Sky Channel Pty Limited v Austar Entertainment Pty Limited & Thoroughvision Pty Limited

[2005] NSWSC 815

CITATION:	Sky Channel Pty Limited v Austar Entertainment Pty Limited & Thoroughvision Pty Limited [2005] NSWSC 815
HEARING DATE(S):	9/08/05, 10/08/05
JUDGMENT DATE :	11 August 2005
JURISDICTION:	Equity Division Commercial List
JUDGMENT OF:	Einstein J
DECISION:	Interlocutory orders to be extended until determination of proceedings. [NOTE: THIS VERSION OF THE JUDGMENT CONTAINS SOME PARAGRAPHS REDACTED BY REASON OF THE COURT'S CONFIDENTIALITY ORDERS RESTRICTING ACCESS TO THE UNREDACTED VERSION TO CERTAIN NOMINATE PERSONS]

CATCHWORDS:	Contract - Long term Pay Television License Agreement - Dispute between two content aggregators of horseracing content in Australia - Equity - Express negative contractual stipulation - Event of default - Obligation to give notice requiring material bridge to be remedied - Contracting party may be said to have a right to the performance of the contract by the other contracting party
LEGISLATION CITED:	Broadcasting Services Act (1992) Supreme Court Act 1970 (NSW) Trade Practices Act (1974) (Cth)
CASES CITED:	American Cyanamid Co v Ethicon Ltd [1975] AC 396 Appleton Papers Inc v Tomasetti Paper Pty Limited [1983] 3 NSWLR 208 Batson v De Carvalho (1948) 48 SR (NSW) 417 Beecham Group Limited v Bristol Laboratories Pty Limited (1968) 118 CLR 618 Burger King Corp v Hungry Jack's Pty Ltd [2001] NSWCA 187 Eng Mee Yong v Letchumanan [1980] AC 331 Magna Alloys and Research Pty Limited v Coffey [1981] VR 23 O'Keefe v Williams (1910) 11 CLR 171 Plimpton v Spiller (1877) 6 Ch D 412 Shercliff v Engadine Acceptance Corporation (1978) 1 NSWLR 729 Stollznow v Calvert (1980) 2 NSWLR 749 Zhu v The Treasurer of the State of New South Wales [2004] HCA 56
PARTIES:	Sky Channel Pty Limited (Plaintiff) Austar Entertainment Pty Limited (First Defendant) Thoroughvision Pty Limted (Second Defendant)
FILE NUMBER(S):	SC 50122/05
COUNSEL:	Mr J Sackar QC, Mr R Dick (Plaintiff) Mr M Walton SC, Mr M White (First Defendant) Mr S Rushton SC, Dr M Collins (Second Defendant)
SOLICITORS:	Freehills (Plaintiff) Tress Cox (First Defendant) Clayton Utz (Second Defendant)

LOWER COURT JURISDICTION:

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST

Einstein J

Thursday 11 August 2005

50122/05 Sky Channel Pty Limited v Austar Entertainment Pty Limited & Thoroughvision Pty Limited

JUDGMENT

The proceedings

1 These proceedings were commenced on 5 August 2005 and concern an agreement ["the Pay TV Agreement"] entered into on 26 September 2002 between the plaintiff, Sky Channel Pty Ltd ["Sky" or “Sky Channel”] and the first defendant, Austar Entertainment Pty Ltd ["Austar"].

The background

2 In Australia, members of the public are able to watch sport including racing on certain dedicated channels on television. In the case of horseracing, at a very general level, this is achieved in the following way:

(a) first, horseracing clubs around the country provide video pictures of their races (‘content’);

(b) the right to use this content is acquired by an aggregator of content. The aggregator combines content that it acquires from many different race clubs, edits it, adds commentary, wagering information and other material, and makes television programmes; and

(c) the content aggregator provides these television programmes, in the form of a separate television channel, to Pay television companies – which provide a whole range of different television channels to viewers by cable or satellite. Individual viewers enter into contracts with these Pay TV companies and buy a whole package of different channels – for example, channels showing sport, channels showing movies, channels showing comedy or drama shows, etc.

3 Diagrammatically, this structure can be represented as follows:

Main Pay TV Companies

4 In Australia, the main Pay TV companies are Foxtel, Austar and Optus. A member of the public who subscribes to one of these may obtain access to a wide range of television channels as part of the Pay TV’s ‘basic package’, and can then choose to add additional, premium channels for an additional subscription fee.

Sky Channel and TVN

5 There are presently two content aggregators of horseracing content in Australia – Sky Channel and TVN.

6 Sky Channel produces the Sky Racing Channel (which covers thoroughbred racing, greyhound racing and harness racing); and TVN produces the TVN Channel [which only covers thoroughbred racing]. Sky contends and TVN denies that they may be regarded as long-term competitors. Sky’s contention is that ultimately each is vying for viewers interested in watching horseracing on television.

7 TVN is a recent entrant to the business of aggregating racing content and providing a television channel for showing on Pay TV. Until TVN’s advent, Sky Channel was the sole provider of racing content.

8 Prior to the events of the last few days which give rise to these proceedings, Sky Channel was (and continues to be) available to viewers through platforms operated by Foxtel, Optus and Austar; TVN Channel was available to Pay TV viewers on the Foxtel digital platform.

9 As will appear from what follows the instant interlocutory injunctive proceedings concerning TVN's commencement to make its TVN Channel available to viewers through Austar.

New South Wales races

10 Thoroughbred race meetings in New South Wales are principally conducted by the Australian Jockey Club (“AJC”), the Sydney Turf Club (“STC”) (both in Sydney), by a number of provincial clubs which are members of the Provincial Association of NSW, based in major centres to the north and south of Sydney (“Provincial Clubs”), or by clubs which are members of the Country Racing Council, which are scattered through the rest of the State (“Country Clubs”).

11 Of these, Sky presently has, and has had since 4 May 2005, the rights to telecast the race meetings of all the Country Clubs and all the Provincial Clubs. It has not had the rights to broadcast the race meetings of the AJC or STC. Prior to 4 May 2005, Sky had broadcast the race meetings of the AJC and STC.

The material provisions of the Pay TV Agreement

12 [

]

13

14

15

16

17

18

The catalyst for commencement of the proceedings

19 An exchange of correspondence entered into between 22 July 2005 and August 2005 was effectively the catalyst for commencement of these proceedings.

20 The first letter of 22 July 2005 from Austar to Sky voiced disappointment in that the various parties involved in disputes regarding television rights for New South Wales and Victorian Racing had not been able to reach resolution and asserted that regional Australian viewers had been deprived of the opportunity to watch thoroughbred racing from any Victorian and New South Wales metropolitan events for a number of months. Austar asserted that it had been required to consider options to mitigate its position and contended that it was clear that Sky was in breach of its obligations under clause 8.2 of the Pay Television Agreement. The letter continued:

“As a result, we believe it is appropriate to allow TVN to be shown to Austar viewers. The channel is available on Foxtel's C1 satellite platform which we share with Foxtel and it is a relatively simple matter for us to allow viewers access. TVN has made an offer to Austar which is commercially acceptable to us.

We believe that ultimately this is going to be a win-win for all parties involved… While we believe that Sky is in breach of its obligations under our Agreement and as such cannot rely on the exclusivity clause any longer, without prejudice to that position we are willing to present this to the public as a three-way deal. We could announce publicly that Austar, Sky Channel and TVN have reached agreement that TVN is to be made available to Austar viewers, as a way of trying to salvage some improved public positioning for everyone out of this situation…”

21 In a further letter of 2 August 2005 Austar stated that rather than take the extreme measure of termination it was attempting to be responsible and mitigate its loss.

22 Also on 2 August 2005 Sky responded by suggesting a mediation and putting forward a proposal that it would be prepared, on an interim basis [pending resolution of the disputes with TVN over Pay TV exclusivity], to televise Sydney Metropolitan and Victorian races on its Sky Racing Channel so that regional viewers could see the relevant meetings through Austar. It made the point that this would achieve a position where the respective rights of Sky and TVN were maintained pending resolution of their differences, either by agreement or through the courts.

23 Austar then responded on 4 August stating inter alia that it had no wish to be involved in the dispute between Sky and TVN. It also contended that Austar could no longer wait in the hope that Sky and TVN could reach some resolution and that it was necessary for Austar to address the fact that it was not receiving from Sky "the minimum racing content it bargained for". It went on to formally request under clause 8.3 of the Pay TV Agreement that Sky now provide evidence of its compliance with clause 8.2.

24 The letter also stated that without prejudice to all of its rights, Austar was presently addressing the impact of Sky's failure to provide the minimum content requirements and would without prejudice to its rights against Sky proceed to make the TVN service available to its subscribers.

25 An attached press release stated that Austar had announced that TVN would be available to its residential Austar Digital viewers from for August 2005 as a standalone channel costing one dollar per month and could be subscribed to by all Austar Digital customers.

26 These proceedings were commenced by application for ex parte injunctive relief made late on 5 August and continued over the next few days.

The principles

27 In approaching the interlocutory application it has seemed to me that the principles which govern the Court's approach to the question are those generally dealt with and set out in Appleton Papers Inc v Tomasetti Paper Pty Limited [1983] 3 NSWLR 208. In Appleton McLelland J pointed out the importance of recalling that the Court here deals with a discretionary power conferred on the court in very general terms referring to section 66(4) of the Supreme Court Act which provides that the Court may at any stage of proceedings on terms grant an interlocutory injunction in any case in which it appears to the Court to be just or convenient to do so.

28 As McLelland J made plain at page 216 citing from the judgment of Moffitt P in Stollznow v Calvert (1980) 2 NSWLR 749:

"While useful guidance is provided by the manner of exercise of the discretion in other cases, and by the factors considered in those cases to favour the exercise of the discretion in a particular way, each case must depend upon its own facts. It would be contrary to what I understand to be the accepted law in this country, to confine the exercise of a judicial discretion by judge made rigid formulae."

29 At page 214 McLelland J cited the full High Court decision in Beecham Group Limited v Bristol Laboratories Pty Limited (1968) 118 CLR 618 at 622, 623 where the Court had said that in dealing with applications for interlocutory injunctions:

"The Court addresses itself in all cases, patent as well as other, to two main enquiries. The first is whether the plaintiff has made out a prima facie case, in the sense that if the evidence remains as it is, there is a probability that at the trial of the action the plaintiff will be held entitled to relief...the second enquiry...is whether the inconvenience or injury which the plaintiff would be likely to suffer if an injunction were refused, outweighs or is outweighed by, the injury which the defendant would suffer if an injunction were granted."

30 At page 214 McLelland J further referred to Shercliff v Engadine Acceptance Corporation (1978) 1 NSWLR 729 at 736, 737, where the Court of Appeal explained the special sense in which the expression "probability" was used by the High Court in the Beecham case, and in particular had said that it did not refer either to a prediction as to the ultimate result or to a better than even chance of ultimate success. The Court said that:

"The degree of probability or likelihood of success is simply that which the Court thinks sufficient, in the particular case, to warrant preservation of the status quo."

31 As McLelland J reminds us at page 214, the Court had already stated that in that case the balance of convenience was very strongly in favour of the granting of interlocutory relief (to preserve the status quo), and accordingly the Court's statement, McLelland J believed, might be generalised by saying:

". . . that the degree of likelihood of success to be demonstrated is that which the Court thinks sufficient in the particular case to warrant consideration of where the balance of convenience lies."

32 McLelland J also cited from the Privy Council decision in Eng Mee Yong v Letchumanan [1980] AC 331 at 337 where the Privy Council had expressed the relevant principle in terms derived from the American Cyanamid case as follows:

"The Court's power to grant an interlocutory injunction...is discretionary. It may be granted in all cases in which it appears to the Court to be just and convenient to do so...the guiding principle in granting an interlocutory injunction is the balance of convenience; there is no requirement that before an interlocutory injunction is granted the plaintiff should satisfy the Court that there is a `probability', a `prima facie case' or a `strong prima facie case' that if the action goes to trial he will succeed; but before any question of balance of convenience can arise the party seeking the injunction must satisfy the Court that his claim is neither frivolous nor vexatious; in other words that the evidence before the Court discloses that there is a serious question to be tried..."

33 McLelland J at page 215 expressed the view that what was said in the Eng Mee Yong case is not inconsistent in substance with what is said in the Shercliffe case notwithstanding that the form of words used in the two cases is different, and in the Eng Mee Yong case, the expressions " probability" and "prima facie case" seem to be used in somewhat different senses to those in which the same expressions are used in the Beecham case as explained in the Shercliffe case. McLelland J pointed out that it must be remembered that:

"No Court should consider itself fettered by the form of words as if it were a phrase in an Act of Parliament which must be accepted and construed as it stands."

34 McLelland J further noted that in considering the question of the "balance of convenience" as contemplated in the Eng Mee Yong case and the American Cyanamid Co v Ethicon Ltd [1975] AC 396 case, the relative apparent strength of each party's case may be a relevant matter. As McLelland J pointed out this accords with what the Supreme Court of Victoria said Magna Alloys and Research Pty Limited v Coffey [1981] VR 23 in the following passage relating to the High Court's judgment in the Beecham Group case:

"Having regard to the fact that the High Court cited the judgment of James LJ in Plimpton v Spiller with approval, the reference in Beecham's case... to a probability of success should not be understood as meaning that the plaintiff must show that at trial it is more probable than not that he will succeed. Indeed the High Court made it clear that that is not the issue for the judge to determine, for, in the passage already cited the Court said ‘...the Court does not...give or withhold interlocutory relief upon a forecast as to the ultimate result of the case’.”

35 Rather the High Court should be understood as referring to the degree of probability which may be high or low. No doubt the strength or weakness of the plaintiff's case will be relevant when the judge comes to the question of the balance of convenience, if he ever does."

36 At page 216, McLelland J pointed out that it is the task of the Court on an application for an interlocutory injunction to seek to fulfil this purpose in the manner best calculated to achieve justice between the parties in the circumstances of the particular case. McLelland J pointed out that with possible exception of a passage in the Beecham Group case which deals with what are said to be special considerations arising in a patent suit in which there is a substantial issue as to the validity of the patent, which McLelland J then proceeded to consider:

". . . the decisions to which I have already referred provide authoritative guidance (not however to be interpreted as `rigid formulae') as to how this task of the Court should normally be approached, but do not deny the proposition that the ultimate task of the Court is as I have described it."

37 I have endeavoured to approach the present application for interlocutory relief applying the principles as expressed by McLelland J. The matter is put shortly by Meagher, Gummow & Lehane, Equity Doctrines and Remedies, 2nd Edition at paragraph 2168:

"What the plaintiff must prove is that he has a serious, not a speculative, case which has a real possibility of ultimate success and that he has property or other interests which might be jeopardised if no interlocutory relief were granted. Then it becomes a matter of seeing if, in all the circumstances of the case, the Court should nonetheless exercise its discretion by declining to issue an interlocutory injunction."

38 Likewise in Meagher Gummow and Lehane, at paragraph 217, the learned authors say:

"What is meant by saying that the Court must take into account the balance of convenience and the question of hardship is that it must consider carefully what effects the granting of an injunction will have on both parties and in particular whether to grant one would cause hardship to the defendant or to refuse one would cause hardship to the plaintiff."

Serious case

39 The interlocutory hearing was conducted upon an acceptance by the defendants that the plaintiff had demonstrated a serious case. Notwithstanding that concession the defendants sought to maintain that albeit qualifying as a serious case, the plaintiff’s case was nonetheless relatively weak. [cf transcript 16-18].

40 I endeavoured to summarise the position as I understood it, by taking counsel to Appleton. The following then appears in the transcript (at [18]) where I summarised the matter for the purposes of senior counsel for the plaintiff:

“His Honour: Can I just say this if I may… when I mentioned Justice McClelland... [it included]

"The degree of probability or likelihood of success is simply that which the court thinks sufficient in the particular case to warrant preservation of the status quo and the degree of likelihood of success to be demonstrated is that which the court thinks sufficient in the particular case to warrant consideration of where the balance of convenience lies."

And as I understood the submission by both Mr Walton and Mr Rushton, they accepted that there was sufficient in terms of the degree of likelihood of success here demonstrated as in this particular case, to warrant consideration of where the balance of convenience lies.”

The overall litigious position

41 These proceedings have proved to be the third set of proceedings of relevance commenced over the past few months. In particular:

· On 27 April 2005 Sky Channel Marketing Pty Ltd commenced proceedings against AJC, STC and TVN in the Commercial List of this Court [“the first Commercial List proceedings"].

[In these proceedings Sky asserts that AJC, STC AND TVN have breached certain 'first and last' rights which would otherwise have entitled Sky to obtain certain broadcast rights]

· On 2 June 2005 TVN commenced proceedings against Sky Channel, Tabcourt and associated companies in the Federal Court [545/2005-Victorian Registry].

[In the Federal Court proceedings TVN makes sundry claims of breaches of Part IV of the Trade Practices Act said to be constituted by inter alia the terms of the Pay TV Agreement asserted as including covenants that Austar would not make available to its subscribers any services transmitting coverage of thoroughbred, harness all greyhound race meetings other than Sky Racing [clause 3.2 is referred to as "the Lock-out Term" cf Statement of Claim paragraph 47]. The proceedings claim inter alia a declaration that by entering into the Pay TV Agreement, Sky Channel has engaged in the practice of exclusive dealing within the meaning of s 47 (2) of the Trade Practices Act 1974]

42 The rights in question in the first Commercial List proceedings broadly described as arising under other agreements [and referred to during the hearing before me as "the jewels in the Crown"] are:

· the Pay TV rights to all Victorian races (ie the right to broadcast them to homes on a Pay TV platform such as Foxtel or Austar);

· the ‘Commercial Rights’ to broadcast all Victorian races (ie the rights to broadcast them to pubs, clubs, TAB agencies and various other commercial premises); and

· the Commercial Rights to broadcast the AJC’s and STC’s races.

The issues litigated on the interlocutory hearing

43 The interlocutory hearing was conducted over in excess of one day. Substantial material was mobilised by each of the parties by way of affidavits and very detailed submissions were addressed to the Court.

44 It is appropriate to summarise the parameters generally the subject of evidence and submissions:

·

· There was much focus put by both parties upon a very close examination of what had generally been agreed upon by way of the approach to be taken to the then extant first Commercial List proceedings and Federal Court proceedings, the contention by Sky being that as noted in the Short Minutes of Order made on or about 15 June 2005, the parties [apparently embracing such of the parties to these present proceedings as are joined also in the Federal Court proceedings] had agreed in principle and subject to the Court's agreement that:

- following the close of pleadings, the matter would proceed by way of the determination of separate questions under Part 31 rule 2 which would resolve the issues raised by the pleadings other than those concerning Part IV of the Trade Practices Act;

- the question of whether the proceedings would be cross vested to the Federal Court would await the determination of the separate questions.

·

· All parties closely addressed questions of the balance of convenience through a variety of routes examined below, the cross contentions being that damages would be an adequate remedy as far as the other party was concerned but not as far as it was concerned.

Exploring these matters in more detail

45 It is quite plain that Austar has eschewed taking the route of giving to Sky a clause 16.1 notice to remedy breach. Austar clearly accepts that the Pay TV Agreement is presently on foot. Its approach [notwithstanding the recent events] is to submit that it has been and remains entitled to await determination of the first Commercial List proceedings and arguably of the Federal Court proceedings, in order to ascertain whether or not the Agreement is enforceable. It is appropriate to infer that this stance is heavily influenced by a sound realisation that to take a misconceived step by way of electing to terminate the Agreement on the basis of an event of default having occurred [where in fact no such event of default has occurred] may very well lead to substantial damages being recovered by Sky in the event that Sky was to determine to accept Austar's action as a repudiation. It is important to keep steadily in mind that the Pay TV Agreement constitutes a license the term of which as matters presently stand, is still to continue for another eight years.

46 In terms of the principled approach to the exercise of the discretion as to whether or not the Court should grant the injunctive relief sought by Sky, the considerations to be taken into account include:

· the fact that Austar, so long as the Pay TV Agreement is on foot and regardless of the fact that its enforceability is to be tested in curial proceedings, must accept that prima facie it is bound by the Agreement;

· the legal position created by clause 16.1.

47 Whilst ever Austar fails to take action to validly terminate the extant Agreement, it is clearly disentitled from breaching that Agreement. Yet that is precisely what it has been about doing in its decision to permit TVN to transmit its product over Austar. It comes before the Court claiming that the entirety of injunctive proceedings commenced by the innocent party seeking to maintain the status quo, should on balance of conveniences considerations, be seen to overwhelmingly favour a radical movement away from the position ante.

48 In relation to the clause 16.1 question it is of course inappropriate for the Court presently to travel into the proper construction of this clause. It suffices to make the point that, unlike the clause under consideration in Burger King v Hungry Jack's [2001] NSWCA 187, where the material provisions required a particular notice to be given in respect of any breach "capable of cure ", clause 16.1 (a) has no such express qualification. In the Court of Appeal the joint judgment accepted as a correct statement of principle the following proposition laid down by Sugarman J in Batson v De Carvalho (1948) 48 SR (NSW) 417at 427:

"To 'remedy' a breach is not to perform the impossible task of wiping about-of producing the same condition of affairs as if the breach had never occurred. It is to set things right for the future, and that may be done even though they have for some. Not been right, and even though that may have caused some damage to the lessor…. A breach may be remedied … even though the time for doing the thing under the covenant may have passed."

Looking in two directions

49 It is also clear that up until the recent events the respective parties had in fact agreed to the course of conduct stipulated in the note to the above described Short Minutes of Order. What has in fact occurred is that Austar has now determined to look in two directions at the same time:

· the first was previously to patiently await determination by curial proceedings of questions concerning the enforceability of the Pay TV Agreement and then to presumably review the strict contractual position;

· the second now approach is to move into a direct breach of the express terms of the Agreement, yet continuing to eschew engaging the notice to remedy/event of default provisions.

Express negative contractual stipulation

50

Sky has sought to rely upon the proposition that:

"[A] judge should lean against refusing an injunction on discretionary grounds in the case of breach of a negative stipulation; perhaps it means no more than that a judge may not refuse an injunction in such a case merely because he regards the stipulation as unfair or unreasonable…”
Meagher Gummow and Lehane Equity Doctrines and Remedies, fourth edition at [21-195]

51 It is of course well accepted that "[e]very exclusive license or right imports a negative, and the person who confers it, impliedly enters into a negative undertaking to do nothing to contravene it": O’Keefe v Williams (1910) 11 CLR 171 at 211.

52 Ultimately the exercise of the discretion whether to grant or to refuse injunctive relief is not constrained by any particular circumstance, not even the circumstance that what is in play constitutes an express negative stipulation. However in exercising the discretion the Court takes into account the significance of the parties having expressly stipulated for an express negative covenant. And very importantly the Court keep steadfastly in mind the proposition that "[s]ubject to the established limits on the grant of specific performance and injunctions, in Australian law each contracting party may be said to have a right to the performance of the contract by the other": Zhu v The Treasurer of the State of New South Wales [2004] HCA 56 at [129], per Gleeson CJ, Gummow, Kirby, Callinan and Heydon JJ.

Balance of convenience

53 Notwithstanding the plethora of evidence adduced before the Court in relation to these issues are able to be explained relatively briefly.

54 Sky contends as follows:

·

·

· it is extremely difficult to quantify the value to Sky of a loss of exclusivity;

· once exclusivity is lost, it is very difficult for it to be restored;

· if Austar is permitted to enter into agreements with customers under which those customers subscribe to the TVN Channel in contravention of clause 3.2, this will create multiple third party rights and will make the obtaining of a permanent injunction by Sky must more difficult even if its position in these proceedings and in the Federal Court proceedings is ultimately vindicated;

· leaving Sky to its remedy and damages will also not address the detriment it will suffer as a result of the undermining of its position in the Sky Channel proceedings it has brought in this Court (Warner, paras 25 and 32);

· Sky will also suffer damage to its reputation if the Court does not protect its exclusive right by way of interlocutory injunction (Warner, para 34).

55 Sky has adduced evidence which to my mind in the context of the present application may be accepted as of substance, that at a practical level, if Austar is permitted to enter into numerous agreements with customers under which those customers subscribe to the TVN Channel, it may be more difficult, because of the intervention of multiple third party rights, for Sky Channel to obtain a permanent injunction, even if its position in these proceedings and the TVN proceedings is ultimately vindicated. The consequence of the Court refusing to grant an interlocutory injunction at this stage is therefore likely to be that the very issue concerning the Pay TV Agreement which is central both to these proceedings and to the relevant part of the TVN Proceedings will have been pre-judged once and for all.

56 There is also adduced evidence by Sky that it has legitimate concerns that TVN, as a competitor, should not be able to profit from what ultimately turns out to be a wrongful dealing with Austar in breach of Sky Channel’s rights. The evidence is that while Sky Channel has no objection to competition which does not transgress its long-term enforceable contractual rights, it is concerned that it should not be prejudiced if, at the end of the TVN Proceedings and these proceedings, the Pay TV Agreement is upheld and Sky Channel has, in the meantime been deprived of its exclusivity in a way which has allowed its competitor to build up its competing business.

57 Sky has also adduced evidence that it is likely that there will be damage to Sky Channel’s reputation – irrespective of the merits of its legal position – if, customers having been permitted to sign up to the TVN Channel, are subsequently deprived of it because Sky Channel’s rights are vindicated by the Court. Sky Channel is likely to be seen (unfairly) as responsible for those customers then being deprived of a product they have been enjoying in the interim period while the proceedings were being determined. Likewise it seems to me that this evidence has material weight.

58 I note also Sky's contention that if it should succeed in the first Commercial List proceedings, then, even if Austar’s construction of clause 8.2 of the Pay TV Agreement is correct, Sky will not be in breach of the clause because it will have the rights to all (and therefore more than 65% of) Victorian races.

59 There is also presently before the court evidence to the effect that the continued exclusivity of Sky on Austar, and thus its continued attractiveness to racings clubs, is important to ensure that Sky can continue to meet its minimum content requirements.

60 The fear is that one result of the loss of such exclusivity if Austar is permitted to transmit to the TVN Channel may be that, even if Sky is ultimately successful, race clubs will have moved away from Sky or will not have signed with Sky because it has become less attractive to them.

61 A further focus of the evidence adduced by all parties has concerned whether or not Sky is likely to be adversely affected by advertisers or sponsors in the event that its exclusivity entitlement be breached.

The broader picture

62 A principle focus addressed by both Austar as well as TVN has concerned:

· suggestions that the TVN Channel [even if transmitted on Austar alongside the Sky Channel], is in truth not shown to be in competition with Sky;

· the effect upon subscribers in regional and rural Australia of denying TVN and entitlement to broadcast over Austar .

63 These matters may be shortly summarised by simply setting out certain of the paragraphs from the affidavit of Mr Sweeney the Chief Executive of TVN, who deposed inter alia as follows:

“In fact, the Sky Racing Channel and the TVN Channel do not broadcast the same content as each other. The TVN Channel is the only channel in Australia providing coverage of Victorian Races, Sydney Races and Darwin Races. The Sky Racing Channel is the only channel in Australia providing coverage of other thoroughbred races and race meetings, and the only channel in Australia providing coverage of greyhound and harness races and race meetings.

Furthermore, Australian thoroughbred, greyhound and harness races are never scheduled to run at the same time. It is thus possible for viewers, if they are so inclined, to watch every single thoroughbred, greyhound and harness race conducted in Australia which is transmitted via the Sky Racing Channel and the TVN Channel.

While live Victorian Races, Sydney Races or Darwin Races are being transmitted via the TVN Channel, the Sky Racing Channel does not transmit coverage of any other live Australian thoroughbred, greyhound or harness races. Typically, the Sky Racing Channel will, while the TVN Channel is transmitting a live Victorian Race, Sydney Race or Darwin Race, transmit commentary and analysis. Similarly, while the Sky Racing Channel is transmitting live coverage of other Australian thoroughbred, greyhound or harness races, the TVN Channel does not transmit live coverage of any races, but typically transmits commentary or analysis.

Relationship between the TVN Channel and the Sky Racing Channel
Until 4 August 2005, the TVN Channel was not available to subscribers to the Austar subscription television service. Austar is the principal provider of domestic subscription television services to regional and rural Australia, with a digital subscriber base of around 385,000. This meant that, over the period from 4 May to 4 August 2005, the only way people in regional and rural Australia could view the Victorian Races, the Sydney Races and the Darwin Races on television was by going to commercial premises which had entered into arrangements with TVN for reception of TVN’s commercial subscription channel. The fact that Victorian Races, Sydney Races and Darwin Races were not available to Austar subscribers had been a matter of significant public and political debate and commentary.

TVN entered into an agreement with Austar on 3 August 2005 which took effect on 4 August 2005, by which TVN granted to Austar, among other things, a licence to transmit the TVN Channel to its subscribers. The effect of the agreement was to make the TVN Channel available to Austar’s digital subscription television subscribers upon those subscribers entering into an agreement with Austar and paying to Austar a fee of $1 per month.

The impending availability of the TVN Channel to Austar subscribers was the subject of significant publicity and commentary.

There is a fundamental difference between the way in which the Sky Racing Channel is made available to Austar digital subscribers, and the way in which the TVN Channel was made available to Austar digital subscribers between 4 August 2005 and about 1pm on 6 August 2005, when it ceased to be available by reason of the orders made by this Honourable Court on 5 August 2005. The Sky Racing Channel is available to all Austar digital subscribers, whether they want it or not, because it forms part of the basic package of channels made available to all subscribers. The TVN Channel, on the other hand, has never been available as part of the basic package of channels made available to Austar digital subscribers. Instead, Austar digital subscribers wanting access to the TVN Channel had to enter into a separate agreement with Austar and pay Austar $1 per month for access to the TVN Channel. It is not possible to sign up for access to the TVN Channel through Austar without being an Austar digital subscriber. Every Austar digital subscriber automatically gets access to the Sky Racing Channel. In other words, if any person signed up with Austar for the purpose of obtaining access to the TVN Channel, that person automatically gains access to the Sky Racing Channel. The Sky Racing Channel therefore did not lose any subscribers by reason of TVN being made available to Austar digital subscribers.

Austar/TVN Subscribers
Austar entered into agreements with more than 6,000 subscribers for access to the TVN Channel on 4 and 5 August 2005 (‘Austar/TVN Subscribers’). The TVN Channel was available to those subscribers via Austar’s digital subscription television service until about 1pm on 6 August 2005.

From discussions with executives at Foxtel, I anticipated that over the course of a year of consistent promotion of the TVN Channel from its commencement date on 4 May 2005, around 10–15% of Foxtel’s digital subscribers would subscribe to the TVN Channel. The TVN Channel has been available to Foxtel’s digital subscribers since 4 May 2005 and has so far captured around 5% of Foxtel’s digital subscriber base. That take-up rate is surprisingly high, given that the major race meetings on the annual calendar take place in autumn (typically from mid-February until the Saturday after Easter) and spring (typically from 1 October until mid-November). I expect the number of Foxtel digital subscribers taking up the TVN Channel to increase substantially as the Spring Racing Carnival approaches, and I therefore believe that TVN is well and truly on track to exceed 10% of Foxtel’s digital subscribers in its first year.

For similar reasons, I would anticipate that, over the course of a year of consistent promotion, at least 10–15% of Austar’s digital subscription television base would enter into agreements with Austar for access to the TVN Channel. The figure is likely to be even higher because the bulk of thoroughbred breeding, training and racing is undertaken in country areas, and as a result there is a high level of interest in racing in regional and rural Australia. I note that during the brief period on 4 and 5 August 2005 when Austar digital subscribers were able to enter into agreements for access to the TVN Channel, more than 1.5% of the available subscribers signed up.”

Dealing with these issues

64 In my view it is a fairly blinkered view which suggests that in truth the TVN and Sky Channels, cannot be said to be competitive with one another. Whilst it is no doubt true that a subscriber to Austar may elect whether or not to view one rather than the other Channel, this is not to say that the whole of the exercise involved in providing both channels on Austar, demonstrates a lack of competition. The competition which would exist where Sky loses its exclusivity involves questions of high significance including: the attitude of advertisers and additionally the possibility of race clubs moving away from Sky or determining not to further sign new contracts with Sky, simply because Sky has seemed to them to have become less attractive.

65 One has to keep in mind that it is apparently possible for the number of Pay Television subscribing viewers who access any particular Channel as at any particular time to be accurately identified.

66 The suggested effect of the grant of the injunctions sought upon subscribers who reside in regional and rural Australia cannot be gainsaid. However the impact on third parties is only one of the many factors to be taken into account in the principled exercise by the Court of its discretion. Clearly another very significant and powerful factor may be seen in the following proposition taken from joint judgement in Zhu (supra at [129]:

"It is not true … to say: "the duty to keep a contract at common law means a prediction that you must pay damages if you do not keep it, -and nothing else"
["The Path of the Law", Oliver Wendell Homes (1897) 10 Harvard Law Review 457 at 462]

67

68 I have taken into account the competing evidence concerning the probable impact upon Sky of the views of advertisers or sponsors – should the injunctive relief be refused. This is simply yet another matter which is difficult to forecast but raises a potential of significant prejudice to Sky.

Decision

69 As was made plain in Appleton (supra), the task of the Court on an application for interlocutory injunction is to seek to fulfil the purpose outlined by Lord Diplock in American Cyanamid in the manner best calculated to achieve justice between the parties in the circumstances of the particular case:

"My Lords, when an application for an interlocutory injunction to restrain a defendant from doing acts alleged to be in violation of the plaintiff's legal right is made upon contested facts, the decision whether or not to grant an interlocutory injunction has to be taken at a time when ex hypothesi the existence of the right or the violation of it, or both, is uncertain and will remain uncertain until final judgment is given in the action. It was to mitigate the risk of injustice to the plaintiff during the period before that uncertainty could be resolved that the practice arose of granting him relief by way of interlocutory injunction; but since the middle of the nineteenth century this has been made subject to his undertaking to pay damages to the defendant for any loss sustained by reason of the injunction if it should be held at the trial that the plaintiff had not been entitled to restrain the defendant from doing what he was threatening to do. The object of the interlocutory injunction is to protect the plaintiff against injury by violation of his right for which he could not be adequately compensated in damages recoverable in the action if the uncertainty were resolved in his favour at the trial; but the plaintiff's need for such protection must be weighed against the corresponding need of the defendant to be protected against injury resulting from his having been prevented from exercising his own legal rights for which he could not be adequately compensated under the plaintiff's undertaking in damages if the uncertainty were resolved in the defendant's favour at the trial."

70 Having carefully taken into account to the extent necessary the strength of the so-called 'serious case', and the balance of convenience [weighed in light of the entirety of the evidence], the principled exercise of the relevant discretion requires that the Court make the interlocutory orders sought. The contention that Sky should be limited to its damages as an adequate remedy is rejected. Those orders will be made pending determination of the final hearing.

I certify that paragraphs 1 - 70
are a true copy of the reasons
for judgment herein of
the Hon. Justice Einstein
given on 11 August 2005

___________________
Susan Piggott
Associate

11 August 2005