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Federal Court of Australia |
Last Updated: 18 August 2000
GENERAL DISTRIBUTION
FEDERAL COURT OF AUSTRALIA
FOXTEL MANAGEMENT PTY LTD & ORS
V
SEVEN CABLE TELEVISION PTY LIMITED & ORS
SUMMARY
In accordance with the practice of the Federal Court in certain cases of public interest, the Court has prepared a brief summary to accompany the reasons for judgment that are to be delivered today. It must, of course, be emphasised that the only authoritative pronouncement of the Court's reasons is that contained in the published reasons for judgment. This summary is only intended to assist in understanding the main issues arising and the principal conclusions reached by the Court, and is thus necessarily incomplete.
18 August 2000
GENERAL DISTRIBUTION
FEDERAL COURT OF AUSTRALIA
FOXTEL MANAGEMENT PTY LTD & ORS
V
SEVEN CABLE TELEVISION PTY LIMITED & ORS
SUMMARY OF REASONS FOR JUDGEMENT GIVEN ON 18 AUGUST 2000
This is a summary of some of the matters forming the subject of judgments in two related appeals, which were heard together. The appeals have raised several important and previously unconsidered questions as to the meaning and operation of some of the provisions of Part XIC of the Trade Practices Act 1974 (Cth) ("the TPA").
Essentially, Part XIC of the TPA establishes a national telecommunications access regime enabling, in certain circumstances, providers of television services to gain access to certain network facilities related to the broadcast of television and other services. The TPA provides that the ACCC, in accordance with the terms of the TPA, may declare certain telecommunications carriage services (and related services) to be `declared services'. By two procedures undertaken in 1997 and 1999 (pursuant to the relevant legislation), the ACCC declared that the analogue subscription television (`pay TV') carriage service in question, which included Telstra's national cable network and the FOXTEL broadcast and operating system, was a `declared service'. The TPA provides that telecommunications carriers (and carriage service providers) who provide such declared services are required to comply with `standard access obligations' in relation to those services.
The `standard access obligations', the TPA provides, facilitate service providers obtaining access to declared services. However, Part XIC limits the obligations to grant access in several respects. One limitation is that the Part does not impose an obligation to provide access to the extent, if any, to which this would have the effect of depriving any person of a `protected contractual right', which has the statutory definition of a right under a contract that was in force at the beginning of 13 September 1996.
The background to the litigation in these cases may be summarised as follows. The Telstra and other appellant parties, through various related bodies, together operate a pay TV business in Australia known as `FOXTEL'. That business uses the Telstra Broadband Cable Network in order to broadcast pay TV programs to subscribers.
In 1999, following the declaration by the ACCC, two service providers, Seven Cable Television Pty Limited and Television and Radio Broadcasting Services Pty Ltd ("TARBS"), requested access to the declared services belonging to the Telstra and FOXTEL entities. The requests for access were refused, in reliance upon the statutory limitation explained above, that is, on the ground that granting access would have the effect of depriving an entity or entities of a `protected contractual right'.
Seven Cable Television brought an application to this Court seeking an order that the Telstra and FOXTEL parties did not possess such a right, and so could not withhold access to the network system. It was the present appellants' position that the negotiations between them had given rise to a right under a contract at the relevant date, justifying their refusal to grant access. Around this time, certain parties challenged in this Court the validity of the ACCC's 1997 and 1999 decisions to declare the services as `declared services'. Appeals on those challenges were heard by this Full Court, and judgment has been given in them today.
The trial judge delivered judgment in Sydney on 27 March 2000. The trial judge, having considered the contractual and negotiating history of the relevant parties, held (among other things) that the parties had not concluded an enforceable contract by the relevant date and were still negotiating the terms of the contract said to give rise to the rights; so that none of the relevant parties had a protected contractual right in relation to the declared services requested; and that the supply to the access seekers (Seven Cable Television and TARBS) of the requested services would therefore not have the effect of depriving any party of a protected contractual right.
The Telstra and FOXTEL parties then appealed this decision to the Full Court. The appeals were heard in Sydney in June. The members of the Full Court (Justices Beaumont, Moore and Gyles) have each today delivered separate reasons for judgment in which the decision of the trial judge is, in effect, upheld. The appeals have therefore been dismissed.
Foxtel Management Pty Ltd v Seven Cable Television Pty Ltd
CONTRACT - formation - whether agreement reached on terms - parties negotiating complex broadcasting contract under joint venture arrangement - whether relationship of fiduciary nature resulted - whether had reached agreement on terms of an exclusive relationship - whether uncertainty in terms and from negotiations - whether indicates parties had not reached agreement at given date - whether agreement unenforceable - alleged contract executed on date parties commenced broadcasting business - parties continued negotiations regarding terms of business - parties later executed a contract covering the same subject matter - whether variation or recission of any prior contract
TRADE PRACTICES - telecommunications - access regime created by Part XIC of Trade Practices Act 1974 - s 152AR(4)(d) creates a limitation on obligations under access regime where granting access would had the effect of depriving a person of a "protected contractual right" - whether parties to broadcasting joint venture had a contract giving rise to a "protected contractual right" as at statutory date nominated - whether grant of access would have the effect of "depriving" any party of a "protected contractual right"
WORDS AND PHRASES - 'substantially', 'deprive', 'effect'
Trade Practices Act 1974 (Cth)
Telecommunications Act 1991 (Cth)
Radiocommunications Act 1992 (Cth)
Trade Practices Amendment (Telecommunications) Act 1997 (Cth)
Telecommunications (Transitional Provisions and Consequential Amendments) Act 1997 (Cth)
Competition Policy Reform Act 1995
Telecommunications (Service Providers Class Licence) Direction No. 1 of 1995
Seven Cable Television Pty Ltd v Telstra Corporation Ltd [2000] 171 ALR 89
FOXTEL Management Pty Ltd v Australian Competition & Consumer Commission [2000] FCA 589
Amadio Pty Ltd v Henderson (1998) 81 FCR 149
United Dominions Corporation Ltd v Brian Pty Ltd [1985] HCA 49; (1985) 157 CLR 1
Masters v Cameron [1954] HCA 72; (1954) 91 CLR 353
Liverpool City Council v Irwin [1976] UKHL 1; [1977] AC 239
Trentham (G Percy) Ltd v Archital Luxfer Ltd [1993] 1 Lloyd's Rep 25
Commissioner of Taxation v Sara Lee Household & Body Care (Australia) Pty Ltd [2000] HCA 35; (2000) 74 ALJR 1094
Re Black Bolt & Nut Association of Great Britain's Agreement [1961] 2 All ER 316
Stenhouse Ltd v Phillips [1974] AC 390
Sinclair, Scott & Co. Ltd v Naughton [1929] HCA 34; (1929) 43 CLR 310
G R Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631
Pagnan S.p.A. v Feed Products Ltd (1987) 2 Lloyd's Rep 601
Georgiadis v Australia & Overseas Telecommunications Corporation [1994] HCA 6; (1993-1994) 179 CLR 297
Belfast Corporation v O D Cars Ltd [1960] AC 490
Trade Practices Commission v Tooth & Co Ltd [1979] HCA 47; (1979) 142 CLR 397
Masters v Cameron [1954] HCA 72; (1954) 91 CLR 353
Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540
Seddon and Ellinghaus, Cheshire & Fifoot's Law of Contract, 7th Aust ed, 1997
Carter and Harland, Contract Law in Australia, 3rd ed, 1995
FOXTEL MANAGEMENT PTY LIMITED, SKY CABLE PTY LIMITED, THE NEWS CORPORATION LIMITED AND NEWS LIMITED v SEVEN CABLE TELEVISION PTY LIMITED, TELEVISION AND RADIO BROADCASTING SERVICES AUSTRALIA PTY LIMITED, AUSTRALIAN COMPETITION & CONSUMER COMMISSION, TELSTRA CORPORATION LIMITED, TELSTRA MULTIMEDIA PTY LIMITED AND TELSTRA MEDIA PTY LIMITED
NO. N 309 of 2000
TELSTRA CORPORATION LIMITED, TELSTRA MULTIMEDIA PTY LIMITED AND TELSTRA MEDIA PTY LIMITED v SEVEN CABLE TELEVISION PTY LIMITED, TELEVISION AND RADIO BROADCASTING SERVICES AUSTRALIA PTY LIMITED, AUSTRALIAN COMPETITION & CONSUMER COMMISSION, FOXTEL MANAGEMENT PTY LIMITED, SKY CABLE PTY LIMITED, THE NEWS CORPORATION LIMITED AND NEWS LIMITED
NO. N 324 of 2000
JUDGES: BEAUMONT, MOORE & GYLES JJ
DATE: 18 AUGUST 2000
PLACE: SYDNEY
IN THE FEDERAL COURT OF AUSTRALIA |
|
NEW SOUTH WALES DISTRICT REGISTRY |
N 324 of 2000 |
BETWEEN: |
TELSTRA CORPORATION LIMITED First Appellant TELSTRA MULTIMEDIA PTY LIMITED Second Appellant TELSTRA MEDIA PTY LIMITED Third Appellant |
AND: |
SEVEN CABLE TELEVISION PTY LIMITED First Respondent TELEVISION AND RADIO BROADCASTING SERVICES AUSTRALIA PTY LIMITED Second Respondent AUSTRALIAN COMPETITION & CONSUMER COMMISSION Third Respondent FOXTEL MANAGEMENT PTY LIMITED Fourth Respondent SKY CABLE PTY LIMITED Fifth Respondent THE NEWS CORPORATION LIMITED Sixth Respondent NEWS LIMITED Seventh Respondent |
JUDGES: |
BEAUMONT, MOORE & GYLES JJ |
DATE OF ORDER: |
18 AUGUST 2000 |
WHERE MADE: |
SYDNEY |
Appeals dismissed, with costs.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
JUDGES: |
BEAUMONT, MOORE & GYLES JJ |
DATE: |
18 AUGUST 2000 |
PLACE: |
SYDNEY |
Introduction
1 These appeals, which were heard together, raise important questions as to the meaning and operation of some of the provisions of Part XIC of the Trade Practices Act 1974 (Cth) ("the TPA"). Part XIC (which was inserted into the TPA with effect from 30 April 1997) establishes a telecommunications access regime whereby carriers, and carriage service providers who provide declared services, are required to meet "standard access obligations" in relation to those services. However, Part XIC limits these obligations in several respects. One limitation is that the Part does not impose an obligation to provide access to the extent (if any) to which its imposition "would have the....effect[ ] ... [of] depriving any person of a protected contractual right" (s 152AR(4)(d)). Such a right is defined to mean a right "under a contract that was in force at the beginning of 13 September 1996" (s 152AR(12)).
2 The background to this litigation is that two service providers requested access to declared services. Access was refused on the ground that its grant would have the effect of depriving a party or parties of a "protected contractual right" ("PCR"). In proceedings in this Court for declaratory or other relief, declaratory orders were made at first instance that the party (or parties) did not have a PCR within the meaning of Part XIC. These are appeals, by leave granted by the primary Judge, from those orders. His Honour's reasons for judgment are now reported (Seven Cable Television Pty Ltd v Telstra Corporation Ltd [2000] 171 ALR 89 (Tamberlin J)).
3 The services in question may be described as subscription television ("pay TV") services broadcast over broadband cable networks using analogue transmission technology. These analogue pay TV cable carriage services may be said to involve, for present purposes, the following elements:
* Receipt by the carrier of a pay TV service in the form of a sequence of video, audio and related signals.
* Modulation and encryption of the signals for analogue transmission over the carrier's cable network.
* Carriage of the signals over the carrier's cable network.
* Demodulation and decryption of the signals in the end-users' conditional access equipment.
4 In order to understand the issues that arise in the appeals, it will be necessary to explain the statutory framework, the identity of the parties and the nature of the relevant relief claimed at first instance, the particular technical (i.e. operational) context, and the basis upon which the claims were propounded at first instance. Reference will then be made to the substantial documentation relied upon by the appellants in support of their claim that a PCR existed; to his Honour's reasons and orders; and to the regulatory regime for the relevant subscription television services as it existed at the time that the relevant negotiations between the parties took place, that is, prior to the enactment of Part XIC of the TPA.
The statutory framework
5 Part XIC of the TPA (ss 152AA - 152BB) is headed "Telecommunications Access Regime". Section 152AA provides a simplified outline of the Part, stating, inter alia:
"The [Australian Competition and Consumer] Commission ["the ACCC"] may declare carriage services and related services to be `declared services'.Carriers and carriage service providers who provide declared services are required to comply with `standard access obligations' in relation to those services.
The `standard access obligations' facilitate the provision of access to declared services by service providers in order that service providers can provide carriage services and/or content services."
The outline explains that the terms and conditions on which carriers and carriage service providers are required to comply with the "standard access obligations" are subject to agreement, but that if agreement cannot be reached, and no "access undertaking" is in operation, the terms and conditions of the provision of access are to be determined by the ACCC acting as an arbitrator. The determination on the arbitration must not be inconsistent with the standard access obligations or an access undertaking. The ACCC may register agreements about access to declared services. A carrier or a carriage service provider must not prevent or hinder access to a declared service.
6 Section 152AB states the objects of Part XIC. Subsection (1) provides:
"The object of this Part is to promote the long-term interests of end-users of carriage services or of services provided by means of carriage services."
7 The "standard access obligations", and the exception to the obligations said to be operative in this case (i.e. ss (4)(d)), are found in s 152AR, which relevantly provides as follows:
"152AR Standard access obligations(1) This section sets out the `standard access obligations'.
Access provider and active declared services
(2) For the purposes of this section, if a carrier or a carriage service provider supplies declared services, whether to itself or to other persons:
(a) the carrier or provider is an `access provider'; and
(b) the declared services are `active declared services'.
Supply of active declared service to service provider
(3) An access provider must, if requested to do so by a service provider:
(a) supply an active declared service to the service provider in order that the service provider can provide carriage services and/or content services; and
(b) ...
(c) ...
Limit on paragraph (3)(a) obligation
(4) Paragraph (3)(a) does not impose an obligation to the extent (if any) to which the imposition of the obligation would have any of the following effects:
(a) preventing a service provider who already has access to the declared service from obtaining a sufficient amount of the service to be able to meet the service provider's reasonably anticipated requirements, measured at the time when the request was made;
(b) preventing the access provider from obtaining a sufficient amount of the service to be able to meet the access provider's reasonably anticipated requirements, measured at the time when the request was made;
(c) preventing a person from obtaining, by the exercise of a pre-request right, a sufficient level of access to the declared service to be able to meet the person's actual requirements;
(d) depriving any person of a protected contractual right.
...." [Emphasis added]
8 For the purposes of the argument in these appeals, it is accepted that the services in question are "active declared services" within the meaning of ss (2)(b). Subsection (12) of s 152AR contains the statutory definition of the term "protected contractual right":
"(12) In this section:...
"protected contractual right" means a right under a contract that was in force at the beginning of 13 September 1996." [Emphasis added]
9 That is to say, the issue here is whether the supply of access to the service providers "would have ... the effect[ ] ... [of] depriving [a] person of a protected contractual right", i.e. "a right under a contract that was in force at the beginning of 13 September 1996."
The identity of the parties to the litigation and the nature of the relevant relief claimed at first instance
10 Telstra Media Pty Limited, a subsidiary of Telstra Corporation Limited ("Telstra"), and Sky Cable Pty Limited ("Sky Cable"), a subsidiary of News Limited, are partners ("the FOXTEL Partnership") in the operation of a pay TV business in Australia under the name "FOXTEL". The FOXTEL business is operated by FOXTEL Management Pty Limited ("FOXTEL Management") as the agent of the partners. Telstra Multimedia Pty Limited ("Telstra Multimedia"), another subsidiary of Telstra, owns the Broadband Cable Network ("BCN") used to broadcast FOXTEL programs.
11 Under the provisions of the Telecommunications Act 1991 (Cth), there were only two "general carriers" designated, i.e. Telstra and C & W Optus. By the legislative scheme enacted in ss 90 - 95 of that Act, persons other than "carriers" were prohibited from installing, maintaining and operating telecommunications networks.
12 By two instruments made in 1997 and 1999 respectively, the ACCC purported to specify and declare that certain broadcast access and carriage services are "declared services" for the purposes of s 152AL of the TPA and thus for the purposes of access obligations to other service providers under s 152AR of the TPA. The validity and effect of these instruments were considered by Wilcox J in reasons for judgment given in associated proceedings on 8 May 2000 (FOXTEL Management Pty Ltd v Australian Competition & Consumer Commission [2000] FCA 589). Appeals from his Honour's orders were heard by us upon the conclusion of the hearing of these appeals. We have also given judgment in those appeals today.
13 Seven Cable Television Pty Limited ("Seven") is a "service provider" within the meaning of the TPA. In 1999 it requested access to (1) the broadcast access services; and (2) the carriage services provided by Telstra Multimedia. Television and Radio Broadcasting Services Australia Pty Limited ("TARBS") is another "service provider" which also sought access from Telstra, The News Corporation Limited ("News") and FOXTEL to telecommunications networks and facilities. Telstra Multimedia refused both sets of requests, claiming (relevantly) that to grant the requests would deprive FOXTEL Management of a PCR.
14 Several forms of relief were sought at first instance. Seven (relevantly) sought a negative declaration that FOXTEL did not have a PCR. For their part, FOXTEL Management and Sky Cable (relevantly) sought a declaration that FOXTEL Management and the FOXTEL Partnership had PCR's, and that they would be deprived of those rights if the requests made by Seven and TARBS were granted. The Telstra parties sought similar relief. By consent, Tamberlin J ordered that these claims and cross-claims for relief be reduced to the form of separate questions for determination, noting (at para 18) that the essential issues for his determination were:
"(1) whether FOXTEL had any protected rights under a contract that was in force at the beginning of 13 September 1996 within the meaning of s 152AR(4) and (12); and, if so,(2) whether those rights survived until the time when Seven and TARBS requested access; and, if so
(3) whether the granting of any of the requests from Seven or TARBS would deprive FOXTEL of such rights."
The technical (operational) context
15 The method of operation of the FOXTEL broadcast and subscriber system was described by Tamberlin J to the following effect (paras 10-17):
* There are two components to FOXTEL's business that enable it to provide subscription television services to customers (subscribers). The first is the supply of content (television programs) for broadcast. The second is the provision of information and associated facilities that enable FOXTEL to control subscriber access and to confine access to those channels for which a subscriber has subscribed. Accordingly, two streams of information or signals are transmitted. One is the program content itself. The other stream contains "conditional access data" as to the subscriber's program entitlements.
* Both streams of information are provided by FOXTEL. Programs are assembled as a continuous stream of information at FOXTEL's playout centre at Pyrmont. The programs are broadcast from Pyrmont in digital form (using the hybrid fibre coaxial ("HFC") network owned by Telstra Multimedia) to headends located in Sydney, Melbourne, Brisbane, Perth, Adelaide and Gold Coast.
* A FOXTEL subscriber may view a number of different television programs, depending on the specific program "package" for which they subscribed. The conditional access system is necessary to enable FOXTEL to control subscribers' access. The components of the access system are the subscriber management system and the conditional access gateway, both operating from the Telstra Computer Centre at Southbank, and a smart card and set top unit ("STU") located at each subscriber's premises. The subscriber management system is a computer system for subscriber information, owned and maintained by Telstra Multimedia, using software licensed from a third party.
* The subscriber management system transmits access information in respect of each subscriber to the conditional access gateway. The gateway then generates conditional access data which is received at the headends. The headends encrypt the program signal broadcast to it from the playout centre, and combine that encrypted signal with the conditional access data, so as to provide a combined information stream.
* The combined information stream is broadcast from the headends to all subscribers over the HFC network. Telstra Multimedia's cable network passes about 2.5 million homes in Sydney, Melbourne, Brisbane, Perth, Adelaide and Gold Coast.
* Persons who wish to subscribe to FOXTEL and whose home is passed by the cable network will be connected by a lead-in cable (from the passing HFC network) to a wall plate on the subscriber's property. Both the lead-in cable and the wall plate are installed by Telstra Multimedia. Beyond the wall plate is the FOXTEL equipment, consisting of a fly cable that connects the wall plate to the STU, the STU itself, and a fly cable between the STU and the subscriber's television receiver (set). The STU receives the combined information stream from the HFC network. It usually sits on or by the subscriber's set. The STU is fitted with a "smartcard", a secure microprocessor with a memory function configured for FOXTEL operations. In conjunction with the smart card, the STU decrypts the program signal component of the combined information stream in accordance with the subscriber's entitlements. The decrypted program signal is then transmitted from the STU to the set.
16 In the instrument made in August 1999 by which the relevant carriage service was declared to be a "declared service", the ACCC said (Ch 4.1.2) that its understanding was that both the Telstra and C & W Optus networks are capable of transmitting around sixty four analogue channels on the bandwidth reserved for pay TV (although this capacity could be greatly increased with the use of digital transmission). Counsel for Telstra told the Court that the statutory basis for the reservation of this capacity was probably an instrument made pursuant to s 31 of the Radiocommunications Act 1992 (Cth), although no party has produced the relevant instrument.
The basis upon which the claims were propounded at first instance
17 At first instance, Seven claimed that no PCR was in force between the FOXTEL partners as at 13 September 1996; and that, in any event, the grant of Seven's request regarding access would not "deprive" the FOXTEL partners of any such right.
18 On the other hand, the FOXTEL parties (described by his Honour as the "News" parties) submitted that their letter of agreement dated 23 October 1995 ("the 23 October letter"), which incorporated their draft Broadband Co-operation Agreement dated 12 July 1995 ("the July 1995 BCA") constituted a contract ("the October letter agreement") giving rise to FOXTEL's PCR, a right which, they contended, had continued in existence through the critical 13 September 1996 date to the time of the request. They further submitted that a later BCA made between them in April 1997 expressed a confirmation of the right previously created; and that, since it did not effect any substantial variation of the previous right, the April 1997 BCA was to be treated as in force at 13 September 1996. The terms of each of these instruments are stated below.
19 The Telstra parties made similar claims to those advanced by the FOXTEL parties, relying also upon an Umbrella Agreement dated 9 March 1995 between News and Telstra.
20 The Telstra parties claimed both "exclusivity" rights and "bundling" rights as follows:
21 The "exclusivity" rights claimed were (as his Honour noted at para 44) formulated in two ways:
(i) A right, vesting in FOXTEL Management and the FOXTEL Partnership together, to prevent Telstra Multimedia from using (or permitting the use of) its facilities to deliver a subscription television service that would be provided by another service provider;
(ii) A right arising from the 23 October letter and cl 3.2 of the July 1995 BCA, by virtue of which FOXTEL was said to have the exclusive right to provide (or manage the provision of) services delivered to subscribers through the use of the "broadband system service", and to utilise or otherwise exploit the functions comprised in the entire "broadband system" only for that purpose; and by which Telstra Multimedia agreed not to use (or permit the use of) facilities controlled by it for the delivery of services by any other service provider. It was said that cl. 5.2 of the April 1997 ("Restatement") BCA conferred the same, or substantially the same, rights on FOXTEL.
22 The "bundling" right was propounded by Telstra in these terms:
"Pursuant to the [23 October letter] and clause 3.10 of the [July 1995] BCA, unless otherwise required by Law and permitted by both technological developments and network system reconfiguration, Telstra Multimedia may not provide a broadband system service, utilising STU functionality, to deliver a service which is not a Service unless the broadband system service includes a conditional access function and a subscriber database function equivalent to the conditional access function and the subscriber database function, as defined . Clause 5.12 of the April 1997 Restatement BCA confers the same or substantially the same, right on FOXTEL ...."
23 The "protected" rights claimed on behalf of the FOXTEL parties were expressed somewhat differently as follows.
24 In addition to a claim of "exclusivity" and "bundling" rights (i.e. rights 1 and 2 set out below), a "standard quality" right and a "channels number" right were claimed (i.e. rights 3 and 4 below) in these terms:
"1. The right to prevent Telstra Multimedia from using, or permitting use of its broadband telecommunications network to deliver a subscription television service which is not provided by FOXTEL or the provision of which is not managed by FOXTEL (by virtue of its having entered into an agreement with a third party to do so) except where Telstra Multimedia is required by law to so use or permit the use of that network.2. The right to prevent Telstra Multimedia from providing any broadband system service utilising set top functionality to deliver a service, other than one which delivers to a person in a private residential dwelling either a video program on a television or an audio program via a [STU], unless that service includes conditional access and subscriber database functions equivalent to those functions currently provided by Telstra Multimedia to FOXTEL.
3. The right to require Telstra Multimedia to establish, maintain and supply its broadband system service to FOXTEL to a standard which meets world's best practice for comparable services as to signal, quality and transmission reliability.
4. The right to require Telstra Multimedia to supply to FOXTEL the number and type of channels required by FOXTEL's business plan from time to time."
25 His Honour's judgment concentrated upon the claim of the existence of "exclusivity" rights said to have been conferred on FOXTEL by the October letter agreement. Tamberlin J observed (para 70) that this claim was the principal right for consideration and that the existence and operation of the other rights claimed would follow from the conclusions reached upon the claim of the exclusivity rights.
26 As mentioned, the documentation relied upon by the appellants is substantial and needs to be explained in order to understand his Honour's process of reasoning.
The documentation relied upon by the appellants
27 It will be necessary to refer to the principal documents (some of which have already been mentioned) relied upon in argument. These documents are:
(1) An "Umbrella Agreement" between News and Telstra, dated 9 March 1995;
(2) A version of a Broadband Co-operation Agreement, dated 12 July 1995 (the July 1995 BCA);
(3) A letter dated 23 October 1995, signed by and on behalf of Telstra Multimedia and FOXTEL Management (the 23 October letter);
(4) A version of a BCA between Telstra Multimedia, Telstra and Australis Media Limited ("Australis") dated 22 December 1995 ("the December 1995 BCA"); and
(6) Another version of a BCA executed by Telstra Multimedia and FOXTEL Management, dated 14 April 1997 ("the April 1997 BCA").
(1) The Umbrella Agreement dated 9 March 1995
28 On 9 March 1995, News and Telstra entered into an "Umbrella Agreement", establishing a long-term "Alliance" between them. The Umbrella Agreement's principal purpose, as stated in the Recitals, is -
"News and Telstra have agreed to establish an alliance for the principal purpose of establishing a number of businesses in the broadband video home entertainment sector in Australia and are entering into this agreement to record the overall terms of that alliance." [Recital D]
29 The "Alliance" is defined to mean:
"The overall relationship established by this agreement between News and its subsidiaries on the one hand and Telstra and its subsidiaries on the other."
30 The objects and basic principles of the Alliance are elaborated in cll 2.1 and 2.2:
"2.1 This agreement is intended to set out the terms of the Alliance between News and Telstra and the overall structure of the businesses to be established within the scope of the Alliance and to identify the relevant entities and contractual arrangements that will initially be established in order to accomplish the business objectives set out in clause 2.2.2.2 The parties agree that the objectives of the Alliance are:
(a) to establish through Joint Venture Entities, leading businesses
within the broadband video home entertainment sector in
Australia; ..."
31 Clause 3 describes the scope of the Alliance and defines the "Services" to be provided:
"3.1 The scope of the Alliance is all businesses within the broadband video home entertainment sector which comprise businesses which provide or manage the provision of Services. The purpose of this clause 3 is to define Services and by doing so to define the scope of the Alliance.3.2 In this agreement Service means, subject to clauses 3.3, 3.4 and 3.5, a service that:
(a) delivers to a Residential Subscriber either a Video Program
on a Television or an Audio Program via a [STU];
(b) is not provided with an Associated Return Path Service other
than a Limited Return Path Service; and
(c) is not a Narrowband Service."
32 Clause 3.3 states a number of services delivered to a Residential Subscriber on a Television that were deemed by the parties to be "Services", notwithstanding that they do not satisfy all the criteria specified in the definition of Services in cl 3.2. These include advertising and all forms of sponsorship delivered by broadcast transmission, "teletext" and all future similar services, certain classes of games, betting and gaming services, etc. Clause 3.6 sets out, for the avoidance of doubt and notwithstanding any other provision, a number of services that did not satisfy the criteria set out in cl. 3.2 and were not therefore "Services". These included "telephony" and other non-content based telecommunications services, content based Narrowband services, On-line Services, etc.
33 Clause 4 explains the ownership and operational structure of those businesses called "Joint Venture Entities" that were to be established initially as part of the Alliance in accordance with the agreement. Clause 4.2(d) states:
"The Alliance Businesses will be conducted by a number of entities established by the parties in accordance with the terms of this agreement as and when required in order to carry out the objectives of the Alliance. As at the date of this agreement the parties contemplate the establishment of the following Businesses and Joint Venture Entities:......
(d) a business providing a Broadband System Service by means of a Broadband System to be carried by the Broadbandco Partnership in accordance with the Broadbandco Partnership Agreement, the principal terms of which are set out in annexure 2 and as more fully defined in that agreement."
34 The "Broadbandco Partnership" is defined as a partnership in which the capital was owned as to 999,999,999 shares by a wholly-owned subsidiary of Telstra, with one share of the capital being held by Moco (later, FOXTEL) Management as agent for the Moco (later, FOXTEL) Partnership. The Moco Partnership was a partnership in which subsidiaries of Telstra and News held equal interests. Clause 4.4(a) describes one of the agreements that would govern the operational relationships of the Joint Venture Entities:
"4.4 The operational relationship between the Joint Venture Entities will be governed by the following agreements:(a) an agreement between Broadbandco Partnership and [FOXTEL] Management as agent for [FOXTEL] Partnership setting out the terms on which Broadbandco Partnership and the [FOXTEL] Partnership will co-operate in the establishment of their respective businesses substantially in the form of annexure 3 (`Broadband Co-operation Agreement');" (Emphasis added)
35 The annexed agreement referred to in cl 4.4(a) as the Broadband Co-operation Agreement included a clause (cl 3) headed "Exclusive Relationship". Clause 3.1 provided:
"3.1 Subject to this clause, [FOXTEL] shall:(a) exclusively provide and manage the provision of Services delivered to subscribers through use of the Broadband System Service; and
(b) utilise or otherwise exploit the functions comprised in the entire Broadband System Service only for the purpose of paragraph (a) above.
3.2 To give effect to clause 3.1 and subject to clause 3.7, Broadbandco will not permit the use of facilities controlled by Broadbandco for the delivery of Services by any service provider other than [FOXTEL].
3.3 Whenever Broadbandco may be required by Law to use or permit an entity other than [FOXTEL] to use facilities controlled by Broadbandco to deliver Services, Broadbandco shall arrange for [FOXTEL] to satisfy that legal requirement and [FOXTEL] undertakes to provide that service and to satisfy, to the extent necessary, on behalf of Broadbanco any legal requirements imposed upon Broadbandco."
36 This BCA was subsequently revised. The trial Judge's reasons proceed on the footing that the relevant version was "Revised Version 5" of 12 July 1995 (i.e. the July 1995 BCA). (The material provisions of this version will be explained shortly.)
37 In cll 2.11 and 2.12 of the Umbrella Agreement the parties set out their "Commitment to Broadbandco's Broadband System" in the following terms:
"2.11 The parties agree that Telstra and Broadbandco must be the exclusive supplier of all Broadband System Services used by any Joint Venture Entity. Any use by a Joint Venture Entity of a Broadband System Service other than by Telstra or Broadbandco must be approved by both parties.2.12 Telstra and News each must procure that for all services provided by means of the Broadband System operated by Broadbandco and delivered through the [STU], whether or not they are Services, all conditional access functions must be provided by the Broadbandco Partnership."
38 The Term of the Alliance was for a period of some fifteen years commencing on the date of the Umbrella Agreement and continuing, unless earlier terminated in accordance with the Umbrella Agreement or by agreement between the parties, until either 1 March 2010 or the termination of the Alliance pursuant to cl 14, whichever was the later. Relevantly cl 14 reads:
"14.1 From 6 months prior to the expiration of the Term, the parties must negotiate in good faith, either:(a) for an extension of the term together with any modifications of the agreements reasonably required;
(b) for one party to purchase the other party's Interest, on the basis of the terms listed in clause 14.10; or
(c) for one or more of the Joint Venture Entities to be floated in whole or in part.
14.2 If the parties have not concluded an agreement in accordance with clause 14.1 by the expiration of the Term then either party may by notice to the other invoke the tendering procedure described in clause 14.3."
(2) The July 1995 BCA
39 The draft July 1995 BCA, was between Telstra Broadband Pty Limited (later Telstra Multimedia) on behalf of Broadbandco (the Broadband Partnership), and FOXTEL Management on behalf of the FOXTEL Partnership (FOXTEL). News was a third party to the agreement. The Recitals read:
"A. Broadbandco proposes to establish business as a broadband system operator delivering broadband system services to customers in Australia.B. FOXTEL proposes to establish a business of providing and managing the provision of broadband video home entertainment services in Australia.
C. FOXTEL Digital Cable Television Pty Limited, the holder of Subscription Television Broadcasting licenses under the [Broadcasting Services Act 1992 (Cth) ("the BSA")], proposes to establish a business of providing a Subscription Television Broadcasting Service to residential subscribers in Australia to be managed by FOXTEL Television.
D. Broadbandco, FOXTEL Digital Cable Television Pty Limited and FOXTEL Television have acknowledged to each other that the successful establishment of each of their respective businesses is in turn dependent on the successful establishment of each other's business in that:
(a) FOXTEL will be the founding customer for Broadbandco's broadband system service; and
(b) FOXTEL Television will be the founding customer for FOXTEL's management of the provision of broadband video home entertainment services (to the extent those broadband video home entertainment services include Subscription Television Broadcasting Services to residential subscribers in Australia).
E. In this connection Broadbandco and FOXTEL have agreed to co-operate in the establishment of their respective businesses on the terms and subject to the conditions of this agreement and in the knowledge that FOXTEL Digital Cable Television Pty Limited, FOXTEL Television, FOXTEL and FOXTEL Management have agreed to enter into the FOXTEL Management Agreement in connection with the management by FOXTEL of the provision of FOXTEL Digital Cable Television Pty Limited's Subscription Television Broadcasting Service to residential subscribers in Australia."
40 In addition to common contractual provisions dealing with matters such as "force majeure", the July 1995 BCA addressed the following subjects:
* Broadband system service availability
* Design of conditional access function and technology choice
* Broadband system service
* Customer service centre
* Smartcard changeout
* Revenue sharing
* Marketing incentives and bonuses
* Installations, maintenance and re-connections
41 Importantly for present purposes, the July 1995 BCA also addressed the subject "exclusive relationship" in cl 3, relevantly as follows:
"3 EXCLUSIVE RELATIONSHIP3.1
(a) Broadbandco and FOXTEL acknowledge that they have decided to establish their respective businesses on the basis of the Initial Business Plan and the forecast revenues set out in that plan. [The `Initial Business Plan' is not there defined, although it is defined in the Umbrella Agreement (cl 1.1) to mean the initial ten year financial forecasts for the Alliance Business, which means (cl 1.1) any business agreed to be carried on in a manner contemplated by the Umbrella Agreement within the scope of the Alliance.]
(b) That plan depends, amongst other things, on FOXTEL's exclusive entitlement to provide or manage the provision of Services [defined as having the meaning given in the Umbrella Agreement] delivered to Subscribers by means of the Broadband System Service in accordance with this clause 3. [The Broadband System Service is there defined to mean the service provided by Broadbandco to enable the delivery, and the management of the delivery, of Services to Subscribers in accordance with the agreement.]
(c) Broadbandco and FOXTEL further acknowledge that this exclusive entitlement enables FOXTEL to provide and manage the provision of Services to Subscribers on an attractive, marketable, co-ordinated and efficient basis. This, in turn, directly affects the forecast revenues set out in the Initial Business Plan.
(d) FOXTEL intends, on reasonable commercial terms, to offer to provide and manage the provision of Services of Other Service Providers [defined as a person who provides or manages the provision of Services other than FOXTEL or a Joint Venture Entity] subject to FOXTEL's requirement that it be able to provide and manage the provision of Services to Subscribers on an attractive, marketable, co-ordinated and efficient basis.
[Check language with RGF][sic]
(e) Subject only to clauses 3.10 and 3.11, for the avoidance of doubt, and to emphasise the intention of both Broadbandco and FOXTEL, nothing in this agreement in any way restricts or otherwise affects Broadbandco's right in its absolute discretion to use or permit the use of facilities controlled by it for or in connection with the delivery of services which are not Services to any person on Broadbandco's own behalf or on behalf of any other person.
3.2 Subject to this clause, FOXTEL shall:
(a) exclusively provide or manage the provision of Services delivered to Subscribers through use of the Broadband System Service; and
(b) utilise or otherwise exploit the functions comprised in the entire Broadband System Service only for the purpose of paragraph (a) above.
3.3 To give effect to clause 3.2 and subject to clause 3.7, Broadbandco will not use or permit the use of facilities controlled by Broadbandco for the delivery of Services by any Other Service Provider.
3.4 Subject to this clause 3, whenever Broadbandco may be required by Law to use or permit any Other Service provider to use facilities controlled by Broadbandco to deliver Services, Broadbandco shall arrange for FOXTEL to satisfy that legal requirement and FOXTEL undertakes to provide that service and to satisfy, to the extent necessary, on behalf of Broadbandco any legal requirements imposed upon Broadbandco.
...
3.7 Broadbandco may use or permit an entity other than FOXTEL to use the facilities controlled by Broadbandco to deliver Services if FOXTEL after a reasonable period has not, in Broadbandco's reasonable estimation after consultation with FOXTEL Management, complied with clause 3.4.
...
3.8 Whenever Broadbandco provides a service pursuant to clause 3.7, Broadbandco shall:
(a) inform and consult with FOXTEL Management;
(b) provide services on terms and conditions established after consideration of, inter alia, their effect upon FOXTEL; and
(c) provide to FOXTEL, after deducting a reasonable proportion of Broadbandco's operational expense in managing the provision of those services having regard to the extent of use of Broadbandco's facilities, any revenue received for such services in excess of the amount that would have been due to Broadbandco pursuant to clause 8 had FOXTEL provided such services in like terms.
Such amounts payable to FOXTEL shall not be included in the definition of "Total Revenue" for the purposes of clause 8.
Broadbandco must use its reasonable endeavours to maximise the revenue derived from a service provided pursuant to clause 3.7 having regard to the overall circumstances of the particular transaction.
...
3.10 Unless required by Law and permitted by both technological developments and network system reconfiguration, Broadbandco may not provide a broadband system service, utilising STU Functionality, to deliver a service which is not a Service unless that broadband system service includes a conditional access function and a subscriber database function equivalent to the Conditional Access Function and the Subscriber Database Function.
[Law is defined [cl 1] to mean any Commonwealth, State or Territory law or regulation, or any lawful Government authorisation, notification, licence condition or direction, including any made by AUSTEL or the Trade Practices Commission.]
...
Broadbandco as exclusive provider
3.12 Unless the parties otherwise agree, FOXTEL must obtain from Broadbandco all of the services required to deliver Services to Subscribers."
(3) The letter dated 23 October 1995
42 The letter is addressed to FOXTEL Management (relevantly) in these terms:
"Broadband Cooperation Agreement - Interim ArrangementsAs you know, Telstra and News have recently entered into a Head of Agreement with Australis. The purpose of this letter is to record the terms on which Telstra Multimedia Pty Limited (`Telstra Multimedia') proposes to provide the Broadband System Service to FOXTEL Management, pending completion of the merger contemplated by that Heads of Agreement.
Interim Arrangements
Pending completion of the Australis merger, Telstra Multimedia will provide the Broadband System Service to FOXTEL Management on a monthly basis substantially on the terms of the draft Broadband Cooperation Agreement dated 12 July 1995, as supplemented by correspondence and negotiations between us (`BCA').
If the Australis Merger is Completed
If the Australis merger is completed, the arrangements set out in this letter will terminate on completion of that merger.
If the Australis Merger is Not Completed
If the Australis merger is not completed, either Telstra Multimedia or FOXTEL Management may require the other to enter into a long form Broadband Cooperation Agreement, substantially in the terms of the BCA."
43 The letter also provides that FOXTEL Management gives warranties to Telstra Multimedia in connection with re-transmitted free-to-air programs; and indemnifies Telstra Multimedia in that behalf.
44 The letter notes that terms used in it, and not otherwise defined, have the meaning given in the BCA. The letter concludes in this way:
"If you agree to the terms contained in this letter, I would be grateful if you would sign the enclosed copy of the letter and return it to me.Kind regards,
[Signature]
Gerry Moriarty
Chief Executive Officer
[Signature]
T. Mockridge
Duly Authorised Representative of FOXTEL Management Pty Ltd"
(4) The December 1995 BCA
45 On 18 October 1995 Telstra, News, News Limited, Australis and various subsidiary entities executed "Heads of Agreement" which contemplated the issue of a large number of shares in Australis to subsidiaries of Telstra and News, in return for the sale of FOXTEL assets to Australis. The Heads of Agreement provided that one of the conditions precedent to the merger was the grant of approval by the ACCC. In anticipation of the proposed merger, which was still under negotiation, a new BCA was drafted with Australis as a party in lieu of FOXTEL. The terms of this BCA were finalised on 22 December 1995. However, the merger could not proceed at the time, because regulatory approval was not then forthcoming. By the end of April 1996, the appellant parties had acknowledged that the Australis merger was no longer feasible, and they resumed their negotiations; this was to lead to the execution of the April 1997 BCA.
(5) The April 1997 BCA
46 The parties to this BCA, dated 14 April 1997, were Telstra Multimedia, and FOXTEL Management, for and on behalf of FOXTEL. It recites ((A) and (B)) that on the "Commencement Date" (defined (cl 1) as 23 October 1995 - the date of the October letter agreement), Telstra Multimedia was establishing a business as a broadband system operator delivering broadband system services to customers in Australia, while FOXTEL was establishing a business of providing (and managing the provision of) broadband video home entertainment services in Australia. It further recites ((C)) that, on the Commencement Date, FOXTEL Cable Television Pty Limited, as holder of Subscription Television Broadcasting licences under the BSA, was establishing the business of providing "Subscription Television Broadcast Services" (pay TV) to residential subscribers, to be managed by FOXTEL Television. It is then recited:
"(D) On the Commencement Date, Telstra Multimedia, FOXTEL, FOXTEL Cable Television and FOXTEL Television had acknowledged to each other that the successful establishment of each of their respective businesses would in turn be dependent on the successful establishment of each other's business in that:(a) FOXTEL would be the founding customer for Telstra Multimedia's broadband system service; and
(b) FOXTEL Television would be the founding customer for FOXTEL's management of the provision of broadband video home entertainment services (to the extent those broadband video home entertainment services include Subscription Television Broadcasting Services to residential subscribers in Australia).
(D) In this connection Telstra Multimedia and FOXTEL agreed to co-operate in the establishment of their respective businesses on terms and subject to the conditions which this agreement records and in the knowledge that FOXTEL Cable Television, FOXTEL Television, FOXTEL and FOXTEL Management had agreed to enter into the FOXTEL Management Agreement in connection with the management by FOXTEL of the provisions of FOXTEL Cable Television's Subscription Television Broadcasting Service to residential subscribers in Australia."
47 Provisions (cll 1.10 and 1.11) of the April 1997 BCA purport to deal as follows with the "Effect" of the instrument with respect to the operation of the 23 October letter and the July 1995 BCA.
48 Clause 1.10(a) (relevantly) provides that, without prejudice to cl 1.11, the document "records the entire agreement of the parties from at least the Commencement Date in relation to its subject matter. The parties have, since that date, conducted themselves substantially in accordance with that agreement".
49 Clause 1.10(d) then states:
"(d) By recording their agreement in this document, the parties do not intend to vary, terminate, discharge or rescind their agreement. ... To the extent (if any) that the parties have otherwise varied their agreement since the Commencement Date, the parties did not intend any such variation to terminate discharge or rescind their agreement. This document is to be interpreted to give effect to the parties intention as set out in this clause 1.10(d)."
50 Clause 1.11 anticipates the coming into force of Part XIC of the TPA (as foreshadowed in a Ministerial statement made on 1 August 1995) and reiterates, with particular reference to the exclusivity issue, the intention of the parties not to vary their agreement. It also purports to state the history of the parties' negotiations and dealings. It provides:
"1.11(a) Division 3 of Part XIC of the Trade Practices Amendment (Telecommunications) Act 1997 will impose a standard access obligation on an access provider except to the extent to which the imposition of that obligation would have the effect of depriving a person of a right under a contract in force at the beginning of 13 September 1996.
(b) Without limiting the generality of clause 1. 10(a), clauses 5.2 and 5.12 record the agreement of the parties on their subject matters as at the beginning of 13 September 1996. The purpose of the following provisions of this clause is to record the parties' common understanding as to the existence, history and continuity of their agreement on those subject matters since at least the Commencement Date (but without prejudice to any conclusion as a matter of fact as to the existence of that agreement on those subject matters prior to that date).
(c) On 18 October 1995, Telstra and News entered into a Heads of Agreement with [Australis] to merge FOXTEL's business with Australis' business ("Australis Merger"). At that time, Telstra and News each agreed by letters ("Forebearance Letters") to forebear from enforcing the Umbrella Agreement against the other pending the consummation of the merger and to continue during the interim period to work to establish the FOXTEL business and to conduct themselves in accordance with the Umbrella Agreement.
(d) On the Commencement Date:
(i) FOXTEL Cable Television commenced broadcasting Services to Subscribers. In connection with that, FOXTEL Television had commenced the business of establishing and managing FOXTEL Cable Television's business. In turn, FOXTEL had commenced business providing and managing the provision of broadband video home entertainment services in Australia by establishing and managing FOXTEL Cable Television's business on behalf of FOXTEL Television.
(ii) The Services were delivered to Subscribers by Telstra Multimedia by means of the Broadband System Service.
(iii) The parties agreed by letter ("23 October Letter") that the Broadband System Service was to be provided:
(A) pending consummation of the Australis merger, month to month, on the basis of version 5 of the broadband co-operation agreement dated 12 July 1995 ("July BCA") as supplemented by correspondence and negotiations between the parties as at 23 October 1995 (collectively with the July BCA "BCA"); and
(B) if the merger was not consummated, on the basis of the BCA.
The parties also agreed that if the Australis Merger was not consummated. either party could require the other to enter into a long form agreement substantially in the terms of the BCA."
51 Subclauses (e), (f) and (g) address the history of the proposed Australis merger:
"(e) In the context of negotiations between Telstra, News, Telstra Multimedia, FOXTEL and Australis in connection with the Australis Merger in November and December 1995, a draft agreement ("Merger BCA") was prepared to be entered into between Telstra Multimedia and Australis in relation to a variety of subject matters including several addressed by the BCA. In the Merger BCA, a number of provisions of the BCA covering subject matters relevant to the Merger BCA were supplemented or refined for the purpose of either supplying technical drafting deficiencies, supplying drafting clarifications or addressing operational exigencies identified after the commencement of FOXTEL operations on 23 October 1995. The principal (but not the only) clauses so supplemented and refined were clauses 3, 8 and 10 of the BCA (clauses 7, 12 and 14 respectively of the Merger BCA).(f) On 22 December 1995, Australis, Telstra and News (amongst others) entered an agreement to effect the Australis Merger ("Merger Agreement") subject to certain conditions precedent and initialled the Merger BCA for identification.
(g) In April 1996, following failure of some of those conditions [to] be fulfilled, the Merger Agreement was terminated. On termination of the Merger Agreement pursuant to the 23 October Letter and the continued conduct of the parties in performance of the BCA, the BCA became the basis upon which Telstra Multimedia provided the Broadband System Service to FOXTEL."
52 The following provisions (cl 1.11(h) - (l)) record that since 23 October 1995 the parties operated on the basis of "the BCA" and that, pursuant to their agreement, they conducted themselves substantially in accordance with it:
"(h) Since the Commencement Date, when seeking to define what their rights and obligations to me another are in relation to the subject matter of the BCA, the parties have relied upon the BCA.(i) Pursuant to their agreement, the parties have conducted themselves substantially in accordance with terms from time to time identified in that manner. In particular, on termination of the Merger Agreement, the parties continued to conduct themselves in accordance in all material commercial respects with the obligations reflected in the BCA.
(j) On 15 July 1996, Telstra and News agreed to cancel the arrangements under the Forebearance Letters. [This is a reference to a meeting of the appellant parties' representatives held in Sydney on 26 July 1996.]
(k) On about 26 July 1996 the parties confirmed that the document recording their agreement on the subject matters of the BCA was the BCA.
(l) Also at about that time, pursuant to the 23 October Letter, the parties commenced discussions to settle the terms on which they would record the terms of the BCA in a long form agreement. In the meantime, the parties continued to conduct themselves in accordance in all material commercial respects with the obligations reflected in the BCA."
53 There is then a reference to a meeting of the appellant parties' representatives on 11 September 1996 (two days before the date nominated in s 152AR(12)). The parties then record their recognition that the exclusivity clauses of the July 1995 BCA are in all "material commercial respects identical" to the corresponding clauses (cll 3.2 and 3.3) in the BCA initially annexed to the Umbrella Agreement, and to the exclusivity clause, cl 5, of the April 1997 BCA:
"(m) On 11 September 1996, at a meeting held at the offices of Mallesons Stephen Jaques at which both Telstra Multimedia and FOXTEL and their respective legal advisers were represented, Telstra Multimedia and FOXTEL, through their respective legal advisers, agreed to record their agreement on the subject matters of, inter alia, clauses 3.2, 3.3 and 3.10 of the BCA, in terms reflecting the refinements made to those clauses by clause 7 of the Merger BCA.(n) Clauses 3.2 and 3.3 of the BCA provided that:
`3.2 Subject to this clause, FOXTEL shall:
(a) exclusively provide or manage the provision of Services to be delivered to Subscribers for use of the Broadband System Services; and
(b) utilise or otherwise exploit the functions comprised in the Broadband System Service only for the purpose of paragraph (a) above.
3.3 To give effect to clause 3.2 and subject to Clause 3 (Telstra Multimedia) will not use or permit the use of facilities controlled by (Telstra Multimedia) for the delivery of Services by any Other Service Provider.'
The parties recognise that that clause is in all material commercial respects identical to clauses 3.2 and 3.3 of the broadband co-operation agreement annexed to the Umbrella Agreement and clause 5.2 of this document."
54 Clause 3.10 of the July 1995 BCA is then recited - it dealt with the "bundling" right:
"(o) Clause 3.10 of the BCA provided that:`Unless required by Law and permitted by both technological developments and network system reconfiguration (Telstra Multimedia) may not provide a Broadband System Service, utilising STU Functionality, to deliver a service which is not a Service unless that Broadband System Service includes a conditional access function and a subscriber data base function equivalent to the Conditional Access Function and the Subscriber Data Function.'
The parties recognise that that clause is in all material commercial respects identical to the second sentence of clause 4.6 of the broadband co-operation agreement annexed to the Umbrella Agreement and clause 5. 12 of this document."
55 Sub-clause (p) next states:
"(p) Without limiting the generality of clause 1.10(d) by agreeing to record their agreement on the subject matters of clauses 3.2, 3.3 and 3.10 of the BCA in the manner set out in clauses 5.2 and 5.12 of this document, the parties did not intend to vary, terminate, discharge or rescind their agreement on those subject matters. If, in fact, they did vary their agreement on those subject matters, they did not intend that variation to terminate, discharge or rescind their agreement on those subject matters and any such variation is to be interpreted accordingly."
56 Clause 1.11 concludes by recording the parties' common understanding and intent as at 13 September 1996:
"(q) Against this background, (but without prejudice to the relevance of any additional matters that support the facts set out above) it was the parties' common understanding and intent as at 11 September 1996 that:(i) by virtue of the 23 October Letter, the termination of the Merger Agreement and their conduct following termination of the Merger Agreement, they had agreed the subject matters of clauses 3.2, 3.3 and 3. 10 of the BCA at least since the Commencement Date;
(ii) their agreement on those subject matters was in all material commercial respects reflected in clauses 3.2, 3.3 and 3.10 of the BCA.
(iii) their agreement on those subject matters would be recorded in terms reflecting the refinements made to clauses 3.2, 3.3 and 3.10 of the BCA by clause 7 of the Merger BCA;
(iv) they had not then nor at any other time terminated their agreement on the subject matters of clauses 3.2, 3.3 or 3.10 of the BCA nor varied their agreement on the subject matters of those clauses and, if they had, they had not intended to terminate, discharge or rescind their agreement on those subject matters and had intended any such variation to be interpreted accordingly.
(r) Accordingly clauses 5.2 and 5.12 record the terms of the agreement of the parties on their subject matters as at 11 September 1996."
57 The topic "Exclusive Relationship" is dealt with by cl 5. Clause 5.1 provides:
"(a) Telstra Multimedia and FOXTEL acknowledge that they have decided to establish and consolidate their respective businesses on the basis of the initial Business Plan and the forecast revenues set out in that plan.[The "Business Plan" is defined (cl 1.1) to mean " a business plan for the business to be conducted by FOXTEL which has been approved by the FOXTEL partners in accordance with the FOXTEL Partnership Agreement and as modified from time to time in accordance with [that] agreement".]
(b) That plan depends, amongst other things, on FOXTEL's exclusive entitlement to provide or manage the provision of Services delivered to Subscribers in accordance with this clause 5.
["Services" is defined (cl 1.1) in terms similar to cl 3.2 of the Umbrella Agreement.]
(c) Telstra Multimedia and FOXTEL further acknowledge that this exclusive entitlement enables FOXTEL to provide and manage the provision of Services to Subscribers on an attractive, marketable, co-ordinated and efficient basis. This, in turn, directly affects the forecast revenues set put in the initial Business Plan.
(d) FOXTEL intends, on reasonable commercial terms, to offer to manage the provision of Services of Other Service Providers subject to FOXTEL's requirement that it be able to provide and manage the provision of Services to FOXTEL Subscribers on an attractive, marketable, co-ordinated and efficient basis."
58 ("Other Service Provider" is defined (cl 1.1) to mean a person who provides, proposes to provide or manages the provision of Services where FOXTEL or a Joint Venture Entity does not, or is not, proposed to have the retail relationship with subscribers for the provision of those services.)
59 Clause 5.1 proceeds:
"(e) Subject only to clauses 5.12 and 5.13, for the avoidance of doubt, and to emphasise the intention of both Telstra Multimedia and FOXTEL, nothing in this agreement in any way restricts or otherwise affects Telstra Multimedia's right in its absolute discretion to use or permit the use of facilities controlled to any person on Telstra Multimedia's own behalf or on behalf of any other person."
60 Clause 5.2 provides for the grant of an exclusive right to FOXTEL by Telstra Multimedia:
"(a) Subject to Law and this clause 5, Telstra Multimedia:(i) grants to FOXTEL the sole and exclusive right to provide and manage the provision by Other Service Providers of Services delivered by means of the Broadband System Service; and
(ii) may not, except in accordance with this clause 5:
(A) use or permit the use of Telstra Multimedia's Broadband System to deliver the Services of any Other Service Providers; or
(B) manage the provision of the Services of any Other Service Providers.
["Law" is defined (cl 1.1) in terms similar to the definition in the July 1995 BCA.]
(b) Subject to Law, FOXTEL may not use or permit use of the Broadband System Service except as the means of delivering to Residential Subscribers who are Subscribers:
(i) Services provided by FOXTEL; and
(ii) Services provided by an Other Service Provider where provision of those Services is managed by FOXTEL for the Other Service Provider.
(c) Subject to Law, Telstra Multimedia may not provide Broadband Transmission Services to a Non-Service Provider except subject to a condition that the Non-Service Provider may only use that Broadband Transmission Service to deliver services which are not Services."
61 ("Non-Service Provider" is defined (cl 1.1) as a person who provides or manages the provision of services which are not Services.)
62 Clause 5.3 provides that if required by Law to allow the use of its network or facilities to Other Service Providers, Telstra Multimedia must arrange for FOXTEL to satisfy that requirement:
"(a) Where a Law requires Telstra Multimedia to use or permit the use of Telstra Multimedia's Broadband System or a facility controlled by Telstra Multimedia to deliver Services provided by an Other Service Provider, Telstra Multimedia must request and arrange for FOXTEL to satisfy that requirement.(b) Upon a request being made by Telstra Multimedia, FOXTEL must arrange for the delivery by suitable means of the Services provided by the Other Service Provider and satisfy to the extent necessary on behalf of Telstra Multimedia the relevant requirement imposed by Law on Telstra Multimedia. In doing so, FOXTEL may only conclude an agreement relating to the delivery of Services provided by the Other Service Provider after consulting with Telstra Multimedia and securing Telstra Multimedia's reasonable agreement regarding the terms and conditions under which FOXTEL will arrange delivery of the Services.
(d) To the extent the Law requires Telstra Multimedia to use or permit the use of Telstra Multimedia's Broadband System or facilities controlled by Telstra Multimedia to deliver Services provided by an Other Service Provider, FOXTEL may only act as Telstra Multimedia's agent in relation to that use and FOXTEL must act in accordance with Telstra Multimedia's policies regarding capacity, pricing and other conditions attaching to that use.
63 Clause 5.5 imposes obligations on FOXTEL with respect to Other Service Providers:
"5.5 Where a Law requires FOXTEL to provide a Broadband Transmission Service by means of or including Telstra Multimedia's Broadband System which is capable of being used to deliver Services, FOXTEL must:(a) inform Telstra Multimedia promptly of any claim presented to FOXTEL of a legal entitlement in relation to the provision by FOXTEL of that Broadband Transmission Service;
(b) to the extent permitted by the relevant Law, comply with the relevant Law in a way that does not involve providing a Broadband Transmission Service in a manner inconsistent with clause 5.12;
(c) to the extent it is provided by means of Telstra. Multimedia's Broadband System act only as Telstra Multimedia's agent in relation to the provision of that Broadband Transmission Service and pursuant to Telstra Multimedia's policies regarding capacity, pricing and other conditions attaching to that Broadband Transmission Service; and
(d) to the extent it is provided by means of Telstra Multimedia's Broadband System, conclude an agreement relating to delivery of that Broadband Transmission Service only after consulting with Telstra Multimedia and securing Telstra Multimedia's reasonable agreement regarding the terms and conditions under which FOXTEL will arrange delivery of the Services."
64 Clauses 5.7 and 5.8 deal with the "permitted use" of facilities by Telstra Multimedia and consultation before this permitted use:
"5.7 Telstra Multimedia may use or permit the use of Telstra Multimedia's Broadband System or any facility controlled by Telstra Multimedia to deliver Services provided by any Other Service Provider where:(a) FOXTEL does not within a reasonable period comply in accordance with clause 5.3 with a request by Telstra Multimedia under clause 5.3(a); or
(b) Law does not permit the relevant requirement imposed by Law upon Telstra Multimedia to be satisfied by FOXTEL in the manner stipulated in clause 5.3(b).
Consultation before permitted use
5.8 Where Telstra Multimedia wishes under clause 5.7 to use or permit the use of Telstra Multimedia's Broadband System or any facility controlled by Telstra Multimedia to deliver Services provided by an Other Service Provider, Telstra Multimedia:
(a) may only do so if in its reasonable opinion after consultation with FOXTEL the circumstances in clause 5.7(a), or (b) exist; and
(b) must do so on terms and conditions which minimise any adverse impact on the FOXTEL's business of providing and managing the provision of Services."
65 Revenues from any "permitted use" is provided for by cll 5.9 - 5.11:
"5.9 Where Telstra Multimedia uses or permits the use of Telstra Multimedia's Broadband System or any facility controlled by Telstra Multimedia to deliver Services provided by an Other Service Provider pursuant to clauses 5.3, 5.5 or 5.7, Telstra Multimedia must, after deducting a reasonable proportion of Telstra Multimedia's operational expenses (having regard to the extent of use of Telstra Multimedia's Broadband System or any facility) in delivering those Services, account to FOXTEL for any revenue received by Telstra Multimedia in connection with the delivery of those Services which exceeds the amount that would have been due to Telstra Multimedia by FOXTEL pursuant to clause 10 had FOXTEL provided those Services to Subscribers on the basis of the subscription price for those Services charged by the Other Service Provider.Treatment of revenues from permitted use for purpose of Revenue Share
5.10 No amount payable to FOXTEL under clause 5.9 may be included in the calculation of Total Revenue or Operating Cash Flow for the purposes of clause 10.
Maximisation of revenue for permitted use
5.11 Telstra Multimedia must use its reasonable commercial endeavours to maximise the revenue derived by Telstra Multimedia from use of Telstra Multimedia's Broadband System or a facility controlled by Telstra Multimedia in connection with the delivery of those Services to which clause 5.9 applies having regard to the overall circumstances of the particular transaction."
66 Clause 5.12 provides for the "service configuration" ("bundling" right):
"5.12 Unless:(a) required by Law; and
(b) permitted by both technological developments and network system reconfiguration,
neither Telstra Multimedia nor FOXTEL (as agent of Telstra Multimedia or otherwise) may provide a Broadband Transmission Service, utilising STU Functionality, as the means of delivering a service (including, without limitation, an Other Service and a service which is not a Service) unless that Broadband Transmission Service includes a conditional access function and a subscriber database function equivalent to the Conditional Access Function and the Subscriber Database Function."
67 Clause 5.13 deals with the provision of services to Non-Service Providers, and cll 5.14 and 5.15 treat Telstra Multimedia as "exclusive" provider or "preferred" supplier, whilst cl 5.16 describes FOXTEL's role in relation to the entry of a party other than FOXTEL to deliver services, other than those designated as "Services" in the BCA:
"5.13 Without limiting clause 9.12, where Telstra Multimedia proposes to provide to a Non-Service Provider a Broadband Transmission Service capable of being used to deliver Services, Telstra Multimedia must consult with FOXTEL on the regulatory impact of that proposal before implementing it.Telstra Multimedia as exclusive provider
5.14
(a) Unless the parties otherwise agree, FOXTEL must obtain from Telstra Multimedia all Broadband Transmission Services required to transmit signals for and deliver Services provided to Subscribers except that this clause 5.14(a) does not apply to Broadband Transmission Services that are used for or in connection with transmission of signals for Services to Head Ends.
(b) FOXTEL may not use any means to deliver Services except the Broadband System Service.
Telstra Multimedia as preferred supplier
5.15 Where FOXTEL wishes to acquire telecommunications services other than to deliver Services from each Head End to Subscribers FOXTEL must give Telstra Multimedia and its Related Bodies Corporate the opportunity to offer to supply those telecommunications services. If the terms offered are equal to or better than offers to supply the same telecommunications services by other telecommunications services suppliers, FOXTEL must acquire those telecommunications services from Telstra Multimedia or the relevant Related Body Corporate of Telstra Multimedia.
FOXTEL role in relation to Non-Services
5.16 Wherever Telstra Multimedia wishes to use or to permit an entry other than FOXTEL to use the facilities controlled by Telstra Multimedia to deliver services other than Services, Telstra Multimedia may arrange for FOXTEL to provide those services."
68 The standards of the Service and channel numbers are dealt with in cll 7.2 and 7.4:
"7.1 Telstra Multimedia must establish, maintain and supply to FOXTEL the Broadband System Service for the Term. Subject to clauses 7.6 to 7.12, Telstra Multimedia must supply the Broadband System Service in accordance with this agreement and to a standard which meets world's best practice for comparable services (including in terms of delivery technology) as to signal quality and transmission reliability. In connection with the Broadband System Service, Telstra Multimedia must, among other things:(a) receive signals for the Channels at each Head End and scramble those signals, in the case of Digital Channels, at the relevant play out centre and, in the case of Analogue Channels, at the Head End;
(b) modulate those signals at each Head End and transmit them to Subscribers' STU's;
(c) deliver STU's to Subscribers and connect them; and
(d) subject to clause 12, remedy faults affecting the delivery of Channels to Subscribers;
to enable FOXTEL to provide or manage the provision of Services in accordance with its Business Plan.
......
7.4 Telstra Multimedia must supply FOXTEL with the number and type of Digital Channels and Analogue Channels required by FOXTEL's Business Plan from time to time."
69 Termination is dealt with by cl 15. It provides that the agreement remains in effect for "the Term" unless terminated for cause. "The Term" is defined (cl 1.1) to mean the period from the Commencement Date to the End Date, which is defined as the date ten years after the termination of the Alliance in accordance with the Umbrella Agreement - there is an exception in relation to cl 5. It will be recalled that the Alliance established under the Umbrella Agreement was to continue until either 1 March 2010, or the termination of the Alliance pursuant to cl 14 of the Umbrella Agreement.
The reasoning at first instance
70 It will be recalled that his Honour had noted (para 18) that the issues for determination were: whether FOXTEL had any PCR under a contract that was in force as at the beginning of 13 September 1996; whether those rights were then still in existence when Seven and TARBS requested access: and, if so, whether the granting any of these requests would have deprived FOXTEL of such rights. His Honour said (para 71) that a number of questions arise as matters of interpretation when determining whether there is a PCR, as follows:
* whether the term "protected contractual right" should be given a "strict" or narrow meaning, having regard to the legislative background and the stated objects of Part XIC of the TPA.
* whether there must have been a right in existence as at 13 September 1996, and whether this must be in existence at the time that it is sought to be enforced.
* whether it is necessary that an identical contract must have continued in force, unaltered, through those times.
* whether the right sought to be enforced must be identical to the right in existence in September 1996.
71 Citing the legislative background to Part XIC and the statement of objective of promoting competition made in s 152AB(2), Tamberlin J adopted (para 75) a "strict" construction to the statutory term "protected contractual right"; but, went on to say that no reference to the character, quality or extent of the type of the statutory right contemplated could be discerned; and thus there was no indication that the term could not sensibly include a right of exclusivity or bundling.
72 His Honour rejected (para 77) a submission by Seven that s 152 AR(4)(d) should be read down by reference to the other sub-paras of ss (4). It will be recalled that the statutory object is to ensure that existing access arrangements may be maintained at a sufficient level so as to meet reasonable requirements. Seven's argument, then rejected, was that the only rights protected by sub-para (d) were those concerned with sufficiency of access.
73 Tamberlin J said that what is to be protected is the right, and not the contract; so that it is only the right in question that needs to have had a continual existence between 13 September 1996 and the date of reliance on that right; it was not the case that the contract which originally created that right needed itself to have had such a continual existence (para 83). Looking at the substance of the right, rather than its linguistic form, Tamberlin J held (para 85) that whether a variation led to the extinguishment of the right, by the creation in its stead of a new and different right, would depend upon the nature and extent of any alleged variation, considered as a matter of its substance and effect.
74 Tamberlin J held that in a number of significant areas, the parties had failed to reach finality; and this was relevant to the question whether the parties intended to reach, and did reach, an agreement capable of forming a binding and enforceable contract. His Honour said (para 94) that the parties' intention to make a concluded agreement did not necessarily indicate that they had actually reached agreement on such terms as are, "in the circumstances", legally necessary to constitute a contract. A "substantial number of significant issues" remained open and undetermined as at 23 October 1995; and given the complexity and wide ranging nature of the arrangements, on the material available as at 23 October 1995 "a court could not resolve the essential terms of the agreement for the parties" (paras 101-105). His Honour referred in particular to the interim or temporary character of the arrangements described in the 23 October letter, corresponding to their contingent relationship with the proposed Australis merger.
75 In order to determine whether, as at 23 October 1995, the parties had agreed "on all the important terms of the BCA sufficient to establish a binding contract", and in order to discover "what in fact the parties considered was important before committing to a binding contract", Tamberlin J made (para 110 and following) a comparison of the provisions of the July 1995 BCA relied on, and the April 1997 BCA. His Honour catalogued what he had found to be a number of significant differences between the two instruments; and this exercise showed that there had been many substantial alterations to the provisions in the intervening period. Express statements in cll 1.10(d), 1.11(n), (o) and (p) in the April 1997 BCA that it was not the parties' intention that this BCA alter or vary the July 1995 BCA were "not sufficient to override the clear differences between the two BCA's" (para 111). The variations and drafting of the April 1997 BCA were not (para 113) merely a matter of "fleshing out an earlier skeletal agreement but were part of a process of moving towards an original and greatly expanded agreement." His Honour concluded that, as at 23 October 1995, the parties had not reached an enforceable agreement on all the essential terms to govern their arrangement, and (para 132) that the rights under the April 1997 BCA were so significantly different in substance to those of the July 1995 BCA, as to amount to a variation which had replaced and extinguished any rights claimed under the October letter agreement.
76 His Honour found that, when the Australis merger did not proceed, the parties resumed discussions in April 1996 about reformulating the BCA (para 115). The parties at that time disagreed on the starting (or reference) point for resumed negotiations - whether it should be the July 1995 BCA, on one view; or the December 1995 BCA (that had been drawn up in anticipation of the Australis merger) on the other. This "uncertainty and disagreement", Tamberlin J held, indicated that, even in mid-1996, the parties could not agree on a starting point for further negotiations. This suggested that the July 1995 BCA (as incorporated in the October letter agreement) did not constitute a binding contract. In his Honour's view, the continuation of negotiations after October 1995, and the references in 1996 correspondence to aspirations for final drafts, reinforced the conclusion that there was no final agreement in October 1995.
77 Tamberlin J noted that the 23 October letter was signed on the day when the FOXTEL joint venture business and its services commenced, and that the parties had proceeded with a commitment which involved the expenditure of millions of dollars. But his Honour's view of the correspondence was that the parties were "prepared to act on the basis of this extensive commercial commitment in the absence of a finalised legal commitment" (para 117); and that, in any case, they were thus committed "in a general way" under the Alliance constituted by the Umbrella Agreement made in March 1995. His Honour said (paras 121-123):
"The negotiations between the parties both before and after 23 October 1995, and the nature and extent of the variations noted above, lead me to the conclusion that as at 23 October 1995 the parties had not reached agreement on many important matters. While it is always open to parties to negotiate to vary their agreements, in my view this is not what the parties did.The extensive negotiations in the eighteen month period after 23 October 1995, on matters obviously regarded as of considerable importance, also serve to support a conclusion that there was no binding agreement either during that time or as at 13 September 1996. They cannot be properly regarded as simply a working out of the detail or formalisation of the arrangements referred to in the 23 October letter.
Having regard to the foregoing considerations I do not consider that the 23 October letter was a contract or gave rise to any binding contractual rights. The parties to the July 1995 BCA were still in negotiations on 23 October 1995, and for some time afterwards. While there was no doubt a commercial commitment to the arrangement referred to in that letter, the negotiations had not reached the stage where a contract was activated. The letter did not confer any contractual right on FOXTEL Management or any obligation on the part of Telstra Multimedia to FOXTEL Management as to exclusivity, bundling or otherwise. The parties, of course, had the benefit of the March 1995 Umbrella Agreement setting up the "Alliance" and the substantial commercial commitment they had already made towards their joint project, but they did not have a contract by the 23 October letter. Accordingly, FOXTEL Management had no protected contractual rights at the critical date."
78 His Honour did not accept that, to the extent that a variation was effected by the April 1997 BCA, the parties must be taken to have reverted to the July 1995 BCA, so that there was in law no variation or extinguishment of rights, in accordance with the intention of non-variation expressed in the April 1997 BCA; this would have the Court "ignore the subsequent negotiated changes"; and would lead to a result "manifestly contrary to the course of conduct" and the intention of the parties evident from their negotiations since July 1995. In addition, partial reversion to some July 1995 clauses would lead to the introduction of considerable uncertainty into the April 1997 BCA (para 137).
79 Although it was not strictly necessary for him to do so, Tamberlin J proceeded to deal with the question whether, if the 23 October letter had created a legally binding contract giving FOXTEL a PCR of exclusivity, that right continued in existence until the time of the execution of the April 1997 BCA. His Honour observed that the 23 October letter stated that if the Australis merger was not completed, each party had the right to require the other to enter into a long form BCA based on the July 1995 BCA, although no time was set for exercising that right. He concluded that neither party had exercised this right. Instead, once the Australis merger fell through, any right that FOXTEL had as a result of the 23 October letter was "converted" into an entitlement to require the execution of a long form BCA, a right of a different nature (para 129). In other words, any PCR that might have arisen under the October letter agreement expired, or was extinguished, by the failure of the parties to execute a long form BCA within a reasonable time after the Australis merger had fallen through (para 130). Since a final BCA was not completed until April 1997, there was therefore no right in existence as at 13 September 1996.
80 Tamberlin J next considered whether, if it were to be assumed contrary to his own conclusion, that FOXTEL had a PCR as at the relevant date, which had continued until the relevant request, a grant of access to Seven or TARBS would have the "effect" of "depriving" FOXTEL of that right. FOXTEL claimed that the "exclusive relationship" provisions of cl 3 of the July 1995 BCA conferred the right to prevent Telstra Multimedia from using its cable network to deliver services which are not provided by FOXTEL, or the provision of which was not managed by FOXTEL. Clause 3.4 of the July 1995 BCA, as noted above, stated that Telstra Multimedia may grant access to others where that was "required by Law". Tamberlin J held that this provision did not bear on the present issue, since it was still necessary to determine whether a PCR existed. His Honour held (para 145) that the provisions of cl 3 were "evidently intended ... to give a far-reaching exclusive right" to FOXTEL, imposing an obligation on Telstra Multimedia not to permit the use of its network by any other service provider, and also providing that FOXTEL was exclusively to provide or manage the provision of services. Tamberlin J held that a grant of the access sought by Seven and TARBS would deprive FOXTEL of a PCR, whether or not the services would be managed by FOXTEL. Seven had submitted that FOXTEL's rights were to provide or manage; that is, two alternate rights, so that FOXTEL could, pursuant to a request for access, be compelled to manage the provision of services that were, however, provided by Seven or TARBS, without infringing the exclusivity right. His Honour could not accept Seven's submission, holding that the provisions of the July 1995 BCA obliged Telstra Multimedia not to extend these rights to any other service provider, and operated to confer exclusive rights on FOXTEL to provide and to manage, to the extent it so desired and the law permitted, services delivered through the Telstra network. Whether it provided them, or managed them, was within FOXTEL's discretion (paras 146 - 147).
The declaratory orders made at first instance
81 His Honour made declaratory orders in these terms:
"THE COURT:1. Declares that the Respondents (or any of them) do not have a `protected contractual right' within the meaning of that term as used in section 152AR(4)(d) of the [TPA], in relation to the declared services requested by the Applicant and by Television & Radio Broadcasting Services Australia Pty Limited.
2. Declares that the supply of the declared services requested by the Applicant and by Television & Radio Broadcasting Services Australia Pty Limited will not have the effect that the Respondents (or any of them) will be deprived of a `protected contractual right' within the meaning of that term as used in section 152AR(4)(d) of the [TPA]."
The history of the regulatory regime for pay TV services over the period in question
82 The making of the joint venture arrangements between the appellant parties occurred against the background of the regulatory regime established by Commonwealth legislation. As mentioned earlier, the Telecommunications Act 1991 ("the 1991 Act") designated two general "carriers" (Telstra and C & W Optus) and prohibited other persons from installing, maintaining and operating telecommunications networks. The 1991 Act imposed obligations upon the designated carriers to interconnect, and to provide access to telecommunications networks and their facilities: ss 137 and 234.
83 In 1994-1995, subsidiaries of Telstra and of Optus commenced the installation and maintenance of broadband telecommunications networks and facilities, initially to be used to deliver pay TV services. The subsidiary entities which owned and operated these networks and facilities were not designated "carriers" under the 1991 Act.
84 Under the provisions of s 209 of the 1991 Act, the Australian Telecommunications Authority ("AUSTEL") could issue class licences specifying the eligible services which persons could supply subject to any conditions set out in the licences. Under s 204 of the 1991 Act, the Minister could direct AUSTEL to issue certain class licences on certain conditions. On 31 July 1995 the Minister made Telecommunications (Service Providers Class Licence) Direction No. 1 of 1995, requiring AUSTEL to vary the existing Service Provider License, and to issue a new "carrier associate" license, upon certain conditions. A "carrier associate" was a person in which a direct or indirect interest was held by a "carrier".
85 Schedule 2 of the Direction provided that one of the conditions attaching to the new "carrier associate" licence was an obligation to connect other persons to the network. However, this interconnect obligation did not apply to pay TV carriage services for an interim period to end on 1 July 1997 (Schedule 2(6) and 2(8)).
86 On 1 August 1995 the Minister announced that policy and legislative changes to the regulation of telecommunications would take place after 1 July 1997: the new policy framework would open the industry to substantial competition, and would allow for more industry players or participants, with a view to striking a balance between greater competition and the need to spread the benefits of improved services to as many people as possible.
87 Accompanying the Minister's announcement was a document setting out Government's policy entitled "Telecommunications Policy Principles: Post 1997". Under the sub-heading "Competition Policy", it stated that the interconnection and access regime (then in suspension) would provide for a right of a service provider to interconnect with carriers' networks on terms and conditions to be agreed or arbitrated. His Honour summarised (paras 63-65) the relevant Principles:
"Principle 19 requires that carriers must interconnect all requesting service providers, including those requesting broadcasting services, and act as common carriers. An access undertaking by a carrier must not confine the availability of services to any class or classes of persons without the agreement of the ACCC acting on general competition policy principles.Principle 20 provides that each carrier is required to give an undertaking in relation to the interconnection of service providers and access to its carriage services by content providers. It went on to provide that a carrier would be able to deny a request for interconnection or carriage on reasonable grounds, including connection not being technically feasible or sufficient capacity not being available.
Principle 22 is to the effect that in order to facilitate access to customers, carriers and service providers must make the customer equipment it owns accessible to other carriers or service providers, including, for example, access to STU's. Furthermore, any carrier or service provider operating a subscriber management system used to control or manage access to services must provide access to that system at a fair price."
88 The Principles did not, as Tamberlin J observed (para 66), provide any specific mechanism for the protection of existing contractual rights "in any way analogous to those presently under consideration." On 20 December 1995 the first exposure draft of proposed telecommunications legislation (which was eventually to become Part XIC of the TPA) was released. A Media Release stated that the exposure drafts were based on the policy document. This first draft did not contain any provision for, or reference to, a "protected contractual right" of the kind to be inserted in s 152AR(4)(d) of the TPA.
89 On 13 September 1996 the second exposure draft of the proposed legislation was published. This draft contained, for the first time, a provision (draft s 259(1)(c)) dealing with "a protected contractual right". As Tamberlin J noted (para 68), the draft provision was in substance similar to s 152AR(4)(d).
90 On 5 December 1996 a "package" of legislation was introduced into Parliament, with a view to replacing the 1991 Act with the Telecommunications Act 1997. By virtue of s 2 of the Trade Practices Amendment (Telecommunications) Act 1997, the new Part XIC was introduced into the TPA, to come into force on 30 April 1997. The new Part XIC of the TPA provided, in Division 2, for the declaration by the ACCC that certain services would be subject to the access regime created by Part XIC; and for a determination which could be made after a request by the Telecommunications Access Forum ("TAF"), or after the holding of a public inquiry, followed by the publication of a report. The Telecommunications (Transitional Provisions and Consequential Amendments) Act 1997 ("the Transitional Act") was also part of the "package". It was concerned with, inter alia, the specification of eligible services covered by access arrangements registered under the 1991 Act. The operation of the transitional legislation is considered in our judgment in the associated appeals from the judgment of Wilcox J. Shortly stated, under s 39(5) of the Transitional Act the ACCC was required to identify and to deem, in accordance with certain criteria, certain telecommunications services to be the subject of access obligations. The transitional legislation was introduced so as to ensure that the access regime of Part XIC was brought into immediate operation in May 1997, without the need to wait for the TAF request, or the public inquiry and report process contemplated by Division 2 of Part XIC of the TPA. In the Second Reading Speech for the Trade Practices Amendment (Telecommunications) Act 1997 the underlying purpose of s 39(5) of the Transitional Act was explained:
"In addition the ACCC is required to declare a carriage service to bring within this access regime the supply of broadcasting services over cable networks. This fulfils our election commitment to remove the exemption of pay television carriage from the access regime given by the previous Government." [Parliamentary Debates, House of Representatives Hansard 5 December 1996, 7803 at 7805]
91 Tamberlin J, having considered the legislative background prior to 1997, said the following (para 69):
"In the period leading up to 23 October 1995, and for some months thereafter, it appears that the legislative background against which the July 1995 BCA was being negotiated did not disclose any detail as to the nature or extent of the proposed access regime or as to whether existing rights would be protected and the extent of any such protection. Negotiations and communications between the parties prior to 23 October 1995 and thereafter were against the background that it was known that after mid-1997 access in some form would be required to be given. This legislative backdrop is an important part of the context in which the communications regarding the July 1995 BCA and negotiation of it should be considered. When the statutory regime was finally enacted it provided for the protection of pre-existing contractual rights so that it became necessary to focus on the nature and operation of the rights given by the contractual provisions."
92 While it is accurate to say that the notion of protected contractual rights in the telecommunications access regime only appeared in the second draft of what became Part XIC in the latter part of 1996, Part IIIA of the TPA contained, after 20 July 1995 (about a week after the date of the July 1995 BCA), a provision in somewhat similar form to s 152AR(4)(d). Part IIIA of the TPA deals with access to services, and provides for a process for the declaration of services and for arbitration of access arrangements to those services in the event of a dispute. The "services" covered by the Part include the use of an infrastructure facility such as a road or railway line, facilities for the transportation or handling of goods or people, or communications services. Section 44W was inserted into this Part by the Competition Policy Reform Act 1995, which was assented to on 20 July of that year. It provides for restrictions on access determinations made by the ACCC. Section 44W(e) says that the Commission must not make a determination that would have the effect of depriving any person of "a protected contractual right". This is defined to mean a right under a contract that was in force at the beginning of 30 March 1995. The explanatory memorandum to the Competition Policy Reform Bill 1995 explains (para 226(c)) the meaning of this restriction by saying that it gives protection to "all contractual rights relating to access to a declared service, either of the provider or of the third party, that existed at the beginning of 30 March 1995." One obvious difference between s 44W(e) and s 152AR(4)(d) is that the former operates so as restrict the scope of determinations by the ACCC, while the latter operates upon access requests from other service providers.
Grounds of the Appeals
93 The Telstra and FOXTEL parties now contend that the trial Judge should have held that there was a binding and enforceable contract between Telstra Multimedia and FOXTEL Management made on 23 October 1995, evidenced in the letter bearing that date; and this was capable of giving rise to a PCR; and that his Honour should not have held that any agreement arising from that letter was, in any event, only intended to operate until the proposed merger with Australis had either gone ahead, or until such time as it became clear that the merger would not proceed. Moreover, they challenge his Honour's finding that any PCR's arising under the 23 October letter had expired, or were extinguished, by the failure of the parties to execute a long form BCA within a reasonable time after the merger fell through.
94 The appellants further contend that the relevant exclusivity and bundling rights granted under the July 1995 BCA, and the April 1997 BCA respectively, are not so different in substance as to warrant the conclusion that the April 1997 BCA amounted in law to a variation of the rights concerned, so as to replace or extinguish any rights that arose under the 23 October letter. They also submit that there is no statutory warrant for the adoption of a "strict" construction to the term "PCR". It is then said that in considering whether a binding contract existed as at 23 October 1995 it was not relevant to make a comparison between the provisions of the July 1995 BCA and the April 1997 BCA.
Seven's Notice of Contention
95 Seven now contends that the decision of the trial Judge should be affirmed on several grounds other than those relied upon by his Honour.
96 Seven contends that, on its the proper construction, cl. 3.2 of the July 1995 BCA encompassed two alternate rights: FOXTEL Management's right to provide services delivered through the use of Telstra Multimedia's network; and, further, its right to manage the delivery of such services; that is, the argument runs, FOXTEL Management could be compelled to manage the provision of services that are provided by Seven, without being deprived of any exclusivity right it may have in the provision of its own services.
97 Seven also contends that Tamberlin J should not have found that cl 3.3 of the July 1995 BCA imposes an obligation on Telstra Multimedia not to permit the use of its network for services by any other service provider; so that, it is said, Telstra Multimedia could, within the terms of the BCA, permit Seven to use its network and facilities to deliver services. On this basis, Seven contends that his Honour should not have held that, if a PCR had existed and had subsisted through to the present time, then (by virtue of cll 3.2 and 3.3 of the July 1995 BCA), FOXTEL Management would have been deprived of a PCR if Telstra Multimedia had acceded to Seven's request by granting it a right to provide services, whether or not these would be managed by FOXTEL Management.
98 It is further submitted that s 152AR(4)(d) is limited by reference to ss (4)(a)-(c) and should be read down, so that it only protects contractual rights which concern sufficiency of access; and that, in the light of the stated object of Part XIC, the primary Judge ought to have held that the notion of a PCR would exclude rights of exclusivity or of bundling.
99 It is next said that the phrase "as may be required by Law" in cl 3 of the July 1995 BCA, limits the operation of the terms of the clause, so that Telstra Multimedia may grant access to Seven or another access seeker, where the grant of access is "required by Law", s 152AR being such a law.
100 Seven further argues that s 152AR(4)(d) requires, not only that the same right, but also the same contract under which the right arises, must remain in existence unaltered, or substantially unaltered, up to the time when it is sought to be enforced; so that, it is said, if there were any rights in existence as at 13 September 1996, these were extinguished by the variation effected by the subsequent April 1997 BCA, that being a different contract, providing for substantially different rights.
Conclusions on the appeals
101 These are complex matters, and the Court has had the benefit of full argument, written and oral, in the appeals. It will not be practicable to state my conclusions on each of the many points raised in argument. I propose therefore to follow the approach adopted by other Full Courts in other complex appeals, and to confine my reasons to those issues which are both significant and consequential (see, for example, Amadio Pty Ltd v Henderson (1998) 81 FCR 149 at 175).
102 As has been noted, the FOXTEL parties on the one hand, and the Telstra parties on the other, pleaded the nature and origins of FOXTEL's "PCR" in slightly different ways. But, on either approach, the relevant provisions of the Umbrella Agreement dated 9 March 1995 are material for present purposes, and their effect should be recalled, as follows.
* An "alliance" was established for the principal purpose of establishing a number of businesses in the broadband video home entertainment sector in Australia (Recital D). As a matter of law, and in equity, a relationship in the nature of a joint venture was thereby constituted. It may follow, but it will not necessarily follow, that the relationship is fiduciary. This will depend upon the form that the particular joint venture takes and upon the content of the parties' obligations (see United Dominions Corporation Ltd v Brian Pty Ltd [1985] HCA 49; (1985) 157 CLR 1 per Mason, Brennan and Deane JJ at 11). But the relationship between prospective partners or participants in a proposed partnership to carry out a single joint undertaking or endeavour will ordinarily be fiduciary if the prospective partners have reached an informal arrangement to assume such a relationship and have proceeded to take steps involved in its establishment or implementation (Brian, above, at 12). In my view, this was the position here, at least upon the execution of the Umbrella Agreement in March 1995. It did not, of course, follow that a PCR, or at least a relevant PCR, was thereby vested in FOXTEL. But, at law and in equity, the participants in the proposed joint venture were "associated for ... a common end", and their relationship was "based upon a mutual confidence" that they would "engage in [the] particular activity ... for the joint advantage only" (Brian, above, at 12 - 13).
* The scope of the alliance was linked to the definition of "Services", i.e. (relevantly) a service that delivers to a "Residential Subscriber" either a "Video Program" on a (pay) television or an audio program via an STU (cl 3.2).
* The ownership (i.e. the joint venture entities) and the operational structure of the businesses to be established as part of the alliance were provided for in cl 4, acknowledging that variation may be necessary to ensure compliance with the TEA and the BSA (cl 4.6). (At this time (March 1995), there were no statutory requirements, in any legislation, that access be granted to a network facility.)
* Provision was made for "operational structure" by cl 4.4 relevantly as follows:
"4.4 The operational relationships between the Joint Venture Entities will be governed by the following agreements:(a) an agreement between [Telstra Multimedia] and [FOXTEL] Management as agent for the [FOXTEL] Partnership setting out the terms on which [Telstra Multimedia] and the [FOXTEL] partnership will co-operate in the establishment of their respective businesses substantially in the form [annexed] ...." (Emphasis added)
* A question arises, in this context, as to the meaning of the adverb "substantially". It appears that no special or technical meaning was intended. The dictionary meanings of the adjective "substantial" include "of or pertaining to the essence of a thing" (The Macquarie Dictionary, 2nd ed. 1991). This seems to be the meaning intended here; that is, it is agreed that the terms of the Broadband Co-operation Agreement will be, in essence, as provided in the annexed form.
* The form of the annexed Broadband Co-operation Agreement made provision for an "exclusive relationship" in cl 3. In particular, cl 3.2 then provided:
"Subject to this clause, [FOXTEL] shall:(a) exclusively provide and manage the provision of Services delivered to subscribers through the use of the Broadband System Service; ...." (Emphasis added)
103 Since cl 3.1 was expressed to be "subject to [cl 3]", it is necessary to consider the other (material) provisions of cl 3, which were then as follows.
104 By cl 3.2 it was provided that, to give effect to cl 3.1, and subject to cl 3.7, Telstra Multimedia will not permit the use of facilities controlled by it for delivery of Services by any service provider other than FOXTEL.
105 By cl 3.7(b) it was provided that Telstra Multimedia may use, or permit an entity other than FOXTEL to use, its facilities to deliver Services in the event that FOXTEL had not complied with cl 3.3.
106 By cl 3.3 it was provided that, whenever Telstra Multimedia may be required by Law to use or permit any entity other than FOXTEL to use its facilities, Telstra Multimedia shall arrange for FOXTEL to satisfy that legal requirement. As has been noted, there was no such requirement by Law at the date of the Umbrella Agreement - and Part IIIA was not inserted into the TPA until four months later (July 1995). It follows that, at the date of the Umbrella Agreement, cl 3.3 had no immediate operation. However, on 1 August 1995, the introduction of Part XIC was foreshadowed by the Ministerial Statement. When Part XIC came into operation (in 1997), cl 3.3 would have applied.
107 In July 1995, as had been mentioned, revised draft five of the Broadband Co-operation Agreement was drawn up. Clause 3 of this draft (the July 1995 BCA) still dealt with the parties' exclusive relationship, but there were some variations, and some supplementary provisions were added, as follows.
108 The key provision, formerly cl 3.1, became cl 3.2, slightly varied:
"Subject to this clause, FOXTEL shall:(a) exclusively provide or manage the provision of Services delivered to Subscribers through use of the Broadband System Service; ...." (Emphasis added)
109 Since cl 3.2 was also expressed to be "subject to [cl 3]," reference should again be made to the other provisions of cl 3.1 at that time.
110 By cl 3.1(b), reference was made to "FOXTEL's exclusive entitlement to provide or manage the provision of Services ...". By cl 3.1(d), it was recorded that FOXTEL intends, on reasonable commercial terms, to offer to provide and manage the provision of Services of "Other Service Providers" (defined as a person who provides or manages the provision of Services other than FOXTEL or a Joint Venture Entity). However, this was expressed to be subject to FOXTEL's requirement that it be able to provide and manage the provision of Services to Subscribers on an attractive, marketable, co-ordinated and efficient basis. (There followed a notation that this language was to be checked with News' in-house lawyer.)
111 Several aspects should be noticed here. Clauses 3.1(b) and cl 3.2(a) spoke of FOXTEL exclusively providing, or managing the provision of, Services; whereas cl 3.1(d) spoke of an offer to provide, and manage the provision of, Services. However, for present purposes, nothing appears to turn on the distinction thus drawn.
112 More important, in my view, was the insertion in this draft of cl 3(1)(d). Although its "language" was to be the subject of scrutiny by News' legal counsel, its essence was clear: FOXTEL contemplated offering to provide, and to manage the provision of Services of Other Service Providers, subject to the proviso that FOXTEL was able to provide and manage the provision of Services to Subscribers on an attractive, marketable, co-ordinated and efficient basis.
113 No doubt, a provision to this effect could be expressed in a number of different ways, whilst preserving its essence. In other words, in my view, so far as concerns the exclusive character of the relationship between these parties, the essence of the arrangement had two aspects: (a) FOXTEL had exclusive access to the facility; but (b) provided the service to Subscribers did not suffer, FOXTEL could deal with Other Service Providers.
114 It is next necessary to consider the impact, if any, of the letter dated 23 October 1995, in this connection.
115 It will be recalled that, relevantly, the letter stated:
"If the Australis merger is not completed [and by April 1996 it was accepted that it could no proceed], either Telstra Multimedia or FOXTEL Management may require the other to enter into a long form Broadband Co-operation Agreement, substantially in the terms of the BCA." (Emphasis added)
116 Although the letter is not entirely clear on the point, it seems that the reference to "BCA" was intended to pick up, not only the July 1995 draft BCA, but also that document "as supplemented by correspondent and negotiations between [the parties]."
117 On behalf of the appellants, it is submitted that the following answer the description of supplementary "correspondence and negotiations" in this context:
(a) FOXTEL Management board minutes and Business Plan dated 11 September 1995 and approved (subject to issues said to be resolved in the letters described in (b), (c) and (d) below) by FOXTEL Management board on 19 September 1995.
(b) Letter dated 20 September 1995 from Telstra Multimedia to News (as amended on 22 September 1995).
(c) Letter dated 22 September 1995 from News Limited to Telstra Multimedia.
(d) Letter dated 17 October 1995 from Telstra Multimedia to News Limited.
118 However, whilst these documents record negotiations and agreements in respect of aspects of the subject-matter of the Umbrella Agreement, none makes any reference to the subject matter which was dealt with in cl 3(1)(d) of the July 1995 BCA. In other words, nothing in this material detracted from the thrust of that provision.
119 By letter dated 15 August 1995, the solicitors for Telstra Multimedia wrote to the solicitors for FOXTEL about, inter alia, the BCA as follows:
"3. Broadband Co-operation AgreementWe have not prepared a revised draft of this agreement. Most of the remaining issues relate to matters of detail arising out of the discussions in New York in June. We set out below the remaining matters to be finalised under the Broadband Co-operation Agreement.
* ...
* Clause 3. This clause needs to be reviewed and discussed in the light of the policy principles for reform of the Telecommunications Act endorsed by cabinet on 31 July 1995. In addition, for the purposes of the Ministerial Direction and the recent amendments to the Trade Practices Act, the capacity in which FOXTEL exercises its rights under clause 3 needs to be considered." (Emphasis added)
120 Telstra, by letter to FOXTEL dated 23 August 1995, relating to a meeting arranged to take place the following day, indicated that they would:
"... focus on resolving, at the commercial level, the outstanding issues flowing from the Broadband Cooperation Agreement, rather than concentrating on specific wording by going through the contract clause by clause. We can then leave it to the lawyers to fine tune the words."
121 In the proposed agenda for the meeting set out in the letter, Ms Judy Slatyer (an executive of Telstra interests) noted that one of the outstanding issues "from our perspective which we need to address or, at a minimum, agree principles which can then be incorporated in the agreement" was the "1997 impact (clause 3)". This seems to be a reference to the end of the exclusionary period for pay TV described in the Ministerial Statement. The meeting was held between representatives of the parties on 24 August 1995. The handwritten minutes for the meeting simply record, next to "1997", "review in 6 months/[illegible]".
122 In an internal Telstra e-mail addressed to Ms Slatyer (and others) dated 28 August 1995, Ms Slatyer was asked whether some of the provisions of the BCA should perhaps be amended in view of the limited duration of the protection afforded by the Ministerial Direction, as follows:
"If the unbundling protection under the direction (for services not previously separately supplied) has a shelf life, should the obligations not to unbundle under the BCA be similarly limited? Or does this strike at the heart of the deal" (Note that the spillover revenue for Scope services still does give the [joint venture] some protection)."
123 In an internal Telstra e-mail reply that same day, Ms Slatyer said:
"This strikes at the heart of the deal. But we (News & Telstra) agreed last week that given the uncertainty we should include an additional point in clause 3 that the parties will review and renegotiate the entire clause 3 in good faith once the 1997 arrangements are clearer. The caveat was that the parties would use best endeavours to keep similar commercial principles. I think given the uncertainty that is the best we can do."
124 In my opinion, as a matter both of form and of substance, this internal exchange does not indicate that the whole of the provisions of cl 3 contained in the July 1995 BCA were to be put aside. On the contrary, in my view, the e-mail, when read as a whole, indicates that, in their essence (i.e. "similar commercial principles"), those provisions stood, notwithstanding that the language in which that essence was to be expressed could be negotiated.
125 In my opinion, the parties' position with respect to cl 3 of the July 1995 BCA as at 23 October 1995 was as described by Dixon CJ, McTiernan J and Kitto J in Masters v Cameron [1954] HCA 72; (1954) 91 CLR 353 at 360, that is a situation -
"... in which the parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect."
126 Another, similar, way of viewing the position of the parties vis-à-vis cl 3 as at 23 October 1995, is to regard it as a case of the kind described by Lord Wilberforce in Liverpool City Council v Irwin [1976] UKHL 1; [1977] AC 239 (at 254):
"[T]he court here is simply concerned to establish what the contract is, the parties not having themselves fully stated the terms."
127 As mentioned, by April 1996 Telstra and FOXTEL had accepted that the Australis merger proposed could not proceed. Between that time and 13 September 1996, the following (relevantly) occurred.
* On 13 May 1996, Ms Slatyer wrote to other Telstra executives a note about the subject of exclusivity, saying:
"... [T]here is one matter which ... we need to pull back on. That relates to the area of exclusivity. This is for three reasons:
a. new product development - where certain clauses (eg 15.1 new technologies) have the potential to prevent [Telstra Multimedia's] business development (eg cable modems);
b. potential interconnect scenarios (clause 7) [the exclusivity clause of the December 1995 BCA]; and
c. flexibility in dealing with regulatory change.
John [Atkin] has already pointed out that the 12 July version suits our needs better for (b) but it also suits our needs better for (a).
If News start pushing on the exclusivity issues again I think we are in a strong position to maintain a firm line. It is now getting to the stage where FOXTEL's exclusivity will be won or lost in the market and by who owns what programming rights rather than who gets access to our cable or for what other purposes we use the cable.
Geoff [Nicholson], if you feel you will be unable to wind back the 22/12 BCA [the December 1995 BCA] to 12/7 [the July 1995 BCA] (for clauses 7, 15, 16) please talk to me early in the process as I think it is commercially very important to us."
* By letter dated 28 June 1996, Telstra's solicitors wrote to FOXTEL's solicitors on "Finalisation of Establishment Agreements", listing Telstra's understanding of changes to the BCA requested by News, relevantly as follows:
"Clause 3 Exclusive relationship3.1 Expand definition of Law to include Access Undertakings
3.2 Modify clause 3.8(c) to remove [Telstra Multimedia's] ability to recoup its expenses before accounting to FOXTEL for super revenue received when [Telstra Multimedia] provides broadband services to an Other Service Provider.
3.3 Include provisions for consultation disclosure and discretions in relation to access undertakings.
3.4 Include a prohibition on Telstra giving Access Undertakings where it has a material adverse effect on FOXTEL.
3.5 Impose an ongoing covenant on [Telstra Multimedia] that it own, control and operate the Broadband System.
3.6 Impose restrictions on Telstra providing Residential Video Transmission Services.
3.7 Extend the exclusivity obligations to related entitles and affiliates.
3.8 Modify clause 3.12 to qualify the requirement that [Telstra Multimedia] be the only broadband supplier to FOXTEL by:
(a) including a provision enabling delivery by satellite services subject to cable preference principles;
(b) consider whether permitted delivery methods should also extend to MDS;
(c) providing that FOXTEL is not required to use [Telstra Multimedia] for transmission of signals to head ends; and
(d) substitute a requirement that [Telstra Multimedia] be preferred supplier.
3.9 Consider whether FOXTEL should be permitted to install common cabling in MDUs."
* On 29 July 1996, Mr Nicholson, Telstra Multimedia's General Manager, Investment Support & Development, wrote a memorandum to Telstra executives on "Establishment Agreements", saying -
"... News appear to have accepted the fact that we will use the July version of the BCA for drafting - you will recall this was an area of significant disagreement last time.We have established and classified a list of 35 outstanding issues into:
* Commercial issues - about 12 issues where detailed discussion will be needed eg variation events, exclusivity provisions, revenue sharing and equity accounting, dual capability charges etc
* Operating issues - where we need opinion of FOXTEL and or Telstra operational staff before considering/resolving the issue
* Legal drafting issues - non controversial issues where [the parties' respective solicitors] will redraft July document to incorporate wording of December document eg re transmission of free to air not mentioned in July
* Issues which could be agreed to immediately - about 12 of the issues were of little consequence and were easy to deal with eg points were already covered in Umbrella Agreement and therefore BCA needed no change."
* The minutes of a meeting held on 21 August 1996 between representatives of the parties indicate that the topic "exclusivity" was discussed. It was noted that "[t]he access regime [i.e. Part XIC] will clearly qualify the exclusivity commitments that Telstra gives ...".
* By memorandum dated 23 August 1996, Mr Cowley, a director of News Limited, wrote to Mr K R Murdoch about a meeting scheduled with Mr Frank Blount, Telstra's Managing Director, making note of, inter alia -
"The position under the Broadband Co-operation Agreement, which has yet to be signed but is likely to be held legally enforceable ...."
* On 27 August 1996, Telstra's solicitors wrote to FOXTEL's solicitors noting, inter alia, that "before business commenced on 23 October 1995, correspondence was exchanged between the parties confirming their intention to proceed on the basis of the draft documentation then set out". The letter went on to note that "Telstra Multimedia ... has entered into the [BCA] with FOXTEL Management ... as agent for the FOXTEL Partnership".
* On 9 September 1996, Telstra's solicitors wrote to FOXTEL's solicitors indicating proposed changes to the July 1995 BCA as discussed at meetings held on 15 and 25 August 1996. Although the exclusive relationship clause became cl 5, its terms were, except for insignificant minor variations, identical with the provisions of the July 1995 draft.
128 In the light of these exchanges, it becomes necessary then to review the position of the parties at law and in equity at the date nominated by statute, 13 September 1996, so far as their relationship, in terms of being wholly or partially exclusive, or otherwise, was concerned.
129 The starting point for present purposes may be taken as at 23 October 1995, the date of the October letter agreement. As earlier stated, in my view, the position then was that the parties should be regarded as having committed themselves to an arrangement by which, in essence - (a) FOXTEL had exclusive access to the facility; but (b) provided the service to Subscribers did not suffer, FOXTEL could deal with Other Service Providers. As has been seen, between 23 October 1995 and 13 September 1996, there were several meetings and exchanges of correspondence between these parties. But, upon analysis, what then passed between them should not, in my opinion, be characterised as a variation or rescission of the essence of their previous commitment in this area. It is true that several proposals, mainly relating to drafting, were raised for consideration. But nowhere does any consensus emerge which could be seen as an acceptance by both sides that a variation or rescission of cl 3 should take effect. On the contrary, the exchanges proceed rather upon the assumption that the essence of the previous arrangement (cl 3) will remain in place.
130 It follows, in my view, that the respondents' contention that, as at 13 September 1996, the exclusivity arrangement pleaded by the appellants was void for uncertainty, should be rejected in the specific circumstances described. Support in principle for this conclusion as a matter of approach may be found in the general unwillingness of the courts to hold commercial agreements void for uncertainty. This is particularly true of wholly or (as here) partially performed contracts (see Elizabeth Peden, "`Co-operation' in English Contract Law" (2000) 16 Journal of Contract Law 56 at 56).
131 The relevant principles, for our purposes, were explained by Steyn LJ (as he then was) in Trentham (G Percy) Ltd v Archital Luxfer Ltd [1993] 1 Lloyd's Rep 25 (at 27):
"... [F]our matters are of importance. The first is the fact that English law generally adopts an objective theory of contract formation. That means that in practice our law generally ignores the subjective expectations and the unexpressed mental reservations of the parties. Instead the governing criterion is the reasonable expectations of honest men. And in the present case that means that the yardstick is the reasonable expectations of sensible businessmen. Secondly, it is true that the coincidence of offer and acceptance will in the vast majority of cases represent the mechanism of contract formation. It is so in the case of a contract alleged to have been made by an exchange of correspondence. But [it] is not necessarily so in the case of a contract alleged to have come into existence during and as a result of performance. See Brogden v. Metropolitan Railway, (1877) 2 A.C. 666; New Zealand Shipping Co. Ltd. V. A.M. Satterthwaite & Co. Ltd. [1974] 1 Lloyd's Rep. 534 at p. 539, col. 1; [1975] A.C. 154 at p. 167 D-E; Gibson v. Manchester City Council, [1979] UKHL 6; [1979] 1 W.L.R. 294. The third matter is the impact of the fact that the transaction is executed rather than executory. It is a consideration of the first importance on a number of levels. See British Bank for Foreign Trade Ltd. v. Novinex [1949] 1 K.B. 628, at p. 630. The fact that the transaction was performed on both sides will often make it unrealistic to argue that there was no intention to enter into legal relations. It will often make it difficult to submit that the contract is void for vagueness or uncertainty. Specifically, the fact that the transaction is executed makes it easier to imply a term resolving any uncertainty, or, alternatively, it may make it possible to treat a matter not finalised in negotiations as inessential. In this case fully executed transactions are under consideration. Clearly, similar considerations may sometimes be relevant in partly executed transactions. Fourthly, if a contract only comes into existence during and as a result of performance of the transaction it will frequently be possible to hold that the contract impliedly and retrospectively covers pre-contractual performance. See Trollope & Colls Ltd. v. Atomic Power Construction Ltd., [1963] 1 W.L.R. 333."
132 Reference should next be made to the relevant provisions of the April 1997 BCA. As earlier noted, this version, as executed, made provision for an exclusive relationship in cl 5 in terms which, in all material respects, were to the same effect as cl 3 of the July 1995 BCA. No relevant question therefore arises whether the April 1997 BCA varied or rescinded cl 3 of the 1995 document (cf. Commissioner of Taxation v Sara Lee Household & Body Care (Australia) Pty Ltd [2000] HCA 35; (2000) 74 ALJR 1094.
133 It follows, in my view, that there was vested in FOXTEL on 13 September 1996, a limited contractual right that was "protected" within the meaning of s 152AR (12), that is to say, a PCR. It does not follow, however, from my conclusion that these parties had, as at 13 September 1996, agreed upon a conditional exclusive relationship, that the provisions of s 152AR(4)(d) have any operation here. I turn to this question next.
134 The structure of s 152AR will be recalled. By s 152AR(3)(a) it is relevantly provided that an access provider (i.e. Telstra Multimedia) must, if requested to do so by a service provider (i.e. Seven and TARBS), supply an active declared service to them in order that they can provide carriage and/or content services. This obligation is, however, limited by s 152AR(4)(c) which negates the obligation that would otherwise be imposed by s 152AR(3)(a) to the extent, if any, that -
"... the imposition of [that] obligation would have ... the effect[ ] ... [of] depriving any person of a [PCR]."
135 There appears to be no authority dealing with the interpretation or construction of s 152AR(3) or (4). However, the central concept of s 152AR(4)(d) is the notion of "deprivation" of the relevant right.
136 It appears that the verb "deprive" was intended, in this context, to have its ordinary meaning rather than having any special or technical sense.
137 The New Shorter Oxford Dictionary 1993 defines the verb "deprive" relevantly as "... divest, strip, dispossess ... of a possession". The Macquarie Dictionary offers a similar meaning.
138 It is evident, from the reference to the "effect" of the supply of a service, that s 152AR(4)(d) was intended to operate broadly, and thus pick up the remoter consequences of the activity in question. (See Re Black Bolt & Nut Association of Great Britain's Agreement [1961] 2 All ER 316 at 319 - 320; cf. Stenhouse Ltd v Phillips [1974] AC 390 at 402 - 403.) But s 152AR(4)(d) can only apply if the operation of such effects was to deprive a person of the contractual right.
139 Would the supply by Telstra to a service provider other than FOXTEL of the services contemplated by s 152AR(3)(a) necessarily have the effect of depriving FOXTEL of its PCR? In my opinion, it would not, notwithstanding that it may diminish to some extent the scope of FOXTEL's capacity to bargain with a party seeking access.
140 That is to say, in my opinion, since cl 3(1)(d) of the July 1995 BCA already contemplated that FOXTEL might, in certain circumstances, deal with another service provider, the parties to the BCA had, in effect, allowed for the introduction and implementation of the access regime provided by Part XIC. Hence, it is difficult to argue that its introduction and implementation would have the effect of depriving FOXTEL of a PCR, when that contingency was, in reality, already catered for by cl 3(1)(d) itself. The provision for arbitration under Part XIC must be borne in mind in this connection. Its operation would mean, in practice, that any other service provider requesting access from Telstra would do so in the knowledge that, in default of agreement with Telstra, arbitration would be available to resolve any dispute. That service provider's only commercial alternative would be to seek to deal with FOXTEL, but against the background of the provision for statutory arbitration. In the result, it seems that the only real impact of Part XIC upon FOXTEL's position as at 13 September 1996 would be a risk of the loss of some opportunity of bargaining position vis-à-vis another service provider. Yet, given the statutory scheme for arbitration if Telstra Multimedia supplied services upon request, FOXTEL's potential loss of bargaining power seems more theoretical than real. In any event, what is protected by s 152AR(4)(d) is the deprivation (i.e. the divesting) of a contractual right, not the diminution of a bargaining position. It is true that s 152AR(4)(d) proscribes the deprivation of a PCR even if the deprivation is not direct; that is, even a deprivation of the right which occurs indirectly, by a remote cause, will not be permitted. But the subject matter of protection remains the divesting of the right itself, not any loss or diminution of economic opportunity.
141 Under cl 3 of the July 1995 BCA, Telstra and FOXTEL had agreed that FOXTEL would have exclusive access, but upon the condition that, in certain circumstances, FOXTEL might provide or manage the provision of Services for another service provider. This would occur in pursuance of the objects of their joint venture, and it is difficult to accept that the mere grant of access to another provider by Telstra amounts to the deprivation of FOXTEL's rights under cl 3, whatever the bargaining implications might be for FOXTEL. It is significant in this connection (1) that in making their requests for access both Seven and TARBS accept that FOXTEL could manage the provision of their services; and (2) that there was no finding, or evidence, that the grant of access, sought would detrimentally affect the satisfactory supply of services to FOXTEL Subscribers; in other words, the requests for access could be granted without prejudice to the operation of cl 3 of the July 1995 BCA, and in particular, the proviso to cl 3(1)(d).
142 For completeness, one further aspect of the matter should be mentioned. I have concentrated upon the exclusivity element as being, in my view, the relevant issue. On behalf of Seven and TARBS, reference was made to the circumstance that the parties' representatives were also discussing other aspects of their relationship, e.g. the subject of dual capability. It was said that this was further evidence of uncertainty. But, in my opinion, these discussions do not, for several reasons, bear upon the present question, that is whether FOXTEL held a PCR in respect of the exclusivity of its access to the network.
143 In the first place, it is open to parties to be taken as bound by an informal agreement on the main matters, expecting to make a further contract which, by consent, might contain additional terms (see Sinclair, Scott & Co. Ltd v Naughton [1929] HCA 34; (1929) 43 CLR 310 at 317; G R Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631 at 635 - 636).
144 In the second place, it is a matter for the judgment of the parties themselves to determine what are, or are not, the essential terms (see Pagnan S.p.A. v Feed Products Ltd (1987) 2 Lloyd's Rep 601 at 619). In the present case, the parties did not regard the other "issues" for discussion as essential for their working relationship, since they had been conducting their joint venture operation since 23 October 1995; and there is nothing in their exchanges that the recording of the detail of their agreement on those other matters was necessary before the joint venture could (a) commence and (b) continue, operation; in other words, no sense of urgency in this area surfaced; nor was there technical expert evidence that the conduct of the business operations of the joint venture was not practicable unless and until the parties reached and recorded their agreement on all details of the remaining "issues".
145 Moreover, the comments made about the exclusivity provision, in terms of the need to ascertain whether the parties had, in fact, agreed in essence upon a provision (i.e. "substantially" agreed) are equally applicable in principle to these other "issues". But, in the circumstances, I have not found it necessary to undertake an analysis of the detail of these other "issues".
146 Put differently, unless and until one knows the terms, agreed or arbitrated, upon which a statutory carrier does in fact grant access to an access seeker, it is not possible to say whether the grant of access upon those terms will have the effect of divesting FOXTEL of its rights under cl 3 of the July 95 BCA. This is especially so, given FOXTEL's right, under cl 3(1)(d), to deal with an access seeker, provided this does not prejudice its service to its subscribers. At the moment, any such prejudice is hypothetical only. In other words, as things stand, it cannot be said that the mere grant of statutory access will necessarily have the effect of divesting FOXTEL of its right under cl 3. It is possible that future dealings could have this effect, although the existence of statutory arbitration scheme and of Telstra's fiduciary obligations under the joint venture arrangements, suggest that this is unlikely. In short, to understand the effects of the grant of statutory access, one needs to know all the surrounding circumstances at the time of the grant. Without that knowledge, one can only speculate. Without the benefit of that knowledge, I am not persuaded that the mere grant of access would, of itself necessarily deprive FOXTEL of its rights under cl 3.
147 It must be said that there are novel aspects to the present statutory scheme which make it difficult to apply in some respects. Cases such as Stenhouse, above, demonstrate that it is legitimate to have regard to the practical effect of a contractual provision in determining whether it is, in truth, a restraint. Here, however, the position is the converse. The present question is whether some other activity (the grant of access) has the effect of taking away absolutely a contractual right. As a matter of jurisprudential analysis, a chose in action in the form of a contractual right may be extinguished by statute in a number of ways (cf. Georgiadis v Australia & Overseas Telecommunications Corporation [1994] HCA 6; (1993-1994) 179 CLR 297 at 304 - 305). Yet, where the divesting is not direct but, rather, depends upon "effects", a broad and complicated inquiry is inevitably opened up, and questions of degree, often of an economic or commercial kind, arise which are difficult to apply precisely. This approach is comparable to the distinction, also difficult to apply, drawn in a constitutional context between "regulation" on the one hand, and "taking" on the other (cf. Belfast Corporation v O D Cars Ltd [1960] AC 490 at 519, 523 - 525; Trade Practices Commission v Tooth & Co Ltd [1979] HCA 47; (1979) 142 CLR 397 at 428).
148 In summary then, whilst I accept that FOXTEL had a PCR under cl 3 as at 13 September 1996 under its joint venture arrangements, I cannot accept that the bare supply by Telstra to another service provider of services (which FOXTEL was itself at liberty to supply under the joint venture in certain circumstances) would necessarily have the relevant effect of depriving FOXTEL of its PCR. On the contrary, this (i.e. the supply by FOXTEL as joint venturer) was an event which, albeit only in particular circumstances, was contemplated by the joint venture arrangement itself. It is important to bear in mind that the contractual right in question was created between joint venturers which have an ongoing commercial relationship. The commercial realities (i.e. the "effects") must be viewed in that context. If an absolutely exclusive contractual right had been vested by the carrier in a third party at arms' length, that is, a party which shared no common business interests with the carrier, the position may well have been different.
149 I propose therefore, for reasons which differ somewhat from those of the primary Judge, that the appeals ought to be dismissed, with costs.
I certify that the preceding one hundred and forty-nine (149) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Beaumont. |
Associate:
Dated: 18 August 2000
IN THE FEDERAL COURT OF AUSTRALIA |
|
NEW SOUTH WALES DISTRICT REGISTRY |
N 309 of 2000 |
BETWEEN: |
FOXTEL MANAGEMENT PTY LIMITED First Appellant SKY CABLE PTY LIMITED Second Appellant THE NEWS CORPORATION LIMITED Third Appellant NEWS LIMITED Fourth Appellant |
AND: |
SEVEN CABLE TELEVISION PTY LIMITED First Respondent TELEVISION AND RADIO BROADCASTING SERVICES AUSTRALIA PTY LIMITED Second Respondent AUSTRALIAN COMPETITION & CONSUMER COMMISSION Third Respondent TELSTRA CORPORATION LIMITED Fourth Respondent TELSTRA MULTIMEDIA PTY LIMITED Fifth Respondent TELSTRA MEDIA PTY LIMITED Sixth Respondent |
|
|
N 324 of 2000 |
BETWEEN: |
TELSTRA CORPORATION LIMITED First Appellant TELSTRA MULTIMEDIA PTY LIMITED Second Appellant TELSTRA MEDIA PTY LIMITED Third Appellant |
AND: |
SEVEN CABLE TELEVISION PTY LIMITED First Respondent TELEVISION AND RADIO BROADCASTING SERVICES AUSTRALIA PTY LIMITED Second Respondent AUSTRALIAN COMPETITION & CONSUMER COMMISSION Third Respondent FOXTEL MANAGEMENT PTY LIMITED Fourth Respondent SKY CABLE PTY LIMITED Fifth Respondent THE NEWS CORPORATION LIMITED Sixth Respondent NEWS LIMITED Seventh Respondent |
JUDGE: |
BEAUMONT, MOORE & GYLES JJ |
DATE: |
18 AUGUST 2000 |
PLACE: |
SYDNEY |
MOORE J:
150 I have had the benefit of reading the reasons for judgment of Beaumont J in a draft form. I gratefully adopt his Honour's account of the circumstances leading to these appeals and the legislative framework in which the issues must be decided. I adopt, in these reasons, the abbreviations and acronyms used by his Honour. The appeals can, in my opinion, be resolved on a fairly narrow footing having regard to the way the appeals were argued by the parties.
151 The rights to which these proceedings relate, as formulated by the Telstra and FOXTEL parties , are as follows (as they are now relevant to these appeals):
TELSTRA(a) FOXTEL and the FOXTEL Television Partnership together have a right to prevent Telstra Multimedia from using or permitting the use of the facilities controlled by Telstra Multimedia to deliver a subscription television service provided by an other service provider as defined in the [July 1995] BCA, which was a right arising under a contract that was in force at the beginning of 13 September 1996.
(b) Pursuant to the letter agreement [October letter agreement] and clause 3.2 of the BCA, FOXTEL has the exclusive right to provide or manage the provision of Services delivered to Subscribers through the use of the broadband system service and utilise or otherwise exploit the functions comprised in the entire broadband system only for that purpose, and Telstra Multimedia agrees not to use or permit the use of facilities controlled by Telstra Multimedia for the delivery of services by any other Service provider.
(c) Pursuant to the letter agreement and clause 3.10 of the BCA, unless otherwise required by Law and permitted by both technological developments and network system reconfiguration, Telstra Multimedia may not provide a broadband system service, utilising STU Functionality, to deliver a service which is not a Service unless the broadband system service includes a conditional access function and a subscriber database function equivalent to the conditional access function and the subscriber database function, as defined.
FOXTEL
1. The right to prevent Telstra Multimedia from using, or permitting use of its broadband telecommunications network to deliver a subscription television service which is not provided by FOXTEL or the provision of which is not managed by FOXTEL (by virtue of its having entered into an agreement with a third party to do so) except where Telstra Multimedia is required by law to so use or permit the use of that network.
2. The right to prevent Telstra Multimedia from providing any broadband system service utilising set top functionality to deliver a service, other than one which delivers to a person in a private residential dwelling either a video program on a television or an audio program via a set top unit, unless that service includes conditional access and subscriber database function equivalent to those functions currently provided by Telstra Multimedia to FOXTEL.
152 The protection afforded by s 152AR(4)(d) of the TPA arises if several conditions are met. One is that the protected right is under a contract that was in force at the beginning of 13 September 1996. In their pleadings in the cross-claims, seeking positive declarations, both FOXTEL Management and Sky Cable, and Telstra, Telstra Media Pty Ltd and Telstra Multimedia asserted that the relevant contract existing at 13 September 1996 (and the rights arising under it) arose from a letter dated 23 October 1995 (incorporating the July 1995 BCA and arguably the intervening correspondence and negotiations) and a meeting on 11 September 1996. No reliance was placed in the appeals on the meeting as the source of the contractual right (independently of the letter of 23 October 1995) and, it appears, no reliance was ultimately placed on the meeting before the primary judge. The cross-claim of the Telstra interests also relied on the 1995 Umbrella Agreement as a source of the protected contractual right. However the submissions of the Telstra interests in the appeals focused only on the 23 October letter and that which it incorporated. This is not surprising. The Umbrella Agreement, although an important part of the legal and commercial background, was between the principals, not the relevant parties for present purposes. The defences of these parties to the application by Seven for a positive declaration raised, expressly or impliedly, the matters they relied on in the cross-claims. Accordingly, the cases of the appellants arising both on the pleadings and the submissions in the appeals, are based on the provisions of the July 1995 BCA, incorporated into the contract arising from the 23 October letter, which are said to create exclusivity arrangements between the parties.
153 While a central legal issue in the appeals is whether any of the appellants had a "protected contractual right" as defined in s 152AR(12), the existence of any such right depends on a contract having arisen from the letter of 23 October 1995 and on the asserted rights concerning exclusivity arising under that contract.
154 The concluding paragraph of the letter, which referred to "agree[ment] to the terms contained in this letter", when read with the contents of the letter as a whole and the terms of the July 1995 BCA, may sustain a conclusion that the parties intended, by the letter, to create legally binding obligations. It may also be that terms sufficient to constitute a contract can be gleaned both from the letter and the July 1995 BCA. However the critical question is whether, even if this is so, one of the terms was clause 3 of the draft BCA. It was submitted by Seven and TARBS that no agreement was reached between the parties about clause 3 and whatever may have been the subject of agreement, it did not include the exclusivity arrangements in that clause. To test this proposition it is necessary to consider the terms of the July 1995 BCA and the negotiations and discussions between the time the draft BCA was created and the signing of the letter of 23 October 1995.
155 The July 1995 BCA was a draft agreement between what became Telstra Multimedia (on behalf of Broadbandco - then a proposed partnership [but later a company] between a wholly-owned subsidiary of Telstra and a partnership between another subsidiary of Telstra and a subsidiary of News) and FOXTEL Management (on behalf of FOXTEL being the partnership between Telstra Media and Sky Cable) and, as a third party, News. Clause 3 of the July 1995 BCA contained, in summary, the following features (it is convenient to treat the company Telstra Multimedia as a named party [in lieu of Broadbandco] in the draft agreement - as did the parties in these appeals):
* an acknowledgment that Telstra Multimedia and FOXTEL had decided to establish their businesses on the basis of a business plan of the type referred to in the Umbrella Agreement of March 1995.
* a declaration that the plan depended on FOXTEL having an exclusive entitlement to provide or manage the provision of services (defined in the Umbrella Agreement as delivery to a residential subscriber of either a video program on a television or an audio program via a set top unit) to subscribers (defined in the July 1995 BCA [when read with the Umbrella Agreement] as a person who has subscribed for a stream of signals to be delivered to a private residential dwelling).
* an acknowledgment that the exclusive entitlement enabled FOXTEL to do so in a way that affected forecast revenue.
* a declaration that FOXTEL intended to offer to provide and manage services of other service providers. Of some significance is a notation in the draft document that the language of this provision had to be checked with a lawyer representing News.
* a declaration that Telstra Multimedia could use, in effect, its cable network for the delivery of services other than defined services.
* a term that gave FOXTEL an exclusive right to provide or manage the provision of services as defined.
* a term prohibiting Telstra Multimedia from allowing, in effect, its cable network to be used by others to provide services as defined.
* a term which effectively authorised FOXTEL to satisfy any legal requirement imposed on Telstra Multimedia to permit others to use, in effect, its cable network though subject to a right in Telstra Multimedia to permit others to use the network if FOXTEL has not satisfied the requirement in a timely manner.
* terms creating mutual obligations to inform about any claim to use, in effect, Telstra Multimedia's cable network.
156 After the July 1995 BCA came into existence (as a draft agreement), discussions continued between the parties about its terms. In a letter dated 15 August 1995, a solicitor from the firm retained by the Telstra interests wrote to its clients, the FOXTEL interests and their solicitors, setting out matters that needed further discussion. One matter covered by the draft agreement which needed to be discussed was described as:
"Clause 3. This clause needs to be reviewed and discussed in the light of the policy principles for reform of the Telecommunications Act endorsed by cabinet on 31 July 1995. In addition, for the purposes of the Ministerial Direction and the recent amendments to the Trade Practices Act, the capacity in which FOXTEL exercises its rights under clause 3 needs to be considered."
157 The policy principles referred to in the letter were announced by the Minister for Communications and the Arts on 1 August 1995. A fundamental feature of the policy was that in due course access to existing networks would be made available to all service providers.
158 On 24 August 1995 a meeting took place between the relevant parties. An agenda for the meeting prepared by Ms Judy Slatyer, representing Telstra interests, identified the "1997 impact (clause 3)" as an outstanding issue from the perspective of Telstra that needed to be addressed, or for which, at a minimum, principles had to be agreed to be incorporated in the agreement to replace the draft BCA. In an e-mail dated 28 August 1995, Ms Slatyer said:
"... we (News & Telstra) agreed last week that given the uncertainty we should include an additional point in clause 3 that the parties will review and renegotiate the entire clause 3 in good faith once the 1997 arrangements are clearer. The caveat was that the parties would use best endeavours to keep similar commercial principles. I think given the uncertainty that is the best we can do"
159 This e-mail was in response to a query about the protection afforded, it can be inferred, by the Ministerial Direction for bundled services not previously separately supplied. Ms Slatyer was being asked whether the obligation not to unbundle under the BCA should be similarly limited, viz. limited to services not previously separately supplied. This e-mail was relied on by Telstra in this appeal as demonstrating agreement concerning clause 3 prior to the letter of 23 October 1995. However not only does this not manifest unqualified agreement, subsequent discussions between the parties illustrate the proposed exclusivity arrangements remained unsettled.
160 It may be accepted that in correspondence between the parties on 20 September, 22 September and 17 October 1995 discussing matters in issue, no mention was made of clause 3 or exclusivity as outstanding issues. However a further draft BCA was forwarded to the Telstra interests in a letter from their solicitors dated 20 October 1995. The letter stated that the "draft attempt[ed] to address the key issues agreed on Wednesday". One of the key issues identified in the letter was "Other Service Providers". It is apparent from notes in evidence which were created at this time (15 to 20 October 1995) that there was an issue about whether Telstra should have a veto in relation to other service providers. In the draft BCA enclosed with the the letter of 20 October 1995 there are a series of notations following several of the sub-clauses in clause 3 which are "comments on various of News' and Australis' questions, comments and requests for changes" (that is the expression used in the letter from the solicitors). We were not taken to any documentary or oral evidence which disclosed whether, and on what basis, these matters were settled before 23 October 1995, all of which was within the knowledge and control of the Telstra and FOXTEL interests.
161 In further drafts of the BCA circulated on 6 and 9 November 1995 further changes were proposed to clause 3 (which by then had become clause 7). In a note of a meeting held on 9 November 1995, the topic of "Exclusivity" is listed under a heading "Major Commercial Issues" and in a specific note under the "Exclusivity" sub-heading it is recorded that Ms Slatyer said or indicated: "don't want T involved in [probably the word "pay"] TV". Plainly the reference to "T" is a reference to Telstra.
162 This background is important when considering whether the exclusivity provisions of the July 1995 BCA were agreed to by the letter of 23 October 1995. The critical part of that letter read:
"Interim ArrangementsPending completion of the Australis merger, Telstra Multimedia will provide the Broadband System Service to FOXTEL Management on a monthly basis substantially on the terms of the draft Broadband Cooperation Agreement dated 12 July 1995, as supplemented by correspondence and negotiations between us ("BCA")."
163 It is clear that this reference to the July 1995 BCA is qualified in three material respects. First, the July 1995 BCA is identified as (at least potentially) the source of rights and obligations concerning the provision of the broadband service by Telstra Multimedia. Secondly, the provision of that service was to be "substantially" on the terms of the July 1995 BCA. Thirdly, the adoption of the terms of the July 1995 BCA was subject to the proviso concerning the supplementation of the draft agreement by correspondence and negotiations. The acronym "BCA" was adopted in the letter as a description of the July 1995 BCA but as it had been supplemented in the way described in the last sentence.
164 The substance of the exclusivity provisions in clause 3 of the July 1995 BCA were directed not to the provision of the broadband service to FOXTEL Management in any direct or immediate sense, but rather to the use Telstra Multimedia might otherwise make of the broadband service. However other provisions in the July 1995 BCA were concerned, both in positive terms and in a direct way, with the provision of the broadband service by Telstra Multimedia. An obvious example of such a provision was clause 5 of the July 1995 BCA, "BROADBAND SYSTEM SERVICE", which dealt with the manner in which and terms on which Telstra Multimedia (then described as Broadbandco) was to supply the broadband service. It dealt with matters such as signal quality and transmission reliability, inspection and testing of facilities and the number of channels to be provided. Other clauses such as clause 4, "SPECIFICATION OF CONDITIONAL ACCESS FUNCTION AND TECHNOLOGY CHOICE", clause 8, "REVENUE SHARING" and clause 10, "INSTALLATION, MAINTENANCE AND RECONNECTIONS" were also concerned, in a positive and direct way, with the provision of the broadband service. Having regard to the way these appeals were argued, it is unnecessary to determine which (if any) of these clauses were intended to apply and the extent to which they may have been modified by negotiations and correspondence. It is sufficient to point to them as clauses comparatively clearly comprehended by the extract from the letter of 23 October 1995 (set out in par 13 above) and also as clauses different in character to clause 3 which was essentially negative in its effect. That is, it restrained Telstra Multimedia from utilising the broadband service in a way that would deprive FOXTEL of an exclusive right to provide and/or manage the services to subscribers.
165 The use of the word "substantially" in the quoted extract from the letter, together with the proviso concerning supplementation by correspondence and negotiations, point to a qualified adoption of the July 1995 BCA. That word and the proviso appear to contemplate that some terms in the draft document, the July 1995 BCA, were not to regulate, from month to month, the relationship between the parties. Moreover the proviso contemplated the modification of the proposed terms in the draft document by subsequent correspondence or negotiations (if not earlier correspondence and negotiations as well). It is consistent with the language used and the apparent intention of the parties that if there remained substantial disagreement about, or at least unresolved issues concerning, the subject matter of a particular provision then that provision was not intended to apply, on a monthly basis, to the provision by Telstra Multimedia of the broadband service. This is reinforced by other parts of the letter including the sentence indicating that the "arrangements" set out in the letter would terminate with the Australis merger and another sentence indicating that if a merger did not go ahead, Telstra Multimedia or FOXTEL Management could require the other to enter into a "long form Broadband Cooperation Agreement" which was "substantially in the terms of the BCA". What the parties appear to have had in mind with this last provision is that the July 1995 BCA, as modified by, and viewed in the context of, subsequent correspondence and negotiations would become the framework for negotiations for an agreement which would operate in the longer term.
166 In my opinion, the exclusivity provisions were, at 23 October 1995, still unresolved and were the subject of ongoing discussions. No oral evidence was called to establish that the picture emerging from the documents was any clearer or more resolved than the documents themselves suggest. Counsel for the Telstra interests accepted that they had the evidentiary burden of proving the existence of the asserted rights. They have not, in my opinion, done so. In addition, the exclusivity provisions did not concern, in a direct and immediate way, the actual provision of the broadband service by Telstra Multimedia. It may be doubted, in my opinion, that even if the exclusivity provisions had been settled by 23 October 1995, the parties intended by their letter to create, at that time, legally enforceable rights concerning exclusivity. I am not satisfied that the exclusivity provisions became, by the letter of 23 October 1995, a term of any contract between Telstra Multimedia and FOXTEL Management conferring rights of exclusivity of the type relied upon by the appellants. Accordingly I am not satisfied that any protected right arose in the way contended for by the appellants.
167 The appeals should be dismissed with costs.
I certify that the preceding eighteen (18) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Moore. |
Associate:
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY |
N 309 of 2000 |
BETWEEN: |
FOXTEL MANAGEMENT PTY LIMITED First Applicant SKY CABLE PTY LIMITED Second Applicant THE NEWS CORPORATION LIMITED Third Applicant NEWS LIMITED Fourth Applicant |
AND: |
SEVEN CABLE TELEVISION PTY LIMITED First Respondent TELEVISION AND RADIO BROADCASTING SERVICES AUSTRALIA PTY LIMITED Second Respondent AUSTRALIAN COMPETITION & CONSUMER COMMISSION Third Respondent TELSTRA CORPORATION LIMITED Fourth Respondent TELSTRA MULTIMEDIA PTY LIMITED Fifth Respondent TELSTRA MEDIA PTY LIMITED Sixth Respondent |
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N 324 OF 2000 |
BETWEEN: |
TELSTRA CORPORATION LIMITED First Applicant TELSTRA MULTIMEDIA PTY LIMITED Second Applicant TELSTRA MEDIA PTY LIMITED Third Applicant |
AND: |
SEVEN CABLE TELEVISION PTY LIMITED First Respondent TELEVISION AND RADIO BROADCASTING SERVICES AUSTRALIA PTY LIMITED Second Respondent AUSTRALIAN COMPETITION & CONSUMER COMMISSION Third Respondent FOXTEL MANAGEMENT PTY LIMITED Fourth Respondent SKY CABLE PTY LIMITED Fifth Respondent THE NEWS CORPORATION LIMITED Sixth Respondent NEWS LIMITED Seventh Respondent |
JUDGE: |
BEAUMONT, MOORE & GYLES JJ |
DATE: |
18 AUGUST 2000 |
PLACE: |
SYDNEY |
GYLES J:
168 I have had the advantage of reading the judgment of Beaumont J in draft. His Honour's lucid explanation of the facts and the issues, and the fact that the judgment below is now reported ((2000)171 ALR 89), relieve me of the necessity of setting these out for myself.
169 I have also had the advantage of reading the judgment of Moore J in draft and agree with the substance of it. I also agree with the similar approach and conclusions by Tamberlin J (see particularly pars 101-124) subject to one qualification, relating to the interim period pending completion (or abandonment) of the Australis merger, to which I return later. As I am differing from the opinion of Beaumont J on an important aspect of the matter, I should add some remarks of my own.
170 It is clear, in my opinion, that the case made by each of FOXTEL and Telstra below, and on appeal, was founded upon the 23 October 1995 letter. The evident purpose of that letter was to deal with interim arrangements pending completion of the Australis merger. That is what the letter says, and it closely followed upon the 18 October 1995 heads of agreement involving Australis to which the letter refers. The only part of the letter which deals with the failure of the Australis merger especially provides that, in that event, "either Telstra Multimedia or FOXTEL Management may require the other to enter into a long form Broadband Co-operation Agreement, substantially in the terms of the BCA". If there are any relevant contractual rights created, it is by that clause. Even if it does have contractual effect, it is not as the substantive agreement which itself governs the rights of the parties as to the operation of the venture. It would create a right to have such an agreement entered into. If it fell to be enforced, it would be enforced by an order for specific performance directing the parties to enter into the actual substantive agreement. In point of fact, the parties did not enter into any such substantive agreement prior to the relevant statutory date. I have considerable difficulty in grasping how a right to specific performance of this kind could be seen as a "protected contractual right", within the meaning of the statute, of which FOXTEL would be deprived.
171 Whether that be so or not, in my opinion, specific performance could not have been obtained of the relevant clause of the 23 October letter because of uncertainty. Put another way, to say that a further agreement would be entered into "substantially in the terms of" an earlier agreement necessarily involves the proposition that the later agreement will not be, or will not necessarily be, in the terms of the former agreement. In simple language, this means that further agreement is required between the parties. There is no formula or other machinery provided to make a default selection. There is no provision here, for example, for a third party to settle any dispute or difference, or for one of the parties to have the final say. There is no objective yardstick which could be applied by a Court; see Seddon and Ellinghaus, Cheshire & Fifoot's Law of Contract, 7th Aust ed, 1997, pars [6.8]-[6.11]; Carter and Harland, Contract Law in Australia, 3rd ed, 1995, pars [261] and [262].
172 Furthermore, this clause, in my opinion, necessarily involved the parties intending to enter into one complete and comprehensive written agreement if the Australis merger did not proceed. It does not contemplate a two-stage process whereby somebody selects those provisions of the draft which are taken to be agreed and those which are not, leaving the parties to be bound by that selection no matter what happens about the other matters. As I have pointed out, the letter draws a clear distinction between interim arrangements pending completion of the Australis agreement merger on the one hand, and what should happen if the merger is not completed, on the other. In my opinion, the express terms of the letter place the situation in the third class in Masters v Cameron [1954] HCA 72; (1954) 91 CLR 353 (at 360). See also Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540, particularly at 548-9.
173 It is to be borne in mind that this was a novel joint venture in a new field for Australia. The Telstra and Optus cables were new developments, opening up a new form of communication. Telstra, in particular, had no experience in matters other than telephony, and then not telephony via cable. Apart from the complex technical and commercial issues to be worked through, the regulatory regime was also changing in ways which could not be safely predicted and which, in any event, were new. The parties could not afford to bind themselves in a manner inconsistent with that regime. The fact that it took from the March 1995 Umbrella Agreement until April 1997 to enter into a comprehensive agreement illustrates the point. The July 1995 BCA was the fifth version to that time, and the subsequent negotiations, which are sketched in the judgments to which I have referred and which appear in much greater detail in the evidence in the case, involved a great number of issues, many of which can be seen to be significant.
174 The parties did not need broad generalities agreed, partial agreements or implied agreements to negotiate in good faith. The Umbrella Agreement between the principals served that purpose. The existence of the Umbrella Agreement was why, in a sense, the actual parties to the BCA could take the time to get the detail right once and for all. In the meantime, the Umbrella Agreement remained in place, requiring (amongst other things) continuing negotiation towards the BCA, although it, of course, could not give rise to any "protected contractual right" as the parties to it (although the principals) are not the parties claiming the relevant contractual right.
175 The difficulty of obtaining specific performance would be compounded if the 23 October letter is construed so that the "BCA" there referred to includes correspondence and negotiations between 12 July and 23 October. The better view is that "BCA" should be so understood. That is the ordinary meaning of the language used. No evidence was called to establish any different understanding. It is not irrational, indeed it represents a sensible position. As Moore J has demonstrated, even focusing upon exclusivity during that period reveals the issues which existed at the time of the 23 October letter. Whilst it is convenient to concentrate upon that aspect, it was only one of many requiring settlement before a comprehensive agreement could be entered into. It is worth observing in this connection that all the facts relating to those negotiations lie in the hands of the Telstra and FOXTEL parties. They have chosen to satisfy that onus by the tender of documents, many of which are by no means self-explanatory, rather than, for example, calling evidence as to what happened at the relevant meetings. It is no answer to say that the July 1995 BCA was clear as to exclusivity. That was a draft agreement, not an agreement. That clause was one amongst many. As Moore J demonstrates, there are clauses, other than cl 3, which impinge upon exclusivity. Given the obligation to enter into a document substantially in accordance with that draft (even if not supplemented by correspondence and negotiations), who could say what the final form of clauses relating to exclusivity might be in a later comprehensive agreement?
176 I should mention the qualification which may need to be made in relation to the primary decision if it is to be construed as finding that no contractual relations at all arose out of the 23 October letter. I would by no means rule out the possibility that the letter did create binding obligations in relation to the interim period. During that period it was contemplated that the parties would actually be conducting business involving substantial revenue and expenditure. In those circumstances, there would be a strong imperative to spell out an agreement sufficient to cope with matters essential to that undertaking for the time being. In this connection, there would be no doubt that the post-July correspondence and negotiations would be relevant. It is not necessary to pursue this issue. The interim period ended long before 13 September 1996. Furthermore, I agree with Moore J that exclusivity was well and truly "up in the air" on 23 October 1995. In addition to creating the problem of uncertainty, this would strongly indicate that agreement on this matter was not essential to enable business to be done in the interim.
177 It is also possible that some obligation to bargain in good faith could be implied from the 23 October letter. This was not pleaded, and, in any event, would not produce a "protected contractual right" susceptible to deprivation by the affording of access as sought.
178 If, contrary to my view, it could be taken that cl 3 of the July 1995 BCA spelled out substantive contractual rights between the parties as at 13 September 1996, then I agree with Beaumont J that it has not been shown that FOXTEL would be deprived of any relevant "protected contractual right" by the granting of access pursuant to a statutory obligation.
179 These conclusions render it unnecessary to consider the points of contention raised by Seven. It should not be assumed, however, that there is not substance in those arguments. For example, I have doubts as to whether the legislature had in contemplation this kind of joint venture agreement when formulating the concept of "protected contractual right".
180 I would dismiss the appeals with costs.
I certify that the preceding thirteen (13) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gyles. |
Associate:
Dated: 18 August 2000
Counsel for Seven Cable Television Pty Ltd: |
Mr RJ Ellicott QC Mr CA Moore |
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Solicitor for the Seven Cable Television Pty Ltd: |
Freehill Hollingdale & Page |
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Counsel for Telstra Corporation Limited, Telstra Multimedia Pty Limited, Telstra Media Pty Limited |
Mr TF Bathurst QC Mr MA Pembroke SC Mr JE Griffiths |
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Solicitor for Telstra Corporation Limited, Telstra Multimedia Pty Limited, Telstra Media Pty Limited |
Mallesons Stephen Jaques |
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Counsel for Foxtel Management Pty Limited and Foxtel Cable Television Pty Limited and Sky Cable Pty Limited |
Mr AJ Meagher SC Mr MC Dicker |
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Solicitors for Foxtel Management Pty Limited and Foxtel Cable Television Pty Limited and Sky Cable Pty Limited |
Allen Allen & Hemsley |
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Counsel for Television & Radio Broadcasting Australia Pty Limited |
Mr N Cotman SC |
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Solicitor for Television & Radio Broadcasting Australia Pty Limited |
Peter Cornelius & Partners |
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Counsel for the ACCC: |
Mr N J Williams |
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Solicitor for the ACCC: |
Australian Government Solicitor |
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Date of Hearing: |
1, 2, 5 and 6 June 2000 |
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Date of Judgment: |
18 August 2000 |
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URL: http://www.austlii.edu.au/au/cases/cth/FCA/2000/1159.html