Australian Competition and Consumer Commission and Another v Link Solutions Pty Ltd (CAN 126 049 214) and Others (No 2)

[2010] FCA 919

FEDERAL COURT OF AUSTRALIA

Australian Competition and Consumer Commission v Link Solutions Pty Ltd (No 2) [2010] FCA 919

Citation:

Australian Competition and Consumer Commission v Link Solutions Pty Ltd (No 2) [2010] FCA 919

Parties:

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION and MARK PEARSON v LINK SOLUTIONS PTY LTD ACN 126 049 214, SERVICE LS PTY LTD ACN 103 836 326, AXIS TELECOMS PTY LTD ACN 126 049 205, SERVICE AT PTY LTD ACN 076 804 718, SONOFON PTY LTD ACN 126 249 625, SERVICE SO PTY LTD ACN 103 970 627, TELECOM ONE PTY LTD ACN 126 049 394, SERVICE TO PTY LTD ACN  116 646 916, GEORGE TAWAF, MARK NESBITT, JOHN MASIA, BARRY KENNEDY, WORLDTEL (AUST) PTY LTD ACN 105 597 091, WORLDTEL CORPORATION (VICTORIA) PTY LTD ACN  109 699 425, SKYLINK COMMUNICATIONS PTY LTD ACN 112 018 809, ROMEO WEHBE, MANOEL WEHBE, FAKHR FAKHR, JOSEPH AYOUB, AUSTRALIAN INTEGRATED FINANCE PTY LTD ACN 078 700 044, ENTERPRISE FINANCE SOLUTIONS PTY LTD ACN 101 737 204, CIT GROUP (AUSTRALIA) LIMITED ACN 065 745 735, QUEENSLAND COMMUNICATION COMPANY PTY LTD ACN 126 049 385, SERVICE QCC PTY LTD ACN 113 079 600, CLEAR COMMUNICATIONS (EURAUST) AB, CLEAR TELECOMS (AUST) PTY LTD ACN 129 296 573, ANTHONY HAKIM and NATIONAL TELECOMS GROUP PTY LTD ACN 094 312 704

File number:

NSD 1473 of 2008

Judge:

BENNETT J

Date of judgment:

25 August 2010

Catchwords:

TRADE PRACTICES – alleged third line forcing by telecommunications companies (Telcos) – Telcos allegedly offered to give (and gave) call credits on the condition that the customer would lease (and leased) equipment from a  third party finance company – Telcos allegedly chose the finance company from a panel – whether “another person” includes the plural – whether “another person” requires specified person/s – whether finance companies were knowingly concerned in Telcos’ contraventions – essential elements of the contravention – knowledge of Telcos’ business method and of condition that equipment must be leased from a specified finance company or companies – whether bundle was a single package – call credits were given after lease agreement was approved – futurity – compulsion – giving of call credits to customers who had already entered lease – whether future acquisition – customer’s awareness of the condition

PRACTICE AND PROCEDURE - applications by respondents for summary judgment – reasonable prospect of success – questions of law – application for strike out of pleadings –whether pleading tends to cause prejudice, embarrassment or delay – leave to replead – whether pleading of business method appropriate

Words and phrases:

“another person”, “on condition that…will acquire”, “acquire”

Legislation:

Federal Court of Australia Act 1976 (Cth) s 31A
Federal Court Rules O 11 r 16
Trade Practices Act 1974 (Cth) ss 47(1), 47(6), 75B

Cases cited:

Aon Risk Services Australia Ltd v Australian National University  (2009) 239 CLR 175 considered
Australian Competition and Consumer Commission v Amcor Printing Papers Group Ltd (2000) 169 ALR 344 cited
Australian Competition and Consumer Commission v Bill Express Ltd (in liq) (2009) 180 FCR 105 considered
Australian Competition and Consumer Commission v IMB Group Pty Ltd (in liq) [2002] FCA 402 applied
Australian Competition and Consumer Commission v IMB Group Pty Ltd [2003] FCAFC 17 cited
Australian Competition and Consumer Commission v Mobil Oil Australia Ltd (1997) ATPR 41-568 cited
Australian Competition and Consumer Commission v Universal Music Australia Pty Ltd (2001) 115 FCR 442 considered
Blue Metal Industries Ltd v Dilley (1969) 117 CLR 651 applied
Boston Commercial Services Pty Ltd v GE Capital Finance Australasia Pty Limited (2006) 236 ALR 720 cited
Bradken Resources Pty Ltd v Lynx Engineering Consultants Pty Ltd (2008) 78 IPR 586 applied
Brambles Holdings Ltd v Trade Practices Commission (1979) 28 ALR 191 cited
Castlemaine Tooheys Ltd v Williams and Hodgson Transport Pty Ltd (1986) 162 CLR 395 considered
Devenish v Jewel Food Stores Pty Ltd (1990) 172 CLR 32 applied
Dey v Victorian Railways Commissioners (1949) 78 CLR 62 cited
Fortron Automotive Treatments Pty Limited v Jones (2) [2006] FCA 1401 considered
General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 cited
Genocanna Nominees Pty Ltd v Thirsty Point Pty Ltd [2006] FCA 1268 considered
Houghton v Arms (2006) 225 CLR 553 applied
Jefferson Ford Pty Ltd v Ford Motor Company of Australia Ltd (2008) 167 FCR 372 considered
KAM Nominees Pty Ltd v Australian Guarantee Corporation Ltd (1994) 51 FCR 338 followed
Keynes v Rural Directions Pty Ltd (No 2) (2009) 72 ACSR 264 applied
Kowalski v MMAL Staff Superannuation Fund Pty Ltd (2009) 178 FCR 401 cited
Muir Electrical Company Pty Ltd v Commissioner of State Revenue (2002) 50 ATR 311 cited
Osborne v Sinclair Refinery Co 286 (1960) F 2d 832 cited
Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 applied
Re Ku-ring-gai Co-operative Building Society (No 12) Ltd (1978) 36 FLR 134 considered
Rural Press Ltd v Australian Competition and Consumer Commission (2003) 216 CLR 53 applied
SST Consulting Services Pty Ltd v Rieson (2006) 225 CLR 516 applied
Stationers Supply Pty Ltd v Victorian Authorised Newsagents Association Ltd (1993) 44 FCR 35 discussed
SWB Family Credit Union Ltd v Parramatta Tourist Services Pty Ltd (1980) 32 ALR 365 discussed
Trade Practices Commission v Legion Cabs (Trading) Cooperative Society Ltd (1978) 35 FLR 372 applied
Trade Practices Commission v Tepeda Pty Ltd(t/a Metro Motor Market) (1994) ATPR 41-319 applied
White Industries Aust Ltd v Federal Commissioner of Taxation (2007) 160 FCR 298 cited
Williams & Hodgson Transport Pty Ltd v Castlemaine Tooheys Ltd (1985) 64 ALR 521 considered
Wright Rubber Products Pty Ltd v Bayer AG [2010] FCAFC 85 considered

Yorke v Lucas (1985) 158 CLR 661 cited

Date of hearing:

20, 21 July 2009, 16 to 18 November 2009

Date of last submissions:

30 November 2009

Place:

Sydney

Division:

GENERAL DIVISION

Category:

Catchwords

Number of paragraphs:

189

Counsel for the Applicants:

Ms C Adamson SC with Mr T Brennan and Ms M Nagy

Solicitor for the Applicants:

Corrs Chambers Westgarth

Counsel for the Fifth, Twenty-Fifth, Twenty-Sixth, Twenty-Seventh and Twenty-Eighth Respondents:

Mr M J Darke with Ms D M Bampton

Solicitor for the Fifth, Twenty-Fifth, Twenty-Sixth, Twenty-Seventh and Twenty-Eighth Respondents:

Gilbert and Tobin

Counsel for the Ninth, Eleventh and Twelfth Respondents:

Mr P M Wood with Mr N M Bender

Solicitor for the Ninth, Eleventh and Twelfth Respondents:

Samaha and Associates

Counsel for the Seventeenth and Eighteenth Respondents:

Ms S Mirzabegian

Solicitor for the Seventeenth and Eighteenth Respondents:

Watson Mangioni Lawyers Pty Ltd

Counsel for the Twenty-First Respondent:

Mr N C Hutley SC with Mr M A Izzo

Solicitor for the Twenty-First Respondent:

Gilbert and Tobin

Counsel for the Twenty-Second Respondent:

Mr J Sheahan SC with Mr I S Wylie on 20 and 21 July 2009; Mr J R Sackar QC with Mr I S Wylie from 16 November 2009

Solicitor for the Twenty-Second Respondent:

Freehills

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	NSD 1473 of 2008

BETWEEN:

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION
First Applicant

MARK PEARSON
Second Applicant

AND:

LINK SOLUTIONS PTY LTD ACN 126 049 214
First Respondent

SERVICE LS PTY LTD ACN 103 836 326
Second Respondent

AXIS TELECOMS PTY LTD ACN 126 049 205
Third Respondent

SERVICE AT PTY LTD ACN 076 804 718
Fourth Respondent

SONOFON PTY LTD ACN 126 249 625
Fifth Respondent

SERVICE SO PTY LTD ACN 103 970 627
Sixth Respondent

TELECOM ONE PTY LTD ACN 126 049 394
Seventh Respondent

SERVICE TO PTY LTD ACN  116 646 916
Eighth Respondent

GEORGE TAWAF
Ninth Respondent

MARK NESBITT
Tenth Respondent

JOHN MASIA
Eleventh Respondent

BARRY KENNEDY
Twelfth Respondent

WORLDTEL (AUST) PTY LTD ACN 105 597 091
Thirteenth Respondent

WORLDTEL CORPORATION (VICTORIA) PTY LTD ACN  109 699 425
Fourteenth Respondent

SKYLINK COMMUNICATIONS PTY LTD ACN 112 018 809
Fifteenth Respondent

ROMEO WEHBE
Sixteenth Respondent

MANOEL WEHBE
Seventeenth Respondent

FAKHR FAKHR
Eighteenth Respondent

JOSEPH AYOUB
Nineteenth Respondent

AUSTRALIAN INTEGRATED FINANCE PTY LTD ACN 078 700 044
Twentieth Respondent

ENTERPRISE FINANCE SOLUTIONS PTY LTD ACN 101 737 204
Twenty-First Respondent

CIT GROUP (AUSTRALIA) LIMITED ACN 065 745 735
Twenty-Second Respondent

QUEENSLAND COMMUNICATION COMPANY PTY LTD ACN 126 049 385
Twenty-Third Respondent

SERVICE QCC PTY LTD ACN 113 079 600
Twenty-Fourth Respondent

CLEAR COMMUNICATIONS (EURAUST) AB
Twenty-Fifth Respondent

CLEAR TELECOMS (AUST) PTY LTD ACN 129 296 573
Twenty-Sixth Respondent

ANTHONY HAKIM
Twenty-Seventh Respondent

NATIONAL TELECOMS GROUP PTY LTD ACN 094 312 704
Twenty-Eighth Respondent

JUDGE:	BENNETT J
DATE OF ORDER:	25 AUGUST 2010
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1.The matter be stood over to 30 August 2010 at 9:30 am for consideration of proposed orders.

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.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	NSD 1473 of 2008

BETWEEN:

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION
First Applicant

MARK PEARSON
Second Applicant

AND:

LINK SOLUTIONS PTY LTD ACN 126 049 214
First Respondent

SERVICE LS PTY LTD ACN 103 836 326
Second Respondent

AXIS TELECOMS PTY LTD ACN 126 049 205
Third Respondent

SERVICE AT PTY LTD ACN 076 804 718
Fourth Respondent

SONOFON PTY LTD ACN 126 249 625
Fifth Respondent

SERVICE SO PTY LTD ACN 103 970 627
Sixth Respondent

TELECOM ONE PTY LTD ACN 126 049 394
Seventh Respondent

SERVICE TO PTY LTD ACN  116 646 916
Eighth Respondent

GEORGE TAWAF
Ninth Respondent

MARK NESBITT
Tenth Respondent

JOHN MASIA
Eleventh Respondent

BARRY KENNEDY
Twelfth Respondent

WORLDTEL (AUST) PTY LTD ACN 105 597 091
Thirteenth Respondent

WORLDTEL CORPORATION (VICTORIA) PTY LTD ACN  109 699 425
Fourteenth Respondent

SKYLINK COMMUNICATIONS PTY LTD ACN 112 018 809
Fifteenth Respondent

ROMEO WEHBE
Sixteenth Respondent

MANOEL WEHBE
Seventeenth Respondent

FAKHR FAKHR
Eighteenth Respondent

JOSEPH AYOUB
Nineteenth Respondent

AUSTRALIAN INTEGRATED FINANCE PTY LTD ACN 078 700 044
Twentieth Respondent

ENTERPRISE FINANCE SOLUTIONS PTY LTD ACN 101 737 204
Twenty-First Respondent

CIT GROUP (AUSTRALIA) LIMITED ACN 065 745 735
Twenty-Second Respondent

QUEENSLAND COMMUNICATION COMPANY PTY LTD ACN 126 049 385
Twenty-Third Respondent

SERVICE QCC PTY LTD ACN 113 079 600
Twenty-Fourth Respondent

CLEAR COMMUNICATIONS (EURAUST) AB
Twenty-Fifth Respondent

CLEAR TELECOMS (AUST) PTY LTD ACN 129 296 573
Twenty-Sixth Respondent

ANTHONY HAKIM
Twenty-Seventh Respondent

NATIONAL TELECOMS GROUP PTY LTD ACN 094 312 704
Twenty-Eighth Respondent

JUDGE:	BENNETT J
DATE:	25 AUGUST 2010
PLACE:	SYDNEY

REASONS FOR JUDGMENT

INTRODUCTION........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[1]
THE RESPONDENTS........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[7]
The Axis respondents and the Clear group........ ........ ........ ........ ........ ........ ........ .......	[8]
The WorldTel corporate respondents and officer respondents........ ........ ........ ........	[11]
THE MOTIONS........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .....	[12]
THE COMMISSION’S CASE........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[17]
The business method of Axis Telecoms and WorldTel........ ........ ........ ........ ........ .....	[18]
Bundled Services – paragraphs 19 to 20........ ........ ........ ........ ........ ........ ........ .......	[21]
Assessment using the configurator – paragraphs 21 to 21A........ ........ ........ ........	[23]
Offer to give or allow call credits on condition – paragraphs 23 to 25........ .......	[25]
Giving or allowing call credits on condition – paragraphs 27A to 28........ ........	[31]
The first and second stage offers........ ........ ........ ........ ........ ........ ........ ........ ........ ....	[37]
Case against the Finance Companies........ ........ ........ ........ ........ ........ ........ ........ ........	[41]
THE RESPONDENTS’ CASE........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[44]
Particular criticisms of the proposed pleading........ ........ ........ ........ ........ ........ ........ ..	[48]
ISSUES ON THE CONSTRUCTION OF S 47(6) OF THE ACT........ ........ ........ .......	[57]
The meaning of “another person” in s 47(6) of the Act........ ........ ........ ........ ........ ....	[57]
Does the singular “another person” include the plural?........ ........ ........ ........ .....	[59]
Does the term “another person’ in s 47(6) mean another specified person, or any other person?........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[63]
Does “another person” encompass a person as part of a specified panel?........ ..	[78]
Giving credits on condition........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[82]
Is it supply of a single package?........ ........ ........ ........ ........ ........ ........ ........ ........ ........	[89]
Knowledge of the Finance Companies........ ........ ........ ........ ........ ........ ........ ........ .......	[92]
SUMMARY JUDGMENT UNDER SECTION 31(A)........ ........ ........ ........ ........ ........	[104]
The case against EFS........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[111]
The case against CIT........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[123]
The case against Clear Telecoms........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[132]
Existing customers........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[133]
New customers........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........	[142]
The case against the WorldTel officer respondents........ ........ ........ ........ ........ ........ .	[154]
APPLICATIONS TO STRIKE OUT PLEADING........ ........ ........ ........ ........ ........ .......	[159]
The case against the Axis officer respondents........ ........ ........ ........ ........ ........ ........ .	[159]
The case against Mr Kennedy........ ........ ........ ........ ........ ........ ........ ........ ........ ........	[169]
The cases against the Clear respondents........ ........ ........ ........ ........ ........ ........ ........ ..	[173]
Leave to replead........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[178]
CONCLUSION........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .......	[183]

INTRODUCTION

1. These proceedings, brought by the Australian Competition and Consumer Commission (the Commission) concern alleged third line forcing in the giving of call credits, by telecommunications companies, linked to the leasing of equipment such as televisions and photocopiers from finance companies.

2. The Commission alleges, primarily, the contravention of s 47(1) by reason of s 47(6) of the Trade Practices Act 1974 (Cth) (the Act). Section 47(1) of the TPA relevantly provides:

   Subject to this section, a corporation shall not, in trade or commerce, engage in the practice of exclusive dealing.

   Section 47(6) provides, relevantly, as follows:

   A corporation also engages in the practice of exclusive dealing if the corporation:

   …

   (c)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.  [emphasis added]

3. The reference to a “condition” is, for the purposes of s 47, explained in s 47(13):

   (a)a reference to a condition shall be read as a reference to any condition, whether direct or indirect and whether having legal or equitable force or not, and includes a reference to a condition the existence or nature of which is ascertainable only by inference from the conduct of persons or from other relevant circumstances;

   …

4. Various of the respondents in the proceedings have filed notices of motion seeking either dismissal of the proceedings pursuant to s 31A(2) of the Federal Court of Australia Act 1976 (Cth) (the FCA), a striking out of the amended statement of claim filed on 16 December 2008 pursuant to O 11 r 16 of the Federal Court Rules (the FCR), or both.  Order 11 r 16 provides relevantly:

   Where a pleading –

   (a)discloses no reasonable cause of action or defence or other case appropriate to the nature of the pleading;

   (b)has a tendency to cause prejudice, embarrassment or delay in the proceeding; or

   (c)is otherwise an abuse of the process of the Court;

   the Court may at any stage of the proceeding order that the whole or any part of the pleading be struck out.

5. The Commission seeks leave to file an amended application and a second amended statement of claim.  It served a proposed second amended statement of claim on 9 July 2009 (the earlier proposed pleading) and the first two days of the hearing proceeded on the basis of that pleading.  After the matter adjourned part heard, the Commission served another version of the proposed second amended statement of claim on 14 August 2009 (the proposed pleading).  The hearing continued on the basis of the proposed pleading but it is not completely clear to what extent the earlier submissions of the respondents are affected by, or are pressed in respect of, the amendments made to the proposed pleadings during the adjournment.  The respondents submit that leave should not be given to file the proposed pleading, or any other amended pleading as no such amendment, they say, can cure the alleged deficiencies.  I have considered the motions on the basis of the proposed pleading.  The paragraph numbers of the amended statement of claim have been retained in the proposed pleading.

6. The Commission relies on the evidence set out in an evidence summary to support the allegations in each paragraph of the proposed pleading (the evidence summary).  After the matter adjourned part heard, the Commission stated that it relied on all of the evidence that was in the folders handed up in relation to each party.  In submissions, the Commission sought to draw inferences against certain respondents arising from evidence not set out in the evidence summary.  That course was objected to by the relevant respondent.  It was also contrary to the clearly stated basis of the hearing:  that I would only consider documentary material to which I was specifically taken or to which I was specifically referred and would consider the material only on the bases on which reference was made.  The parties, including the Commission, accepted that course.  It was on that basis that I (and the respondents) accepted the numerous volumes of documents.  The fact that all of these the volumes had been “tendered” does not change that fact.  The only material in evidence on the motions is the evidence referred to in Court or set out in the evidence summary or in submissions.  I have considered that evidence on the bases advanced in submissions.

   THE RESPONDENTS

1. The Commission commenced enforcement proceedings against six groups of respondents:

   1.The Axis corporate respondents, being the second, third, fourth, sixth, eighth and twenty-fourth respondents;

   2.The Axis officer respondents, being the ninth, tenth, eleventh and twelfth respondents;

   3.The WorldTel corporate respondents, being the thirteenth, fourteenth and fifteenth respondents;

   4.the WorldTel officer respondents, being the sixteenth, seventeenth, eighteenth and nineteenth respondents;

   5.three finance companies, being the twentieth, twenty-first and twenty-second respondents; and

   6.the Clear group being the first, fifth, seventh, twenty-third, twenty-fourth, twenty-fifth, twenty-sixth, twenty-seventh and twenty-eighth respondents.

   The Axis respondents and the Clear group

2. The multiplicity of respondents is the consequence of multiple corporate group restructures and corporate name changes which have occurred since 2000.  The Commission explains the relationship between the Axis corporate respondents and the Clear group, in summary as follows and this relationship is not disputed for the purposes of the present motions:

   ·The twenty-eighth respondent (NTG) commenced in 2000 and was controlled by the twenty-seventh respondent, Mr Hakim.

   ·In February 2003, three companies, being Fuszion, Link Telecoms Holdings and QCC, were created to conduct the business which had hitherto been conducted by NTG.  Mr Hakim held no interest in these companies.  John Barnett was a shareholder of QCC and had been the group manager of NTG and involved in this business from 2000.  Mr Barnett has given evidence on behalf of the Commission, which is relied upon to establish the business method conducted by NTG and its progenitors. 

   ·The second respondent was a subsidiary of Link Telecoms Holdings.  Between 2003 and 2007, the fourth, sixth and eighth respondents were also created as subsidiaries of Link Telecoms Holdings.  I will refer to these four subsidiaries together as the old Axis companies.

   ·In March 2003 Fuszion, Link Telecoms Holdings and QCC entered into channel partner agreements with NTG which involved NTG owning and sourcing the equipment which would then be marketed by the franchisees Fuszion, Link Telecoms Holdings and QCC.  In November 2003, customer services were further outsourced by NTG to these franchise companies.

   ·In January 2007, GMM Holdings BV, a Dutch company, purchased Link Telecoms Holdings and its subsidiaries.

   ·In June 2007, the first, third, fifth and seventh respondents (together, the new Axis companies) were created as subsidiaries of GMM Holdings BV.  The old Axis companies, which had been conducting the relevant business, subsequently sold all their assets to their respective new Axis companies for nominal consideration and the new Axis companies commenced conducting the same business.  When I discuss the relevant business, I will refer generally to the Axis Group to mean the old Axis companies or the new Axis companies, depending on which set of companies were carrying on the business at the relevant time.  The twenty-third and twenty-fourth respondents were also part of the Axis Group at the relevant times.  I will refer to Axis Telecoms particularly to mean:

   oUp to 18 June 2007, the fourth respondent; and

   oAfter 19 June 2007, the third respondent; and

   oFurther, or in the alternative, after 19 June 2007, the fourth respondent.

   ·Also in June 2007, the twenty-fifth respondent (Clear AB) was formed, with Mr Hakim as a director.  Clear AB purchased all the shares in the new Axis companies for nominal consideration.

   ·In January 2008, the twenty-sixth respondent (Clear Telecoms) was formed as a subsidiary of Clear AB and the customers of the third respondent were subsequently transferred to Clear Telecoms.

   ·In April 2008, the names of the old Axis companies were changed to their current names beginning with “Service”.  In August 2008, the ownership of the third respondent also changed from Clear AB to the fourth respondent, one of the old Axis companies. 

   ·In August 2008, the businesses conducted by Clear Telecoms and the new Axis companies which are now owned by Clear AB were transferred to Strathfield Equipment Group Pty Ltd in a transaction which resulted in Clear AB controlling the Strathfield Equipment Group Pty Ltd.

   ·The present proceedings commenced on 17 September 2008.  Two weeks after this, Clear AB purchased the twenty-first respondent (EFS), which had hitherto been an independent finance company.

   ·During the course of 2009, the first, second, third, fourth, seventh and eighth respondents were placed in liquidation or external administration.

3. The first, second, third, fourth, seventh, eighth, twenty-third and twenty-fourth respondents are presently in liquidation or external administration.  Of the old Axis companies, only the sixth respondent is not in liquidation or external administration and it has no legal representation.  Of the new Axis companies, which are now owned by Clear AB, only the fifth respondent (Sonofon) and Clear Telecoms are not in liquidation or external administration.

4. It is alleged that the ninth (Mr Tawaf) and tenth respondent (Mr Nesbitt), as directors and the eleventh (Mr Masia) and twelfth (Mr Kennedy) respondents, as employees, procured and were knowingly concerned in the third line forcing contraventions of Axis Telecoms.

   The WorldTel corporate respondents and officer respondents

5. The Commission also alleges that the thirteenth respondent (WorldTel) engaged in third line forcing in its supply of telecommunications services.  The fourteenth and fifteenth respondents are alleged to be marketing agents of WorldTel.  WorldTel is presently in liquidation.  It is alleged that the seventeenth (Mr Wehbe) and eighteenth (Mr Fakhr) respondents, as directors of WorldTel, procured or were knowingly concerned in contraventions by WorldTel. 

   THE MOTIONS

6. It is convenient to group the respondents who have filed notices of motion as follows:

   (a)The Axis corporate respondents and the Axis officer respondents filed one motion seeking that certain paragraphs of the amended statement of claim be struck out.    Due to the Axis corporate respondents being in liquidation or external administration or having no legal representation, the submissions in support of the notice of motion are on behalf of the Axis officer respondents only.  The proceedings against Mr Nesbitt have since been settled and the notice of motion as filed by him has been dismissed.

   (b)Sonofon, Clear AB, Clear Telecoms, Mr Hakim and NTG (together, the Clear respondents) filed one motion seeking that certain paragraphs of the amended statement of claim be struck out pursuant to O 11 r 16. Clear Telecoms also seeks an order pursuant to s 31A(2) of the FCA. As mentioned above, the first and seventh respondents are also part of the Clear group but are in liquidation or external administration.

   (c)Mr Wehbe and Mr Fakhr filed one motion seeking summary judgment pursuant to s 31A. They do not seek to strike out any part of the pleading.

   (d)The twenty-first respondent (EFS) seeks orders pursuant to s 31A and, in the alternative, that the whole of the amended statement of claim be struck out pursuant to O 11 r 16. EFS is a finance company and is now a subsidiary of Clear AB. It was not, at all relevant times, a body corporate related to Axis Telecoms, WorldTel or Clear Telecoms.

   (e)The twenty-second respondent (CIT) filed a notice of motion seeking orders pursuant to s 31A and, in the alternative, that the whole of the amended statement of claim be struck out pursuant to O 11 r 16. CIT is a finance company. It was not, at all relevant times, a body corporate related to Axis Telecoms, WorldTel or Clear Telecoms.

7. Broadly speaking, Axis Telecoms and WorldTel (together, the Telcos), as well as Clear Telecoms, are alleged to be corporations which engaged in the practice of exclusive dealing within s 47(6) of the Act. It is alleged that CIT and EFS aided and abetted, or were knowingly concerned in the contravention by the Telcos within the meaning of s 75B of the Act. The only allegations against CIT are for accessorial liability for the contraventions of Axis Telecoms and the only allegations against EFS are for accessorial liability for the contraventions by Axis Telecoms and WorldTel. The conduct of Axis Telecoms with Leasing Companies other than CIT is not part of the case against CIT. The same applies to EFS. CIT and EFS are each alleged to be “another person” within the meaning of s 47(6).

8. There is no dispute that, for the purposes of these notices of motion, the Telcos and Clear Telecoms supplied or offered to supply goods or services, or gave or allowed a discount, allowance, rebate or credit (call credits) in relation to the supply or proposed supply of goods or services. 

9. The key issues for the purposes of the s 31A applications relate to the following aspects of s 47(6) of the Act:

   ·The supply or the giving of call credits by the corporation had to be on the condition that followed.

   ·The condition was that the person will acquire goods or services,

   ·from another person not being a body corporate related to the corporation.

10. The respondents adopted each others’ submissions where a point of general application was raised.  Where I refer to a submission made by one of the respondents, it is generally the case that the submission was adopted, where relevant, by the others.  It was not the case that a respondent dissociated himself or itself from another respondent’s submissions.

    THE COMMISSION’S CASE

11. The Commission relies on the changes in corporate structure, which resulted in a seamless transition from an old company to a new one, with the maintenance of “bundled packages” such that the business continued to be conducted in the same manner as prior to the transfer to the new entity.  It relies on this chain of events as to the taking over of existing customers by newly formed companies within the Axis and Clear Groups and the established knowledge of the Telcos’ business method to draw conclusions as to the later knowledge of, for example, Clear Telecoms.

    The business method of Axis Telecoms and WorldTel

12. Generally, the Commission alleges that the customers of each Telco were offered and supplied a bundle of services which included each of the following features:

    ·The commencement of supply of telecommunications services;

    ·A range of equipment leased by the Leasing Company to the customer; and

    ·Call credits from the Telco up to the value of the customer’s proposed equipment lease payments to the Leasing Company.

13. The proposed pleading characterises the conduct of the Telcos in offering and supplying this bundle of services in a number of ways, focusing on different stages of the transaction and from different perspectives.  The allegations against the Telcos in the proposed pleading are central in the proceedings because the case against the Finance Companies is pleaded by reference to them and Clear Telecoms is also alleged to have offered call credits on the same conditions as those offered by WorldTel and Axis Telecoms.  The allegations against Axis Telecoms and WorldTel are similar and the Commission’s case against EFS with respect to WorldTel is the same as that with respect to Axis Telecoms.  For the purpose of these reasons, I will focus first on those parts of the proposed pleading dealing with Axis Telecoms’ conduct.

14. The proposed pleading contains a series of defined terms including:

    ·Bundled Services: means services bundled as alleged in [19] of the proposed pleading

    ·Call credits: means credits given or to be given on charges for telecommunications services

    ·Leasing Company: means a corporation engaged in the business of supplying leases of equipment and includes the Finance Companies [emphasis added]

    ·Finance Company: means the twentieth respondent (AIF), EFS, CIT, CAFG Australease Ltd and/or Technology Leasing Ltd

    Bundled Services – paragraphs 19 to 20

15. As mentioned above, “Bundled Services” is defined by reference to [19], a key paragraph in the proposed pleading:

    At all relevant times:

    (a)Each Telco offered to supply and supplied telecommunications services in Australia; and

    (b)Customers of each Telco were offered and supplied a bundle of services which included each of the following features:

    (i)in conjunction with the commencement of supply of telecommunication services to the Telco’s customers, a range of equipment, including office and home entertainment equipment, was offered and supplied to a Leasing Company;

    (ii)the Leasing Company leased the equipment for a term to the customer; and

    (iii)the Telco offered and gave Call Credits to the customer up to the value of the customer’s proposed equipment lease payments to the Leasing Company.

    [emphasis added]

    Paragraph 20 of the proposed pleading states:

    At all relevant times the business method implemented by each Telco was such that:

    a)whenever the Telco offered Call Credits to its customers, all elements of the bundled services were offered to the customers; and

    b)the Telco offered Call Credits to all, or in the alternative a large majority, of its customers and potential customers.

16. That is, it is pleaded that the Telcos offered call credits conditional upon leases from a Leasing Company, not any particular leasing company.  Leasing Company is defined in the proposed pleading as merely including the Finance Companies.  The Commission does not allege that the Telco’s offer or giving of call credits was on condition of promises by customers to enter into leases.  As CIT puts it ‘the offer of credits was unilateral, not bilateral or synallagmatic’.  It follows that a customer could choose not to enter into a lease without breaching its obligations to the Telco.  Call credits were allowed up to the level of the lease payments made.  While the Telcos’ preferred option was to sell the customers a bundled deal, at least WorldTel also offered only air time or only equipment.  The customer did not have to accept a bundled arrangement.The proposed pleading now includes allegations that the Telcos gave call credits on condition that customers leased equipment from a particular Finance Company.

    Assessment using the configurator – paragraphs 21 to 21A

17. Taking the case as pleaded against Axis Telecoms at [21] of the proposed pleading, before call credits were offered by Axis Telecoms there was an assessment of, inter alia, the amount of monthly equipment rental payments which the customer might pay each month to a Leasing Company in respect of that part of the bundled services comprised of the equipment lease.  An assessment of the value of the call credits to be offered to a customer was made utilising an excel spreadsheet known as the “configurator” by reference to factors including the customer’s “existing call spend”, the lease payments on the equipment and the profit to be derived by the Telco from providing the bundled services.  [21A] alleges that call credits were only offered, given or allowed where these assessments determined that the profit to be derived from the whole of the bundled services and the variance between call credits and rental payments were acceptable to the Axis Group.

18. The lease payments were calculated by reference to the finance rates for the particular equipment chosen.  There was a general, although not invariable, equivalence between monthly call credits and the amounts payable under the lease.  On the configurator, the formula applied appeared to depend on the identity of the Leasing Company and was determined by the Leasing Company according to its own parameters provided to Axis Telecoms.  The equipment was not usually equipment associated with telecommunication services and included, for example, televisions, laptop computers and printers.

    Offer to give or allow call credits on condition – paragraphs 23 to 25

19. [24A] to [24E] of the proposed pleading allege that Axis Telecoms, by itself or by one of its agents within the Axis Group offered, to particular customers listed in the Schedule, to give or allow call credits on the condition that that customer would acquire equipment under an equipment lease from another person not being a body corporate related to Axis Telecoms.  These paragraphs do not allege that the equipment must be acquired from a person or a panel of persons specified by Axis Telecoms.  [24F] differs from these paragraphs in that it alleges that by implementing the business method alleged in [25], Axis Telecoms made offers to certain unspecified customers to give or allow call credits on the condition that the customer would acquire equipment from another person not being a body corporate related to Axis Telecoms.

20. [25] alleges that Axis Telecoms implemented a business method (the offer business method), which includes, inter alia, that in each case in which an offer of call credits was made to a customer or potential customer:

    ·call credits were to be given each month;

    ·equipment rental payments were to be required each month;

    ·the customer signed an application form provided by the Axis Group and addressed and forwarded to the Leasing Company for approval of the proposed leasing transaction;

    ·call credits would commence to be given when the equipment lease was approved by the Leasing Company;

    ·call credits were to be given and equipment rental payments were to be required for a single stated period;

    ·the period during which call credits were to be given and equipment rental payments required would commence on the day the equipment lease was approved;

    ·the Axis Group made the equipment available to the Leasing Company and invoiced it for the equipment;  and

    ·the Leasing Company paid the Axis Group for the equipment.

21. As part of the offer business method, it is also alleged in [25] that following assessment and prior to the customer signing the application to the Leasing Company, the equipment lease to be entered into by the customer was required to be with one of:

    (a)a Finance Company nominated by the Axis Group; or

    (b)a Finance Company to be selected by the customer from a panel nominated by the Axis Group; or

    (c)AER which acted as an undisclosed agent for AIF or EFS.

    [25] then alleges that when an application is forwarded to EFS, AIF or CIT, the equipment lease to be entered into by the customer was required to be with that particular Finance Company.

22. Australian Equipment Rentals (AER) was not an independent finance company but part of the Axis Group.  However, it acted as an undisclosed agent for other financiers which were unrelated corporations, such as AIF and EFS.  The financier, as the principal, retained the absolute discretion to decide whether or not to approve a lease application.  The agreement was not concluded between the customer and the Finance Company until the Finance Company approved and accepted it.  As the Commission explains it, the customer had already signed the application to the Finance Company, which had been approved when the customer was told that he, she or it would receive call credits.   The lease agreements stated that the agreement only came into effect between the customer and the finance company once the financier had approved the application.  I note also that the WorldTel standard conditions contained similar conditions that in the event the associated rental agreement was not approved for any reason, the call credits would not apply.

23. In an Axis Group telephone script used for customers after the lease has been approved by the Leasing Company but before the phone system or equipment was installed, the customer was informed:

    Rental Agreement Information
    “It is important that you understand clearly that this equipment is being provided to your business through a Financed Rental Agreement with Australian Equipment Rentals.

    Australian Equipment Rentals are an independent finance company that will be renting you the equipment for 48 or 60 months.

    Once they approve your application we will be able to deliver the equipment to you.

    (On settlement) They will then direct debit the rental payment of $____ (including GST) each month for 48 or 60 months.
    …

    Axis Telecoms Information

    It is important that you understand that your phone calls are being provided to your business through the agreement you have also signed with Axis Telecoms.

    Axis will provide you with a monthly call credit of $____ off your Axis Telephone call costs.

1. The allegations in [23]-[25] of the proposed pleading form one basis (the offer case) for the Commission’s case that Axis Telecoms engaged in exclusive dealing under s 47(6) of the Act.

   Giving or allowing call credits on condition – paragraphs 27A to 28

2. [27B] alleges that Axis Telecoms gave or allowed call credits to a particular customer on the condition that it “leased” certain equipment from CIT.  [27F] further alleges that by implementing the business method alleged in [28], Axis Telecoms gave or allowed call credits to certain customers on condition that each such customer “leased” equipment from CIT, with the particulars referring to 24 customers named in the Schedule.  [27E] makes the same allegations in relation to customers who leased equipment from EFS, of which 42 are named in the Schedule.

3. The business method alleged in [28] to have been implemented by Axis Telecoms (the giving business method) whenever the Telco gave call credits to a customer was that:

   ·The Telco entered into a contract in writing with the customer to deliver telecommunications services for a defined period and to give call credits each month.  The contract provided that the period during which call credits would be given would commence when an equipment lease to be entered into by the customer was approved by the relevant Leasing Company (the Contract).

   ·The Telco arranged for the customer to lease equipment from a Leasing Company for the same defined period as the Telco had contracted to give call credits.

   ·After the Telco entered into the Contract, the Telco invoiced the Leasing Company for that equipment.

   ·The Leasing Company paid the Telco for that equipment on the invoice.

   ·Following assessment by the Telco, the customer signed an application form provided to the customer by the Telco and addressed to the Leasing Company for approval. 

   ·The equipment lease was approved by the Leasing Company only when it had paid for the equipment.

   ·Following approval of the equipment lease, the Telco gave call credits in accordance with the Contract.  Call credits were only given if the lease agreement was approved.

4. The allegations in these paragraphs form another basis (the giving or allowing case) for the Commission’s case that Axis Telecoms engaged in exclusive dealing under s 47(6) of the Act.

5. Considering the offer case and the giving case together, the Commission characterises the transaction as an offer to a customer to supply call credits on condition that the customer enter into a lease agreement with one of a panel of Finance Companies and subject to the approval of the lease agreement by the Finance Company.  If the application was sent by the Telco to, for example, EFS, the equipment lease to be entered into by the customer had to be with EFS, subject to EFS’ approval.  Prior to the completion of those steps, there was a requirement in the Telco transactions that the equipment be leased with a single specified finance company.  The customer did not have a commercial choice and was not told the price of the equipment or the finance rate that was going to be operated.

6. Once the lease agreement was entered into, the customer was obliged to continue the lease payments for the term of the lease agreement, whether or not the customer continued to receive telecommunications services and call credits.  If the customer no longer wished to maintain the agreement with the Telco, the customer was still obliged to pay the finance company under the rental agreement.  Once the customer had committed to an equipment lease the customer had to remain with the Telco to receive the call credits.  The Commission submits that this was the “glue” that held the customer to the Telco for the term of the rental agreement.The Telco also had the benefit of the sale of the equipment to the Leasing Company.

7. There is no dispute that the Telco offered and gave call credits.  The Commission contends that its case is that the business method evidence is sufficient to establish that call credits that were given were given on the condition alleged.  The proposed pleading alleges that the Telco gave or allowed call credits each month on condition that the customer “leased” equipment from the particular Finance Company.  It is not clear from the pleading and the use of the word “leased” whether it is alleged that the leasing was to take place in the future or that the leasing had already taken place.  The Commission distinguishes between the giving of call credits in relation to proposed supply and the allowing of call credits each month in relation to the supply of telephony services during the term of the lease and says that the proposed pleading of the giving case encompasses both.  It says that the offer of call credits remained open as an offer until the express condition for the giving or allowing of call credits in the Telco contract was satisfied.

   The first and second stage offers

8. As the pleading was refined, the Commission explained that its case is that there were two stages to an offer of call credits.  Call credits were not necessarily offered to all customers. They were offered where the Telco determined that the profit to be derived from the whole of the bundled services was acceptable to the Telco.  In the first stage, call credits, when offered, were on the condition that the customer take an equipment lease, without the identification or specification of a particular financier (the first stage offer).  In the second stage, the business method was such that the giving of offered call credits was conditional on the approval of the equipment lease by a specific financier, whether or not that specified financier was known to the customer (the second stage offer).  The customer signed an application form provided to the customer by, for example, the Axis Group and addressed to the leasing company for approval of the proposed equipment leasing transaction.  The Commission describes the second stage offer as ‘offers of call credits made or continued on and following the time at which any condition crystallised to focus on a particular specified finance company’. 

9. The alleged second stage offer seems to be an offer by the Telco to the  customer of call credits on condition that it make an application to a named Finance Company (determined by the Telco through a process which included using the configurator) to acquire equipment by means of a lease agreement with that Finance Company and the lease application is approved.  The configurator contains a dropdown panel of financiers who had provided data to the Telco.  That is, the offer of call credits is said to have remained open up until the time that the Finance Company approved the customer’s application.  The Commission describes it as offers of call credits on condition by reference to the particular Finance Company made at a time when the Finance Company, having received the application, knew of its involvement and knew that it was not related to the Telco.

10. It is alleged that from the time the application for approval of finance was forwarded to the Finance Company, the call credits offered were on condition that the customer would lease equipment from that Finance Company.  That is, for each particular customer identified in the pleading there was a nominated finance company, chosen by Axis Telecoms by using its configurator.  The customer was offered call credits conditional upon making an application to the Axis Telecoms nominated finance company for finance to lease equipment and the finance company approving the application. 

11. The method of operation has been described with respect to one of the Clear Telecoms as one where there were separate equipment sales companies and telephony service brands with customers signing up to mutually exclusive legal agreements for telephony services and equipment leases.  The customer received the equipment under a lease arrangement with Quickfund (Australia) Pty Ltd (Quickfund).  Quickfund had a panel of approved finance companies that would accept the Quickfund contract terms, or alternatively Quickfund could finance the transaction internally.  As an incentive to signing up to the equipment lease, the customer received a monthly credit which could be offset against the customer’s eligible monthly telephony services spend over the term of the lease.

    Case against the Finance Companies

12. One of the main reasons why the case against the Telcos has been pleaded in such detail is because this case has great relevance to the case against the Finance Companies for accessorial liability.  The Commission explains the involvement of the Finance Companies as follows:

    When the salesperson goes up to the customer, he or she is armed with a series of rental agreements provided by financiers who are on the panel, because if the configurator, for example, says CIT is to be the financier, the salesperson gets the customer to sign that agreement with CIT, which then constitutes an offer to CIT, and then the legal relationship between CIT and the customer is formed when CIT approves of the agreement. 

    It is the Commission’s case that the provision of the agreements in that context by each financier is sufficient for knowing involvement in the making of the offer…  It is knowledge of the potential for the agreement provided by the financier to be used in connection with the offer of call credits by the salesperson.  At the offer stage, because of the knowledge of the business method of NTG, Axis and Clear, when they provide these rental agreements, they know the context and purpose for which these rental agreements are being provided to the salesperson and the context is as the quid pro quo for the call credits…  Once the legal relationship between the customer and the financier has been established, the other financial companies are not involved in that contravention (being the allowing of call credits) from thereon. 

    The chosen financier (from the configurator) is necessarily involved in the contravention.  All of the financiers are involved in the contravention until it is crystallised in a deal and from that time onwards, it is only the financier with whom the customer has the legal relationship of the rental agreement.

13. That is, the Commission alleges that the Finance Companies were each involved in the offer of call credits on the condition alleged by the provision of pro forma lease agreements to the Telcos.  The successful Finance Company was involved in the supply of call credits or the condition alleged.  On this basis, a Finance Company may have been involved in the offer to a specific customer with whom the company never entered into an agreement and where the Finance Company did not know that customer’s identity.  The Commission accepts that unless and until the Finance Company received an application from the Telco for approval of finance, that the Finance Company was ‘relevantly ignorant of the identity of the particular customer’.

14. Once the customer had been allocated a Finance Company and signed the application to that company, between the time of the customer signing the application to the Finance Company and the financier approving it, there was, the Commission says, an extant offer by the Telco of call credits on condition, the Finance Company was involved in that offer and, at that stage, knew the identity of the customer.

    THE RESPONDENTS’ CASE

15. I shall not refer to the respondents’ submissions individually, save where necessary.  Generally, submissions on the main issues were adopted or similar points raised with different emphasis in the submissions.

16. A focus of the respondents’ contentions relates to the asserted inadequacy of the pleading and the supporting evidence to establish:

    ·A necessary element of compulsion on the part of the customer;

    ·The characterisation of the services provided by the Telcos as a bundle; and

    ·The lack of specificity of “another person”, the subject of the condition.

17. The Finance Companies EFS and CIT, which face pleaded claims of accessorial liability, say in addition that no reasonable cause of action is disclosed as against them because there is no allegation of, or evidence to support, actual knowledge of all the essential matters constituting the alleged primary contraventions by the Telcos or to support intentional participation in those contraventions at the relevant times. They submit that, for the purposes of the s 31A applications, it is necessary that there be some evidence that each Finance Company was knowingly concerned in the conduct of the Telcos that constituted the contravention of s 47(6).

18. The main issues that have arisen can be summarised as:

    ·Must “another person” in s 47(6) be a specified person, or can it be a panel of specified persons, or can it be any other person not related to the company giving or allowing the call credits?

    ·Must the condition have an element of compulsion and an element of futurity?

    ·Must any element of futurity be linked to the initial offer or supply or can it be said that an offer is made or a credit is given each month when call credits are allocated?

    ·What is the knowledge of a person alleged to have aided and abetted, or to have been knowingly concerned in, the contravention for the purposes of s 75B of the Act?

    oMust that person have knowledge of the conditionality of the offer or supply?

    oMust that person have knowledge of the identity of each other person said to constitute “another person”? 

    oMust that person have knowledge of the identity of the customer to whom the offer is made or the credit given? 

    oMust that person have knowledge that the “another person” the subject of the condition is not a body corporate related to the corporation?

    Particular criticisms of the proposed pleading

19. During the first part of the hearing, the respondents made particular criticisms of the earlier proposed pleading and the Commission amended that pleading when the hearing was adjourned.  The respondents submit that the proposed pleading does not address the deficiencies raised.

20. EFS points out that it is not pleaded in any paragraph of the proposed pleading, nor is there any evidence, that it knew that customers of the Telcos were required to deal only with it or with one of the five named Finance Companies to obtain finance for an equipment lease.  In relation to the paragraphs in the proposed pleading which allege knowledge on the part of EFS, it makes the following submissions:

    ·[126] of the proposed pleading makes reference to Bundled Services, which itself is defined in [19] to involve call credits offered on condition that customers leased equipment from a Leasing Company. As discussed above, the definition of a Leasing Company extends the class beyond the named Finance Companies and is too broad. It equates to a condition of choosing any person, which is not the mischief to which s47(6) is directed.

    ·[127] alleges that EFS knew that the business method implemented by the Axis Group involved the offer, giving or allowing of credits on condition as alleged in [23] to [24F] and [27E] but these paragraphs do not allege any business method.  [23] to [24F] do not specify who “another person not being a body corporate related to Axis Telecoms” is and the majority of these alleged offers were made to customers with whom EFS never dealt.  The allegation in [24F] that offers were made to unidentified customers is embarrassing and should be struck out. 

    ·[25] alleges a business method but it is not specifically alleged that EFS had knowledge of the business method in this paragraph.  There is no allegation that EFS knew, as alleged in [25], that upon the forwarding of an application to EFS, the equipment lease was required to be entered into with EFS.  EFS also submits that was not a second stage offer at all, but simply the manner in which the offer to the customer was accepted.

    ·[27E] refers to the business method alleged in [28], which involves the supply of credits where the customer enters an equipment lease with a Leasing Company and thereby lacks the required specificity as discussed above. Further, the condition that customers “leased” equipment from EFS in [27E] does not infringe s 47(6) because once a customer has entered into a lease with EFS, there was no further condition with which to comply.

21. EFS accepts (the same arguments apply to CIT) that it is not necessary for its requisite knowledge that it be established that it knew of the identity of the customer. EFS accepts that it was knowingly concerned in the provision of finance and knew that Axis Telecoms was carrying on a business that involved the relationship with EFS to lease equipment to third parties. It does say, however, that there is confusion in the pleading between the business method and the breach of s 47(6). There is no breach, it submits, in being involved in another’s business method. The breach is in being involved in an offer to a customer on the infringing conditions. EFS submits that the pleading does not identify the condition, whether it is a condition on the offer or a condition that the customer deal with a Finance Company. EFS contends that the pleading is unclear as to the essential elements of the contravention of which it is alleged that EFS was knowingly concerned. Being concerned in the act or the conduct is not, EFS contends, sufficient.

22. CIT submits that the proposed pleading effectively alleges that it knew simultaneously that the business method implemented, or sales by, the Axis Group involved conditional offers and/or giving of call credits requiring acquisition:

    ·from Leasing Companies in general ([135]);

    ·unconditionally ([136]);

    ·conditional only on acquisition from any unrelated person ([136]); and

    ·from CIT (from [137]).

    CIT cannot, it says, at the same time have had knowledge that the Axis Group operated in four different and inconsistent ways.  It points out that it is not alleged that CIT had knowledge of the business method as further alleged in [25], that Axis Telecoms required equipment leases to be entered into with one or more of the Finance Companies or with AER as undisclosed agent for AIF or EFS.

23. CIT points out that the “jigsaw puzzle” presented by the Commission is not sufficient if it does not make clear whether what is alleged against the Finance Companies is a first stage offer, a second stage offer, or a supply case and whether it is based on proved fact or inference.  If the latter, it says that it is entitled to know the precise inference and how the jigsaw is put together.  It is also entitled to know the compulsive aspect of the condition.  CIT relies on what was said by Lander J in Genocanna Nominees Pty Ltd v Thirsty Point Pty Ltd [2006] FCA 1268 at [278], that it must be actual knowledge, not constructive knowledge that is established and that, while knowledge may be inferred, it must be the only rational inference available. CIT and EFS contend that, at the least in these ways, the proposed pleading is deficient.

24. As to the proposed pleading against Clear Telecoms in respect of its new customers, Clear Telecoms asserts that:

    ·While the pleading asserts that Clear Telecoms “gave” call credits, the events pleaded occurred prior to the giving of those call credits.

    ·[170] of the pleading links the call credits with the customer acquiring equipment from ‘a dealer authorised by Clear Telecoms’ but does not specify that the customer had to acquire equipment from anyone in particular or from a panel of equipment suppliers.

    ·While it is asserted that Quickfund and AER acted as undisclosed agents for other Leasing Companies not related to Clear Telecoms, it is recognised that Quickfund and AER only provided leasing if those other Leasing Companies refused to provide finance. It is not pleaded in [170] that there was any condition that the customer acquire equipment from a particular equipment supplier or a panel of supplies or that the customer acquire finance from a particular financier or a panel of financiers.

    ·Unless ‘another person’ is construed as ‘any other person’ the pleaded allegations do not amount to a contravention of s 47(6).

    ·[171] of the proposed pleading concerns the offer to give or allow call credits by implementation of the business method alleged in [170]. There is no reference to specific customers, so the allegation is at large and renders the case impossible to meet. There is reference to two customers but Clear Telecoms says that that is insufficient to support the allegation of a generalised offering of call credits to unspecified customers.

    ·Subsequent paragraphs refer back to [170] and [171] but add different conditions, so as to make the pleading so internally inconsistent and confusing as to be embarrassing.

    ·As to the complexity of the business method pleaded, the proposed pleading does not allege material facts but effectively alleges evidence such as to make it confusing and ambiguous.

1. The Clear respondents other than Clear Telecoms also submit, in respect of their strike-out application, that it is not apparent:

   ·Whether the allegations in the proposed pleading relate to first stage or second stage offers; and

   ·Whether the allegations with respect to existing customers of WorldTel and Axis Telecoms who became customers of Clear Telecoms concern the giving or allowing of call credits, as opposed to offering call credits.

2. Further, the Clear respondents submit that if no knowledge is established, the Clear respondents alleged to be knowingly concerned in the contravention by Clear Telecoms are entitled to have the pleading struck out.

3. Sonofon submits that the case against it is ‘virtually non-existent’.  [24C] refers to “Sonofon” as the agent by which Axis Telecoms made offers of call credits to particular customers but Sonofon points out that those offers were made at the time when its equivalent old Axis company (the sixth respondent, which is not legally represented) was carrying on the relevant business.  The alleged offer by Sonofon on behalf of Axis Telecoms in [24F] is unparticularised.  No offers of bundled services involving Sonofon, the fifth respondent, are pleaded or particularised. 

   ISSUES ON THE CONSTRUCTION OF S 47(6) OF THE ACT

   The meaning of “another person” in s 47(6) of the Act

4. Section 47(6) provides that there is exclusive dealing where the offer is on condition that the customer will acquire goods or services from “another person”. This has raised for consideration three alternatives:

   ·Does “another person” mean a single other person or does it include the plural other persons?

   ·Does the expression refer to any other person or persons, or does it mean a specified person or persons?

   ·Does the expression encompass a person who is part of a specified panel?

5. The respondents emphasise that s 47 is a penal or quasi-penal provision and that these are proceedings for penalties.  CIT submits that on one hand this means that there is no justification for departing from the words of the section (Castlemaine Tooheys Ltd v Williams and Hodgson Transport Pty Ltd (1986) 162 CLR 395 at 401 per Gibbs CJ, with whom Wilson and Dawson JJ agreed). On the other hand, that the interpretation of the section must be informed by the purpose of the Act and its provisions, which may require a departure from the ordinary literal meaning of the words used (Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 at [71], [78] per McHugh, Gummow, Kirby and Hayne JJ). It is not a question of departing from the words of the section, but of construing the meaning of the term “another person” in context.

   Does the singular “another person” include the plural?

6. Section 23 of the Acts Interpretation Act1901 (Cth) (the Interpretation Act) means that, unless the context otherwise indicates, the term “another person” may include the plural. While the draughtsperson and the Legislature may be assumed to have had s 23 in mind, it is appropriate in ascertaining any contrary intention to include the plural to consider not only the section of the Act but also the substance and tenor of the legislation as a whole (Blue Metal Industries Ltd v Dilley (1969) 117 CLR 651 at 656).

7. The respondents, for example Clear Telecoms and CIT, submit that the context of s 47(6) within s 47 evinces an intention to the contrary. They point to the use of the singular in s 47(6) and the careful use of the plural in other subsections of s 47 (e.g. ‘particular persons or classes of persons’) to suggest that that the general proposition that s 23 applies should not be accepted (Muir Electrical Company Pty Ltd v Commissioner of State Revenue (2002) 50 ATR 311; [2002] VSC 224 at [24], [32] per Mandie J).They also emphasise that the penal or quasi-penal nature of the provision means that any ambiguity or doubt should be resolved in favour of those against whom it is sought to be used (Castlemaine Tooheys at 401 per Gibbs CJ).

8. The Commission submits that the phrase “another person” is to be read as ‘another person or persons’ not being a body corporate related to the corporation, that is, any other person or persons.  As to whether the plural applies, the Commission relies on the reasoning of Gleeson CJ, Gummow, Hayne, Heydon and Crennan JJ in SST Consulting Services Pty Ltd v Rieson (2006) 225 CLR 516. In considering exclusive dealing, their Honours referred at [13] to “another person” from which the services were acquired as a condition of supply as ‘namely, corporations nominated by the appellant’ [emphasis added].  In Trade Practices Commission v Legion Cabs (Trading) Cooperative Society Ltd (1978) 35 FLR 372, Franki J, in considering the three sources from which taxi drivers could obtain petrol in meeting the relevant condition and whether there was exclusive dealing, said that the words “a second person” (the term used in the section as then in force) should be read as including more than one person. From his Honour’s reasoning, it is apparent that no different conclusion would have been reached if the language of the section now in force were applied.

9. I do not accept that the context requires the term “another person” to be limited to a single person.  If the expression “another person” had not been intended to include the plural, that would have been apparent to High Court in SST.  There is no good reason to limit the third party, the object of the third line force, to a single person, as the reasoning of Franki J explained. Logically, in the context of s 47, s 23 of the Interpretation Act should apply to the “another person” in s 47(6).

   Does the term “another person’ in s 47(6) mean another specified person, or any other person?

10. The Commission submits that the contention by the respondents that the imposed condition of s 47(6) is necessarily concerned with acquisition by the customer of goods or services from a specified third party is incorrect.

11. Section 47(6) is part of s 47, which concerns exclusive dealing. Consistent with the concept of exclusivity is the notion of limitation, or the shutting out of persons or objects of the class (see Macquarie Dictionary). This is borne out by the drafting of the other subsections of s 47 which refer, for example, to ‘a competitor of the corporation’ and ‘particular persons or classes of persons’. Section 47(6) does not specify a ‘particular person’ or a ‘particular class of persons’ but it does refer to ‘another person’ and not to ‘any other person’ which is used, for example in s 46(7) of the Act, where the reference is clearly not to a specified person or persons. If the Legislature had intended “another person” to mean “any person” it would have been a simple matter so to specify.

12. There is no requirement for a contravention of s 47(6) that there be the effect of substantially lessening competition (s 47(10)). Unlike other subsections of s 47 of the Act, the proscription of third line forcing conduct operates per se, without reference to any test relating to competition. Therefore, the third person does not need to be in the same market as the corporation, or be a competitor of the corporation. If the third person is in fact more than one person, these persons do not need to be in the same markets or competitors of each other. The effect on competition in any market of the condition to acquire goods or services from “another person” does not need to be assessed for conduct which otherwise satisfies the requirements in s 47(6).

13. Section 47(6) deals with third line forcing: the forcing of a customer into acquiring particular goods or services from another as a condition for obtaining, in this case, call credits from the Telco. The question is whether the s47(6) is directed to prohibiting the forcing of the customer to acquire goods or services that are not otherwise wanted, or to forcing the customer to acquire goods or services from a nominated source as a condition for obtaining the call credits, or both. If the subsection were only directed to the goods or services, the reference to the source of the goods would be unnecessary. This indicates that the prohibition of exclusive dealing in s 47(6) is directed both to the goods and services and to the source, both to the goods or services of a particular kind or description and to the identity of the particular ‘another person’ or persons from whom the goods or services are to be obtained, directly or indirectly.

14. Put another way, s 47(6) may either be directed at conditions which favour the supplier whose goods or services are forced on the customer over other suppliers of those goods or services, or to a restriction of the customer’s choice of the supplier from whom he or she acquires the other goods or services. If “another person” were read to mean, for example, any leasing company, neither of these objects would be fulfilled or addressed. There is no relevant forcing where the identity of the third person can be any provider of finance of the customer’s choosing.

15. In Heydon J D, Trade Practices Law: Restrictive Trade Practices, Deceptive Conduct and Consumer Protection (Lawbook Co., subscription service) at [6.342] (update 127), Heydon J comments that third line forcing ‘is only likely to occur where there is some agreement between the manufacturer enforcing it and the manufacturer who benefits from it’. This requires an identified third party, not anyone at large. His Honour observes that any such agreement which affects competition will be caught by s 45 of the Act, thereby rendering s 47(6) superfluous. As noted above, however, s 47(6) does not require that the third line forcing affects competition in any market. In any case, that does not affect the meaning of “another person”.

16. The legislative history demonstrates that Parliament’s concern in s 47(6) and s 47(7) was with anti-competitive conduct. In Australian Competition and Consumer Commission v Bill Express Ltd (in liq) (2009) 180 FCR 105 at [52]–[56], Gordon J summarised the history of s 47(6) and amendments that have been made to it, referring in particular to the fact that there has been no amendment to import the substantial lessening of competition test into third line forcing, despite repeated consideration and recommendations to the contrary. The Commission contends that this supports its submission, as considered in Heydon’s Trade Practices Law, that s 47(6) should not be presumed to be concerned with competition, but may be concerned to protect interests other than or additional to competition. Even if the imposed condition is that goods or services be acquired from other persons who are themselves in sufficient competition such that the condition does not have the effect of substantially lessening competition, this does not preclude a contravention of s 47(6).

17. However, the fact a substantial lessening of competition test was not imported into s 47(6) does not positively support a construction of s 47(6) that includes conduct which is unlikely to affect competition at all. The fact that the competition test does not apply does not mean that the scope and effect of s 47(6) has nothing to do with competition. That subsection is part of s 47 and is in Part IV of the Act which covers restrictive trade practices. Section 47(1) provides that subject to the section, a corporation shall not engage in exclusive dealing (emphasis added). Section 47(6) deals with an example of exclusive dealing, namely third line forcing. Third line forcing has been the subject of a per se prohibition since the enactment of s 47. The absence of a competition test may simply mean that a contravention of the section per se was considered sufficiently detrimental to competition, in most cases, such that it was felt unnecessary or inappropriate to require that it also be proved substantially to lessen competition. As was said by Drummond J in Australian Competition and Consumer Commission v IMB Group Pty Ltd (in liq) [2002] FCA 402 at [56], the prohibition in s 47(6) can be justified if it is reserved for conduct that is so likely to damage competition that it is prohibited absolutely; it was justified on this basis by the Swanson Committee in its review of the Act in 1976. Justices Gummow, Hayne and Heydon observed in Rural Press Ltd v Australian Competition and Consumer Commission (2003) 216 CLR 53 at [82] that the practice of exclusive dealing within s 47(6) was seen by Parliament as so generally offensive to the competition goals underlying the Act that it is to be considered without application of any purpose or effect of substantially lessening competition in a market.

18. The absence of a lessening of competition clause in s 47(6) does not mean that a discussion by a Judge of the effect on competition is in error, or that it necessarily leads to a rejection of a construction drawn in the context that s 47 reveals a general purpose of proscribing practices which tend to lessen competition. As recognised in Project Blue Sky (at [71] and [78]), interpretation must be informed by the purpose of the Act which may require a departure from the ordinary literal meaning of the words. The legislative history demonstrates that Parliament’s concern in ss 47(6) and 47(7) was with anti-competitive conduct (IMB at [56]-[58] per Drummond J).  Third line forcing has been seen to have anti-competitive effects insofar as it involves in effect a firm with market power renting it to another so as to extend or leverage the impact of its market power to a new market (Trade Practices Law at [6.342]-[6.344]).

19. In explaining s 47 of the Trade Practices Act 1974 (Cth), in the Second Reading Speech, the Attorney-General referred to the limitation on the freedom of the person to deal as regards persons or places. He also explained that it provides for exclusive dealing in which a third person is involved, for which the requirement of substantially lessening competition in the market does not apply. He cited, as an example of conduct that is covered, the situation where the supplier obtains a commission or other benefit on sales by the third person to the customer. This suggests a particular third person with whom the supplier had such an arrangement.

20. The words in s 47(6) are “another person” and not for example, “another particular person” or “another specified person”. Historically, amendments were made to the statutory provision affecting third line forcing, from describing the third party as “a particular third person” in s 36(1)(b) of the Trade Practices Act 1965 to “a second person” in the Restrictive Trade Practices Act1971-1973.  There is a degree of ambiguity in that expression that is not answered by the legislative history.  There is no explanation in the Explanatory Memorandum or in the second reading speech to explain the purpose behind that change.  In the absence of explanation it could be said that it was to lift the restriction of the specification of “particular” or for some other perceived purpose.  It could have been considered ambiguous or redundant.  If it had been intended to have expanded the scope of the subsection, it might be thought that an explanation would have been provided.

21. There has been some judicial consideration of the s 47(6), some of which assists on this aspect and some of which, not being directed to this issue, is equivocal:

    ·Exclusive dealing involves supply upon a condition that may have been suggested by the recipient of the supply or may have been imposed by ‘some third party’ (Re Ku-ring-gai Co-operative Building Society (No 12) Ltd (1978) 36 FLR 134 at 167 per Deane J).

    ·In Legion Cabs, Franki J concluded that the forcing of acquisition from a nominated service station operated by any lessee of Shell was exclusive dealing as it constituted the forcing of acquisition from ‘a second person’.  Justice Franki was there considering the language of the older provision for exclusive dealing.  However, Franki J made it clear at 383 to 385 that no different conclusion is reached when the language ‘another person’ of the new provision is applied.  As Northrop J pointed out in SWB Family Credit Union Ltd v Parramatta Tourist Services Pty Ltd (1980) 32 ALR 365 at 381, the society in Legion Cabs ‘imposed an obligation upon the persons to whom they supplied a service to acquire goods or services from other persons designated or approved by the society and to the exclusion of persons carrying on similar businesses to those designated or approved by the society’[emphasis added].

    ·The effect of the offer in SWB was: ‘We offer to supply services to you if you do acquire services from another’ which Smithers J distinguished from the framework of the section, being ‘I offer to supply services to you on condition that you undertake to acquire services from another’ (at 374).  The offer in SWB could only be accepted by the offeree actually acquiring services from ‘the person indicated’ and not by the offeree undertaking to acquire services from another.  Justice Smithers was led ‘without equivocation’ to the conclusion that an offer to supply services on condition that the offeree will acquire services directly or indirectly from a designated person is conduct specified in s 47(6) only where the condition is that the offeree undertakes or otherwise incurs an obligation to acquire the goods or services (at 375). Justice Northrop in SWB did not specifically consider whether “another person” could have been any non-designated third person.

    ·In SST, Gleeson CJ, Gummow, Hayne, Haydon and Crennan JJ considered a condition (at [10]) whereby the relevant company was to direct all work to ‘the corporations the lender shall direct’. At [13] their Honours held that a corporation was engaged in the practice of exclusive dealing within s 47(6) by supplying services on the condition that the customer would acquire services ‘from another person (namely, corporations nominated by the [corporation])’ [emphasis added]. 

22. The respondents variously put the following propositions, said to be drawn from the authorities, to support the proposition that s 47(6), on its proper construction, requires that the third party be identified.

    ·From the text of the subsection, the source of the goods or services which must be acquired must be specified, or the words ‘from another person’ are otiose (Trade Practices Commission v Tepeda Pty Ltd(t/a Metro Motor Market) (1994) ATPR 41-319 at 42,246-42,247 per Davies J).

    ·If the section was directed at the acquisition of goods or services from an unidentified random source, the words ‘directly or indirectly’ immediately before ‘from another person’ would serve no purpose, be inapt and not fit (SWB at 375 per Smithers J).

    ·‘The section is aimed at the prevention of arrangements promoting the acquisition of particular goods and services exclusively from a particular and designated person…’ (SWB at 375 per Smithers J).

    ·If no third party supplier is specified, the market of the good or service which the customer is required to acquire remains competitive.

    ·The condition must be one that the customer will acquire goods or services directly or indirectly from a designated or specifically identified person, rather than from anybody.  (SWB at 375; Williams & Hodgson Transport Pty Ltd v Castlemaine Tooheys Ltd (1985) 64 ALR 521 at 532 per Wilcox J; Tepeda at 42,246-42,247; see also Hill J’s comments on SWB and Tepeda in Australian Competition and Consumer Commission v Universal Music Australia Pty Ltd (2001) 115 FCR 442 at [458]-[459] where his Honour was considering s 47(2), (3) but contrasting them with s 47(6)).

    ·Such a construction of s 47(6) is consistent with the apparent purpose of the section being to strike at conditions which restrict trade by depriving the customer of choice in relation to the acquisition of goods or services (relevantly, the choice to acquire the goods or services from traders other than those specified and thereby adversely affecting such traders).

    ·If “another person” were to refer to any other person, the section would have an improbably wide reach.  For example, it would proscribe a condition that a customer acquire finance or insurance from a reputable company (Tepeda at 42,246).

1. It is an interesting question as to whether “acquire” is construed as attaching to the initial entry into the lease agreement or whether it applies to the currency of the lease agreement, as payments are made. The Commission submits that the legal compulsion under the lease agreement to make the payment still gave rise to a choice on the part of the customer to make that payment and may not preclude the condition that the monthly lease payment must be made for monthly call credits to be received from having the element of compulsion necessary for the purposes of s 47(6). Evidence may be relevant to establish this contention. If the Commission is correct, the case against Clear Telecoms could be said to constitute not only a giving of call credits but also an offer each month, as pleaded. This may depend on evidence and submissions as to the precise effects of the leasing arrangements, the consequences of a failure to make lease payments and, factually, the way in which the customers’ rights to equipment depended on the further lease payments which were, in turn, linked to the call credits.

2. The possibility that facts essential to the success of the claim will be able to be established at trial is relevant to assessing whether the Commission has reasonable prospects of success (Fortron at [20]). The absence of sufficient evidence to establish that contention at present does not mean that Clear Telecoms is entitled to an order under s 31A of the FCA.

3. On the Commission’s argument, each lease payment was a further acquisition and call credits were only given on condition that the monthly lease payment was made. Clear Telecoms has not shown that the case of continuing acquisition where monthly call credits were conditional on monthly lease payments is unarguable or that the Commission’s case is not reasonably open or that it is not sufficiently strong to warrant the matter going to trial. It follows that Clear Telecoms is not entitled to an order under s 31A with respect to the existing customers.

   New customers

4. New customers of Clear Telecoms, of whom there are not many presently known, are covered by the business method which was used by Axis Telecoms and WorldTel and continued by Clear Telecoms.  That business method as set out on Clear Telecoms’ website explains that Clear Telecoms “partners” with office equipment companies and finance companies so that Clear Telecoms offers discounts off the phone bill, “enabling” the customer to offset the monthly cost of renting equipment. The customers are told that they have to complete and sign a rental agreement with “a finance company” and that once “the finance agreement” has been finalised, Clear Telecoms will apply call credits until the end of the term of the agreement with Clear Telecoms.  It is also stated that ‘qualifying for the Clear credits program will depend on the finance rental agreement approval’.  The Commission says that this is a strong indication of the third line force.  Its case is that the while the customers may not have appreciated that call credits were offered on condition that they enter into the equipment lease, that is not the point.  It is not considered subjectively but whether, as a matter of fact, the customer could not get call credits unless the customer entered into the lease.

5. In respect of its new customers, it is alleged that Clear Telecoms conducted its business in conjunction with a finance clearing house business operated by Quickfund and AER, both of which are related companies to Clear Telecoms.    As the proposed pleading contains an amendment to allege that Quickfund and AER each acted as an undisclosed agent for other Leasing Companies which were not related to Clear Telecoms, the fact that Quickfund and AER are related companies to Clear Telecoms is no longer relied on and not available to decide summary dismissal. 

6. Quickfund had access to the computer data of the Axis Group and their telephony billing systems.  Quickfund conducted the checks and then decided on the financier, either an external Finance Company such as EFS or, internally, QuickFund itself.  If an external financier was chosen, there is a principal/agent relationship between that financier and Quickfund.  If the Leasing Company refused to provide finance, AER or Quickfund would consider providing finance on their own account.  Clear Telecoms would give call credits for the original term of the rental agreement with AER or Quickfund.  QCC documentation states that ‘[a]lthough Quickfund Australia Pty Ltd is able to provide the finance required you may choose to organize your own financial arrangements’.

7. The proposed pleading alleges breaches of s 47(6) by Clear Telecoms in respect of two new customers, Rogmont Pty Limited (Rogmont) and Eileen Nicholson.  The Commission has not identified the lessor of the equipment to Rogmont.  Ms Nicholson acquired equipment from EFS as the undisclosed principal of Quickfund.  Clear Telecoms says, and the Commission accepts, that the evidence does not establish that these customers were aware that they were entering into equipment leases at all, let alone with a particular person or one of a panel.  The customers were aware that they would be acquiring equipment but not that it had to be acquired from a panel of leasing companies or a specified leasing company.  The evidence suggests that the actions of Clear Telecoms were to hide, or at least not disclose, the fact that one signature obtained was on an application for a lease. 

8. Clear Telecoms submits that, together, there is no pleaded contravention by it, not least because the leasing was obtained either through related bodies corporate or from unspecified leasing companies.  The evidence served in support of the Commission’s case concerns these two customers does not, Clear Telecoms submits, support the assertion, either directly or by inference, that they were offered call credits on condition that they acquire equipment from a leasing company on Quickfund’s panel.  Clear Telecoms also points to the fact that each of the persons said to support the Commission’s case said that he or she thought that the equipment was a free gift, rather than saying that the offer of call credits was on condition that he or she enter into a lease agreement.  Clear Telecom says that the case, presently particularised only in respect of these two persons, should be dismissed and that the rest of the pleading against it should be struck out as it is not particularised. 

9. Although the evidence is that the clients did not read the agreement, the standard terms of the Clear Telecoms agreement note that Clear Telecoms ‘cannot advise [the customer] of the exact terms [of the lease] since we do not know which finance company you will be using, nor do we know what their agreement with you contains’.Clear Telecoms also points to the forms signed by Rogmont and Eileen Nicholson when applying to Clear Telecoms which stated that they could choose their own financing arrangements.  This, however, leaves open the possibility that the Commission may establish that, on the facts in each case, the customers were unaware of that provision in the forms and were not in fact presented with any choice of finance company, the application form being sent by Clear Telecoms to a finance company of its choice.     

10. Further, there is some evidence in relation to these customers that the provision of call credits was conditional upon the acquisition of equipment or the provision of finance, as the documentation provides that call credits will not be available if finance is not approved.  The website and standard form of agreement refer to customer entry into a finance agreement and that credits will commence on written notice that the customer has acquired equipment, but Clear Telecoms points out that neither the evidence nor the standard form of agreement sets out a requirement that the finance agreement or equipment purchase be from a specified person or class of persons.  There is no written evidence that the lease agreement or the purchase of equipment be from a specified person or class of persons.  

11. In Stationers Supply at 62, Ryan J distinguished between compulsion and persuasion, the latter being insufficient. His Honour considered that in the absence of evidence of a sanction for non-compliance, there must be an obligation at least.  Clear Telecom submits that this necessarily involves the customer being aware of an obligation which must, therefore, be communicated.  As the evidence is that the customers did not know that they were entering into any equipment leases, they did not know that they were accepting an obligation to make lease payments, so that they did not know that they were acquiring goods and services from another person.  It follows, Clear Telecoms submits, that there was no communication of the obligation, so there was no compulsion. 

12. The contrary view is that the call credits would only be advanced upon the condition that, in fact, the customer did enter into the lease agreement and so acquire the equipment by means of finance from the Finance Company. The Commission says that this was the only way to access call credits from the Telco and that it is sufficient for the degree of compulsion necessary to come within a condition for the purposes of s 47(6). That is, the giving of call credits was still upon the condition that the equipment would be acquired. The sanction for not entering into the lease agreement was the absence of call credits by Clear Telecoms.

13. Although the two particularised customers may not have been aware that the offer of call credits was on condition that they enter into a lease agreement, at least one of them (Ms Nicholson) did enter into a lease arrangement and the call credits then given by Clear Telecoms matched the lease payments made.  Further, the evidence is that they had no opportunity to choose the finance company – their signatures were obtained to documents that they did not appreciate were lease agreements.  The call credits were conditional on those lease agreements being entered into.  The leasing company was chosen by Clear Telecoms or Quickfund.  As described by the Commission, the case is made that Clear Telecoms procured signed applications for finance addressed to Quickfund and submitted them through an automated facility to Quickfund.  Quickfund operated as an undisclosed principal for a panel of leasing companies.  It was Quickfund which selected one of those Leasing Companies to which the financing application would be submitted.  If the application was approved, the transaction was completed with the selected Leasing Company.  If not approved, consideration was given by Quickfund to provide the finance itself. 

14. Clear Telecom’s reliance on the acknowledgement in the form that refers to the right on the part of the customer to choose his or her own financing arrangements does not answer the Commission’s case in circumstances where the form was not read by the customer, where the facts suggest that the customer was not told that there was a leasing arrangement or where the form was not complete when the customer signed it. 

15. The contention that actual knowledge of the application to the third party is not necessary to establish a contravention of s 47(6) is arguable. The lack of such awareness is not a basis to strike out the pleading or to make an order under s 31A of the FCA. It has not been established that the Commission has no reasonable prospects of establishing the case it seeks to make.

    The case against the WorldTel officer respondents

16. Mr Wehbe was a director of WorldTel, managed the telemarketing function for WorldTel and, on the evidence, was involved in the conduct of the WorldTel business from the commencement of that business.  He signed the EFS Vendor Accreditation Agreement which is said by the Commission to have provided the framework of the leasing arrangements for WorldTel customers from EFS.  Mr Fakhr was involved in the management of the sales function for the WorldTel group and provided training in respect of its telecommunications-related rental agreements.  He was, on the evidence, the person responsible for the preparation of scripts used by employees of WorldTel or a related corporation in relation to telemarketing calls to prospective customers.  There is direct evidence that Mr Fakhr told an employee of “WorldTel” that a customer’s obtaining of cheaper rates (call credits) was conditional on taking a bundled solution.The Commission’s case is that they procured and further or alternatively were knowingly concerned in WorldTel’s contraventions.  I use the term WorldTel for the purposes of this notice of motion to encompass various companies in what can be referred to as the WorldTel group.

17. Mr Wehbe and Mr Fakhr do not seek a strike out of the statement of claim but do seek summary judgment on the following bases:

    ·The pleading alleges involvement with the telemarketing of WorldTel and that these respondents procured or were knowingly concerned in WorldTel’s contravention of s 47(6). However, there is no suggestion in the evidence or the pleading that the offers of call credits were made through the telemarketing. Rather, say these respondents, the evidence is that the offers of call credits were made by sales persons in face-to-face meetings when assessments of the customer’s requirements were made.

    ·In the way the case is put by the Commission, the conduct giving rise to the contraventions, in terms of the offer, occurred after the telemarketing, which was not the conduct said to give rise to the contravention.  The way the case is put, the telemarketing is not the first stage of the offer and does not go into sufficient detail as the purpose was merely to book an appointment.

    ·Mr Fakhr says that no case has been put that he was involved in the giving or allowing of call credits by WorldTel after the date on which he communicated with Mr Chen.  As submitted by Clear Telecoms, there is no new contravention every month that a customer receives a call credit.

    ·Mr Wehbe also says that there is no admissible evidence against him and that admissions by his brother and by EFS’ solicitors are not relevant.

    ·If the case against WorldTel falls, so too does the case against them.

18. These respondents contend that there is no evidence that they engaged in the positive acts necessary to conclude that they procured WorldTel to engage in the alleged conduct or that they intentionally participated in WorldTel’s alleged contraventions or that they had knowledge of the essential matters constituting those contraventions. Further, as to the alleged offers through telemarketing, they say that the purpose of those calls was to book an appointment between the prospective customer and WorldTel sales staff. They are not alleged to constitute offers in contravention of s 47(6). They say that the evidence that has been adduced, such as that of Mr Chen, is not relevant to the allegation that they had a role in determining the business method of WorldTel or causing Worldtel to conduct its business using that method.

19. In part, the Commission’s case against these respondents depends on its success in establishing that, for continuing customers, there was a breach of s 47(6) monthly on the payment of call credits conditional on lease payments. In part it depends on inferences to be drawn from the history of Mr Wehbe and Mr Fakhr with companies prior to their involvement with WorldTel. In part it depends on inferences to be drawn from subsequent conduct.

20. The case against Mr Wehbe and Mr Fakhr seems to be based on a series of facts and inferences that, together, are relied upon to establish both their positions with WorldTel and their involvement in its activities, including the offers of call credits to customers, allegedly on condition in contravention of s 47(6). While these respondents point to specific parts of the evidence and submit that it does not establish the alleged case against them, when the evidence is considered as a whole, including:

    ·their positions with, knowledge of, and activities within WorldTel and its associated companies;

    ·conversations and communications with staff and customers;

    ·the fact that the customers were, on their evidence, misled concerning the effect of the documentation they signed with EFS; and

    ·the fact that the customers executed the agreement with that finance company as directed by WorldTel,

    it is sufficient to establish a reasonable cause of action of procuring or being knowingly concerned in the alleged contraventions by WorldTel sufficient to defeat the s 31A application.

    APPLICATIONS TO STRIKE OUT PLEADING

    The case against the Axis officer respondents

21. The case against the Axis officer respondents is that they were all knowingly concerned in and, except for Mr Kennedy, procured Axis Telecoms’ alleged contraventions of s 47(6). As set out above, the Commission alleges that the Axis Group came to carry out the business that had been carried out by NTG. The principal business model for NTG, described as Synergy, was a method which linked call credits to purchase of hardware, where the call spend effectively financed or offset the cost of the hardware.

22. The Commission’s case is that the conditionality of the giving or allowing of call credits in each case in which call credits were in fact given, allowed or offered is to be inferred from the business organisation and method of the Axis Group and Axis Telecoms.  The Commission submits that the material facts are:

    ·Was an offer of call credits made?

    ·Were call credits given?

    ·If the answer to either question is “yes”, were those call credits on the alleged condition?

    The Commission submits that the term and context of any offer of call credits which were in fact on such a condition are immaterial.

23. The Axis officer respondents submit that the pleading of the business method should be struck out because it is really evidence that will be led in support of the material facts, which are limited to those facts necessary to establish the elements of s 47(6): an offer or supply on condition that the customer acquire goods or services of a particular kind from an unrelated person. They say that, if the paragraphs remain, it would necessitate “an enormous volume” of material, potentially in relation to dealings with 9,000 or more customers, as opposed to material that relates to particularised and identifiable alleged contraventions.

24. The Commission has explained that it will run its case by:

    1.Seeking to prove the Axis Telecoms business method and that the implementation of that method through the Axis Group as organised resulted in offers to give or allow and the giving or allowing of call credits being on the condition pleaded;

    2.Seeking to prove the individual transactions in which Axis Telecoms gave or allowed call credits;

    3.Inviting the inference that shortly before Axis Telecoms commenced giving or allowing such call credits to a customer it offered to do so; and

    4.Inviting the inference that each such offer and each such provision of call credits, in the absence of specific contrary evidence, was on the condition pleaded.

25. Subject to my comments above about the deficiencies in the proposed pleading, I accept the Commission’s submission that the pleading of a business method is acceptable and that it will reduce the quantity of material and documentation required.  The evidence relating to the configurator shows that there is a degree of automation concerning the application of the business method to individual Axis customers and that further such summaries can be prepared.  If that automation means that it becomes unnecessary separately to establish what are “literally thousands” of possible contraventions, that is an advantage.  If it means that the number of possible contraventions that can be established is reduced, that is a decision for the Commission.

1. The Axis officer respondents submit that the Commission has failed to particularise the necessary conditionality, said to arise in both written and oral offers.  Some particulars have been provided.  If the Commission has, as they say, only provided particulars by reference to 4 documents and fails to prove oral offers, that will again reduce the numbers of contraventions that it can possibly establish.  That is not a reason to strike out the pleading.  Further particulars can be sought and answered as to some of the matters raised, such as whether the condition in the written offers extends beyond the contents of the documents particularised and whether the oral offers are express or implied or both. 

2. The Commission relies on a combination of facts and inferences drawn from those facts, including the existence and implementation of the business method and the evidence that such a method was in fact implemented with respect to some customers.  There has been a clear explanation, by reference to the pleading, the particulars and the evidence.  The Axis respondents can be in no doubt of the nature of the case they have to meet and the relevance of the pleaded business method.

3. The Commission has provided a deal of evidence that may not be relevant to the Axis respondents’ notice of motion to strike out the pleading. As the case against Axis Telecoms has relevance to the case against other respondents, that evidence relates to the s 31A applications brought by other respondents. It does, however, explain the case against Axis Telecoms. If it represents more information than the Axis respondents are entitled to at this stage of the proceedings, it is hard to see how that is a ground of complaint. It does, however, as explained at the hearing, assist in clarifying the case on conditionality.

4. The Axis officer respondents also submit that paragraphs referring to an unidentified class of customers, described as being a high proportion of Axis Telecoms’ approximately 9000 customers, should be struck out.  The Commission has explained that the evidence will, by way of a schedule, identify those customers.  If it cannot do so, those paragraphs may need to be revisited.  The Axis officer respondents say that, if that can be done, the Commission should apply for leave to amend at that time.  In a pleading of this complexity, it is preferable to avoid unnecessary applications for leave to amend.  The Commission’s evidence in chief will either answer this criticism or not.  If it does not, an application to strike out or amend those paragraphs may not be contested.

5. If, as may be the case, the Commission intends to establish numerous contraventions by inference arising from a proved application of the alleged business method, it is entitled to press that case.  It will be at that point that questions of appropriateness of proof of a pecuniary penalty provision will arise.  Subject to my comments elsewhere in this judgment, I do not otherwise accept the Axis officer respondents’ additional criticisms of the proposed pleading.

   The case against Mr Kennedy

6. Additionally, Mr Kennedy seeks to have the pleading against him struck out.  The Commission’ case against Mr Kennedy is that he was linked in purpose with his employer, Axis Telecoms.  He drafted or contributed to the drafting of the scripts which were used by the telephone marketers who marketed Axis Telecoms’ services.  Those scripts described the nature of the service to be provided and the arrangement with the Finance Company.  It is alleged that Mr Kennedy was involved with the implementation of the scheme as a principal participant.  The Commission’s evidence goes to Mr Kennedy’s role and his knowledge of the use by Axis Telecoms of “a bundled telecommunications package”.

7. Mr Kennedy did not have any ownership interest in Axis Telecoms or in any related entity and was not a director or executive manager of the company or otherwise in a position of authority.  He is alleged to have advised the directors of Axis Telecoms and drafted unspecified scripts to be used by Axis Telecoms marketers.  Some particulars have been provided of his alleged involvement.

8. Mr Kennedy says that, as an adviser, the circumstances in which he incurs accessorial liability is limited unless he is shown to have been “linked in purpose” or an “intentional participant” and that mere knowledge is insufficient.  He says that the pleading does not allege that he occupied a position of authority or that he was involved in a decision to withhold call credits except on the condition alleged.  It is alleged that he advised the directors of Axis Telecoms to record calls to customers but it is not alleged that he had knowledge of the content of these calls.  He was not employed as dispute resolutions manager of Axis Telecoms prior to “early 2006”; pleaded offers of call credits to the customers were alleged to have been made as early as mid 2004.  Mr Kennedy says that nothing in the relevant paragraphs of the pleading, nor in the evidence in support, suggests that he knew that it was a condition of the offer and supply of call credits that the customer acquires goods or services from “another person”.

9. As presently pleaded, the Commission does not allege or provide evidence of Mr Kennedy’s knowledge that call credits were offered or given on condition that the customer acquire equipment from a specified third person.  If the Commission can support such a case, it should do so. However the pleading as it now stands as against Mr Kennedy should be struck out.

   The cases against the Clear respondents

10. The case pleaded against Sonofon is as Axis Telecom’s agent.  It is alleged that Sonofon made offers to customers to give or allow credits on charges to be incurred by them as Axis Telecoms’ customers on the proposed supply of telecommunications services on condition that each such customer acquire equipment under an equipment lease from a another person not related to Axis Telecoms, with reference to a particular business method.  It is also alleged that Sonofon was knowingly concerned in the contraventions by Axis Telecoms in which Sonofon made offers of Bundled Services.

11. Each of NTG and Clear AB is alleged to have been knowingly concerned in contraventions by Axis Telecoms. Clear AB is also alleged to have counselled and procured contraventions by Axis Telecoms by causing Axis Telecoms to implement the business method or to give or allow call credits on condition in contravention of s 47(6). Mr Hakim was an owner and director of NTG and a director of Clear AB and the allegations against him broadly mirror the allegations against NTG and Clear AB.

12. Those respondents point out that the cases pleaded against them depend on the case pleaded against Axis Telecoms.  They, together with Clear Telecoms, submit that the case against Axis Telecoms should be struck out because, in summary:

    ·The business method is not a material fact.

    ·The pleaded condition does not concern acquisition from a designated or specifically identified person or persons.

    ·The pleaded conditions do not possess the necessary attributes of compulsion and futurity because the call credits were given or allowed to customers who had already entered into an equipment lease.

13. NTG says that the fact that it conducted its business a particular way is not evidence against Axis Telecoms.  There is no allegation that NTG contravened s 47 by offering call credits on condition, only that it has been knowingly concerned with Axis Telecoms’ contraventions.The Commission says that its case is that the Axis Group in effect took over the market facing aspects of the NTG business methods, making those methods material facts in the pleading.  It has not been established that the Commission has no reasonable prospect of establishing that case.

14. Clear Telecoms also addresses a number of pleading issues and submits that the Commission should not be given leave to amend further.  Some of those complaints go to the sequential nature of the way in which the case is pleaded.  While some of the paragraphs do not, alone, form a foundation for a contravention (such as the description of the business method), sequentially they contain material facts which together explain the basis of the case sought to be made. The proposed pleading is reasonably but not unnecessarily complex in view of the nature of the case pleaded against the number of respondents. Its structure is not difficult to follow or confusing. Nonetheless, considering the view I have formed about the meaning of “another person” in s 47(6), the pleading against Clear Telecoms in respect of new customers should be clarified to plead the material facts in support of the allegation that financing by or through Quickfund or AER amounted to a contravention by Clear Telecoms.

    Leave to replead

15. The various respondents submit that the Commission should not be given an opportunity to re-plead.  Relying on the comments of the High Court in Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175 at [111]–[112] and following, they point to the opportunities given the Commission in the Act to make inquiries and investigations and to the time that has passed since those inquiries commenced as well as the documentation provided. They point to the fact that the Commission has already had a number of opportunities to perfect its pleading.

16. The Commission became aware of the bases for these notices of motion when the matter came on for hearing.  It had the opportunity during the adjourned period to propose further amendments, which it did.  It was clearly on notice that, at the least, the respondents were relying on a limitation of “another person” to a specific person or, in the alternative, to a specified panel.  The knowledge of the Finance Companies of this element of the alleged contravention was squarely raised.  This is not a “pleading point” but fundamental to the case that can be pleaded and supported.

17. CIT refers to Australian Competition and Consumer Commission v Mobil Oil Australia Ltd (1997) ATPR 41-568 at 43,897 to the effect that the powers given to the Commission under s 155 of the Act are extensive and untrammelled by the privilege against self-incrimination. In particular, where any discovery would be “a mammoth exercise”, it says that the Commission should not be permitted to ‘fish around in the hope that something will turn up’.  Permitting further opportunity to amend would be ‘oppressive to the respondents, and damaging to the interests of litigants (including the Commission itself in other cases) who must be accommodated within the finite resources of this Court’ (Mobil Oil at 43,897 per Heerey J).

18. The Commission has, commendably, provided detail by way of pleadings, particulars, evidence and schedules to explain the progress of the corporate and individual involvement in the varying transactions to very many customers.  The proposed pleading as presently framed does sufficiently articulate the nature of the alleged contraventions and subject to the matters referred to in these reasons, the material facts on which the Commission presently relies, at least for the purposes of requiring the respondents to file a defence (Wright Rubber Products Pty Ltd v Bayer AG [2010] FCAFC 85 at [14] per Moore J). There are some ambiguities and shortcomings I have identified.

19. I am not satisfied that a further pleading, once the identified matters have been rectified, are such that it is apparent that the respondents will not understand the case they have to meet or be unable to file defences.  If such a contention is raised, it can be dealt with by the provision of particulars or, if necessary, further interlocutory steps.  The relief to be granted on a pleadings motion is a matter of discretion (Brambles Holdings Ltd v Trade Practices Commission (1979) 28 ALR 191 at 193). The case as presented by the Commission is not frivolous and alleges serious contraventions of the Act. As I have said, it is complex, in part because of the corporate structures of the respondents. It cannot be said that a further amended statement of claim that takes into account the amendments of the proposed pleading and the matters identified by the respondents should not see the light of day at a trial of the action. The Commission has sought to be responsive to much of the criticism raised, has proposed amendments and presented its evidence by reference to the individual paragraphs of the pleading. It has challenged certain legal submissions advanced by the respondents, as it is entitled to do. I do not accept that the Commission’s conduct of the case to date means that it should be deprived of the opportunity to file a further amended pleading. The Commission should have leave to re-plead to correct or clarify these aspects of the proposed pleading, subject to those parts of the pleading the subject of orders under s 31A.

    CONCLUSION

20. It follows from my conclusion on the construction of “another person” in s 47(6), and the fact that there is no evidence that EFS or CIT knew that Axis Telecoms required customers to acquire equipment from a specified finance company or from one of a panel of specified finance companies as a condition of obtaining call credits, that the Commission has no reasonable prospect of success in its case against EFS or CIT for accessorial liability under s 75B of the Act. Accordingly, EFS and CIT are entitled to summary judgment under s 31A(2) of the FCA.

21. On the other hand, it has not been established that the Commission has no reasonable prospect of establishing the case it seeks to make against Clear Telecoms in respect of its new customers as well as in respect of the existing customers which were transferred from Axis Telecoms and WorldTel, or that those cases are not sufficiently strong to warrant them going to trial. I have also found that the evidence is sufficient to demonstrate that the Commission has a reasonable prospect of success in its case against Mr Wehbe and Mr Fakhr sufficient to defeat their application for summary judgment. Accordingly, the applications of Clear Telecoms, Mr Wehbe and Mr Fakhr for summary judgment under s 31A should be dismissed.

22. The Commission has conceded that if I accept the respondents’ submission that “another person” in s 47(6) is a specified person or panel of persons, it will be necessary further to narrow the pleading of the offer case. As highlighted above, there are allegations in the proposed pleading regarding the condition which are not limited to a specified person or panel of persons, such as the references to “a Leasing Company” which is not limited to a Finance Company and to “another person not being a body corporate related to Axis Telecoms”. Another specific shortcoming that I identified above is ambiguity of the word “leased” in those paragraphs relating to the giving case.

23. The use of the device of defined terms and expressions which are then inserted into the pleading reduces the complexity.  However, I have identified some deficiencies in the pleaded contraventions when those defined terms have been utilised. 

24. As mentioned above, the Commission indicated at the beginning of the hearing of the notices of motion that it seeks leave to file a second amended statement of claim.  The hearing has proceeded on the basis of the earlier proposed pleading, and then the proposed pleading.  It is apparent that the Commission no longer presses the existing filed pleading, the amended statement of claim.  In view of the use of defined terms in the pleaded contraventions, the amended statement of claim should be struck out as against the respondents who have filed notices of motion seeking that order.  Deficiencies have been identified in the proposed pleading, including in the use of the defined terms to plead the contravention.  For example, large parts of the proposed pleading depend on pleaded conditions which lack the requisite specificity of the third person.  The proposed pleading does not overcome a number of the identified deficiencies. 

25. I am of the view that the Commission should be given leave to replead.  Accordingly, leave should be given to file a second amended statement of claim that takes account of these reasons.

26. The task presented by the notices of motion has been complicated by the fact that submissions initially addressed the existing pleading but the Commission then proposed two further versions of the statement of claim.  At the resumed hearing, parties addressed the second of those proposed pleadings but it was not clear which of their previous submissions were abandoned and which were modified to take account of amendments which had been inserted after the first round of hearing.  I have given the parties the opportunity to identify any issues which were not addressed and which it is necessary to address in these reasons and will give them the opportunity to propose orders to give effect to these reasons and make further submissions on costs.

I certify that the preceding one hundred and eighty-nine (189) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Bennett.

Associate:

Dated:        25 August 2010