FEDERAL COURT OF AUSTRALIA

Australian Competition and Consumer Commission v Link Solutions Pty Limited (No 2) [2010] FCA 1463

THE COURT ORDERS THAT:

1.    The motion of 7 October 2010 be dismissed.

2.    The Commission pay the costs of the respondents to the motion.

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    On 10 September 2010, a judge of the Court ordered that a proceeding brought by the Australian Competition and Consumer Commission (the Commission) be dismissed under s 31A of the Federal Court of Australia Act 1976 (Cth) (the Federal Court Act) as against two finance companies, Enterprise Finance Solutions Pty Limited (EFS) and CIT Group (Australia) Limited (CIT). Her Honour published reasons for making those orders on 25 August 2010. The orders were made after further discussion between the Court and the parties. On 10 September 2010, her Honour ordered the Commission to pay EFS’s costs. On 30 September 2010, her Honour ordered the Commission to pay CIT’s costs.

2    By notice of motion dated 7 October 2010 but filed on 8 October 2010, the Commission seeks an order under Order 52 rule 10(2)(a) of the Federal Court Rules, that the time within which the Commission must file an application for leave to appeal from the orders of 10 September 2010 and 30 September 2010, be extended to a day and time to be determined by the Court. The motion also seeks leave to appeal from the orders in question. The application for leave to appeal is incompetent if there no extension of time is granted. The extension of time is opposed by EFS and CIT.

3    The proceeding concerns alleged contraventions of s 47 of the Trade Practices Act 1974 (Cth) (the Trade Practices Act), which prohibits a corporation from engaging in the practice of exclusive dealing. Section 47(6) relevantly provides that a corporation engages in the practice of exclusive dealing if the corporation gives or allows, or offers to give or allow, a discount, allowance, rebate or credit in relation to the supply or proposed supply of goods or services by the corporation on the condition that the person to whom the corporation supplies or offers or proposes to supply the goods or services or, if that person is a body corporate, a body corporate related to that body corporate will acquire goods or services of a particular kind or description directly or indirectly from another person not being a body corporate related to the corporation. The Commission alleged contravention of s 47 by a number of telecommunication companies.

4    The Commission alleged that EFS and CIT were knowingly involved in the contraventions by the telecommunication companies. The primary judge was satisfied that the evidence and inferences available from the evidence supported the pleaded case that EFS was aware of the business methods of certain of the telecommunication companies, to the extent of knowledge of a business method that involved the provision of bundled services and call credits for customers who entered into lease agreements. However, her Honour did not consider that that constituted a contravention of s 47, unless certain other matters were alleged. For EFS to be liable, it must be alleged to have had knowledge of the material fact that there was a condition not only to lease equipment but also that it be leased from another person, within the meaning of s 47(6). Her Honour did not consider that it was sufficient that the condition be that in order to obtain call credits, the customer must enter into an equipment lease. The condition must direct the customer to another person. The primary judge considered that, even if the evidence were sufficient to establish that EFS knew of the business model of the telecommunication companies, knew of the offer of bundled services and knew that it was a condition of the provision of call credits that the customer obtain a lease agreement, her Honour did not consider that it was sufficient to establish accessorial liability for a contravention of s 47(6) unless EFS knew that the offer or provision of call credits amounted to a third line force.

5    The proposed pleading alleged that there was a panel of five finance companies. The primary judge considered that the Commission must plead, and provide some evidence, that EFS knew that the choice of the customer was restricted to such a panel. The Commiussion did not plead that. Her Honour concluded, in relation to EFS, that the Commission pleaded knowledge on the part of EFS that concerned the making of offers by the telecommunication companies by implementation of the business methods alleged in the pleading. The pleading did not allege knowledge of the fact that the telecommunication companies respectively required companies to acquire equipment from a limited number of finance companies. Her Honour considered that, as the Commission had not clearly pleaded the requisite knowledge, the pleading against EFS was liable to be struck out since it did not plead the requisite material facts. In the absence of any evidence to support the requisite knowledge by EFS for the purpose of s 75B of the Trade Practices Act, her Honour considered that EFS was therefore entitled to an order under s 31A(2) of the Federal Court Act that the proceeding against it be dismissed summarily.

6    The primary judge observed that the allegations in the pleading against CIT were largely similar to the allegations against EFS although there were some differences. The pleading against CIT and the evidence upon which the Commission relied was sufficient to defeat the s 31A application insofar as it extended to knowledge on the part of CIT of the business method of one of the telecommunication companies, namely the offer of bundled services. The fact that the vendor of the services was the telecommunication company and the fact that that telecommunication company provided an application form to customers for a leasing agreement with CIT, led her Honour to consider there was evidence that CIT knew of the giving of call credits and to accept that the evidence was sufficient to defeat the s 31A application, insofar as it established that CIT knew that the telecommunication company offered to give or allow and gave or allowed call credits linked to equipment leases. However, her Honour observed that, as the case against CIT was accessorial, the Commission must establish actual knowledge of the essential factual elements of the telecommunication company’s alleged contravention of s 47. That was an allegation of third line forcing. Her Honour considered that it was not sufficient that CIT knew that the telecommunication company offered or provided the bundled services or that the customers entered into the equipment lease with CIT or that that equipment lease was linked to the offering or giving of call credits. Her Honour found that the Commission had pleaded knowledge on the part of CIT of the matters referred to in the pleading that concerned the making of offers by implementation of a business method alleged in the pleading.

7    The Commission did not allege knowledge of the fact that that the telecommunication company required customers to acquire equipment from a limited number of finance companies. Her Honour considered that the Commission had not clearly pleaded the requisite knowledge on the part of CIT, nor that it had identified evidence that shows, or from which it can reasonably be inferred, that CIT knew that the telecommunication company offered to give or allow or gave or allowed call credits on the condition that customers enter into an equipment lease with CIT or with one of the panel of finance companies. Her Honour reached the same conclusion as in relation to EFS, namely, that the pleading against CIT should be struck out since it did not plead the requisite material facts. Being unable to provide evidence of knowledge of that essential element of a contravention of s 47, the Commission had no reasonable prospects of success in its case against CIT and accordingly, it was entitled to summary judgment under s 31A of the Federal Court Act.

8    Both EFS and CIT accept that there is at least an arguable case on appeal that her Honour erred in the construction her Honour gave to s 47(6). The principal question, as summarised in paragraph [76] of her Honour’s reasons, is whether or not another person means any person other than the person imposing the condition and other than the person on whom it is imposed. Her Honour summarised the question as being whether another person, in s 47(6), must be a specified person or whether it could be a panel of specified persons or whether it could be any other person not related to the company giving or allowing the call credits.

9    It may well be that the Commission’s prospects on appeal, if an extension of time were granted and leave to appeal were granted, could be characterised as somewhat more than merely arguable. Without expressing any view as to the likely outcome, I am prepared to assume, on the basis of the material to which I have been taken, that there is a reasonably sound argument,. The prospects of success are certainly more than merely arguable and certainly more than negligible.

10    The first question is whether I should, sitting alone, resolve the question of an extension of time and, secondly, if I consider that that is appropriate, whether the time should be extended. The primary assumption of the Federal Court Act is that a question such as this should be decided by a single judge t. I am not persuaded that this is a matter that is required to be transferred to a Full Court.

11    The Commission’s primary position was that the question of an extension of time should be heard at the same time as any application for the grant of leave, which should itself be heard at the same time as the substantive appeal if leave were granted. However, there is some urgency about the matter and all the parties wish to have the matter resolved as quickly as possible. It is certainly a case where it would be appropriate for the question of leave to appeal to be dealt with on the basis that, if leave were granted, the substantive appeal would follow or be dealt with at the same time. However, since the question of an extension of time does not involve the same detailed analysis of the reasons of the primary judge and the merits of the appeal, I consider that it is appropriate to deal with that question separately and in advance of the hearing of any application for leave to appeal. The application for leave to appeal has been provisionally fixed for hearing in February.

12    In considering an application for an extension of time such as this, a number of considerations must be taken into account by the Court. One is the consideration to which I have referred, namely, that the appeal must have such prospects of success as not to render the extending of time an exercise in futility. That requirement is certainly satisfied in the present case.

13    Secondly, an applicant for an extension of time within which to appeal as of right must show special reasons. Nothing less than that should be required of an applicant for an extension of time within which to apply for leave to appeal. Tied up with the question of special reasons are the respective detriments that might be suffered by the appellant if an extension is refused, and by a respondent if the extension is granted.

14    The third consideration is that there must be a satisfactory explanation for the delay on the part of the prospective appellant in seeking leave to appeal. I consider that it is remarkable that, in this case, the Commission, an emanation of the Commonwealth, has expressly proffered no explanation at all for the failure to seek leave to appeal within the time limited by the Rules. It may have been open to the Commission to say it was an oversight, or that the view had been taken that it was not necessary. However, nothing has been proffered despite it being made abundantly clear on the part of EFS and CIT that the absence of an explanation would be relied on as a significant matter in opposing the Commission’s application. The Commission is here seeking an indulgence for its failure to file its application within seven days. It filed the application on the 22nd day. One is concerned therefore with a delay of 15 days. It may well be that that could have been explained. However, no attempt has been made to explain the delay in this case. I regard that as a very significant factor in dealing with the question of whether or not an extension should be granted.

15    It is in the interests of the community that there be an end to litigation. That principle underlies questions relating to issue estoppel and res judicata. It is also a principle that is relevant in terms of an extension of time within which to bring an appeal. Once an order has been made disposing of a proceeding by one party against another party, that is an end of the matters that were in dispute as between those parties prior to the making of the order, subject to the statutory right of appeal. The statutory right of appeal is given on the basis that, within a relatively short time, the respondent to the appeal must be notified that the appellant is not satisfied with orders that have been made. With an appeal as of right, 21 days are allowed. With an interlocutory order – and it is common ground that the orders in question were interlocutory – seven days are allowed. In any event, in relation to most of the orders – certainly the orders for dismissal – the period of 21 days elapsed in any event.

16    The successful respondents were entitled to assume, in the absence of any indication from the Commission to the contrary, that once the seven days had elapsed, that that would be an end of the matter. It would have been a simple matter for the Commission to file an application for the grant of leave to appeal. Certainly the reasons of the primary judge are extensive and, to that extent, might be characterised as unusual in relation to a summary dismissal. That might be a reason why there might be some excuse for not having formulated a prospective notice of appeal in good time. However, that has not been advanced as a reason why the Commission chose to ignore the Rules. The only inference I can draw is that the Commission deliberately chose to ignore the Rules, or perhaps had a change of heart.

17    CIT points to specific arrangements that were on foot at the time of the dismissal of the proceeding that may well give rise to prejudice on the part of CIT or what is now its holding company. On 27 April 2010, the holding company of CIT and Bank of Queensland Limited executed a share sale agreement pursuant to which Bank of Queensland was to buy all of the issued share capital of CIT. At the time of the negotiation of that agreement and its execution, the proceeding in question was still on foot. Accordingly, provision was made in the agreement that a substantial sum of money to be paid by Bank of Queensland as part of the purchase price would be held in escrow, pending the outcome of the proceeding. A trigger for the release of the money held in escrow was that the proceeding be finally determined by a court of competent jurisdiction, resulting in a finding that CIT did not engage in conduct resulting in a contravention of the Trade Practices Act.

18    On 29 June 2010, an escrow deed was entered into and the moneys in question were deposited by Bank of Queensland with an escrow agent. The deed provided that the escrow agent must release the amount on receipt of a payment notice, signed by Bank of Queensland and CIT. On 20 September 2010, 10 days after the order of 10 September 2010, inquiries were made of the Court’s Registry to endeavour to ascertain whether any application for leave to appeal had been lodged by the Commission. The result, of course, was that no such application had been made. Following receipt of that confirmation, on 20 September 2010, the payment notice contemplated by the escrow deed was signed and delivered to the escrow agent. Thus, an inference can be drawn, although it is not necessarily so, that Bank of Queensland acted to its detriment on the state of the record. The inference can be drawn that, had an application for leave to appeal been filed prior to 20 September 2010, a different course might have been taken in relation to the moneys held in escrow. That consideration suggests a specific detriment has been suffered by those relying on the state of the record as a consequence of the Commission’s failing to notify anybody of its intention, if it had one, to seek leave to appeal.

19    The Commission says that the question of the construction of s 47(6) is one of considerable public interest. The Commission also submits that it does not seek to vindicate any private interest but rather the interest of the public in having the structure of the telecommunications retail market established with clarity. Nevertheless, it is incumbent upon a regulator such as the Commission, seeking to enforce a provision such as s 47, to have regard to the rules upon which litigation is undertaken. In any event, it may well be arguable that the question to which the Commission seeks an answer, would be answered in the course of the proceeding against the principal actors who are said to have acted in contravention of s 47, namely, the telecommunication companies. It is possible, of course, that the Commission’s case against the telecommunication companies does not have to be established at as high a level as may have been necessary against EFS and CIT. Be that as it may, I am not persuaded that there is any real detriment to the public interest following the Commission’s loss of the opportunity of having its construction of s 47(6) vindicated as against EFS and CIT.

20    In its application for relief, the Commission also sought orders requiring EFS and CIT, at its own expense, to distribute letters to its customers who are parties to leases of equipment purchased from the telecommunication companies. The proposed letter to customers was designed to draw their attention to the fact that EFS or CIT, as the case may be, had engaged in contraventions of s 47, thereby drawing attention to the customer that some claim may be made for compensation for loss suffered by that conduct. The Commission points to the fact that there was evidence before the primary judge that a common outcome of the bundling deal, which was the subject of the complaints in the proceeding, was the cessation of the contract for the provision of telecommunication services and the commencement of enforcement proceedings by the relevant finance company against a small business customer. It may be that, if there was a contravention of s 47, that would afford a defence to a claim for enforcement of a lease agreement against a business customer.

21    However, it is not suggested that there are any current proceedings. Further, it would be open to the Commission, if it is in the public interest to do so, to obtain information about such customers and for the Commission itself to notify them of the position if there were a risk of small business customers being the subject of proceedings where they might have a defence about which they would otherwise not have knowledge.

22    The circumstance concerning Bank of Queensland to which I have referred does not afford EFS a specific answer based on detriment. However, EFS submits that it would be prejudicial to its position if an extension of time were refused in respect of leave as against CIT but was allowed in relation to the claim as against EFS. That is to say, EFS and CIT, if they continue to be parties to the proceeding and were ultimately held liable, may have rights of contribution as between each other. If CIT were left out, by reason of the refusal of an extension of time, but EFS were kept in the proceeding as a result of the extension of time, the grant of leave and an upholding of the appeal, EFS’s prospective right to contribution may well be compromised. EFS says that, in those circumstances, if an extension of time is refused in relation to CIT, the same refusal should be available for EFS. There is considerable substance in that contention.

23    I have concluded that, in the absence of any explanation on the part of the Commission as to why it ignored the Rules, I do not consider that it is appropriate to exercise discretion in its favour. There is evidence of possible specific detriment to a third party, by reason of the failure to comply with the Rules, quite apart from the entitlement of a litigant to assume that, once time for taking a step has expired, the step will not be taken. I consider, in those circumstances, that the application for an extension of time should be refused. It follows that the motion should be dismissed.

Associate:

Dated:    12 December 2010