FEDERAL COURT OF AUSTRALIA

Seven Network Limited v News Limited [2003] FCA 388

PRACTICE & PROCEDURE – motion to strike out pleadings – causes of action pleaded under s 45(2) of the Trade Practices Act 1974 – statement of claim fails to plead a sufficient link between the provisions of an alleged contract, agreement or understanding and the alleged lessening of competition.

Federal Court Rules, O11 r 16

Trade Practices Act 1974 (Cth), Part IV, s 45(2)

BT Australia Pty Ltd v New South Wales [1999] ATPR (Digest) 46-187 cited.

Banque Commerciale SA (in Liq) v Akhil Holdings Limited (1990) 169 CLR 279 cited.

Multigroup Distribution Services Pty Ltd v TNT Australia Pty Ltd (1996) ATPR 41-522 cited.

The Bega Co-operative Society Limited v The Milk Authority of the Australian Capital Territory (FCA, 12 May 1992, unreported) cited.

Trade Practices Commission v David Jones (Australia) Pty Ltd (1985) 7 FCR 109 cited.

Sammy Russo Supplies Pty Ltd v Australian Safeway Stores Pty Ltd [1998] ATPR 41-641 cited.

Australian Competition and Consumer Commission v Visy Paper Pty Ltd (2000) 186 ALR 731 cited.

ASX Operations Pty Ltd v Pont Data Australia Pty Ltd (No 1) (1990) 27 FCR 460 cited.

Rural Press Ltd v Australian Competition and Consumer Commission (2002) 118 FCR 236 cited.

Tillmanns Butcheries Pty Ltd v Australasian Meat Industry Employees’ Union (1979) 27 ALR 367 cited.

News Ltd v Australian Rugby Football League Ltd (1996) 64 FCR 410 cited.

Dowling v Dalgety Australia Ltd (1992) 34 FCR 109 cited.

Boral Besser Masonry Ltd v Australian Competition and Consumer Commission (2003) 195 ALR 609 cited.

Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Co Ltd (1989) 167 CLR 177 cited.

SEVEN NETWORK LIMITED & ANOR v NEWS LIMITED & ORS

N 1223 of 2002

SACKVILLE J

SYDNEY

6 MAY 2003

THE COURT ORDERS THAT:

1.                  The following portions of the Statement of Claim be struck out:

(a)          pars 225, 227 and 228;

(ii)        the words “159 to 175, 194 to 196 and” in par 201, the words “159 to 185, 194 to 196, and” in par 203 and the words “159 to 193”, in par 206;

(iii)       pars 239 to 254;

(iv)       pars 207 to 223; and

(v)        pars 383, 386 and 390.

2.                  The parties bring in agreed short minutes of order within fourteen days identifying which, if any, of pars 259 to 320 and 468 to 473 of the Consolidated Amended Statement of Claim should be struck out consistently with the reasons for judgment.

3.                  In default of agreement

(a)    the Telstra respondents bring in short minutes of order within twenty-one days identifying which of pars 259 to 320 and 468 to 473 of the Consolidated Amended Statement of Claim should be struck out consistently with the reasons for judgment, accompanied by brief submissions in support of the proposed short minutes of order.

(b)   the applicants, within a further seven days, bring in short minutes of order identifying which, if any, of pars 259 to 320 and 468 to 473 of the Consolidated Amended Statement of Claim should be struck out consistently with the reasons for judgment, accompanied by brief submissions in support of the proposed short minutes of order.

4.                  The applicants have leave to file a Further Amended Statement of Claim.

5.                  The question of costs be reserved.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT

the motion

1                     These proceedings arise out of bids for the pay television rights to Australian Football League (“AFL”) and National Rugby League (“NRL”).  The applicants, Seven Network Ltd (“Seven Network”) and its subsidiary C7 Pty Ltd (“C7”), seek relief primarily by reason of what are said to have been contraventions of Part IV of the Trade Practices Act 1974 (“TP Act”)by the nineteen respondents in connection with the bidding for the pay television rights.  The respondents include several very substantial corporations with interests in the media or in telecommunications.

2                     The third, fifth and sixth respondents (the “Telstra respondents” or “Telstra”) have filed a motion pursuant to Federal Court Rules (“FCR”), O 11 r 16, seeking to strike out certain paragraphs in the Consolidated Amended Statement of Claim filed on 13 February 2003 (the “Statement of Claim”).  Although the Statement of Claim pleads a number of causes of action, Telstra’s motion is confined to an attack on paragraphs in the Statement of Claim pleading causes of action under s 45(2) of the TP Act. 

3                     Section 45 of the TP Act relevantly provides as follows:

“(2)     A corporation shall not:

(a)               make a contract or arrangement, or arrive at an understanding, if:

(i)                 …

(ii)               a provision of the proposed contract, arrangement or understanding has the purpose, or would have or be likely to have the effect, of substantially lessening competition; or

(b)               give effect to a provision of a contract, arrangement or understanding, whether the contract or arrangement was made, or the understanding was arrived at, before or after the commencement of this section, if that provision:

(i)                 …

(ii)               has the purpose, or has or is likely to have the effect, of substantially lessening competition.

  (3)     For the purposes of this section, … ‘competition’, in relation to a provision of a contract, arrangement or understanding or of a proposed contract, arrangement or understanding, means competition in any market in which a corporation that is party to the contract, arrangement or understanding or would be a party to the proposed contract, arrangement or understanding, or any body corporate related to such a corporation, supplies or acquires, or is likely to supply to acquire, goods or services or would, but for the provision, supply or acquire, or be likely to supply or acquire, goods or services.”

4                     The applicants allege in the Statement of Claim that the Telstra respondents and other respondents contravened s 45(2)(a)(ii) of the TP Act by making a number of interrelated contracts, arrangements or understandings containing provisions which had the purpose or effect, or likely effect, of substantially lessening competition in one or more markets in Australia.  It is also alleged that various respondents contravened s 45(2)(b)(ii) of the TP Act by giving effect to those provisions.

5                     A key aspect of the applicants’ case, so far as the motion is concerned, relates to the so-called “Master Agreement provision” (a term defined in par 102 of the Statement of Claim).  This aspect of the case was summarised by the applicants’ senior counsel, Mr Douglas QC, as follows.  At all relevant times, the second and third respondents (trading in partnership under the name “Foxtel”) had secured the pay television rights to NRL matches and to other premium sporting events.  The Master Agreement was entered into in December 2000, between the first respondent (“News”), the fifth respondent (“Telstra Corporation”), the seventh respondent (“PBL”) and Foxtel.  The Master Agreement provided for News to bid for and acquire the pay television rights to AFL matches for the years 2002 to 2006 (“the AFL pay rights”) and to sub-licence them to Foxtel.  Since the rights to televise sporting events are critical to the success of a pay television provider, the acquisition of the AFL pay rights effectively resulted in Foxtel becoming the only or the dominant player in the retail pay television market, thereby substantially lessening competition in that market.  In these circumstances, the Master Agreement contained a provision that had the purpose or likely effect of substantially lessening competition in the various pleaded markets.

6                     Telstra attacks the pleaded case under s 45(2) of the TP Act, primarily on the ground that the Statement of Claim fails to plead a “link” between the Master Agreement provision and the alleged lessening of competition.  What is missing is said to be an allegation which identifies a feature of the Master Agreement provision giving rise to the circumstances whereby Foxtel acquired the AFL pay rights or the substantial lessening of competition is said to have occurred.

structure of the statement of claim concerning the purpose and effect of THE master agreement provision

7                     The Statement of Claim pleads (par 99) that during the period August 2000 to December 2000, News formulated a proposal for the acquisition by Foxtel of the AFL pay rights and by the ninth respondent (“Fox Sports”) of the pay television rights to NRL matches from 2001 to 2006 (the “NRL pay rights”).  The AFL proposal was (par 99(c)) that

(i)                  News would make a bid for the free-to-air television rights to AFL matches from 2002 to 2006 (“the AFL free-to-air rights”) and the AFL pay rights (together the “AFL broadcast rights”).  If the bid was successful News would enter into a contract with the AFL for the AFL broadcast rights (par 99(c)(i)).

(ii)                News would then sub-licence the AFL free-to-air rights to the eighth and tenth respondents (“Nine” and “Ten”, respectively) and the AFL pay rights to Foxtel (par 99(c)(ii)).

(iii)               The bid by News would be supported by put agreements with Nine, Ten and Foxtel “enabling News to require them to enter into sublicenses on the same terms as were embodied in the put agreements” (par 99(c)(iii)).

(iv)              Foxtel would pay $30 million per anum (CPI adjusted) for the AFL pay rights, consisting of pay rights to three exclusive live matches per week and the right to broadcast the remaining matches on a delayed basis (par 99(c)(iv)).

(v)                The News bid would be supported by various undertakings as to editorial coverage and other publicity (par 99(c)(v)).

8                     The NRL proposal relevantly was (par 99(d)) that

(ii)                Fox Sports would bid for the NRL pay rights and, if successful, would enter into a contract with the NRL Partnership for those rights (par 99(d)(i)).

(iii)               Foxtel would agree to accept channels with NRL programming supplied by Fox Sports on certain terms (par 99(d)(iii)).

(iv)              Foxtel would have the right to sub-license the NRL pay rights to the sixteenth respondent (“Optus”) (par 99(d)(iv)).

9                     At a meeting held on or about 13 December 2000, Telstra Corporation, News, PBL and Foxtel entered into a contract, arrangement or understanding concerning the acquisition of AFL broadcast rights and NRL pay rights (“the Master Agreement”) (par 100).

10                  Paragraph 102 of the Statement of Claim is as follows:

“It was a provision of the Master Agreement (‘the Master Agreement provision’) that each of Telstra, News, PBL and Foxtel, or alternatively each of Telstra, News and PBL, would:

(a)   carry out the AFL proposal and the NRL proposal, including by entering into the contracts which formed part of those proposals; and

(b)   procure their related bodies corporate to carry out the AFL proposal and the NRL proposal, including by entering into the contracts which formed part of those proposals.”

11                  It is then alleged (par 103) that following the meeting of 13 December 2000, the parties to the Master Agreement gave effect to the Master Agreement provision by entering into the agreements set out in pars 104 to 139.  Those agreements include the following:

(i)                  A contract between News and Foxtel whereby Foxtel agreed that, if requested by News, it would acquire the AFL pay rights (“the Foxtel Put”) (par 104).  It was a provision of the Foxtel Put that if News required Foxtel to enter an agreement, it would include terms to the effect (among others) that Foxtel would obtain exclusive AFL pay rights (the “Foxtel Put provision”) (par 105).

(ii)                On 19 December 2000, News acquired the AFL broadcast rights from the AFL (“the News/ARL Licence”) (pars 110, 113).

(iii)               Subsequent to the entry into the Foxtel Put, News procured Foxtel to enter into an agreement directly with the AFL in terms equivalent to the terms of the Foxtel Put (“the AFL/Foxtel Licence”).  Pursuant to that agreement, Foxtel has commenced to broadcast AFL matches as its retail pay television service (par 114).  The AFL/Foxtel Licence includes a term whereby Foxtel acquires exclusive AFL pay rights (par 115).

(iv)              In the alternative to (iii), News and Foxtel entered into an agreement in the terms of the Foxtel Put (“the News/Foxtel Licence) and, pursuant to that agreement Foxtel obtained exclusive AFL pay rights (pars 116, 117).

(v)                Fox Sports acquired the NRL pay rights from the NRL Partnership (“the Fox Sports/NRL pay rights agreement”) (pars 132, 133).

12                  The effect of lessening competition in the various markets is pleaded in pars 159 to 197.  (The various markets themselves are pleaded in pars 140 to 158, but there is no challenge to that part of the Statement of Claim.)  In particular, these paragraphs plead that the effect or likely effect of the acquisition of the AFL pay rights by Foxtel was a substantial lessening of competition in the retail pay television or retail television markets.

13                  The Statement of Claim pleads that at all times prior to 2002, the only pay television provider offering any competition to Foxtel was Optus (par 159).  Optus was reliant on C7 for a “major subscription driver” in the form of AFL programming, which was supplied by C7 to Optus pursuant to the so-called Optus Channel Supply Agreement (par 49).  The AFL programming was a major point of differentiation between Optus and Foxtel, since the latter did not broadcast AFL matches (par 163).

14                  The following is then pleaded:

“164.   The acquisition of the AFL pay rights by Foxtel, and the failure by C7 to secure the NRL pay rights, had the consequence that:

(a)               Foxtel obtained the last remaining gap in its programming line-up of premium sports.

(b)               This acquisition removed a major point of differentiation between the pay television services offered by Optus and Foxtel, and Foxtel thereafter had significantly more attractive programming than Optus.

(c)               Foxtel [was] able to increase its subscriber numbers, including at the expense of Optus, and increase its dominance of pay television in Australia.

(d)               Optus, in order to obtain attractive sports programming, was required to obtain it from Foxtel….

165.     By reason of the matters pleaded in the previous paragraph, the effect or likely effect of the acquisition of AFL pay rights by Foxtel is a substantial lessening of competition in the retail pay television market, or alternatively, the retail television market.

…

167.     The acquisition of the AFL pay rights by Foxtel and the failure by C7 to secure the NRL pay rights, was likely to lead and has led to the following:

(a)               Without the AFL pay rights, and in circumstances where C7 did not obtain NRL pay rights as a replacement for AFL pay rights, C7 was exposed to termination of the Optus Channel Supply Agreement …which is what occurred.

(b)               The acquisition by Foxtel of the AFL pay rights created a strong incentive for Optus…to acquire rights from Foxtel or Fox Sports, rather than C7, which is what occurred.

(c)               Without supply contracts with Optus…, and without access to Foxtel, C7 cannot compete with Foxtel or Fox Sports in the acquisition of Sports Rights because:

                                                                          i.      C7 cannot bid for rights on the basis that it would obtain revenue from any subscribers, because C7 has no guaranteed avenue of supply.

                                                                        ii.      No rights holder of attractive Sports Rights will be interested in dealing with C7 because it could not guarantee any audience for those rights.

(d)               C7 has no programming of sufficient attractive force to entice any of the retail providers of pay television services to enter into a supply contract with C7.

(e)               C7 is unable to compete with Foxtel and Fox Sports in the supply of pay television sports programming.

(f)                C7 is unable to engage in the supply of pay television channels, and C7 was compelled to cease operating.”

15                  It is next said that C7’s loss of the AFL pay rights and its failure to secure the NRL pay rights forced Optus to obtain programming from Foxtel.  The effect is said to be that Optus has become less able to compete with Foxtel which controls the price of the programming required by Optus (pars 168-169).  If Foxtel had not acquired the AFL pay rights, C7 would likely have acquired them and the anti-competitive consequences would not have occurred (par 170).  By reason of the matters pleaded in pars 167-170 it is said (par 171) that:

“the effect or likely effect of the acquisition of AFL pay rights by Foxtel is a substantial lessening of competition in the retail pay television market, or alternatively the retail television market.”

16                  Paragraphs 172-175 allege that prior to December 2000, C7 had the potential to enter and compete against Foxtel in the relevant television markets and, by reason of Foxtel’s acquisition of the AFL pay rights, it has been prevented from doing so.  For this reason also, the effect or likely effect of the acquisition of AFL pay rights by Foxtel is a substantial lessening of competition in the relevant markets (par 175).

17                  The purpose of the Master Agreement provision is pleaded in pars 198 to 206.  It is alleged (par 198) that

“a substantial purpose of the Master Agreement provision was to permit Foxtel to secure the AFL pay rights (and prevent C7 from acquiring an alternative in the form of the NRL pay rights) so as to prevent C7 from competing against Foxtel [in the relevant markets]”.

In particular, it is said that a substantial purpose of Foxtel in entering the Master Agreement incorporating the Master Agreement provision, as News, PBL and Telstra Corporation knew, was to “kill C7”.

18                  Alternatively, it is said (par 199) that

“a substantial purpose of the Master Agreement provision was to enable Foxtel to secure the AFL pay rights (and prevent C7 from acquiring an alternative in the form of the NRL pay rights) so as to reduce the competitive strength of Optus in the [relevant market].”

19                  The Statement of Claim pleads (par 201) that by reason of the matters pleaded in pars 159 to 175, 194 to 196 (which in substance repeat earlier allegations that the acquisition by Foxtel of the AFL pay rights caused C7 channels to cease to be competitive with Foxtel and Fox Sports and induced Optus to terminate the Optus Channel Supply Agreement) and 198 to 200, a substantial purpose of the Master Agreement provision was to substantially lessen competition in the relevant markets.  Similar allegations are made in pars 203 (wholesale sports channel or wholesale channel markets) and 206 (various sports rights markets).

20                  Under the heading “Effect of the Master Agreement Provision and Acquisition Agreement Provisions”, the following is pleaded:

“224.   The parties to the Master Agreement have given effect to the Master Agreement provision by entering into and procuring the entry into the agreements set out in the following sub-paragraphs (‘the Acquisition Agreements’), including the entry into those agreements by Foxtel, Nine and Fox Sports:

(g)               the Foxtel Put;

(h)               …;

(i)                 …;

(j)                the News/AFL Licence;

(k)               the AFL/Foxtel Licence, or alternatively the News/Foxtel Licence;

…

225.     The Master Agreement provision, upon being performed, facilitated and brought about the acquisition by Foxtel of the AFL pay rights, and the failure by C7 to secure the NRL pay rights, and therefore had the effects pleaded in paragraphs 159 to 196 above.

226.     Each of the Acquisition Agreements has been performed, as follows:

(a)              The Foxtel Put,…[was] performed by the entry into the AFL/Foxtel Licence (or alternatively the News/Foxtel Licence)….

(b)              The News/AFL Licence has been performed as pleaded in paragraph 113.

(c)               The AFL/Foxtel Licence (or alternatively the News/Foxtel Licence),… [has] been performed as pleaded in paragraphs 114 [and 116].

…

227.     Each of the Acquisition Agreements was entered into in compliance with, and in furtherance of, the Master Agreement, and in circumstances which included the entry into and performance of each other Acquisition Agreement (as required by the Master Agreement).

228.     By reason of the matters pleaded in paragraphs 224 to 227, in respect of each of the Acquisition Agreements, the effect of each of the relevant provisions [as pleaded earlier]… (“the Acquisition Agreement provisions’) is the same as the effect of the Master Agreement provision, and is as pleaded in paragraphs 159 to 196.

            …

237.     By reason of the matters pleaded in paragraphs 159 to 236, the entry by Foxtel, News, PBL and Telstra [Corporation], or alternatively by News, PBL and Telstra [Corporation], into the Master Agreement amounts to conduct by each of them in contravention of section 45(2)(a)(ii) of the TPA.

238.     Further or in the alternative, in giving effect to the Master Agreement provision, each of Foxtel, News, PBL and Telstra [Corporation], or alternatively each of News, PBL and Telstra [Corporation], has engaged in conduct in contravention of section 45(2)(b)(ii) of the TPA.

principles

21                  The general principles governing pleadings are not in dispute.  I summarised the principles in BT Australia Pty Ltd v New South Wales [1999] ATPR (Digest) 46-187, at 52,304:

“A statement of claim must show the nature of the applicant’s claim and the material facts on which it is based: FCR, O 4, r 6.  FCR O 11, r 2(a) provides that the pleadings are to contain and shall contain only a statement in summary form of the material facts upon which the applicant relies.  FCR O 12, r 1, requires an applicant to state in the pleading or in a document filed with the pleading any necessary particulars.  If a statement of claim discloses no reasonable cause of action or has a tendency to cause prejudice, embarrassment or delay, the whole or part of it may be struck out: FCR, O 11, r 16.

In Banque Commerciale SA (In Liq) v Akhil Holdings Limited (1990) 169 CLR 279, at 286, Mason CJ and Gaudron J said this:

            ‘The function of pleadings is to state with sufficient clarity the case that must be met….In this way, pleadings serve to ensure the basic requirement of procedural fairness that a party should have the opportunity of meeting the case against him or her and, incidentally, to define the issues for decision.  The rule that, in general, relief is confined to that available on the pleadings secures a party’s right to this basic requirement of procedural fairness.’

In Multigroup Distribution Services Pty Ltd v TNT Australia Pty Ltd (1996) ATPR 41-522, at 42,679, Burchett J approved observations made by Neaves J in The Bega Co-operative Society Limited v The Milk Authority of the Australian Capital Territory (FCA, 12 May 1992, unreported):

            ‘The material facts are all those facts necessary for the purpose of formulating a complete cause of action. … It is not sufficient that the statement of claim simply express a conclusion drawn from facts which are not stated…; though in some circumstances to plead a conclusion may be to plead a material fact…. Not only must all material facts be pleaded, but they must be pleaded with a sufficient degree of specificity, having regard to the general subject-matter, to convey to the opposite party the case that party has to meet….  It must be apparent on the face of the document that the facts pleaded, if proved, would establish the cause of action relied upon…. It is not a function of particulars to take the place of the necessary averments in the statement of claim…’.”

22                  As this passage indicates, a pleading must allege the material facts that establish each element of the cause of action.  Accordingly, in the context of a claim under Part IV of the TP Act, it is not enough to assert conclusions drawn from facts not pleaded in the statement of claim.  A mere assertion, for example, that an agreement contained a provision that had the purpose or effect of substantially lessening competition is not a proper pleading: Trade Practices Commission v David Jones (Australia) Pty Ltd (1985) 7 FCR 109.

23                  In Sammy Russo Supplies Pty Ltd v Australian Safeway Stores Pty Ltd [1998] ATPR 41-641, Goldberg J (at 41,094) pointed out that in pleading a cause of action under s 45(2)(a)(ii) of the TP Act it is necessary to plead material facts in relation to:

“(a)     the making of a contract or arrangement or the arriving at an understanding;

  (b)     the identification of a provision in that contract, arrangement or understanding;

(c)           an allegation that the provision has the purpose, or would have, or be likely to have the effect, of substantially lessening competition;

(d)           an allegation identifying the relevant market in which competition would be lessened and the manner in which competition would be lessened.”

(It will be seen that s 45(2)(a)(ii) actually refers to a “proposed” contract, arrangement or understanding.  This reflects the fact that s 45(2)(a) is directed at the making of a contract arrangement or understanding, rather than to the implementation of the existing contract, arrangement or understanding: Australian Competition and Consumer Commission v Visy Paper Pty Ltd (2000) 186 ALR 731, at 749, per Sackville J.)

24                  Telstra’s attack on the Statement of Claim concerns the third of the requirements identified by Goldberg J.  In that respect, s 45(2) incorporates a “curiosity”, in that it speaks of the purpose of the provision, rather than the purpose of those who devised it: ASX Operations Pty Ltd v Pont Data Australia Pty Ltd (No 1) (1990) 27 FCR 460, at 475, per curiam.

25                  There is a distinction between the purpose of a provision and its effect or likely effect: Rural Press Ltd v Australian Competition and Consumer Commission (2002) 118 FCR 236, at 266.  The purpose to which s 45(2)(a)(ii) refers is the subjective purpose of those engaging in the relevant conduct: ASX v Pont Data, at 475-477; cf Rural Press v ACCC, at 264.  The effect or likely effect of a provision is to be determined by reference to what can reasonably be expected to be its consequences: Tillmanns Butcheries Pty Ltd v Australasian Meat Industry Employees’ Union (1979) 27 ALR 367, at 383, per Deane J.  “Likely”, as used in s 45(2) of the TP Act means a real chance or possibility, rather than more likely than not: Tillmanns Butcheries v AMIEU, at 382: News Ltd v Australian Rugby Football League Ltd (1996) 64 FCR 410, at 565.  The purpose or effect of a provision is to be assessed at the time the agreement is made or the provision comes into effect: Dowling v Dalgety Australia Ltd (1992) 34 FCR 109, at 134; Rural Press v ACCC, at 263.

26                  In ASX v Pont Data, the Court said (at 478) that in

“asking whether provisions of the agreements have or would be likely to have the effect (putting to one side matters of purpose) of substantially lessening ‘competition’, within the sense explained in s 45(3), one looks not so much at the position of particular competitors as to the state or condition constituting the market or markets in question, actually and potentially.”

Recent High Court authority has emphasised that Part IV of the TP Act is concerned with the protection of competition, not of competitors: Boral Besser Masonry Ltd v Australian Competition and Consumer Commission (2003) 195 ALR 609, at 640, per Gaudron, Gummow and Hayne JJ; Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Co Ltd (1989) 167 CLR 177, at 191.  Thus an intent to damage competitors may not be indicative of anti-competitive conduct.  Damage to competitors is inherent in the competitive process: Boral v ACCC, at 632, per Gleeson CJ and Callinan J.

reasoning

the “link” between the master agreement provision and the anti-competitive effects

Submissions

27                  Telstra submitted that a pleading alleging a contravention of s 45(2)(a)(ii) of the TP Act must demonstrate that there is a “substantial lessening of competition associated with the provision” of the contract, arrangement or understanding.  Mr Archibald QC, who appeared with Mr Castle for Telstra, argued that it is for the applicants to demonstrate that the provision complained of had the requisite purpose or effect, or was likely to have the requisite effect.  Accordingly, it is not enough simply to plead a series of agreements or transactions culminating in a substantial lessening of competition and attribute an anti-competitive effect to the first agreement in the series.  What is required is a pleading establishing that a provision of a contract, arrangement or understanding, viewed at the time it came into effect, would have or would be likely to have the effect of substantially lessening competition.

28                  I think that this is the correct starting point.  So much flows from the language of s 45(2) of the TP Act.  Indeed, I did not understand Mr Douglas QC, who appeared with Mr Dick and Mr Darke for the applicants, to contend otherwise.  The question, then, is whether the current pleading satisfies the requirement identified by Mr Archibald.

29                  In arguing that the Statement of Claim failed to establish that the Master Agreement provision would have had or would be likely to have had the anti-competitive effect, Telstra’s written submissions somewhat oversimplified the structure of the pleading.  Telstra identified par 225 as the only paragraph purporting to provide what Mr Archibald described as the “link” between the Master Agreement provision and the effect of substantial lessening of competition in the relevant markets.  Telstra contended that par 225 does not specify any feature of the Master Provision agreement that could have “facilitated and brought about” Foxtel’s acquisition of the AFL pay rights and C7’s failure to secure the NRL pay rights.

30                  The applicants’ written submissions pointed out that there were other paragraphs that had to be taken into account in determining whether a sufficient “link” between the Master Agreement provision and the anti-competitive effect had been pleaded.  Mr Douglas explained the structure of the Statement of Claim as follows.

31                  The Master Agreement provision required the parties to “carry out” the AFL and NFL proposals (par 102).  Those were proposals, formulated by News, for the acquisition by Foxtel of the AFL pay rights and by Fox Sports of the NRL pay rights (par 99).  The mechanisms by which the rights were to be acquired were specified in par 99(c) and (d), respectively.  News was to make a bid for the AFL rights and, if successful, was to sub-license items to Foxtel.  News’ bid was to be supported by a put agreement with Foxtel.  Fox Sports was to make a bid for the NRL pay rights and, if successful, was to enter into a contract with the NRL Partnership.  Read together, pars 99 and 102, plead that the Master Agreement provision contemplated that Foxtel and Fox Sports would acquire the AFL and NRL pay rights, respectively, contingent only on successful bids for the rights.

32                  The parties gave effect to the Master Agreement provision by entering into the various agreements pleaded in pars 104 to 139, including the agreements (the AFL/Foxtel Licence or, alternatively the News/Foxtel Licence) whereby Foxtel acquired the AFL pay rights and the agreement (the Fox Sports/NRL pay rights agreement) whereby Fox Sports acquired the NRL pay rights.  The acquisition of the AFL pay rights by Foxtel, and C7’s failure to secure the NRL pay rights, had the effect or likely effect of substantially lessening competition in the relevant markets (pars 164 to 171).  It is within this framework that par 225 pleads that the Master Agreement provision facilitated and brought about the acquisition by Foxtel of the AFL pay rights and the failure by C7 to secure the NRL pay rights, thereby having the effects on competition pleaded in pars 159 to 196.

33                  In his oral submissions, Mr Archibald responded to the argument put by the applicants in their written submissions.  He contended that Mr Douglas’ explanation did not cure the defect in the Statement of Claim.  It remained true that the pleading did not “fasten” on the effects or likely effects of the Master Agreement provision.  Rather, it fastened on the acquisition of the pay rights by Foxtel and Fox Sports.  The Statement of Claim failed to plead a sufficient connection between the two.  If the Master Agreement provision were viewed prospectively from the time it came into effect, Foxtel might never had acquired the AFL pay rights.  News may never have bid; its bid might have been unsuccessful; and, if successful, it might not have exercised the put option.  Moreover, News could have bid for the AFL pay rights independently and then assigned or licensed them to Foxtel.  The Master Agreement provision did not bestow on News or Foxtel a capability that was otherwise absent to acquire the AFL pay rights.  Similarly, C7’s inability to obtain the NRL pay rights was not referable to the Master Agreement provision.

Analysis

34                  In my opinion, some of Telstra’s criticisms of the Statement of Claims are not persuasive.  The fact that a provision in an agreement is subject to a contingency does not necessarily mean that the provision cannot have the effect or likely effect of substantially lessening competition.  Much may depend on the prospects of the contingency being satisfied.  It must be remembered that the expression “likely” in s 45(2)(a)(ii) means a real chance or possibility.  Mr Archibald accepted that a contingent agreement or provision might be caught by s 45(2)(a)(ii) if the parties have “some control” over whether the contingency will be satisfied.  It is hard to see why that should be the test.  The question is whether a provision in a contract, arrangement or understanding would have or be likely to have the proscribed anti-competitive effect.  If the contingency to which the provision is subject is likely to be satisfied then, assuming the provision once implemented will have the proscribed anti-competitive effect, it would seem the terms of s 45(2)(a)(ii) are satisfied.

35                  Similarly, I do not think it is a complete answer to a pleading alleging a breach of s 45(2) of the TP Act that the parties, or some of them, might have achieved the same or a comparable result by other means.  The question is always whether the material facts pleaded establish a contravention of the statute.  It is not whether the parties to an alleged contract, arrangement or understanding might have achieved a particular objective in a different way and thus have avoided contravening the TP Act.  In the case of an arrangement that includes a provision having an anti-competitive effect, for example, it is not to the point to say that one of the parties, acting unilaterally, might have organised its affairs so as to achieve a similar outcome.

36                  Nonetheless, I think that there is considerable force in the balance of Telstra’s criticism of the current pleadings.  The Statement of Claim appears to be drafted on the assumption that if an agreement contains a provision which contemplates certain transactions taking place and those transactions ultimately have the effect of substantially lessening competition, the original provision must have had or been likely to have had that effect.  If that is the assumption on which the Statement of Claim is drafted, I do not think it is sound.  Section 45(2)(a)(ii) focuses attention on the effect or likely effect of the provision at the time the agreement of which it is part was entered into.  The mere fact that a provision in a contract, arrangement or understanding is the first in a series of transactions or events that ultimately results in a substantial lessening of competition does not necessarily establish that the provision, at the time it is entered into, has or is likely to have the effect of lessening competition in a market.  The lessening of competition may have come about independently of the original provision, for example, by reason of understandings reached later as to how the subsequent transactions were to be implemented.  In these circumstances, it may be difficult to conclude that the original provision had the effect or likely effect of lessening competition.

37                  In my view, the difficulty with the Statement of Claim as presently drafted is that it does not address expressly the effect or likely effect of the Master Agreement provision on competition in the various markets, considered at the time the provision was agreed to or came into effect.  In consequence, it is not entirely clear why the applicants say that the provision had, or was likely to have, the effect of substantially lessening competition in those markets.  In other words, it is difficult to discern the material facts on which the applicants rely to make out their case.

38                  A possible reading of the Statement of Claim is that it intends to plead that because

(i)         the Master Agreement provision contemplated or, perhaps, required that the proposal for Foxtel and Fox Sports to acquire the AFL and NRL pay rights would be implemented (assuming the bids by News and Fox Sports were successful); and

(ii)        viewed as at the date of the Master Agreement, the acquisition of these rights would have had or was likely to have had anti-competitive consequences,

the provision itself had or was likely to have the effect of substantially lessening competition.  But this is not expressly pleaded, whether in par 225 or otherwise.  It is therefore not clear whether the applicants intend to put their case this way.  If they do, Telstra is entitled to be informed by an express pleading to this effect.

39                  Other difficulties arise from the structure of the current pleadings.  For example, it is presumably an essential element in the applicants’ case that the Master Agreement provision would or was likely to have the effect of Foxtel and Fox Sports acquiring the AFL and NRL pay rights respectively.  What is not clear is whether the only fact pleaded in support of that allegation is that the bids by News and Fox Sports were ultimately successful.  Do the applicants rely on other facts?  Is there something, for example, about the Master Agreement itself that made the acquisition of those rights more likely than otherwise would be the case?  Do the applicants intend to rely, for example, on the resources available to News and Foxtel in connection with the bids?  If so, these matters should be pleaded.

40                  Similarly, the Statement of Claim pleads certain features of the retail television pay market.  These include Foxtel’s substantial degree of power in that market and the fact that its power is supported by a “multimedia alliance” (par 142).  It is also alleged that the only pay television service offering any competition to Foxtel was Optus (par 159).  The Statement of Claim fails to make clear which, if any, of these matters are intended to support the applicants’ claim that the Master Agreement provision at the time it came into effect, had or was likely to have the effect of substantially lessening competition in the retail pay television market.  The same difficulty arises in relation to other pleaded markets.

41                  In view of the defects I have identified, I think that the appropriate course is to strike out pars 225 and 227 of the Statement of Claim.  Telstra also sought to strike out pars 159 to 197 as tainted by the same defects.  However, those paragraphs support the pleading of a cause of action under s 50 of the TP Act (pars 345 to 366).  Since no challenge is made to the pleading of that cause of action, pars 159 to 197 should not be struck out only by reason of the failure to plead the “link” between the Master Agreement provision and the anti-competitive effects.

42                  One consequence of striking out par 225 is that par 228 also falls.  It pleads that by reason of the matters pleaded in pars 224 to 227, the effect of each of the so-called Acquisition Agreement provisions is the same as the effect of the Master Agreement provisions.  It will therefore be necessary for the applicants to replead the anti-competitive effects of the Acquisition Agreement provisions.

43                  My present view is that the pleadings defects I have thus far identified are capable of being remedied.  Indeed, Mr Archibald did not contend that leave to replead should not be granted.  I therefore intend to give the applicants leave to replead.

purpose of the master agreement provision

44                  Telstra submitted that there were pleading defects in the section of the Statement of Claim alleging that the purpose of the Master Agreement provision was to substantially lessen competition in the various markets.  As I followed Mr Archibald’s oral submissions, his principal argument was that par 201 (and the comparable pleading in pars 203 and 206) was defective because it relied on the anti-competitive effects of the acquisition of the AFL and NRL pay rights as demonstrating the anti-competitive purpose of the Master Agreement provision.  His point was that since (as I have held) the Statement of Claim  failed to allege clearly the respects in which the Master Agreement provision had or was likely to have the effect of lessening competition, the applicants could not simply incorporate into an allegation that the Master Agreement provision had an anti-competitive purpose, a cross-reference to the alleged anti-competitive effects of the acquisition of the AFL and NRL pay rights.  To do so was to rely on the anti-competitive effects of the Master Agreement provision which, ex hypothesi, had not been adequately pleaded.

45                  In my view, this submission is correct.  In consequence the cross-references in par 201 to pars 159 to 175 and 194 to 196 should be struck out, as should the comparable reference in pars 203 and 206.  Again, the applicants should have leave to replead.

46                  Telstra also submitted that pars 198 to 200 of the Statement of Claim should be struck out.  These paragraphs allege that the substantial purpose of the Master Agreement provision was to permit or enable Foxtel to secure the AFL pay rights and to prevent C7 from acquiring an alternative in the form of the NRL pay rights.  Telstra argued that the pleading does not establish a link between the alleged purpose and that of substantially lessening competition in one of the pleaded markets.

47                  Paragraphs 198 to 200 seek to establish a connection between the pleaded purpose and the proscribed purpose.  They do so by alleging that the purpose of the provision (to permit or enable Foxtel to secure the AFL pay rights and to prevent C7 acquiring the alternative NRL pay rights) included

(i)                  preventing C7 from competing against Foxtel in the relevant markets and indeed “kill[ing] off” C7 (par 198);

(ii)                reducing the competitive strength of Optus in those markets (par 199); and

(iii)               strengthening Foxtel’s position in the retail pay television market (par 200).

48                  Unlike the pleading concerning the effect or likely effects of the Master Agreement provision, I think that pars 198 to 200 identify the material facts on which the applicants rely to establish that the purpose of the provision was to substantially lessen competition in the relevant markets.  It may be that in due course there will be argument as to whether some of those facts are capable of establishing that the proscribed purpose was present.  For example, there may be an issue as to whether the purpose of eliminating C7 as a competitor in the retail pay television market, of itself, is enough to establish that the purpose of the provision was to substantially lessen competition.  But the paragraphs seem to me to identify the matters on which the applicants rely.  It is true that the purpose could only be effected if Foxtel secured the AFL pay rights and C7 did not acquire the NRL pay rights.  But I interpret pars 198 to 200 to allege that the parties to the Master Agreement provision intended that Foxtel should acquire the AFL pay rights and that C7 should be prevented from acquiring the NRL pay rights.  Accordingly, I do not think that a basis has been shown for striking out pars 198 to 200.

49                  Mr Archibald suggested that the references in pars 198 and 199 to C7 having been prevented from acquiring the NRL pay rights should be struck out as inconsistent with the rest of the pleading.  I do not see any substance in this complaint.  The allegations in pars 198 and 199 do not contradict any other part of the pleading.

the rationalisation provision

50                  Telstra challenged pars 239 to 254 of the Statement of Claim, which concern an agreement allegedly entered into by Telstra Corporation, News and PBL (“the 1997 Agreement”).  Those paragraphs plead that the parties to the 1997 Agreement contravened s 45(2)(a)(ii) and s 45(2)(b)(ii) by making an agreement containing the “rationalisation provision” and by giving effect to that provision.  The “rationalisation provision” required the parties to the 1997 Agreement to “[rationalise] the pay television industry for the benefit of Foxtel”.  No further content is given in the pleading to the word “rationalise”.

51                  The pleading continues as follows:

• During the period August 1999 to May 2002, C7 was threatening to compete with Foxtel in the retail pay television market and was seeking to obtain the AFL pay rights for a further five years (par 240).
• At the time of entry into the Master Agreement, the removal of C7 from the pay television industry and the acquisition of the AFL rights by Foxtel would benefit Foxtel (par 241).
• At that time, the likely effect of the Master Agreement was the removal of C7 from the pay television industry and the acquisition of the AFL rights by Foxtel, “thus rationalising the pay television industry for the benefit of Foxtel” (par 242).
• In entering the Master Agreement containing the Master Agreement provision and performing the Master Agreement provision, the parties to the 1997 Agreement have given effect to the rationalisation provision (par 243).  Accordingly, the effects of the rationalisation provision include the effects of the Master Agreement provision as pleaded in pars 159 to 196 (par 244).
• By reason of the matters in pars 239 to 244:

            “in giving effect to the rationalisation provision by the entry into the Master Agreement incorporating the Master Agreement provision and the performance of the Master Agreement, each of News, PBL and Telstra [Corporation] has engaged in conduct in contravention of section 45(2) of the TPA (par 247).”

52                  One difficulty with this pleading is that, for the reasons I have already given, the Statement of Claim does not adequately plead that the Master Agreement provision had or was likely to have the effects referred to in pars 139 to 196. More fundamentally, the Statement of Claim does not allege that the rationalisation provision required or even contemplated that the parties to the 1997 Agreement would enter into the Master Agreement or the Master Agreement provision.  The pleading does not attempt to specify the obligations of the parties to the rationalisation provision or how those obligations might have required or encouraged them to agree to the Master Agreement provision.  At its highest, the allegation appears to be that the Master Agreement was consistent with the object of rationalisation of the pay television industry.  It is simply unclear on the pleading in its current form how the rationalisation provision had or was likely to have had the effect of causing the parties to enter into the Master Agreement provision.  The paragraphs to which I have referred should be struck out.

53                  Paragraph 248 alleges that a substantial purpose of the rationalisation provision, which required a rationalisation of the pay television industry for the benefit of Foxtel, was to reduce competition against Foxtel and to ensure that it became the dominant supplier of pay television services.  Accordingly, so it is pleaded, a substantial purpose of the rationalisation provision was to substantially lessen competition in the retail pay television market or the retail television market (par 249) and the entry into the 1997 Agreement by the parties thereto contravened s 45(2)(a)(ii) of the TP Act (par 250).  In the absence of a pleading specifying what steps the parties to the rationalisation provision intended or undertook, pars 248 to 250 amount merely to an assertion of a proscribed purpose without material facts to support it.  These paragraphs should also be struck out.

54                  Similar pleading defects affect the other paragraphs relating to the rationalisation provision (pars 245 to 246, 251 to 254).  They, too, should be struck out.

55                  While I shall give leave to the applicants, if so advised, to replead these paragraphs, I think careful attention should be given to whether there is any point in doing so.  The 1997 Agreement was entered into in June 1997, some three and a half years prior to the Master Agreement.  Any reliance on the 1997 Agreement is likely to significantly expand the issues in an already complex and potentially very lengthy case.  It is difficult to understand what the 1997 Agreement can add to the applicants’ case that would not already be covered by the remainder of the Statement of Claim.

foxtel and optus supply agreements

56                  Telstra complains that the Statement of Claim does not plead a link between the Foxtel/Optus supply agreements pleaded  in pars 207 to 223 and the Master Agreement provision.  This portion of the Statement of Claim pleads that C7 was obliged under its programming contracts with Optus and Austar (the so-called “Optus Channel Supply Agreement” and the “Austar Channel Supply Agreement”) to supply AFL matches (pars 207 to 210).  It is then said that after C7 ceased to be able to supply programming comprising AFL matches to Optus and Austar, Optus terminated the Optus Channel Supply Agreement and Austar allowed the Austar Channel Supply Agreement to lapse (pars 211 to 212), following which C7 ceased to operate (par 213).  Foxtel and Optus then entered into new supply agreements which included the supply to Optus of AFL matches for retail distribution by Optus (pars 214 to 223).

57                  Mr Douglas acknowledged in argument that the fate of these paragraphs depended on whether Telstra’s submission, that there had been no adequate pleading of the link between the Master Agreement provision and the acquisition by Foxtel and Fox Sports of the AFL pay rights and the NRL pay rights respectively, was to be accepted.  Since I have held that that link has not been properly pleaded, it follows that pars 207 to 223 should be struck out.

58                  Telstra attacked paragraphs 224 to 238 of the Statement of Claim.  As I have held that paragraphs 225 and 228 should be struck out, I do not think it necessary to address the detail of the other challenges.

further analysis of the acquisition agreements

59                  Paragraphs 259 to 320 of the Statement of Claim appear under the heading “Further analysis of the Acquisition Agreements”.  Telstra submits that these paragraphs suffer from the same defects as the other sections of the Statement of Claim.  Little attention, however, was paid in the written or oral submissions to the flaws said to affect pars 259 to 320.

60                  I think that the appropriate course is to invite the parties to prepare a document setting out the agreed consequences of the reasoning in this judgment on pars 259 to 320 of the Statement of Claim.  If the parties are unable to agree, I shall entertain further written submissions on the question.

the exclusion of c7 from the foxtel cable

61                  Telstra complained of the pleading relating to the effect of cl 5.2 of the Broadband Co-operation Agreement dated 14 April 1997 (the “BCA”) between the fourth respondent (“Foxtel Management”) and the sixth respondent (“Telstra Multimedia”).  The Statement of Claim pleads (par 375) that cl 5.2 of the BCA required Telstra Multimedia to grant to Foxtel the sole and exclusive right to provide pay television services delivered by reason of the Foxtel Cable (that is, the cable network owned by Telstra Multimedia and used by Foxtel to provide its cable television service (par 32)).  It is further alleged that Foxtel and Telstra Multimedia refused to provide services to C7 on the basis that cl 5.2 of the BCA conferred in Foxtel a “protected contractual right” within the meaning of s 152AR(4)(d) of the TP Act (par 376).  Had cl 5.2 not been “operative”, Telstra Multimedia would have provided services to C7 (par 377).  Moreover, in refusing C7’s request for the provision of services pursuant to Part XIC of the TP Act, Foxtel and Telstra Multimedia gave effect to cl 5.2 of the BCA (par 378).

62                  It is then said that the effect or likely effect of the conduct in refusing to provide services to C7 is that C7 was prevented from acquiring the AFL pay rights as follows (par 379):

“(a)     If C7 had been provided with services so as to enable it to provide channels on the Foxtel Cable, then Seven Network’s bid for AFL rights would have been successful over the bid by News.

  (b)     Not having access to the Foxtel subscribers, or alternatively the members of the public whose homes are connected to the Foxtel Cable, was an important motivating factor in the AFL preferring the News bid over the Seven bid.”

By reason of the matters, inter alia, in pars 375 to 379, the effect of cl 5.2 of the BCA is as pleaded in pars 159 to 196 (par 383).

63                  In my view, this form of pleading suffers from the same defect as I have identified in relation to the effect or likely effect of the Master Agreement provision.  While the Statement of Claim pleads a sequence of events, it is not clear why cl 5.2, viewed at the time the BCA was entered into, would have had or would be likely to have had the effect of allowing Foxtel to acquire the AFL pay rights and thereby substantially lessen competition in the relevant markets.  Like the rationalisation provision, cl 5.2 of the BCA was entered into some three and a half years prior to Foxtel acquiring the AFL pay rights.  What were the circumstances at the time that meant that cl 5.2 would or would be likely to have the effect of substantially lessening competition?  The present pleading seems to suggest that it is enough that the existence of cl 5.2 of the BCA in fact facilitated Foxtel’s acquisition of the AFL pay rights over three years later.  If this is what is intended, I do not think that it establishes the competitive effect of cl 5.2 at the time it was entered into.  If the applicants intend to rely on other factors to establish the anti-competitive effect of cl 5.2, they should be specifically pleaded.  Accordingly, par 383 of the Statement of Claim should be struck out.

64                  For similar reasons, pars 386 and 390 should also be struck out.

65                  Telstra also submitted that pars 468 to 473 of the Statement of Claim should be struck out.  The written submissions assert, without elaboration, that these paragraphs give rise to the same issues.  The issue was not addressed in oral submissions.  I shall take the same approach to these paragraphs as I have to pars 259-320.

conclusion

66                  Telstra’s challenge to the Statement of Claim has succeeded to some extent.  The following paragraphs in the Statement of Claim should be struck out:

(i)         pars 225, 227 and 228;

(ii)        the words “159 to 175, 194 to 196 and” in par 201, the words “159 to 185, 194 to 196, and” in par 203 and the words “159 to 193”, in par 206;

(iii)       pars 239 to 254;

(iv)       pars 207 to 223; and

(v)        pars 383, 386 and 390.

67                  I shall direct the parties within fourteen days to bring in agreed short minutes of order identifying which, if any, of pars 259 to 320 and 468 to 473 should be struck out.  Failing agreement within that time, Telstra should bring in short minutes of order identifying which, if any, of those paragraphs should be struck out, together with a brief outline of submissions supporting the short minutes of order.  The applicants should, within a further seven days, file their own proposed short minutes of order supported by a brief outline of submissions.

68                  The applicants will have leave to file a further amended statement of claim addressing the issues dealt with in this judgment. 

69                  My tentative view, subject to any contrary argument, is that the applicants should pay Telstra’s costs of the motion.  However, I shall reserve the question of costs until the final form of orders is determined.

Associate:

Dated:              6 May 2003