relation to the conferring of rights, benefits or privileges for which remuneration is payable in the form of a royalty, tribute, levy or similar exaction; or

(iv)    a contract of insurance; or

(v)    a contract between a banker and a customer of the banker entered into in the course of the carrying on by the banker of the business of banking; or

(vi)    any contract for or in relation to the lending of money;

but does not include rights or benefits being the supply of goods or the performance of work under a contract of service.

130    The definition of “services” begins with a very broad inclusive definition as “any rights, benefits, privileges or facilities that are, or are to be, provided, granted or conferred in trade or commerce”. That definition, if read literally with the definition of “goods” would create an odd situation in which the supply of some thing (say, a car) by way of sale would involve a supply of goods but the provision of the rights to the car would be a service. That oddity is avoided by the exclusionary words at the conclusion of the definition of service: a service “does not include rights or benefits being the supply of goods”. Nevertheless, it is possible for a transaction to involve both a supply of goods and the provision of services. This is clear from the reference to services including “a contract for or in relation to the performance of work” where the contract can include “the supply of goods”. Other provisions, such as s 3 (and see also s 11(c)) of the Australian Consumer Law also involve the notion of a “mixed supply” where “goods or services are purchased or acquired together with other property or services, or together with both other property and other services”.

131    Although it is possible for a contract for the provision of services also to include the “supply of goods”, the effect of the exclusionary words at the end of the definition of services requires that the transaction first be characterised to determine whether it involves a “supply of goods”. This is why s 11(c) provides that a reference to a supply of goods includes goods supplied with services but s 11(d) does not extend a reference to the supply of services to include a supply of goods. This is also why the Full Court of the Federal Court said, of the definitions, that an agreement could be one for services “unless the subscribers are to be characterised as the purchasers of ‘goods’”: ASX Operations Pty Ltd v Pont Data Australia Pty Ltd (No 1) (1990) 27 FCR 460, 467.

132    If, properly characterised, the whole of the transaction involves the supply of goods then the exclusionary words in the definition of ‘services’ will mean that none of the supply will involve a service. This point was made by Wilson J in Castlemaine Tooheys Ltd v Williams & Hodgson Transport Pty Ltd [1986] HCA 72; (1986) 162 CLR 395, 402:

The Act clearly contemplates that services may accompany the supply of goods in such a way as to constitute a single transaction properly described as a supply of goods. It follows that an act or series of acts, once characterized for the purposes of the Act as a supply of goods, cannot also be a supply of services: see Taperell, Vermeesch & Harland, Trade Practices and Consumer Protection, 3rd ed. (1983), p. 163. Thus a contract for the supply and fitting of a windscreen to a motor vehicle has been held to fall within a market in which persons supply goods rather than services: Cool & Sons Pty. Ltd. v. O’Brien Glass Industries Ltd. [(1981) 35 ALR 445, at p 460] (upheld on appeal [[1983] FCA 191; (1983) 48 ALR 625, at pp 635, 646)]. It may not always be easy to make the characterization, the task being to identify, from all the circumstances of the case, the precise legal obligation undertaken by the supplier of the goods.

133    Similarly, if a contract, properly construed, involves no supply of goods then the breadth of the definition of services might make the conclusion simple that the contract involved the provision of services. For instance, in E v Australian Red Cross Society (1991) 31 FCR 299, the Full Federal Court considered whether there had been a contract for the supply of blood plasma in the context of a claim alleging breach of terms which had been implied into the contract as a result of the Trade Practices Act. The appellant in that case had a contract with a hospital for the provision of nursing services and possibly also for medical attention (305 (Lockhart J)). But Lockhart J (with whom Sheppard and Pincus JJ agreed on this point) held that there was no contract for the supply of blood plasma which was intended to be supplied, if necessary, free of charge. His Honour held that since there was no contract for the supply of blood plasma, there was no contact for the supply of goods. He concluded at 306 that:

To the extent that goods were provided to him such as food, sleeping tablets, antibiotics, dressings and things of this nature, they were provided as an incident to the contract for the provision of services. There was no contract for the supply of goods. The contract between the [hospital] and the appellant was one for services and is not divisible into a contract for services and for the supply of goods.

134    The remarks about whether food, sleeping tablets, or antibiotics were a “supply of goods” were not necessary for the decision. The decision did not concern any alleged defects in food, sleeping tablets, or antibiotics. No complaint had been made about any of these supplies. Further, it might be doubted whether this reasoning would apply to the new Australian Consumer Law regime which does not require a contract to be divided into services and goods but requires an initial enquiry into whether the respondent has obtained “rights or benefits being the supply of goods”. It might now be questioned whether the conclusion could be reached that there was no supply of goods if, in the course of treatment, the appellant had been given defective antibiotics. However, even if it were the case that the mere incidental provision of goods is not a supply of goods, as I explain below, the goods supplied in this case were a core part of the supply, not an incidental part.

The application of the definitions

135    The starting point, therefore, is to determine whether part, or all, of a transaction involves a supply of goods. As a matter of law I reject Valve’s submission that the “substance” of its transaction is one for the supply of services and therefore it does not supply goods. Not only does this introduce a gloss (“substance of the transaction”) upon the words of the statute but it also reverses the proper enquiry: the first question is whether there is a supply of goods not whether there is a supply of services. And in any event, for the reasons below, I also reject Valve’s submission as a matter of fact.

136    The ACCC makes three alternative submissions:

(1)    the supply is a good; or

(2)    the principal element of the supply is a good so that the substance of what Valve supplies should be characterised as a good; or

(3)    Valve supplies a bundled service and good and the consumer guarantee of acceptable quality attaches to the good component which is the computer software for the game.

137    Valve supplied consumers with a good. The definition of “goods” was extended when the Australian Consumer Law was enacted on 1 January 2011 to include “computer software”. This extension avoided debate about whether executable bits of digital data might fit with the idea of thinghood which would otherwise be an essential requirement for a “good”. Prior to this extension, cases had recognised that computer software that was supplied on a physical medium such as a CD-Rom was a good but, perhaps controversially, that digitally downloaded computer software was not: compare Amlink Technologies Pty Ltd v Australian Trade Commission [2005] AATA 359; (2005) 86 ALD 370 with Gammasonics Institute for Medical Research Pty Ltd v Comrad Medical Systems Pty Ltd [2010] NSWSC 267.

138    Mr Dunkle’s evidence, which I accept, was that computer software is instructions or programs that make hardware work. The video games provided by Steam required computer software to make them work. The material downloaded by consumers included non-executable data such as music and html images. Mr Dunkle’s uncontested evidence on this point was that this non-executable data was not computer software. But he accepted that the computer software made that non-executable data work.

139    In other words, one of the most fundamental things that Valve provided to its customers, more than 4,000 games, contained an essential component of “computer software”. The Steam Client used to access those games involves software. As Mr Dunkle said, the games consist of software and a number of other assets (eg music, images). Mr Dunkle also explained (ts 108) that the content in Steam’s vital “content servers” is the software for the game.

140    The importance of the games and the computer software as part of Valve’s supply to consumers is also vividly apparent from the SSA and its Refund Policies. Clause 1 of the 2013 SSA defines software as “Valve or third-party video games”. In a frequently asked questions section of Valve’s website, Valve describes the transaction as “Buying Games through Steam”. One topic included is “How do I purchase games through Steam?” Valve’s material is also replete with references to “games” and “software”. Valve refers to “Buying Games through Steam” (Court Book p 345), “purchase [of] a game” (Court Book p 347), “Steam is a broadband platform for direct software delivery” (Court Book p 598), “Steam… [a]llows you to purchase and immediately download games via the internet” (Court Book p 598). Steam provides a “software product” (Court Book p 164), “[a]s with most software products…” (Court Book p 199).

141    Valve submitted that there was no supply of goods to any consumer because consumers require a non-assignable licence to access and use the video games and they must log on to Steam to verify their account and subscriptions to the game. Valve also submitted that the provision of any licence for the use of computer software is not the provision of computer software.

142    This submission omits relevant facts and, in any event, cannot be accepted. The facts omitted are that a consumer can play Steam video games without a connection to the internet, and without verification of his or her account or subscriptions. As I have explained, a consumer can choose “offline” mode in the Steam Client and can play any games in his or her library without any communication with Steam’s servers. Communication would be needed if the games were to be updated or if the consumer wished to play against another player on the internet. But the significance of the “offline” mode is that it shows that the consumer has been provided with software which can be used without any further communication with Valve’s servers. A particular example is the game “Legends of Dawn” which was purchased by Mr Miles, a witness who gave affidavit evidence for the ACCC, to play as a single player game, locally on his computers, without a requirement for access to a server.

143    Valve’s submission essentially relies upon a distinction between a licence to use and a property right. Valve submitted that the Licence Agreement (which, by cll 1 and 3, confers only a non-exclusive licence to install copies of the program for personal use until termination) was not a property right. Similarly, Valve pointed to each version of the SSA (cl 2) which confers “a limited, terminable, non-exclusive license and right to use the Software…” . Each version of the SSA, in the same clause, also provides that the software is licensed and not sold. Valve asserted that a mere licence could not be a “supply of goods”.

144    It was not in dispute that the Licence Agreement when a consumer downloaded Steam Client and the SSA conferred a contractual licence upon consumers. A contractual licence was described by Dixon J as operating “as a bare permission to do what would otherwise by an invasion of the licensor’s rights. If the permission is terminated, further continuance of the acts it authorized becomes wrongful”: Cowell v Rosehill Racecourse Co Ltd [1937] HCA 17; (1937) 56 CLR 605, 630-631. In Hohfeldian terms, a contractual licence is not a mere privilege. It confers claim rights against the licensor not to act contrary to the terms of the licence. But the licence itself does not confer any property right. As Vaughan CJ said in Thomas v Sorrell (1673) Vaugh 330, 351; (1673) 124 ER 1098, 1109, “[a] dispensation or licence properly passeth no interest, nor alters or transfers property in any thing, but only makes an action lawful, which without it had been unlawful”.

145    I reject Valve’s submission that goods supplied by licence are not a “supply of goods” for two reasons corresponding to inconsistency with the text of the Australian Consumer Law and inconsistency with its purpose.

146    First, this submission is inconsistent with the definition of “supply”. The inclusive definition of supply is contained in s 2 of the Australian Consumer Law. That definition provides that when “supply” is used as a verb it includes:

(a)    in relation to goods–supply (including re-supply) by way of sale, exchange, lease, hire or hire-purchase

147    Section 11(b) provides that “a reference to the supply or acquisition of goods or services includes a reference to agreeing to supply or acquire goods or services” (emphasis added).

148    A contractual licence to use goods is, essentially, a hire without a bailment. In TRM Copy Centres (UK) Ltd v Lanwall Services Ltd [2009] UKHL 35; [2009] WLR 1375, 1380 [9] Lord Hope (with whom Lords Hoffmann, Rodger, Walker, and Baroness Hale agreed) said that a “hire”, without the accompanying baggage of “bailment” of the thing was “a contract by which the temporary use of a subject, or the work or service of a person, is given for an ascertained hire”. He quoted a definition from Bell GJ, Commentaries on the Law of Scotland (McLaren’s ed, (7th ed, T & T Clark, 1870)), Vol I, 481:

The contract of hiring, or locatio conductio, is that by which the one party agrees, in consideration of a certain hire or rent which the other engages to pay, to give to that other, during a certain time, the use or occupation of a thing; or personal service and labour; or both combined.

149    The reference to a locatio conductio or, more accurately here, locatio conduction rei is to the Roman law concept of hire where the use and occupation of the thing gave no possessory right but only “detention” of the thing as a personal right against the hirer. Apart from examples of agreement to hire, another example in English law of a hire that has no possessory effect is the hire of a ship (which is included in the inclusive list of goods in s 2). The hire of a ship is shorn from any association with bailment: Port Line Ltd v Ben Line Steamers Ltd [1958] 2 QB 146 (Diplock J).

150    There may be controversy about whether a hire of goods ever gives the hiree anything more than a contractual licence. The better position is that the hiree does not obtain any proprietary right by the hire. In relation to goods (but not land) English and Australian law does not recognise a property right of “exclusive control for a fixed period”: McFarlane B, The Structure of Property Law (Hart Publishing, Oxford, 2008) 148-149; see also Swadling W, “The Proprietary Effect of a Hire of Goods” in Palmer N and McKendrick E, Interests in Goods (2nd ed, LLP, London, 1998) Ch 20. But this controversy cannot be used to restrict the meaning of a “supply” of goods because, on any view, a mere agreement to hire an ordinary chattel gives the hiree no more than a personal right against the hirer to the hire of the chattel.

151    Further, the statutory definition of supply is only an inclusive definition. As Logan J said in Australian Competition and Consumer Commission v Flight Centre (No 2) [2013] FCA 1313; (2013) 307 ALR 209, 241 [130] (on a point not raised on appeal with reference to the broad concept of supply: Flight Centre Limited v Australian Competition and Consumer Commission ([2015] FCAFC 104; (2015) 324 ALR 202, 219-220 [78]-[80]):

Such is the breadth of the ordinary meaning of the word “supply”, “[t]o provide, or provide with, something. a. trans; to furnish or provide (a person) with something; (in early use) to satisfy the wants of, provide for; (now usually) to furnish with regular supplies of a commodity. Freq. with with” (Oxford English Dictionary, online edition, accessed 14 Nov. 2013), I doubt that the inclusive quality of the s 4 definition [identical to the definition in s 2 of the Australian Consumer Law] adds much, if anything, to the meaning of the word for the purposes of the TPA. It has long been regarded as a word of wide import: Commonwealth of Australia v Sterling Nicholas Duty Free Pty Ltd [1972] HCA 19; (1972) 126 CLR 297 at 309. That said, statutory context and subject matter, scope and purpose of the Act and the provision in which a term appears are always relevant considerations when considering its meaning.

152    Similarly, Lockhart J said in Castlemaine Tooheys Ltd v Williams & Hodgson Transport Pty Ltd (1985) 7 FCR 509, 532 that “‘Supply’ is a word of wide import”. Although the decision was reversed in the High Court, the High Court did not remark upon what Lockhart J had said about the breadth of this definition of supply. His Honour’s remarks were not expressed in a way that excluded the provision of goods by way of a licence.

153    Secondly, if the Australian Consumer Law were to apply Valve’s restricted construction of supply of goods the consequences would be very surprising indeed. For instance, unconscionable conduct provisions such as s 21, or unfair term provisions such as s 23, would apply to sales but not to contracts involving provision of a licence. Or a person would be prohibited from selling or even “offering for supply” any goods which do not comply with a safety standard (ss 106, 194) but not from actually providing those goods by licence.

154    Valve pointed to the verification element involved in its provision of computer software to a consumer. It submitted that the digital bits in the computer software provided to a consumer are not playable without authentication from Valve because they are not executable until communication occurs with Valve’s servers in Washington State. It also submitted that when the consumer’s licence was terminated the consumer could no longer play any game.

155    Again, this submission ignores the possibility of playing games offline, at least until the consumer goes online and the licence terminates. But, in any event, the verification requirement that Valve imposes upon consumers who wish to play Steam games when they connect to the internet does not prevent the computer software from being “supplied”. Almost every imaginable hire or licence of a good is conditional upon some event. A person who enters a licence agreement to hire a car agrees to comply with many conditions. And the hire of a car by licence does not cease to be a supply of goods if the hire company has a right to terminate the licence upon any event such as failure to pay the hire fee or mistreatment of the car.

156    I do not accept the ACCC’s primary submission that everything that was supplied by Valve under the SSA was a supply of a good. As I have explained, some matters provided were not goods. For instance, the non-executable data which accompanied, and was incidental to, the computer software was not a good although it is hard to see how it could be decoupled from the computer software. It may also be that Valve provided a number of services which did not involve the provision of any “thing” which could fall within the definition of a good. On the evidence before the Court, it is difficult to assess whether the extent to which, if at all, any of the non-game matters provided by Steam involved the provision of a service rather than computer software. For instance, Steam Guard (security protection for a customer’s account) or Steam Play (a feature that allows customers to play games on different platforms) or Steams Videos (which allows subscribers to watch videos) might all require software to be operational.

157    Although not everything Valve supplied was a good, the important point for the purposes of this case is that at the core of Steam’s supply to its subscribers was the provision of games. And at the heart of the provision of games was the supply of computer software. It is noteworthy that the three consumers who gave evidence for the ACCC all said that they considered that the basic thing that they were purchasing was computer software. Of these three, Mr Miles had considerable knowledge and expertise in this area. As I explain later in these reasons, he is a 31 year old computer programmer and software developer who has played video games since he was 8. He has worked as a research assistant and software developed in the computer science department of the University of New England. He participates in tests for new games and often plays games around 3 times a week.

(3) Issue 3: Whether Valve’s conduct was in Australia or whether Valve carries on business in Australia

158    This issue raises the question of whether the Australian Consumer Law applies at all to these circumstances. It is necessary to consider first whether Valve’s conduct was “in Australia” before considering whether Valve “carries on a business in Australia”. This is because this trial proceeded on the basis that the latter question only arises by the extended operation of the Competition and Consumer Act if Valve’s conduct was not in Australia.

The test for whether Valve’s conduct was in Australia

159    The parties conducted this litigation on the basis that it was necessary for the ACCC to prove that Valve’s conduct was in Australia or, if not, that the extended provisions of the Competition and Consumer Act applied to extend the operation of that Act to conduct outside Australia. That assumption appears to have been based upon the provision in s 131(1) of the Competition and Consumer Act which provides that the Australian Consumer Law “applies as a law of the Commonwealth to the conduct of corporations, and in relation to contraventions of Chapter 2, 3 or 4 of Schedule 2 by corporations”. It seems that the assumption of the parties is that the “and” in s 131(1) is not a disjunctive application of two circumstances in which the Australian Consumer Law applies as a law of the Commonwealth. In other words, the parties assumed that it was necessary for the ACCC to prove both that there was “conduct of a corporation” and that the conduct was “in relation to contraventions of Chapter 2, 3 or 4 of Schedule 2 by the corporation” even if the contravening conduct implicitly involved a separate connection with Australia (such as a supply of goods in Australia). In light of the conclusions I have reached on this issue, and in the absence of argument on this point, it suffices to proceed also on that assumption.

160    Section 4(2)(a) of the Competition and Consumer Act provides that a reference in the Act to “engaging in conduct” shall be read as

a reference to doing or refusing to do any act, including the making of, or the giving effect to a provision of, a contract or arrangement, the arriving at, or the giving effect to a provision of, an understanding or the requiring of the giving of, or the giving of, a covenant…

161    The relevant conduct in this case which must be characterised to determine whether it is conduct “in Australia” is the conduct which amounted to alleged contraventions of ss 18(1) and 29(1)(m). As I explain in more detail in relation to issue (4) below, the core of that conduct involved representations by Valve on its website, in chatlogs to consumers, and through Steam Client.

162    Valve submitted that it did not engage in conduct in Australia. In written submissions it said that it is a foreign corporation, with business premises and staff all located outside Australia. It said that it holds no real estate in Australia and hosts its website outside Australia. It said that it provides support services outside Australia. It said that the Steam content is not “pre-loaded or stored” on Valve’s servers in Australia. It said that payment for subscriptions is made in United States dollars and processed in Washington State.

163    All of these matters can be accepted. But it is curious that Valve’s written submissions made no mention of all the connections that it did have to Australia, including in relation to each of these matters:

(1)    Although it has no real property in Australia, it has significant personal property, namely servers in Australia which, at the time of acquisition, had a retail value of $1.2 million.

(2)    Although it has no staff in Australia, it had approximately 2.2 million subscriber accounts in Australia. Its Australian servers were initially configured by an employee who travelled to Australia (ts 122).

(3)    Although its support services are provided outside Australia, those support services provide support for subscribers including the 2.2 million accounts in Australia.

(4)    Although the Steam content is not “pre-loaded or stored” on Valve’s servers in Australia, Mr Dunkle’s evidence was that it is “deposited” on Valve’s three servers in Australia when requested by a subscriber and will stay on the server if it is requested again in a particular period of time.

(5)    Although payment for subscriptions is in United States dollars and processed in Washington State, the payments include those made by Australian consumers to Valve and, against that revenue are expenses including payments of tens of thousands of dollars per month by Valve to the Australian bank account of an Australian company (Equinix).

164    These matters are the background to the core focus which is upon whether Valve’s representations can be described as having been made in Australia.

165    Valve’s submission that its representations were not made in Australia relied heavily upon a submission that the representations were not directed to anyone in Australia. In this regard Valve referred to the decision of Merkel J in Bray v F Hoffman-La Roche Ltd [2002] FCA 243; (2002) 118 FCR 1.

166    In Bray, a representative proceeding was brought for breach of s 45 of the Trade Practices Act as a consequence of cartel conduct. The respondents denied that the Court had jurisdiction. They sought to set aside service of the originating process on them. One question was whether the respondents had engaged in conduct in Australia. Counsel for both parties in this case referred to various passages of the decision of Merkel J and it was not suggested that anything said on the appeal to the Full Federal Court had affected these passages (Bray v F Hoffmann-La Roche Ltd [2003] FCAFC 153; (2003) 130 FCR 317).

167    In the course of considering whether the conduct of the respondents was “in Australia”, Merkel J, at 45 [145]-[147], considered the location of communications implementing the cartel arrangement. His Honour referred to the decision in Voth v Manildra Flour Mills Pty Ltd [1990] HCA 55; (1990) 171 CLR 538, 567-568. In that case, a joint judgment of Mason CJ, Deane, Dawson, and Gaudron JJ in the majority said at 568:

But in every case the place to be assigned to a statement initiated in one place and received in another is a matter to be determined by reference to the events and by asking, as laid down in Distillers, where, in substance, the act took place.

168    The reference to Distillers was a reference to the decision of Lord Pearson, speaking for the Judicial Committee of the Privy Council on appeal from the Court of Appeal of the Supreme Court of New South Wales, in Distillers Co (Biochemicals) Ltd v Thompson [1971] 2 WLR 441; [1971] AC 458. That case concerned the meaning of “cause of action” in s 18(4) of the Common Law Procedure Act 1899 (NSW). The Privy Council held that it meant “the act on behalf of the defendant which gave the plaintiff his cause of complaint” (468). In applying this test, the Privy Council in Distillers affirmed the approach in Jackson v Spittall (1870) LR 5 CP 542. In that case, five judges of the Court of Common Pleas considered the meaning of the words “cause of action that arose within the jurisdiction”. At 552, their Honours concluded that, in the words of the joint judgment in Voth (at 567), “the question whether a cause of action is to be classified as local or foreign is to be answered by ascertaining the place of ‘the act on the part of the defendant which gives the plaintiff his cause of complaint”.

169    Valve submitted that the same approach should apply to the characterisation, for the purposes of s 131(1) of the Competition and Consumer Act, of whether there was “conduct of a corporation” in Australia. There are some parallels, but an approach developed in the context of determining where a common law cause of action arose should not be automatically transplanted when the relevant question is a different statutory question. As French J said of s 5 of the Trade Practices Act in Paper Products Pty Ltd Tomlinsons (Rochdale) Ltd (No 2) (1993) 44 FCR 485, 493, “it is necessary to consider not where the cause of action arose but where the conduct relied upon took place”. This question of where the conduct relied upon took place focuses only upon the representations made by Valve on its website, on Steam Client, and on chat logs. This question is also quite different from the jurisdiction with the closest and most real connection to the consumers’ contract.

Where the conduct relied upon took place

170    Although the common law cause of action approach in Voth should not be automatically transplanted to the question of application of a statutory test for where the conduct took place, the decision in Voth has been relied upon in a number of cases as informing the statutory approach. For that reason it is necessary to consider it in further detail.

171    The decision in Voth concerned whether New South Wales was a clearly inappropriate forum such that a stay of proceedings would be ordered. An action had been brought in New South Wales by a New South Wales company against a Missouri accountant for professional negligence. It was alleged that the accountant had been negligent by failing to draw to the attention of the company the possibility of a withholding tax liability. It was in the context of this question that the High Court of Australia considered whether the tort of negligence was a foreign tort.

172    In the course of addressing the concern that the receipt of a statement might differ from the place where it is acted upon, the joint judgment in Voth said that an act can pass “across space or time before it is completed”. Their Honours continued (at 568) saying that:

If a statement is directed from one place to another place where it is known or even anticipated that it will be received by the plaintiff, there is no difficulty in saying that the statement was, in substance, made at the place to which it was directed, whether or not it is there acted upon. And the same would seem to be true if the statement is directed to a place from where it ought reasonably to be expected that it will be brought to the attention of the plaintiff, even if it is brought to attention in some third place.

173    I will refer to the circumstance where a statement is “directed from one place to another place where it is known or even anticipated that it will be received by the plaintiff” as the “directed” element. Valve essentially relied upon these remarks, and their approval in other cases, concerning this directed element. However, the joint judgment in Voth did not require that a statement or representation be directed at a recipient. Their Honours were considering whether the negligence of the accountant was committed outside Australia, and rejecting the suggestion that the substance of the tort of negligent misstatement is always committed where the statement is received and acted upon. They said that there was no such general rule, “for a statement may be received in one place and acted upon in another” (at 568).

174    The point being made in Voth was that where a statement which is directed to, or known or anticipated to be received by a person, there will be no difficulty in saying that the statement is made at that place rather than where the statement is acted upon. Another way of putting this point is to say that the remarks about “directing” a statement to a person reflected the usual essence of liability for negligent misrepresentation which is an assumption of responsibility to a person: see Swick Nominees Pty Ltd v Leroi International Inc (No 2) [2015] WASCA 35; (2015) 48 WAR 376, 443-446 [368]-[381].

175    Even if the joint judgment had insisted upon such a “directed requirement” for negligent misstatement (which it did not), this “directed” requirement should not be transplanted to the test for the location of the conduct relied upon in an action for contravention of very different statutory norms in ss 18(1) and 29(1)(m) which do not have an assumption of responsibility as a usual indicator of liability. Further, the cases in relation to characterising various different conduct under the Trade Practices Act have emphasised that it is not necessary that it be directed at a particular person. For instance, in Australian Competition and Consumer Commission v Chen [2003] FCA 897; (2003) 132 FCR 309, it was sufficient for a conclusion that website representations were made in Australia where they suggested a connection between American websites and the Sydney Opera House. See also Ward Group Pty Ltd v Brodie & Stone plc [2005] FCA 471; (2005) 143 FCR 479, 490 [40] (Merkel J); Australian Competition and Consumer Commission v Yellow Page Marketing BV [2010] FCA 1218 [22] (Gordon J).

176    Although there is no “directed” requirement in Voth and although such a requirement cannot be transplanted to the characterisation of different statutory norms in ss 18(1) and 29(1)(m), it is important to note that the joint judgment did not say that the negligent misstatement was made in the place where it was uttered. The reason why such a general rule should be rejected is not merely because actionable negligence requires proof of loss. It is also because negligence in thin air is meaningless. In his famous decision in Palsgraf v Long Island Railroad Co 162 NE 99, 101 (NY CA, 1928), a judgment described by Professor Beever as one which vies for “the greatest single judgment in the history of the law of negligence”, Cardozo CJ explained that “Negligence, like risk, is thus a term of relation. Negligence in the abstract, apart from things related, is surely not a tort, if indeed it is understandable at all”: Beever A, Rediscovering the Law of Negligence (Hart Publishing, Oxford, 2007) 125-126.

177    The same can be said of the conduct in this case. As counsel for the ACCC colourfully submitted, if she were to stand in a soundproof room and scream at the top of her lungs that she was not applying the consumer guarantees in Australia then nobody would be misled or likely to be misled (ts 283). That is not the conduct upon which the norms in ss 18(1) or 29(1)(m) of the Australian Consumer Law attach. Instead, the relevant conduct upon which the ACCC rely is representations relating to the supply of goods. Throughout this trial Valve contended, and the ACCC conceded, that an essential element of the conduct upon which the ACCC relied was that the representations concern the supply of goods.

178    I do not accept Valve’s submission that the conduct upon which the ACCC relied occurred in Washington State. The background to the conduct was described above at [163]. That background involves a significant Australian context.

179    The chat log representations were specifically made to individual Australian consumers. They concerned the supply of goods in Australia.

180    The Steam Client representations also concerned the supply of goods in Australia and were also made specifically to the consumers who had downloaded the Steam Client in Australia and in the course of doing so had accepted the terms of the Licence Agreement and SSA. Again, when those consumers purchased a game they would have chosen Australia as their country. But even without specifically being told that the consumer was in Australia, the downloading of Steam Client in Australia and the agreement to Steam’s terms and conditions established a direct relationship between Valve and the Australian customer. This is in a context in which Valve had established game servers in Australia, it had content delivery networks in Australia, and it knew it had approximately 2.2 million subscribers in Australia. It intended to make representations to each Australian consumer who downloaded Steam Client.

181    The website representations are less simple. Considered by themselves, they were general representations to the world at large. They are not representations to any person or to any Australian consumer. Until the representations were accessed, the representations were meaningless and could not be the subject of any alleged contravening conduct. But, by the time a consumer had purchased a game or downloaded Steam Client the consumer had a relationship with Valve and representations were made in Australia. The purchase of a game also required a consumer to click on a box that agreed to the terms of the SSA. The consumer provided Valve with his or her location as Australia at the time of purchase. Indeed, Valve priced some games differently in Australia (ts 120-121). The consumer might be told by Valve that “This item is currently unavailable in your region” (Court Book 347).

182    For these reasons I conclude that each of the classes of representation involved conduct in Australia. However, for completeness, I explain below two further decisions upon which the parties made substantial submissions.

183    The first of these decisions is the decision of Merkel J in Ward Group Pty Ltd v Brodie & Stone plc [2005] FCA 471; (2005) 143 FCR 479. In that case, the applicant had registered Australian trade marks which it alleged had been infringed by the advertising and sale of products on the internet by the respondents. The advertising targeted potential purchasers anywhere in the world. And apart from “trap purchases” by the applicant’s solicitors there was no evidence of any purchases in Australia. Justice Merkel considered claims for passing off and for trade mark infringement. This decision can be distinguished on the basis that it was concerned with the characterisation of different conduct for the purposes of a different statute with different underlying norms. But, in any event, in relation to his conclusion, the approach taken by the primary judge is consistent with the reasoning I have set out above.

184    Senior counsel for Valve referred only to the claims for trade mark infringement in Ward Group. But, in relation to the claim for passing off, the primary judge said that although no representations were made in Australia because the website did not target Australian consumers and no innocent consumer had made a purchase (at 488 [33]), the “trap purchasers” who did make purchases were persons to whom the representations were specifically directed once they had read the website. His Honour said (at 488 [34]):

the trap purchasers, being the persons who procured the representations to be made in Australia and being the only persons in Australia to whom the representations were specifically directed, were well aware that the Restoria mark used on the websites was, and was intended to be, related to the UK Restoria products and not the Australian Restoria products. (Emphasis added).

185    The passing off claim ultimately failed because no damage had been proved. And the trade mark infringement claim failed because the use of a trade mark on the internet merely by uploading on a website outside Australia was not a use by the website proprietor in every jurisdiction in which the mark is downloaded. Hence, in the absence of any evidence of innocent purchases, there was no infringing use of the trade mark by any innocent person, although his Honour concluded that an occasion of specific use was when the trap purchasers were informed that their orders had been accepted (491 [44]).

186    The second further decision to which Valve referred was Dow Jones and Company Inc v Gutnick [2002] HCA 56; (2002) 210 CLR 575. The principal issue in that case, as Gleeson CJ, McHugh, Gummow and Hayne JJ explained in the joint judgment (at 595 [4]), was whether the Supreme Court of Victoria was a clearly inappropriate forum for the trial of a defamation action concerning material published on the internet. This raised the question: “where was the material of which Mr Gutnick complained published”?

187    As senior counsel for Valve rightly submitted, the decision in Dow Jones is of limited assistance in relation to characterising the conduct for the purposes of the statutory norms in ss 18(1) and 29(1)(m). This is because the focus of the law of defamation is damage by publication. As their Honours said in the joint judgment (600 [26]):

Harm to reputation is done when a defamatory publication is comprehended by the reader, the listener, or the observer. Until then, no harm is done by it. This being so it would be wrong to treat publication as if it were a unilateral act on the part of the publisher alone. It is not. It is a bilateral act - in which the publisher makes it available and a third party has it available for his or her comprehension.

188    Later in their Honours’ reasons, after explaining the significance of damage in defamation cases (as the gist of the action), their Honours explained that this required rejection of the submission that the publication of defamatory material occurred in a single place (ie the place of uploading by the publisher to its servers). Their Honour’s contrasted this rejection (at 606 [43]) with cases, like trespass or negligence, “where some quality of the defendant’s conduct is critical, it will usually be very important to look to where the defendant acted, not to where the consequences of the conduct were felt”. Equally, in this case, the concern of the conduct in ss 18(1) and 29(1)(m) is not where the consequences of misleading or false representations might be felt (such as loss suffered). The concern is where Valve acted. And the relevant acts to which ss 18(1) and 29(1)(m) are directed is the representations to consumers who (i) downloaded Steam Client in Australia, or (ii) entered contractual relationships with Valve through agreeing to the terms and conditions of the SSA, involving representations concerning the supply of goods, or (iii) corresponded with Valve representatives on chat logs. The same point can be made about these acts as the joint judgment made about harm in Dow Jones (at 600 [26]) quoted above: they are bilateral acts.

Whether Valve carries on business in Australia

189    The next issue would only arise if I had concluded that Valve’s conduct was not in Australia. However, since the parties dealt with this issue in comprehensive detail I will express my views about it. It was a submission put eloquently by Valve but it can be quickly dismissed: see Popov v Hayashi (Cal Super Ct, No 400545, 18 December 2002) fn 6 (McCarthy J).

190    Section 5(1)(g) of the Competition and Consumer Act provides that the provisions of the Australian Consumer Law relevant to this litigation extend to “the engaging in conduct outside Australia by… bodies corporate incorporated or carrying on business within Australia”. Valve submitted that this extended operation did not apply to it because it was not “carrying on business within Australia”. There is no definition of that phrase.

191    Valve submitted that the mere supply of goods or services to persons within Australia for profit cannot be sufficient to amount to “carrying on business within Australia”. This was said to be because s 5(2) provided for a further extension concerning matters of mere supply, but only in relation to ss 47 and 48. I do not accept this submission.

192    Section 5(2) of the Competition and Consumer Act provides that:

In addition to the extended operation that sections 47 and 48 have by virtue of subsection (1), those sections extend to the engaging in conduct outside Australia by any persons in relation to the supply by those persons of goods or services to persons within Australia. (Emphasis added).

193    Section 5(2) is not merely an extension to the “supply of goods or services to persons within Australia”. The important words in s 5(2) are “in relation to”. Those words are an “expression of wide and general import”: Fountain v Alexander [1982] HCA 16; (1982) 150 CLR 615, 629 (Mason J); O’Grady v Northern Queensland Co Ltd [1990] HCA 16; (1990) 169 CLR 356, 374 (Toohey and Gaudron JJ).

194    The point of s 5(2) is to extend the operation of s 47 (exclusive dealing) and s 48 (resale price maintenance) to conduct which might be engaged in by persons who do not supply goods or services within Australia but who engage in conduct outside Australia in relation to a supply of goods or services within Australia.

195    There is little direct authority on the meaning of “carrying on business within Australia” within s 5(1)(g) of the Australian Consumer Law or its predecessor. Although the parties referred to numerous authorities, those cases concerned different legislation which sometimes had very different definitions (eg s 21 of the Corporations Act 2001 (Cth)). In circumstances where courts have considered the definitions in the same terms as “carrying on business within Australia” the concepts have been applied according to their ordinary meaning, and the cases say little more than this.

196    For instance, in Bray at 17-18 [59]-[60], Merkel J referred to the parties’ acceptance that expression “carrying on business in Australia” should be broadly interpreted in light of its purposes of consumer protection to enable the Trade Practices Act to apply to conduct that is intended to have, and has, an adverse effect on competition in Australia. His Honour continued, saying that:

The expression “carrying on business” is not defined although s 4(1) defines “business” as including a business not carried on for profit. As was pointed out by Gibbs J in Luckins v Highway Motel (Carnarvon) Pty Ltd [1975] HCA 50; (1975) 133 CLR 164 (“Luckins”) at 178 the expression “may have different meanings in different contexts”. The present context is s 5(1), which gives effect to the legislature’s view that comity, for the purposes of the TPA, requires that a particular nexus with Australia exist (ie citizenship or residence by a person or incorporation or the carrying on of business in the case of a body corporate) if certain Parts of the TPA are to apply to conduct engaged in outside of Australia by those persons or bodies corporate. As is clear from the judgments in Meyer Heine it was open to the legislature, as a matter of power and comity, to impose a lesser nexus requirement (eg intended and actual anti-competitive consequences in Australia) but it chose not to do so. In that context the expression should be given its ordinary or usual meaning.

197    As his Honour concluded, the ordinary meaning of “carrying on business” usually involves (by the words “carrying on”) a series or repetition of acts. Those acts will commonly involve “activities undertaken as a commercial enterprise in the nature of a going concern, that is, activities engaged in for the purpose of profit on a continuous and repetitive basis”: see Thiel v Federal Commissioner of Taxation [1990] HCA 37; (1990) 171 CLR 338, 350 (Dawson J); Pioneer Concrete Services Ltd v Galli [1985] VicRp 68; [1985] VR 675, 705 (the Court); Hope v Bathurst City Council [1980] HCA 16; (1980) 144 CLR 1, 8-9 (Mason J; Gibbs, Stephen and Aickin JJ agreeing).

198    In this ordinary sense of carrying on a business, Valve undoubtedly carried on a business in Australia for six reasons.

199    First, as I have explained, Valve had, and has, many customers in Australia with approximately 2.2 million Australian accounts. It earned significant revenue from Australian customers on an ongoing basis.

200    Secondly, Steam content is “deposited” on Valve’s three servers in Australia when requested by a subscriber. It will stay on the server if it is requested again in a particular period of time.

201    Thirdly, Valve has significant personal property and servers located in Australia which, at the time of acquisition, had a retail value of $1.2 million. Its Australian servers were initially configured by an employee who travelled to Australia (ts 122). They were updated in 2013 by another employee who visited Australia. Valve paid invoices including, in one case $436,389, to an Australian company (Equinix) into its Australian bank account for equipment involving servers (Court Book pp 676-677).

202    Fourthly, Valve incurs tens of thousands of dollars per month of expenses in Australia for the rack space, and power to its servers. Those expenses are paid by Valve to the Australian bank account of an Australian company (Equinix).

203    Fifthly, Valve relies on relationships with third party members of content delivery providers in Australia (such as Internode or ixaustralia) who provide proxy caching for Valve in Australia.

204    Sixthly, Valve has entered into contracts with third party service providers, including companies such as Highwinds, who provide content around the world, including in Australia. Valve is aware that Highwinds has servers in Australia (ts 111) and that it is sometimes more efficient for customers in Australia to be provided content from servers in Australia (ts 112).

205    For these reasons, even if Valve did not engage in conduct in Australia, the Australian Consumer Law was engaged because it was an incorporated body which was carrying on business in Australia.

(4) Issue 4: Did the representations contravene s 18(1) or s 29(1)(m)?

206    The ACCC’s statement of claim pleaded numerous separate representations across three different forums. Many of the representations pleaded were very similar. Many representations were pleaded where the representations formed part of the same course of conduct. These are matters that can be addressed at the remedies hearing. However, it may be that this overly cautious pleading by the ACCC was justified because (i) the different media in which the representations were made became a focus of some of Valve’s submissions concerning whether its conduct was in Australia, and (ii) Valve’s submissions focused very closely upon the particular words of every representation even where some representations differed from others only in very minor respects. It is therefore necessary to consider each pleaded representation individually.

The legal principles concerning s 18(1) and s 29(1)(m)

207    Counsel for the ACCC summarised a number of relevant legal rules relevant to this case concerning the approach to s 18(1) of the Australian Consumer Law. Some of those helpful submissions require qualification but they were not generally in any dispute. With the exception of the seventh matter below, most of the principles are now well known. The relevant rules are set out briefly below.

208    The legal rules concerning s 18(1) are generally similar to those concerning s 29(1)(m). But there are important differences. Some of the differences were not material in this case. Three examples can be given.

209    First, there was no suggestion that anything in this case turned upon any distinction between a “representation” and “conduct”. The ACCC relied in each case only upon representations said to derive expressly, or by implication, from various statements.

210    Secondly, other than the issue discussed above concerning whether goods were supplied, Valve did not dispute that the alleged representations were “in connection with the supply or possible supply of goods” or that they concerned “the existence, exclusion or effect of any condition, warranty, guarantee, right or remedy (including a guarantee under Division 1 of Part 3-2”.

211    Thirdly, and possibly relevant to the representations to individual consumers, the ACCC made no submission to explain how any of the representations might be false (within s 29(1)(m)) even if they were not misleading (within s 18(1) and s 29(1)(m)). It is necessary to return to this point later in these reasons. With that context, the relevant legal rules are set out below concerning conduct or representations that are misleading or deceptive or likely to mislead or deceive.

212    First, the process of characterising whether conduct addressed to the public at large is misleading or deceptive or likely to mislead or deceive generally requires consideration of whether “the impugned conduct viewed as a whole has a tendency to lead a person into error” (emphasis added): Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304, 319 [25] (French CJ). This is assessed objectively. Although evidence that a particular person has been misled or deceived might be taken into account, that evidence is not necessary nor is it always sufficient. The objective characterisation also means that conduct which is only misleading for a temporary period might still amount to misleading or deceptive conduct when viewed as a whole. Further, it is unnecessary to establish that any actual or potential consumer has taken or is likely to take any positive step in consequence of the misleading or deception.

213    The need for objective assessment of the conduct in light of all circumstances, and as a whole, was emphasised by Gummow, Hayne, Heydon and Kiefel in Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304, by reference to Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60; (2004) 218 CLR 592, 625 [109] (McHugh J) (footnotes omitted):

The question whether conduct is misleading or deceptive or is likely to mislead or deceive is a question of fact. In determining whether a contravention of s 52 has occurred, the task of the court is to examine the relevant course of conduct as a whole. It is determined by reference to the alleged conduct in the light of the relevant surrounding facts and circumstances. It is an objective question that the court must determine for itself. It invites error to look at isolated parts of the corporation’s conduct. The effect of any relevant statements or actions or any silence or inaction occurring in the context of a single course of conduct must be deduced from the whole course of conduct. Thus, where the alleged contravention of s 52 relates primarily to a document, the effect of the document must be examined in the context of the evidence as a whole. The court is not confined to examining the document in isolation. It must have regard to all the conduct of the corporation in relation to the document including the preparation and distribution of the document and any statement, action, silence or inaction in connection with the document.