FEDERAL COURT OF AUSTRALIA
Telstra Corporation Limited v Australian Competition and Consumer Commission (No 2) [2007] FCA 493
COMPETITION LAW – exercise of the Commission’s power to issue a Part A competition notice pursuant to s 151AKA(2) of the Trade Practices Act 1974 (Cth) and written notice pursuant to s 151AKA(10) of the Act – whether competition notice circular, uncertain and fails to specify matters required by s 151AKA(2) – sophisticated carrier would understand terminology used in notices – competition notice states with sufficient clarity that carrier has engaged in at least one instance of anti-competitive conduct of a kind described in the notice – s 151AKA(2) complied with – allegation that s 151AKA(10) notice uncertain, circular and does not describe a kind of anti-competitive conduct – s 151AKA(10) notice describes with sufficient clarity a kind of anti-competitive conduct – whether kind of anti-competitive conduct specified in s 151AKA(10) notice differs in substance from kind of anti-competitive conduct described in competition notice – s 151AKA(10) notice describes the kind of anti-competitive conduct by reference to Retail Customers, a “weighted average” and the bundled Retail Fixed Services Market – competition notice describes the kind of anti-competitive conduct by reference to Lower Spend Customers and supply of services by means other than a bundle – difference of substance in kind of anti-competitive conduct described – failure by the Commission to comply with s 151AKA(10) – Commission not entitled to issue Part A competition notice
ADMINISTRATIVE LAW – jurisdiction – whether “decision” to issue a s 151AKA(10) notice is reviewable pursuant to the Administrative Decisions (Judicial Review) Act 1977 (Cth) and s 39B of the Judiciary Act 1903 (Cth) – satisfaction of s 151AKA(10) by the Commission involves no reviewable “decision” under s 5 but is reviewable “conduct” under s 6 of the ADJR Act – also reviewable pursuant to s 39B(1A)(c) of the Judiciary Act – whether Commission obliged to provide Telstra with statement of reasons pursuant to s 13 of the ADJR Act – decision to issue competition notice may result in the bringing of proceedings for the recovery of pecuniary penalties (para (f) of Sch 2 to the ADJR Act) – no obligation to provide reasons for either decision
PROCEDURAL FAIRNESS – whether s 151AKA(10) of the Act exhaustively defines the requirement of procedural fairness – obligation to accord procedural fairness at common law not displaced by s 151AKA(10) – Telstra was not given an opportunity to be heard in respect of differences of substance between the s 151AKA(10) notice and Part A competition notice – Telstra was not given an opportunity to be heard in respect of issues or material adverse to Telstra and not apparent from the Consultation Notice – seriousness of the consequences of a Part A competition notice – denial of procedural fairness
Trade Practices Act 1974 (Cth) Pt XIB, ss 151AB, 151AJ, 151AK, 151AKA, 151AO, 151AOA, 151AOB, 151AP, 151AQ, 151AS, 151BC, 151BX, 151BY, 151CB, 151CC, 151CE
Administrative Decisions (Judicial Review) Act 1977 (Cth) ss 5, 6, 13, Sch 2
Judiciary Act 1903 (Cth) s 39B
Ainsworth v Criminal Justice Commission (1992) 175 CLR 564 cited
Annetts v McCann (1990) 170 CLR 596 cited
Applicant VEAL of 2002 v Minister for Immigration and Multicultural and Indigenous Affairs (2005) 225 CLR 88 cited
Australian Broadcasting Tribunal v Bond (1990) 170 CLR 321 applied
Burswood Management Ltd v Attorney-General (Cth) (1990) 23 FCR 144 cited
Commissioner for Australian Capital Territory Revenue v Alphaone Pty Ltd (1994) 49 FCR 576 applied
Department of Industrial Relations v Forrest (1990) 21 FCR 93 cited
Deputy Commissioner of Taxation v Woodhams (2000) 199 CLR 370 cited
Fieldhouse v Commissioner of Taxation (1989) 25 FCR 187 cited
George v Rockett (1990) 170 CLR 104 cited
Gribbles Pathology (Vic) Pty Ltd v Cassidy (2002) 122 FCR 78 cited
Kindimindi Investments Pty Ltd v Lane Cove Council (2006) 143 LGERA 277 cited
Kioa v West (1985) 159 CLR 550 applied
Hot Holdings Pty Ltd v Creasy (1996) 185 CLR 149 cited
Melbourne Home of Ford Pty Ltd v Trade Practices Commission (No 3) (1980) 47 FLR 163 cited
Minister for Immigration & Multicultural Affairs v Lat (2006) 151 FCR 214 cited
Minister for Local Government v South Sydney City Council (2002) 55 NSWLR 381 considered
Mison v Randwick Municipal Council (1991) 23 NSWLR 734 cited
Muin v Refugee Review Tribunal (2002) 76 ALJR 966 cited
Murphy v KRM Holdings Pty Ltd (1985) 8 FCR 349 cited
NAIS v Minister for Immigration and Multicultural and Indigenous Affairs (2005) 223 ALR 171 cited
Neate v Australian Securities Commission (1995) 60 FCR 518 cited
Newcastle City Council v GIO General Limited (1997) 191 CLR 85 cited
Plaintiff S157/2002 v Commonwealth (2003) 211 CLR 476 cited
Pyneboard Pty Ltd v Trade Practices Commission (1982) 57 FLR 368 cited
Re Minister for Immigration and Multicultural Affairs; Ex parte Miah (2001) 206 CLR 57 cited
Re Refugee Review Tribunal; Ex parte Aala (2000) 204 CLR 82 cited
Ricegrowers Co-operative Mills Ltd v Bannerman (1981) 56 FLR 443 cited
SA Brewing Holdings Ltd v Baxt (1989) 23 FCR 357 cited
Salim v Loh [2005] FCA 372 cited
Television Corporation Ltd v The Commonwealth (1963) 109 CLR 59 cited
Telstra Corporation Limited v Australian Competition and Consumer Commission (2006) 68 IPR 571 cited
The Daniels Corporation International Pty Ltd v Australian Competition and Consumer Commission (2002) 213 CLR 543 cited
Tobacco Institute of Australia v National Health and Medical Research Council (1996) 71 FCR 265 cited
VHAP of 2002 v Minister for Immigration and Multicultural and Indigenous Affairs (2004) 80 ALD 559 cited
Aronson M, Dyer B and Groves M, Judicial Review of Administrative Action (3rd ed, Lawbook Co., 2004) at 438–41
Robertson A, “The administrative law jurisdiction of the Federal Court – Is the AD(JR) Act still important?” (2003) 24 ABR 89
TELSTRA CORPORATION LIMITED (ACN 051 775 556) v AUSTRALIAN COMPETITION AND CONSUMER COMMISSION AND OPTUS NETWORKS PTY LIMITED (ACN 008 570 330)
NSD 810 OF 2006
BENNETT J
5 APRIL 2007
SYDNEY
| IN THE FEDERAL COURT OF AUSTRALIA |
|
| NEW SOUTH WALES DISTRICT REGISTRY | NSD 810 OF 2006 |
| BETWEEN: | TELSTRA CORPORATION LIMITED (ACN 051 775 556) Applicant
|
| AND: | AUSTRALIAN COMPETITION AND CONSUMER COMMISSION First Respondent
OPTUS NETWORKS PTY LIMITED (ACN 008 570 330) Second Respondent
|
| BENNETT J | |
| DATE OF ORDER: | 5 April 2007 |
| WHERE MADE: | SYDNEY |
THE COURT ORDERS THAT:
1. The parties submit proposed orders to give effect to these reasons within 14 days.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
| IN THE FEDERAL COURT OF AUSTRALIA |
|
| NEW SOUTH WALES DISTRICT REGISTRY | NSD 810 OF 2006 |
| BETWEEN: | TELSTRA CORPORATION LIMITED (ACN 051 775 556) Applicant
|
| AND: | AUSTRALIAN COMPETITION AND CONSUMER COMMISSION First Respondent
OPTUS NETWORKS PTY LIMITED (ACN 008 570 330) Second Respondent
|
| JUDGE: | BENNETT J |
| DATE: | 5 APRIL 2007 |
| PLACE: | SYDNEY |
REASONS FOR JUDGMENT
1 Telstra challenges the issue by the Australian Competition and Consumer Commission (‘the Commission’) of a Part A competition notice under s 151AKA(2) (‘the Competition Notice’) of the Trade Practices Act 1974 (Cth) (‘the Act’). The statutory power to issue a Part A competition notice lies in Pt XIB of the Act. Part XIB is directed to ‘[t]he Telecommunications Industry: Anti-competitive conduct and record-keeping rules’. Within that statutory framework, prior to the issue of the Competition Notice and pursuant to s 151AKA(10) of the Act, the Commission gave written notice to Telstra (‘the Consultation Notice’) of its proposal to issue a Part A competition notice. Telstra also challenges the issue of the Consultation Notice. Telstra asserts that the notices and the decisions to issue them lack validity and that it was denied procedural fairness.
2 The notices were issued in the context of certain action by Telstra in connection with charges for its wholesale and retail telephone line rental services and correspondence between Telstra and the Commission. While the notices relate to asserted anti-competitive conduct, these proceedings are not to determine whether Telstra has engaged in anti-competitive conduct. At issue is whether the Commission exercised its powers validly under the Act and accorded Telstra such procedural fairness and natural justice as the statutory context or (if applicable) the common law required.
Background
3 The underlying subject matter of these proceedings relates to the pricing of wholesale and retail line rental packages provided by Telstra. Telstra sells access to its Public Switched Telecommunications Network (‘PSTN’) to its own retail customers and to wholesale customers who are themselves licensed carriers or carriage service providers. Access to the PSTN is a “line rental” service which enables the customer to establish a link between it and the telephone exchange. In practical terms, however, line rental by itself does not provide a functional telephone service. It is necessary to acquire some further calling service in order to make use of the telephone. The simplest form of residential package available from Telstra to retail customers is “HomeLine Part”, which is a bundle of line rental with local call services only. Customers who select the HomeLine Part plan may then pre-select the other telephony services (eg, national long distance, international and fixed-to-mobile calls) from any carrier, including carriers other than Telstra. Telstra’s wholesale customers, such as Optus, may provide such pre-selectable services as part of a package that they provide to their customers.
4 At the wholesale level, Telstra offers a stand-alone line rental service which is not bundled with other call services. Telstra charges other carriers and carriage service providers per month for line rental services for on-sale to residential end users. This wholesale service was and is known as “Home Access”.
5 On 28 October 2005, Telstra informed the Commission of its intention to implement and from 5 December 2005 implemented a change to its wholesale Home Access plan, increasing the monthly price by $3.10 from $24.50 (excluding GST) to $27.60 (excluding GST) (‘the Home Access increase’). The Home Access increase was announced to at least some wholesale customers on 2 November 2005. Up to 30 November 2005 the Commission did not communicate to Telstra any relevant concerns held by it about the proposed increase.
6 On 1 December 2005, Telstra also increased the price of its HomeLine Part service, that is, the pre-selectable service it provides its retail customers, from $26.95 (including GST) to $31.95 (including GST) (‘the HomeLine Part increase). The Commission was informed of Telstra’s intention to implement that price increase by letter dated 23 September 2005. On 24 October 2005, the Commission “consented” to the HomeLine Part increase. The Commission points out that that consent, given for the purposes of the Telecommunications (Consumer Protection and Service Standards) Act 1999 (Cth) and a specific statutory instrument, involved no view as to whether the proposed conduct would contravene the “competition rule” as defined in s 151AK of the Act.
7 On 30 November 2005, the Commission wrote to Telstra requesting that it refrain from implementing the Home Access increase pending further investigation by the Commission and consultation with Telstra’s wholesale customers. The Commission expressed concern that the proposed increases would take advantage of market power and have the effect of substantially lessening competition.
8 The Commission’s concern at the consequence of the increases was particularised:
· There had been no corresponding price increase for other Telstra line rental products.
· Almost all of Telstra’s retail residential line rental plans would now be priced below the price paid by wholesale Home Access customers.
· Retail HomeLine Part customers who pre-selected another carrier for pre-selectable calls would pay more for their local services (local calls and line rentals) than most other Telstra residential customers.
9 The Commission’s assertions, on which the concerns were based, were rejected by Telstra with an explanation of the increases. Telstra declined to provide the undertakings sought.
10 On 22 December 2005, the Commission issued the Consultation Notice. Telstra sought information on which the Commission relied in issuing the notice. That information was not provided. Telstra made a submission in response to the matters set out in the Consultation Notice under cover of a letter dated 27 January 2006.
11 On or before 12 April 2006, the Commission made a decision to issue the Competition Notice with respect to Telstra. The Competition Notice was served on Telstra on or about that day.
12 Optus relies on the Competition Notice in a separate proceeding (‘the Optus proceeding’) against Telstra. In the Optus proceeding, Optus alleges that Telstra has breached s 151AK of the Act and relevantly claims relief under 151CC and 151CE of the Act. The existence of the Competition Notice is a precondition to the availability of that relief.
13 Telstra seeks, in these proceedings, to review the Commission’s “decisions” to issue the Consultation Notice and the Competition Notice. It also seeks to review conduct engaged in by the Commission for the purpose of making those decisions. Its application for review is made to the Court pursuant to ss 5 and 6 of the Administrative Decisions (Judicial Review) Act 1977 (Cth) (‘the ADJR Act’), s 39B of the Judiciary Act 1903 (Cth) and s 163A(1) of the Act.
14 No competition notice has previously been considered in any proceeding in this Court.
15 The main issues that have arisen in these proceedings are:
· The Consultation Notice:
1. Did the Commission’s decision to issue the Consultation Notice involve or include a decision or conduct for the purposes of ss 5 and 6 of the ADJR Act or is it otherwise susceptible to review?
2. Is the Consultation Notice uncertain?
3. Does the Consultation notice comply with the requirements of s 151AKA(10) of the Act?
· The Competition Notice:
1. Is the Competition Notice uncertain?
2. Does the Competition Notice comply with the requirements of s 151AKA(2) of the Act?
3. Does the Competition Notice differ in substance from the Consultation Notice such that s 151AKA(10) of the Act was not satisfied?
· Procedural fairness
1. Does s 151AKA(10) of the Act displace the Commission’s obligations of natural justice or procedural fairness?
2. Did the Commission fail to accord Telstra procedural fairness in connection with the issue of either notice?
· Was the Commission obliged to provide, in accordance with s 13 of the ADJR Act, reasons for its decisions to issue each of the notices?
STATUTORY FRAMEWORK OF A PART A COMPETITION NOTICE
16 It is necessary to begin with an examination of the relevant statutory framework. The Commission has taken one of the courses of action available to it under Pt XIB of the Act. I only propose to consider Pt XIB to the extent necessary and relevant to these proceedings.
17 Division 3 of Pt XIB of the Act deals with competition notices. A notice issued under s 151AKA(1) or (2) is known as a Part A competition notice. Such a notice may state that a carrier or carriage service provider has engaged, or is engaging in, a specified instance of anti-competitive conduct (s 151AKA(1)). Alternatively, it may state that a carrier or carriage service provider has engaged, or is engaging, in at least one instance of anti-competitive conduct of a kind described in the notice (s 151AKA(2)). A notice under subs (2) is not required to specify any instance of anti-competitive conduct (s 151AKA(5)).
18 In deciding how to describe a kind of anti-competitive conduct in a notice issued under subs (2), the Commission may have regard to whether the carrier or carriage service provider could, by varying its conduct, continue to engage in anti-competitive conduct and avoid proceedings against it under Div 7 of Pt XIB the Act (s 151AKA(6)(a)) and ‘any other matters that the Commission thinks are relevant’ (s 151AKA(6)(b)).
19 A carrier or carriage service provider must not engage in anti-competitive conduct, that rule to be known as the “competition rule” (s 151AK). The Commission may issue a Part A competition notice where the Commission has ‘reason to believe’ that the carrier or carriage service provider has engaged, or is engaging, in an instance of anti-competitive conduct (for a s 151AKA(1) notice) or at least one instance of a kind of anti-competitive conduct (for a s 151AKA(2) notice) (s 151AKA(7) and (8)). That refers to the mental state or view required of the Commission before a notice may issue. The Commission accepts that it must have a bona fide view and a reasonable basis for it.
20 The two circumstances in which a carrier or carriage service provider is said to engage in anti-competitive conduct are set out in s 151AJ of the Act. Anti-competitive conduct occurs, in substance, where the carrier or carriage service provider has a substantial degree of power in a telecommunications market and takes advantage of that power, or takes advantage of that power and engages in other conduct, with the effect or likely effect of substantially lessening competition in that or any other telecommunications market (s 151AJ(2)). It also occurs where the carrier or carriage service provider engages in conduct in contravention of ss 45, 45B, 46, 47 or 48 of the Act and that conduct relates to a telecommunications market (s 151AJ(3)).
21 A carrier or carriage service provider may apply to the Commission for an order exempting specified conduct from the scope of s 151AJ (s 151AS(1)). Such an order is known as an “exemption order”. The Commission must not make an exemption order unless it is satisfied that the conduct will or will likely result in a benefit to the public that outweighs the detriment of any lessening of competition or unless satisfied that the conduct is not anti-competitive (s 151BC(1)). Telstra has not applied for such an order.
22 The Competition Notice was issued under s 151AKA(2) of the Act. That is, it is a notice stating that Telstra has engaged, or is engaging, in at least one instance of anti-competitive conduct of a kind described in the notice. Before issuing a Part A competition notice under s 151AKA(2), by s 151AKA(10)(a), the Commission must give the carrier or carriage service provider a written notice (‘s 151AKA(10) notice’):
· stating that the Commission proposes to issue a Part A competition notice under the relevant subs (2) in relation to the carrier or carriage service provider;
· describing, in summary form, the kind of anti-competitive conduct that is proposed to be specified in the Part A competition notice; and
· inviting the carrier or carriage service provider to make a submission to the Commission on the proposal by a specified time limit.
The Commission must consider any submission that is received within that time limit (s 151AKA(10)(b)).
23 Section 151AKA(9) is equivalent to s 151AKA(10) and provides that the Commission must give written notice prior to the issue of a Part A competition notice under s 151AKA(1) of the Act.
24 The term ‘Consultation’ appears as a heading to subss (9) and (10) of s 151AKA of the Act. That heading has no statutory force. It is not part of Pt XIB of the Act (Acts Interpretation Act 1901 (Cth) s 13(c)).
25 If a notice fails to meet the statutory description in s 151AKA(10) of the Act or is otherwise invalid, then a necessary precondition to the exercise of the power to issue a Part A competition notice pursuant to s 151AKA(2) has not been met and the competition notice is invalid.
26 The Act distinguishes between a “reason to believe” and “reason to suspect” that a carrier has contravened, or is contravening, the competition rule. In the latter circumstance, the Commission must act expeditiously in deciding whether to issue a competition notice (s 151AQ(1) of the Act). It must act expeditiously to determine whether it has a “reason to believe” that the competition rule is being contravened. If so, the Commission may issue a s 151AKA(10) notice as a first step towards issuing a Part A competition notice.
27 In deciding whether to issue a competition notice, by s 151AP, the Commission must have regard to any guidelines in force which it has formulated (s 151AP(1)(a)). Those guidelines must address the appropriateness of issuing a competition notice as opposed to taking other action under the Act (s 151AP(3)). The Commission is also to have regard to such other matters as the Commission considers relevant (s 151AP(1)(b)).
28 The Commission may vary a competition notice, so long as the variation is ‘of a minor nature’ (s 151AOA(1)). It must give written notice of any such variation (s 151AOA(3)).
29 The purpose of a Part A competition notice, as submitted by the Commission, is to give the recipient a warning so that it can make an assessment as to whether or not it should continue with the conduct asserted to be anti-competitive. The warning has force by reason of Div 7 of Pt XIB of the Act. Pursuant to that division, the issue of a Part A competition notice allows:
· The Commission to institute a proceeding for the recovery of a pecuniary penalty for a contravention of the competition rule (s 151BY), which penalty is not to exceed the sums prescribed by s 151BX(3). Those sums are significant (s 151BX provides for $10 million for each contravention plus $1 million for each day for the first 21 days during which the contravention continues and $3 million for each day thereafter).
· The Commission to apply for an order relating to public disclosure or advertisement (s 151CB).
· Third parties who have suffered loss or damage by the relevant conduct to bring an action for damages, but only for the period when the relevant Part A competition notice was in force (s 151CC of the Act).
· Third parties to seek other compensatory orders for the period during which the Part A competition notice is in force (s 151CE).
30 The pecuniary penalties payable under s 151BX were increased to their current level by amendments made by Sch 4 to the Telecommunications Legislation Amendment (Competition and Consumer Issues) Act 2005 (Cth). The Explanatory Memorandum to the Telecommunications Legislation Amendment (Competition and Consumer Issues) Bill 2005 (Cth) recognised that Telstra owns infrastructure which its competitors need to access and interconnect with in order to compete effectively against Telstra. It also referred to the fact that ‘Telstra’s control of this infrastructure, combined with its market position, creates an incentive and ability for it to favour its own retail business in the provision of access to important services provided over this infrastructure’ (at 2). The increase in penalty was to provide sufficient deterrent to weigh against the benefit of breaching the competition rule. The potential penalties can be said to be serious and substantial.
31 The Court cannot, however, order the recipient of a Part A competition notice to pay a pecuniary penalty or damages under these provisions unless it is first satisfied that the recipient has, in fact and at law, contravened the competition rule. The fact of issue of a Part A competition notice is irrelevant to proof of the matters set out therein.
32 A Part A competition notice comes into force when it is issued unless a later time is specified (s 151AO(1)). The Commission may revoke the notice, at any time, pursuant to s 151AOB of the Act. Unless a Part A competition notice is revoked, it remains in force until the end of the period specified in notice, which may not be longer than 12 months (s 151AO(1)).
33 It is comprehended within the statutory framework that the kind of conduct described in the Part A competition notice need not be identical with that described in the s 151AKA(10) notice. This is evident from the fact that a s 151AKA(10) notice must only describe the kind of anti-competitive conduct in ‘summary form’ and that s 151AKA(10)(a)(ii) refers to conduct ‘that is proposed’ to be specified in the subsequent Part A competition notice. The Commission may change its views and wish to alter the description or detail of the anti-competitive conduct in the Part A competition notice after receiving submissions from the carrier or carriage service provider pursuant to a s 151AKA(10) notice. The critical issue in this case is the extent to which the notices may differ. The parties disagree as to whether the kind of anti-competitive conduct in the Competition Notice is within the description of the kind of anti-competitive conduct, in summary form, in the Consultation Notice and the extent of information required in that “summary”.
34 A s 151AKA(10) notice serves to advise the carrier or carriage service provider that the Commission proposes to issue a Part A competition notice and to give the opportunity to make a submission in relation to that proposal. The Act comprehends that, before a Part A competition notice issues, the recipient must have the opportunity to make submissions to the Commission with respect to the kind of anti-competitive conduct that is proposed to be the subject of that notice. If there is a change in the substance of the anti-competitive conduct, as described in summary form in the s 151AKA(10) notice and as described in the Part A competition notice, so that a different kind of anti-competitive conduct is specified in the latter notice, the statutory scheme has not been complied with.
35 A further question arises whether the Act or the principles of natural justice require that the carrier or carriage service provider first be given the opportunity to address the new conduct. This, in turn, raises the question whether s 151AKA(10) codifies and prescribes the totality of procedural fairness to be accorded to the carrier or carriage service provider prior to the issue of a Part A competition notice. The Commission submits that it does. Telstra submits that it does not. Optus submits that s 151AKA(10) of the Act does not displace the Commission’s obligation to accord procedural fairness but that that obligation was complied with.
The statutory notices
36 There is no general principle that uncertainty in an executive instrument spells invalidity (Television Corporation Ltd v The Commonwealth (1963) 109 CLR 59 at 71 per Kitto J). The question is whether what has been done in fact answers the description of what the statute permits to be done in law. A statutory notice such as a s 151AKA(10) notice or a Part A competition notice (together, ‘the Statutory Notices’) must not be so vaguely expressed that its meaning of application is a matter of real uncertainty. The Statutory Notices must convey, with reasonable and sufficient clarity and certainty, the subject matter with which they deal and enable the recipient to know what is required if their issue is to be a valid exercise of statutory power (Television Corporation Ltd at 70 per Kitto J; SA Brewing Holdings Ltd v Baxt (1989) 23 FCR 357 at 369 per Fisher and French JJ (with whom Wilcox J agreed); Pyneboard Pty Ltd v Trade Practices Commission (1982) 57 FLR 368 at 373, 374 per the Full Court). Where different kinds of subject matter are dealt with by different statutory provisions, the Statutory Notices should specify or make clear which particular aspects of the statutory regime are referred to and/or relied upon (Department of Industrial Relations v Forrest (1990) 21 FCR 93 at 118 per Lockhart and Hill JJ).
37 The severity of prospective penalties or consequences of failure to comply with a statutory notice that flow from the subject matter and the impact of the characterisation of the conduct are relevant factors in identifying the requisite degree of certainty (see Pyneboard at 374, Fieldhouse v Commissioner of Taxation (1989) 25 FCR 187 at 208 per Hill J). Account is to be taken of the statutory context in which the issue of a statutory notice arises and of the relevant interests of third parties. To take an example relevant to a Part A competition notice, a third party may contemplate bringing an action for damages in reliance on that notice and has an interest in knowing with clarity the ambit and scope of the notice.
38 One of the purposes of the Statutory Notices is to enable the recipient to identify its allegedly anti-competitive conduct. The requirement of reasonable clarity is met if, where a statutory notice is to elicit a response, the notice makes it reasonably clear, in the circumstances in which it is given and on a fair reading of its terms, what information is required or sought.
39 The Statutory Notices should be reasonably construed and the requirement for clarity is not to be applied ‘in a precious or hypercritical fashion’ (Pyneboard at 375). Nor should the Statutory Notices themselves be construed as statutory provisions: ‘[a]rtificial dissection, in the cause of determined obfuscation, can introduce an argumentative element of uncertainty into words which, when read reasonably in context, are adequate to convey a plain and clear meaning’ of what is required (Pyneboard at 375). The Statutory Notices need not plead all the facts necessary to constitute a contravention or possible contravention of the Act (SA Brewing at 370 per Fisher and French JJ).
40 The question is whether a reasonable person in the position of the addressee of a statutory notice can fairly comply with its requirements or take advantage of the opportunity offered (Fieldhouse at 208 per Hill J with whom Burchett J relevantly agreed). The Statutory Notices are concerned with the conduct of carriers or carriage service providers and can only be given to a carrier or a carriage service provider. In this case, the Statutory Notices were given to Telstra, a sophisticated, well-advised company with significant telecommunications experience. The notices followed a course of correspondence between Telstra and the Commission concerning the subject matter of the notices. Context may make something certain that, in the abstract, is uncertain.
41 Telstra relies on observations by Lockhart and Hill JJ in Forrest at 118 to suggest, in effect, that the Consultation Notice must make explicit on its face every nuance or explanation without regard to the fact that Telstra, as the recipient, has knowledge of and understood certain of the terminology and subject matter. Their Honours in Forrest were referring to a different kind of notice: a conclusive certificate under s 34 of the Freedom of Information Act 1982 (Cth) (‘the FOI Act’). The Court there was concerned with whether that notice would be uncertain to a review Tribunal charged with the function of determining whether reasonable grounds existed for the documents the subject of the certificate to be exempt from the FOI Act. In the present case, the s 151AKA(10) notice sought information from a recipient in the industry about its own processes.
43 As stated in SA Brewing at 375, with respect to notices under s 155 of the Act, the Statutory Notices ‘must specify the information sought with sufficient clarity to enable [the] recipient to know what is required’. As with s 155 notices, the Statutory Notices are to be reasonably construed and terms used in them ‘will ordinarily take their meaning’ from the commercial circumstances in which the notices are given (SA Brewing at 369 citing Melbourne Home of Ford Pty Ltd v Trade Practices Commission (No 3) (1980) 47 FLR 163 at 175–6).
THE CONSULTATION NOTICE: CERTAINTY AND COMPLIANCE WITH S 151aka(10)(a)(ii)
44 Telstra’s challenge to the Commission’s conduct in issuing the Consultation Notice raises three broad issues:
(1) Is the Consultation Notice uncertain and/or does it fail to describe sufficiently a type or kind of anti-competitive conduct as required by s 151AKA(10)(a)(ii)?
(2) Does the Consultation Notice describe, in summary form, the same kind of anti-competitive conduct described in the Competition Notice?
(3) If the Consultation Notice does not describe, in summary form, the same kind of anti-competitive conduct described in the Competition Notice, was Telstra denied procedural fairness?
45 This section addresses the first issue only. The second and third issues are considered after an assessment of the Competition Notice.
46 Telstra contends that the Consultation Notice fails to specify the type or kind of anti-competitive conduct that has been engaged in or is being engaged in by Telstra and that it does not enable Telstra to identify what is to be done to avoid engaging in such conduct. Telstra asserts that the meaning and operation of the Consultation Notice is not reasonably certain; it does not communicate with reasonable clarity what conduct is impugned; and it fails to comply with s 151AKA(10)(a)(ii) of the Act in that it does not describe in appropriate summary form the kind of anti-competitive conduct that is proposed to be specified in a competition notice.
47 The Consultation Notice is Annexure A to these reasons. In order to understand this section of my reasons, it is necessary first to read that notice. Where I refer to defined terms in the Consultation Notice those terms take their meaning from that notice.
48 Telstra’s criticisms of the Consultation Notice relate to the description of the conduct and to the drafting of the notice. In summary, Telstra identifies the following deficiencies in the Consultation Notice:
(a) It does not specify whether the anti-competitive conduct is within s 151AJ(2) or s 151AJ(3) of the Act.
(b) It gives inadequate description of the market in which Telstra is said to have a substantial degree of power. There are no particulars of the way in which Telstra is said to have taken advantage of its power in that market.
(c) In specifying the kind of conduct said to be anti-competitive:
(i) the notice does not articulate the substance of the anti-competitive conduct or how it is characterised to be anti-competitive;
(ii) the explanation is circular and amounts to saying that the conduct is anti-competitive where it is anti-competitive.
49 The Commission puts in issue, as a preliminary matter, whether its “decision” or conduct in issuing the Consultation Notice is reviewable by the Court.
Reviewable decision or conduct?
50 The Commission accepts that its decision to issue the Competition Notice is reviewable pursuant to s 5 of the ADJR Act and s 39B of the Judiciary Act. The Commission asserts, however, that its “decision” to issue the Consultation Notice is not so reviewable.
51 Section 5 of the ADJR Act relevantly provides for review in this Court of a ‘decision to which [the ADJR Act] applies’ on any one or more of the grounds set out in that section. Review may also be sought in respect of conduct engaged in for ‘the purpose of making a decision to which [the ADJR Act] applies’ on the grounds prescribed in s 6.
52 A “decision” to which the ADJR Act applies is, subject to exceptions that are not presently relevant, a decision of an administrative character made, proposed to be made, or required to be made, under an enactment or by a Commonwealth authority or an officer of the Commonwealth under an enactment (s 3(1) of the ADJR Act). A “decision” will generally, but not always, ‘entail a decision which is final or operative and determinative, at least in a practical sense, of the issue of fact falling for consideration’ (Australian Broadcasting Tribunal v Bond (1990) 170 CLR 321 at 337 per Mason CJ, with whom Brennan and Deane JJ agreed). It will also involve a substantive determination. ‘If “decision” were to embrace procedural determinations, then there would be little scope for review of “conduct”’ as expressly contemplated by s 6 of the ADJR Act (Bond at 337).
53 The Commission accepts that the “decision” to issue the Consultation Notice is a step taken under the Act. It submits, however, that that step is determinative of nothing (Neate v Australian Securities Commission (1995) 60 FCR 518 at 520–1); it does not confer, alter or otherwise affect legal rights or obligations, whether arising under the Act or otherwise. At most, the decision is said by the Commission to precede ‘an act (the issue of a notice under s 151AKA(10)(a)) which gives rise to a limited procedural right (to have a submission considered) and a concomitant obligation to consider it’.
54 The Commission further submits that, in any event, Telstra did not apply for a review of the alleged “decision” to issue the Consultation Notice within time (s 11(3)(b)(iii) of the ADJR Act).
55 Telstra submits that the decision to issue the Consultation Notice depended upon the exercise of a specific statutory power under s 151AKA(10) of the Act, which decision gave rise to a legal right to put submissions to the Commission and legal obligation on the Commission to consider those submissions. It was a prerequisite to the issue of a Competition Notice and therefore had, according to Telstra, operative effect and impacted directly on Telstra’s legal rights and obligations. Further, Telstra submits that an extension of time to review that decision should be granted as the Commission has pointed to no prejudice arising from such an extension being granted. Optus consents to an extension of time being granted.
Consideration
57 It follows that, there being no relevant “decision”, it is unnecessary to consider whether an extension of time should be granted under the ADJR Act to review the “decision” to issue the Consultation Notice.
58 That leaves for consideration whether the Commission’s conduct in issuing the Consultation Notice is reviewable “conduct” within s 6 of the ADJR Act. No specific time limit applies to the review of conduct. “Conduct” engaged in for the purpose of making a decision includes ‘the doing of any act or thing preparatory to the making of the decision’, including the taking of evidence or the holding of an inquiry or investigation (s 3(5) of the ADJR Act). It ‘points to action taken, rather than a decision made, for the purpose of making a reviewable decision’. Conduct is ‘essentially procedural and not substantive in character’ (Bond at 341–2).
59 The issue of the Consultation Notice was more than merely a preparatory step in the deliberative or reasoning process of the reviewable decision to issue the Competition Notice (Bond at 342). The issue of the Consultation Notice was “conduct” of the Commission within the meaning of s 6 of the ADJR Act and therefore reviewable pursuant to s 6 of the ADJR Act. It is also, in my view, amenable to review pursuant to s 39B(1A)(c) of the Judiciary Act.
Section 39B of the Judiciary Act
60 The parties accept that s 39B of the Judiciary Act applies to the decision to issue the Competition Notice. Section 151AQA of the Act contemplates an application to the Court under s 39B(1) in relation to that decision and prevents the Court from staying the process to issue the notice pending the finalisation of the application.
61 The Commission submits that the statutory scheme does not contemplate there being a reviewable decision or conduct in connection with the issue of a s 151AKA(10) notice. It relies on two matters in so doing. First, there is no specific provision for such review. Secondly, a review at that stage of the process would, the Commission submits, be contrary to the requirement for the Commission to proceed expeditiously once it has “reason to suspect” that there has been a contravention of the competition rule. The Commission points out that it would be unable to complete the process of forming a “reason to believe” under s 151AKA(8) if persons were able to invoke s 39B of the Judiciary Act before the Commission had received and considered the written submissions as contemplated by s 151AKA(10).
62 There are a number of reasons why the Commission’s submissions should not be accepted. There is no clear language excluding the right to invoke s 39B of the Judiciary Act. Importantly, s 39B(1A)(c) confers jurisdiction on the Court in any matter arising under any laws made by the Parliament other than an exception which does not apply here. The decision to issue the Consultation Notice is a matter arising by reason of Pt XIB of the Act. It is within jurisdiction whether it be considered a “decision” or “conduct” for the purposes of the ADJR Act. Further, in any event, it is accepted that there is jurisdiction under s 39B(1) of the Judiciary Act to review the Competition Notice. As Optus submits and the Commission accepts, a valid s 151AKA(10) notice is a prerequisite to the issue of a valid Part A competition notice. An assessment of whether the Consultation Notice complies with s 151AKA(10) is a necessary incident to the Court’s review of the Commission’s decision to issue the Competition Notice.
63 The discretionary matters raised by the Commission as to the appropriateness, in certain circumstances, of review of a s 151AKA(10) notice do not go to jurisdiction but to discretion in the granting of relief. If such relief is sought at an early stage, such as prior to the issue of a Part A competition notice and before any final or operative or determinative decision has been made, relief may be denied on substantive or discretionary grounds (Robertson A, “The administrative law jurisdiction of the Federal Court – Is the AD(JR) Act still important?” (2003) 24 ABR 89 at 94).
64 I will turn to consider what Telstra identifies as the deficiencies in the Consultation Notice.
(a) Alleged failure to specify s 151AJ(2) or (3)
66 The Consultation Notice states that the Commission, in deciding to issue the notice, ‘has had particular regard to section 151AJ(2)’ of the Act (para 4) and sets out the elements of anti-competitive conduct as defined in that subsection (paras 10 to 14). While that does not preclude regard to s 151AJ(3) of the Act, there is no reference to the purpose of engaging in that kind of conduct and there is an absence of reference to the distinguishing elements of subs (3), such as s 46 of the Act.
67 A reading of the whole of the Consultation Notice and reference to the Act would have established that the anti-competitive conduct to which the Consultation Notice referred was conduct within subs (2) of s 151AJ rather than subs (3). Further, Telstra responded to the Consultation Notice by engaging in a detailed analysis of the elements of contravention under s 151AJ(2) of the Act, which confirms that it understood the kind of conduct there alleged.
68 There was no uncertainty in this regard.
(b) The Market
69 The Consultation Notice asserts the existence in Australia of telecommunications markets no wider than the Wholesale Local Services Market and the Retail Fixed Services Market (paras 8 and 9). Those markets are defined in the notice. Paragraph 10 of the notice further asserts:
‘Without prejudice to the Commission’s views in respect of any other telecommunications markets, Telstra has a substantial degree of power in the Wholesale Local Services Market.’
70 The Consultation Notice was directed to Telstra, a sophisticated participant as a carrier in the telecommunications industry and the provider of wholesale Local Services. It is in that context that an assessment should be made of the clarity of the Consultation Notice.
71 The Commission Guidelines pursuant to s 151AP of the Act were issued in February 2004 (Australian Competition and Consumers Commission, Telecommunications competition notice guidelines (2004) (‘the Guidelines’)). The Commission submits that Telstra must be taken to have had the contents of the Guidelines in mind and also the capacity to segment the market to consider the effect on the market. In view of the relevance of the Guidelines as set out in s 151AP and their public availability, it is reasonable to assume that, in understanding the Consultation Notice, Telstra was aware of the content of the Guidelines, including the description of the markets. The Guidelines emphasise transparency in the investigative process and the decision to issue a competition notice. They relevantly state that, when deciding whether to issue a Part A competition notice the Commission will consider each of a non-exhaustive list of matters separately. The decision to issue a Part A competition notice depends on an overall balance of the factors listed. Those stated factors include:
· The extent of the conduct, that is whether the conduct is having an effect in segments of a market, across the whole of a market or in a number of markets. The example is given of conduct that occurs at the wholesale level of the market may also affect competition in downstream retail markets (the Guidelines at 17).
· Submissions received from the carrier or carriage services provider which the Commission must consider if received within the specified timeframe (the Guidelines at 19).
72 In the context of the whole of the Consultation Notice and the requirement that it identify the kind of conduct proposed to be specified in the Competition Notice in summary form, Telstra cannot have failed to understand what was meant by the Wholesale Local Services Market, defined as a telecommunications market for the supply of wholesale Local Services (paras 8(a) and 9). Nor could it reasonably have failed to understand why the Commission would assert that it has a substantial degree of power in that market. Telstra did not require particulars to understand how, by engaging in the Relevant Conduct, the Commission asserted that Telstra had taken advantage of its market power in the Wholesale Local Services Market.
(c) Specification of the kind of anti-competitive conduct
73 In order to understand Telstra’s complaint that the Consultation Notice does not adequately specify the kind of anti-competitive conduct, it is necessary to consider the context of the notice. The Consultation Notice was served after correspondence between Telstra and the Commission. It is also important to read the Consultation Notice as a whole. That assists in understanding the conduct, the market power and the alleged effect or likely effect on competition.
Context of the Consultation Notice
74 Telstra is required by rules made by the Commission in accordance with cl 5 of the Australian Competition and Consumer Commission (Accounting Separation – Telstra Corporation Limited) Direction (No. 1) 2003 (Cth) (‘the Direction’) to keep and retain records and provide reports to the Commission of “imputation”. The imputation reports must record, by cl 5(1)(a):
‘the values of Telstra’s internal supply of each of the core services as if Telstra had purchased the core service concerned at arm’s length at a wholesale price that is the volume weighted average of the prices that Telstra charges access seekers for that service’.
“Core services” for the purpose of cl 5 include “local carriage services”, that is, local call and line rental (cl 3 of the Direction; s 152AQB(1)(d) of the Act). Individual cost and revenue elements by customer group and the retail margin for each “retail service” must also be identified (cl 5(1)(b)) where a “retail service” is line rental, local calls, national long-distance calls, international calls, fixed to mobile calls and certain other services (cl 3 of the Direction). The volume-weighted average of the local carriage service is broken down into a local call component and a line rental component; Telstra is to record the retail costs in respect of each retail service and costs that are incurred in transforming the relevant core (or wholesale) service into the retail service (rules 5 and 8 of the Imputation testing (Initial Reports) Record Keeping and Reporting Rules (2004) (‘the Rules’) issued by the Commission further to the Direction).
75 By its report on imputation testing relating to the accounting separation of Telstra for the September quarter of 2005, the ninth set of reporting produced in accordance with the Direction, the Commission stated that it regarded imputation testing as designed to reveal whether there is a sufficient margin between Telstra’s retail prices and the prices Telstra charges wholesale access seekers to use its network, plus related costs, to enable equally efficient access seekers to compete in retail telecommunications markets (Australian Competition and Consumer Commission, Imputation Testing and Non-Price Terms and Conditions Report Relating to the Accounting Separation of Telstra for the September Quarter 2005 (2005) (‘the Imputation Report’)). It reported inter alia that, for the September quarter, Telstra passed the imputation tests for domestic and international long-distance calls, fixed-to-mobile calls and the bundle of fixed-line voice telephony services for both residential and business customer groups and for the bundle of certain internet (‘ADSL’) and fixed-line telephony services for business customers. However, Telstra failed the imputation test for local call services (line rental and local calls combined) for both residential and business customers and for all other (non-bundled) ADSL and fixed-line telephony services for business customers.
76 The Imputation Report stated that the “primary objective” of the Rules ‘is to provide an indication of whether Telstra is engaging in ‘systemic price squeeze behaviour in relation to core telecommunications services’ (at 7). The Imputation Report “spells out” at 8 that:
‘[a] “price squeeze” could occur if Telstra reduces the margin between its retail price for a retail service and the wholesale access price it charges for an essential input to that retail service. Telstra could reduce the margin by lowering the retail price for the service and/or raising the wholesale access price for the essential input.
If the difference between the wholesale access price and the retail price is not sufficient to cover Telstra’s network and retail costs of supply, retail suppliers as efficient as Telstra in the supply of the retail service might not be able to remain in the market, as they would be achieving negative profit margins.
Imputation testing can be used to detect possible price squeezes in a retail market.’
77 The Imputation Report gives a detailed description of the elements of an imputation test and the imputation tests conducted. It records the “fail” results for the local call and line rental service and concerns about potential price squeeze behaviour by Telstra. It states that the Commission has not previously regarded the fail results for the local call and line rental product as being a “serious concern” and notes that the results do not necessarily provide evidence of a contravention of the Act (at 21).
Correspondence between Telstra and the Commission
78 On 28 October 2005, after the Commission had consented to the HomeLine Part increase, a meeting took place between representatives of the Commission and Telstra. At that meeting, Telstra explained the reason for a proposed increase in the cost for wholesale customers to Home Access. This was to enable Telstra to recover more closely what it said was the efficient cost of restructuring the network. In the proposal Telstra referred to the concurrent HomeLine Part increase and asserted that wholesale customers would retain a margin in which to compete.
79 Telstra had briefed the Commission on its proposed price increases. It asserted, inter alia, that its wholesale customers would still have a “positive margin” after the proposed price increase in Home Access line rental. The Commission responded by letter dated 30 November 2005. That response referred to the HomeLine Part increase and the Home Access increase and noted that there had not been a corresponding price increase to Telstra’s “HomeLine Plus” and “HomeLine Complete” line rental rates, each being bundled residential packages. As a result, the Commission asserted that:
· ‘following the Home Access price increase, almost all of Telstra’s residential plan line rentals will be priced below the price Telstra will offer its competitors for the only available wholesale line rental product’;
· ‘residential customers who choose the HomeLine Part rate plan and pre-select another carrier for the carriage of pre-selectable calls will pay more for their local services (local calls and line rentals) than most other Telstra residential customers’.
80 The letter continued to assert that the increases will:
· ‘give rise to a serious retail-wholesale price squeeze because wholesale customers will be paying Telstra more for HomeLine Access line rental than the vast majority of retail customers will be paying Telstra for line rental services’;
· ‘mean that residential customers will be much less likely to choose a carrier other than Telstra for pre-selectable calls’; and
· ‘raise costs, reduce their margins and prevent or hinder them from competing with Telstra in respect of residential customers’.
81 The letter then stated the Commission’s position:
‘The [Commission] considers that, by announcing and implementing the price increases, Telstra may be engaging, or proposing to engage, in anti-competitive conduct in breach of Section 151AK of [the Act].
The [Commission] is of the view that there is a strong argument that Telstra is taking advantage of its power in one or more of the following markets:
· a wholesale local services market;
· a wholesale market for essential inputs to downstream pre-select services which Telstra supplies to competitors; and
· a residential fixed voice market,
with the effect, or likely effect, of substantially lessening competition.’
82 The Commission asked Telstra to refrain from implementing the Home Access increase without giving the Commission 10 days notice, pending further investigation by the Commission and consultation with Telstra’s wholesale customers.
83 Telstra, through its solicitors, responded the next day, pointing out that the Commission had consented to the HomeLine Part increase and that Telstra had notified the Commission of the proposed Home Access increase. Under the heading ‘Line rental price increases will not substantially lessen competition’ the letter stated that Telstra’s line rental prices had traditionally been set below cost, subsidised by call charges and that the Commission was aware of this fact and had ‘expressed a desire over the years for Telstra to rebalance its access and call charges’. Telstra asserted that the Home Access increase would allow Telstra to recover its costs of providing access and offset losses that Telstra would otherwise suffer due to it being unable to subsidise its access costs with call charges where retail customers do not utilise Telstra for long distance calls. Telstra contended that the HomeLine Part increase was for the same reason and emphasised ‘[l]ine access is not a service provided in isolation, and the profits obtained from the call services provided over the line must be taken into account’.
84 On the same day, the Commission issued a notice to produce documents under s 155(1)(b) of the Act. The notice set out the matters that the Commission specified constitute or may constitute contraventions of s 46 and/or s 151AK of the Act by reference to the proposed Home Access increase. A wide range of documents were required to be produced that related to that price increase. Those documents were produced.
85 On 22 December 2005, the Commission served the Consultation Notice.
Consideration
86 A s 151AKA(10) notice must describe “in summary form” the kind of anti-competitive conduct that is proposed to be specified in a Part A competition notice. This may be less than an exhaustive explanation of the Commission’s concerns, provided that the conduct to which the notice is directed is sufficiently identified. Section 151AKA(10) of the Act was introduced by the Telecommunications Competition Act 2002 (Cth) (‘the 2002 Amending Act’). As stated in the Explanatory Memorandum to the Telecommunications Competition Bill 2002 (Cth) (‘the 2002 Explanatory Memorandum’), ‘[i]t is not intended that the [s 151AKA(10)] notice will need to contain full particulars of the instance or kind of anti-competitive conduct that is proposed to be specified in the notice, although this may be appropriate in some circumstances’. There is no need to identify a specific instance of the conduct. The requirement that the conduct be described in “summary form” confirms, as set out in the 2002 Explanatory Memorandum, that the “substance” of the anti-competitive conduct must be specified rather than full particulars of the instance or kind of anti-competitive conduct.
(i) Substance of the anti-competitive conduct
87 Telstra emphasises that the reference to the ‘kind of anti-competitive conduct’ in s 151AKA(10)(a)(ii) refers to the kind of conduct that is proposed to be specified; there is no reference in s 151AKA(10) to “instances”. A notice under this subsection need only specify a kind of conduct and not an instance of conduct or an instance of a kind of conduct. Section 151AKA(2) provides that the Commission may allege in a Part A competition notice that the carrier or carriage service provider has engaged in ‘at least one instance of anti-competitive conduct of a kind described in the notice’. This means, Telstra contends, that the Commission is obliged to specify a kind of anti-competitive conduct in the Consultation Notice and then allege, in the Competition Notice, that the carrier or provider has engaged in at least one instance of anti-competitive conduct of that kind. Telstra complains that the Consultation Notice may specify instances but fails to achieve the requirement of stating what the kind of anti-competitive conduct is.
88 In Telstra’s submission, the “kind of conduct” must be described in terms sufficient to enable Telstra and third parties to know with reasonable clarity what conduct is being impugned and what it is required to avoid liability for the consequences of that conduct. As elaborated in [42], it must also be sufficient to enable a submission in response. A mere assertion, such as in the Consultation Notice, that conduct is anti-competitive is said not to fulfil this requirement. The substance of the conduct and how it is characterised as anti-competitive must be specified. Telstra points to the following:
· There is reference to the pricing of Telstra’s retail Local Services products when assessed as a ‘weighted average’ with no explanation of the meaning of that expression (para 5(b) of the Consultation Notice).
· The conduct is said to result in the alternatives ‘a negative margin, no margin or only a small positive margin’ without particularisation and in circumstances where previously the Commission had asserted ‘no margin’. There is no explanation of whether the conduct complained of is supplying in a small positive margin, in a negative margin or at no margin.
· There is no explanation why conduct such as supply in a small positive margin could not occur in a competitive market.
89 Telstra further contends that such description of the conduct as exists is capable of sufficient options and permutations to make the Consultation Notice uncertain as to the species of conduct that is being identified:
· Because of the definition of Local Services (para 1(a)), it is unclear whether the impugned conduct is the supply of line rental, locals call services or both.
· The expression in paragraph 5(c) ‘at prices set at a level whereby there was and is a negative margin, no margin or only a small positive margin between those prices and Telstra’s retail prices for Local Services’ is vague and unclear and gives rise to further permutations.
· The likely effect on competition, as described in paragraph 12, is said to be caused by Relevant Conduct taken alone or that conduct ‘together with the Other Conduct’. That description is not sufficiently certain.
· There are further permutations introduced by the different ways in which such conduct is then said to have the effect or likely effect of substantially lessening competition.
· The permutations are emphasised by the reference in paragraph 13 to ‘[f]urther or alternatively to paragraph 12’ and the description of the conduct as including ‘other conduct of Telstra in the supply of Local Services’, which “other conduct” is not identified.
· While Other Conduct was described by reference to the HomeLine Part increase, being ‘one of [Telstra’s] retail Local Services products’, the Other Conduct is not itself considered as the kind of conduct proposed to be the subject of the Competition Notice. It is only an addendum to the Relevant Conduct. It is not clear whether or how the Other Conduct should be addressed.
· The permutations are further emphasised in paragraph 14 which purports to be a summary of the kind of conduct said to be anti-competitive.
90 Optus submits that the Consultation Notice describes the kind of anti-competitive conduct in that it describes:
· The conduct (para 5).
· The markets in which the conduct occurred and that they are telecommunications markets (the Wholesale Local Services Market and the Retail Fixed Services Market) (paras 8 to 9).
· That Telstra has a substantial degree of market power in the Wholesale Local Services Market (para 10).
· That Telstra has taken advantage of its market power by engaging in the conduct in the Wholesale Local Services Market (para 11).
· That certain of the conduct in which Telstra has engaged has the effect or likely effect of substantially lessening competition in the Retail Fixed Services Market and that that conduct is therefore a kind of anti-competitive conduct (paras 12 to 13).
91 Optus submits that the ‘the kind’ of conduct which must be described in summary form in the Consultation Notice and must be referred to in the Competition Notice is conduct which meets one of the descriptions of anti-competitive conduct in s 151AJ: here, conduct that is defined by s 151AJ(2). The “instance” or instances of anti-competitive conduct that must be stated in the Competition Notice are an example of such conduct occurring in fact: here the implementation and maintenance of the “price squeeze”. As put by Optus ‘[i]t is no more complicated than that’.
92 Optus further contends that the Commission was entitled to refer to different or alternative effects of Telstra’s conduct and alternative formulations of the conduct. The purpose is to put Telstra on notice of the conduct which it proposes to include in a Part A competition notice.
93 The Consultation Notice stated that the Commission proposed to issue a Part A competition notice pursuant to s 151AKA(2) of the Act in relation to Telstra, in accordance with s 151AKA(10)(a)(i). It invited Telstra to make a submission to the Commission on that proposal by a specified time limit, in accordance with s 151AKA(10)(a)(iii).
94 The Consultation Notice described a kind of anti-competitive conduct in summary form (s 151AKA(10)(a)(ii)). It has not been suggested that, at the time of the issue of the Consultation Notice, the Commission did not propose to specify that conduct in a Part A competition notice. The Consultation Notice stated that, by engaging in the Relevant Conduct, Telstra has taken and is taking advantage of its market power in the Wholesale Local Services Market (at para 11). By reference to the effect, or likely effect, of that conduct, taken alone or together with the Other Conduct, being a substantial lessening of competition in the Retail Fixed Services Market for the reasons that were given (para 12), the element of anti-competitive conduct identified by s 151AJ(2)(b) was specified. By identifying the conduct which involved the taking advantage of market power, the market in which that power was taken advantage and its effect or likely effect in a telecommunications market, the kind of anti-competitive conduct was described in summary form.
95 It remains to be determined whether the kind of conduct described in summary form in the Consultation Notice is the same kind of conduct as described in the Competition Notice.
96 Following the issue of the Consultation Notice, by letter dated 6 January 2006 Telstra sought ‘clarification of the apparent inconsistencies’ between the Imputation Report and the Consultation Notice. I will return to that letter later. The Commission’s response, dated 16 January 2006, relevantly stated:
‘The Relevant Conduct and the Other Conduct of concern to [the Commission] are defined in [the Consultation Notice]. Similarly, the ways that [the Commission] considers that the Relevant Conduct may contravene the competition rule is described in [the Consultation Notice]. It is important for Telstra to note that nothing in this letter or any other correspondence should be taken as adding to, altering, or substituting for, anything stated in [the Consultation Notice]’ (my emphasis).
97 Telstra submits, with reference to that letter, that the surrounding circumstances and materials are not relevant to a determination of whether the Consultation Notice describes, in summary form, a kind of anti-competitive conduct. I do not accept that materials or understanding extrinsic to the terms of the notice are irrelevant to the assessment of the Consultation Notice.
98 Telstra submits that the Consultation Notice should be assessed on the basis that it should be able to be understood by third parties. Third parties have an interest in understanding the ambit and scope of a Part A competition notice for the purposes of s 151CC of the Act and of a s 151AKA(10) notice for the purposes of themselves making submissions to the Commission. There is no evidence that any third party had difficulties in understanding either of the Statutory Notices. I do not accept that, because a third party may rely on the existence of a Part A competition notice, it is appropriate to ignore the fact that the recipient of a s 151AKA(10) notice is a sophisticated and experienced carrier or carriage service provider. Further, an interested third party is likely to be another carrier or carriage service provider, or otherwise have an understanding of the telecommunications industry.
99 Even in the context of Telstra’s submission that the Consultation Notice must be valid on its face and cannot be supplemented by extraneous materials, it cannot be ignored that the recipient is Telstra. In order to assess Telstra’s understanding of the Consultation Notice and ability to respond to it, Telstra was in the position as described above – a reader well versed in the telecommunications industry and its terminology, a “skilled reader”. For example, Telstra complains that there is no definition in the Consultation Notice of wholesale and retail markets which, as Optus contends, are definitions known and utilised in the telecommunications industry. Telstra does not dispute that contention but maintains that it is irrelevant, because the notices ‘must be clear and certain on their face’.
100 The Consultation Notice must be considered in context. It relates to Telstra’s conduct and, insofar as it contains terms of art or references to Telstra’s products, unless the contrary is established or raised, the Commission is entitled to assume that Telstra was familiar with the subject matter and terminology. These observations apply equally to the Competition Notice.
101 Neither prior to the issue of the Consultation Notice nor in the notice did the Commission give Telstra the “material and analysis” forming the basis for or relating to the Commission’s allegations and statements in the Competition Notice. Telstra submits that it does not know what matters the Commission took into account in forming its views. To the extent that this is said to reflect Telstra’s ability to understand the kind of anti-competitive conduct described in the Consultation Notice, I do not accept that such information was necessary to enable understanding.
102 The Consultation Notice did not need to descend into detail of terminology and description in order to be clear. In the context of conduct relating to Telstra’s bundles of services, expressions such as “weighted average” and “a negative margin, no margin or only a small positive margin” are not unclear. The context is of a range of retail services, sold as a bundled package, where some are used to subsidise others. If the Consultation Notice was referring to individual services within the bundle, Telstra’s criticisms would have more substance. The Commission was not obliged, in the interests of clarity, to explain to Telstra why, where Telstra sells access to the PSTN to other carriers and carriage service providers as wholesalers, it could be thought by the Commission that Telstra had a substantial degree of power in the Wholesale Local Services Market.
(ii) Circularity
103 Telstra submits that paragraph 14, the ‘culmination’ of the Consultation Notice states, in effect, that the identified conduct is notified as being anti-competitive insofar as the conduct is anti-competitive (by substantially lessening competition). This is said to be circular. Telstra further submits that, if the Commission cannot itself identify the conduct, it can have no “reason to believe” that Telstra has engaged in anti-competitive conduct and the jurisdictional pre-requisite of s 151AKA(8) of the Act cannot be satisfied.
104 Optus submits that, by reading the Consultation Notice as a whole and noting that paragraph 14 expressly incorporates the effects identified in paragraphs 12 and 13, Telstra’s concerns about paragraph 14 and the alleged circularity are made clear. Paragraph 14 is then ‘simply the final aspect of description of the kind of anti-competitive conduct’ that is to be specified in the Competition Notice.
105 Telstra also criticises the Competition Notice on this basis. It is convenient to deal with this aspect of the two notices together.
106 I do not accept that the criticism of “circularity” of description of the kind of conduct renders the Consultation Notice or Competition Notice uncertain or invalid. When the notices are read as a whole, in the context of Pt XIB of the Act (in particular s 151AJ(2)(b) and s 4G) the assertions in paragraph 14 of the Consultation Notice and paragraph 13 of the Competition Notice are not unclear. The assertion is that where the conduct described in the Statutory Notices has the effect or likely effect of substantially lessening, preventing or hindering competition in a telecommunications market, it is anti-competitive conduct for the purpose of the notice and the Act. The Commission was not obliged to explain the terminology of the Act.
Conclusion
107 Telstra’s submission that the Consultation Notice is uncertain or lacking in clarity and does not sufficiently specify a type or kind of anti-competitive conduct is not accepted. The Consultation Notice describes a kind of anti-competitive conduct, which description is sufficiently clear.
ADEQUACY OF THE COMPETITION NOTICE
108 As a threshold to the issue of a Part A competition notice under s 151AKA(2), the Commission must have “reason to believe” that the carrier or carriage service provider concerned has engaged, or is engaging, in at least one instance of anti-competitive conduct of the kind to be described in the notice (s 151AKA(8)). If the Commission proposed to issue a Part A competition notice, it had, as a necessity, reason to believe that there was anti-competitive conduct by reason of Telstra’s conduct.
109 The Commission contends that the fact that it has “reason to believe” in relation to the conduct described in the Competition Notice is a relatively low threshold. The Commission draws in aid observations directed to the phrase “reason to believe” in cases concerning s 155 of the Act. In that context, the phrase is directed to a belief that a person is capable of furnishing information or producing, for example, documents relating to a matter that constitutes or may constitute a contravention of the Act. Telstra does not accept that this is analogous to the requisite reason to believe that a carrier or carriage service provider has engaged or is engaging in relevant anti-competitive conduct for the purposes of s 151AKA(8). It submits that the requisite state of mind requires the existence of facts which are sufficient to induce that state of mind in a reasonable person (George v Rockett (1990) 170 CLR 104 at 112).
110 The basis for the belief is set out in the correspondence and in the Consultation Notice. Telstra has not demonstrated that there was an absence of such belief prior to the issue of the Competition Notice. I will turn to consider the terms of the Competition Notice.
111 The Commission accepts that, if the Consultation Notice did not conform to the requirements of the Act such that no notice was given pursuant to s 151AKA(10), it was not in the position to issue a valid Part A competition notice.
112 Pursuant to s 151AKA(2) of the Act, a Part A competition notice must cite at least one instance of anti-competitive conduct of a kind described in the notice. As Telstra concedes, the notice is permitted to be in terms which describe conduct beyond identification of particular instances, so as to capture the conduct at a higher level of generality. However, this does not mean, Telstra contends, that any level of generality or abstraction would be a description which falls within the power granted to issue the notice.
113 The Competition Notice is Annexure C to these reasons. In order to understand this section of my reasons, it is necessary first to read that notice. Where I refer to defined terms in the Competition Notice those terms take their meaning from that notice.
114 Telstra’s challenge to the Commission’s decision to issue the Competition Notice raises three issues for determination:
(a) Does the Competition Notice lack clarity?
(b) Does the Competition Notice comply with s 151AKA(2) in the matters which it specifies?
(c) Does the Competition Notice describe the same kind of anti-competitive conduct described in summary form in the Consultation Notice?
115 In order to deal with these issues, it is necessary to have an understanding of the correspondence between the issue of the Consultation Notice and the Competition Notice.
Correspondence between the Consultation Notice and the Competition Notice
116 Telstra’s response to the Consultation Notice was the letter of 6 January 2006 which is Annexure B to these reasons.
117 The letter asserted, in summary, that:
· The Consultation Notice is inconsistent with the views expressed in the Imputation Report published after the Consultation Notice, which recognised, inter alia, that efficient carriage service providers can recover loss on line rental and local calls if the services are offered bundled with long distance and fixed to mobile calls.
· The Imputation Report recognised that the relevant area of competition is the service bundle rather than the line rental and local calls alone. The concern expressed about the margin in the Consultation Notice (negative, none or small positive) appears inconsistent with the Commission’s views expressed in the Imputation Report.
· While the price increases reduce the margins on the service bundle, Telstra’s imputation testing indicates that these margins (that is, margins on the service bundle) remain positive.
118 Optus contends that Telstra did not express difficulty in identifying the relevant conduct to the media nor in responding to the Consultation Notice nor in identifying the kind of anti-competitive conduct, in great detail, in that letter and its later submission.
119 The Commission’s response was by letter dated 16 January 2006. That letter responded to Telstra’s assertions as to the maintenance of a positive margin on the service bundle by relevantly asserting that:
‘pricing conduct may lead to competition concerns in a number of ways. This may be by creating a margin squeeze across a bundle of services (as suggested by your letter) but that is by no means the only way pricing conduct can generate competition concerns. Competition concerns often arise when pricing conduct creates a margin squeeze in relation to particular services within a bundle, even though there are cross-subsidisation opportunities across a wider bundle. Similarly, competition may be substantially lessened when pricing conduct raises rivals’ costs or increases barriers to entry. The specific ways in which the Relevant and Other Conduct create competition concerns are specified in [the Consultation Notice].’
120 The Commission’s response led to Telstra identifying, in a letter dated 20 January 2006, alleged uncertainties in the Consultation Notice. Telstra also requested further information which it asserted was necessary to prepare its submission and engage in an ‘open and meaningful process of consultation’ with the Commission. The request included information in relation to:
‘the precise manner in which the Commission claims [in its letter of 16 January 2006] that the existence of margins across the relevant product range as a whole is not sufficient to offset the fact that margins on some individual components may be negative.’
Telstra asserted that, notwithstanding the Commission’s reference to a ‘margin squeeze in relation to particular services within a bundle’ in its letter of 16 January 2006:
‘[t]he Consultation Notice does not provide any explanation of precisely why or how the lack of margin on the “Local Service” elements of the wider bundle would impede competition in the bundle as a whole’.
121 Telstra also asserted, for the first time, that the Commission had failed to comply with the requirements of procedural fairness in connection with the issue of the Consultation Notice and that the Consultation Notice failed to comply with s 151AKA(10) of the Act. The further information requested by Telstra in its letter of 20 January 2006 was not provided by the Commission.
122 Telstra’s submission to the Commission in respect of the matters set out in the Consultation Notice was provided ‘under protest’ on 27 January 2006. By that submission, Telstra denied that it had taken advantage of market power or substantially lessened competition in the course of executing the Home Access and HomeLine Part increases. I will return to the contents of Telstra’s submission later.
123 In the period between 10 January 2006 and 1 May 2006, the Commission sought additional documents and information from Telstra by a second notice issued on or about 10 January 2006 pursuant to s 155(1)(a) and (b) of the Act. Telstra provided some further documents and information in response to the notice.
124 The Commission points out that, prior to the issue of the Competition Notice, it had:
· Written to Telstra outlining its concerns as to the price increases.
· Issued two s 155 notices which ‘unambiguously talked about a price squeeze’.
· Issued the Consultation Notice.
· Invited Telstra to make a written submission, which had occurred. The Commission submits that it should be inferred that it considered that written submission as well as the other matters to which it was required to have regard under s 151AP and may have regard to under s 151AKA(6). That has not been disputed.
(a) Does the Competition Notice lack clarity?
125 Telstra submits that the Competition Notice does not specify the type of anti-competitive conduct being notified and that the conduct described is consistent with contravention of either or both of s 151AJ(2) and s 151AJ(3) by reference to s 46 of the Act.
126 As with the Consultation Notice and for the reasons at [65] to [68] above which apply also to the Competition Notice, that submission is rejected. If the reasonable reader wished to clarify which subsection of s 151AJ was applicable, that reader would make reference to that section of the Act. A fair reading of the whole of the Competition Notice would make it clear that the language of paragraphs 12 and 13 of the Competition Notice is consistent with the language of s 151AJ(2). The conduct is described with reference to the elements of subs 151AJ(2) and not the elements of subs 151AJ(3). The focus is on anti-competitive effect rather than purpose. The Consultation Notice made specific reference to s 151AJ(2) and, in the absence of a reference to s 151AJ(3) or the language of s 151AJ(3), it is apparent that the kind of anti-competitive conduct described in the Competition Notice is conduct within subs (2) and not within subs (3).
127 Telstra submits that there are sufficient permutations imported to make the notice unclear and uncertain. These are said to arise because:
· The conduct is said to prevent Telstra’s Rivals from competing for Lower Spend Customers in the Retail FVS market [para 12(a)].
· In para 12, the conduct is said to have the effect or likely effect of substantially lessening, preventing or hindering competition in one or more of 7 identified respects.
· It is not clear if each of the variations of conduct is said to be impugned.
· It is not clear which of Telstra’s Rivals are referred to: those whose viability is threatened, those whose viability is not threatened or future rivals.
· Two broad types of conduct are impugned.
· Both types of conduct depend on the definition of Fixed Voice Services which encompasses “one or more” of four different types of telephony service.
· Both types of conduct depend on the definition of Retail Price. There is no indication of components of price or what time frame is concerned. This is important where Telstra asserts that it has been cross-subsidising line rentals through its call costs and has been supplying line rental at both wholesale and retail levels at below true cost price.
· Lower Spend Customers are defined in terms of “low-to-mid spending customers” Questions arise as to where “mid” ends, over what period of time the spending applies and how such spending is calculated.
· No explanation is given as to how matters such as Total Cost are calculated.
· It is unclear in what businesses “economies of scale and scope” are said to apply and what precisely this expression means.
· Some of the matters are of no obvious materiality to a hindrance of competition, such as the alleged “threatening the viability” of at least some of Telstra’s Rivals.
128 Telstra compares the clarity required of a Part A competition notice with the clarity required of an injunction. It submits that the Competition Notice falls below the standard of clarity and certainty in such an instrument. It submits that, because of the potential penalties, the fact that the Competition Notice is the “linchpin” for the commencement of proceedings by a third party and because it is intended to make clear what conduct may be changed to avoid those consequences, it should be assessed as would an injunction. I do not accept the breadth of that analogy.
129 Many of the complaints relate to expressions and methods of drafting. I do not accept that, in context, they render the Competition Notice invalid for lack of clarity. There is no evidence that Telstra was unfamiliar with or failed to understand the meaning of or the terminology in the Competition Notice. Many of the expressions used which were the subject of complaint were defined. I will deal later with the consequences of some of those defined terms but they are not unclear within the structure of the Competition Notice itself.
130 A Part A competition notice is a statutory notice intended to be read by an experienced carrier or carriage service provider. Generally, as with an injunction ordering that a person abstain from wrongful acts, a Part A competition notice should make it reasonably clear what are the limits of the class of acts so enjoined. It is not required to be finely detailed and there is no requirement for particulars to be provided.
131 I do not consider that there is lack of clarity with respect to the subject matter sufficient to invalidate the Competition Notice. The obligation is to describe the kind of anti-competitive conduct and to state that the carrier or carriage service provider has engaged, or is engaging, in at least one instance of anti-competitive conduct of that kind. Some of that conduct is described without the degree of precision that may be appropriate in a pleading but that does not render it unclear. The Competition Notice is not a pleading but a written notice of the matters set out in s 151AKA(2) of the Act; it has no evidentiary value. It simply has the effect of “opening the door” for others to test the matters relating to the conduct in other proceedings. It is intended to make the recipient stop and consider whether the Commission’s “reason to believe” is justified.
(b) Does the Competition Notice comply with s 151AKA(2)?
132 Section 151AKA(2) of the Act provides:
‘The Commission may issue a written notice stating that a specified carrier or carriage service provider has engaged, or is engaging, in at least one instance of anti-competitive conduct of a kind described in the notice.’
133 Optus submits that the Competition Notice needs to state that the carrier or carriage service provider has engaged in at least one instance of anti-competitive conduct but only to describe the kind of conduct, not any instance of it. Optus also submits that it is a matter for the Commission to determine how wide or narrow that kind of conduct is. As Optus submits, the Commission may have regard to the likelihood that a carrier can vary its conduct to avoid later proceedings while still engaging in anti-competitive conduct and a wide degree of flexibility is permitted in the description of the kind of conduct to reduce that likelihood.
134 Section 151AKA(5) provides that a Part A competition notice under subs (2) is not required to specify any instance of anti-competitive conduct. However, I do not find it necessary to consider whether or not the Competition Notice was required to contain a description of at least one instance of anti-competitive conduct because it did specify and contain a description of at least one instance of such conduct and a description of a kind of anti-competitive conduct.
135 Telstra contends that the Commission was obliged to say why and in what way each of the forms of conduct in paragraph 13 of the Competition Notice is anti-competitive. In my view, the Competition Notice sufficiently describes the kind of conduct in sufficient detail to enable Telstra to comprehend why the Commission alleges that it is anti-competitive. To the extent that Telstra repeats the submission that it made about circularity in the Consultation Notice, I do not accept the submission for the reasons at [106] above.
136 Telstra submits that there is no proper notification of the conduct said to be anti-competitive other than the recitation of a statutory formula. The Competition Notice describes different kinds of conduct and asserts that the conduct ‘had and has the effect or likely effect of substantially lessening, preventing or hindering competition’in a telecommunications market in the manner described in paragraph 12. Paragraph 13 of the Competition Notice, read in context, describes the kind of anti-competitive conduct in accordance with s 151AJ(2). The fact that the assertion is in terms of the statutory formulation of engagement in anti-competitive conduct in s 151AJ does not affect the fact that the kind of anti-competitive conduct is described and that the Competition Notice described at least one instance of anti-competitive conduct of that kind.
137 The Competition Notice sets out: the Commission’s reason to believe; the conduct; the markets in which the conduct occurred; the fact that they are telecommunications markets; that Telstra has a substantial degree of market power in a particular market; that Telstra has taken advantage of its market power by engaging in the conduct in that market; and that certain of the conduct has the effect or likely effect of substantially lessening competition in the relevant market.
138 When the Competition Notice is read as a whole and in the context of s 151AJ(2) and s 151AKA(2), at least one instance of a kind of anti-competitive conduct is described and the kind of anti-competitive conduct is described. The way in which each aspect of the conduct has the effect or likely effect of substantially lessening, preventing or hindering competition in a telecommunications market is described.
139 I accept that the Competition Notice sets out the matters as required by s 151AKA(2) of the Act.
(c) The differences between the Consultation Notice and the Competition Notice
140 There are clearly differences between the Competition Notice and the Consultation Notice, as would be expected from the fact that the conduct of the Competition Notice needed only to be described in summary form in the Consultation Notice. Further, the Commission was obliged to consider Telstra’s submission in response to the Consultation Notice.
141 As the Commission submits, there is no requirement in the Act that a s 151AKA(10) notice be a draft Part A competition notice. The process envisages and contemplates that there will be differences between the notices. This is necessary for the flexibility and swift regulatory response that are meant to be features of the regime. It is expected that there is a development and evolution of views and detail between the two notices.
142 The issue is the extent and nature of those differences. The Commission accepts that the Competition Notice should be interpreted and then a determination made as to whether the Consultation Notice contains a description in summary form of conduct which, in substance, is specified as the impugned conduct in the Competition Notice.
143 Telstra accepts that there was some “matching” between the subject matter of the Consultation Notice and that of the Competition Notice and that there was, in the Competition Notice, further particularisation of the matters set out in the Consultation Notice. However, it contends that this does not extend to all of the new matters raised. Telstra refers to Mison v Randwick Municipal Council (1991) 23 NSWLR 734 at 737 and submits that, by ‘significantly altering’ the content of the Competition Notice from what had been foreshadowed in the Consultation Notice, the Commission changed the nature of the content.
144 Optus accepts that there must be a relevant connection between the notices. It submits that the instance of anti-competitive conduct in the Competition Notice must, ‘in broad terms’, be an instance of the same kind as that described in summary form in the Consultation Notice. The Commission cannot ‘significantly alter’ the kind of conduct. Whether the relevant connection is maintained requires an evaluative judgment (Kindimindi Investments Pty Ltd v Lane Cove Council (2006) 143 LGERA 277 at [54]). A narrowing or specification of the kind of conduct with greater precision is permitted but the description must, Optus submits, in substance be of the same kind of conduct.
145 The parties provided detailed schedules of all of the differences between the Consultation Notice and the Competition Notice. The Competition Notice is not meant to mirror the Consultation Notice. It is expected to be responsive to the submissions consequent on the Consultation Notice. To the extent that further definitions are included and further particulars and explanations of terms used in the Consultation Notice are given, the subject matter of the notices cannot be said to be substantively different.
146 I now turn to consider some of the differences in the Consultation Notice:
· Local Services is in terms of line rental “and / or” local call services supplied to Retail Customers (para 1(a)) (my emphasis).
· Retail Customers include the whole class of residential end-user customers (para 1(d)).
· The Relevant Conduct is described with reference to the Home Access increase in circumstances where there was no commensurate increase in the pricing of the range of Telstra’s retail Local Services products when assessed as a weighted average (para 5).
· The Other Conduct refers to one of the retail Local Services products, the HomeLine Part. The reference is to the HomeLine Part increase, which was for local call services but not for fixed-to-mobile, long distance and international call services (para 6).
· The Retail Fixed Services Market is the market for the supply of fixed services including Local Services products “as well as” fixed-to-mobile, long distance and international call services (para 8(b)) (my emphasis).
· The conduct said to have the effect or likely effect on competition is the Relevant Conduct alone or together with the Other Conduct (para 12).
· The “price squeeze” that is said to result from the taking advantage of market power in the Wholesale Local Services Market is the effect on “Telstra’s rivals” who are Telstra’s wholesale customers in the Retail Fixed Services Market and their ability to compete effectively with Telstra in that market (para 12).
147 In the Competition Notice:
· Fixed Voice Services means one or more of Local Services, fixed-to-mobile, national long distance and international call services (para 1(a)) (my emphasis). That is, all four types of telephony service are relevant but not necessarily co-extensively.
· Local Services means line rental and local call services supplied for the end-use of Retail Customers (para 1(d)) (my emphasis).
· Retail Customers may acquire Local Services only or other Fixed Voice Services as well (para 1(h)).
· Lower Spend Customers is a narrower class of customers than Retail Customers both as to class of spending and services purchased. It is defined as ‘low-to-mid-spending customers in the Retail FVS Market, including at least those Retail Customers who are in the lowest expenditure quartile in the Retail FVS Market’ (para (1)(e)).
148 While the kind of conduct described in the Consultation Notice is in terms of the Home Access increase, retail Local Services products, wholesale Local Services and Retail Customers, the Competition Notice differentiates that conduct by use of definitions and by reference to specific divisions of retail products and retail customers. In particular, as an example, paragraph 5(g) of the Competition Notice imports a reference to Lower Spend Customers as the customer segment in respect of which Telstra’s Retail Price is less than the sum of the Wholesale Price, PSTN OTA Charges and Retail Transformation Costs.
149 The market in which Telstra is said to have a substantial degree of market power is the same in the two notices, the Wholesale Local Services Market.
150 The telecommunications market in which the anti-competitive effect is exerted is defined as the Retail Fixed Services Market (‘RFS Market’) in the Consultation Notice and the Retail FVS Market (‘RFVS Market’) in the Competition Notice. It is worth repeating the services encompassed in each market as described:
· RFS Market: Local Services “as well as” fixed-to-mobile, long distance national and international call services (para 8(b) of the Consultation Notice).
· RFVS Market: “one or more” of Local Services, fixed-to-mobile call services, national long distance call services and international call services (paras 1(a) and 7(b) of the Competition Notice).
151 The Consultation Notice notifies the effect or likely effect on competition in the RFS Market by reference to:
· The raising of costs of Telstra’s rivals in the RFS Market (para 12(a)).
· A hindering of competition for the supply of Local Services to Retail Customers, which further limits the ability of Telstra’s rivals to generate additional revenue and compete effectively in the RFS Market (para 12(b)).
· Prices to Retail Customers for retail Local Services (para 12(c)).
· Barriers preventing or hindering suppliers and potential suppliers of Local Services to Retail Customers from entering into or expanding within the RFS Market (para 12(d)).
152 While some parts of the Competition Notice expand upon the effect or likely effect on competition as described in the Consultation Notice, the Competition Notice notifies that effect or likely effect in the RFVS Market differently by reference to:
· Lower Spend Customers, who acquire Local Services and may or may not acquire other services.
· Competition for Lower Spend Customers with respect to supply of Fixed Voice Services (that is, “one or more” of the enumerated services) (para 12(a)).
· The effect on the ability of Telstra’s Rivals to supply Fixed Voice Services to Retail Customers at a competitive price by means other than a bundle which includes Local Services. The example is given of preventing or hindering supply, by Telstra’s rivals, of Fixed Voice Services on a “pre-selection” basis to Telstra’s HomeLine Part customers (para 12(e)).
153 Telstra points out that the conduct in the Competition Notice is explained in terms of the failure to increase the Retail Price of its Local Services products (other than HomeLine Part) or any of its other Fixed Voice Services products, (that is, products other than Local Services) (paras 5(b), 5(d)). In the Consultation Notice, the conduct referred to a failure to make a commensurate increase in the pricing of Telstra’s retail Local Services products when assessed as a weighted average of across the range of retail Local Services products (para 5(b)).
154 The Competition Notice introduces other subject matter and terminology not specifically included in the Consultation Notice. Telstra submits that a number of those are of sufficient substance to change the description of the conduct in the Competition Notice from that described in the Consultation Notice. Telstra points to para 12(e) in particular. It asserts that this clearly introduces new subject matter. As I have noted, this raises the subject matter of preventing or hindering Telstra’s Rivals from supplying Fixed Voice Services to Retail Customers at a competitive price by means other than in a bundle which includes Local Services.
155 Telstra’s Rivals are defined to include existing and prospective Wholesale Customers who compete or would compete with Telstra in the RFVS (para 1(l)). In the Consultation Notice, Wholesale Customers included only existing purchasers of Local Services from Telstra (para 1(e)). However, the Consultation Notice referred to the effect on suppliers and ‘potential suppliers’ of Local Services (para 12(d)). In a similar vein, the addition in the Competition Notice of the effect of threatening the viability of some of Telstra’s Rivals (para 12(d)) is not sufficiently dissimilar from the allegation in the Consultation Notice (para 12(b)) of substantially interfering with the ability of Telstra’s Wholesale Customers to compete.
156 The Commission emphasises that some of the information about which Telstra complains is a response to matters raised in Telstra’s submissions after service of the Consultation Notice. The Commission and Optus contend that each difference represents either further particularisation, a more sophisticated description or a narrowing of the category of conduct or market that was present in the Consultation Notice. Elaboration and particularisation do not of themselves affect the substance or subject matter of the Statutory Notices nor introduce uncertainty into the Competition Notice.
157 Some of the complaints by Telstra, such as the reference in the Competition Notice to:
· competitors developing or maintaining economies of scale and scope (paragraph 12(c)(i)); and
· the ability of competitors to invest in or deploy new infrastructure and/or alternative technology (paragraph 12(c)(ii))
are examples of the kind of detail and particularisation and refinement of the effect or likely effect on competition that are encompassed within the process whereby the Part A competition notice expands upon the kind of conduct described in summary form in the s 151AKA(10) notice.
158 I only propose to deal with those differences that I consider substantive or potentially substantive, those differences that could be said to raise subject matter with which Telstra could not reasonably be said to have had the opportunity to comment. The key matters, in my view, are the introduction into the Competition Notice of Lower Spend Customers in paragraphs 5(g) and 12(a) and the inclusion of concerns as to the supply of unbundled Fixed Voice Services in paragraph 12(e).
159 The Commission and Optus submit that the Lower Spend Customers are but a subset or segment of the Retail Customers of the Consultation Notice. As I have noted, the Commission was obliged by the Guidelines to have regard to the effect of the conduct in segments of a market, across the whole market or in a number of markets, in deciding whether to issue a Part A competition notice. Telstra submits that, if it had been aware that the Commission was focussing on Lower Spend Customers, it could have made inquiries and provided further information by way of its submission in response to the Consultation Notice. For example, it could have addressed the relationship between profit or loss made on Lower Spend Customers and cross-subsidisation with other customers.
160 Optus submits that the RFVS Market of the Competition Notice is a “substantially identical market” to the RFS Market of the Consultation Notice. Emphasis is placed on the fact that the notices describe the “same economic concept”, a price squeeze between Telstra's wholesale and retail price for access services.
161 Optus concedes, however, that the effect of substantially preventing or hindering Telstra's Rivals from supplying Fixed Voice Services by means other than by a bundle including Local Services is not separately identified in the Consultation Notice. This was reinforced by the changed definition of Fixed Voice Services in terms of “one or more” of the components of the bundle of services. As defined in the Consultation Notice, the definition encompassed all fixed services, including Local Services products as well as fixed-to-mobile, long distance and international call services. Further, the definition in the Consultation Notice was not limited to “voice” services and may have included other services supplied by fixed line such as dial-up or broadband internet access.
Consideration
162 The Consultation Notice was directed to bundled services. Telstra’s submission in response was directed to bundled services. Telstra was not given notice in the Consultation Notice of the price squeeze being “a kind of anti-competitive conduct” because of its effect on competition for the supply of Fixed Voice Services other than by way of bundles. Indeed, it was by reference to bundled services that the expression “weighted average” of prices of retail services across Telstra’s product range and prices set at a level described in composite terms of “negative margin, no margin or only a small positive margin” between wholesale and retail prices would have a clear meaning. Telstra relied, in its submission in response to the Consultation Notice, upon the fact that the profit-making aspects of the bundle subsidise the loss-making aspects of the bundle both before and after the increase in the wholesale price. It clearly directed itself to the market of bundled services. While there was passing reference to individual components, it was in the context of the bundle as a whole and the recovery of costs over the whole of the bundle.
163 Further, the anti-competitive conduct described in summary form in the Consultation Notice did not distinguish between the different retail services that were included within the bundle of services provided by Telstra and the subject of correspondence between Telstra and the Commission. This is evidenced by reference to:
· “a weighted average across Telstra’s range of retail Local Services products” (para 5(b)).
· a “negative margin, no margin or only a small positive margin” between Telstra’s wholesale and retail prices for Local Services (para 5(c)(i)).
· Local Services were defined in terms of line rental and/or local call services supplied for end-use Retail Customers (para 1(a)).
· Retail Customers included all residential end-user customers (para 1(d)).
· the fact that a “significant proportion”, of Telstra’s Retail Customers, unidentified or undifferentiated, acquire undifferentiated retail Local Services at a price lower than the wholesale Home Access price (para 5(d)).
· the effect or likely effect on competition is by reference to the undifferentiated RFS Market (paras 8(b) and 12).
164 The Competition Notice expanded the kind of conduct described. It was directed to the supply of “one or more” of the components of the bundled services to a specific segment of the retail market. That specific segment may be a segment of the whole of retail end-users but Telstra was not directed to any segment of the retail market in the Consultation Notice. Rather, Telstra was directed to a consideration of the effects on residential retail users as a whole or, to adopt the language of the Consultation Notice in another context, to a “weighted average”. Irrespective of what precisely is meant by Lower Spend Customers in terms of amount spent or time over which that amount is spent, Telstra was not warned to consider the effect on such customers, nor given the opportunity to obtain particulars of the definition of them.
165 The Competition Notice deviates from the subject of the notification in the Consultation Notice in that they do not concern the same matter and describe the same species of anti-competitive conduct:
1. By adding a reference to the provision of Local Services to Lower Spend Customers, the subject of the complaint has changed and now relates to a previously unidentified class of retail customer.
2. The composition of the market in respect of which the conduct was asserted to have an anti-competitive effect changed. In the Consultation Notice, it was the RFS Market which comprised the bundle of Local Services “as well as” fixed-to-mobile, long distance and international call services. The conduct was asserted to be anti-competitive because of its effect or likely effect on competition in that bundled market. In the Competition Notice, the market was, depending on the context, bundled or unbundled as provided for by the words ‘one or more’ in paragraph 1(a). In so doing, the Competition Notice specified, as a kind of anti-competitive conduct, the effect of the price increases on the ability of Telstra’s Rivals to supply services ‘by means other than a bundle’. The description of a kind of anti-competitive conduct comprising an unbundled market was not earlier raised.
166 Telstra was denied an opportunity to respond to the new kind of conduct described. Reliance on the expression “in summary form” does not excuse the Commission from its obligation to provide sufficient information to Telstra to enable the statutory consultation process to be meaningful and effective.
Concluding observations as to the differences
167 The Commission emphasises that a s 151AKA(10) notice is meant to represent a summary of the kind of conduct, within a framework of expedition in the forwarding of such a notice. It submits that if the s 151AKA(10) notice encompasses the matters in the Part A competition notice but that the latter is more specific and better articulated, there is no substantial difference. I accept that submission.
168 Optus submits that the pre-condition that a part A competition notice not issue unless the Commission first issues a notice which complies with s 151AKA(10) of the Act, has been met in this case because:
‘(a) in the Consultation Notice – the kind of anti-competitive conduct described in summary form is s 151AJ(2) conduct arising from:
i. the increase in the price of Telstra’s wholesale Home Access product without any increase in the retail prices of its other relevant retail products (the Relevant Conduct) (or the Relevant Conduct combined with the increase in price of one of its retail products, HomeLine Part (the Other Conduct);
ii. in circumstances where Telstra has a substantial degree of power in the Wholesale Local Services Market;
iii. where the Relevant Conduct (or the Relevant Conduct combined with the Other Conduct) has the effect of substantially lessening competition in a retail market (the Retail Fixed Services Market).
(b) in the Competition Notice – an instance of the kind of anti-competitive conduct described is s 151AJ(2) conduct arising from:
i. the increase in the price of Telstra’s wholesale Home Access product without any increase in the retail prices of its other relevant retail products and the increase in price of one of its retail products, HomeLine Part (the Conduct);
ii. in circumstances where Telstra has a substantial degree of power in the Wholesale Local Services Market;
iii. where each of those kinds of Conduct has the effect of substantially lessening competition in a retail market (the Retail FVS Market).’
169 By using defined and global terms, this fails to highlight the subject matter of the Statutory Notices. The thrust of Optus’ argument is that the Consultation Notice need only describe in summary form the kind of conduct. It contends that the kind of conduct described in the Consultation Notice was that, by raising the wholesale price, Telstra put its rivals into a “price squeeze” with respect to its retail products. On this basis, the kind of conduct is the price squeeze and a variation in detail of the object or the market in which the price squeeze was effected is irrelevant.
170 This ignores the statutory context and purpose of the Consultation Notice and the fact that the description of the kind of anti-competitive conduct therein differed in substance. The purpose of the Consultation Notice was to give to Telstra the opportunity to make submissions on the proposed kind of conduct and its alleged anti-competitive consequence. The kind of anti-competitive conduct described in summary form was not simply a “price squeeze” or a “price squeeze” with respect to retail products.
171 The Commission submits that it is not required to provide in the Consultation Notice any additional information about the basis for its proposal to issue a Part A competition notice. The Commission says that the requirement is to describe in summary form the kind of anti-competitive conduct. Accordingly, it did not need to articulate in the Consultation Notice the substance of that conduct or how it comes to be characterised as anti-competitive.
172 I do not need to decide if such a notice or a notice at a higher level of generality would have been sufficient or what its effect would have been. The Consultation Notice did descend to an articulation of the effect of the conduct and thereby directed Telstra to a specific kind of anti-competitive conduct. The Consultation Notice issued by the Commission clearly related to the effect on competition of the supply of fixed services to Retail Customers as a bundle, without dissection.
173 In the Competition Notice, the kind of anti-competitive conduct was described with greater particularity: the retail products were one or more of the Fixed Voice Services that made up the bundle and the customer focus was Lower Spend Customers. Those were said by the Commission and Optus to be merely subsets of the bundle of “fixed services” and Retail Customers of the Consultation Notice. This assumes a number of matters. One is that the bundle of “fixed services” and Retail Customers are made up of individual components that do not interact, so that the totality is no more than the sum of the component parts. If that were so, there would be no difference in the kind of anti-competitive conduct described in the notices because the price squeeze would have the same effect on the total product as it would on the individual components.
174 This ignores the concept of the combination representing the product of interaction between the component parts, so that they are different kinds of product. By way of analogy, a watch is a kind of timepiece which functions by the interaction of its components. A spring or a battery may each be components of the watch but they are different products. They could not be said to be sub-sets of a watch or an instance of a watch. External pressure or applied chemicals would act differently on the watch and on the spring or the battery.
175 The relevant fixed services of the Statutory Notices represented different subject matter. The conduct may have referred to Telstra’s recent price increases but it was the object of the impact of those price increases that differentiated the anti-competitive conduct described in the two notices. The retail market in which there was alleged an anti-competitive effect was, in one notice, a market for the supply of the bundle of services and, in the other, a market for the supply and acquisition of the components of that bundle. The bundle of services was, in effect, a single retail product made up of a number of components that, as a combination, enabled the product to be profitable although individual components were not. Individual components each represented a different service.
176 The retail market of the Consultation Notice was a single market supplying all residential end-users; in the Competition Notice, a particular focus was a component of that market. While it could more easily be said that the Lower Spend Customers represented part of the retail market in the abstract, the anti-competitive conduct in the Consultation Notice directed attention to the effect on the retail market as a whole, a single entity. That single entity is made up of components which may or may not interact. There was nothing to suggest that the retail market was to be considered in terms of each of the individual component parts or that it was constituted by the sum of those component parts.
Conclusion
177 I do not accept that the Competition Notice itself lacked clarity or failed to comply with s 151AKA(2) in the matters which it specified.
178 The Competition Notice did, however, differ in substance from the Consultation Notice in the kind of anti-competitive conduct it described. The Commission and Optus accept that the Consultation Notice must describe, in substance, the same kind of anti-competitive conduct. It follows that Telstra was not provided with a written notice pursuant to s 151AKA(10) of the Act describing, in summary form, the kind of anti-competitive conduct proposed to be specified in the Competition Notice. Accordingly, the Commission was not entitled to issue the Competition Notice (s 151AKA(10)).
PROCEDURAL FAIRNESS
179 In circumstances where the s 151AKA(10) notice and the Part A competition notice fulfil their statutory function, the carrier or carriage service provider is given sufficient information to enable it to alter its conduct and/or make submissions to the Commission in response to the s 151AKA(10) notice. In those circumstances, the statutory opportunity of ascertaining the relevant issues has been given (Commissioner for Australian Capital Territory Revenue v Alphaone Pty Ltd (1994) 49 FCR 576at 591).
180 I have concluded that the Consultation Notice did not comply with s 151AKA(10) of the Act and that the Commission was not entitled to issue the Competition Notice. The Commission was required to and did not describe in summary form in the Consultation Notice or otherwise give to Telstra by way of additional information, the kind of anti-competitive conduct that was specified in the Competition Notice.
181 Telstra was not given a reasonable opportunity to consult, or to comment and make submissions, or to change its conduct to avoid the issue of the Competition Notice. Telstra was denied the opportunity to be heard in respect of the new and different subject matter. The statutory scheme, which included the right to such opportunity in order to afford procedural fairness, was not complied with. It follows that Telstra was denied procedural fairness.
182 The Commission is required to act expeditiously and to consider the public interest. This is said by the Commission to argue against any suggestion that it is required to issue a further s 151AKA(10) notice or otherwise invite further submissions if it issues a Part A competition notice that differs by more than mere “refinement” from the s 151AKA(10) notice. There is, however, no suggestion that the Commission was under any specific pressures of time which might have impacted on its course of conduct. There is no suggestion that the requirement in s 151AQ for the Commission to act expeditiously has impacted in any way on the provision of information to Telstra. A requirement to act expeditiously does not assist the Commission if the Consultation Notice did not comply with s 151AKA(10) and Pt XIB of the Act.
Telstra’s understanding of the Consultation Notice
183 If, contrary to my conclusion, the Consultation Notice did, objectively construed, comply with s 151AKA(10) of the Act and the Commission was entitled to issue the Competition Notice, it is apparent and was or should have been apparent to the Commission, that Telstra did not understand from the Consultation Notice the kind of conduct there described in summary form as the same kind of conduct described in the Competition Notice.
184 As dealt with earlier in these reasons, I am not satisfied that Telstra was prevented from understanding the content of the Consultation Notice because of drafting or mere terminology. However, that does not apply to new and different contentions of substance that were introduced for the first time in the Competition Notice.
Correspondence between the Consultation Notice and the Competition Notice
185 The letter from the Commission to Telstra of 16 January 2006 referred to matters outside of those raised in the Consultation Notice but emphasised that nothing in the letter or other correspondence should be taken as adding to, altering, or substituting for anything stated in that notice. The letter did refer to a possible margin squeeze and competition concerns, not only across a bundle of services but also ‘in relation to particular services within a bundle’. However, the Commission reiterated that the specific ways in which the Relevant and Other Conduct create competition concerns were specified in the Consultation Notice.
186 In the attachment to its letter of 20 January 2006 Telstra referred specifically to the 16 January letter and the reference to particular services within a bundle. Telstra stated that it did not understand the relevance, or the claim that the existence of margins across the relevant product range as a whole was not sufficient to offset the fact that margins on some individual components may be negative. Telstra’s questions were directed to an understanding of the 16 January letter in the context of its supply of bundled services and the relevance of particular services within the bundle.
187 The Commission responded to this letter on 25 January 2006 and stated that it disagreed with Telstra’s views and objections with respect to the Consultation Notice. The Commission stated that its position was that the Consultation Notice complied with the requirements of s 151AKA(10) of the Act and that Telstra was in a position to make its submission. It noted that Telstra was entitled, in making the submission, to raise any questions and to request further information from the Commission and that the Commission would consider the submission in relation to its proposal to issue a Part A competition notice and the terms of such notice.
188 The Commission did not otherwise respond to Telstra’s queries.
189 In its submission pursuant to s 151AKA(10) of 27 January 2006, Telstra repeated the requests of 20 January. There was comparative reference to unbundled services but the submissions on anti-competitive conduct and the effect or likely effect of substantially lessening competition were based on the delivery of bundled retail fixed services. Telstra referred to a negative margin on the Local Service elements of a wider bundle but stated that it failed to understand how that was relevant when there was no negative margin across the product range of the bundle as a whole.
190 There was no further relevant correspondence prior to the issue of the Competition Notice.
191 The Commission draws attention to the course of dealing between itself and Telstra prior to the issue of the Consultation Notice. It points out that it notified Telstra of its concerns about the combined effect of the proposed price increases and the non-increase in Telstra’s own retail prices. It also referred to complaints about “a serious retail-wholesale price squeeze” and the effect on the ability to compete with Telstra in respect of residential customers. It relies upon the fact that Telstra did not seek clarification or allege uncertainty after the Consultation Notice was served, despite the serving of the two s 155 notices, until 20 January 2006.
192 That does not detract from the fact that, after the Consultation Notice and after Telstra’s submission in response, it was apparent and should have been apparent to the Commission that Telstra was addressing a kind of anti-competitive conduct consistent with that described in the Consultation Notice but not the same in substance as the kind of conduct described in the Competition Notice.
193 The Commission was aware of Telstra’s misconception as to the kind of anti-competitive conduct to be described in the Competition Notice prior to its issue. That misconception reasonably resulted from the Consultation Notice and went to a matter of substance. The Commission failed to respond to Telstra’s queries to clarify the kind of anti-competitive conduct proposed to be described in the Competition Notice. The Commission was aware that the submission which it was obliged to consider prior to the issue of the Competition Notice did not address the kind of anti-competitive conduct described therein. This effectively prevented the exercise of Telstra’s right to address that conduct. In the circumstances, there was a denial of procedural fairness.
Right to material
194 The Commission refused to provide Telstra with material on which it relied in coming to a decision to issue the Competition Notice and on which it based the allegations and statements in the Competition Notice which were not included in the Consultation Notice. Telstra submits that the failure on the part of the Commission to provide that information, which was necessarily significant to the decision (Kioa v West (1985) 159 CLR 550 at 629 per Brennan J), constituted a denial of procedural fairness.
195 Optus accepts that Telstra was entitled to be informed of the nature and subject of the matter under consideration and to be afforded the right to be heard in respect of the issues on which the decision was based. However, it submits that Telstra was not entitled, at the stage of examination and consideration by the Commission, to see any material that was adverse to its interest.
196 Optus relies upon a number of propositions as expounded by Mason P in Minister for Local Government v South Sydney City Council (2002) 55 NSWLR 381 at [250] and following. In particular, it adopts what his Honour said at [267] to the effect that, if Telstra were entitled to see adverse submissions of third parties, the whole process would be unworkable ‘because it would lead to an infinite regression of counter disputation’ and, at [251] that, while there is no exclusion of an obligation of procedural fairness at the examination and report stage, an obligation to provide any submission supportive of an adverse proposal ‘effectively converts the examination and report stage of the process into a full-blown adversarial trial’.
197 Optus also points to the decision of the Full Court in VHAP of 2002 v Minister for Immigration and Multicultural and Indigenous Affairs (2004) 80 ALD 559 at [27] where it was pointed out that the analysis of whether natural justice is afforded:
‘is not a process of syllogistic reasoning. One does not approach it thus: the person is entitled to adverse material, this material was relied on in reaching an adverse result, that makes it adverse material, it was not provided in terms, therefore there has been a failure to afford natural justice.’
198 As Mason P discussed in South Sydney City Council, a party is entitled to be provided with the opportunity to address issues upon which an adverse finding is based. As his Honour noted at [259], much depends on the nature of the investigation, the specificity and importance of the “adverse” recommendation, the nature of the interest affected and the likelihood of it being anticipated as a matter to be addressed. His Honour gave as an example of the effect of specific interest and direct impact of adverse material the facts in Muin v Refugee Review Tribunal (2002) 76 ALJR 966. In the present case, the circumstances include the statutory framework of the decisions, the purposes of the notices, the confidentiality of third party submissions and the ability to obtain the information in subsequent legal proceedings.
199 Optus contends that it would only be if the Commission were to base its decision to issue the Competition Notice on some particular issue or material adverse to Telstra that was not apparent from the nature of the decision that procedural fairness would require that some step additional to the issue of the Consultation Notice be taken and says that this was not pleaded. This was sufficiently pleaded. Telstra relies in the statement of claim upon the alleged failure on the part of the Commission to give notice of the material and analysis on which the Commission based its allegations and statements in the Competition Notice as a basis of a failure to accord procedural fairness and natural justice. Telstra does not suggest that it was entitled to material reflecting the Commission’s thought processes. Nor was it entitled to the Commission’s own evaluation of Telstra’s conduct or information supplied by it (Alphaone at 592).
200 The Guidelines contemplate complainants and other interested parties providing submissions to the Commission. The giving of ‘careful consideration’ to those submissions is said to be one means by which the Commission endeavours to achieve its objectives (p 5 of the Guidelines). The Commission did, by media release dated 22 December 2005, invite such submissions. Telstra submits that it should be inferred that those submissions were provided by third parties and were taken into account. It points to the fact that Optus issued its detailed statement of claim against Telstra in the Optus proceeding only 6 days (including the 4 day Easter break) after the Competition Notice issued and that that makes it ‘tolerably plain’ that Optus and the Commission have been working closely together.
201 As Gaudron J said in Re Minister for Immigration and Multicultural Affairs; Ex parte Miah (2001) 206 CLR 57 at [99], the basic principle of procedural fairness is an opportunity to meet the opposing case, although this does not mean that all material which comes before the decision-maker must be disclosed (Miah at [140] per McHugh J).
202 Where the Consultation Notice was insufficient as described, Telstra was entitled to be given additional information to be able to provide the meaningful submission contemplated by s 151AKA(10). Where the differences between the notices were as described earlier in these reasons, it is reasonable to assume that, acting bona fide in the context of the Consultation Notice, the Commission relied upon additional material and material adverse to Telstra that went to the matters not described in the Consultation Notice. If the Commission based its decision to issue the Competition Notice on some particular issue or material adverse to Telstra that was not apparent from the Consultation Notice, procedural fairness would require that some step additional to the issue of the Consultation Notice be taken (Alphaone at 591-2). Telstra was entitled to be given notice of that material or the substance of it. The Commission accepts that, if it was obliged to provide that material to Telstra which it denies, Telstra was not accorded procedural fairness (Telstra Corporation Limited v Australian Competition and Consumer Commission (2006) 68 IPR 571 at [30]). Failure to provide such information was a denial of procedural fairness or natural justice.
Disputed issues as to procedural fairness
203 As developed during submissions, the dispute between the parties on procedural fairness related to three issues:
(i) whether the general duty of procedural fairness takes its content only from s 151AKA(10) – as the Commission but not Optus submits;
(ii) whether any duty broader than s 151AKA(10) has been breached; and
(iii) whether there was a denial of procedural fairness by reason of the uncertainty or lack of clarity of the Consultation Notice or the Competition Notice.
204 The resolution of the first and second issues gives context to the conclusions that I have reached above. The third issue gives rise to a discrete point. It is convenient to deal with that issue first.
205 Telstra points to “uncertainties” in the Consultation Notice but recognises that they are inherent because of the description of the anti-competitive conduct in summary form only. Where the Act specifically provides for such a description, there is no denial of procedural fairness, if those uncertainties are peripheral to the substance of the Consultation Notice.
206 As I have noted earlier, where the subject matter of the Competition Notice is conduct, the recipient is entitled to know what is required of it (Television Corporation at 70 per Kitto J). Absence of information will involve a failure to provide necessary details if, without such information, the notice will not fulfil the purpose for which it is required to be given (Deputy Commissioner of Taxation v Woodhams (2000) 199 CLR 370 at [33]). However, a notice analogous to a notice before action is not intended to serve the purpose of a statement of claim if and when action is taken (Woodhams at [35] and [37]). Despite the complexity and alleged ambiguity of the Statutory Notices on which Telstra relies, in context, the conduct described is sufficiently clear within each notice.
207 Telstra submits that it was denied procedural fairness or natural justice in connection with the issue of the Consultation Notice by reason of the notice being insufficiently certain and failing to describe a kind of anti-competitive conduct. To the extent that Telstra submits that it was unable to respond adequately to the Consultation Notice and thereby denied procedural fairness for reasons of lack of clarity or uncertainty of language and expression used in that notice, for reasons I have given there was no such denial. Similarly, there was no denial of procedural fairness by reason of the alleged uncertainty and lack of clarity in the Competition Notice.
208 The resolution of the first and second issues requires a consideration of the context of the Act and, in particular, the purpose of the amendments to introduce s 151AKA(10).
The purpose of the amendments to introduce s 151AKA(10) into the Act
209 As I have noted, subs 151AKA(10) of the Act was inserted by the 2002 Amending Act. Subsection 151AKA(9) was also then inserted into the Act.
210 The historical context of statutory provisions may be referred to where appropriate to give the statutory words a meaning that will give effect to the purpose of the legislation (Newcastle City Council v GIO General Limited (1997) 191 CLR 85 at 112 per McHugh J). That may include a relevant report laid before Parliament where that report was part of that background and, for example, is referred to in the explanatory memorandum (Newcastle City Council at 100).
211 In September 2001, the Productivity Commission issued a report titled “Telecommunications Competition Regulation” (Productivity Commission, Telecommunications Competition Regulation, Report No. 16 (2001) (‘the Productivity Report’)). The Productivity Report contained an observation that there appeared to be no requirements for the Commission to publish its reasons for a decision to issue or not to issue a Part A competition notice (at 161).
212 The 2002 Amending Act implemented the Government’s response to the Productivity Report. In part, the 2002 Amending Act contained measures to enhance accountability and transparency of decision making under Pt XIB of the Act. Those measures required the Commission to publish guidelines on the exercise of its powers (Pt 9 of the 2002 Amending Act; now s 151AP(3) and (4)) and to “consult” prior to the issue of a Part A competition notice (Pt 15 of the 2002 Amending Act; now s 151AKA(9) and (10)). The recommendations of the Productivity Report were not adopted universally by Parliament in the 2002 Amending Act. To the extent that Telstra refers to the Productivity Report, it must be read with this in mind.
213 As stated in the 2002 Explanatory Memorandum, before the insertion of the amendments it was the practice of the Commission to “consult” with a potential recipient of a Part A competition notice prior to its issue; however, there was no statutory requirement to do so (at 22). Although the Commission made it its practice to consult, the 2002 Explanatory Memorandum observed that that practice ‘may not provide sufficient certainty for firms’. Earlier, in August 1999, the Commission issued an information paper in relation to the exercise of its powers under Pt XIB of the Act (Australian Competition and Consumer Commission, Anti-competitive conduct in telecommunications markets – An information paper (1999)). There the Commission acknowledged its obligation to give ‘proper, genuine and realistic consideration to the merits of the case’ in deciding whether it has a reason to believe that a carrier or carriage service provider has contravened the competition rule before issuing a competition notice (at 19-20). It acknowledged that ‘[a]n important requirement of administrative law is that decisions be made in accordance with procedural fairness and provide natural justice to parties whose rights are adversely affected by the decision’ (at 19).
214 The proposed amendments were to make ‘explicit’ the obligation of the Commission to ‘consult’ with a carrier or carriage service provider before issuing a Part A competition notice (the 2002 Explanatory Memorandum at 95). Their stated object was to ‘enhance certainty and procedural fairness in the use of Part XIB without detracting from the effectiveness of the anti-competitive conduct provisions’ (at 22).
215 The 2002 amendments were not intended to increase or decrease the Commission’s ‘administrative law obligation to accord procedural fairness’ to the recipient of a Part A Competition Notice (the 2002 Explanatory Memorandum at 95–6). They were intended to reflect the obligation to accord procedural fairness. This was to be achieved by a regime whereby the Commission would be obliged to provide the carrier or carriage service provider with ‘a written notice that summarises the instance or kind of anti-competitive conduct to be specified in the Part A competition notice’ (at 4) and invite the carrier or carriage service provider to make a submission which the Commission must consider before issuing the Part A competition notice (at 95).
216 Subsections 151AKA(9) and 151AKA(10) of the Act were intended to benefit both the carrier or carriage service provider and the Commission. The consultation envisaged was to ‘have the benefit of assisting [the Commission] to better identify instances of anti-competitive conduct and to prevent this conduct at an early stage’ (the 2002 Explanatory Memorandum at 22). This would assist the Commission better to respond, by way of a special regime, to anti-competitive conduct in an industry that is ‘an extremely complex, horizontally and vertically-integrated industry’ (at 22) and where there is ‘considerable scope for incumbents to engage in anti-competitive conduct because competitors in downstream markets depend on access to networks or facilities controlled by the incumbents’ (Explanatory Memorandum to the Trade Practices Amendment (Telecommunications) Bill 1996 (Cth) at 6).
217 The Commission points out that the telecommunications industry is singled out for special attention by Parliament and is subjected to more specific regulatory and other intervention than any other industry to which the Act applies. The Commission submits, with reference to the Supplementary Explanatory Memorandum to the Telecommunications Legislation Amendment Bill 1998 (Cth) (‘the 1998 Supplementary Explanatory Memorandum’), that the purpose of the regime for Part A competition notices was to enable such notices to be issued quickly, to be robust in terms of identifying conduct in contravention of the competition rule and to open the gate to Court action. The Commission also submits that the contemplation in the Act is of a one-time consultation. An iterative process whereby each “significant” refinement in the Commission’s concerns needed to be notified afresh would, it is said, be inconsistent with the duty to “act expeditiously” mandated by s 151AQ(1) of the Act. It is worth noting in this regard that the Commission is obliged to give the recipient of a Part A competition notice written notice of a variation, even of a minor nature (s 151AOA(3)).
218 The Telecommunications Legislation Amendment Act 1999 (Cth) was responsible for the insertion of s 151AKA of the Act and, consequently, the introduction of Part A competition notices into the statutory regime. Those amendments were relevantly the subject of consideration in the 1998 Supplementary Explanatory Memorandum, which states that ‘[i]n practical terms, a competition notice is intended to cause the recipient of the notice to stop the conduct [the Commission] considers is in breach of the competition rule by raising the possibility of court action and substantial penalties’ (at 1).
219 In the pre-existing regime, identified difficulties included the requirement to set out particulars of the contravention and associated delay, the inability to amend a competition notice and the ability of a recipient partially to modify its conduct and thereby escape a notice (the 1998 Supplementary Explanatory Memorandum at 2 and 7). The amendments were proposed to provide for a Part A competition notice that needed only to cite a specified instance or at least one instance of anti-competitive conduct of a kind therein described. This would enable the notice to be of a ‘more general nature than current competition notices’ and require a lesser level of detail and thereby reduce delay (at 2). It was intended, however, that a Part A competition notice would describe the kind of anti-competitive conduct in sufficient detail so as to enable it to be identified.
220 As for a s 151AKA(10) notice, the 2002 Explanatory Memorandum provided that (at 95):
‘It is not intended that the [s 151AKA(10)] notice will need to contain full particulars of the instance or kind of anti-competitive conduct that is proposed to be specified in the [part A competition] notice, although this may be appropriate in some circumstances. The [s 151AKA(10)] notice will be required to contain the substance of the anti-competitive conduct that will be specified in the [part A competition] notice.’
The common law obligation to afford procedural fairness
221 The Commission’s submissions, framed in different ways, in respect of both the Consultation Notice and the Competition Notice are that its obligation was to comply strictly with the statutory requirements as explicitly stated in the Act – so much and not more. It contends that, apart from the requirement to describe the matters set out in s 151AKA(10), it was not otherwise required to give Telstra notice of those or any other matters.
222 The Commission accepts for present purposes that, consistent with authority binding on this Court (Hot Holdings Pty Ltd v Creasy (1996) 185 CLR 149), it was required to afford Telstra procedural fairness in relation to the issue of the Competition Notice at common law. Optus accepts that s 151AKA(10) of the Act does not displace the Commission’s obligations of procedural fairness. The Commission wishes to reserve the question whether a common law duty exists should the occasion to contend otherwise arise but submits that, in any event and in the specific statutory context, the scope and content of that obligation have been satisfied. Put another way, the Commission says that the common law duty extends no further than what is required by s 151AKA(10). Optus submits that s 151AKA(10) reflects the procedural fairness required and that that obligation has been complied with.
223 I do not accept the Commission’s submission that the requirement to afford procedural fairness takes its content only from s 151AKA(10) of the Act. While the requirements of s 151AKA(10) of the Act clearly inform the obligation to accord procedural fairness at common law they do not displace it.
224 As Weinberg J noted in Gribbles Pathology (Vic) Pty Ltd v Cassidy (2002) 122 FCR 78 at [115], statutes commonly require the giving of notice or the invitation of submissions before a particular decision is made. The fact that a decision is preliminary (in the sense that it does not in itself affect rights without some further action being taken) does not obviate the duty to observe natural justice. Such decisions often affect ‘important interests, including reputation, or legitimate expectations’ (at [115]). It is not necessary that the decision have direct or indirect legal effect (Ainsworth v Criminal Justice Commission (1992) 175 CLR 564). The rules of natural justice apply where a statute confers a power to prejudice a person’s rights, interests or legitimate expectations unless they are excluded by plain words (Annetts v McCann (1990) 170 CLR 596 at 598).
225 As pointed out by Aronson M, Dyer B and Groves M, Judicial Review of Administrative Action (3rd ed, Lawbook Co., 2004) at 438–41, it is common for statutes to impose procedural requirements which might otherwise be imposed by the rules of natural justice without indicating what effect these express requirements are intended to have on the application of ordinary principles of natural justice. The authors conclude that the presence of express procedural requirements will not normally, of itself, exclude or limit the application of natural justice. The common law rules of natural justice are taken to apply to the exercise of public power unless clearly excluded (Miah at [126] per McHugh J). The content of the duty is determined in the statutory context (at [130]).
226 It is not the case that the Act purports to exclude the rules of natural justice. There is nothing in Pt XIB that amounts to unmistakable and unambiguous language clearly expressing an intention to exclude natural justice in connection with the issue of a Part A competition notice (Plaintiff S157/2002 v Commonwealth (2003) 211 CLR 476 at [30] per Gleeson CJ; cf Minister for Immigration & Multicultural Affairs v Lat (2006) 151 FCR 214 at [65] to [68] in considering s 51A of the Migration Act 1958 (Cth)). The fact that the Act provides for the provision of certain information in a s 151AKA(10) notice does not of itself evince an intention otherwise to exclude procedural fairness (Miah at [139] per McHugh J) or, indeed, the possibility of the provision of further information or further consultation. The Act mandates the giving of certain information in a s 151AKA(10) notice as a minimum. Such latitude in the information to be provided is encompassed by the requirement to describe in summary form the kind of anti-competitive conduct proposed to be specified in the Part A competition notice. A “summary form” allows for a minimum but not a maximum of information to be provided. There is no inconsistency between the application of subss (9) and (10), which impose a minimum standard and a common law duty of procedural fairness (Applicant VEAL of 2002 v Minister for Immigration and Multicultural and Indigenous Affairs (2005) 225 CLR 88 at [10]).
227 There is no dispute that a common law duty of procedural fairness must accommodate to the statutory scheme. As stated by Mason J in Kioa at 585, the statutory power:
‘must be exercised fairly, i.e., in accordance with procedures that are fair to the individual considered in the light of the statutory requirements, the interests of the individual and the interests and purposes, whether public or private, which the statute seeks to advance or protect or permits to be taken into account as legitimate considerations.’
228 The decision to issue a Part A competition notice pursuant to s 151AKA(2) of the Act consequent upon a s 151AKA(10) notice being given was likely to affect and be adverse to Telstra’s interests. In those circumstances, the Commission was required to give Telstra the opportunity to ascertain the relevant issues. Where the exercise of the statutory power attracts the requirements of procedural fairness, Telstra was entitled to put information and submissions to the Commission (Alphaone at 591-2). The Commission was obliged to identify any issue critical to the decision to issue the Competition Notice which was not apparent from the Consultation Notice and any adverse conclusions, but not the reasoning process, which had been arrived at and which would not obviously be open on the material known to Telstra (Alphaone at 592).
229 The Commission contends that the requirements of procedural fairness for the issue of a Part A competition notice are less onerous than those applicable to a quasi-judicial Tribunal determining, for example, whether a person is entitled to refugee status, as in VEAL. The Commission points to the flexible nature of the duty and the need to adapt to the statutory requirements. For example, a judicial hearing with rights of appeal must precede the pecuniary consequences arising from the issue of a Part A competition notice. The Commission also challenges the impact of the reasoning in VEAL and Kioa. It emphasises the comment by Brennan J in Kioa at 628 that the person whose interests are likely to be affected by the exercise of a statutory power does not have to be given an opportunity to comment on every adverse piece of information, irrespective of its credibility, relevance or significance. As Brennan J recognised in Kioa, ‘[a]dministrative decision-making is not to be clogged’ by unnecessary inquiries. That observation is particularly relevant in a statutory context where the legislature has sought to respond to the fast moving pace of telecommunications markets and, in so doing, placed the Commission under an obligation to act expeditiously.
Was the obligation to afford common law procedural fairness complied with?
230 Optus contends that the Commission’s procedural fairness obligations were satisfied by the issue of the Consultation Notice and the consideration of Telstra’s submission in response. The Commission stated in a letter to Telstra dated 4 May 2006 that it duly considered Telstra’s submission. The Commission submits that it was only required to “have regard” to Telstra’s written submission in determining whether it had a “reason to believe” that Telstra had engaged in at least one instance of anti-competitive conduct of the kind it had described in the Consultation Notice. It submits that to “have regard to” means ‘to consider, think about and decide whether or not to deploy (the particular matter) in the reasoning leading to the decision’. It does not import any further requirement that may arise from the expression “take account of”; it does not require that the response actually be used in the reasoning process.
231 Telstra’s pleaded assertion that the Commission could not have had regard to its submission has not been established. Some of the information in the Competition Notice could be said to be referable to Telstra’s submission and there is no basis on which to conclude that the Commission did not or could not have had regard to the submission before issuing the Competition Notice. No lack of bona fides on the part of the Commission is alleged, nor is it said by Telstra that the Commission did not have “reason to believe”.
232 The Act recognises that a s 151AKA(10) notice will not contain all of the matters subsequently addressed by a Part A competition notice. The Commission is not under a duty to provide a fully particularised pleading in relation to the impugned conduct and a failure to do so does not amount to a denial of procedural fairness. A Part A competition notice does not itself commence proceedings, nor is it evidence in subsequent proceedings of the matters asserted therein. If proceedings commence, the carriage service provider will be provided with a pleaded case to answer with evidence and be entitled, in the ordinary course, to discovery and associated procedures.
233 Part of the procedural fairness provided for by s 151AKA(10) of the Act is “input” by the carrier or carriage service provider into the decision to issue a Part A competition notice. The s 151AKA(10) notice describes the proposed kind of anti-competitive conduct in summary form (s 151AKA(10)(a)(ii)) and the recipient has the opportunity to make submissions which the Commission must consider (s 151AKA(10)(b)). Even if the s 151AKA(10) notice is not properly called a consultation notice, it was so entitled by the Commission. Telstra was, in turn, entitled to believe that it had the opportunity to address the kind of conduct that was proposed to be cited in a Part A competition notice.
234 While the Commission may have regard to other matters that it thinks are relevant (s 151AKA(6)(b)), the Act does not oblige the Commission to include those matters in the s 151AKA(10) notice. The statutory requirement for procedural fairness is fulfilled in the case of a Part A competition notice issued under s 151AKA(2) by adhering to the process of consultation for which s 151AKA(10) provides and where the s 151AKA(10) notice includes the matters provided for in that subsection. This does not include the reasoning processes of the Commission or generalised information that the Commission might propose to take into account at the time of issuing either the s 151AKA(10) notice or the Part A competition notice. There is no basis in the Act itself for an entitlement to the material taken into account by the Commission or the mental processes of the Commission in issuing the Statutory Notices.
235 Accepting that the Act provides for a consultation process, the Commission submits that the one-time consultation process expressly contemplated by the Act was intended not to be transformed into an iterative process whereby each “significant’ refinement must be notified. To the extent that the Competition Notice added a “refinement” to a kind of anti-competitive conduct described in the Consultation Notice, I accept that submission. A refinement may occur by a different method of description of the same subject, reordering of information, elaboration and further particularisation. It does not extend to a change in the substance of the kind of anti-competitive conduct.
236 As Finn J observed in Tobacco Institute of Australia v National Health and Medical Research Council (1996) 71 FCR 265 at 274, the courts have indicated in a variety of contexts that ‘[c]onsultation is no empty term’ nor ‘a mere formality’. The Commission has been given extensive powers which have been granted and affirmed in the context of certain conditions. The statutory process of consultation envisaged by s 151AKA(9) and (10) is rendered ineffective if the recipient is not given adequate and appropriate information in order to make an informed response.
237 Telstra was not afforded the opportunity to address issues relevant to the issue of the Competition Notice. Procedural fairness required that Telstra have that opportunity, whether such natural justice was in accordance with the statutory regime or common law principles.
The consequences of the denial of procedural fairness
238 Optus relies upon the context of the statutory power being exercised under a scheme in which the Part A competition notice:
(a) does not prevent Telstra from engaging in the conduct referred to in the notice;
(b) is not evidence of the matters referred to in it;
(c) is akin to a notice before action, in the sense that a person (including the Commission) has no right to sue for a breach of the competition rule unless a Part A competition notice has been issued; and
(d) may lead to the possibility of proceedings after its issue (in which proceedings the allegation of a breach of the competition rule will have to be proved to the civil standard of proof).
239 That characterisation, of itself, is correct. However, it does not take account of the whole of the statutory scheme. That includes the requirement for consultation prior to the issue of a Part A competition notice, the necessary content of that notice and the consequences of its issue.
240 The Commission contends that Telstra has not established that any departure from the requirements of procedural fairness was material or significant in reliance on NAIS v Minister for Immigration and Multicultural and Indigenous Affairs (2005) 223 ALR 171 at [71] per Kirby J; Re Refugee Review Tribunal; Ex parte Aala (2000) 204 CLR 82 at [87] per McHugh J in dissent but not on this point). Even if there were deficiencies in the Statutory Notices, the Commission submits that the anti-competitive conduct there described may be sufficiently clear that Telstra suffered no prejudice (Salim v Loh [2005] FCA 372 at [4], [32]).
241 The seriousness of the consequences of a decision is relevant to the content of the requirement for procedural fairness. The Commission submits that the consequences of the Consultation Notice are relatively immaterial and that the Competition Notice itself has limited import. Telstra relies on the fact that the Part A competition notice predicates the bringing of an action for damages under s 151CC of the Act and that it entails a public statement by the Commission that it has a “reason to believe” that Telstra has engaged or is engaging in anti-competitive conduct. Telstra complains that that statement adversely affects its reputation.
242 The duty to accord procedural fairness regulates the exercise of power where a statute confers power on a public official ‘to destroy, defeat or prejudice a person’s rights, interests or legitimate expectations’ (Annetts at 598 per Mason CJ, Deane and McHugh JJ) or damage reputation (Ainsworth at 577–8). The existence of a Part A competition notice opens the door for a range of proceedings to be issued against Telstra. In so doing, it exposes Telstra to the possibility of substantial penalties which accrue from the date of issue.
243 As Telstra submits, the significance of the “gateway” that a part A competition notice represents ‘should not be underestimated’: the Court has extensive powers to make orders in s 151CE in respect of a contravention of the competition rule where the conduct is of a kind dealt with in a Part A competition notice in force at the time the alleged conduct occurred.
244 The Competition Notice is a pre-condition to the Commission’s powers under s 151BY of the Act to commence proceedings to recover a potentially substantial pecuniary penalty for a contravention of the competition rule (s 151BY(3), (s 151BX(3)(a)). It is also a pre-condition for a third party to commence proceedings for damages suffered by conduct done in contravention of the competition rule (s 151CC(3)).
245 Telstra emphasises the consequences to it in terms of potential civil liability and damage to reputation. The Commission responds that no pecuniary penalty can be imposed unless the Court is satisfied that Telstra has, in fact and at law, contravened the competition rule. The Part A competition notice is irrelevant to the proof of such a case and not necessary for the Commission or a third party to commence proceedings seeking an injunction under s 151CA(1) of the Act. It also observes that, even if the Competition Notice is set aside, Telstra may be exposed to pecuniary penalties of $10 million for contravening s 46 of the Act (s 76(1A)(b) of the Act).
246 The Commission does not accept Telstra’s characterisation of the consequences of a Part A competition notice as “extraordinary” and “punitive”. It points out that such a notice is an exercise of executive rather than judicial power and cannot be “breached”. It contends that the Competition Notice ‘simply indicates that [the Commission] has reached the “relatively low threshold of ‘reason to believe’” in relation to the conduct described in the notice’. That imports a requirement to come to the view in good faith and on reasonable grounds that Telstra is breaching or has breached the competition rule. There is no “finding” that Telstra has engaged or is proposing to engage in anti-competitive conduct, just a public announcement that the Commission has “reason to believe” that Telstra has engaged in at least one instance of anti-competitive conduct of a kind described in the Competition Notice. This is described as a ‘relatively low threshold’ (The Daniels Corporation International Pty Ltd v Australian Competition and Consumer Commission (2002) 213 CLR 543 at [130] per Callinan J). The Commission does not accept that this involves damage to Telstra’s reputation.
247 No penalties or orders flow directly from the Competition Notice; it allows proceedings to be commenced. The Commission points out that the consequences of the Competition Notice could have been avoided by Telstra if Telstra had accepted the Commission’s invitation to give undertakings not to engage in the impugned conduct or successfully sought an exemption order pursuant to s 151AS of the Act. If Telstra were able to satisfy the Commission that the conduct was not anti-competitive or that the benefit to the public outweighs the detriment constituted by any lessening of competition, the Commission could make an exemption order (s 151BC(1) of the Act).
248 However, such an undertaking or the seeking of an exemption order would involve an acknowledgement by Telstra that its conduct or proposed conduct was anti-competitive, a proposition that it does not accept. The issue of a Part A competition notice should not force a recipient to accept the veracity of the allegations made which it disputes.
249 However they are characterised, the consequences that follow from the issue of a Part A competition notice are ‘intended to cause the recipient of the notice to stop the conduct [that the Commission] considers is in breach of the competition rule’ (the 1998 Supplementary Explanatory Memorandum at 1). From the Commission’s submissions, Telstra should have stopped its conduct by changing its pricing policy in order to avoid the potential consequences of the Competition Notice. That itself is a serious consequence.
250 I do not accept that Telstra should have been obliged effectively to admit to conduct it denied by giving the undertakings sought or hope for the best in obtaining an exemption order under s 151AS of the Act. While the intention of the Act may be to “coerce” a carrier into ceasing its anti-competitive conduct, that kind of coercion is not what is envisaged by the provisions of the Act. Telstra should not be coerced into ceasing to engage in what it views as legitimate activity or seeking to avail itself of exemption orders in respect of such activity. I do not accept that the availability of those avenues means that the Commission was not obliged to accord Telstra procedural fairness in connection with the issue of the Competition Notice.
251 I also do not accept the suggestion by the Commission that, if Telstra were in any doubt about the identification of the conduct to be addressed in the Competition Notice, the onus was on Telstra to overcome that doubt by describing its conduct in an application for an exemption order.
Statement of reasons
252 Telstra requested the Commission provide it with a statement of findings and reasons for its decision to issue the Consultation Notice by letter dated 23 January 2006. That request was made pursuant to s 13(1) of the ADJR Act and refused by the Commission on 17 February 2006. A further request for a statement of findings and reasons in respect of the decision to issue the Competition Notice was requested by Telstra on 24 April 2006 and refused by the Commission on 28 April 2006.
253 Telstra seeks a declaration that it was entitled to make those requests and that the Commission was obliged by s 13 of the ADJR Act to provide the statements sought. The Commission, in response, submits that it was under no such obligation.
254 Where a decision is made to which s 13 of the ADJR Act applies, a person ‘entitled to make an application to [the Court]…under section 5 in relation to the decision’ may, by notice in writing, request the decision-maker furnish a statement in writing setting out the findings on material questions of fact, referring to the evidence or other material on which those findings were based and giving reasons for the decision (s 13(1)). The decision-maker, upon receiving such a request, is obliged by s 13(2) of the ADJR Act to prepare the statement sought and furnish it to the person who made the request within 28 days.
255 Schedule 2 to the ADJR Act sets out classes of decisions that are not decisions to which the obligation to provide reasons pursuant to s 13 applies (s 13(11)(c)). One of those classes is:
‘(f) decisions in connection with the institution or conduct of proceedings in a civil court, including decisions that relate to, or may result in, the bringing of such proceedings for the recovery of pecuniary penalties arising from contraventions of enactments, and, in particular:
(i) decisions in connection with the investigation of persons for such contraventions;
…’
256 It is necessary to consider the Commission’s obligations in respect of the Competition Notice and Consultation Notice separately.
The Competition Notice
257 It is accepted by the Commission that Telstra is a person ‘entitled to make an application to [the Court]…under section 5’in relation to the decision to issue the Competition Notice (s 13(1)). The Commission submits, however, that that decision is a decision in connection with the institution or conduct of proceedings in a civil court and, by the application of para (f) of Sch 2 to the ADJR Act, not a decision to which s 13 of the ADJR Act applies. The Commission relies on the following matters in support of that submission:
· The investigative nature of the Commission’s role in deciding whether to issue a Part A competition notice, including the “reason to believe” threshold;
· The close connection between the institution of proceedings in a civil court and the issue of a Part A competition notice, including the institution of proceedings for the recovery of pecuniary penalties, as emphasised by Telstra in its submissions as to the effect of a Part A competition notice;
· The breadth of the expression “in connection with” as used in para (f) of Sch 2 (Burswood Management Ltd v Attorney-General (Cth) (1990) 23 FCR 144 at 146); and
· Authority to the effect that a decision to issue a s 155 notice is not a decision to which s 13 of the ADJR applies (Ricegrowers Co-operative Mills Ltd v Bannerman (1981) 56 FLR 443).
258 Telstra submits that the words “in connection with”, though broad, must be construed in context. In its submission, the purpose of the exclusion in para (f) is to avoid the disruption of investigative procedures or court process with the requirement to furnish reasons. It relies on the observation of Fox J in Murphy v KRM Holdings Pty Ltd (1985) 8 FCR 349 at 351 to the effect that:
‘[t]he general idea behind par (f) seems to be that civil procedure will itself take care of what s 13 seeks to achieve when it requires reasons to be given. Conversely, civil procedure is not to be complicated by the s 13 procedure’.
The decision to issue a Part A competition notice is said by Telstra to be distinct both from an investigation and a decision to institute or conduct proceedings.
259 There may be no correlative decision by the Commission to institute pecuniary penalty proceedings pursuant to ss 151BX and 151BY of the Act following the issue of a Part A competition notice. Further, third parties will not necessarily issue proceedings to recover damages pursuant to s 151CC of the Act. Certainty of legal proceedings, however, is not necessary for a decision to fall within the broad terms of para (f) of Sch 2. Decisions which “relate to, or may result” in the bringing of proceedings in a civil court for the recovery of pecuniary penalties expressly are included in para (f) of Sch 2 to the ADJR Act. The issue of a Part A competition notice is a prerequisite to the bringing of proceedings in this Court for the recovery of pecuniary penalties for a contravention of the competition rule (s 151BY(3)(g) of the Act). The scheme of the Act expressly contemplates that such proceedings may result from a decision by the Commission to issue a Part A competition notice. Were it not for the fact that such proceedings may result, the desired incentive for the carrier to cease the allegedly anti-competitive conduct would diminish significantly. Indeed, Telstra relies upon that very consequence of the decision in its submissions as to the requirements of common law procedural fairness.
260 The Commission’s decision to issue the Competition Notice was a decision within the terms of para (f) of Sch 2 to the ADJR Act. It follows that the Commission was not obliged by s 13(1) of the ADJR Act to furnish Telstra with a statement of reasons for its decision to issue that notice.
The Consultation Notice
261 Telstra is not a person ‘entitled to make an application to [the Court]…under section 5’ of the ADJR Act as the issue of the Consultation Notice was not a “decision” within the meaning of s 5 ([56] above). The obligation to provide reasons pursuant to s 13 of the ADJR Act does not apply to reviewable conduct. It follows that the Commission was not obliged by s 13(1) of the ADJR Act to furnish Telstra with a statement of reasons for its “decision” to issue the Consultation Notice.
Conclusion
262 The Commission issued the Competition Notice which, in accordance with s 151AKA(2) of the Act, stated that Telstra has engaged and is engaging in at least one instance of anti-competitive conduct of a kind described in the notice. It is not disputed that that kind of conduct has to be the same, in substance, as the kind of anti-competitive conduct described in summary form in the Consultation Notice. Otherwise, the Commission was not entitled to issue the Competition Notice.
263 Each of the Consultation Notice and Competition Notice were clear in their terms to the extent necessary for Telstra, an experienced and sophisticated participant in the telecommunications industry, to understand. However, the notices differed in the kind of anti-competitive conduct described. Those differences are differences of substance. They relate to the retail market in which the Commission alleged that the conduct would have the effect or likely effect of substantially lessening, preventing or hindering competition.
264 The first difference was in respect of the provision of services in the retail fixed services market. The Consultation Notice addressed the provision of services by Telstra and its competitors by way of a bundle; the Competition Notice included the provision of unbundled services.
265 The second difference was in respect of the residential retail customers supplied. The Consultation Notice did not differentiate among those retail customers. The Competition Notice referred to the effect of conduct in competition for Lower Spend Customers, low-to-mid spending customers who constitute a segment of retail customers.
266 Accordingly, the Consultation Notice did not comply with s 151AKA(10) of the Act and the Commission was not entitled to issue the Competition Notice.
267 Telstra did not have the opportunity to respond to the invitation to make a submission to the Commission on the proposed conduct. Telstra was denied procedural fairness and natural justice, both under the statutory regime and at common law.
268 The Commission’s decision to issue the Consultation Notice is not reviewable under s 5 of the ADJR Act but its conduct in issuing that notice is reviewable under s 6 of the ADJR Act. The Commission’s decision to issue the Competition Notice is reviewable under s 5 of the ADJR Act. These are also matters that are within jurisdiction by reason of s 39B(1A)(c) of the Judiciary Act. Telstra is not entitled under s 13 of the ADJR Act to reasons for the Commission’s decisions.
269 The parties should confer and forward draft consent orders to give effect to these reasons to my associate within 14 days. If there is no consent, each party should forward draft proposed orders within that time.
| I certify that the preceding two hundred and sixty-nine (269) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Bennett. |
Associate:
Dated: 5 April 2007
| Counsel for the Applicant: | T F Bathurst QC, J E Griffiths SC and J K Kirk |
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| Solicitor for the Applicant: | Mallesons Stephen Jaques |
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| Counsel for the First Respondent: | L G Foster SC and A I Tonking |
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| Solicitor for the First Respondent: | Corrs Chambers Westgarth |
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| Counsel for the Second Respondent: | S Gageler SC, K Richardson and S Free |
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| Solicitor for the Second Respondent: | Minter Ellison |
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| Date of Hearing: | 10, 11, 16 August 2006 |
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| Date of Judgment: | 5 April 2007 |
