FEDERAL COURT OF AUSTRALIA

Spotwire Pty Ltd v Visa International Service Association Inc & Anor [2003] FCA 762

TRADE PRACTICES – contract, arrangement or understanding, exclusionary provision, vertical agreement, horizontal agreement, meeting of minds, consensus, knowledge

PRACTICE AND PROCEDURE – statement of claim, summary dismissal, strike out

TORT – inducing breach of contract, unlawful interference with contractual relations, unlawful interference with trade or business interests, unlawful act, knowledge

WORDS AND PHRASES – ‘contract, arrangement or understanding’, ‘unlawful act’

Federal Court Rules – O 11 r 16, O 22 r 2

Trade Practices Act 1974 (Cth) – s 4D, s 45

Allstate Life Insurance Co v Australia and New Zealand Banking Group Limited [1994] FCA 636 considered

Allstate Life Insurance Co v Australian and New Zealand Banking Group Ltd (1995) 58 FCR 26 cited

Anderson v Commonwealth Bank of Australia [1995] FCA 787 cited

Australia Building Industries Pty Ltd v Stramit Corp Ltd   [1997] FCA 1318 cited

Australian Competition and Consumer Commission v Amcor Printing Papers Group Ltd (2000) 169 ALR 344 followed

Australian Competition and Consumer Commission v CC (NSW) Pty Ltd (1999) 92 FCR 375 cited

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

Bartlett v Swan Television & Radio Broadcasters Pty Ltd (1995) ATPR 41-434 cited

Bray v F Hoffman-La Roche [2003] FCAFC 153 cited

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

Clarke v The Earl of Dunraven and Mount-Earl [1897] AC 59 considered

Douglas v Tickner (1994) 49 FCR 507) cited

Emerald Construction Co Ltd v Lowthian [1966] 1 WLR 691 cited

Faessler v Neale  (1994) 29 IPR 1 cited

General Steel Industries Ltd v Commissioner of Railways (NSW) (1964) 112 CLR 125 considered

Hughes v Western Australian Cricket Association Inc  (1986) 19 FCR 10 followed

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

Murex Diagnostics Australia Pty Ltd v Chiron Corp (1995) 55 FCR 194 cited

National Mutual Property Services (Australia) Pty Limited v Citibank Savings Limited (1995) 132 ALR 514 cited

National Mutual Property Services (Australia) Pty Ltd v Citibank Savings Ltd [1998] FCA 564 cited

News Limited v Australian Rugby League Football Limited (1996) 64 FCR 410 considered

Northern Territory v Mengel (1994) 185 CLR 307 considered

Orchard v Comrie  (1998) 80 IR 76) cited

Re British Slag Ltd’s Application, British Basic Slag Ltd v Registrar of Restrictive Trading [1963] 1 WLR 7272 All ER 807 considered

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

Sanders v Snell (1998) 196 CLR 329 considered

Seven Network Limited v News Limited [2003] FCA 388 cited

SmithKlein Beecham (Australia) Pty Ltd v Chipman [2002] FCA 674 cited

South Sydney District Rugby League Football Club Ltd v News Ltd (2001) 111 FCR 456 cited

Stationers Supply Pty Ltd v Victorian Authorised Newsagents Association Ltd (1993) 44 FCR 35 considered

Stokely-Van Camp Inc v New Generation Beverages Pty Ltd (1998) 44 NSWLR 607 cited

The Bega Co-operative Society Limited v The Milk Authority of the Australian Capital Territory [1992] FCA 261 cited

The Satanita [1895] P 248 considered

Torquay Hotel Co Ltd v Cousins [1969] 2 Ch 106 considered

Trade Practices Commission v Email Ltd (1980) 43 FLR 383 cited

SPOTWIRE PTY LTD v VISA INTERNATIONAL SERVICE ASSOCIATION INC and COMMONWEALTH BANK OF AUSTRALIA (ACN 123 123 124)

N426 OF 2003

BENNETT J

23 JULY 2003

SYDNEY

THE COURT ORDERS THAT:

1          The statement of claim is struck out.

2          The applicant is granted leave to file an amended statement of claim within 21 days.

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

REASONS FOR JUDGMENT

The proceedings generally

1                     The applicant, Spotwire Pty Ltd (‘Spotwire’), seeks, inter alia, declarations and orders in respect of an alleged contravention by the respondents of section 45(2)(a)(i), of the Trade Practices Act 1974 (Cth) (‘the TPA’), on the basis that the respondents entered into a contract or arrangement, or arrived at an understanding, which contains an exclusionary provision within the meaning of s 4D of the TPA.

2                     Spotwire also seeks damages as against the first respondent ‘for the tort of inducing breach of contract’.

The notice of motion

3                     By notice of motion, the first respondent, Visa International Service Association Inc (‘Visa’), applies to have the proceedings against it dismissed summarily or, alternatively, to have certain paragraphs of the statement of claim struck out.  In the alternative, orders are sought for a stay of the proceedings pending full provision of particulars of the statement of claim. Subsequent to the filing of the notice of motion, further particulars were provided. During the hearing of the motion, from the way Spotwire put its case, Visa did not press for further particulars but did press its case that there was a failure to plead material facts.

General principles

4                     The general principles governing pleadings are well known and are not in dispute.  In BT Australia Pty Ltd v State of New South Wales (1999) ATPR (Digest) 46-187, at 52, 304, Sackville J stated:

           ‘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 on 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:

              ‘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.’

In Multigroup Distribution Services Pty Ltd v TNT Australia Pty Ltd (1996) ATPR 41-522 at 42,679, Burchett J approved the observations of Neaves J in The Bega Co-operative Society Limited v The Milk Authority of the Australian Capital Territory [1992] FCA 261 at pages 15-16 :

              ‘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’ 

These passages were recently cited with approval by Sackville J in Seven Network Limited v News Limited [2003] FCA 388 at paragraph 21.

5                     Order 11 rule 16 of the Federal Court Rules provides:

            ‘Where a pleading:

(a)       discloses no reasonable cause of action or defence or other case appropriate to the nature of the pleading;

(b)       has a tendency to cause prejudice, embarrassment or delay in the proceeding; or

(c)                is otherwise an abuse of the process of the Court;

the Court may at any stage of the proceeding order that the whole or any part of the pleading be struck out.’

6                     Order 20 rule 2(1) of the Federal Court Rules provides:

              ‘Where in any proceeding it appears to the Court that in relation to the proceeding generally or in relation to any claim for relief in the proceeding:

(a)      no reasonable cause of action is disclosed;

(b)     the proceeding is frivolous or vexatious; or

(c)           the proceeding is an abuse of the process of the Court;

the Court may order that the proceeding be stayed or dismissed generally or in relation to any claim for relief in the proceeding.’

7                     The question that arises under Order 11 rule 16 is whether the statement of claim contains inconsistent allegations or is ambiguous or if it raises a question that is unarguable.  If the question is fairly arguable, the next consideration is have the material facts been pleaded?  Visa submits that the statement of claim fails each of these tests.  As pointed out by Lindgren J in National Mutual Property Services (Australia) Pty Limited v Citibank Savings Limited [1998] FCA 564, Order 11 rule 16 is concerned with a consideration of the way in which the pleading is framed.

8                     In National Mutual Property Services (Australia) Pty Limited v Citibank Savings Limited (1995) 132 ALR 514, Lindgren J accepted the statement by Beaumont J in Allstate Life Insurance Co v Australia and New Zealand Banking Group Limited [1994] FCA 636 (‘Allstate’), who quoted with approval the general principles governing strike-out applications that:

                       ‘A “reasonable cause of action” means one with some chance of success if regard be had only to the allegations in the pleadings relied upon by the claimant.’

9                     Order 20 rule 2(1) is concerned with proceedings and claims for relief in proceedings.  Under Order 20 rule 2(1), the Court is authorised to ‘order that the proceeding be stayed or dismissed generally or in relation to any claim for relief in the proceeding’.  Under Order 20 rule 2(2), the Court may receive evidence on the hearing of an application for an order under sub-rule (1).  A summary order under Order 20 rule 2(1) prevents the applicant from pursuing its claim in respect of the part of the proceeding under consideration.  The relevant principle was stated by Barwick CJ in General Steel Industries Ltd v Commissioner of Railways (NSW) (1964) 112 CLR 125 (‘General Steel’) at 129:

                       ‘The test to be applied has been variously expressed … “manifestly groundless”; “so manifestly faulty that it does not admit of argument”; “discloses a case which the Court is satisfied cannot succeed”; … “that to allow them … to stand would involve useless expense”.’

10                  The standard to be reached by an applicant for such an order has been framed in various ways.  Such an order would only be made where it is clear that there is no real question to be tried (SmithKlein Beecham (Australia) Pty Ltd v Chipman [2002] FCA 674; Douglas v Tickner (1994) 49 FCR 507) or that it is hopeless and bound to fail (Orchard v Comrie  (1998) 80 IR 76) or clearly untenable (Faessler v Neale  (1994) 29 IPR 1) or hopeless to the extent that it should not be permitted to go to trial (Bray v F Hoffman-La Roche [2003] FCAFC 153 per Carr J).  It must be plain and obvious that the impugned portions of a statement of claim are unarguable (Murex Diagnostics Australia Pty Ltd v Chiron Corp (1995) 55 FCR 194) or it must be very clear that there is no issue deserving of a hearing (Anderson v Commonwealth Bank of Australia [1995] FCA 787).  However, proceedings will not be dismissed summarily merely on the ground that it appears, at the hearing of the motion, that the claim may fail (Australia Building Industries Pty Ltd v Stramit Corp Ltd   [1997] FCA 1318.

THE TRADE PRACTICES ACT PLEADING

The statement of claim

11                  In brief and in summary, the allegations in the statement of claim relevant to this notice of motion are:

• Spotwire conducted the business of providing an internet based subscription service
• Visa has at all material times carried on business in Australia as a service organisation providing use of certain intellectual property
• The second respondent, the Commonwealth Bank of Australia (‘the CBA’), has at all material times carried on business in Australia as a trading bank.
• Visa has a worldwide membership of over 21,000 banks and other financial institutions to whom it licenses its intellectual property pursuant to agreements in writing (‘the Visa Members’).
• One class of such members is Acquiring Members who, amongst other things, contract with persons who originate transactions using Visa Cards (‘Merchants’), to obtain details of goods sold or services provided by those Merchants to Visa cardholders and paid for by Visa cards.
• At all material times there have existed Australian Acquiring Members which have, at all material times, included Westpac Banking Corporation, the CBA, the Australian and New Zealand Savings Bank Limited and the National Australia Bank.
• The Australian Acquiring Members are and were, at all material times, competitive with each other.
• Pursuant to the terms of the written agreement between Visa and the Visa Members (‘the Membership Agreement’), the Visa Members have agreed with Visa and with each other to be bound by rules promulgated by Visa which include certain terms (‘the Visa Rules’).
• Further, or in the alternative, there has at all material times existed a certain arrangement or understanding between each of the Acquiring Members not to provide certain services under certain conditions (‘the Arrangement or Understanding’).
• By reason of the Visa Rules or, in the alternative, the Arrangement or Understanding, upon and by reason of entering into the Membership Agreement, the CBA entered into a contract, arrangement or understanding with Visa and the Acquiring Members which contained an exclusionary provision within the meaning of s 4D of the TPA, thereby contravening s 45(2)(a)(i) of the TPA.

12                  The specific paragraphs of the statement of claim central to the notice of motion are:

‘7.        At all material times:

(a)       pursuant to the terms of the Membership Agreements, the Visa Members have agreed with Visa and with each other to be bound by rules promulgated by Visa.

(b)       the rules to which Visa and the Visa Members have agreed to be bound have included rules known as the “Visa International Operating Regulations” and the “Visa Regional Operating Regulations” (“the Visa Rules”).

            (c)        the Visa Rules have included terms to the following effect:

(i)                 an acquiring Member must, within one business day, list a Merchant conducting business on the internet (an “Internet Merchant”) on the Terminated Internet Merchant File (“TIMF”) if the Merchant has been terminated for poor Card acceptance practices;

(ii)               a poor Card acceptance practice is defined to include an excessive number of chargebacks due to the Internet Merchant’s business practices;

(iii)             excessive chargebacks being defined to occur when a higher than 5% ratio of chargebacks to transactions is reached;

(iv)             “chargebacks” are defined as transactions that Issuing Members return to Acquiring Members (“Chargebacks”);

(v)               an Acquiring Member must make an inquiry of the TIMF to determine if an Internet Merchant is listed on the TIMF before signing an Internet Merchant;

(vi)             a fine of $USD25,000 will be assessed by Visa to Acquiring Members if it is determined that the Acquiring Member did not list a Terminated Internet Merchant on the TIMF, or did not inquire against the TIMF before signing an Internet Merchant;

(vii)           Acquiring Members must not offer or provide the Acquiring Services to Merchants whose details have been listed, and which remain listed, on the TIMF.

8.         Further or in the alternative to paragraph 7, there exists, and at all material times there existed, an arrangement or understanding between each of the Acquiring Members and Visa, that Acquiring Members must not offer or provide the Acquiring Services to Merchants whose details have been listed, and which remain listed, on the TIMF.

            …

20.       By reason of the matters pleaded in paragraph 7 or, in the alternative, paragraph 8, upon and by reason of entering into the CBA Visa Membership Agreement, the CBA entered into a contract, arrangement or understanding with Visa and the Acquiring Members, which contained a provision (“the Exclusionary Provision”) that such Acquiring Members would not supply the Acquiring Services to the applicant, whilst the applicant’s details remained on the TIMF or on any similar file or list.      

            …

            22.       …

(b)       by entering into the CBA Membership Agreement, Visa and the CBA made a contract or arrangement, or arrived at an understanding which contains an exclusionary provision within the meaning of s.4D of the TPA in contravention of s.45(2)(a)(i) of the TPA’

13                  It seems to me unlikely that paragraph 8 of the statement of claim intends to plead what it states. The paragraph in its present form alleges an arrangement or understanding, between each Acquiring Member and Visa, that Acquiring Members (generally) must not offer or provide services to Merchants on the TIMF.  This seems contrary to the rest of the pleading and to Spotwire’s submissions to the effect that the arrangement or understanding is between the Acquiring Members themselves.  If the paragraph stands it cannot, of course, come within s 4D as it is acknowledged that Visa and the Acquiring Member, here the CBA, are not competitive with each other.

14                  Paragraph 22(b) of the statement of claim cites a contract, arrangement or understanding between Visa and the CBA.   Similarly, this cannot come with s 4D and give rise to the alleged contravention of s 45(2)(a)(i) of the TPA as pleaded.

15                  There are a number of other matters to note with respect to the pleading.  While Spotwire does not have in its possession the Visa Rules, the pleading asserts the effect of those rules which, for the purposes of this notice of motion, is accepted. The Visa Rules, as defined in the statement of claim, are rules promulgated by Visa and include the ‘Visa International Operating Regulations’ and the ‘Visa Regional Operating Regulations’.  By the Membership Agreement, the CBA agreed to be bound by all requirements of the ‘By-Laws and the Operating Regulations of Visa International applicable to members of this class’.  The matter proceeded on the basis that the terms as pleaded in paragraph 7(c) of the statement of claim were part of the Visa Rules, and that, by entering into the Membership Agreement, each Visa Member, including the Acquiring Member CBA, agreed to be bound by the Visa Rules.  It was accepted that the Australian Acquiring Members were competitive with each other.

The evidence in support of the motion

16                  Evidence was tendered under Order 20 rule 2(2).  The evidence included documents entitled ‘Visa International Application for Membership’, ‘Membership Agreement’ and ‘Visa Program Trademark License Agreement (Member)’ (‘Visa Program’).  The matter proceeded, at this stage, on the basis that the Membership Agreement, while in form an application for membership, was accepted by Visa and the whole of the documents referred to formed part of the Visa Rules or the basis of the agreement between the CBA and Visa.  There was no suggestion that the Visa International in the documents was other than the first respondent.

17                  The Membership Agreement and the Visa Program between Visa and the CBA were in evidence and contained the following provisions:

            ‘The undersigned Applicant understands that VISA INTERNATIONAL SERVICE ASSOCIATION (“VISA INTERNATIONAL”), a corporation organized under the laws of the State of Delaware, United States of America, is a non-stock membership corporation incorporated to, among other things, administer throughout the world uniformly through its members a common bank card/or travellers cheque program.  Applicant desires to participate in such program as a member under the functions elected and hereby makes application to VISA INTERNATIONAL for membership.  Applicant acknowledges receipt of a copy of Article II (Membership) of VISA INTERNATIONAL’s By-Laws.  Applicant understands that the prerequisites for membership are stated therein.  Applicant warrants that it is eligible for and meets all the requirements of membership in accordance with Section 2.01 of Article II of the By-Laws.

            Applicant understands and agrees that should it elect at any time to perform functions other than those shown in this Application, Applicant will give VISA INTERNATIONAL prior written notice and will not commence performance of such other functions until it has received VISA INTERNATIONAL’s prior written consent.  Applicant encloses a copy of its latest statement of financial condition, the contents of which Applicant warrants to be true and correct.

            …  Applicant agrees upon acceptance to be bound by and perform in a sound and safe manner all requirements of the By-Laws and the Operating Regulations of VISA INTERNATIONAL applicable to members of its class as may be in effect from time to time.’

            [The ‘Applicant’ in this document is the CBA]  

18                  The Visa Program includes clause 7:

‘COMPLIANCE WITH RULES AND REGULATIONS.  USER acknowledges receipt of copies of the By-Laws and Operating Regulations of OWNER, is fully aware of its rights, duties and obligations as stated therein and agrees to be bound by and perform in a safe and sound manner all requirements of the By-Laws and Operating Regulations applicable to members of OWNER as may be in effect from time to time.’

[The ‘USER’ in this document is the CBA; the ‘OWNER’ is Visa]

Visa’s submissions

19                  Visa submitted that the statement of claim does not plead any material facts of a contract, arrangement or understanding between competitors within the meaning of s 4D(1)(a) of the TPA.

20                  Mr Bannon SC, who appeared for Visa, submitted that more than a series of vertical agreements is needed to support an allegation of an exclusionary provision.  He relied on the statement of Ryan J in Stationers Supply Pty Ltd v Victorian Authorised Newsagents Association Ltd (1993) 44 FCR 35 (‘Stationers Supply’) at 61, cited with approval by the Full Court in News Limited v Australian Rugby League Football Limited (1996) 64 FCR 410 (‘News Limited’) at 571-572, to the effect that a hope or expectation that other competitors would participate in the same arrangements does not carry with it an understanding, arrived at between those competitors, to enter into the agreements.  He submitted that there has to be a consensus on the part of the competitors that they will enter into the agreement, that material facts giving rise to such an alleged consensus must be pleaded and that there is no such pleading.

21                  The Membership Agreement referred to is one to which only Visa and the CBA are parties and they are, it is conceded by Spotwire, not competitive with each other.  Mr Bannon submitted that the statement of claim goes no further than asserting a series of vertical agreements and then concluding that there was an agreement or arrangement between Visa Members.  He asserted that the facts pleaded do not permit that conclusion to be drawn.  There was no issue for the purposes of this notice of motion as to the effect of the alleged exclusionary provisions; on Mr Bannon’s case, this does not arise because s 4D(1)(a) is not satisfied.  He maintains that, where the pleaded contract is not between the competitive parties and where Spotwire pleads only the written material referred to (i.e. the Membership Agreement and the Visa Rules), s 4D simply cannot apply and there cannot be a cause of action arising under s 45(2)(a)(i) of the TPA.

22                  It was asserted by Visa, in submissions, that the existence of the Visa Rules does not alter the conclusion that Membership Agreements are separate vertical agreements between two parties not competitive with each other.

23                  Mr Bannon points to what he asserts is an absence of any pleaded material fact which could properly constitute an allegation, necessary to invoke s 4D, that a horizontal contract, arrangement or understanding between Acquiring Members exists. Mr Bannon submitted that, if each bank wants to deal with Visa, it may have to enter into a deal with Visa but that has nothing to do with any other bank or a concern as to what any other bank would do.  He asserts that, to plead the cause of action successfully, Spotwire must plead and establish a consensus or understanding that other banks will enter into the Membership Agreement.  Such a consensus or understanding must be established, as alleged in paragraph 20 of the statement of claim:  ‘upon and by reason of entering into the CBA Visa Membership Agreement’, not after execution or as a result of the application of the terms of the agreement after execution. 

Spotwire’s submissions

24                  Spotwire made it clear that it did not allege any material facts outside the entry by CBA into the Membership Agreement and the terms of that agreement.  It disclaimed any reliance or knowledge, submitting that knowledge was not relevant.

25                  Mr Gibson QC, who appeared with Mr Kelly for Spotwire, conceded that there is no competition between Visa and the CBA, nor between Visa and the other banks particularised.  He pointed to Hughes v Western Australian Cricket Association Inc  (1986) 19 FCR 10 (‘Hughes’) in which Toohey J found that it was sufficient for the purposes of s 4D to establish that the various cricket clubs which entered into an agreement with the Western Australian Cricket Association were competitive with each other even though they were not competitive with the Western Australian Cricket Association.  Mr Gibson conceded that the Membership Agreement between Visa and the CBA alone is not sufficient to maintain the cause of action.  He relied on the fact that the Membership Agreement includes a term which obliges the CBA to be bound by the Visa Rules (as pleaded) and the fact that the same Membership Agreement is entered into between Visa and the other bank Acquiring Members.

26                  Mr Gibson stated that he does not rely upon an allegation of an arrangement or understanding, evidenced by a series of vertical agreements, but an allegation of a horizontal agreement, which amounts to an arrangement or understanding, pursuant to which Visa and the Visa Members have agreed with each other to be bound by the Visa Rules.  On this basis, he seeks to distinguish Stationers Supply.

27                  Put simply, Mr Gibson says that Visa entered into a number of agreements with a number of banks.  Those banks are in competition with each other.  The agreements bind all of those banks to abide by the common rules, the Visa Rules.  The banks have thereby assumed rights and liabilities of each member bank, at least with respect to the TIMF. The banks have mutually agreed and bound themselves by the common rules and, accordingly, have come to a contract, arrangement or understanding within s 4D.  Each bank is not only contractually bound to Visa but also contractually bound to each other bank which is already a member.

28                  Thus, it is submitted, the agreement to be bound by a common set of rules constitutes a contract between the banks.  The agreement is effected by the banks’ willingness to be bound by the Visa Rules that apply to each of them.  The consideration is the mutual promises that they will be so bound. 

29                  Mr Gibson also asserted that each bank can enforce these terms ‘in principle’ against each other bank or that, at least, this amounted to an arrangement or understanding.  This submission is based in part upon a supposition as to the content of the Visa Rules, which Spotwire has not obtained.

30                  Mr Gibson conceded that it is necessary that, at the time of entry into the Membership Agreement by the CBA, there were other competitive banks that had already entered into the Membership Agreement.  There is some ambiguity in the statement of claim as to which banks had entered into the Membership Agreement at that time.

Decision

31                  The need to plead material facts is not in dispute, nor is the requirement that the pleading convey to the respondent the case that party has to meet, nor is the proposition that, if the 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. 

32                  Visa’s primary submission is that the proceedings against it should be dismissed on the basis that no reasonable cause of action is disclosed, there is no real question to be tried and that Spotwire’s case is clearly unsustainable within the test in General Steel and Allstate.

33                  The statement of claim asserts that, by reason of the Membership Agreement, the Visa Members have agreed with each other to be bound by the Visa Rules, relevantly those set out in paragraph 7(c) of the pleading.  In the alternative, there is alleged an arrangement or understanding between the Acquiring Members, who are competitive with each other, not to offer or provide services to Merchants whose details have been listed on the TIMF by any of the Acquiring Members and remain listed.  While the totality of the written material is not in evidence or set out in the statement of claim, Spotwire’s pleading is that the Membership Agreement and the Visa Rules, properly construed, are sufficient for the purposes of s 4D(1)(a).

34                  To the extent that Spotwire is alleging an agreement between the Acquiring Members to be bound by a common set of rules where the consideration is the mutual promise that they will be bound, Spotwire seems to be alleging an agreement outside the Membership Agreement.  If so, there has been no pleading of material facts to support such an agreement.  To the extent that Spotwire is relying upon common Visa membership, it does not plead communication or knowledge, actual or imputed.

35                   The relevant time for determining whether there is an exclusionary provision is when the contract, arrangement or understanding is made.  If all of the requirements of s 4D are not present at this time, it will not contain an exclusionary provision even if a missing requirement is subsequently fulfilled: Rural Press Ltd v Australian Competition and Consumer Commission (2002) 118 FCR 236 at 266-267; South Sydney District Rugby League Football Club Ltd v News Ltd (2001) 111 FCR 456 (‘South Sydney’) at 477; Stokely-Van Camp Inc v New Generation Beverages Pty Ltd (1998) 44 NSWLR 607 at 615-616.

36                  The prohibited purpose must exist at the time that the alleged exclusionary provision comes into effect.  Further, the class of persons who are the object of that provision must be identified by all parties to the provision at that time and must be ‘aimed at specifically’  (South Sydney (at 477)).

37                  In News Limited, the Full Court dealt with the question of the nature of an arrangement or understanding and the distinction between those concepts and a hope or expectation.  The Court cited, with approval, the explanation of Ryan J in Stationers Supply, where his Honour considered whether the entry by a number of newsagents into identical advertising membership agreements with Newspower (Victoria) Pty Ltd was a contravention of s 45(2)(a)(i) of the TPA.    In considering whether there was any understanding between newsagents to which Newspower (Victoria) was also a party, Ryan J observed that, while there must have been an expectation that other newsagents would participate in the ‘Newspower’ arrangements, that did not carry with it an understanding, arrived at between newsagents, to enter into membership agreements. As His Honour said, (at 61): ‘it is necessary to establish something more than a hope or expectation that a certain outcome will occur before the Court can find that an understanding exists’.  Evidence is necessary for this.  In News Limited, a finding that the clubs had no more than a hope or expectation that others would execute the relevant agreements would have been insufficient to infer a horizontal agreement out of the series of vertical agreements. 

38                  Justice Lindgren discussed the meaning of ‘arrangement or understanding’ in Australian Competition and Consumer Commission v CC (NSW) Pty Ltd (1999) 92 FCR 375 at 406 - 409.In each of the cases there considered, consistent with Newspower, something more than mere hope or expectation was necessary.  What was considered essential was either acceptance of mutual rights and obligations or intention that conduct will operate as an inducement or a meeting of minds; generally there was communication between the parties to the arrangement or understanding.

39                  As was pointed out by the Court in News Limited (at 572), it may be possible to infer an arrangement or understanding from a series of individual agreements, as in Re British Slag Ltd’s Application, British Basic Slag Ltd v Registrar of Restrictive Trading [1963] 1 WLR 727 (‘Re British Slag’) .  As Diplock LJ pointed out in Re British Slag (at 746), what must be shown is a ‘meeting of minds’ and mutuality so that each party ‘would regard himself as being in some degree under a duty’ with respect to mutual conduct.  In  Re British Slag, on the evidence, there was an inducement to each member to enter into the same vertical contract.  In News Limited, consideration of the circumstances and context in which the agreements were executed, together with evidence of communications among representatives of the individual clubs, led to the conclusion that there was a common understanding.  Similarly, in Hughes, evidence established an expectation that different parties would abide by decisions reached and that there was an assumption of obligations on the part of the different clubs.

40                  In Hughes, Toohey J observed (at 33) that it was a question of intention whether a resolution of the Cricket Council could constitute a contract between the constituent members.  In concluding that an arrangement or understanding existed between members of the Cricket Council, his Honour found (at 35) that there was ‘undoubtedly communication between the delegates to the Cricket Council at the meeting and a consideration by them’.  This gave rise to an expectation in the minds of all present that the parties would abide by the decisions reached.   There was an assumption of obligation and a recognition that all would abide by the rules.  That was sufficient to constitute an understanding between those present, despite the fact that there was not mutual enforceability.

41                  A series of vertical Membership Agreements is not, of itself, sufficient to create a contract, arrangement or understanding between the Acquiring Members.  Where the Membership Agreement provides for obligations and benefits as between Visa and each Acquiring Member that is not sufficient (Stationers Supply).  Nor is it sufficient that an Acquiring Member enters into the Membership Agreement in the hope or expectation that other, competitive, Acquiring Members will enter into an identical agreement, even where there may be mutual benefit (Stationers Supply).  There is no allegation that there was direct or indirect contact between the CBA and other Acquiring Members on or prior to the execution of the Membership Agreement with respect to common entry into the Membership Agreement.  Such direct contact could convert the Membership Agreement into one within s 4D(1)(a) of the TPA (News Limited).  Spotwire does not allege any material fact outside the existence of entry into and construction of the membership documents.

42                  In the present case, however, the very terms of the Membership Agreement deal not only with the obligations and practices between CBA and Visa, they also encompass by the Visa Rules pleaded in paragraph 7 of the statement of claim, obligations and practices that each Acquiring Member contracts to observe with respect to equivalent obligations and practices of other Acquiring Members.  If each Membership Agreement does in fact contain identical terms and if there were more than a hope or expectation that other Acquiring Members had entered into or would enter into identical Membership Agreements it is, in my opinion, arguable that the Visa Rules, when considered in their totality, could be construed so as to give rise to the conclusion that entry into the Membership Agreement constituted a contract, arrangement or understanding between the Acquiring Members to give effect to the Visa Rules.   At the least, the practices outlined in paragraph 7(c) of the statement of claim, if they obliged the Acquiring Members to honour those practices for mutual benefit and liability could, arguably, constitute a meeting of minds that, in turn, constitutes an arrangement or understanding between them.

43                  It is not an entirely novel proposition that parties who enter into parallel agreements with a single third party may, by that act, have contracted with each other.  An example can be seen in Clarke v The Earl of Dunraven and Mount-Earl [1897] AC 59 (‘Satanita’).  Lord Herschell (at 63) affirmed the reasoning of the Court of Appeal that where a number of parties, by separate contracts with a third party, undertake to be bound by common rules to the knowledge of each other, where those rules indicate a liability on the part of one to the other, a contractual obligation is created between them.  In the decision of the Court of Appeal (The Satanita [1895] P 248) Rigby LJ (at 262) summarises the proposition:

            ‘The first question is that of contract or no contract.  It appears to me that all that is necessary to constitute a contract between the yacht owners is to bring home to each of them the knowledge that the race is to be run under the Yacht Racing Association rules, and that they, the one and the other, deliberately enter for the race upon those terms.  In this case we have a written document, signed by each yacht owner, which, if there were any doubt at all, would render it abundantly clear that he was perfectly well aware of the bargain he was entering into.  In no other way than that does it appear to me to be material.

            The contract did not arise with any one, other than the managing committee, at the moment that the yacht owner signed the document, which it was necessary to sign in order to be a competitor.  But when the owner of the Satanita on the one hand, and the owner of the Valkyrie on the other, actually came forward and became competitors upon those terms, I think it would be idle to say that there was not then, and thereby, a contract between them, provided always that there is something in the rule which points to a bargain  between the owners of the yachts.’

44                  The reasoning in Satanita provides support for the cause of action advanced. However, I note that knowledge was a prerequisite in that case and that knowledge has specifically not been pleaded in the present case.

45                  The terms ‘arrangement’ and ‘understanding’ describe something less binding than a contract, although there must have been a meeting of minds of those who are parties to it and a consensus as to what is to be done and not merely a hope as to what might be done (Australian Competition and Consumer Commission v Amcor Printing Papers Group Ltd (2000) 169 ALR 344 (‘Amcor’)).  In Amcor (at 359-360), Sackville J observed:

            ‘An arrangement or understanding for the purposes of s 45(2) of the TP Act is apt to describe something less than a binding contract or agreement:  Top Performance Motors Pty Ltd v Ira Berk (Qld) Pty Ltd (1975) 5 ALR 465; 24 FLR 286 at 290-1 (Aust Ind Ct, FC) per Smithers J.  However, in order for there to be an arrangement or understanding for the purposes of s 45(2), there must be a meeting of the minds of those said to be parties to the arrangement or understanding.  There must be a consensus as to what is to be done and not merely a hope as to what might be done or happen: Trade Practices Commission v Email Ltd (1980) 43 FLR 383 at 385 (Lockart J); Ira Berk at FLR 291 per Smithers J.  Ordinarily, an arrangement or understanding involves communication between the parties arousing expectations in each that the other will act in a particular way: Email at 395.  There is no necessity for an element of mutual commitment between the parties to an arrangement or understanding, although in practice such an arrangement or understanding would ordinarily involve reciprocity of obligation: Trade Practices Commission v Service Station Association Ltd (1993) 44 FCR 206 at 230-1; 116 ALR 643 per Lockhart J.’

46                  An arrangement has also been characterised as something ‘whereby the parties to it accept mutual rights and obligations’ (Re British Slag per Willmer LJ (at 739)).  While it may not be necessary to establish mutual obligations, the terms of the Visa Rules could arguably be construed so as to provide for mutual obligations with respect to the TIMF, although it is not suggested that there was any communication between the Acquiring Members. 

47                  The question is whether it is arguable that the existence and construction of the Membership Agreement and Visa Rules ‘convert’ a series of vertical agreements entered into by the banks into a contract, arrangement or understanding between the banks.

48                  The Visa Rules as set out in paragraph 7 of the statement of claim could be construed as giving rise to obligations that are only mutual as between an Acquiring Member and Visa and only enforceable by Visa.  Such a construction and the absence of evidence of some meeting of the minds of the Acquiring Members would lead to a conclusion that there was no contract, arrangement or understanding within s 4D.  A meeting of minds may, however, be established by establishing a consensus between the Acquiring Members which in turn may, for example, be inferred from circumstantial evidence, parallel conduct and/or inference (Trade Practices Commission v Email Ltd (1980) 43 FLR 383).  While there is difficulty for Spotwire in establishing such a case, it is not unarguable and, in my opinion, Spotwire is entitled to argue such a case based upon the construction of the whole of the Membership Agreements, including the whole of the Visa Rules and such evidence as it chooses to rely upon.

49                  It would not be appropriate, in the absence of the Visa Rules to form any final opinion as to their effect.  I have accepted, for this notice of motion, that they have in part the effect as pleaded.  Similarly, I have accepted that, as pleaded, the Membership Agreements and the Visa Rules applicable to each of those agreements, contain identical terms. 

50                  There are different considerations for the first Acquiring Member to enter into the Membership Agreement.  At the time of entry, it would be difficult if not impossible to establish a contract, arrangement or understanding with other Australian banks who were not already Acquiring Members.  Indeed, it was conceded by Mr Gibson that, if the CBA were the first Australian bank to enter into the Members Agreement, s 4D would not apply to that agreement.  It is not clear from the pleading, which alleges that the CBA was an Acquiring Member at all material times and that it was the entry into the Membership Agreement that caused the alleged contravention of the TPA, whether the CBA was the first such Australian Acquiring Member.  If that were the case, on the basis of the present pleading, the statement of claim should, in my opinion, be struck out.  In any event, these allegations are inconsistent and embarrassing and should be repleaded.  This seemed to be accepted by Mr Gibson.

51                  If the CBA were not the first Australian Acquiring Member, it cannot be said that it is unarguable that entry into the Membership Agreement was within s 4D(1)(a).  Much depends on the construction of the Visa Rules and the applicant being able to establish, by evidence and/or by reason of implications arising from the Visa Rules, that the requisite contract, arrangement or understanding existed between the CBA and other Acquiring Members.

52                  The pleading as it stands is, in my opinion, deficient and fails to plead material facts and, as I have noted, internally inconsistent.  The existence of a contract, arrangement or understanding between the Acquiring Members, arising by reason of express or implied terms of the Membership Agreement is not unarguable.  The circumstances in which the requisite conclusion could be reached cannot be said to be closed.  It must be said, however, that in circumstances where knowledge, actual or imputed, is not pleaded, the prospects of success are not strong. 

53                  Accordingly, I am of the view that it is not appropriate to make orders under Order 20 rule 2.  This part of the statement of claim is liable to be struck out under Order 11 rule 16. Spotwire should be given leave to replead.

Inducing breach of contract

Visa inducing breach of contract

54                  Under the heading in the statement of claim ‘Visa inducing breach of contract’, it is alleged that Visa took certain actions which ‘intentionally procured or encouraged’ a third party, Electronic Billing Systems AG (‘EBS’) to refuse to provide services to and terminate its agreement with Spotwire.  Paragraph 32 of the statement of claim then says:

            ‘In the premises, Visa has unlawfully interfered with the contractual relations existing between the applicant and EBS, under the EBS Merchant Services Agreement.’

55                  It is then alleged that, by reason of such conduct, Spotwire has suffered loss and damage.

56                  The application includes a claim, as against Visa, for damages for ‘the tort of inducing breach of contract’.  The heading in the statement of claim, after pleading issues under the TPA, is ‘Visa inducing breach of contract’.  In correspondence, solicitors for the applicant referred to ‘the inducing breach of contract plea’.  Spotwire’s statement of claim alleges that Visa induced a breach of contract between EBS and Spotwire, trading as ‘Supabill Services’.

57                  The pleading alleges:

·        An agreement in writing between Spotwire under its business name and EBS for the provision of services by EBS in exchange for operating fees (‘the EBS Merchant Services Agreement’).  That agreement contained a number of provisions that are not relevant to this notice of motion.

·        Visa sent an email to EBS in which Visa represented that EBS should ‘consider its relationship’ with Supabill Services.

·        Visa sent a letter to EBS requiring EBS to immediately terminate its dealings with Spotwire.

·        Visa advised EBS to cease dealing with Spotwire.

·        In response, EBS ceased providing the services to Spotwire and terminated the EBS Merchant Services Agreement.

·        By reason of these actions, Visa has intentionally procured or encouraged EBS to refuse to provide to Spotwire the services pursuant to the EBS Merchant Services Agreement.

·        ‘In the premises’, Visa has unlawfully interfered with the contractual relations existing between Spotwire and EBS under the EBS Merchant Services Agreement.

·        By reason of the conduct, Spotwire has suffered loss and damage

58                  By letter dated 30 May 2003, the solicitors for Visa wrote to Spotwire’s solicitors setting out in some detail the arguments in support of the orders sought in the notice of motion.  That letter was replied to on 16 June 2003.  It refers to ‘the objection to the inducing breach of contract plea’ and a reference, in that regard to ‘the commission of the tort’.

Visa’s submissions

59                  Visa submitted that, whether Spotwire alleges inducing breach of contract or causing loss by unlawful means or intentional infliction of economic harm, Spotwire must plead and establish that Visa had engaged in an unlawful act. If the allegation is of inducing breach of contract, Spotwire must plead and particularise the contract allegedly interfered with, how and by whom that contract was interfered with, a breach of that contract, that the interference was unlawful and that the breach was knowingly procured or induced.

60                  It is submitted that, under Order 20 rule 2 and Order 11 rule 16 of the Federal Court Rules, the pleading in respect of this allegation should be struck out.  As to the assertion that this part of the pleading tends to cause prejudice, embarrassment or delay, Mr Bannon relied upon the characterisation of embarrassment in Bartlett v Swan Television & Radio Broadcasters Pty Ltd (1995) ATPR 41-434 as a pleading susceptible to various meanings or containing inconsistent allegations and one leaving Visa in doubt about how to respond.

Spotwire’s submissions

61                  In submissions, counsel for Spotwire did not seek to support a pleading of inducing breach of contract. Mr Gibson conceded that the reference in the application and the heading in the statement of claim was misleading and that Spotwire has not sufficiently pleaded that Visa induced a breach of contract. Instead, counsel relied upon the pleading in paragraph 32 of the statement of claim to support an allegation of unlawful interference: ‘In the premises, Visa has unlawfully interfered with the contractual relations existing between the applicant and EBS, under the EBS Merchant Services Agreement’.

62                  On this basis, Mr Gibson submitted that, having particularised the EBS Merchant Services Agreement and pleaded the material terms, there was no requirement to allege a breach of contract.  The essential elements of the tort now relied upon were said to be the knowing and intentional interference with the applicant’s contractual rights without lawful justification, the relevant intention being an intention to interfere with the performance of a contract to which Spotwire is a party or to procure a breach of it.

63                  Mr Gibson submitted that it was not an essential element of the tort that Visa had knowledge of the terms of the EBS Merchant Services Agreement.  He relied on Northern Territory v Mengel (1994) 185 CLR 307 at 342:

            ‘Liability does not depend on whether there is a predominant intention to injure … and it has been held that constructive knowledge of the terms of a contract is sufficient, so that a defendant may be liable if he or she recklessly disregards the means of ascertaining those terms’.

That is, knowledge may be actual or constructive.  It is sufficient, it was submitted, if it is proved that Visa intended EBS to bring the contract to an end by breach of it (Emerald Construction Co Ltd v Lowthian [1966] 1 WLR 691 (‘Emerald Construction’) at 704).  In relying on Emerald Construction, Mr Gibson’s submission was that it was not necessary that Visa knew of the terms of the agreement, it was only necessary to establish that Visa intended that the contract be terminated and whether it involved a breach was irrelevant to them.

64                  No particulars were sought by Visa of paragraph 32 of the statement of claim.  Mr Gibson pointed to the reference in that paragraph to conduct, unlawful interference and, by reference to the previous paragraph, that it was alleged that ‘Visa has intentionally procured or encouraged EBS to refuse to provide to the applicant, the services’.  The services were those provided in accordance with the terms of the EBS Merchant Services Agreement previously pleaded.  The next stage of the submission was that the reference to ‘intentionally procured’ must mean that what is there being alleged is that Visa had knowledge upon which the intention was based.  Mr Gibson did concede, however, that paragraph 32 might plead a conclusion rather than material facts.

65                  Mr Gibson’s version of the claim is that Visa purported to require EBS to terminate the agreement with Spotwire and threatened EBS in that regard.  While paragraph 32 is pleaded as a conclusion rather than as a material fact, Mr Gibson asserted that the elements of the cause of action are properly pleaded.  The cause of action to which he referred was not inducing breach of contract but unlawful interference with contractual relations.

Decision

66                  Mr Gibson does not seek to defend the pleading as one alleging that Visa induced a breach of contract.  He did maintain that, subject to a possible failure to plead other than the conclusion, the elements of unlawful interference with contractual relations were present in the statement of claim.

67                  In Allstate Life Insurance Co v Australian and New Zealand Banking Group Ltd (1995) 58 FCR 26, Lindgren J (with whom Lockhart and Tamberlin JJ agreed) referred to confusion that can arise by the use of terminology in particular, in that case, references to ‘knowledge’ and ‘intention’ in the area of allegations of tortious inducement of breach of contract.

68                  In Sanders v Snell (1998) 196 CLR 329, the High Court noted the emergence in the United Kingdom of a tort of interference with trade or business interests and left unanswered the question whether such a tort should be recognised in Australia.  The joint judgment made it clear, however, (at 341) that the element of unlawful act was essential to the definition of the tort.  The Court declined to attempt to define what would be the boundaries of unlawfulness for the purposes of the tort of interference with trade or business interests by unlawful means but did question (at 343) whether ‘infringement of some right’ is, or is always, a useful description of what is meant in this context that an alleged tortfeasor engaged in an unlawful act.

69                  In Torquay Hotel Co Ltd v Cousins [1969] 2 Ch 106 (‘Torquay’) at 138, Lord Denning MR discussed the right of a party to a contract to have the contract observed and the extension of the tort to encompass not only deliberate interference procuring breach of a contract but also deliberate interference in the execution of the a contract. 

70                  The statement of claim may plead material facts to support a Torquay claim but does not properly plead (only by way of conclusion) the elements identified in Sanders v Snell.  In any event, as I have noted, the pleading taken together with the heading and the application are embarrassing and, as accepted by Mr Gibson, should be recast.  Accordingly this part of the statement of claim should be struck out under Order 11 rule 16 and Spotwire given leave to replead. It seems to me that, in the circumstances, it is appropriate that Spotwire pay Visa’s costs of the notice of motion but I will hear the parties as to the appropriateness of that order.

orders

71                  I make the following orders:

1                    The statement of claim is struck out.

2                    Spotwire is granted leave to file an amended statement of claim within 21 days.

Associate:         Jesmini Ambikapathy

Dated:              23 July 2003