FEDERAL COURT OF AUSTRALIA

Pivotel Satellite Pty Limited v Optus Mobile Pty Limited [2010] FCA 516

THE COURT ORDERS THAT:

1.                  The applicants’ notice of motion filed on 3 May 2010 be dismissed.

2.                  The applicants pay the respondents’ costs of and incidental to the applicants’ notice of motion filed on 3 May 2010, as agreed or taxed.

3.                  The applicants pay the respondents’ costs of and incidental to the applicants’ notice of motion for leave to discontinue the proceeding filed on 24 February 2010, as agreed or taxed.

4.                  The respondents’ notice of motion filed 4 May 2010 be adjourned until a date to be fixed.

5.                  The proceeding be listed for further directions on 1 June 2010.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using Federal Law Search on the Court’s website.

REASONS FOR JUDGMENT

1                                             The applicants and respondents have each filed a notice of motion.  The applicants, Pivotel Satellite Pty Limited, Pivotel Group Pty Limited and Pivotel Communications Pty Limited (Pivotel), sought leave to rely on an amended application and statement of claim.  The respondents, Optus Mobile Pty Limited and Optus Networks Pty Limited (Optus), sought to strike out the original application and statement of claim. 

2                                             There was some common ground between the parties.  First, the proposed amendment to the application is immaterial.  Pivotel wishes to include a reference to s 87 of the Trade Practices Act 1974 (Cth) as an additional source of the relief sought.  Second, Pivotel no longer wishes to rely on the original statement of claim.  Third, this is not a case where the circumstances would preclude Pivotel being granted leave to re-plead if the original or amended statement of claim was liable to be struck out.  Accordingly, the real issue is the amended statement of claim.  The issue is whether that pleading “discloses no reasonable cause of action or defence or other case appropriate to the nature of the pleading” or “has a tendency to cause… embarrassment… in the proceeding” as referred to in O 11 r 16 of the Federal Court Rules.  If so, leave to amend should not be granted.  If not, leave to amend should be granted. 

3                                             The adequacy of the amended statement of claim is to be determined having regard to the relief sought in the application.  By the application Pivotel claims the right to a declaration that Optus has contravened ss 51AB, 51AC, 52 and 151AK of the Trade Practices Act 1974 (Cth) by blocking Optus’s customers from accessing Pivotel’s telecommunications network and Australian digital telephone numbers.  Pivotel seeks an order restraining Optus from so blocking Optus’s customers, as well as an order for corrective advertising. 

4                                             The amended statement of claim involves three main allegations against Optus – anti-competitive conduct, misleading and deceptive conduct and unconscionable conduct.  Almost all of the proposed amendments relate to the anti-competitive conduct allegation.  With this in mind, one submission for Pivotel can be dismissed immediately.  Pivotel contended that, as a matter of discretion, Optus should not be heard to complain about the pleading insofar as it dealt with misleading and deceptive conduct and unconscionable conduct.  Pivotel’s reasons were that the pleading was largely unchanged and Optus had filed a defence to it.  However, as the evidence shows, Optus consistently maintained that the pleading was inadequate and reserved its right to apply to have the pleading struck out.  Accordingly, there is no discretionary factor weighing against Optus now contending that leave to amend the statement of claim as a whole should be refused.

5                                             The parties were not on common ground about the way in which the question of disclosure of a cause of action and embarrassment should be approached.  Pivotel emphasised that: - (i) this was not an application for summary dismissal, (ii) for an amendment not to be allowed it must be plain and obvious that the impugned paragraphs of the pleading are unarguable (Murex Diagnostics Australia Pty Ltd v Chiron Corp (1995) 55 FCR 194), and (iii) the question is not whether the facts pleaded are in themselves sufficient to give rise to a cause of action; rather, the question is whether it would be open for an applicant upon the pleadings to prove facts at the trial which would constitute a cause of action (Pancontinental Mining Ltd v Posgold Investments Pty Ltd (1994) 121 ALR 405). 

6                                             Murex involved a strike out application on the basis that a claim of invalidity of a patent could not be maintained as a matter of law under the relevant statutory provisions.  The test of a “plain and obvious” case, in that context, relates to a pleading which is unable to be legally maintained.  That is not Optus’s point in the present case.  Optus’s basic contention is that the amended statement of claim fails to fulfil the function of a pleading because it does not “furnish a statement of the case sufficiently clear to allow [Optus] a fair opportunity to meet it” (Dare v Pulham (1982) 148 CLR 658 at 664).  This is the essence of Optus’s submissions that the pleading, in various respects, is “hopelessly vague and undefined”, “incomprehensible”, “clearly inadequate”, does not “make any sense”, and fails to identify matters said to be critical.

7                                             In Pancontinental Mining Beaumont J referred to this basic principle that “a pleading must be framed with reasonable particularity” (at 413).  Whether the level of particularity provided is reasonable depends on what is sufficient in the circumstances of the individual case to fulfil this basic requirement of fairness.  Putting it another way, it will only be open to a party on a pleading to prove facts at a trial which would constitute a cause of action if the pleading has met “the basic requirement of procedural fairness that a party should have the opportunity of meeting the case against him or her and, incidentally, to define the issues for decision” (Banque Commerciale SA en Liquidation v Akhil Holdings Ltd (1990) 169 CLR 279 at 286). 

8                                             This basic requirement of fairness informs numerous other statements.  Accordingly, in Re Kernel Holdings Pty Ltd v Rothmans of Pall Mall (Australia) Pty Ltd [1991] FCA 417 (3 September 1991), a competition case, French J struck out a pleading he described (at [2]) as a “delphic announcement” of the applicant’s case.  In conclusions material to the dispute between the parties to the present case, French J continued (at [6]-[9]):

6. A material fact is one which is necessary to formulate a complete cause of action. It is to be distinguished from particulars which are not part of the pleading. Material facts must be pleaded with the degree of specificity necessary to define the issues and inform the parties in advance of the case they have to meet. There are certain levels of generality in pleading which while they may bring in all facts necessary to establish a cause of action, are insufficient for that purpose - Bruce v Odhams Press Ltd (1936) 1 KB 697 at 705 and 712; Ratcliffe v Evans (1892) 2 QB 524 at 532; Farrell v Secretary of State for Defence (1980) 1 WLR 172 at 179-180; Charlie Carter Pty Ltd v The Shop, Distributive and Allied Employees' Association of Western Australia (1987) 13 FCR 413.

7. Rothmans' counsel relied upon the decision of Fisher J. in Trade Practices Commission v David Jones (Australia) Pty Ltd [1985] FCA 228; (1988) 7 FCR 109 in which his Honour struck out a statement of claim alleging contraventions of s.45 of the Act on the basis that it pleaded conclusions in terms of the section rather than the material facts underlying them. I do not accept that the pleading of something which can be described as a conclusion cannot also be a pleading of a material fact. The real issue in a case where such an objection is raised is whether the facts are pleaded at too great a level of generality. In my opinion, the level of generality of the statement of claim in this case is too great for Rothmans to know with any precision what case it has to meet. The facts relied upon to support the conclusion about Rothmans' alleged purpose in refusing supply should be spelt out. So too should the facts relied upon to support the conclusion that the refusal has or is likely to have the effect of substantially lessening competition in the relevant market. The allegation is made in para. 10 that the refusal to supply substantially damages Kernel's ability to compete in the wholesale and retail markets for the supply of cigarettes in Western Australia. It does not follow from that however, that there would or is likely to be a substantial lessening of competition in that market. The mechanism of the lessening is not identified in the statement of claim. Further, the market in which the lessening of competition is to be measured must be a market in which Rothmans and/or  Kernel  supplies or acquires goods and must defined with some precision. It is not clear whether Rothmans and Kernel are said to be operating in the same or different functional markets.

8. I accept that the plea based on the contravention of s.46 should plead the material facts necessary to support the allegations that Rothmans has a substantial degree of power in a relevant market and that it has taken advantage of that power for a particular purpose. The incantation of the components of s.46 is not sufficient to disclose the material facts on which Kernel  relies to establish those elements.

9. In my opinion the statement of claim as a whole fails to comply with the requirements of O.11 r.2 that it contain a statement of the material facts on which the applicant relies. To that extent, it may also be said to fail to disclose a reasonable cause of action. In the circumstances the statement of claim should be struck out subject to leave to replead.

9                                             In McKellar v Container Terminal Management Services Ltd Management Services Ltd (1999) 165 ALR 409; [1999] FCA 1101 Weinberg J dealt with the adequacy of a pleading of misleading and deceptive conduct.  His Honour said at [23]:

A number of authorities support the proposition that a statement of claim must contain material facts, being the facts necessary for the purpose of formulating a complete cause of action, and that it is not sufficient simply to plead a conclusion drawn from unstated facts… A statement of claim which simply repeats the language of a provision of the Act, and then baldly asserts a contravention of that provision, without more, will be struck out.

10                                          At [25] Weinberg J also said:

For a statement of claim to disclose a cause of action it must set out the material facts which give rise to the cause of action. A cause of action for misleading and deceptive conduct is not established unless the statement of claim sets out the circumstances which gave the representation its deceptive and misleading character at the time it was made.

11                                          Optus’s contentions about the inadequacies of Pivotel’s pleading are to be assessed in light of these principles.

12                                          As to the anti-competitive conduct claims, the pleading identifies various markets.  Four so-called “interconnect” markets are identified - the Optus mobile interconnect market, the Optus Networks interconnect market, the Optus Group interconnect market, and the interconnect market.  Other markets are also identified - the ordinary telecommunications mobile market, the handheld satellite mobile telecommunications market, the ordinary telecommunications landline market, and the retail international telephone calls market. 

13                                          The pleading in respect of the interconnect markets follows a similar form for each market.  The essence of the Optus mobile interconnect market pleading is that Optus owns and operates a telecommunications network, as do other telecommunications entities.  For Optus and those entities to offer telecommunication services to the public it is said that they require a direct or indirect interconnection with each other.  The pleading asserts that a direct connection is where there is at least one point of interconnection between the Optus mobile network and the particular entity’s network.  An indirect connection is where there is at least one point of interconnection between the network of the particular entity and of another entity where that other entity has at least one point of connection with the Optus mobile network.  According to the pleading Optus thus supplies and offers to supply to telecommunications entities who acquire and attempt to acquire direct and indirect interconnection with Optus’s mobile network.  Hence, there is said to be a separate market for the supply and acquisition of interconnect services with Optus’s mobile network.  The participants in the market are Optus mobile and other telecommunications entities.  Because Optus is said to be the only supplier of this service there is no substitutable service.  There are also pleaded high barriers of entry and no or limited constraints on Optus in this market.  Optus is thus said to have a substantial degree of power in this market.

14                                          The Optus Networks and Optus Group interconnect markets pleadings follow the same pattern except the claim relates to a separate market involving direct and indirect connection in respect of fixed lines and both mobiles and fixed lines respectively.  The interconnect market pleading also follows the same pattern except the market is identified as the market for direct and indirect interconnection between all telecommunications entities and not just Optus.  The Optus Group interconnect market is pleaded in the alternative to the Optus mobiles and Optus Networks markets.  The interconnect market as a whole is pleaded in the alternative to the three markets involving Optus alone (that is, mobiles or fixed lines and mobiles and fixed lines).

15                                          Optus’s principal contention is that the pleading of these “interconnect” markets is “hopelessly vague and undefined”.  Specifically, Optus submits that: - (i) the meaning of interconnection is unclear, (ii) no services supplied by Optus are identified, and (iii) no transactions said to constitute the provision of the alleged interconnection service are identified.  Given that Pivotel’s ultimate claim is that Optus, by blocking its own customers from calling Pivotel numbers, refused to supply to Pivotel “indirect interconnection” with Optus’s network, and thereby unlawfully took advantage of its market power the failure to explain how an interconnection service is provided is, said Optus, critical. 

16                                          Pivotel’s principal contentions are that: - (i) the service is identified (Optus Mobiles supplies and offers to supply to telecommunications entities indirect and direct interconnection with Optus mobiles), (ii) the market is identified, and (iii) the participants in the market are identified.  According to Pivotel, in a submission made with respect to all of Optus’s allegations about the deficiencies in the pleadings relating to markets, “Pivotel is permitted to define its markets as it wants.  It is a matter of fact to be determined by the Court as to whether or not such a market exists”.  The pleading, submits Pivotel, is thus adequate.

17                                          I accept Optus’s contentions.  The pleading is too vague to enable Optus to know the case it has to meet.  The problem starts in para 11 where it is alleged that telecommunications entities require “direct or indirect interconnection” with Optus’s mobile network to offer services to the public.  Interconnection, however, remains undefined.  The succeeding paragraphs compound this problem.  They fail to identify any transactions by which Optus supplies anything (including “interconnection”, whatever that be) to other telecommunications entities.  Instead the pleading refers to undefined “arrangements” for “interconnection” without identifying anything about the nature of the arrangements or the “interconnection” with which they deal.  The fact is that, from the pleading, it is not possible to know what “interconnection” really means.  The pleading also leaves undefined the critical concept of “point of interconnection”.  It is this point of interconnection which apparently dictates whether the interconnection is direct or indirect.  But what a “point of interconnection” actually is remains obscure.  This obscurity then founds the distinction sought to be drawn in the pleading between direct and indirect interconnection.  But without knowing precisely what “interconnection” or the “point of interconnection” means or what the “arrangements” are, the pleading is incomprehensible.  It also thus follows that the service Optus is said to provide - “indirect interconnection” to telecommunications entities - is itself incomprehensible.  The market said to be identified is thus also meaningless.  The same problems mean that the three other pleadings relating to interconnect markets are incapable of fulfilling the basic fairness requirements of a statement of claim.  The pleading of the interconnect markets thus discloses no reasonable cause of action and is embarrassing.

18                                          The pleading of the ordinary mobile markets also presents real difficulties.  While some of Optus’s concerns are addressed by clarifications provided by Pivotel in its written submissions, others of substance remain. 

19                                          For example, despite Pivotel’s submissions to the contrary, it is not clear from para 97 that the two limbs of the pleading (public mobile telephone services and goods and services) are cumulative.  Optus’s confusion about what is being pleaded is a result of the pleading’s ambiguity. 

20                                          Further, there are no material facts pleaded which enable Optus to understand the basis on which it is said that there is an ordinary mobiles market, as opposed to some other market.  I do not accept Pivotel’s submission that mere identification of the alleged market and no more is sufficient, with everything else falling into the category of evidence.  As Optus submitted, a market is a construct.  It is constructed by reference to facts about “the maximum range of business activities and the widest geographic area within which, if given a sufficient economic incentive, buyers can switch to a substantial extent from one source of supply to another and sellers can switch to a substantial extent from one production plan to another” (Singapore Airlines Limited v Taprobane Tours WA Pty Ltd (1991) 33 FCR 158 at 177 citing Re Tooth & Co Ltd; Re Tooheys Ltd (1979) 39 FLR 1).  The fact that this construct ultimately involves fact-finding and evaluation of evidence does not relieve Pivotel of the obligation in its pleading to plead the material facts – that is, facts sufficient to enable Optus to know the case being put.  For this purpose, Optus is entitled to know the facts said to support the existence of this as opposed to some other market (that is, the facts by which the boundaries of the market are said to be drawn).  It is not sufficient for Pivotel simply to assert the existence of a market and otherwise rely on evidence.  While the pleading in the present case is not as bare as this, I am satisfied that it is too general and vague for the reasons Optus has identified.

21                                          There is an additional problem with the fact that the amended statement of claim alleges the existence of an ordinary mobiles market, a handheld satellites market, an ordinary landline market, and a retail international telephone calls market.  These are all said to be separate markets.  The last alleged market, however, includes all of the former markets yet is not pleaded in the alternative.  While Pivotel perhaps indicated a willingness to alter this part of its pleading, that is not the point.  As proposed the pleading is internally inconsistent and thus incomprehensible.  It also discloses the conceptual difficulty presented by the pleading.  Because the pleading does not attempt to identify the facts material to the existence of the nominated markets as opposed to any other market (that is, the facts by which the boundaries of the market are said to be drawn), it operates at far too high a level of generality, thereby depriving Optus of the opportunity to know the substance of the allegation against it. 

22                                          Similarly, the allegations of substantial market power against Optus are too general to let Optus know what is put against it.  In respect of the mobiles market, it is alleged that Optus is subject to no or limited constraints in the mobiles market.  But no material facts are identified to support this claim other than a pleading that Optus mobile “represents” 33% of the ordinary mobile market.  Contrary to Pivotel’s submission, the word “represents” in this context is so unclear as to be meaningless.  If it is intended to convey market share then that would need to be stated and the basis for the share calculation identified.  As pleaded, however, “represents” could mean a multitude of things (percentage of mobile numbers on issue, customers, revenues, network facilities, geographical coverage or the like).  Optus should not have to respond to such a vague pleading.  For the handheld satellite and fixed line markets it is also claimed that Optus is subject to no or limited constrains, but other than high barriers of entry and tight regulation, no material fact is identified to support the claim of Optus’s market power.  This too is insufficient.

23                                          As to the conduct said to be anti-competitive, para 137 suffers from the defect Optus identified – it refers to a refusal to supply the so-called indirect interconnection to Pivotel and the blocking of customers.  While in oral submissions Pivotel said this was clear as the conduct of blocking itself constituted the refusal to supply, that is not what the pleading says.  The pleading refers to two things - a refusal to supply and the blocking.  It is thus vague and ambiguous.  The problem cannot be cured by oral submissions instructing the reader about how the paragraph should be read.  It needs to be clear from the face of the pleading.  Moreover, nothing in the pleading discloses any material fact by which it is said that Optus did something (the blocking) which Optus could do only because of its alleged substantial market power.  There is nothing more than a bare assertion that by the blocking Optus has taken advantage of its market power.  In this case, however, reasonable particularity requires more than a mere assertion of the statutory formula.  Similarly, the claimed substantial lessening of competition, although particularised, fails to disclose any material fact said to support the allegation that competition, as opposed to Pivotel’s or Media Ocean Limited’s ability to compete, will be substantially lessened.  It is simply asserted in particulars, without any material fact in support being identified, that if Pivotel or Media Ocean cannot compete, competition will be substantially lessened in the various markets.  The two propositions are not logically connected without additional material facts being provided in the pleading itself (as opposed to particulars). 

24                                          The misleading and deceptive conduct claims suffer from their own problems.  Contrary to Pivotel’s submissions, the pleading does not assert that Optus, in its relationship with its own customers, was prohibited from taking the action of blocking them from making calls to Pivotel numbers.  The lack of an express or implied contractual right to do so is not the same thing as a prohibition.  Hence, as Optus said, the assertion in paras 196 and 200 that Optus was not permitted to block simply does not follow from any of the preceding claims.  It is then alleged that Optus did block.  Next it is alleged that, by this conduct (that is, the blocking), Optus engaged in misleading and deceptive conduct.  Pivotel said that this pleading accurately conveyed the case and, as this was not an application for summary dismissal, the pleading was thus sufficient.  I do not accept this argument.  Some allegation of fact is obviously missing between the act (blocking calls) and the alleged legal consequence (misleading and deceptive conduct).  Without wishing to engage in the drafting process the questions which must arise for the party attempting to plead in response to this claim are obvious.  In short, how is the conduct of blocking said to be misleading and deceptive?  The pleading yields no clue. 

25                                          The unconscionable conduct claim is also said to follow as of course from the act of blocking.  To this extent it too suffers from the same problem as the misleading and deceptive conduct claim. 

26                                          This discussion deals only with Optus’s principal complaints about the amended statement of claim.  It shows that Optus’s position about the pleading as a whole is basically correct.  Using the language of O 11 r 16 the pleading as a whole fails to disclose a reasonable cause of action and is embarrassing.  Given that Pivotel requires leave to rely on the amended statement of claim it is not appropriate to attempt to isolate some paragraphs which might survive scrutiny.  Leave should not be granted but Pivotel should be given an adequate opportunity to re-plead its case. 

27                                          There are also two costs issues. 

28                                          As to the first, relating to Optus’s application to vary and the ultimate discharge of the interlocutory injunction, I accept Pivotel’s submission that the costs associated with these events should be determined together with the costs of the application for interlocutory relief as a whole.  However, I do not accept that these costs should remain costs in the cause.  I give leave to both parties to have those costs issues heard and determined in advance of the final resolution of the proceeding. 

29                                          As to the second, I do not accept the submission that Optus’s application for costs of Pivotel’s withdrawn notice of motion for leave to discontinue is now being “re-opened”.  The fact is that Optus sought the costs of Pivotel’s withdrawn motion on 23 March 2010.  I indicated that an order for costs should be made in Optus’s favour.  Pivotel said the parties should have an opportunity to discuss the issue and I acceded to that request.  Presumably, the discussions did not bear fruit and Optus again seeks its costs.  I do not accept Pivotel’s submissions that the motion was filed and withdrawn because of some change in Optus’s position.  Optus’s position was always clear.  It did not wish to carry calls to the Media Ocean numbers.  It needed a practical method to identify those numbers.  The only practical method was for Pivotel to identify the numbers.  If Optus could not identify the Media Ocean numbers Optus may have no choice other than again to block its customers from calling any Pivotel number.  Pivotel knew this and decided for its own commercial purposes not to disclose the Media Ocean numbers.  Pivotel’s motion for leave to discontinue was agitated in this context.  In these circumstances the reason for Pivotel’s withdrawn notice of motion cannot be any change in Optus’s position.  Optus incurred costs in dealing with that motion.  The motion was withdrawn.  Optus should have its costs of and incidental to that motion. 

Associate:

Dated:         27 May 2010