FEDERAL COURT OF AUSTRALIA

Telstra Corporation Limited v Vocus Fibre Pty Ltd [2014] FCAFC 77

THE COURT ORDERS THAT:

1.    The appeal be allowed.

2.    The Notice of Contention of the First to Third Respondents be dismissed.

3.    The orders made by the primary judge on 12 March 2014 be set aside and in lieu thereof:

(a)    A declaration that the Australian Competition and Consumer Commission (‘the Commission’) has no power to hear or determine the matters notified to the Commission by Vocus Fibre Pty Ltd on 11 September 2012.

(b)    A declaration that the Commission has no power to hear and determine the matters notified to the Commission by Adam Internet Pty Ltd on 18 September 2012.

(c)    A declaration that the Commission has no power to hear or determine the matters notified to the Commission by Chime Communications Pty Ltd on 25 September 2012.

(d)    An order that the First to Third Respondents pay the applicant’s costs.

4.    The First to Third Respondents pay the appellant’s costs of the appeal.

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

REASONS FOR JUDGMENT

INTRODUCTION

1        This is an appeal from the primary judge who dismissed the Amended Originating Application brought by Telstra Corporation Ltd (‘Telstra’): see Telstra Corporation Limited v Vocus Fibre Pty Ltd [2014] FCA 198.

2        We can briefly summarise the background to this appeal relying on the primary judge’s own summary.

3        The First to Third Respondents to this appeal are Vocus Fibre Pty Ltd (‘Vocus Fibre’), Adam Internet Pty Ltd (‘Adam Internet’) and Chime Communications Pty Ltd (‘Chime Communications’). Each of those Respondents has entered into an agreement with Telstra titled a “Customer Relationship Agreement”. The Agreement with Vocus Fibre was executed on 14 June 2011. Each of the other two Agreements is said to be in substantially similar terms such that it is convenient, as did the primary judge, to make reference only to the terms of the Agreement with Vocus Fibre.

4        On 31 May 2012, Telstra forwarded an e-mail to Vocus Fibre notifying it of Telstra’s decision to vary the charges previously paid by Vocus Fibre and of the increased charges to be paid as from 1 August 2012 to June 2013 (the increased charges were reciprocal and would also apply if Telstra sought access to Vocus Fibre’s ducts). On 23 July 2012, Vocus Fibre notified Telstra that it “disputes Telstra’s variation” and that it “considers that the Access to Ducts Charge is too high…”. A like “dispute” has arisen with respect to the Second and Third Respondents. The Fourth Respondent (‘the Commission’) has formed the view that it has power to arbitrate the disputes between Telstra and each of the First to Third Respondents.

5        The source of the power invoked by the Commission to arbitrate the dispute between Telstra and Vocus Fibre is that conferred by cl 36(3) of Sch 1 to the Telecommunications Act 1997 (Cth) (‘the Telecommunications Act’); the source of the power invoked by the Commission in respect to Adam Internet and Chime Communications is that conferred by cl 18(1) of that Schedule. Both clauses confer power to arbitrate “failing agreement” as to the terms and conditions upon which access is to be provided.

6        Telstra contends that each of the Customer Relationship Agreements constitutes an agreement as to the terms and conditions upon which access is to be granted, including a contractual power conferred upon it to vary the existing terms and conditions. It maintains that it has properly invoked that power and that, accordingly, there has been no failure to agree. Vocus Fibre, Adam Internet and Chime Communications essentially maintain that each has properly invoked a contractual power to dispute the variation and that there is, accordingly, a failure to agree such that the Commission can properly arbitrate the disputes between Telstra and each of the First to Third Respondents.

THE CUSTOMER RELATIONSHIP AGREEMENTS

7        Each of the Customer Relationship Agreements is constituted by a series of Schedules, comprising:

    Standard Terms;

    Facilities Access Service Terms;

    Service Schedules containing Price Lists;

    A Dictionary of definitions; and

    An Alternative Dispute Resolution Policy.

Those documents record the agreement between the parties whereby Telstra (relevantly described as the “Supplier”) agrees to provide access to each of the First to Third Respondents (relevantly described as the “Acquirer(s)”).

8        Clause 6 of the Facilities Access Service Terms is of relevance to this appeal. It provides as follows:

6    Charges

Variation of the Price List

6.1    Subject to clause 6.3, a Charge specified in the Price List may be varied by 2 months written notice from the Supplier to the Acquirer, so long as the notice period expires after any Validity Period for that Charge set out in the Price List.

6.2    If no notice of variation is given before the expiry of the Validity Period for a Charge, the Charge will continue beyond the Validity Period until varied by 2 month’s written notice.

Increases during the Term

6.3    During the Term the Supplier will not increase any Charge in any 12 month period by more than the greater of:

(a)    an amount equal to that Charge multiplied by the aggregate of the CPI Charge plus 4%; and

(b)    the amount of the Supplier’s increased costs of providing the relevant Facilities Access.

Disputes

6.4    If the Acquirer disputes (whether under the Agreement or otherwise) the variation of any Charge under clause 6.1, then:

(a)    pending resolution of the dispute the Acquirer must pay the Supplier the Charges in the Price List as varied; and

(b)    if the resolution of the dispute results in the Charge being set at a different rate (“Varied Charge”) then, within 20 Business Days of the date of the resolution of the dispute, the Supplier must pay any refund necessary (including Interest) to put the Acquirer in the position it would have been in had the Varied Charge been applied from the time the Charge was varied.

THE COMMISSION

9        The present position of the Commission before the primary judge and in this appeal is that it has power to arbitrate each dispute. The Commission’s involvement arises from the notification given by Telstra of its intention to vary the charges and the notifications given by each of the First to Third Respondents of their challenges to the variations.

10        In the case of Vocus Fibre, the e-mail forwarded on 31 May 2012 by Telstra provided, in part, as follows:

Price List for Facilities Access

In accordance with Clause 6 the Facilities Access Service Terms (FAST) under the Customer Relationship Agreement (CRA), we give you notice that, effective 1st August 2012, Telstra’s Price List for Facilities Access will be varied. Accordingly, we enclose a Price List with all changes marked up and a clean version of the new Price List for your attention.

As per paragraph 1.2 of the new Price List, the stated prices are valid up to 30th June 2013.

The increases are approximately 3.1% applied to all prices and represent the weighted average CPI increase for all groups for the 12 months to December 2011 for the 8 capital cities as reported by the Australian Bureau of Statistics.

Please note that Telstra prices under the CRA are reciprocal and therefore no notice from Vocus is required.

Marked up and clean versions attached.

The attachments to that e-mail record the charges previously paid to Telstra and the prices henceforth to be payable as from 1 August 2012, which are confidential. The precise figures have no relevance to the resolution of the appeal.

11        Each of Vocus Fibre, Adam Internet and Chime Communications opposed the price increases. Each forwarded to Telstra in July 2012 a “General Dispute Notice”. The Notice provided by Vocus Fibre, for example, stated in part as follows:

General Dispute Notice

Vocus acknowledges receipt of Telstra’s notice of a variation to the charges listed in CRA 11 - Facilities Access to Ducts Service Schedule dated 31 May 2012 (Telstra’s variation). Vocus acknowledges that Telstra’s notice is in accordance with clause 6 of the Facilities Access Service Terms (FAST) under the CRA Standard Terms.

Vocus disputes Teltra’s variation. In particular, Vocus considers that the Access to Ducts Charge is too high and proposes that from 1 August 2012 the charge be varied to a rate that reflects Telstra’s costs. This should be regarded as a General Dispute in accordance with clause 10 of the CRA Standard Terms and with regard to subclauses 9.1 and 9.2 of the FAST.

12        Each of the First to Third Respondents thereafter notified the Commission of their respective disputes with Telstra. In the case of Vocus Fibre, its notice to the Commission invoked cl 36 of Sch 1 to the Telecommunications Act; the Second and Third Respondents invoked cl 18 of that Schedule.

CLAUSES 18(1) AND 36(3) OF SCHEDULE 1

13        The request for access, on behalf of both Adam Internet and Chime Communications, was a request for access to “supplementary facilities” owned by Telstra within the meaning of and for the purposes of cl 17 of Sch 1 to the Telecommunications Act. Clause 17(1) provides as follows:

A carrier (the first carrier) must, if requested to do so by another carrier (the second carrier) give the second carrier access to facilities owned or operated by the first carrier.

14        Clause 18(1) of Sch 1 provides as follows:

The first carrier (within the meaning of clause 17) must comply with subclause 17(1) on such terms and conditions as are:

(a)    agreed between the following parties:

(i)    the first carrier;

(ii)    the second carrier (within the meaning of that clause); or

(b)    failing agreement, determined by an arbitrator appointed by the parties.

If the parties fail to agree on the appointment of an arbitrator, the ACCC is to be the arbitrator.

15        The request for access on behalf of Vocus Fibre was a request for access to “eligible underground facilities” owned by Telstra within the meaning of and for the purposes of cl 35 of Sch 1 to the Telecommunications Act. Clause 35(1) is in like terms to cl 17(1) and provides as follows:

A carrier (the first carrier) must, if requested to do so by another carrier (the second carrier), give the second carrier access to an eligible underground facility owned or operated by the first carrier.

16        Clause 36(3) of Sch 1 is in like terms to cl 18(1) and provides as follows:

The first carrier (within the meaning of clause 35) must comply with subclause 35(1) on such terms and conditions as are:

(a)    agreed between the following parties:

(i)    the first carrier;

(ii)    the second carrier (within the meaning of that clause); or

(b)    failing agreement, determined by an arbitrator appointed by the parties.

If the parties fail to agree on the appointment of an arbitrator, the ACCC is to be the arbitrator.

17        Common to both cls 18(1) and 36(3) of Sch 1 is the phrase “failing agreement”. That phrase, as the primary judge indicated, is to be construed in the immediate context of Sch 1 and in a manner which promotes the objects and purposes of that Schedule.

CONSIDERATION

18        The primary judge observed that the issue dividing the parties was to be resolved by reference to the proper characterisation of the ambit of the dispute between the parties and the proper construction and application of cl 6 of the Facilities Access Service Terms. To that we would add, and a proper characterisation of the phrase “failing agreement” in cll 18(1) and 36(3) of Sch 1.

19        The primary judge noted that there was agreement between Telstra and the First to Third Respondents that:

    the variations notified by Telstra to each of the First to Third Respondents was a variation within the constraints imposed by cl 6.3; and

    the dispute raised by each of the First to Third Respondents was simply that the quantum of the increase was “too high”, albeit a variation within the constraint imposed by cl 6.3.

20        The primary judge rejected the construction advanced by Telstra that cl 6 conferred a unilateral power to vary the charges specified in the “Price List”, provided the variation did not exceed the amount calculated in accordance with cl 6.3.

21        The primary judge said at [25] to [26]:

25    Clause 6.1, it is concluded, does not confer any unilateral and unchallengeable power upon Telstra to vary the “the Charge(s) specified in the Price List(s)” subject only to the constraints imposed by cl 6.3.

26    Clause 6.1, clearly enough, confers a power to vary those Charges. But it is a power to vary subject to the right of an Acquirer to “dispute” the variation. The contractual agreement reached between Telstra and Vocus Fibre in June 2011 (for example) was an agreement to pay the amounts initially set forth in the Agreement and an agreement that Telstra could later vary those Charges subject to the right of Vocus Fibre to “dispute” the variation. The Agreement recorded in the June 2011 contract was not an agreement confining Vocus Fibre to an entitlement to “dispute” the mere application of the terms of that clause to the facts. The Agreement recorded in June 2011 was, accordingly, an agreement:

•    as to the initial terms and conditions upon which services were to be provided including an agreement that:

•    Telstra “may” vary the charges up to the “cap” imposed by cl 6.3; and

•    Vocus Fibre could “dispute” the variation.

The June 2011 Agreement, not surprisingly, does not record any agreement whereby Telstra could vary the charges in an amount in excess of the “cap”. Any variation which purported to impose a variation in excess of that which had been agreed, would simply not be authorised by the terms of the Agreement; but even within the limited range of authorised variations, both parties recognised the contractual right to “dispute” the variation. Until that “dispute” was resolved, albeit a dispute as to the quantum of a variation within a limited range, the parties had failed to reach agreement. (Emphasis in original).

22        We respectfully disagree with this construction of cl 6 and the conclusion reached in the last sentence of paragraph 26.

23        Turning to the construction of cl 6, nothing in cll 6.1, 6.2 or 6.3 indicates that the Acquirer has a contractual entitlement to dispute what is in issue here – whether the increase was “too high”. Reliance is placed upon cl 6.4 to give this entitlement to dispute. However, cl 6.4 simply deals with the situation in the event of a dispute arising in respect of a variation of any charge under cl 6.1. “If” the Acquirer disputes the variation under cl 6.1, then (and only then) do certain consequences apply pending resolution and upon resolution of that dispute. In other words, cl 6.4 does not in its terms (expressly nor implicitly) give to the Acquirer the opportunity to dispute the variation – it just provides a mechanism for dealing with the position if a dispute arises, and requiring payments to be made pending resolution, and appropriate adjustments to be made upon resolution of a dispute.

24        A dispute referred to in cl 6.4 could arise in a number of ways. It may be the variation is challenged as not complying with cl 6.3 (the cap), or it could possibly be challenged under (for instance) legislative provisions dealing with unconscionable behaviour or misleading and deceptive conduct. The drafting of cl 6.4 to include disputes otherwise than under the Agreement was done presumably in recognition of this possibility. However, cl 6.4 otherwise does not impact upon the bargain reached between the parties to allow the Supplier to vary the charge in accordance with the terms of cl 6.1 and 6.2, and the confines of 6.3.

25        There is nothing unfair or absurd in this construction; the parties after negotiation determined the price, and did not include any general provision for variations of price to be later agreed, and in default of agreement, include a mechanism for resolution of the price then to apply. The parties chose to impose restrictions on timing and quantum in cl 6, and the language of cl 6 does not import the notion of deferring of a price variation to later agreement between the parties.

26        The First to the Third Respondents referred to cl 5, which is a clause similarly dealing with variation to Charges. Clause 5 does not contain a similar term as in cl 6.3. Although not the clause relevant to the dispute in this appeal, cl 5 was relied upon to demonstrate the width of cl 6.4 (which is in similar terms to cl 5.4).

27        Reliance on cl 5 does not take the matter any further. In our view, cl 5.4 has the same operation as cl 6.4, despite there being no similar provision to cl 6.3 in cl 5. Clause 5.4 applies so that “if” a dispute arises as to the variation or introduction of any Charge, then the same consequences flow as in cl 6.4. Clause 5.4 has the same operation as cl 6.4.

28        We appreciate that cl 5 in addition to dealing with variations also permits the Supplier to introduce a new Charge, without any apparent cap or limitation. We do not assume it would be “surprisingly unbusinesslike” (as contended by the First to Third Respondent) for cl 5 to operate without a cap, and not contain the right to dispute the amount of the new Charge as being “too high”. There are legislative controls on the ability of one party to act in an unconscionable manner during the operation of a contract which would impact upon one party’s ability to introduce inappropriate new Charges. In any event, the parties negotiated a detailed agreement, and presumably with the introduction of both cl 5 and cl 6 were well aware of the desirability or otherwise of imposing restraints on the amount of variation or introduction of new Charges. For one reason or another, a specific restraint was introduced into cl 6, but not into cl 5.

29        In the context of a variation or introduction of a new Charge, it would be unlikely that a party would be content to leave the determination of the quantum to be dealt with by an arbitrator appointed by the parties (if they could agree upon the arbitrator), with there being no prescribed criteria set down to determine the ‘correct’ variation or new Charge. It is difficult to see how that arbitrator could determine whether or not an increase was “too high”, as the First to Third Respondents seek to have arbitrated before the Commission. If the default position arises under cl 36(3), and the Commission is the arbitrator, then reg 8 of the Telecommunications (Arbitration) Regulations 1997 (‘the Regulations’) may give some guidance as to the criteria to apply in determining whether the variation was “too high”, assuming such regulation is either valid or applies to an arbitration arising from cl 36(3). However, even if reg 8 applied, under reg 8(4) the Commission may take into account any other matters that it considers relevant in addition to those it must take into account in reg 8(1).

30        Reference was also made by the First to Third Respondents to cl 5.5, which provides in relation to unspecified Charges:

If any Charge for a Service is not specified or is not otherwise determined under this Agreement, the Charge will be as agreed by the parties. If the parties are unable to agree the Charge for a Service in accordance with this clause the Supplier is under no obligation to supply that Service to the Acquirer.

31        Whatever may be the position if cl 5.5 is engaged, this is not relevant to the issue in this appeal. The only question before us relates to the operation of cl 6, which on our construction, gives no contractual right to dispute the variation at large in the way sought to be agitated by the First to Third Respondents.

32        We now turn to the primary judge’s conclusion equating the existence of a dispute with ‘failing agreement’, as that term appears in the context of cll 18(1) and 36(3) of Sch 1. As the primary judge correctly observed, a ‘dispute’ could arise as to the quantum of the variation with a limited range. This could occur, for instance, if there was a dispute as to the “cap” imposed by cl 6.3. This is not the situation confronting the parties in this appeal. As we have indicated, and as was the position before the primary judge, the complaint of the First to Third Respondents is that the quantum of the increase was “too high”.

33        In any event, the proposition that the parties have failed to agree on terms and conditions because they are in a “dispute” about the interpretation of agreed terms and conditions is contrary to the statutory language and scheme. The legislation provides that the relevant statutory objects are served by access providers and access seekers, in the first instance, seeking to negotiate between themselves the terms and conditions of access. Where comprehensive commercially negotiated terms are put in place, access must be provided on such terms for the duration of the agreement. We consider that the legislation draws a distinction between setting the terms and conditions upon which access is given and their implementation.

34        Once an agreement is reached, it is then to be implemented according to its terms. Whilst the agreement is in operation, and in the course of its implementation, many ‘disputes’ may arise between the parties. One would not normally say that in these circumstances the parties failed to reach agreement as to the terms and conditions of the agreement or (relevantly in this case) upon the terms and conditions upon which access is to be provided. The parties reached agreement (including as to how disputes in the duration of the agreement were to be dealt with); they now merely dispute the interpretation of those terms and conditions of the Agreement and their application to a particular set of facts. This is not ‘failing agreement’ as to the terms and conditions of giving access in response to a request to do so.

NOTICE OF CONTENTION

35        A Notice of Contention was raised by the First to Third Respondents, seeking to affirm the judgment (as least in part) on another ground as follows:

The primary judge ought to have found that no prices have been agreed pursuant to the Customer relationship Agreements between the Appellant and each of the First to Third Respondents, or otherwise, for the period after 30 June 2013 for the services which the Appellant provides to each of those Respondents under those agreements.

36        In support of this Notice of Contention, it was argued that, even if the Court accepted Telstra’s submissions as to the construction of cl 6, no prices have been set under the Customer Relationship Agreements after 30 June 2013. We reject this contention.

37        Pursuant to cl 6.2, a Charge continues beyond the expiry of the relevant Validity Period unless and until a notice of variation is given. Pursuant to cl 6.1, the effect of a notice of variation is that it varies the Charge specified in the Price List. The First to Third Respondents accept that the variations notified by Telstra comply with cll 6.1, 6.2 and 6.3. The notices of variation issued by Telstra thus operated to vary the Charges specified in the Price List. That operation does not cease on 30 June 2013 or at any other particular time. The Charge for the relevant service becomes the varied charge until the Agreement comes to an end or there is a further variation.

38        In the context of cl 6 regarding Charges, the references in the notices to being valid “for the period 1 August 2012 to 30 June 2013” indicate that Telstra could not further vary the Charge within the specified 11 month period. As to the applicable charge beyond 30 June 2013, the effect of cl 6 is that after 1 August 2012 the charge for the relevant services became the charge as varied (including beyond 30 June 2013). On this basis there is an applicable price and no failure to agree within the meaning of the legislation under consideration.

39        In any event, if there was a ‘dispute’ as to this interpretation, this would not amount to a failure to reach agreement, but would be in the nature of a dispute as we have previously discussed.

40        For the foregoing reasons, the appeal should be allowed and Notice of Contention should be dismissed.

41        Following discussions with the parties during the hearing of the appeal, the additional orders which are appropriate to make are as follows:

    The orders made by the primary judge on 12 March 2014 be set aside and in lieu thereof:

(a)    A declaration that the Australian Competition and Consumer Commission (‘the Commission’) has no power to hear or determine the matters notified to the Commission by Vocus Fibre Pty Ltd on 11 September 2012.

(b)    A declaration that the Commission has no power to hear and determine the matters notified to the Commission by Adam Internet Pty Ltd on 18 September 2012.

(c)    A declaration that the Commission has no power to hear or determine the matters notified to the Commission by Chime Communications Pty Ltd on 25 September 2012.

(d)    An order that the First to Third Respondents pay the applicant’s costs.

    The First to Third Respondents pay the appellant’s costs of the appeal.

Associate:

Dated:    2 July 2014