AAP Telecommunications Pty Ltd v Telstra Corp Ltd
[1997] FCA 631
•16 JULY 1997
CATCHWORDS
INTERLOCUTORY INJUNCTION - serious question to be tried - no question that representations were made - relevance of pattern of recurring conduct - whether truth of some facts precludes representations being misleading - balance of convenience - likelihood of unquantifiable damage to one party
TRADE PRACTICES - misleading and deceptive conduct - representations about intentions of competitor - representations about competitor’s solvency - representations about current litigation between the parties
Trade Practices Act 1974 (Cth) s 52
Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Pty Ltd [1978] 140 CLR 216
World Series Cricket Pty Ltd v Parish [1977] 16 ALR 181 at 185ff
Mogul Steamship Co v McGregor, Gow & Co [1889] 23 QB 598 at 615
AAP TELECOMMUNICATIONS PTY LIMITED v TELSTRA CORPORATION LIMITED
NG 449 of 1997
EINFELD J
SYDNEY
16 JULY 1997
IN THE FEDERAL COURT OF AUSTRALIA )
NEW SOUTH WALES DISTRICT REGISTRY ) No.NG 449 of 1997
GENERAL DIVISION )
Between:AAP TELECOMMUNICATIONS PTY LIMITED
Applicant
And:TELSTRA CORPORATION LIMITED
Respondent
MINUTE OF ORDERS
Upon the applicant by its counsel undertaking that it will pay to any party adversely affected by the interlocutory injunction such compensation (if any) as the Court thinks just, in such manner as the Court directs, the Court orders that:
until further order the respondent, its board of directors, executives, officers and employees be restrained from making the following representations to the applicant’s past and present customers, members of the public making enquiries or showing interest in the supply of telecommunications services, whether to recruit or attempt to recruit them and their custom to the respondent or otherwise, and to the media or other people or bodies in public or likely to come to public attention including in any advertising, promotional or sales material whether written or oral:
(i) that the applicant is only interested in those parts of customers’ bills which relate to telephone calls;
(ii) that the applicant is not interested in the non-profitable rental component of customers’ bills;
(iii) that the applicant has a right to return a customer to the respondent because the applicant does not profit from the rental component of customer’s bills;
(iv) that the applicant has been using the respondent’s facilities and not paying for such use;
(v) when other companies had had difficulty paying money due to the respondent that customers had subsequently received large bills from those companies;
(vi) that the applicant has not been paying bills due to the respondent;
(vii) that the applicant is not able to pay amounts due to the respondent because it is experiencing financial difficulties;
(viii)that the applicant is not solvent;
(ix)that the applicant is going, or has gone, out of business.
proceeding number 50062 of 1997 cross-vested to this Court from the Commercial Division of the Supreme Court of New South Wales be fully reconstituted as a proceeding in this Court and amalgamated with the present application by not later than 4pm on Thursday 31 July 1997.
there be liberty to apply on 72 hours notice.
the costs of the application for interlocutory relief be reserved.
Note:Settlement and entry of orders are dealt with in accordance with Order 36 of the Federal Court Rules.
EINFELD J
SYDNEY
16 JULY 1997
IN THE FEDERAL COURT OF AUSTRALIA )
NEW SOUTH WALES DISTRICT REGISTRY ) No.NG 449 of 1997
GENERAL DIVISION )
Between:AAP TELECOMMUNICATIONS PTY LIMITED
Applicant
And:TELSTRA CORPORATION LIMITED
Respondent
REASONS FOR JUDGMENT
EINFELD J SYDNEY 16 JULY 1997
The proceedings
On 11 June 1997 AAP Telecommunications Pty Ltd (AAPT) commenced proceedings in this Court for declarations that Telstra Corporation Ltd (Telstra) has engaged in misleading and deceptive conduct in contravention of section 52 of the Trade Practices Act causing loss and damage to AAPT, and that it has defamed AAPT. It also sought a permanent injunction restraining Telstra from making a number of representations about AAPT (the representations). Apparently the alleged making of these statements in the past principally forms the basis of the applications for declaratory relief and damages. Pending the hearing of this action, an interim injunction is sought in the same terms. It is this interlocutory relief which requires present determination.
The present dispute
The interlocutory injunction sought would restrain Telstra from making the representations:
(i) that AAPT is only interested in those parts of customers’ bills which relate to telephone calls;
(ii) that AAPT is not interested in the non-profitable rental component of customers’ bills;
(iii) that AAPT has a right to return a customer to Telstra because AAPT does not profit from the rental component of customer’s bills;
(iv) that AAPT has been using Telstra’s facilities and not paying for such use;
(v) when other companies had had difficulty paying money due to Telstra that customers had subsequently received large bills from those companies;
(vi) that AAPT has not been paying bills due to Telstra;
(vii) that AAPT is not able to pay amounts due to Telstra because it is experiencing financial difficulties;
(viii)that AAPT is not solvent;
(ix)that AAPT is going, or has gone, out of business.
Factual background
AAPT is a provider of telecommunications services to customers throughout Australia in competition with other service providers and the two major carriers, Telstra and Optus Communications Ltd (Optus). The distinction between service providers and carriers is that the carriers have their own physical telecommunications network and infrastructure through which they provide telecommunications services. The service providers, on the other hand, utilise the infrastructure of the carriers in order to supply services to their customers.
Currently Telstra is the only viable carrier for local calls. Thus in order to provide local call services to its customers, AAPT is dependent on Telstra for the infrastructure component of the service which includes the actual telephone line, the network, maintenance, the recording of calls, billing information etc.
The operation of this procedure for the provision of local calls can be summarised briefly. What is known as a “third party customer” (an individual or a business, for example) contracts to have telecommunications services provided by a service provider such as AAPT. In respect of such customers the service provider becomes the customer of Telstra paying a lower price, or tariff, than is available to direct customers of Telstra. Telstra renders a bill to the service provider which then re-bills its customers for the cost of the services provided. In the operation of re-billing the service providers are totally dependent on Telstra for the provision of billing information. The principal advantages of such service providers is that they can procure a variety of services from different carriers (including local calls from Telstra) at the cheapest available prices and, in a single bill to their customers, offer an attractive cost-saving package for all their telecommunications needs.
Telstra is also a retail competitor of the service providers in the market for telecommunications services. Thus a large part of Telstra’s business is the supply of all these services directly to the public. Customers who take all their services from Telstra also receive a single bill and, it seems, are also eligible for various price discount packages. Of course a customer may take long distance and mobile services from Optus or a service provider, or from any combination of such suppliers, while still receiving local call services, line rental and maintenance from Telstra, in which event the customer would receive at least two bills depending on the choices made. This arrangement seemingly places Telstra in a situation of conflicting interests in that it is competing for market share with service providers which depend on it for their own commercial viability and survival.
Over a period prior to the final phase of deregulation of the telecommunications industry on 1 July 1997, a dispute has arisen between AAPT and Telstra about the accuracy and competency of Telstra’s billing system on the one hand, and an alleged sizeable indebtedness of AAPT to Telstra. In that respect this application for interlocutory relief is ancillary to other litigation currently being conducted between Telstra and AAPT (the principal litigation) with which it is shortly to be amalgamated. In simple terms, the principal litigation, which was commenced and has proceeded some distance as matter number 50062 of 1997 in the Commercial Division of the Supreme Court of New South Wales before being cross-vested to this Court with a similar case involving another service provider, concerns a claim by Telstra that AAPT owes it no less than $99,091,846 for unpaid calls made by AAPT’s customers from June 1994 to February 1997.
In answer to Telstra’s claim, AAPT filed in the Supreme Court a substantial defence and a large cross-claim for an amount in the order of $300 million which it claims will clearly offset any amount it might be found to owe to Telstra. The causes of action relied on in the cross claim include breaches of contract, contravention of section 52 of the Trade Practices Act, unauthorised use of confidential information, discrimination in breach of sections 183 and 184 of the Telecommunications Act, unconscionable conduct, and misuse of market power in contravention of section 46 of the Trade Practices Act. AAPT claims that Telstra has now embarked on a campaign to win AAPT’s customers over or back to Telstra direct, primarily perhaps as a means of increasing its own share of the direct retail market but also possibly as a means of forcing AAPT to pay its alleged debt to Telstra and withdraw its cross claim, or even to propel AAPT out of the telecommunications service industry altogether by removing or reducing its customer base to Telstra’s own advantage.
These proceedings are one of a number at present before this Court in the same general context involving a number of service providers. The disputes involve claims by Telstra to be owed upwards of $150 million, and counter or cross claims by the service providers totalling several times that sum. It is in this context that the Court has been asked to intervene in what is obviously a very heated and competitive market place, in effect to set at least some of the basic ground rules which should govern market operations in the immediate future pending the various trials.
For a number of reasons it is a role for which the Court is not ideally suited. One is because the evidence on which its present intervention is being sought and opposed is as yet quite scanty: World Series Cricket Pty Ltd v Parish [1977] 16 ALR 181 at 185ff. Another is that in ordinary circumstances it is no function of the courts to descend into the market place and seek to define or regulate its competitive elements. The type of circumstance when the Court’s intervention may be called for is or ought to be limited to obtaining compliance with and avoiding otherwise irremediable breaches of statutory and other legal obligations, and ensuring or trying to ensure that the competition is conducted fairly: Mogul Steamship Co v McGregor, Gow & Co [1889] 23 QB 598 at 615 where Bowen LJ commented that “to attempt to limit ... competition [in the suggested way] would probably be as hopeless an endeavour as the experiment of King Canute”.
Furthermore, the Australian Parliament has passed the Telstra (Dilution of Public Ownership) Act 1996 which came into effect on 19 December 1996. That Act provides that the Commonwealth may divest itself of up to one third of its equity interest in Telstra, no doubt to be achieved by way of a public float following the issue of a prospectus. Depending on the intended timetable for the float, there is obviously a potential for damage to the proposed sale of shares if an injunction is granted or refused, or even if certain conclusions are drawn from the evidence in the present proceedings. Yet no evidence was led to suggest or deny, and no explanation given in final submissions as to, any connection between this sudden rush to litigation and the proposed sale of shares in Telstra, or any threat or advantage to the float from the litigation. Accordingly, it is impossible at this stage for the Court to assess the impact if any on the proposed share sale of the grant or refusal of the injunction sought, and I have not attempted to do so.
Interlocutory intervention
It is well settled that an applicant for interlocutory injunctive relief must:
(a) provide evidence which establishes a serious question to be tried in the proceedings; and
(b)demonstrate that the balance of convenience favours the granting of an injunction.
The evidence of AAPT regarding the actual making of the representations was largely unchallenged. In some cases there was disagreement about the actual words used, but generally there was no dispute by Telstra that the representations had been made. What it did dispute was that they had been made on any more occasions than those established by the evidence in the case thus far. In this respect Telstra submitted that there was no evidence that the representations showed any pattern of recurring conduct and that they were, for the most part, ‘one-off’ examples. On this basis, it was submitted that even if arguably misleading, there were no grounds for the grant of the injunctive relief sought by AAPT. Telstra’s fundamental position was that there was no serious issue to be tried because the representations were basically or wholly true.
On the other hand, having shown that the representations have been made at least once, AAPT argued that it is impossible to ascertain whether or not they are being made on a recurring basis. If, for example, customers of AAPT to whom such representations have been made have been convinced to return to Telstra without notifying anybody of the reasons behind their decision, the only way the reasons could be identified would be if the customers concerned volunteered them. The effect of the representations on potential customers would be even more difficult to ascertain. Thus, to the extent that damage would be an essential part of a successful cause of action, any damage caused to AAPT would at this stage be unquantifiable and impossible to attribute to any representation made by Telstra.
AAPT submitted that it is entitled to injunctive relief to rectify what it claimed is arguably likely to be a continuing situation. It contended that the converse proposition illustrates the weakness of Telstra’s submission, viz. that Telstra has not adduced evidence that the representations are not being made on a recurring basis. While it is obviously not necessary for Telstra, as the respondent, to do so, it does highlight the limitations of an argument based on a negative proposition.
In my view, it would not be appropriate to deny injunctive relief simply because AAPT has not shown a pattern of recurring conduct. The Court cannot infer, from the absence of evidence, that the representations have not been, or are not being, made on a recurring basis, especially when by its own admission a directive to Telstra junior sales staff (exhibit R5), dealing with the provision of information to the public about service providers, does not necessarily preclude the representations being made by another employee or agent of Telstra. For that reason certain limited undertakings offered by Telstra to the effect that they would instruct certain ‘front-line’ staff not to comment about AAPT were rejected by First Netcom as unsatisfactory.
The representations
It is convenient to analyse the representations in certain groups:
Representations (i), (ii) and (iii)
These representations, obviously directed at existing customers, were allegedly made in a conversation between Roslyn Crawley, an AAPT customer, and Sam Taliano, a Telstra employee. Despite a disagreement over the precise words used, both these persons agreed in evidence that a conversation had taken place in which the representations complained of were actually made by Mr Taliano.
These representations imply that as AAPT would no longer be supplying all of its customers’ telecommunications services, it would no longer be able to provide a single consolidated account to them. This is one of a service provider’s most appealing characteristics. The representations also imply that AAPT will arrange its business to its own best advantage without the consent of its customers and possibly at their expense. Such representations could thus be an effective tool in persuading existing AAPT customers to transfer their accounts to Telstra.
Telstra submitted that there was no serious question to be tried because there was no evidence that these representations were false or misleading. It was submitted that a letter from AAPT to a customer named Scribal Wholesale Pty Ltd (Exhibit R2) dated 16 September 1996 showed that AAPT was not in fact interested in serving the rental component of its customers’ bills. This appears to me to be a gross generalisation, extrapolated from a single letter to a single customer. Coming from the party which has argued that evidence of a single misrepresentation conveys no widespread practice calling for injunctive relief to prevent further repetition, it is an approach tinged at least with a good dose of irony.
According to the evidence, AAPT has 60,000 telecommunications customers. Mr Dewstow, AAPT’s Director of Carrier Relations, stated that this particular recommendation to a single customer is not indicative of the company’s general policy. On an interlocutory basis, he provided a credible explanation that although AAPT might reconsider its decision to offer certain services to some of its customers because they may in fact be better off having those services provided direct by Telstra, there was no immediate suggestion that AAPT would discontinue existing services to the majority of its 60,000 customers, nor had AAPT made such a decision.
There is apparently no profit for AAPT in re-billing the rental component of customers’ bills. However, this fact does not permit Telstra to represent what AAPT’s interests in this connection might be, consequent upon that lack of profitability. It is also apparently true that AAPT has the contractual right to return part or all of a customer’s accounts to Telstra without the consent of the customer, as evidenced by the terms and conditions of the standard AAPT customer contract (exhibit R4). However, it cannot be said that such a fact gives rise to a right in Telstra to represent the intentions of AAPT, based on that fact, to AAPT’s own customers. The fact that AAPT can vary its services to customers does not mean that it will necessarily do so. Telstra is not in a position to postulate a causal connection between a contractual right of AAPT to vary services and the profitability of re-billing, as it purported to do in representation (iii). There are sound commercial reasons as to why AAPT would not vary its customers’ services without their consent, or at all.
The evidence from Mr Dewstow was that AAPT would continue to re-bill customers for the foreseeable future, notwithstanding that AAPT may have made a financially regrettable choice to pursue that business in the first place, and notwithstanding that for some customers, AAPT might recommend the direct provision of some of their services by Telstra. Mr Dewstow’s admission that AAPT was now concentrating on long distance services does not necessarily cast doubt on its commitment to the 60,000 customers to whom they presently supply services sourced from Telstra.
Even if the intrinsic facts asserted by these representations were true, that would not limit their capacity to be misleading or deceptive when placed in a particular context by Telstra: Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Pty Ltd [1978] 140 CLR 216. In the present case, however, the representations, by a retail competitor of AAPT, are much more than a recitation of accepted facts, as they purport to outline AAPT’s interests, policy and future intentions, which would ostensibly be known only to AAPT itself. In my view they certainly give rise to a seriously triable question of misleading conduct.
As to the balance of convenience, Telstra’s only potential loss, if the injunction is granted, would be that it would not gain the customers from AAPT, actual or potential, to whom the representations would have been made. On the other hand, AAPT stands to lose a great deal more than Telstra if an injunction to restrain these representations is not granted. It would not be possible to quantify at this stage the actual damage these particular representations have caused in terms of lost business due to the impossibility of ascertaining whether and which customers actually left AAPT in response to them. Nor could the effect of a damaged reputation on prospects for future customers be calculated now. It is nevertheless clearly arguable that any such representations would be designed to do this very damage to AAPT and to advantage Telstra accordingly. In other words, without the injunction, AAPT stands to lose existing customers and possibly a large slice of its business to Telstra. In these circumstances, the appropriateness of a suitable injunction is clear.
Representations (iv) and (vi)
It is hardly within the purview of the Court in this application even to comment on the relative merits of the claims made by both parties in the principal litigation as it has literally no evidence at all on the subject matters of the respective claims. All the Court can do is to conclude, however speculatively, that each party genuinely believes its claim to have a credible and reasonable foundation.
AAPT admitted that Telstra has rendered bills which it has not paid in full. This fact on its own, however, does not accurately reflect the complete picture as it does not take into account AAPT’s strident denial of any indebtedness on the basis of its defence and cross-claim. On the evidence adduced in this application, all that can be said is that there is a substantial billing dispute which has not been satisfactorily resolved. There is thus certainly a serious question to be tried as to whether these representations are misleading and deceptive, especially in light of the principal litigation.
However, the balance of convenience is a far more difficult question to answer in respect of these representations. A number of difficult questions arise:
To what extent should the Court enter such a volatile market place at all? Should talk about existing litigation ever, or in this case for a particular reason, be regulated or banned? Should Telstra be prevented from discussing this litigation or its relationship with AAPT with, say, parliamentary committees, industry or regulatory bodies, or the executive government? Should every single executive or employee of Telstra be enjoined?
In an urgent interlocutory proceeding it is not possible or desirable to enter upon a detailed discussion of these and similar questions. It will suffice for present purposes if I state my conclusion that a limited injunction in respect of these representations is justified.
Representation (v)
It seems that this representation was certainly made by Telstra, despite the claim that it was a ‘one-off’ occurrence. However, there was very little evidence adduced on this issue, to prove either that large bills were received by customers of service providers after disputes with Telstra or that they were not. There are obviously a variety of factors which may affect this question and the Court has heard very little about their practical implications. For example, the service provider may collect money from customers in respect of accounts which it disputes with Telstra, and withhold payment of that money to Telstra pending the resolution of the disputes. There was certainly evidence from Mr Dewstow in cross-examination that this was in fact the case with AAPT. As its customers have continued to pay AAPT for the disputed charges, they would not be subject to a single large bill at the resolution of the disputes. In this event it would seem that the liability of the customers of this company would not be seriously affected. Other factors would also play their part, including AAPT’s own internal policy on such matters and the attitude of industry regulators (the telecommunications industry ombudsman, for example) to delayed billing.
Telstra submitted that this representation was not particular to AAPT and therefore could be not be said to affect it particularly. However, given the limited number of participants in the market and the fact that this representation was made to an AAPT customer, it is clear that the generality of the representation does not ameliorate its effect on AAPT. The only certainty in respect of this representation is that there is a serious question to be tried as to whether it contravened section 52 of the Trade Practices Act.
The factors going to the balance of convenience in the case of this representation are the same as those which pertained to representations (i), (ii) and (iii). AAPT stands to sustain presently unquantifiable but potentially sizeable losses through damage to its business, by way of both loss of existing customers and damage to its reputation and, therefore, its chances of attracting further customers. On the other hand, Telstra would, if restrained, be at most unable to use this representation to poach AAPT’s customers pending a final hearing, resulting in no real damage at all.
Representations (vii), (viii) and (ix)
Despite a scarcity of evidence to suggest repeated public representations by Telstra of this kind, Telstra admitted that there is a serious question to be tried as to whether AAPT is insolvent or at least unable to pay its debts due to financial difficulties, and its associated question as to whether AAPT is ‘going out of business’. Any representation by competitor A to competitor B’s customer to the effect that competitor B is insolvent must be viewed seriously. Without a successful completion of highly contentious litigation, Telstra has no business using its considerable authority representing to the public, including AAPT’s customers, that AAPT is in financial difficulties when this is yet to be proved. In my opinion it should be restrained from doing so until the principal litigation is resolved. No damage can flow to Telstra and considerable damage to AAPT can be avoided if such a statement is prevented until admitted or proved at law.
Conclusions
In ordinary circumstances the Court would leave to the parties the formulation of appropriate orders to give effect to these findings and conclusions. However, the conduct of the litigation has been so acrimonious and unco-operative that agreement seems unlikely. Indeed the parties said as much at the end of the hearing. It is therefore necessary for me to formulate the injunction as best I can.
On the conditions which follow, it is my intention to order that until further order Telstra, its board, executives, officers and employees be restrained from making the representations to AAPT’s past and present customers, members of the public making enquiries or showing interest in the supply of telecommunications services, whether to recruit or attempt to recruit them or their custom to Telstra or otherwise, and to the media or other people or bodies in public or likely to come to public attention including in any advertising, promotional or sales material whether written or oral.
Undertaking as to damages
An undertaking in the usual form has been offered by AAPT, meaning that it has undertaken to the Court that it will pay to any party adversely affected by the interlocutory injunction such compensation (if any) as the Court thinks just, in such manner as the Court directs. Telstra has foreshadowed that if the injunction is to be pronounced, it will seek security for the undertaking. AAPT has thus far declined to offer any security arguing that the only damages Telstra could suffer from the injunction would be so small that security is irrelevant or ought to be refused in the exercise of the Court’s discretion.
It is not possible for this dispute about security to be resolved at this time. In form AAPT’s application for interlocutory relief is at present only ancillary to its application for declarations and a permanent injunction in the same form. However, in the light of AAPT’s stated intention to consolidate or amalgamate this application with the cross vested principal litigation, the whole of the present application would be ancillary to AAPT’s cross claim or set off of around $300 million. When this consolidation has occurred, it will be possible to ascertain, at least more so than at present, the extent of any damage which Telstra may suffer if the proposed interim injunction is left in place without security for the undertaking as to damages.
In order to ensure that this situation is not allowed to linger, I propose to order that the cross vested principal litigation be fully reconstituted as a proceeding in this Court and amalgamated with the present application by not later than 4pm on Thursday 31 July 1997. Telstra may thereafter file an application for security for the undertaking as to damages and for other relief consequential on the making of the interlocutory injunction as it may be advised. I reserve liberty to apply on 72 hours notice. The costs of the application for the interlocutory injunction are reserved until the issue of security has been dealt with or abandoned.
For the applicant Mr Stephen Finch instructed by Clayton Utz, Solicitors For the respondent Mr T.F.Bathurst QC and Mr Mark Speakman instructed by Mallesons Stephen Jaques, Solicitors Date of Hearing 30 June and 1 July 1997 Date of Judgment 16 July 1997
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