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Federal Court of Australia |
COURT
IN THE FEDERAL COURT OF AUSTRALIACATCHWORDS
Trade Practices - Contracts between Telecom and two printing companies for the printing of telephone directories - Decision of Telecom to confine negotiations to its two current contractors - Decision to require term of agreement that Telecom have a right of veto over the use of the presses for the work of others - Whether these decisions constitute breaches of s.46 of Trade Practices Act 1974 - Nature of market in which Telecom was involved - Whether Telecom had substantial power in that market - Whether decision to restrict negotiations to current contractors was a decision taking advantage of that power - Effect of condition providing veto - Condition imposed in the exercise of market power for the purpose of preventing or determining competition - Appropriate relief.Consumer Protection - Claim of misleading conduct - Statements made by Telecom officers to applicants about being on tender list - Failure to reveal that tenders were not intended to be called for new contracts - Whether the information given amounted in all the circumstances to misleading conduct - Appropriate relief.
Administrative Law - Application for review of decisions and conduct under Administrative Decisions (Judicial Review) Act 1977 - Whether any "decision under an enactment" - Decisions to contract not made pursuant to a statute - Earlier decisions made on the way to an ultimate statutory decision but not themselves decisions envisaged by a statute or of a substantive nature - No "decision under an enactment" - Earlier conduct reviewable under ADJR Act but review futile in absence of power to avoid contracts.
Trade Practices Act 1974, ss.4E, 46, 52, 80, 82, 87.
Administrative Decisions (Judicial Review) Act 1977, ss. 5, 6, 16.
Australian and Overseas Telecommunications Corporation Act 1991, s.11.
Australian Telecommunications Corporations Act 1989, s.19.
HEARING
SYDNEYCounsel for the Applicants: C.J. Stevens QC and P. Sharp
Solicitors for the Applicants: Cutler Hughes and Harris
Counsel for the Respondent: A. Archibald QC, G. Flick and P. Anastassio
Solicitors for the Respondent: Mallesons Stephen Jaques
ORDER
THE COURT ORDERS THAT:1993 at 9.30 am or such other time as may be arranged with myNote: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. (See also Order 37 rule 2(3)).
Associate.
DECISION
WILCOX J. This case concerns the printing of Australia's telephone directories, a task which represents a significant annual expense to Telecom and a major work opportunity for Australian printers. Nearly 30 million directories are printed each year.2. Since the commencement on 1 February 1992 of the Australian and Overseas Telecommunications Corporation Act 1991 ("the AOTC Act") the entity popularly known as "Telecom" is Australian and Overseas Telecommunications Corporation Limited ("AOTC") . This entity is a company incorporated in the Australian Capital Territory. It is wholly owned by the Commonwealth government. The company is the sole respondent to this proceeding; the proceeding having been earlier dismissed as against a second respondent, the Minister for Transport and Communications. Section 11 of the AOTC Act provides that on "the succession day" - which turned out to be 1 February 1992 - all property and rights of the predecessor organisation, the Australian Telecommunications Corporation ("ATC"), should vest in AOTC and all its liabilities should be liabilities of AOTC. Where it is necessary, during the course of these reasons, to distinguish between the two entities, I will refer to "ATC" or "AOTC" as the case may be. Where it is not, I will use the term "Telecom" to refer to such entity as existed at the relevant time.
3. On 7 October 1992 Telecom made a public announcement in these terms:
"Telecom Australia has awarded two contracts worth $600 million over 104. The two contracts referred to in the announcement are in evidence in this case. They are both dated 15 September 1992. The contract which was stated to have gone to William Brooks was in fact made with an associated company, McPhersons Enterprises Pty Limited, as printer. Two other companies in the McPherson group also executed the contract in order to guarantee performance of the printer's obligations. I will use the word "McPhersons" to refer to any or all of the relevant companies in the McPherson group.
years for the printing of its White and Yellow Pages and other directory
projects.
The contracts went to Sydney-based William Brooks, a subsidiary of
McPhersons Ltd, and Melbourne-based Wilke Directories, a subsidiary of
Pacific Magazines and Printing Ltd.
Both companies have been providing Telecom with directory printing
services for more than 60 years.
Telecom general manager of directory services, Geoff Barkla, said the
contracts would facilitate $100 million of investment in advanced
printing facilities which would improve the quality and reduce the costs
of Telecom products.
Productivity would be improved by 54 per cent and Telecom would also be
able to introduce new products such as four-colour Yellow Pages, Barkla
said."
5. The other contract was executed by Wilke and Company Pty Limited as printer and Pacific Magazines and Printing Ltd as guarantor of Wilke's obligations. These two companies are members of the News Corporation group of companies. Most of the witnesses have used the word "News" to refer to Wilke and Company or Pacific Magazines. I will follow the same course.
6. The case arises out of the dissatisfaction of another printer with the way in which Telecom went about the granting of these contracts. The applicants are a partnership of three companies, General Newspapers Pty Limited, Double Bay Newspapers Pty Limited and Brehmer Fairfax Pty Limited. The partnership conducts a printery under the trade name "Hannanprint". Information about Hannanprint's history and current operations is contained in an affidavit of Michael Ashton Hannan, its Chief Executive. Mr Hannan claims that Hannanprint is the second largest printer in Australia; the largest being News. He says that Hannanprint "are arguably the owners of the most efficient magazine printing operation in Australia". Hannanprint regularly prints a large number of newspapers and magazines on presses located in Sydney, Melbourne and Dubbo. The firm is able to print four-colour publications. But Mr Hannan concedes that Hannanprint would not be able to print a publication as large as the Sydney or Melbourne Yellow Pages directory in four-colour on its existing presses. In order to perform that task, it would have to install new equipment imported from overseas. In that respect, however, it is in the same position as McPhersons and News. Both those companies need to install new equipment in order to print large directories in the four-colour format envisaged in their recent contracts with Telecom.
7. The course of the negotiations between Telecom and its two printing contractors looms large in the case made by the applicants. So I will return to the detail of those negotiations. But it is desirable first to indicate how Hannanprint is involved in the matter.
8. As will appear from my narration of the negotiations, Hannanprint indicated to Telecom its interest in tendering for the printing of some or all of Telecom's directories. An officer of Telecom, Michael Slater, inspected Hannanprint's premises in Alexandria, Sydney and reported to his superiors that Hannanprint had all the attributes necessary for undertaking Telecom's directory printing except that it would require new equipment to cope with four-colour in the larger directories. Mr Slater's assessment was accepted by Mr Barkla, Telecom's General Manager, National Directory Services, the man primarily responsible for negotiating the new contracts. In this proceeding AOTC adheres to that assessment. At the trial, counsel for the respondent expressly conceded "that, at least since February 1991, the applicants to its (Telecom's) knowledge had the necessary capacity, skill and experience to perform the whole or any part of the work required under the printing contracts entered into by the respondent with McPhersons and News, subject to obtaining suitable additional printing equipment".
9. Notwithstanding Telecom's knowledge of Hannanprint's capacity, it did not invite Hannanprint to negotiate for any part of the work. Hannanprint says that the reason for this omission was that Telecom did not wish to leave either McPhersons or News, its previous contractors, with unused capacity that would be available to anybody else who might be interested in publishing and distributing Australian telephone directories. Telecom also required McPhersons and News to agree not to use the presses employed on the Telecom contract for work on behalf of others, except with Telecom's consent. Hannanprint says that this condition stemmed from a desire to deny the presses to potential Telecom competitors. Lest the notion of competition in the publication of telephone directories seems odd, it should be observed that the publication of the Yellow Pages is a highly profitable activity. It returns Telecom an annual profit measured in hundreds of millions of dollars. Telecom's directories absorb 80-85% of Australian directory advertising expenditure and over 8% of Australian expenditure on advertising, in all media; including television, radio, newspapers, magazines, billboards etc. Hannanprint claims that the conduct of Telecom in relation to the letting of the new contracts infringed s.46 of the Trade Practices Act 1974. It also says that Telecom's responses to Mr Hannan's expressions of interest constituted misleading conduct contravening s.52 of the Trade Practices Act; and, finally, that its decisions and conduct are reviewable under the Administrative Decisions (Judicial Review) Act 1977. Hannanprint seeks an order from the Court declaring void, or setting aside, the contracts with News and McPhersons. It also seeks damages.
The course of negotiations
10. Companies now within the McPhersons and News groups have long been
involved in the printing of telephone directories. Each association
goes back
some 60 years. The evidence does not disclose how many of the previous
contracts were gained through tenders. But it
seems likely that most were.
The legislation governing Telecom whilst it was a statutory commission - that
is, before it was restructured
as a statutory corporation in January 1988 -
required the calling of tenders for all contracts exceeding a specified sum.
In 1986
the specified sum was only $50,000. There is evidence that the
contracts for telephone directory printing, governing the period
of five years
from 1 January 1988 to 31 December 1992, were let by tender. The tenders were
sought and received in 1986 and contracts
signed in October 1987. I will
refer to these contracts as "the current contracts", not withstanding that
these reasons are being
published after the expiration of the five year term.
11. McPhersons holds a current contract for printing the directories
distributed in New South Wales and the Australian Capital Territory
(approximately 40% of the whole printing job) and News a contract for the
remainder of Australia. The file of material tendered
in evidence contains a
note by the then Manager of Directory Services, B J Johnson, of a conversation
with Mel Ward, Managing Director
of Telecom, on 14 July 1987 in which Mr Ward
passed on information about McPhersons' reaction to the allocation of the
work.
"MCPHERSONS ARE DISAPPOINTED AT LOSS.12. Following the re-structuring of Telecom as a statutory corporation, a number of aspects of its administration were reviewed. One subject of review was product sourcing. A review team established in June 1990 submitted a report in November 1990 which included a recommendation that tendering no longer be mandatory in connection with the procurement of goods and services. This report was adopted by the Telecom board in February 1991.
HOWEVER, THEY ARE PLEASED TO BE IN NSW. LIKELY MOVE QLD EQUIP. TO
SYDNEY. ASSURE US THAT THEY WON'T HANDLE COMPETITIVE PRODUCTS. WANT TO
STAY IN COMPILATION. WANT TELECOM TO GIVE ANY 'LEADS' WHICH WE MIGHT
HAVE TO WHERE THEY COULD USE THEIR SYSTEMS.
= NEW ZEALAND."
13. While this review was going on, News approached Telecom concerning the
arrangements that would apply after the expiry of the
current contracts. A
meeting was arranged for 24 and 25 October 1990. It was attended by Doug
Campbell, Deputy Managing Director,
and Ian Campbell, Executive General
Manager, Special Business Products Division. In preparation for the meeting
Wayne Jones, National
Manager, Publishing and Distribution, prepared some
"briefing notes" which contained the following prediction:
"The period after 1992 is likely to see an increase in competition14. In November 1990, Mr Jones was appointed to head a printing review project for Telecom. He has continued in that role until the present time. He was intimately engaged in the negotiation of the recent contracts, under Mr Barkla's supervision.
against the printed Yellow Pages Product through:-
(i) other business entering the Yellow Pages Market.
(ii) daily and local newspapers (4 color printing)
(iii) other printed media (pamphlets magazines)
(iv) electronic media (T.V., electronic directories).
therefore there will be a need to provide a Yellow Pages Product which
can meet this competition and continue to give the advertising client
the best value for money through Customer usage."
15. Shortly after taking up his new position, Mr Jones discussed with Mr Barkla the strategy he should adopt in relation to the negotiation of replacement printing contracts. The two men decided that, in the first instance, approaches should be made only to the two existing printers. Mr Jones said in evidence that the reasons for this decision were "their experience and because they had each proved over a long period to be reliable". He said that he and Mr Barkla discussed the possibility of negotiations with other printers if they were unable to achieve their objectives with the current printers.
16. As a first step in his review project, Mr Jones prepared a draft
discussion paper. This document dealt with a number of aspects
of directory
production including two-, three-and four-colour printing. Although he was
seeking industry feed-back, Mr Jones labelled
the document
"Commercial-in-Confidence" and sent it only to McPhersons and News; and then
under cover of letters in which he stated
that the document:
"... should be confined to people on a needs to know basis and must not17. Apparently, Mr Jones saw the restrictions placed upon the circulation of this document as a necessary consequence of the decision to limit initial discussions to the two existing contractors. He did not say why this was so.
be discussed or provided to in part or as a whole to anyone or bodies
outside your Company."
18. News responded to the discussion paper on 29 January 1991, McPhersons on
8 February 1991. At about that time Hannanprint entered
the picture. On 21
January 1991 Mr Hannan wrote a letter to Mr Ian Campbell referring to a
newspaper report about the disposal of
used directories. That report
contained a comment - not by a Telecom employee - that, if Telecom overprints
by just one per cent,
that would be 300,000 books too many. The burden of Mr
Hannan's letter was that, if appropriate printing procedures were used, there
was no need to overprint any substantial quantity of Telecom's directories.
He ended his letter by saying:
"If at any time now or in the future you would like to involve another19. Mr Ian Campbell acknowledged this letter. He asked Gordon Labourne, Recycling Manager for National Directory Services, to respond to the comments about waste. He also asked Mr Barkla to "assess Hannanprint's capability to gear up to be a credible directory producer". Mr Barkla asked Mr Slater to visit the Sydney plant. On 12 February 1991 Mr Slater attended the Sydney premises, at Alexandria. Mr Hannan took him on an inspection tour. Both Mr Hannan and Mr Slater gave evidence as to their conversation during this visit. There are some differences between their accounts but I do not think they matter. Both men agree they discussed the suggestions made in Mr Hannan's letter to Mr Ian Campbell and that Mr Hannan detailed Hannanprint's capability of printing telephone directories. Although the two men quote slightly different terminology, it is clear that Mr Hannan made Mr Slater understand that Hannanprint was keen to become involved in directory printing. According to Mr Slater, Mr Hannan suggested a start:
printer in your directory work we would be happy to discuss gearing our
plants in Sydney (13 presses over 26 acres), Melbourne (6 presses on 12
acres under construction) and Dubbo (4 presses on 12 acres) to telephone
directory production.
You may rest assured we will ensure you use less raw materials to do the
same job than you are doing now."
"... with a small amount of work for country books. We would like toMr Slater said that Mr Hannan asked when the current contracts would finish; that he replied "I think at the end of 1992"; that Mr Hannan then asked when tenders were likely to be called and that he said:
expand into other directories but would have to prove our capabilities
first."
"Usually its about six months before the contracts finish".20. On his return to Melbourne, Mr Slater put on file a note regarding his inspection. This note included a description of the Alexandria facilities. It ended:
"Michael Hannan said they would be pre-pared to gear up for directory21. In March 1991, Geoffrey Avard, Manager, Business Strategy of National Directory Services, and Mr Jones prepared a briefing paper for consideration by the Finance Committee of Telecom at its April meeting. The paper emphasised the desirability of four-colour printing. It set out likely costs. Under the heading "key issues" comment was made about excess capacity:
printing and indicated the site where the presses would be located.
Facilities appeared more than adequate for a large scale operation.
They would most likely install more Harris presses for the directory
printing.
He expressed interest in commencing with a small amount of work
(probably some country books) at their Dubbo plant - expanding their
volumes as they proved their capabilities.
Opinion: Hannanprint appear to be very competent printers with a
large capacity and plenty of room for expansion. They could
currently produce directories in single volumes (no merging
facilities) and the quality of their operation was most
impressive."
"The current printing plants operate at around 60% capacity. By22. The paper set out the options currently being considered by the review team: continue with current five years, two supplier arrangement; two supplier arrangement with longer term contracts; one supplier arrangement with long term contract; and one supplier arrangement with Telecom holding equity in the supplier. The advantages and disadvantages of each option were set out. In relation to the third option, a single supplier with a long term contract, the paper commented that it would:
consolidating operations into a single plant, it may be possible to
achieve a plant utilisation exceeding 80% with a consequential decrease
in operating costs.
New printing plant is required to be purchased to meet the future needs
of the directory business (e.g. higher volumes, faster production, four
colour printing). This plant is expected to cost in the vicinity of
$120 million. To provide the same capabilities with two plants could
increase prices by more than 25%.
The existing short term contracts (5 years) also increase the cost to
Telecom of printing services. Printing equipment can be depreciated
over 10-15 years, however with a five year contract, the equipment is
amortised over that (5 year) period. Longer term arrangements could
therefore offer improved economies in this area."
"... significantly reduce costs through better plant utilisation, butThe summary of the paper commenced:
this may not adequately address all strategic considerations - for
example, a dedicated specialised directory plant primarily based on
Telecom's orders could produce for competitors with spare capacity."
"The Finance Committee is aware of the directions that Telecom is takingAfter referring to the need for "dedicated directory printing plants", the summary stated that:
to better secure the highly profitable directory business against
expected strengthening competition - for example, a joint venture for
selling Yellow Pages and the business arrangements for listing
information. Another direction is improving and, if possible, securing
advanced printing capacity.
This paper outlines the programme and some of the issues for developing
the strategy for printing telephone directories beyond 1992.
The contracts for printing directories are due to expire at the end of
1992.
The printing strategy is important as published telephone directories
will continue into the next decade and a serious Yellow Pages publisher
is assumed to enter the market in 1992.
The strategy must produce directories which are of substantially higher
quality, have superior features, are more accurate, and are produced
faster and at a lower cost than any other directory publisher over the
next decade."
"Telecom is initially working with the current printing contractors to23. Mr Barkla gave evidence that he attended the Finance Committee meeting and gave a slide presentation in support of the paper. He said that the committee approved his recommendation to continue negotiations with the existing printers. Although the committee's decision, as recorded in the minute of its meeting, is only to note the contents of the paper and request to be kept informed of developments, there is no reason to doubt Mr Barkla's evidence that his approach was approved. In relation to the applicants' case, it is material to record that the minute, under the heading "Background", refers to the "risk that competitive entry will require a move to four-colour printing with consequential investments that are not sustainable under current arrangements".
assess options. If a satisfactory arrangement cannot be achieved in
terms of 'international competitiveness', other sources will be
considered."
24. In May 1991 Telecom retained the accounting firm, KPMG Peat Marwick, to
advise it regarding financial models. Peat Marwick was
given the responses to
Telecom's discussion paper provided by News and McPhersons and asked to model
the expected profit to each
of those printers over a ten-year period. Mr
Jones deposed that one of the objects of this exercise -
"... was to allow Telecom to know with reasonable certainty what theHe said this knowledge would be to Telecom's advantage in the later negotiations. It was also -
printers' margin of profitability would be on a ten-year contract
allowing for different assumptions".
"... to ensure that there was a reasonable margin to enable the printerPeat Marwick provided a preliminary report on its modelling exercise in early July and a final report on 6 August 1991.
to undertake research and development into new technology and to be able
to operate the contract with sufficient comfort so as not to take
shortcuts on quality."
25. In the meantime, Mr Barkla and Mr Jones engaged in discussions with representatives of News and McPhersons regarding future arrangements. In a letter to Mr Jones of 24 May 1991 the General Manager of Wilke Directories (News) dealt with the cost of keeping the presses exclusively for Telecom, as against using them for others. He said that non-exclusivity "would mean we may have to enter the market for publications which are in competition to Telecom Australia". In late June and early July, Mr Jones and Mr Avard visited the United States of America and Canada. They apparently visited several telephone directory printing plants, on some occasions in company with representatives of News or McPhersons.
26. Mr Hannan learned of the inspection tour. He also read a newspaper article suggesting that R R Donnelly and Sons, an American printing company, was in the process of acquiring a significant, if not controlling, interest in the printing operations of News Corporation; an event which, apparently, never occurred. On 11 July he wrote letters to the Minister for Transport and Communications and the Treasurer contrasting the position of his firm, which is wholly owned by Australians, with that of News. He asked the two Ministers to procure for him "a formal invitation to tender on all and/or part of the Telecom telephone directory printing contracts".
27. On the following day Mr Hannan wrote to Mr Barkla. His letter read:
"We wish to express our interest in tendering for the production of yourMr Barkla replied on 22 July:
telephone directory work.
We are Australia's largest independent printers and we are 100%
Australian owned.
We operate 3 Australian based printing plants, our main plant at
Alexandria in Sydney is situated on 26 acres and houses a dozen web
presses with page capacities from 16 pages to 96 pages.
There are a total of 22 web presses in our Group. Our new plant in
Melbourne on 12 acres is due to open next month.
We have the desire, the resources and the expertise to develop our plant
to meet the current and future needs of Telecom.
Could you please advise me of the correct procedures involved in
becoming part of the tender process for your directory printing."
"Thank you for your letter regarding the printing of telephone28. Upon receipt of this letter Mr Hannan telephoned Mr Barkla. There is dispute between the two men regarding some aspects of the conversation. But it is common ground that Mr Hannan opened the conversation by stating he had received Mr Barkla's letter and asking the current position. Mr Hannan says that he asked Mr Barkla whether he was about to call tenders now for 1993; that Mr Barkla replied that there was no tender document yet being considered; that he (Mr Hannan) asked whether Hannanprint would be included in any tender and that Mr Barkla replied "your company is on the tender", or "on the tender list".
directories.
We currently have printing contracts in place which cover all our
printing requirements up until the end of 1992.
We are continually evaluating our approach to the future printing of
directories and as a result of your letter, I will bear your company in
mind in these evaluations.
Your company's name will now be added to any prospective tenderers list
which may be relevant in the future.
Thanks again for your interest."
29. Mr Barkla says that he informed Mr Hannan that Telecom currently had
contracts until the end of 1992 and a one year option to
extend those
contracts until the end of 1993. He says he went on to say:
"We are continuing to evaluate our approach to the future printing of30. It is not necessary to choose between the two accounts of the conversation. It would be difficult to do so. I think both witnesses gave their honest recollections of the conversation. Both accounts are credible. It may be that one man said a little more than the other now remembers. Mr Hannan claims to recall being told that he was on the relevant tender list. Mr Barkla's account is to similar effect, except that the name was to be added, in the future, rather than already added. Another difference is that Mr Barkla says he referred to "any list", whilst Mr Hannan states "the list". Each version is possible. But I can understand Mr Hannan taking "any list" to mean "the list" because, as Mr Barkla had revealed, at the time there was a system of recording prospective printing tenderers.
directories. We are always thinking about what we will do in the
future. As you have requested, I will arrange to have your company's
name added to any list of prospective tenderers for Telecom's printing
requirements, not just directories."
31. What is most important about this conversation is what it did not include; a matter about which there is no dispute. Mr Barkla did not tell Mr Hannan that Telecom had decided not to proceed to tender but to confine negotiations, at least initially, to News and McPhersons. Mr Hannan stated in his affidavit that, as a result of Mr Barkla's letter and their subsequent conversation, "I believed that the Applicant would be considered in the awarding of any Telephone Directory printing contracts". Mr Hannan also gave evidence that, following his conversation with Mr Barkla, he had a meeting with a supplier of printing presses and obtained a quotation for the equipment needed to print four-colour telephone directories. He did not claim that he ordered the equipment. Nor did he indicate any other act undertaken by his firm in reliance on the letter or conversation.
32. On 9 September 1991 an Assistant Secretary of the Department of Transport
and Communications responded to Mr Hannan's letter
to her Minister. The
letter said:
"As a Government Business Enterprise, Telecom makes its own commercial33. Mr Hannan decided to learn more about Telecom's tendering policies. He asked his solicitors to make a request under the Freedom of Information Act 1982. In response to their request the solicitors received a letter dated 10 September 1991 in which Telecom set out its policy on tendering. The document is lengthy. I will quote only those parts which were referred to in evidence or argument:
and management decisions within the context of legislative requirements
and government policies. Day-to-day running of the organisation is
normally dealt with by Telecom management.
I understand that Telecom has written directly to you on this matter
advising that printing contracts are currently in place up to the end of
1992 and that your company's name will now be added to any prospective
tenderers list which may be relevant in the future."
"1.(i) The Telecom policy on tendering is as follows:34. Following their return from the United States and Canada, Mr Jones and Mr Avard set about evaluating the information received from News and McPhersons. They made an analysis of Peat Marwick's final report. In doing so, they assumed that four-colour printing was necessary. This assumption was consistent with the view expressed by Patrick McDermott, Yellow Pages National Manager, in a memo dated 31 July in which he said:
Tendering
There are a variety of sourcing methods available to purchase
goods and services including restricted, selected or open tenders,
quotations or expressions of interest.
Policies
(a) In arranging supply of goods and services
Telecom may select any sourcing method and
is not obliged to go to public tenders or
to advise the outcome of purchasing decisions.
(b) Sourcing methods used must be both cost
effective and timely while ensuring that a
range of offers is received from suitable
suppliers.
(c) All competitive offers must be in writing
and received into a tender box by a
predetermined date.
(d) Enquiries should only be directed to
suppliers with a reasonable chance of
obtaining some or all of the business on offer.
(e) For on-going requirements, enquiries shall
be limited to the current supplier(s)
provided their performance and pricing is
acceptable.
(f) ...
(g) ...
(h) ...
(ii) Assessing tenders and awarding contracts
..."
"... that we could not afford to tie ourself into printing presses whichBell South is an American telephone operator. It is linked with Telecom through shareholdings by both companies in Pacific Access Pty Limited, the advertising contractor responsible for sales, marketing, compilation and development of the Yellow Pages.
are not capable of producing 4 colour, over a term in excess of 10
years. It would leave Yellow Pages at a significant strategic
disadvantage, and very vulnerable to any major competitive entrant (such
as Bell South)." (original emphasis)
35. In August 1991 Telecom retained Booz Allen and Hamilton, a firm of United States management consultants, to conduct a study of telephone directory printing prices in that country. This report was received in September. In his affidavit, Mr Jones described the report as one which "set a bench mark for the world's 'best prices'". However, he added that the prices were only a guide, because of the far greater size and competitiveness of the United States economy.
36. During the period August - October 1991 Mr Barkla arranged for the
preparation of several drafts of a report intended for the
Finance Committee.
The final draft of this document was dated 21 October 1991. It bore Mr
Avard's initials. The report dealt with
numerous matters. It is only
necessary to refer to three of them. First, three objectives were stated:
"printing services must be
of a high quality and be priced at internationally
comparable rates ('world best practice')"; the supplier must be prepared to
contribute
to research and development; and the supplier "must be responsive
and flexible to changes in scheduling, new technology and new types
of
printing". The comment was made:
"The achievement of these objectives is critical to protecting the37. Secondly, the report dealt with the appropriate parties for negotiation:
directory business against the expected emergence of a well funded
competitor to Yellow Pages in the next 2 years."
"Negotiations should be limited to the existing printing contractors38. Finally, the summary referred to the importance of the Telecom contract:
(News Ltd and McPhersons). Hannanprint (a newspaper and magazine
printing company who have expressed interest in printing directories)
and other potential suppliers should only be considered if a
satisfactory result cannot be reached with News Ltd and McPhersons."
"The investment in the new printing capability is only possible in39. The central recommendation of the various draft reports was that Telecom should have all its directories printed by a single printer, being a company in which Telecom held an equity interest; or, at least, a "golden share" enabling it to exercise control. Messrs Barkla, Jones and Avard strongly favoured this course. They were supported by Mr Ian Campbell. There were a number of reasons for their view. Judging by a slide presentation prepared by the negotiating team for use at the Finance Committee meeting, one of the advantages of the proposal perceived by that team was its effect on competition. Under the heading "Joint Venture Option" six advantages were mentioned. One of them was:
Australia through the allocation of a Telecom contract. A joint venture
would enable Telecom to determine the way in which capacity is utilised;
under a contract, any restriction on the printing company dealing with
competitors could contravene the Trade Practices Act."
"JV preferably with both current contractors - reduces disruption over40. The reference to "disruption" apparently stemmed from a concern that it might be difficult to maintain scheduling and quality control during the final stages of a current contract if the contractor then knew that its contract was not to be renewed.
next few years, and doesn't leave a printer for a competitor."
41. That competition was in the forefront of the thinking of those in the
negotiating team is confirmed by reference to two other
documents. One is a
memo from Mr Avard to John Murphy, Assistant Director - Strategic Studies. Mr
Murphy had asked Mr Avard whether
the formation of a joint venture, in which
Telecom held a majority interest, would "prevent AUSTEL or the Trade Practices
Commission
from requiring us to print the competitor's directories". Mr Avard
replied:
"There is nothing we can (or want) to do to elevate us beyond the law.42. At about the same time, Mr Ian Campbell wrote a briefing note for himself in preparation for a meeting, apparently held on 11 November. He listed what he called "key issues". The second of this was: "How to exclude competitor".
I do not believe that AUSTEL have any role in this issue.
A relevant consideration is that the determination to seek work other
than Telecom's directory printing is a decision of the Board; under the
JV scenario we would control this decision."
43. None of the draft reports was submitted to the Finance Committee. The
reason for this omission was that the authors of the drafts
became aware of
influential opposition to their central recommendation. Neither Mr Doug
Campbell nor Mr Ward favoured the idea of
a joint venture. On 27 November Mr
Doug Campbell sent a memo to Mr Ian Campbell. He expressed a preference for
Telecom dealing with
a single contractor. But he strongly rejected the idea
that this contractor should be a joint venture company. After commenting
that
"Telecom does not wish to be in the printing business", he went on:
"The challenge is to ensure that in negotiations with each of the44. Notwithstanding Mr Campbell's direction, those involved in the negotiations with News and McPhersons did not abandon the joint venture idea. As Mr Jones said in his evidence: "We don't give up easily". Over the following five months the joint venture proposal was discussed at length, on numerous occasions, with representatives of McPhersons and News. It was abandoned only when News indicated that it was unwilling to enter a joint venture. Throughout these discussions the Telecom representatives emphasised the desirability of having plant exclusively dedicated to Telecom's work.
potential printers we achieve the conditions we want at a price which is
equal to world's best practice. We discussed that the threat of setting
up an equity position with Telecom and the other contractor would be a
negotiating technique as we are aware that neither contractor wishes to
partner with the other for this work.
On the second page of your memorandum you state that 'a key assumption
is that if the first choice is not viable, then some form of equity
participation will be approved by the Finance Committee and the Board'.
This is not correct and the assumption you should work under is that we
must successfully negotiate with one contractor and in the event this
proves unsuccessful we will need to have further discussions to plot the
way forward."
45. The discussions with the two contractors were not confined to the joint venture proposal. Mr Jones and Mr Avard also raised the prospect of a ten year contract with an arms-length supplier. At meetings held in December they required each of the existing contractors to respond by the end of January to a series of questions asked by them. They also required the contractors to submit revised prices for a ten year sole supplier agreement. These responses were made available on 28 January 1992.
46. Immediately prior to the December meetings Telecom had required News and McPhersons each to sign an agreement undertaking to keep confidential material described in the agreement as "Confidential information". This term was widely defined; so widely that it included not only the contents of the confidentiality agreement but even the facts that discussions were taking place between the company and Telecom and that the confidentiality agreement had been made. The agreement did not restrict Telecom's right to disclose information. And in fact Telecom did inform each company that it was having discussions with the other.
47. While the discussions between Telecom and the current contractors were
proceeding, Mr Hannan became restive. On 16 January he
wrote a letter to Mr
Barkla. He referred to Mr Barkla's letter of 22 July and went on:
"We appreciate your undertaking to add Hannanprint's name to anyMr Hannan received no reply to this letter.
prospective tenderers list which may be relevant in the future.
However, could you please clarify whether there is more than one
tenderers list for different classes of tender for which Telecom acts a
(sic) principal.
We would be grateful for your assurance that we are registered for every
directory contract within your authority.
We wish to leave you in no doubt that Hannanprint is one of the largest
printing groups in Australia and has the capability in our production
facilities around Australia for large-scale printing assignments and the
resources to upgrade our facilities at short notice to cater for
contracts which you may award in the future.
We look forward to receiving your undertaking in this regard and assure
you of our total commitment to satisfying your future tender
requirements."
48. At the time of writing his letter, Mr Hannan instructed David Kennedy,
the applicants' solicitor, to make a further FOI request.
The new request was
to be for:
"1. Lists of prospective tenderers for contracts for printing since49. In response to his request for this information, on 12 February 1992, Mr Kennedy received a telephone call from Ron Denmead of Telecom. Mr Denmead told Mr Kennedy that the information might be available without being processed as an FOI request and suggested that Mr Kennedy telephone Peter Ferris, Manager, Supply Information Technology Group in Telecom. Mr Kennedy did so. He introduced himself and explained that he had been referred by Mr Denmead. He said in evidence that he asked "what Telecom's current policy is on printing contracts". In his evidence, Mr Ferris put this slightly differently: "how Telecom arranges its printing". But it is common ground that Mr Ferris described the tender system, as generally applied. Mr Kennedy asked about directory printing contracts. Both men agree that Mr Ferris said that there is only a limited number of printers in the country who can handle this work. Mr Kennedy says that Mr Ferris said: "we don't need a mailing list because we know who they are". Mr Ferris says he told Mr Kennedy that he did not know whether there was a mailing list but that, if Mr Kennedy identified his client, he would check whether there was a list and whether the client was already on it. Mr Kennedy said that he would prefer not to disclose the identity of his client at that time.
1985 and all documents and other material relating thereto.
2. All documents, including instruments of delegation, and other
material which identify by way of name and/or title, Telecom
personnel currently involved in any stage of the decision making
process in invitation of tenders and consideration of those
tenders for contracts for printing for Telecom."
50. Later that day Mr Ferris telephoned Mr Kennedy. He said that there was a list for directory printing tenders. Mr Kennedy then said that he acted for Hannanprint and asked how Hannanprint could be put on the list. Mr Ferris asked him to write enclosing details of Hannanprint's printing capacity.
51. Mr Ferris said in evidence that, at the time of these conversations, he was not aware that a review was being undertaken concerning future directory requirements. This evidence was unchallenged.
52. Mr Kennedy took up Mr Ferris' invitation to forward a letter applying to be placed on the list. On 14 February he wrote a letter with which he enclosed a considerable amount of information concerning Hannanprint. Mr Ferris acknowledged this letter on 17 February and stated that Telecom would include Hannanprint "on the list of likely tenderers for the printing of telephone directories." Mr Ferris passed a copy of this letter to Carmel Moore, Principal Supply Officer of Telecom. She added Hannanprint's name to the directory printing tender list.
53. On 24 February Mr Kennedy rang Telecom and spoke to Mr Jones. He asked him the position with the current directory printing contracts. Mr Jones told him that they expired in December 1992 but with a 12 month option thereafter. Mr Kennedy asked whether Telecom required any further information on Hannanprint's printing capacity. Mr Jones said that Mr Slater had already inspected Hannanprint's plant "so we are aware of what they have".
54. On 25 February Mr Kennedy wrote letters to Mr Jones and Ms Moore. The
letters were in similar terms. They each contained a
paragraph reading:
"We understand that Telecom is reviewing its Telephone Directory55. The letters enclosed a publication called "The Hannan Group Print Media Operations" containing a considerable amount of information about the group.
Printing contracts this year. We would be grateful if you would keep us
advised of developments in this area so that we may keep our client
fully informed in respect of its Tendering opportunities. We also take
this opportunity to enclose a corporate profile of the Hannan Group for
your information."
56. Between January and April Telecom continued its negotiations with News and McPhersons. McPhersons accepted the idea of a joint venture but News saw difficulties. These difficulties were summarised in a letter sent to Mr Barkla on 13 April. I need not detail the matters raised. It is sufficient to say that they were not captious objections. There obviously were real problems in News accepting the joint venture arrangement. After a meeting with News representatives to discuss the letter, the Telecom negotiators accepted that the joint venture proposal was unviable. On 27 April Mr Jones wrote to News confirming an oral request for News to supply prices on the basis of News being allocated 50% of the work, measured by value. Prices were to be provided on the basis of four colour coldset printing in the Yellow Pages, and subject to certain other conditions. On the same day Mr Jones wrote to McPhersons making a similar request.
57. Within two weeks of these letters both contractors submitted prices. Mr
Avard prepared a document for consideration by Telecom's
Enterprises Internal
Management Board. This paper highlighted the profitability of the Yellow
Pages and the importance of moving
to four colour printing. Mr Avard wrote:
"A critical part of the strategy to protect and grow this highlyMr Avard went on to speak of the necessity to protect the directory business "against the expected emergence of a well funded competitor to Yellow Pages in the next 2 years".
profitable business is the introduction of 4 colour advertising in
Yellow Pages, to meet competitive threats and respond to market
expectations. This will require the installation of new printing
equipment, as present equipment is outdated and incapable of printing 4
colour."
58. The negotiators prepared a slide presentation to support this paper.
Under a heading "Progress to Date" a number of points were
made. One of them
was:
"Critical issue outstanding is the use of the plant and equipment foragreeable
other work - we want to have a veto over such use. PM and P not
to this (yet)."59. On 2 June 1992 Ken Catlow, Executive Director of Pacific Magazines (News) sent to Mr Barkla notes of a meeting the two men had held on the previous Monday. The note commenced:
"As we indicated strongly yesterday, we will undertake not to print any60. On the following day, Mr Barkla reported to the Managing Director of Enterprises Business that the negotiations were:
competitive product in the plant. AOTC work has absolute priority at
all times, however, we also must reserve the right to produce any other
non-competitive product in the plant. We are quite prepared to discuss
this additional work on a regular basis with AOTC." (original emphasis)
"... close to reaching agreement with the printing contractors on theMr Barkla said that there were still some areas to be finalised but he was confident they could be resolved. He said this "may mean that each of the contracts are different to reflect specific concerns" - an eventuality which did occur. In an accompanying document called "Directory Printing Review - Current Status of Key Issues", Mr Barkla noted, under the heading "Use of Plant and Equipment":
terms of performance based contracts, with each contractor to be
allocated 50% of the workload each year."
"The key issue here was dedication of the plant and equipment to our61. The Telecom representatives held a further meeting with McPhersons representatives, and the legal advisers of each party, on 22 June. They met with News representatives and their advisers on 24 June and, apparently, again on 2 July. Following the latter meeting, Stephen Harvy, who attended with Mr Jones and Mr Avard on behalf of Telecom, forwarded to the News representatives a summary of the matters discussed. Under the heading: "Additional work", he wrote:
directories, with any additional work only being undertaken with our
approval, and with AOTC sharing in any profits derived from the
additional work.
McPhersons have agreed with these conditions.
PM and P agreed to provide AOTC with a right of veto over any work other
than our directory printing work, but do not agree to provide us with a
share of profits from the work."
the form of Diverse Business (once it exceeded the 120 hour threshold)62. Following these discussions, work commenced on a report to be submitted to the Finance Committee and Board of Directors in aid of a recommendation to approve the proposed contracts. But even while that was being done, there was further consideration of the prices to be paid, especially the appropriate adjustments if the volume required of a printer departed from that assumed in the contract. It seems that Peat Marwick were advising on this matter, offering what they called "sensitivity analyses". As a result of this advice Telecom sought to revise the agreed prices, but against the background of a "minimum guarantee" ensuring each contractor what Telecom thought to be a fair return on the contractor's capital expenditure. Apparently, there were discussions with each of the contractors on these matters. Agreement was reached. On 23 July the Finance Committee recommended that the Board approve the proposal that AOTC enter into directory printing contracts with Pacific Magazines and McPhersons, both long term (ten years) contracts and 1993 transitional agreements. This recommendation was accepted by the Board of directors on 7 August 1992. The Board authorised the Chief Executive Officer to sign the final negotiated printing contracts. As previously mentioned, he did so on 15 September.
could only be dissapproved (sic) by AOTC for reasons of capacity or
conflict, that is, approval could not be unreasonably witheld.
AOTC confirmed that this was its understanding of the agreement as
currently worded."
63. Immediately after the announcement of the new contracts, on 7 October,
the solicitors for Hannanprint wrote a letter of protest
to Mr Barkla. In
this letter they said:
"Our client was not offered the opportunity by you to tender for the64. The solicitors then asked a series of questions. The questions assumed that tenders had been called and, in effect, inquired why Hannanprint had been excluded from the tender process. The letter concluded:
directory printing contract, despite an assurance to the contrary in
your letter to us of 17 February 1992 (copy enclosed).
We also enclose copies of our letters of 25 February 1992 to the 2
Telecom officers you nominated in your letter of 17 February 1992.
On the basis of the enclosed correspondence there can be no doubt that
you undertook to include our client on your list of tenderers of the
printing of telephone directories and that we communicated that
undertaking to the relevant officers you nominated within Telecom."
"We put you on notice that our client intends to challenge the basis on65. Prue Leggoe, Manager - Corporate Affairs of Enterprises Business, responded to this letter. In her letter she said:
which you have awarded the Directory Printing Contracts and we request
an assurance from you immediately that:
(a) If the contracts have not been executed, that you will take no
further action in executing the contracts pending your answers to
this letter.
(b) If the contracts have been executed, that you will take no further
action in performing the contracts until you have answered this
letter.
If we do not receive satisfactory answers to this letter by midday
Friday 9 October 1992, we are instructed to commence legal proceedings
against you without further notice."
"Firstly, I would like to make it clear that Telecom did not issue anyMs Leggoe dealt with the specific questions and concluded:
tender for these contracts at any stage and neither is it obliged to.
Neither did Telecom agree with anybody that it would be tendering for
these printing contracts.
Telecom undertook successful negotiations with our current Directory
printers, which has allowed us to achieve 'World's Best Practice'
standards with them. If such negotiations had not been successful,
then, and only then, would Telecom have considered calling for tenders
as well as exploring other options.
The correspondence between our Companies to which you refer states that
your client company would be placed on a tender list for the printing.
This was done and your company placed upon our official tender list in
accordance with our letter to you of 17 February 1992." (original
emphasis)
"Your client should now fully understand the situation and withdraw anyBut, of course, Hannanprint did not see the matter that way. One week later this proceeding was commenced.
threat of legal action."
66. When the matter first came before me I referred to the position of McPhersons and News and inquired whether they were to be joined as parties. I was informed that this was not intended. But counsel for the applicants said they would be notified of the litigation. On 27 October the solicitors for the applicants wrote to both companies apprising them of the litigation and enclosing copies of the amended Application and amended Statement of Claim. They were subsequently informed of the hearing date. Both companies appeared by counsel prior to, and at, the hearing to argue the confidentiality of some documents produced by them. They were well aware of what was happening. Notwithstanding all this, nobody made any application for their joinder as parties. There is no evidence before the Court as to what action, if any, the two companies have taken pursuant to, or in reliance upon, their contracts.
The s.46 claim
67. Relevantly, s.46 of the Trade Practices Act provides:
"46(1) A corporation that has a substantial degree of power in a market68. The applicants submit that Telecom has a substantial degree of power in the Australian directory market. Counsel for the respondent say that this contention incorrectly identifies the relevant market. They say that there is no separate directory market. They base their contention primarily on evidence from Mr Barkla that Telecom essentially engaged in "the advertising market". Mr Barkla was being asked about a document in which he referred to Telecom being "possibly damaged in the market place". The evidence continued:
shall not take advantage of that power for the purpose of -
(a) eliminating or substantially damaging a competitor of the
corporation or of a body corporate that is related to the
corporation in that or any other market;
(b) preventing the entry of a person into that or any other
market; or
(c) deterring or preventing a person from engaging in
competitive conduct in that or any other market.
(2) ...
(3) In determining for the purposes of this section the degree of power
that a body corporate ... has ... in a market, the Court shall have
regard to the extent to which the conduct of the body corporate ... in
that market is constrained by the conduct of -
(a) competitors, or potential competitors, of the body corporate
or ... in that market; or
(b) persons to whom or from whom the body corporate ... supplies
or acquires goods or services in that market.
(4) In this section -
(a) a reference to power is a reference to market power;
(b) a reference to a market is a reference to a market for goods
or services; and
(c) a reference to power in relation to, or to conduct in, a
market is a reference to power, or to conduct, in that
market either as a supplier or as an acquirer of goods or
services in that market.
(5) ...
(6) ...
(7) ..."
"The damage in the market place that you refer to there, is that a69. Counsel also refer to various descriptions given by witnesses for the applicants: "the commercial printing market in Australia"; "the printing industry"; and that the applicants' business is "printing and publishing".
damage in relation to the directory market?---Oh, well, it's a damage in
the advertising market. I mean, that's essentially what we're in.
A damage to the Yellow Pages and its position in the directory market,
and in the media advertising market as well?---Yes.
So both those markets?---Yes."
70. Thirdly, counsel mention a number of facts which they argue should lead to a rejection of the view that the market is that claimed by the applicant: there are numerous directories published in Australia; Telecom's major clients expend only a small part of their advertising budgets on the Yellow Pages; printing costs are only part of the total costs involved in producing directories; and directories can be printed on the presses already owned by McPhersons and News, as well as those owned by Hannanprint and some other printers - although not efficiently for four colour large directories.
71. Notwithstanding the points made by counsel for the respondent, I am of the opinion that it is correct to speak of an Australian directory market. Some may prefer to use the term "sub-market" since the production of trade directories is clearly part of the overall Australian advertising market. But it is a discrete section of that larger market, in the same way that television advertising and magazines occupy discrete sections of the advertising market.
72. The best way of determining whether particular activities operate within the same market is to consider the ambit of existing and potential competition. Section 4E of the Trade Practices Act provides that, for the purposes of the Act and in the absence of an indication of a contrary intention, the word "market" includes a market for particular goods and services and other goods and services that are substitutable for, or otherwise competitive with, them. As Mason C.J. and Wilson J pointed out in Queensland Wire Industries Proprietary Limited v Broken Hill Proprietary Company Limited [1989] HCA 6; (1989) 167 CLR 177 at 188, the notion of substitutability lies at the heart of a "market", as that term is understood in economic theory.
73. No doubt it is true that there is a finite number of dollars available for commercial advertising in Australia and that a decision by a national advertiser to spend more of its advertising budget on one form of advertising may lead it to reduce its expenditure on other forms of advertising. But only in that general sense is the Yellow Pages in competition with television, newspaper, magazine or billboard advertising. It appears that, regardless of the waxing and waning of advertising campaigns, there remains a need for suppliers to proclaim the availability of their goods and services in a less ephemeral way; in publications that people will retain and keep handy for reference purposes. This is understandable. Not all potential customers will instantly respond to an advertising campaign. Some may consider a purchase for a long time, or require time to save the necessary money or otherwise be ready to proceed. The purchaser's perception of a need for the supplier's goods or services may be unrelated to an advertising campaign. To cover these situations it is desirable, from the supplier's viewpoint, that reference material always be readily available to potential customers. Under these circumstances, it seems to me incorrect to speak of the Yellow Pages being in competition with, say, television advertising. Although the extent of its Yellow Pages expenditure may be affected by the amount it has spent on television advertising, any national television advertiser will think it essential also to be represented in the Yellow Pages, or some similar directory. The same comment applies to other media advertising. Media advertising and directory advertising are not alternatives. They fulfil different purposes. For most suppliers of goods and services both are essential. Except in the most general sense, one form of advertising is not substitutable for the other. That there is competition in the general sense of dollars being finite, is not enough: see the "Recent cases" comment by Dr Geoffrey Walker in 50 Australian Law Journal 89-92 and my discussion of the point in Mark Lyons Pty Ltd v Bursill Sportsgear Pty Ltd (1987) 75 ALR 581 at 588.
74. The perception that the Yellow Pages operated in a different market to the media was held by the Telecom officers engaged in the review of Telecom's future directory requirements and the negotiations with the current contractors. Again and again, in their internal memoranda, they expressed the opinion that there was no significant existing competition to the Yellow Pages; but they were fearful that competition would arise if a new publisher sought to emulate the Yellow Pages. In other words, as they saw the matter, the only competitor for the Yellow Pages would be a directory of a similar kind.
75. For these reasons I think it is accurate to speak of an Australian directory market, being a market in which publishers sell to advertisers space in reference books designed to be retained by users for a relatively lengthy period such as a year or more. If there is such a market, it cannot be denied that Telecom has a substantial degree of power within it. The respondent concedes that it receives about 80% of all directory advertising expenditure in Australia, considered as a whole, and a similar proportion in each State and directory area.
76. A major theme of the respondent's submissions was that, in the application of s.46, it was necessary to consider whether Telecom and Hannanprint were competitors, or potential competitors, in the same market. Counsel say that, even accepting that there is such a thing as an Australian directory market, and that Telecom has substantial power in that market, s.46 does not apply to the case because Hannanprint is not in that market. Hannanprint, say counsel, is in the commercial printing market.
77. With respect to counsel, this submission is plainly untenable. The complaint made by Hannanprint is that Telecom took advantage of its dominance in the Australian directory publishing market to prevent or deter entry by some other publisher into that same market. If the complaint is valid, it does not matter that Hannanprint is not itself engaged in that market. The Act imposes no standing qualification on persons seeking to enforce s.46. Any person may seek an injunction (s.80(1); s.87(1)). Any person who suffers loss or damage by reason of conduct contravening s.46 may recover damages (s.82).
78. I do not intend to imply by this comment that Hannanprint has no legitimate concern with the issues it has raised under s.46. On the contrary, it has a lively interest in that question. Telecom's actions have a significant impact on the industry of which it is a member and the market in which it operates. It is common ground that it would be economically unfeasible for any printer to invest in the equipment necessary for large-scale four-colour directory printing without first contracting with a major directory publisher. At the present time Telecom is the only Australian publisher operating on a sufficient scale to justify the requisite investment. This is what Mr Avard and Mr Barkla meant when they wrote in the draft Finance Committee report of 21 October 1991: "The investment in the new printing capability is only possible in Australia through the allocation of a Telecom contract". Until (if ever) a competitor to Telecom's directory publishing activities emerges or significant overseas directory printing contracts are obtained by Australian printers, Telecom will effectively determine which Australian printers will be involved in printing large four-colour directories.
79. As a variant on the submission just noted, counsel for the respondent submit that s.46 requires an applicant for relief "to demonstrate that it is the target of the proscribed purpose. It is not sufficient to identify some other target and rely upon the consequential effect upon it in a quite different market". This submission also is untenable. It reads words into the section which are not there. It is true that a target of the proscribed purpose is the person most likely to complain of contravening conduct and that most of the cases that have come before the Court have been instituted by targets. In the nature of things, that was to be expected. But there is nothing in the section which so confines its operation. Of course, the nature of the applicant's interest is very material to the question what relief should be granted if the offending contract is proved. But it does not go to the question whether a respondent's conduct has contravened s.46.
80. I turn to the question whether Telecom took advantage of its power in the directory market for one of the purposes proscribed by paras.(a), (b) and (c) of s.46(1). Counsel for the applicants do not rely upon a breach of para.(a). They say that, at material times, there was no significant competitor of "the corporation" - that is, Telecom - or of any body corporate related to Telecom. But they do rely upon both para.(b) and para.(c). In doing so, they put two separate arguments. The two arguments are logically distinct, although each depends upon the proposition that the relevant Telecom officers were concerned about the prospect of a new directory publisher emerging within the foreseeable future, and thereby offering competition to the Yellow Pages.
81. There is no doubt that the Telecom officers had this concern. It is evident in Mr Jones' "briefing notes" to Mr Doug Campbell and Mr Ian Campbell in October 1990, when he wrote of other businesses "entering the Yellow Pages Market", in Messrs Avard's and Jones' report to the Finance Committee of March 1991 speaking of "expected strengthening competition" and stating that "a serious Yellow Pages publisher is assumed to enter the market in 1992", in the Finance Committee's reference to the "risk" that competitive entry will require a move to four-colour and in Mr McDermott's July 1991 reference to the Yellow Pages' vulnerability against "any major competitive entrant (such as Bell South)". In his draft report for the Finance Committee of October 1991, Mr Avard (with Mr Barkla's approval) went so far as to speak of "the expected emergence of a well funded competitor to Yellow Pages in the next 2 years". This apprehension continued until the end; the same words were repeated in Mr Avard's report to the Enterprises Internal Management Board in May 1992.
82. The first contention of counsel for the applicants in relation to s.46 of the Trade Practices Act is that Telecom breached the section by deliberately confining its negotiations to the two existing contractors. According to the argument, Telecom took this course in order to deny to any potential competitor the services of the only two Australian companies with substantial experience in the printing of major directories. Furthermore, they say, Telecom intended to continue that denial until the expiration of the contracts at the end of 2003. Because Telecom would deal during that period only with News and McPhersons, no other printer would have the opportunity to gain the capacity, skill and experience necessary to enable it to serve a new directory publisher. Until the end of 2003 there would be only two printers capable of serving a new publisher and both would be tied to Telecom. Counsel say that the purpose, and the effect, of this conduct was to prevent others entering the Australian directory market or, at least, to deter or prevent them engaging in competitive conduct in that market.
83. There is an issue as to whether the decision to confine negotiations to News and McPhersons stemmed from a desire to deny those contractors to a competitor. Both Mr Barkla and Mr Jones rejected the suggestion. They pointed to the long and amicable relationship between Telecom and each of the contractors, their skill and experience, the disruptive effect of a change, their willingness to upgrade their plants to meet Telecom's requirements and Telecom's assessment that the new prices the contractors were prepared to accept would be "world's best practice".
84. The matters referred to Mr Barkla and Mr Jones were all material matters. It was for Telecom to decide how much weight they should be given. But, as I have to consider whether they were the true reasons for confining negotiations to the two companies, some comments are appropriate.
85. There is no dispute about the long and amicable relationship with the two current contractors, their skill and experience and their willingness to upgrade their plants to Telecom's requirements. These factors made them obvious candidates for new contracts. But it is difficult to see that they justified the exclusion of other printers who were assessed as capable of establishing an amicable working relationship with Telecom and of acquiring the necessary skill and experience and who were prepared to upgrade their plants to Telecom's requirements. Telecom accepted that Hannanprint satisfied these criteria.
86. The point about "disruption", if it has any force, is one that supports confinement of the negotiations to the current contractors. But it is difficult to think that any commercially-minded person would give it much weight. On that reasoning, Telecom would never change its directory printers. And, of course, if the printers realised that Telecom was concerned about "disruption" it would greatly strengthen their hand in negotiations for renewals. The evidence is that there was no "disruption" problem when McPhersons' Queensland plant lost its role in directory production at the end of 1987. Although the 1988-1992 contracts are not in evidence, I cannot bring myself to doubt that they contain adequate means to ensure that, if "disruption" did occur towards their end, Telecom could protect itself; if necessary by immediately taking the work elsewhere.
87. The final matter is price. The freely used term "world's best practice" seems, in this context, to be Telecom jargon for the best price reasonably obtainable by it; that price being assessed by reference to Australian conditions, including printing volumes, but after consideration of international (especially United States) prices. In practice, it would seem, Telecom determined what was "world's best practice" by obtaining information from News and McPhersons regarding various matters, including their costs, and having Peat Marwick analyse that information to determine what prices would be necessary to provide the printers with an acceptable rate of return.
88. The Telecom negotiators had the benefit of information regarding United States prices. But I do not understand them to claim that the prices they negotiated with News and McPhersons matched the United States prices. It would probably be unrealistic to expect that. As Mr Jones pointed out, United States volumes are much greater than in Australia and competition is keener.
89. Particularly having regard to Mr Jones' appreciation of the significance of competition in keeping down prices, it is not easy to understand why it was decided to confine negotiations to the two current contractors. With the spur of competition, especially the possibility that it might lose out altogether to a newcomer such as Hannanprint, one of the current contractors - possibly both of them - might have submitted prices providing a return lower than those thought reasonable by Peat Marwick. Commercial people often make decisions more adventurous than those thought prudent by professional advisers; sometimes, admittedly, with disastrous results but often with great success, demonstrating what can be achieved under the pressure of necessity. Moreover, a newcomer might deliberately quote prices providing less than a usual commercial return for the sake of breaking into this work. By obtaining a significant Telecom contract, a newcomer might be enabled to finance the acquisition of new plant which would also be available for other orders (e.g. overseas directories). It seems to me that if, for whatever reason, reputable and capable established printers were willing to quote prices less than those assessed by Peat Marwick it was in the interests of Telecom for them to be accepted. But, of course, the negotiators would only know what prices were available if they subjected the interested printers to some form of competitive bidding. By failing to take this course, the management of Telecom may have saddled the organisation with an obligation to pay more than was necessary for its directory printing over the next eleven years.
90. However, whatever the merit of my criticisms of Telecom's approach, it is another question whether the denials of Mr Barkla and Mr Jones should be disbelieved. They may not have seen the matter in the way I do. Given their denials, I prefer to determine the issue concerning their reason for confining the negotiations by reference to the contemporaneous relevant documents.
91. Those documents are sparse. But it seems to me that they do indicate a
concern to deny the services of News and McPhersons to
a competitor. It is
difficult otherwise to understand Telecom's obsessive secrecy - to the point
of requiring News and McPhersons
not to reveal the fact of the negotiations or
that they had signed confidentiality agreements and actively misleading Mr
Hannan as
to his firm's opportunity to compete for the new contracts. Mr
Barkla did offer an explanation for the secrecy, in these terms:
"I did not inform the Applicant, either in the letter or during the92. The explanation does not indicate why it was "commercially undesirable" to inform other people that negotiations with News and McPhersons had commenced. The fact that they had been kept confidential from the outset is not a reason; this was done at Telecom's insistence. Pressed on the matter in cross-examination Mr Barkla was unable to identify any prejudice which would have flowed to Telecom if others had learned of the fact of negotiations, as distinct from their content. Indeed, he was unable to identify any prejudice to Telecom in entering into discussions with other printers, except the staff time involved. Given the small number of printers capable of handling a contract of this size, that could not have been a major factor. Far from there being prejudice in talking to others, surely it would have assisted Telecom to get the best available terms from News and McPhersons if those two companies knew that Telecom was in contact with other printers.
phone call, of the order of preferences which had been determined, nor
that the evaluation had commenced on initial data submitted by the
current printers. In my view it was commercially undesirable to inform
the Applicant or any other company of the fact that negotiations had
commenced with the current printers. These negotiations had been
conducted from the outset on the express basis that they would be kept
confidential to the parties concerned, and in the first instance we
would try to reach agreement with the current printers. Consistently
with those confidentiality arrangements I was not at liberty to inform
others of the negotiations."
93. Counsel for the applicants submit that the only rational explanation of the exclusion of others, and the secrecy that was adopted, was that Mr Barkla, Mr Jones and Mr Avard very much wished to ensure that Telecom dealt with News and McPhersons after the end of 1992; they did not wish the protests of other printers to lead to a widening of the field and the possibility that News and McPhersons might cease to be committed to Telecom. Their preference was for a joint venture with the two companies. When that proposal failed, they strove for arms-length agreements with each. They were willing to look to others only as a last resort; that is, if they could not negotiate terms that they considered acceptable.
94. A further clue is provided by the language used in the slide presentation prepared for the Finance Committee in October 1991. One of the advantages of the joint venture option mentioned by the negotiating team is that a joint venture with both current contractors "doesn't leave a printer for a competitor". See also Mr Ian Campbell's note to himself of 11 November posing the question: "How to exclude competitor".
95. On balance, I think the better view is that the Telecom officers were influenced in their decision to confine initial negotiations to News and McPhersons by their perception that this would have the consequence of deterring or preventing the entry of a competitor into the directory market.
96. But was this decision, as distinct from the decision to impose a veto on the contractor accepting other work, an exercise of Telecom's market power? I think not. Not every commercial decision made by a person possessing substantial market power is a decision that takes advantage of that power. As French J commented in Natwest Australia Bank Limited v Boral Gerrard Strapping Systems Pty Ltd (22 October 1992, not yet reported): "There must be a causal connection between the conduct alleged and the market power pleaded such that it can be said that the conduct is a use of that power". The Court must also consider whether, even without substantial market power, the person might have been able to make the same decision. A decision to contract with a particular person will normally not be an exercise of market power. For example, a decision to purchase an article from a particular retailer will usually not depend upon the market power of the purchaser, which may be minimal. It will usually be simply a matter of choice. Even if the choice is influenced by a desire to preclude another, this may not be an exercise of market power. Take the case of two people engaged in a dispute which may erupt into litigation. One disputant decides to retain a well regarded lawyer, not because of a perceived need for legal advice at that stage but in order to preclude that lawyer acting for the other party. The decision limits the other party. But the limitation results from an ordinary commercial decision, not the exercise of market power. Other examples come readily to mind: a real estate chain which is influenced in purchasing particular premises by a desire to deny them to a competing agency; a restauranteur who employs a famous chef to make him unavailable to a competitor. As it seems to me, Telecom's decision to negotiate only with News and McPhersons was like these examples. Even if the decision stemmed, at least partly, from a desire to deny to a future competitor the only two experienced directory printers in Australia, that was not an act by which Telecom took advantage of its market power. Telecom could have decided to contract with News and McPhersons even if it had had little market power. Market power only became important in connection with the terms of the contracts.
97. In all the examples I have given, the nature of the transaction was such as necessarily to preclude a competitor. That was not the situation in the present case. The mere entry into printing agreements with Telecom would not necessarily prevent News and McPhersons printing directories for others. That result would only arise if the agreements so provided. But Telecom ensured that the agreements did so provide by requiring each printer to accept a Telecom veto on the undertaking of work for others. These conditions give rise to the applicants' second s.46 contention. Counsel argue that Telecom used its power in the market to induce News and McPhersons to agree that the presses required for Telecom's directories would not be used to service other customers, except with the prior agreement of Telecom; it being understood that Telecom would not consent to their use for the printing of competitive material. The argument is that Telecom was able to impose this condition only because, in a practical sense, News and McPhersons had no alternative.
98. I think this argument is correct. Both McPhersons and News knew that Telecom was opposed to their presses being used for competitive material. It will be recalled that, as early as May 1987 when they were awarded their current contract, McPhersons assured Mr Ward "that they won't handle competitive products". As late as June 1992, on the eve of the new contracts, Mr Catlow of News wrote to Mr Barkla undertaking "not to print any competitive product in the plant". It is evident from Telecom's own documents that News, at least, was reluctant to accept the veto. It did so only at the last minute and because it had no choice. McPhersons also had no choice. At the present time there is no other substantial directory publisher in Australia. If either printer had refused to accept Telecom's demand, it would have had little directory work. At best it would need to make a substantial readjustment, to move into other printing work as and when it might become available. At worst, it might go out of business altogether. The latter prospect may have been particularly real for McPhersons, a smaller, more specialised organisation than News.
99. I entertain no doubt that the relevant Telecom officers knew the vulnerability of the two current contractors and intended to take advantage of it. Once again, the picture emerges clearly from Telecom's internal documents. In their briefing paper of March 1991 Mr Avard and Mr Jones worried about "a dedicated specialised directory plant primarily based on Telecom's orders being used to produce for competitors with spare capacity". In October 1991 Mr Avard pointed out to Mr Murphy that one advantage of a joint venture was that "we would control this decision"; that is, any decision to use the plant for work other than Telecom's directories. The slide presentation to the Enterprises Internal Management Board put the concern even more bluntly: "Critical issue outstanding is the use of the plant equipment for other work - we want to have veto over such use". In his Directory Printing Review in June 1992, Mr Barkla described as a "key issue" "the dedication of the plant to our directories with any additional work only being undertaken with our approval". And it is clear that the approval was not intended to relate only to plant capacity. The minute of the meeting of 2 July between representatives of Telecom and News records an agreement that Telecom could disapprove additional work "for reasons of capacity or conflict".
100. In relation to this aspect of the case, counsel for the respondent point out that the requirement of Telecom approval of work for other customers applied only to work intended to be undertaken on the printing presses used for Telecom's directories. Counsel say that there is nothing in either contract to preclude the printer using other plant to print directories for a Telecom competitor. The statement is factually correct but it affords no answer to the applicants' complaint. In the case of each contract the plant the subject of the right of veto was the plant required to be upgraded for the specific purpose of enabling the economical and efficient printing of four-colour directories. The whole basis of the negotiations between Telecom and its current contractors was to ensure new plants better adapted to that purpose than any existing Australian plant. It was a significant advantage to Telecom to be able to prevent potential competitors gaining access to the only two Australian plants capable of printing four-colour directories economically and efficiently. There may have been an even greater advantage in denying them access to News and McPhersons facilities altogether; although this is far from clear because it seems that other printers, including Hannanprint, are as well equipped as News and McPhersons currently are. But to say that a different condition might have conferred an even greater advantage does not deny the advantage ensuing from the condition actually imposed. No doubt it was because of their appreciation of the benefit to their employer of a condition restricting access to the new plants that the Telecom negotiators placed such insistence upon it.
101. It was not suggested in argument that the requirement for Telecom's consent to the plant being used for the printing of material on behalf of other people was dictated only by a desire to ensure that it would not adversely affect its availability for Telecom's work. That argument would not have withstood examination. No doubt availability was one concern; but the relevant clauses require the printer, in seeking any approval, to provide information that has nothing to do with plant availability. The required information includes "the price of the Extra Printing Work", the name of the customer, "the quantity and type of Extra Printing Work performed" and "any other information required" by Telecom.
102. Counsel for the respondent put the submission that, "(i)f a competitor of Telecom in the directory market had a requirement for a metropolitan size directory, it will be worth the while of any printer, including Hannanprint, to invest in larger machinery to perform that work efficiently". I agree that this is so and that, if so, the veto conditions imposed by Telecom on News and McPhersons will not have the effect of keeping a competitor out of the directory market. But s.46 is not concerned with the question whether the corporation with substantial market power succeeds in its purpose. It proscribes conduct undertaken with a proscribed purpose, successful or not.
103. I think it is evident that Telecom used its dominant position in the Australian directory market to deny competitor access to the only Australian printing plants - existing or planned - which were capable of economically and efficiently producing four-colour directories. It did this with the purpose of preventing the entry of another person into the Australian directory market (s.46(1)(b)) or, at least, deterring or preventing such a person from engaging in competitive conduct in that market (s.46(1)(c)). I will return later to the implications of this conclusion.
The s.52 claim
104. Section 52 of the Trade Practices Act provides that a corporation shall
not, in trade or commerce, engage in conduct that is misleading or deceptive
or is likely to mislead
or deceive. The respondent accepts that ATC was, and
it is, a corporation to which the section applies and that the Telecom
actions,
in relation to the inquiries made by Mr Hannan and Mr Kennedy on
behalf of the applicants, were undertaken in trade or commerce.
The issue
between the parties in relation to s.52 is whether Telecom's responses to the
inquiries constituted misleading conduct. This is entirely an issue of fact.
But it does not
turn on any issue of primary fact; rather upon the proper
assessment of undisputed facts.
105. Before going to the detail of the relevant events, two comments are appropriate. First, it is clear that, from first to last, Mr Hannan believed that Telecom would determine the destination and terms of the printing contracts which would operate after the end of 1992 as a result of an evaluation of tenders called by it; and not otherwise. Secondly, it is equally clear that he was never expressly told that this would be the case. On the contrary, on a precise analysis of his language, it is apparent that Mr Barkla used language (obviously chosen with great care) that left open the possibility that tenders would not be called. But Mr Hannan did not subject Mr Barkla's language to a precise analysis. He did not appreciate that this possibility was being left open. In the end, as it seems to me, the s.52 issue comes down to the question whether Mr Hannan failed to understand language which fairly conveyed the information that there might not be a tendering process, in which case it could not be said that Telecom's conduct was misleading, or whether the language which was used by Mr Barkla, although not literally untrue, was language apt to convey a false impression and therefore misleading.
106. The exchanges between Hannanprint and Telecom in connection with the future contracts involved three separate episodes. The first occurred in January - February 1991. It was relatively brief. Mr Hannan wrote to Mr Ian Campbell referring to the newspaper report regarding disposal of used directories and indicated his firm's interest in "telephone directory production". Nothing was said about the method of contracting. Mr Hannan was simply indicating his interest in obtaining the work. Mr Campbell understood this. He asked Mr Barkla to "assess Hannanprint's capability to gear up to be a credible directory producer". Mr Barkla did so. He asked Mr Slater to inspect Hannanprint's Sydney plant. During that inspection Mr Hannan re-affirmed his interest in directory printing. Mr Slater noted, and reported, Hannanprint's competency and capacity for expansion.
107. This first episode is not of critical importance. But it has some significance, on the applicants' case. First, in the exchanges at this time Hannanprint made known its wish to obtain directory printing work. Telecom understood this and assessed Hannanprint as competent to undertake that work. Counsel argue that the subsequent discussions about tendering need to be considered against this background. Secondly, it is common ground that, during the course of Mr Slater's inspection, Mr Hannan inquired when the current contracts would finish. He was told, correctly, "at the end of 1992". Mr Hannan then asked when tenders were likely to be called. Mr Slater replied: "Usually its about six months before the contracts finish". Mr Slater made no suggestion that, on this occasion, there might not be a call for tenders; probably because he was unaware that Mr Barkla and Mr Jones intended not to call tenders. Mr Slater and Mr Hannan both made the assumption that the usual course would be followed and the new contracts let by tender. Mr Slater acted in good faith. But, because he had not been informed of the position, his response must have served further to entrench Mr Hannan's incorrect assumption that tenders would be called.
108. The second episode occurred in July 1991. As it was still a long time before the commencement of the six month period mentioned by Mr Slater, I assume that this episode arose out of Mr Hannan learning of the overseas inspections of Mr Jones and Mr Avard, in occasional company with representatives of News and McPhersons. Mr Hannan obviously thought it appropriate to press his case. He wrote to Mr Barkla on 12 July asserting his firm's desire, resources and expertise to meet Telecom's needs. As his letter made clear, he assumed that this could only be done through the tender process. I say this because he immediately went on to ask Mr Barkla to advise "the correct procedures involved in becoming part of the tender process for your directory printing". The letter was not phrased in terms like "if tenders are to be called, I would be interested". The assumption was that it would be through the tender process (and only through that process) that any printer could hope to obtain a share of the work.
109. Mr Barkla understood that Mr Hannan's interest was in obtaining printing work, rather than the means to be adopted to that end. He thanked Mr Hannan for his letter "regarding the printing of telephone directories" and explained that Telecom already had contracts in place covering all its printing requirements until the end of 1992. He then said: "We are continually evaluating our approach to the future printing of directories". Counsel for the respondent argue that these words were an indication that tenders would not necessarily be called; a new approach might be to let contracts without first calling tenders. I accept that, in choosing these words, Mr Barkla had in mind that tenders might not be called. But he did not convey that message to Mr Hannan. He said that he would "bear (Hannanprint) in mind in these evaluations", thereby indicating that he regarded Hannanprint as a contender for printing work. He went on immediately to deal with means: Hannanprint's name "will now be added to any prospective tenderers list which may be relevant in the future". It is true, as counsel point out, that he said "any" list which may be relevant. But, in the context of what had gone before, the sentence clearly conveyed the impression that the addition of the firm's name to the tender list would be the means by which it would be borne in mind in Telecom's evaluations.
110. The misleading effect of Mr Barkla's letter was compounded by the telephone conversation immediately thereafter. As I have indicated, there is a dispute as to the terms of that conversation. On Mr Hannan's version, he asked Mr Barkla "whether he was about to call tenders now for 1993" and Mr Barkla replied that "there was no tender document yet being considered" - thereby implying that such a document would be considered at a later stage. Mr Barkla denies saying this. But he says that he did repeat his reference to adding Hannanprint's name to "any" list of prospective tenderers. Even on this version of the conversation, Mr Barkla was being misleading. It was obvious to him that Mr Hannan was extremely interested in obtaining directory printing work and that he was acting under the belief that the key to obtaining that work was to submit a tender. Knowing, as he did, that it was highly unlikely that the new printing contracts would be awarded through a tender process, so that Mr Hannan was labouring under a fundamental misconception, the only honest response to Mr Hannan's inquiry would have been to tell him there may be no tender process. As he admitted in the passage in his affidavit quoted above, Mr Barkla made a deliberate decision not to so inform Mr Hannan. He did so because of his desire for secrecy. Apart from the desire to avoid being put under pressure to open up the contract negotiating process, there was no reason for Mr Barkla to have been unwilling to disclose to anyone who might be interested that Telecom had decided to negotiate only with the existing suppliers. Public disclosure of that position could not have affected the terms which News and McPhersons might offer - they already knew what course Telecom was pursuing. In any event, whatever his reasoning, the effect of Mr Barkla's letter and telephone response was to entrench Mr Hannan's assumption that tenders would be called and to induce him to believe that, when they were called, his firm would be accorded an opportunity to participate.
111. Following the July contacts, Mr Hannan asked his solicitors to obtain FOI information on Telecom's tendering policy. I have already set out the relevant passages of the document they obtained. Counsel for the respondents contend that this document indicates the possibility that goods may be purchased otherwise then by tender. Having regard to what had transpired in July, the relevance of that contention is not immediately obvious; Mr Barkla had caused Mr Hannan to believe that, whatever other options might be open, tendering would be the process adopted in this case. But, in any event, it does not seem to me that the document makes clear that goods may be purchased - except for "on-going requirements: see para.(e) - otherwise than by a process of competition between potential suppliers. It is called a "policy on tendering". The opening sentence refers to various methods of obtaining prices from suppliers, all of which involve a process of evaluation of competing offers.
112. The final Hannanprint-Telecom exchange occurred in February 1992. Mr Kennedy sought information about Telecom's tender system. Mr Ferris told Mr Kennedy there was a list. Mr Kennedy asked that Hannanprint's name be added to it and sent the necessary letter with relevant information. After receipt of the letter, Mr Ferris told him that Telecom would include Hannanprint "on the list of likely tenderers for the printing of telephone directories". Mr Ferris acted in good faith; he had not been told that there were to be no tenders. But his reply further confirmed Hannanprint's belief that tenders would be called.
113. The authorities on s.52 of the Trade Practices Act make clear that the
operation of the section is not confined to a case where a respondent makes a
statement which is literally untrue.
The critical question is whether the
effect of the statement was to mislead the person to whom it was made. This
point was eloquently
made by Hill J in a recent decision, Winterton
Constructions Pty Limited v Hambros Australia Limited (30 November 1992, not
yet reported).
His Honour referred to the two seminal cases in this Court
dealing with "misrepresentation by silence": Rhone-Poulenc Agrochimie
SA v
UIM Chemical Services Pty Ltd (1986) 12 FCR 477 and Henjo Investments Pty Ltd
v Collins Marrickville Pty Ltd [1988] FCA 40; (1988) 79 ALR 83. In dealing with
Rhone-Poulenc, Hill J quoted the reference by Bowen C.J. (at 489-490) to
"cases which show ... that an omission
to mention a qualification, in the
absence of which some absolute statement made is rendered misleading, is
conduct which should
be regarded as misleading". Hill J referred to Henjo
Investments as an example of a "half truth case", a category which he thought
to be the most usual example of silence constituting misleading conduct. He
then addressed the principle underlying the silence
cases:
"Obviously, it is difficult to see how a mere silence could, of itself,114. Let me use a homely example to illustrate my understanding of the principle described by Hill J. Suppose a situation where a railway line is under repair. The railway operator is providing buses to transport passengers travelling east to a station beyond the repair area where they join trains. While purchasing her ticket, an intending passenger asks the station attendant: "Which is the east-bound platform?" He replies: "Number 1". The statement is true; when trains are travelling east from that station they always use platform 1. But the attendant omits to tell the passenger that buses are currently being used, so that, in order to travel east, she should go outside to the bus loading area. As a result of this omission, the intending passenger humps her baggage to platform 1 and vainly waits for some time, during which the bus departs. Might she not justifiably complain that she was misled by the attendant? Her complaint would not depend on what she was told; the information given her was a true answer to her question. Her complaint would be that it must have been obvious to the attendant that she was concerned about an immediate journey, not in obtaining general information about how the railway station operated; so she was entitled to expect that, if it existed, matter qualifying the usual, or obviously assumed, situation would be disclosed to her.
constitute conduct which is misleading or deceptive or likely to mislead
or deceive. However, if the circumstances are such that a person is
entitled to believe that a relevant matter affecting him or her
adversely would, if it existed, be communicated, then the failure to so
communicate it may constitute conduct which is misleading or deceptive
because the person who ultimately may act to his or her detriment is
entitled to infer from the silence that no danger of detriment existed.
Thus, where a duty to speak is imposed, silence may constitute
misleading and deceptive conduct."
115. In the same way, as it seems to me, the applicants were misled by Telecom's failure to tell them there might not be a call for tenders for the post-1992 printing contracts. Mr Hannan did more than express general interest in the way Telecom operated. He made it apparent that he hoped to travel immediately, to have a part of the post-1992 contracts. He assumed that travel would be by tender. So he asked the way to the platform marked "tender list". Mr Barkla and Mr Ferris correctly instructed him about this. But they told him nothing more. So Mr Hannan humped his baggage of legal expenses to the tender platform and sat there waiting while the bus labelled "negotiated contracts" departed with News and McPhersons aboard.
116. Before departing from s.52 I should deal with a submission on behalf of
the respondent that the applicant did not rely upon the information furnished
by Telecom.
It will be recalled that Mr Hannan swore that, as a result of the
letter of 22 July 1991 and his subsequent telephone conversation
with Mr
Barkla, he believed that Hannanprint would be considered in the awarding of
any telephone directory printing contracts; and
that this belief caused him to
obtain quotations for the required new equipment. This evidence was not
directly challenged, nor
was it suggested to him that his belief subsequently
changed. But counsel for the respondent taxed Mr Hannan with the fact that
his January 1992 letter did not set out everything he claimed to have been
told in July, a matter about which Mr Hannan could not
give an explanation.
Counsel also procured an admission from Mr Hannan that he "was never confident
that we were going to be allowed
to tender for the Telecom directories". This
answer is consistent with the terms of a letter written to John Beswick,
Deputy Premier
of Tasmania, on 12 February 1992. The letter was written by
David Breden, Group Business Manager of Hannanprint. It appears that,
on the
morning of 12 February, Mr Breden heard an ABC news item concerning a decision
by Telecom to import overseas paper for use
in its telephone directories,
rather than to use Australian paper. The broadcast included a comment by Mr
Beswick complaining about
the adverse effects of this decision on his State.
The comment apparently struck a chord with Mr Breden. He wrote to Mr
Beswick:
"I listened with interest to your comments this morning on the ABC newsCounsel for the respondents suggest that this letter shows that, at least by February 1992, Hannanprint realised that it would be excluded from participation in the new contracts.
regarding Telecom's tendering process and their letting of contracts
overseas for the supply of paper for Telecom's directories.
Although Hannanprint is the second largest commercial printing group in
Australia we have had little success in persuading Telecom to allow us
to tender for the printing of telephone directories. We have
corresponded with Telecom on a number of occasions concerning this
matter and enclose copies of this correspondence for your information.
We support and endorse your comments and if we can assist in any way in
your campaign to have Telecom's tendering process reviewed, please
advise."
117. I do not accept this suggestion. It is not clear to what extent Mr Breden consulted Mr Hannan before writing the letter; but, assuming (as is likely) that the letter represented Mr Hannan's view, it does no more than indicate Hannanprint's frustration about Telecom's tendering process. It is significant that the complaint is that "we have had little success in persuading Telecom to allow us to tender for the printing of telephone directories". To extend the railway analogy, Hannanprint was becoming impatient at the delay in the arrival of the tender train; but it still did not realise that travel was to be by bus. In any case, within days of this letter, Mr Hannan had contacts with Mr Ferris which served to reassure him, quite reasonably, that he was waiting in the right place.
118. In my opinion the evidence amply demonstrates that Telecom misled Hannanprint concerning the procedures it proposed to implement in connection with the post-1992 directory printing contracts. Once again, I defer for the moment the question of relief.
The ADJR Act claim
119. In the Statement of Claim the applicants pleaded their case under the
Administrative Decisions (Judicial Review) Act 1977 ("the ADJR Act") in
general terms. Further particulars were sought and supplied. They were
tendered during the hearing and it is convenient to
analyse this aspect of the
applicants' case by reference to them. The particulars reveal that the
applicants rely upon both s.5 and s.6 of the ADJR Act. Section 5(1) provides
for review by this Court of a "decision" to which the Act applies on one or
more of the grounds enumerated in paras.(a)
to (j) of the subsection.
Subsections (2) and (3) direct the Court as to the application of paras.(e)
and (h). Section 6 relates to review of conduct for the purpose of making a
decision to which the Act applies, not review of a decision itself. The
opening words of s.6(1) are:
"Where a person has engaged, is engaging, or proposes to engage, inThe grounds that follow correspond with those contained in s.5(1). Section 6(2) and (3) follow the form of s.5(2) and (3).
conduct for the purpose of making a decision to which this Act applies,
a person who is aggrieved by the conduct may apply to the Court for an
order of review in respect of the conduct on any one or more of the
following grounds."
120. The applicants' particulars reveal that the enactments upon which it
relies for the purposes of its ADJR claim are the Australian
Telecommunications Corporation Act 1989 ("the ATC Act") and the AOTC Act. In
relation to the earlier Act, the applicants refer to the following
"decisions":
"(i) the decision to limit negotiations for printing arrangements121. Section 19 of the ATC Act invested ATC, for and in connection with the performance of its functions, with all the powers of a natural person. The section gave examples. The first of them was the power to enter into contracts. It follows, say counsel for the applicants, that any decision by ATC to enter into a printing contract would have been a decision under s.19; and, consequently, in terms of s.5 of the ADJR Act, "a decision under an enactment". They refer to Australian Capital Territory Health Authority v Berkeley Cleaning Group Pty Ltd (1985) 60 ALR 284. Building on that proposition, counsel contend that the particularised antecedent decisions of ATC, quoted above, were also "decisions" for the purposes of s.5. They argue that the antecedent decisions were flawed on three grounds covered by s.5(1): breach of the rules of natural justice (para.(a)); failing to take into account a relevant consideration (para.(e) read with subs.(2)(b)) and unreasonableness (para.(e) read with subs.(2)(g)). Counsel then say that, by virtue of s.11 of the AOTC Act, all liabilities of ATC become liabilities of AOTC. They say this includes ATC's liability for review under s.5(1) of the ADJR Act; with the result that relief may be given to the applicants against the present respondent notwithstanding the repeal of the ATC Act.
to existing contractors;
(ii) the decision not to consider the applicant or other potential
suppliers of printing services;
(iii) the decision not to call for tenders;
(iv) the decision to enter into negotiations on the basis of two
contracts of ten years duration with existing contractors being
allocated a certain percentage each of the printing work;
(v) the decision to exercise the option to extend the current
printing arrangements for the calendar year 1993;
(vi) the decision to limit the dissemination of information and
material relating to specifications for the printing arrangements
for the years 1994 to 2003 to the existing contractors."
122. This aspect of counsel's agreement does not depend upon the current legislation making a decision to contract a "decision under an enactment". This is fortunate for the applicants, because the current legislation does not do so. Unlike ATC, AOTC was not incorporated by statute. It was incorporated (on 5 November 1991) as a company pursuant to the Corporations Law of the Australian Capital Territory. Like any other normal company incorporated in the Australian Capital Territory, it derives its power to contract from the fact of its incorporation and the terms of the Australian Capital Territory statute: see s.182(1) of the Corporations Law.
123. Even so, according to the respondent, there is a fatal flaw in the applicants' argument on this point: none of the particularised "decisions" were "decisions under an enactment". For the purpose of their submission on this point, counsel for the respondent do not dispute the proposition that a decision by ATC to enter into printing contracts would have been a decision under an enactment. They simply point out that no such decision was ever made; the only decision to contract was made by AOTC. Nor do counsel dispute that decisions, although not irrevocable decisions, along the lines suggested by the particulars were made by Telecom officers while the ATC Act was in force. But counsel say that none of these decisions was "a decision to which this Act applies".
124. The leading authority on the meaning of the phrase "a decision to which
this Act applies" is the decision of the High Court
of Australia in Australian
Broadcasting Tribunal v Bond [1990] HCA 33; (1990) 170 CLR 321. In that case, at 334, Mason
C.J. referred to s.3(1) of the Act which contains this definition of the term
"decision to which this Act applies":
"a decision of an administrative character made, proposed to be made, or125. Mason C.J. went on at 335-336 to state that "no narrow view should be taken of the word 'decision'". Nonetheless, his Honour said, the word had a "relatively limited field of operation". He gave reasons, drawn from the terms of the legislation itself. After referring to some policy issues, the Chief Justice said at 337:
required to be made, as the case may be (whether in the exercise of a
discretion or not) under an enactment, other than ..."
"The policy arguments do not, in my opinion, call for an answer126. Mason C.J. went on to say that "(a)nother essential quality of a reviewable decision is that it be a substantive determination". Once again he gave reasons drawn from the terms of the legislation itself. An important aspect of his reasoning was that the application to the word "decision" of procedural determinations would leave little scope for review of "conduct", "a concept which appears to be essentially procedural in character".
different from that dictated by the textual and contextual
considerations. That answer is that a reviewable 'decision' is one for
which provision is made by or under a statute. That will generally, but
not always, entail a decision which is final or operative and
determinative, at least in a practical sense, of the issue of fact
falling for consideration. A conclusion reached as a step along the way
in a course of reasoning leading to an ultimate decision would not
ordinarily amount to a reviewable decision, unless the statute provided
for the making of a finding or ruling on that point so that the
decision, though an intermediate decision, might accurately be described
as a decision under an enactment."
"To take an example, the refusal by a decision-maker of an application127. The views expressed by Mason C.J., on this aspect of the case, seem to have been accepted by all the other members of the Court. Brennan and Deane JJ. agreed with the Chief Justice in terms. Toohey and Gaudron JJ. stated their view in their own language but to similar effect. Accordingly, I must apply to this case what was said by the Chief Justice. That application compels the rejection of this aspect of the applicants' argument. None of the six particularised decisions was a decision for which provision is made by or under a statute. They were simply internal, revocable decisions along the way to the ultimate decision whether or not ATC should enter into a particular printing contract.
for an adjournment in the course of an administrative hearing would not
constitute a reviewable decision, being a procedural matter not
resolving a substantive issue and lacking the quality of finality. Then
it is the 'conduct' of the hearing in refusing an adjournment that is
the subject of review. To treat the refusal of the adjournment in this
way is more consistent with the concept of 'conduct' than with the
notion of 'decision under an enactment'."
128. Moreover, I think it is correct to characterise five of the six particularised decisions as procedural determinations. The exception is decision (v), relating to exercise of the option to extend the current printing arrangements for the year 1993. That "decision" cannot properly be described as procedural. But it is loosely described in the particulars. There was never a formal exercise of the options. It seems that the two contractors were informally told, before the demise of ATC, that they would be asked to extend the existing arrangements until the end of 1993. The only formal action was a decision in 1992, by AOTC, to enter into transitional contracts with each of them. In any event, the decision to extend the current contracts until the end of 1993 is not a matter about which Hannanprint has been concerned. Its interest has always been in the new long-term contracts.
129. The second string to the applicants' ADJR bow involves decisions made
under the AOTC Act. These decisions are particularised in this way:
"(i) the decision by the Board of AOTC on 7 August 1992 to enter130. There is no doubt that the first and second of these decisions were substantive, rather than procedural. I am not sure that it is accurate to say that there was a "decision" in terms of the third particular. So far as the evidence reveals, there was never a recommittal of any of the matters earlier mentioned. All that can be said is that AOTC failed to reverse any of the earlier decisions of ATC.
into directory printing contracts with Pacific Magazines and
Printing Limited and McPhersons Limited for both long term
and interim agreements;
(ii) the printing agreements entered into between AOTC and Pacific
Magazines and Printing Limited and McPhersons Limited in or
about September 1992;
(iii) the decision not to vary or reconsider any of the decisions
referred to in paragraph 3(i) to 3(vi) herein."
131. However, it seems to me that the short answer to the applicants' AOTC case is that none of the decisions particularised by it were decisions made under that Act. They were decisions made by AOTC pursuant to its powers as a company incorporated under the Australian Capital Territory Corporations Law.
132. Finally, the applicants argue that the matters earlier particularised amount to "conduct", within the meaning of s.6 of the ADJR Act, for the purpose of making a decision to which the Act applies. To the extent that the conduct relied upon by the applicants was undertaken by AOTC, the applicants' argument runs into the same difficulty as its argument in connection with AOTC's decisions. But that difficulty does not apply to the conduct undertaken by ATC. It is true that ATC never made a relevant statutory decision; it ceased to exist before that stage was reached. However, when the impugned conduct took place, it would not have been apparent that this would be the case. The AOTC Act was not assented to until June 1991. Long before then, indeed before the end of 1990, ATC had made decisions (i), (ii), (iii), (iv) and (vi), at least in a tentative way. At the time those decisions were made, the responsible officers must have had envisaged that the ultimate substantive decision would be a decision to which the ADJR applied. Accordingly, I think it is correct to describe the making of these tentative decisions as "conduct for the purpose of making a decision to which (the ADJR) Act applies". It follows that each of the matters referred to in these particulars constitutes conduct susceptible to review under the ADJR Act.
133. Notwithstanding this conclusion, I think that the applicants' case on conduct must also be rejected. I reach this opinion with some regret, because it seems to me apparent that the applicant was denied procedural fairness. By misleading conduct, Telecom lulled Hannanprint into the belief that it had put itself in a position to compete on merit for the new printing contracts, whereas it had not. That notions of procedural fairness may be applicable to commercial decisions, at least where a statutory authority has created a legitimate expectation, is demonstrated by the Full Court decision in Century Metals and Mining NL v Yeomans [1989] FCA 273; (1989) 100 ALR 383 at 408-411 and the cases there cited. But it would be futile for the Court to review Telecom's conduct in relation to the new directory printing contracts prior to 1 February 1992 if it could not review the ultimate decision to contract. Let it be supposed that, upon a full review, it was held that some or all of the earlier conduct was in breach of ATC's obligation to provide procedural fairness to Hannanprint, or that it disregarded a relevant consideration or was so unreasonable that no reasonable person could have so acted. No doubt the Court could so declare; but such a declaration would not avail the applicants unless the contracts themselves were set aside or cancelled.
134. Section 16(2)(a) of the ADJR Act empowers the Court, in its discretion,
on an application for an order of review to make:
"an order declaring the rights of the parties in respect of any matter135. A declaration concerning ATC's conduct could be framed in such a manner as to fall within para.(a). But I do not see how the Court may legitimately set aside, or direct the respondent to cancel, its contracts with News and McPhersons, or refrain from implementing them. Whatever the conduct which gave them birth, the contracts themselves are immune from attack. Because the ADJR Act does not apply to the decision to contract, the contracts themselves are not vulnerable to an order setting them aside.
to which the conduct relates."
136. The essential problem for the applicants, in connection with its ADJR case, is the nature of AOTC. Whilst the entity which we loosely call "Telecom" was a government Department or a statutory authority, it was subjected to a greater degree of control, including under the ADJR Act, than is AOTC. But the Government decided that the previous position should change, and that Telecom should be united with the Overseas Telecommunications Corporation under the control of a new company (AOTC) incorporated under Australian Capital Territory law and organised on conventional lines with minimal statutory support. Whether that policy decision was good or bad is not for me to say. As it is not a matter to which I have had to give serious attention, I have no view about it. What is important is that the policy has been endorsed by Parliament, resulting in the present legislation. That policy involves the proposition that AOTC should be amenable to the general law of the land, including the Trade Practices Act, but not to special legislation devised for government instrumentalities and statutory decision-makers, such as the ADJR Act. Even if it was technically possible for the Court to intervene in this matter under the ADJR Act, it ought not do so. The ADJR claim should be dismissed.
Relief
137. The matter of relief poses particular problems in this case. I should
say immediately that, when (on 28 October 1992) the case
was fixed for trial,
there was agreement at the bar table that the issues of liability required
urgent consideration. It was also
agreed that there was no particular urgency
about determination of any question of damages that might arise. Accordingly,
by consent,
I directed that the hearing then appointed "deal with all matters
other than the quantum of any damages". The parties have limited
their
evidence accordingly.
138. During the course of their closing oral submissions, counsel for the applicants indicated that, if their clients were successful in any of their claims under the Trade Practices Act, they would be content with an award of damages; they did not seek an order setting aside or holding void the contracts made by the respondent with News and McPhersons. Their reason was that News and McPhersons were not parties; although (curiously to my mind) despite that fact counsel pressed their application for an order under the ADJR Act setting aside the contracts.
139. In written submissions delivered a couple of days after their oral submissions, counsel recanted their abstinence and submitted that relief under the Trade Practices Act should include an order that the contracts be set aside. Counsel for the respondent replied with a submission that the Court ought not allow the applicants to withdraw their concession that it would be inappropriate to set aside the contracts in the absence of News and McPhersons. In addition, they put substantive arguments as to why the contracts should not be set aside, even if liability was established.
140. I have already indicated my conclusion that the decision of Telecom to
negotiate only with News and McPhersons did not involve
a contravention of
s.46 of the Trade Practices Act. In my opinion the requiring of News and
McPhersons to agree to a Telecom veto on the use of the printing presses for
other customers
was conduct violating s.46. But that conclusion does not
logically dictate that I set aside the entire contracts; rather only those
portions of them which offend
the section - that is, the conditions providing
for the veto. The applicants do not seek such an order. Indeed, they
expressly
ask me not to make such an order. The reason is obvious. If the
contracts are to remain on foot, contrary to the interests of the
applicants
in obtaining a share of Telecom's directory printing work, it is some small
comfort to them that they have the effect
of removing News and McPhersons, for
the duration of their operation, as competitors for any directory printing
work which might
become available from other sources. Counsel submit that, if
relief were confined merely to the offending conditions:
"a greater injustice would be perpetrated. The 'premium price' as must141. There is substance in this submission. I should not force on the applicants an order which they do not seek and which may adversely affect them.
have, in part, reflected the relationship between reduced capacity and
foregoing opportunities for additional non-AOTC printing would then
bring about a situation where the competitor printers who had been
exclusively chosen by the respondent would have both the improved
premium price and then the opportunity to compete even more
advantageously with other printers, using that residual capacity."
142. There is a question whether the Court has power to set aside the contracts consequent upon the applicants' successful s.52 claim. It is not uncommon, in successful s.52 cases, for the Court to make an order under s.87(2) setting aside a contract entered into between the parties. But in the present case there is no contract between the successful applicants and the respondent. Nor is there any question of money having been paid by the applicants to the respondent or goods or services having been supplied by the respondent to them. Section 87(2) would seem not to apply.
143. It is perhaps arguable that the applicants could achieve their objective of nullifying the operation of the contract by obtaining a suitably worded injunction issued pursuant to s.80 or s.87(1) of the Trade Practices Act. But I do not pause to consider that point. In a case where the other parties to the contract are not implicated in the conduct infringing s.52 and have not even been joined as respondents, it would not be a proper exercise of discretion to make an order depriving them of the benefits of their contracts.
144. In my opinion, this is not a case for an order interfering with the operation of the contracts made with News and McPhersons.
145. It would be open to the Court to make declarations as to the respondents' contraventions of s.46 and s.52. But I see no utility in this course. My findings have been set out; declarations will take the matter no further. The fact that formal declarations are not made will not affect my attitude towards costs. In considering that matter, I will take into account the degree of success which the applicants have had; although that success will need to be balanced against their failures.
146. I think that relief (if any) should be confined to an award of damages. So far as that matter is concerned, it is not obvious to me that the applicants have suffered any compensable loss. They certainly lost nothing by Telecom's having insisted on the conditions that offend s.46. The situation in relation to s.52 is less clear. As it presently seems to me, the question whether the applicants suffered any loss because of the misleading information given them by Telecom rests in speculation only. It is not presently apparent to me that, if Mr Hannan had been told the full story, he would have been successful in persuading Telecom to negotiate with him or to call tenders. It is even more problematical whether, if he had succeeded in this, he would have been successful in obtaining the work, or part of it. However, having regard to the direction deferring consideration of the quantum of damages, it is inappropriate for me to reach any final view on these matters. I should afford the applicants an opportunity to persuade me away from my present view.
147. I will hear counsel as to the course which should be followed for the final resolution of the case. I prefer to hear counsel after they have had the opportunity to consider these reasons and discuss them with their clients. Accordingly, I will make no order today. I will simply direct that the matter stand over for mention on Wednesday, 10 February 1993 at 9.30am. If that date proves inconvenient to counsel, they may approach my Associate for an alternative time.
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