FEDERAL COURT OF AUSTRALIA

Australian Competition and Consumer Commission v Valve Corporation

[2015] FCA 721

THE COURT ORDERS THAT:

1.    Pursuant to r.1.32 of the Federal Court Rules 2011 (Cth), the respondent’s Notice to Admit dated 10 June 2015 be set aside.

2.    The respondent pay the applicant’s costs of today and preparation of today.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

Introduction

1    This interlocutory application is by the applicant, the ACCC, for orders setting aside a Notice to Admit issued by the respondent, Valve Corporation. The ACCC seeks to set aside the Notice to Admit on the basis that it is not relevant to any matter in the proceedings.

2    There might not often be any utility in making an application to set aside a Notice to Admit in circumstances in which one party considers that the facts sought to be admitted are irrelevant. There is no obligation to admit facts in a Notice to Admit. However, the failure to admit the facts or to serve a notice of dispute has the effect that the facts are deemed to have been admitted. In this case, the ACCC was understandably concerned that it would be deemed to have admitted facts that have no apparent relevance on the pleadings in circumstances in which Valve Corporation has foreshadowed an application for leave to file expert evidence on these issues.

3    In the oral hearing this morning, counsel for Valve Corporation confirmed that the only basis upon which the Notice to Admit had been served was as a response to an anticipated submission by the ACCC. Counsel for the ACCC properly and accurately confirmed that the anticipated submission would not, and could not, be made. It is difficult to see how it could ever have been made. That is sufficient basis to set aside the Notice to Admit Facts. Although it is not necessary to say anything further in order to decide this application, for three reasons I will explain why my preliminary view is that the issues sought to be agitated by Valve Corporation are irrelevant. The first reason is that the issue of relevance was argued in some detail in written submissions and orally this morning by counsel for Valve Corporation. The second reason is that it appears to me at the moment that there is a danger that the trial in fewer than two weeks could be distracted by a focus on the wrong issues. The third reason is that Valve Corporation has foreshadowed an application for leave to file evidence to prove these issues. If, in light of these reasons, Valve Corporation persists in an application for leave to file evidence on these issues then these reasons should provide some guidance for the likely matters that Valve Corporation will need to address to establish relevance in order to rely on this evidence.

A broad summary of the claims and the defences

4    The ACCC’s claim in these proceedings can be summarised in very broad terms as follows.

5    Valve Corporation is a computer game developer and supplier which is incorporated, and based, in the State of Washington in the United States. Valve Corporation operates and controls:

(1)    a website located at http://store.steampowered.com (the Steampowered Website);

(2)    an online computer game delivery platform called “Steam” which is an application that a consumer can download from the Steam Website to install on to a computer or electronic device; and

(3)    an online support assistance service known as “Steam Support” accessible from Steam or the Steampowered Website.

6    The ACCC says that a “good” was supplied by Valve Corporation either because software is supplied, or because Valve Corporation has bundled software and services, and the definition of “good” includes computer software. It says that in the supply of goods to Australian consumers, Valve Corporation made misleading representations in breach of the Australian Consumer Law concerning the applicability of statutory consumer guarantees to video games purchased from Steam and the Steam Website, and supplied by digital download.

7    The misleading representations are said to have been made in (i) a Steam Subscriber Agreement, (ii) a Steam Refund Policy displayed on the Steam Website from 1 January 2011, and (iii) during online “chats” between three Australian consumers (Mr Miller, Mr Miles, and Mr Phillips) and Steam Support staff. The ACCC says that the misleading representations were all displayed to consumers on computer screens or electronic devices in Australia.

8    Valve Corporation has a number of defences.

(1)    Valve Corporation says that the conduct did not occur in Australia.

(2)    Valve Corporation does not admit that it carried on business in Australia although it admits that it has made available to Australian Consumers online access to use video games through Steam Client pursuant to the terms of a Steam Subscriber Agreement. Steam Client is an application that must be downloaded and installed to access video games and which is updated from time to time.

(3)    Valve Corporation denies that it supplied “goods” within the meaning of “consumer goods” in s 2(1) of the Australian Consumer Law. It says that it supplied “online access to video games via a subscription service”. It says that this is a “service” within s 2(1) of the Australian Consumer Law so that the consumer guarantee of acceptable quality in s 54 does not apply.

(4)    Valve Corporation says that the Steam Subscriber Agreement is not a contract to which the Australian Consumer Law, Chapter 3, Part 3-2, Division 1 (“Consumer guarantees”), applies because the proper law of the Steam Subscriber Agreement is the law of the State of Washington, United States of America and not the law of any part of Australia. The ACCC says that the exercise of characterisation of the proper law of the contract must proceed in light of s 67 of the Australian Consumer Law which provides that:

If:

(a)    the proper law of a contract for the supply of goods or services to a consumer would be the law of any part of Australia but for a term of the contract that provides otherwise; or

(b)    a contract for the supply of goods or services to a consumer contains a term that purports to substitute, or has the effect of substituting, the following provisions for all or any of the provisions of this Division:

(i)    the provisions of the law of a country other than Australia;

(ii)    the provisions of the law of a State or a Territory;

the provisions of this Division apply in relation to the supply under the contract despite that term.

(5)    Valve Corporation does not admit that the representations were made and says that even if they were then they were not misleading.

The application to set aside the Notice to Admit

9    On 10 June 2015, Valve Corporation served a Notice to Admit upon the ACCC. The Notice to Admit Facts is prolix. It seeks to obtain three broad admissions in twenty-four different ways. The three broad admissions sought are as follows:

(1)    admissions that at all times since 1 January 2011 the terms and conditions of the Steam Subscriber Agreement did not contravene any laws applicable in the State of Washington, United States of America;

(2)    admissions that at all times since 1 January 2011 the statements and representations made on the Steampowered Website did not contravene any laws applicable in the State of Washington, United States of America; and

(3)    admissions that the statements and representations made by Steam Support staff in their dealings with each of Mr Miller, Mr Miles, and Mr Phillips concerning (i) the terms and conditions of the Steam Subscriber Agreement, (ii) the statements and representations made on the Steampowered Website, and (iii) consumer rights, did not contravene any laws applicable in the State of Washington, United States of America.

10    The ACCC’s application to set aside the Notice to Admit relies upon r 1.32 of the Federal Court Rules 2011 (Cth) which permits the court to make any order that it considers appropriate in the interests of justice. The application by the ACCC to set aside the Notice to Admit was brought informally. This was appropriate. The issue is akin to a relevance objection to evidence where the objection, if not upheld, has the potential to derail the trial on irrelevant matters. It was appropriate that it be dealt with expeditiously.

11    In Multigroup Distribution Services Pty Ltd v TNT Australia Pty Ltd [2001] FCA 227, Gyles J considered an application to strike out various paragraphs of a notice to admit facts. The application was brought under the predecessor to the Federal Court Rules 2011 (Cth). After explaining that there is no provision for objection to any notice or any part of a notice and that the rule does not compel any response, his Honour said at [6]:

The essence of the applicant’s complaint is that many of the matters in relation to which admissions are sought are not facts within the meaning of O 18. This may be so. The applicant can make its own judgment as to that, and act accordingly. If the matter specified is not a fact, then there will be no implied admission and no costs consequence. There is no occasion to involve the Court in giving judicial advice to parties such as these. Even if there were power to intervene I would not do so. Enough time and effort is expended by the Court in interlocutory processes in matters such as this without adding to that burden. Parties and their legal representatives must take responsibility for conduct of litigation. Furthermore, each opportunity to involve the Court in interlocutory applications leads to a possibility of obstruction, delay and vexation, and adds to the cost of litigation. It also means that the judicial officer concerned is diverted from dealing with the cases of other litigants.

12    In many cases these comments will be applicable. However, in this case although it is possible that the ACCC could have made a forensic decision either (i) to serve a notice of dispute on these matters, or (ii) to reply saying that the matters are irrelevant but be deemed to have admitted the truth of them, that course should not be required for two reasons. The first reason is that the matters which the ACCC are asked to admit, as foreign law, are properly the subject of expert evidence. But there is currently no expert evidence that has been called on these matters. The second reason is that Valve Corporation proposes to seek leave to file expert evidence on these matters. When it does, leave will be opposed on the ground of relevance. In other words, this application to set aside the notice to admit was brought to agitate efficiently an identical issue which will inevitably be raised when Valve Corporation seeks leave to file its expert evidence.

13    Ultimately, this application can be disposed of on a simple point. In written submissions counsel for Valve Corporation submitted that Valve Corporation “wishes to resist any allegation that the [Steam Subscriber Agreement] somehow misrepresents or is inconsistent with the law of Washington State”. In oral submissions he said that this was the basis for the Notice to Admit. He said that the Notice to Admit was not served as part of the positive case of Valve Corporation but was served for the purpose of meeting this possible submission arising from a defence by the ACCC. Such a submission could not have been made at trial by the ACCC. Even if it were relevant to the issues in this case, the ACCC has called no expert evidence about the state of the law of Washington State. Nor has it pleaded this as a fact. As expert evidence of foreign law this is a matter of fact that was required to be pleaded if relevant. As counsel for the ACCC confirmed orally, the ACCC did not intend to make such a submission.

14    This is sufficient to allow the application to set aside the Notice to Admit. There will be numerous issues of law raised in this trial without distraction concerning further, potentially irrelevant, additional questions involving expert evidence about foreign law. However, as I mentioned in the introduction to these reasons, it is appropriate that I express my preliminary views concerning the question of the relevance of the matters raised in the Notice to Admit as these issues of relevance appear likely to be agitated shortly.

15    My preliminary view why the relevance of the matters contained in the Notice to Admit is doubtful is twofold. First, if the Australian Consumer Law applies then the issue will be whether it has been contravened by Valve Corporation. It will be irrelevant whether or not Valve Corporation has contravened any laws applicable in the State of Washington. Secondly, if the Australian Consumer Law does not apply then the ACCC is not entitled to the relief that it seeks. Again it will be irrelevant whether or not Valve Corporation has contravened any laws applicable in the State of Washington.

16    The question of the applicability of the Australian Consumer Law is a question governed by the Australian common law rules (adapted to the Constitution) concerning choice of law because “it is the governing system of law binding on the court of the forum which furnishes the rules for choice of law”: John Pfeiffer Pty Ltd v Rogerson [2000] HCA 36; 203 CLR 503, 527-528 [42]-[44] (Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ).

17    The choice of law rule requires characterisation of the nature of the issue. For instance, is the issue one which would be described as “contract” or “tort” or a sui generis rule: see Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways Ltd (1996) 39 NSWLR 160, 164 (Gleeson CJ) and Davies M, Bell AS, Brereton P, Nygh’s Conflict of Laws in Australia (9th ed, LexisNexis Butterworths, 2014) 505 [20.61]. But, whatever the characterisation, Valve Corporation does not suggest that the laws of Washington State are relevant to the determination of the proper law. For instance, even if the issue is characterised as tortious, there is no double actionability rule in Australia: John Pfeiffer Pty Ltd v Rogerson [2000] HCA 36; 203 CLR 503, 540-542 [88]-[96] (Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ).

18    Counsel for Valve Corporation referred to the decision of Toohey, Gaudron and Gummow JJ in Akai Pty Limited v People’s Insurance Co Limited [1996] HCA 39; (1996) 188 CLR 418 at 440-441 where their Honours said:

In Amin Rasheed Corporation v Kuwait Insurance [[1984] AC 50, 61], Lord Diplock referred to what he described as the “pithy definition” of the “proper law” of the contract by Lord Simonds in Bonython v The Commonwealth [(1950) 81 CLR 486, 498; [1951] AC 201, 219], namely, “the system of law by reference to which the contract was made or that with which the transaction has its closest and most real connection”. Lord Diplock continued [[1984] AC 50, 61]:

“It may be worth while pointing out that the ‘or’ in this quotation is disjunctive, as is apparent from the fact that Lord Simonds goes on immediately to speak of ‘the consideration of the latter question.’ If it is apparent from the terms of the contract itself that the parties intended it to be interpreted by reference to a particular system of law, their intention will prevail and the latter question as to the system of law with which, in the view of the court, the transaction to which the contract relates would, but for such intention of the parties have had the closest and most real connection, does not arise.”

It will be noted that his Lordship spoke (and, with respect, accurately) of ascertaining an intention of the parties from the terms of the contract. In approaching that task, as Lord Diplock earlier had pointed out … the court applies the ordinary rules of the common law relating to the construction of contracts.

19    The submission by counsel for Valve Corporation was that in determining the proper law of the contract (assuming, for the moment, that “contract” is the manner in which the issue is characterised), one of the relevant surrounding circumstances may be different liability rules between the laws in Washington and the laws in other countries such as Australia. As counsel for the ACCC submitted, this is not one of the surrounding circumstances mentioned in the list of matters to which it is “proper to have regard” by Toohey, Gaudron and Gummow JJ in Akai Pty Limited v People’s Insurance Co Limited [1996] HCA 39; (1996) 188 CLR 418, 437. There are reasons why this might not have been an unintended omission.

20    It is likely that it will be rare for proof of different liability rules to establish an objective intention that one law area applies rather than another for the proper law of a contract. Counsel for Valve Corporation submitted that in Amin Rasheed Corporation v Kuwait Insurance [1984] AC 50, the House of Lords had taken into account the absence of a maritime law in Kuwait as a matter pointing against Kuwaiti law as the proper law for a contract of marine insurance. But that is a submission concerned with the entire absence of a body of law, not the relative merit of liability rules. Indeed, in that case, Lord Diplock emphasised that no judge below had “accepted the invidious task of making a comparison of the relative efficiency of the civil law and common law procedures for the determination of disputed facts” (67). He added that it would have been “wholly wrong” to do so (67). In that case, the competing law areas were England and Kuwait.

21    Even if the matter were considered solely from the perspective of Valve Corporation, and on the assumption that Valve Corporation would choose those rules most favourable to it, the evidence about the surrounding context in the instance of this particular issue does not establish what differences in liability rules might exist in relation to other issues arising from the contract.

22    More fundamentally, it is hard to see how this could be a relevant surrounding circumstance for both parties to the Steam Subscriber Agreement. Why would it be the objective intention of an Australian consumer that different, likely unknown, laws in Washington should apply to a contract into which that Australian consumer entered?

23    Counsel for Valve Corporation also submitted that the rules of interpretation of contract do not require that surrounding circumstances be known or even reasonably knowable to both of the parties to a contract before they can be taken into account. He cited no authority for this proposition.

24    In Byrnes v Kendle [2011] HCA 26; (2011) 243 CLR 253, Heydon and Crennan JJ at 284 [98] said that a “contract means what a reasonable person having all the background knowledge of the ‘surrounding circumstances’ available to the parties would have understood them to be using the language in the contract to mean”. In a footnote, their Honours added that:

[a] fact known to one party but not reasonably available to the other cannot be taken into account.

25    Their Honours cited for this proposition the following: Bank of Credit and Commerce International SA v Ali [2001] UKHL 8; [2002] 1 AC 251, 272 [49] (Lord Hoffmann); Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70; (2001) 210 CLR 181, 188 [11] (Gleeson CJ, Gummow and Hayne JJ); Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165, 179 [40].

26    In the footnote, Heydon and Crennan JJ added that:

There is or may be considerable controversy in relation to whether the test turns on what background knowledge was reasonably available to the parties or on what knowledge they actually had; if the former, to whether the knowledge is what each party might reasonably have expected the other to know; and to whether the knowledge of third parties into whose hands the contract may fall is relevant.

27    None of these authorities supports the proposition that surrounding circumstances can be considered where they are not known or reasonable knowable by both of the parties. All of the authorities cited are against that proposition.

Conclusion

28    The Notice to Admit Facts will be set aside. Any application for leave to call or any submissions concerning reliance upon expert evidence on these matters should be made with careful thought to issues of relevance.

Associate:

Dated:    16 July 2015