Tytel Pty Ltd v Australian Telecommunications Commission

[1986] FCA 259

Re: TYTEL PTY. LIMITED; TYREE TELECOM PTY. LIMITED AND TYCOM PTY. LIMITED
And: AUSTRALIAN TELECOMMUNICATIONS COMMISSION
No. G355 of 1985
Trade Practices - Interlocutory Injunction

COURT

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Jackson J.

CATCHWORDS

Trade Practices - application for interlocutory injunction - premium business telephones - whether contravention of s. 46(1) - whether Telecom a corporation within Trade Practices Act - whether relevant market for goods and services - whether Telecom in a position substantially to control that market - whether Telecom taken advantage of power for proscribed purpose.

Trade Practices Act 1974, ss. 2A, 4(1), 46(1)(a), (c), (3), (4).

Telecommunications Act 1975, ss. 13(1) (b), (2), 21(1), 80(1), 94(1)(b), (2), (3).

Victorian Egg Marketing Board v. Parkwood Eggs Pty. Ltd. (1978) 33 FLR 294.

Interlocutory Injunction - whether serious question to be tried - inappropriateness of making findings of fact requiring resolution of questions of credibility of witnesses - balance of convenience - interest of public - whether damages adequate compensation were applicant to succeed at trial.

Epitoma Pty. Ltd. v. Australasian Meat Industry Employees' Union (1984) 3 FCR 55.

Bullock v. The Federated Furnishing Trades Society of Australasia (1985) 5 FCR 464.

Strathfield Car Radios Pty. Ltd. v. Ryda Car Radios Pty. Ltd. (unreported - Neaves J. 11th June 1986).

World Series Cricket Pty. Ltd. v. Parish (1977) 16 ALR 181.

American Cyanamid Co. v. Ethicon Ltd. (1975) AC 397.

HEARING

SYDNEY

#DATE 7:7:1986

Counsel for the applicant: C.A. Sweeney with M.J.R. Huntington (until and including 24 April 1986).

Solicitors for the applicant" Minter Simpson.

Counsel for the respondent: G.K. Downes, Q.C. with B.J. Camilleri (first day only) and Dr. G.A. Flick.

Solicitors for the respondent: Australian Government Solicitor.

ORDER

1. The application for an interlocutory injunction is refused.

2. The respondent is to retain and make available to the solicitors for the applicants records showing the quantities of telephones sold until trial, together with the dates of sale and the prices at which the sales occur.

Note: Settlement and entry of orders is dealt with by Order 36 of the Federal Court Rules.

JUDGE1

These are proceedings in which the applicants seek relief against the respondent, the claims for relief being based on a number of causes of action alleged to arise under ss. 46 and 52 of the Trade Practices Act 1974 and under the general law. In respect of one of the causes of action based o a contravention of s. 46, an application has been brought for an interlocutory injunction restricting the freedom of the respondent in its sales to the public of a telephone known as the "Versatel". It is that application with which I am presently concerned.

1. Some of the background circumstances relating to the application for the interlocutory injunction were not, or are no longer, in dispute and I shall mention them at this point.

2. Telephone handsets in Australia may be either rented from the respondent - in the case of the simpler models - or may be purchased from the applicants or other persons who sell telephones.

3. The Versatel is one of a group of telephones which are described in the market as "premium", i.e. top of the range, telephones. They are "Multi-featured" and it is probably strictly inaccurate to describe them as handsets because one of their modes of ooperation, one of their "features", is "hands-off operation". Although there are other telephones which might compete with the Versatel, its principal competitors are the Teleace FP-1000 (the "Teleace"), a telephone marketed in Australia by Access Communications Pty. Ltd. ("Access"), and the "731", a telephone marketed in Australia by the first and third applicants.

4. The Versatel and the Teleace are both manufactured by Nitsuko in Japan and, apart from the design of the case and the arrangement of the exterior parts of the telephone, appear to perform essentially the same functions.

5. The Teleace was the first premium telephone sold wisely in the market in Australia and it has been sold from about October 1982 by Access. For practical purposes it was without a serious competitor until October 1984 when the 731 came on the market.

6. The respondent was conscious of the fact that whilst it had a range of telephones for sale, it did not have a telephone for sale in the premium telephone market. It was very keen to enter that market and it did so with the Versatel in June 1985. At that time, the price at which it offered to sell the Versatel was $299.00 per unit, but the price might be less if quantities of ten or more were being purchased. The price was increased to $349.00 from $299.00 in late July 1985, and it is now $399.00.

7. As I have said above, the applicants' case for present purposes is based on s. 46 of the Trade Practices Act, which provides relevantly that:-
   
   "(1) A corporation that is in a position substantially
   

to control a market for goods or services shall not take advantage of the power in relation to that market that it has by virtue of being in that position for the purpose of-

(a) eliminating or substantially damaging a person, being a competitor in that market or in any other market of the corporation ...;

(b) deterring or preventing a person from engaging in competitive conduct in that market or in any other market.

(3) A reference in this section to a corporation or other

body corporate being in a position substantially to control a market for goods or services includes a reference to a corporation or other body corporate, as the case may be, having, by reason of its share of the market, or its share of the market combined with the availability to it of technical knowledge, raw materials or capital, the power to determine the prices, or cotrol the production or distributio, of a substantial part of the goods or services in that market.

(4) A reference in this section to substantially

controlling a market for goods or services shall be construed as a reference to substantially controlling such a market either as a supplier or as an acquirer of goods or services in that market."

and the first question which arises is whether the applicant has shown that there is a serious question to be tried on the issue whether there has been a contravention of s. 46(1). See Epitoma Pty. Ltd. v. Australasian Meat Industry Employees' Union (1984) 3 FCR 55, Bullock v. The federated Furnishing Trades Society of Australasia (No. 1) (1985) 5 FCR 464 and the observations of Neaves J. on the point in Strathfield Car Radios Pty. Ltd. v. Ryda Car Radios Pty. Ltd. (11th June, 1986 - as yet unreported).

1. The elements of s. 46(1) which are relevant for present purposes may be summarized as follows. First there must be a "corporation". Secondly there must be a market for goods or services. Thirdly the corporation must be in a position substantially to control the market to which I have just referred. Fourthly the corporation, for a purpose specified in one of the paragraphs of s. 46(1), must have taken advantage of the power that it has in relation to that market by virtue of being in that position.

2. I shall consider these elements in turn.

3. There is little doubt that the respondent is to be treated as if it were a "corporation" for the purpose of s. 46(1). It is a body corporate (Telecommunications Act 1975, s. 21(1) established for a purpose of the Commonwealth by or under a law of the Commonwealth (the Telecommunications Act) and is thus an "authority of the Commonwealth" for the purposes of the definition of that term in s. 4(1) of the Trade Practices Act. It in fact carries on a business, indeed a number of businesses, including the business of selling telephones to the public for attachment to the telecommunications service provided by the respondent. In those circumstances s. 2A of the Trade Practices Act would make that Act applicable to the respondent as if it were a "corporation" as defined by that Act.

4. I should observe in passing that, as had the parties before me, I shall assume for present purposes that the Telecommunications Act does empower the respondent itself to sell telephones to the public for attachment to the telecommunications service. I express no opinion, however, on the correctness of the assumption and on the consequences which should ultimately follow if it is not.

5. The second question is whether there is a relevant "market" for goods or services. Whilst the parties are in agreement that there is a market, an Australia-wide market, for premium telephones, the applicants contend also that there are several other relevant, or potentially relevant, markets namely:-
   
   (a) the market for the supply of telecommunications
   

services;

(b) the market for the supply of standard telephones; and

(c) the market for the supply of small business systems.

("Standard" telephones, I may mention, are those which are supplied by the respondent when it supplies a telephone service. The handset is the property of the respondent and the subscriber pays rental for it. The rentals payable for the standard services appear to be those referred to in s. 11(1) of the Telecommunications Act.)

1. It seems clear enough that the several markets to which I have referred do exist. The real question at this point is that which would next arise, namely whether the respondent in question was in a position substantially to control all or any of those markets. Before moving to that question, however, I should mention two preliminary observations concerning the meaning of s. 46(1). The first is that the opening words of s. 46(1) recognize that the corporation whose conduct is in issue may not be actually exercising the power to control a relevant market. It is sufficient if, whether by reason of the factors enumerated in s. 46(3) or otherwise, it is in a position substantially to control that market. See Victorian Egg Marketing Board v. Parkwood Eggs Pty. Ltd. (1978) 33 FLR 294 at 302, 314. Secondly, there may be a contravention of s. 46(1) notwithstanding that the market power taken advantage of is taken advantage of for a proscribed purpose in relation to a market other than that in which it exists. See the references to "any other market" in ss. 46(1)(a) and 46(1)(c).

2. The applicants contend that at all times the respondent was in a position substantially to control the market for premium telephones, even prior to its entry into it. They support that contention by pointing to the evidence that the respondent "had in place" a nationwide distribution organization with many "Telecom Business Offices" throughout Australia, and to a number of matters deriving ultimately from the respondent's position under the Telecommunications Act. Thus it is pointed out that subject to the exceptions referred to in s. 94(2) the respondent is the sole operator of the telecommunications network in Australia, that its approval is required before its competitors' telephones may be attached to that system, and any such attachment is on terms and conditions fixed by the respondent. See ss. 13(1)(b), 13(2), 94(1)(b) and 94(3). The respondent, it is also pointed out, is not subject to taxation under a law of the Commonwealth, a State or a Territory (s.80) and thus is placed in a financial position potentially superior to that of its competitors. Further it is contended that the respondent has "unlimited capital resources" and is thus able to withstand losses or lower profit levels far longer than its competitors.

3. Whether it is ultimately proper to take all these matters into account is a matter to be determined at the final hearing. It seems to me clear, however, that in relation to the market for premium telephones there is sufficient on which one might form the view that the respondent was in a position substantially to control that market either prior to or immediately upon entry into it. In so saying I am conscious of the fact that at the time when Access was the only substantial participant in that market, it might have been said that Access also was in the position substantially to control the market. The terms of s. 46(1) do not seem necessarily to require that only one corporation satisfy the test at any one time.

4. I am also satisfied that the factors to which I have referred make it proper - at least for the purposes of this application - to treat the respondent as being also in a position substantially to control the larger market, the market for supply of telecommunications services overall. In these circumstances it is unnecessary to consider the other two markets to which reference has been made.

5. Having said that it is then necessary to consider whether there has been a taking advantage of that power for a purpose specified in s. 46(1)(a) or s. 46(1)(c).

6. The applicants' case on this point is put essentially on two bases. The first, and narrower, basis is that in fixing the price at which it would sell the Versatel, the respondent deliberately chose not to apply a "competitive loading" principle which it should have applied.

7. In order to make intelligible the submission to which I have just referred, I should return to s. 80(1) of the Telecommunications Act which provides, inter alia, that the respondent "is not subject to taxation under any law of the Commonwealth". Customs duty is thus not payable by the respondent. In 1981, however, in order amongst other reasons to avoid possible criticism that the exemption from taxation gave it an unfair competitive advantage, the respondent commenced to calculate its prices for the sale of imported telephones and other equipment as if customs duty had been paid by it. That additional amount is described as the "competitive loading".

8. It is agreed in the present case that no competitive loading was in fact applied in fixing the price at the time when the Versatel first went on the market. It is also agreed that the customs duty applicable if the Versatel were manufactured in and imported from Japan would have been 30 percent and that no customs duty was applicable if the Versatel were manufactured in and imported from Taiwan.

9. The references to manufacture in Japan and Taiwan are material because the contract by which the respondent was to be supplied with the Versatel telephones was a contract dated 2nd April 1985 made between Standard Telephones & Cables Pty. Ltd. and the respondent. It specified the country of manufacture of the telephones to be supplied thereunder as Taiwan. It appears now to be accepted, although the matter was in issue at the commencement of the hearing, that no Versatel telephones supplied pursuant to that contract were in fact manufactured in Taiwan. All were manufactured by Nitsuko in Japan. Thus, in accordance with the policy as to competitive loading, a figure should have been included in the calculation of prices for a notional 30 percent customs duty.

10. The applicants' counsel put to me that I should not accept the evidence of a number of officers of the respondent that it was only relatively recently (30th January 1986 in the case of Mr Eaton and December 1985 in the case of Mr Maddock) that they became aware that the Versatels supplied were in fact supplied from Japan rather than Taiwan and that I should find that at all material times the responsible officers of the respondent knew that the telephones would be, and were being, supplied from Japan and that the decision not to include a competitive loading in the calculation of the price of the Versatel was taken deliberately in order to arrive at a very low price at which the respondent might enter the premium telephone market. Considerable cross-examination was directed to the respondent's officers with a view to showing that that was the case, and that there had been deliberate concealment of the fact of knowledge by the respondent of the Japanese manufacture of the Versatel.

11. As I have said, I was invited by the applicants to make findings along the lines to which I have just referred. I was also invited to make findings on the second basis on which a contravention of s. 46(1) was contended to have occurred, namely what whatever be the method by which the respondent arrived at the price at which it put the Versatel on the market, the ultimate purpose of putting it on the market at the price of $299.00 was to use the respondent's market power to remove Access and the first and third applicants from the market for premium telephones.

12. To make findings of the nature to which I have referred would require the resolution of questions of credibility of witnesses. I decline the invitation to do so. I regard it as quite inappropriate, and as one which should not have been made. As I have said earlier all that I have to determine, on this aspect of the application before me, is whether there is a serious question to be tried and as Bowen C.J. said in World Series Cricket Pty Ltd. v. Parish (1977) 16 ALR 181 at 186:-
    
    "... where the facts are seriously in dispute, the court
    

will not undertake a preliminary trial of the action in order to forecast a probable result, but rather, if the plaintiff has a fair chance of success (and what will be required will vary according to the nature of the case), the court will proceed to look to the balance of convenience."

1. In American Cyanamid Co. v. Ethicon Ltd. (1975) AC 396, the House of Lords, per Lord Diplock, emphasised at 407 that:-
   
   "It is no part of the court's function at this stage of
   

the litigation to try to resolve conflicts of evidence on affidavit as to facts on which the claims of either party may ultimately depend nor to decide difficult questions of law which call for detailed argument and mature considerations. These are matters to be dealt with at the trial."

1. Lord Diplock was speaking, it is right to observe, in a context where cross-examinatio of the deponents to affidavits is not the practice on such an application. Whilst cross-examination on affidavits in applications for interlocutory injunctions is frequently permitted in Australia, the point of His Lordship's observation remains. The making of findings of fact, particularly findings based on views as to credibility, must be a potential embarrassment to any Judge coming later to try the matter, especially when as here those findings have been made in proceedings where there has been evidence on one only of a number of causes of action. In my view it would be wrong for me to make the findings of fact sought by the applicants, and I return to what I regard as the true issue, namely whether there is a serious question to be tried.

2. I take the view that there is such a question, and I do so because on one view of the oral evidence such findings might be made and because one view of some of the documentary evidence supports the contention that the respondent knew that the Versatel telephones were made in Japan, and not in Taiwan. In this regard the Versatels came packed in large boxes which stated on the outside that they were made in Japan and there are also some relevant internal documents of the respondent. For example Annexure "T" to Mr Eaton's affidavit of 7th February 1986, a memorandum of January 1985 from Mr Gurrie, the respondent's "Manager - Telephones", concurred in by its "Manager - Tariffs", to its "General Manager - Commercial Services" who then approved it, contained a statement by Mr Gurrie that:-
   
   "MARKETING OBJECTIVES
   

The introduction of VERSATEL to the sale telephone range is designed to enable Telecom to compete in the market for advanced, multi-feature telephones, and thereby entrench Telecom's position as the leading supplier of high-quality telephones.

The multi-feature market is currently dominated by a competitive product - the Nitsuko Teleace - which is available from a number of telephone and PABX suppliers at prices ranging from $315 - $375. VERSATEL and Teleace are both manufactured by Nitsuko in Japan and provide similar features; VERSATEL offers a new design which is quite distinct from that of Teleace.

At the proposed sale price of $299, VERSATEL will represent exceptional value for money, and its competitive pricing would facilitate Telecom's successful entry into this strategically important market segment."

1. Again Mr Maddock, then the respondent's Manager - Telephones referred in a memorandum (Annexure "M" to his affidavit of 5th March 1986) to deliveries of the Versatel being "ex-Japan". That memorandum appears to have been written in April 1985. There are other documents of the respondent which suggest early knowledge in the respondent that the Versatel was not being made in Taiwan. There are also other documents which on one view of them suggest that officers of the respondent, knowing that competitive loading should have been, but had not been, applied were being devious in concealing that matter. I refer in particular to Exhibit "BE", a letter dated 19th August 1985 from the respondent to the Secretary, Department of Communications and the draft (part of Exhibit "BD") preceding it.

2. All in all there appears to me to be evidence which, if accepted, is open to the interpretation that the respondent used its power in the market to set a low price for the Versatel for its introduction to the market for premium telephones, and did so for the purpose of substantially damaging the first and third applicants in tersm of s. 46(1)(a), or for the purpose of deterring them from engaing in competitive conduct in that market in terms of s. 46(1)(c).

3. I turn then to consider the second question which arises, the balance of convenience and it is convenient in doing so first to set out the orders formally sought. They appear in the amended Application as follows:-
   
   "THE APPLICANTS CLAIM by way of interlocutory relief:
   
   5. Until hearing of the proceedings or further order an
   

order that the respondent be restrained from supplying or offering to supply the "Versatel" telephone to any person at any price lower than $495.00.

6. Alternatively, until hearing of the proceedings or

further order an order that the respondent be restrained from supplying or offering to supply the "Versatel" telephone to any person at any price lower than the retail price being charged by the first applicant for telephone model No. 731 from time to time.

7. Alternatively, until hearing of the proceedings or further

order an order that the respondent be restrained from supplying or offering to supply the "Versatel" telephone at any price lower than the retail selling price calculated by reference to the costing and contribution analysis set out below:-

1. Escalated price

2. Competitive loading (30% of 1)

3. Escalated price plus competitive loading

4. Sales tax loading (20% of 3)

5. NOTIONAL IN-STORE COST TO RESPONDENT

6. Stores handling (20% of 5)

7. Finance holding costs (2% of 5 per month)

8. Promotional and selling expenses

9. Warranty costs

10. TOTAL LOADED COSTS

11. ADD mark up

12. RETAIL SELLING PRICE"

1. I should add that particulars were given of the figures to be used in the calculation in paragraph 7 and there were further figures used in oral argument.

2. As will be seen from the terms of the orders sought they are in essence orders fixing, or regulating, the price at which the respondent should be permitted to sell the Versatel. At the hearing I was invited - albeit faintly - to make an order prohibiting the respondent from selling the Versatel prior to trial but I can see no basis on which I should adopt such an approach. Why the public should not be permitted to purchase the Versatel, if they wish to, in that period is not apparent.

3. The reference to the interests of the public is relevant, of course, to the "balance of convenience" in cases such as the present because the interests to be taken into account are not simply those of the competitors in the market, but also those of the public in whether s. 46(1) is, or is not, enforced. See e.g. World Series Cricket Pty. Ltd. v. Parish (supra) at 190-191. The second applicant in any event, is not relevantly a competitor of the respondent.

4. Having said that, however, many of the considerations applicable in ordinary litigation inter partes yet have some application to cases of this kind. In particular the observation of Lord Diplock in American Cyanamid Co. v. Ethicon Ltd. (supra) at 408 that the court in determining whether to grant or refuse an interlocutory injunction:-
   
   

"... should first consider whether, if the plaintiff were to succeed at the trial in establishing his right to a permanent injunction, he would be adequately compensated by an award of damages for the loss he would have sustained as a result of the defendant's continuing to do what was sought to be enjoined between the time of the application and the time of the trial. If damages in the measure recoverable at common law would be adequate remedy and the defendant would be in a financial position to pay them, no interlocutory injunction should normally be granted, however strong the plaintiff's claim appeared to be at that stage."

has not lost all its relevance.

1. In the present case I am not satisfied on the evidence that damages would be an inadequate remedy to compensate the first and third applicants for the losses they may sustain by reason of a contravention by the respondent of s. 46(1) in relation to the price of the Versatel prior to trial.

2. If the applicants succeed at the trail in establishing a contravention of s. 46(1) by the respondent there will be no particular difficulty in establishing the financial loss suffered by the applicants in consequence of the contravention. The question of the award of damages, of course, will turn on whether the applicants' evidence as to the expected sales of and profits from the 731 is accepted, and if so to what extent, but the case is not one where, at least so far as damages occasioned by lost sales are concerned, likely difficulties in compensation make an interlocutory injunction desirable. Further the applicants have not shown, to my mind, that they will suffer any other loss to trial, such as a loss of position in the market, which cannot be compensated for by damages or other suitable relief at the trial.

3. What appears, of course, is that the applicants have largely ceased to sell the 731 because at the price at which they have to sell it to make it competitive with the Versatel, there is no profit to be made from it but I am not satisfied on the evidence that the price at which the Versatel is now being sold, i.e. the $399.00, is not one which the respondent might quite properly, i.e. without contravention of s. 46(1), charge for the Versatel.

4. I am also not satisfied that the public interest requires me to fix a price for the Versatel pending the resolution of these proceedings. As I have said I am not satisfied that the current price of $399.00 is not a price which the respondent might quite properly charge. It was also apparent from Mr Tyree's evidence that unless the price fixed for the Versatel by an interlocutory order were about $550.00, there would be no point in the applicants re-entering the market actively. If the price for the 731 would then go to the same level.

5. The result, it seems to me, would not benefit the public because it would resullt in higher prices. Further I am not satisfied that an attempt to fix the price of the Versatel prior to trial would be practically effective to balance the rights of the parties pending trial. To be fair to both I would have to fix a price for the 731 also and the market would then be left in the curious situation where prices of those two telephones were fixed, but Access, not a party to the proceedings, could charge what it chose for the Teleace.

6. In these circumstances I am not satisfied that the balance of convenience, in the senses to which I have referred to it above, requires that an interlocutory injunction be granted.

7. In taking that view I am aware that Mr Tyree contends that the financial problems of the applicants have been caused by the respondent's conduct complained of, with the result that he has had to inject funds from other sources into his companies to prop them up. Some of the losses, however, would have occurred in any event. As Lord Diplock said in American Cyanamid Co. v. Ethicon Ltd. (supra) at 408-409, however:-
   
   "Save in the simplest cases, the decision to grant or
   

to refuse an interlocutory injunction will cause to whichever party is unsuccessful on the application some disadvantages which his ultimate success at the trial may show he ought to have been spared and the disadvantages may be such that the recovery of damages to which he would then be entitled either in the action or under the plaintiff's undertaking would not be sufficient to compensate him fully for all of them."

1. The application is refused. I shall order, however, that the respondent retain, and make available to the solicitors for the applicants records showing the quantitites of telephones sold until trial, together with the dates of sale and the prices at which the sales occur.

2. I shall hear the parties as to costs.