C7 Pty Ltd v Foxtel Management Pty Ltd [2002] FCA 1189 (25 September 2002)

Last Updated: 25 September 2002

FEDERAL COURT OF AUSTRALIA

C7 Pty Ltd v Foxtel Management Pty Ltd

[2002] FCA 1189

PRACTICE AND PROCEDURE - discovery and interrogatories - preliminary discovery - to whom confidential business documents should be disclosed - balancing of interests

Federal Court Rules O 15A

Warner-Lambert Co v Glaxo Laboratories Ltd [1975] RPC 354 cited

Mobil Oil Australia Ltd v Guina Developments Pty Ltd [1996] 2 VR 34 referred to

McKay Sugar Cooperative Association Ltd v CSR Ltd (1996) 63 FCR 408 referred to

Hadid v Lenfest Communications Inc (1996) 70 FCR 403 referred to

Idoport v National Australia Bank [1999] NSWSC 686 referred to

Telstra Corporation v Australis Media Holdings (unreported, Supreme Court of NSW, McLelland CJ in Eq, BC9606185, 6 Dec 1996) referred to

Macquarie Generation v Coal & Allied Industries Ltd [2001] FCA 1349 referred to

Smithkline Beecham plc v Alphapharm Pty Ltd [2001] FCA 261 referred to

Smithkline Beecham plc v Alphapharm Pty Ltd [2001] FCA 189 referred to

C7 PTY LIMITED v FOXTEL MANAGEMENT PTY LIMITED, SPORTS INVESTMENTS AUSTRALIA PTY LIMITED, NEWS LIMITED, SKY CABLE PTY LIMITED, TELSTRA MEDIA PTY LIMITED, TELSTRA MULTIMEDIA PTY LIMITED, TELSTRA CORPORATION LIMITED, PUBLISHING AND BROADCASTING LIMITED, AUSTRALIAN FOOTBALL LEAGUE AND NATIONAL RUGBY LEAGUE LIMITED

N1077 OF 2002

GYLES J

SYDNEY

25 SEPTEMBER 2002

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N1077 OF 2002
BETWEEN:	C7 PTY LIMITED FIRST APPLICANT SEVEN NETWORK LIMITED SECOND APPLICANT
AND:	FOXTEL MANAGEMENT PTY LIMITED FIRST RESPONDENT SPORTS INVESTMENTS AUSTRALIA PTY LIMITED SECOND RESPONDENT NEWS LIMITED THIRD RESPONDENT SKY CABLE PTY LIMITED FOURTH RESPONDENT TELSTRA MEDIA PTY LIMITED FIFTH RESPONDENT TELSTRA MULTIMEDIA PTY LIMITED SIXTH RESPONDENT TELSTRA CORPORATION LIMITED SEVENTH RESPONDENT PUBLISHING AND BROADCASTING LIMITED EIGHTH RESPONDENT AUSTRALIAN FOOTBALL LEAGUE NINTH RESPONDENT NATIONAL RUGBY LEAGUE LIMITED TENTH RESPONDENT
JUDGE:	GYLES J
DATE OF ORDER:	25 SEPTEMBER 2002
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

The proceeding stand over to allow the applicants to bring in short minutes of order to give effect to these reasons.

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

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N1077 OF 2002

BETWEEN:

C7 PTY LIMITED FIRST APPLICANT SEVEN NETWORK LIMITED SECOND APPLICANT

AND:

FOXTEL MANAGEMENT PTY LIMITED FIRST RESPONDENT SPORTS INVESTMENTS AUSTRALIA PTY LIMITED SECOND RESPONDENT NEWS LIMITED THIRD RESPONDENT SKY CABLE PTY LIMITED FOURTH RESPONDENT TELSTRA MEDIA PTY LIMITED FIFTH RESPONDENT TELSTRA MULTIMEDIA PTY LIMITED SIXTH RESPONDENT TELSTRA CORPORATION LIMITED SEVENTH RESPONDENT PUBLISHING AND BROADCASTING LIMITED EIGHTH RESPONDENT AUSTRALIAN FOOTBALL LEAGUE NINTH RESPONDENT NATIONAL RUGBY LEAGUE LIMITED TENTH RESPONDENT

JUDGE:	GYLES J
DATE:	25 SEPTEMBER 2002
PLACE:	SYDNEY

REASONS FOR JUDGMENT

1 On 21 December 2001 I delivered judgment on an application for an order for preliminary discovery pursuant to O 15A of the Federal Court Rules (C7 Pty Ltd v Foxtel Management Pty Ltd [2001] FCA 1864). Orders to give effect to that judgment were made on 4 February 2002 in relation to the first to fourth and eight respondents and on 5 February 2002 in relation to the fifth to seventh respondents. This was the result of a ruling given by me on 4 February 2002 (C7 Pty Ltd v Foxtel Management Pty Ltd [2002] FCA 54). Supplementary orders were made in relation to the fifth to seventh respondents on 15 March 2002. There was consent revision of certain of the orders on 25 June 2002 and 7 August 2002. On 1 November 2001 orders had been made by consent in relation to the production of documents on behalf of each of the ninth and tenth respondents.

2 The nature of the proceeding sufficiently appears from earlier judgments. It should also be noted that Seven Network Ltd, the parent company of C7 Pty Ltd, has now been added as the second applicant. As a result of the various orders, a large number of documents have been produced by the respondents to the external solicitors and counsel for the applicants who are concerned in the conduct of the litigation. The substance of this application is to enable the contents of the documents to be disclosed to various persons connected with the commercial and business activities of the applicants. The issue for decision has now been refined to certain parts of identified documents.

3 The case for the applicants has two legs. The first is that external lawyers, no matter how skilled and experienced, do not have the commercial knowledge necessary to properly understand the bidding process for the sporting rights in question and, in particular, will be unable to recognise what they do not know. The second leg is that litigation of the type and on the scale which is contemplated requires informed consideration by the senior management and directors of the applicants. It is put on behalf of the respondents that they have made a bona fide endeavour to limit protection to discrete portions of the documents containing information which is highly confidential and, because of the nature of the industry, is likely to remain so for the foreseeable future. It is submitted that the nature of this information is such that once it is understood by those best able to do so, namely the executives closely associated with this aspect of the business, it could not realistically be put from their minds. It is submitted that the information has relevance going beyond the bidding for sporting rights and involves key aspects of the pay television industry as well as free to air television and telephony. It is suggested that the information which may be disclosed without restriction is sufficient for the commercial aspects of the matter to be understood.

4 The evidence which has been led from either side broadly supports the rival contentions, although there is some exaggeration on both sides. Resolution of conflict where both sides, in a sense, are right is always difficult. The problem in the present case is acute. Those best placed to both understand and interpret the material and also make an informed decision as to litigation on the part of the applicants are those persons who have the best overall knowledge of the industry as a whole and of the strategy of Seven Network Ltd in relation to it. They are the persons to whom information about competitors and potential competitors would mean most and be most useful.

5 Counsel have referred me to a number of authorities, starting with Warner-Lambert Co v Glaxo Laboratories Ltd [1975] RPC 354 which have discussed this dilemma, most in the context of discovery after action. Apart from Warner-Lambert, they include Mobil Oil Australia Ltd v Guina Developments Pty Ltd [1996] 2 VR 34 particularly at 38-39; McKay Sugar Cooperative Association Ltd v CSR Ltd (1996) 63 FCR 408; Hadid v Lenfest Communications Inc (1996) 70 FCR 403; Idoport v National Australia Bank [1999] NSWSC 686 particularly pars [71] - [82]; Telstra Corporation v Australis Media Holdings (unreported, Supreme Court of NSW McLelland CJ in Eq, BC9606185, 6 Dec 1996); Macquarie Generation v Coal & Allied Industries Ltd [2001] FCA 1349; Smithkline Beecham plc v Alphapharm Pty Ltd [2001] FCA 261 and Smithkline Beecham plc v Alphapharm Pty Ltd [2001] FCA 189. Whilst all of these decisions are instructive they can only give very general guidance as to the resolution of particular problems. As was remarked succinctly by Russell LJ in Warner-Lambert (at 362):

"...there is, so to speak, no universal or even general formula to be followed in this branch of procedure. What is to be considered appropriate in any particular case and at any particular time must be very much the outcome of a balancing of pros and cons...".

6 The respondents have sought to meet the problem by agreeing to disclosure of the disputed information to the Deputy Chairman of directors of Seven Network Ltd and to one of the other directors with accounting qualifications on particular terms. Each is experienced in business but neither holds or has held any executive position in relation to television, telephony or professional sport. It is contended by the applicants that neither of these directors has the kind of knowledge or experience of the industry which is necessary to fill the information gap which the lawyers have and, as far as decision making is concerned, it is said that it is not for the other parties to, in effect, set up a sub-committee of the board to make such a decision.

7 There was discussion in the course of submissions as to the onus in relation to a question such as this. It was submitted on behalf of the respondents that the applicants need to show that it is necessary that documents be produced to the persons nominated whereas it was submitted for the applicants that, relevance to the purpose of O 15A having been established, the onus lies upon the respondents to show that it is necessary that the information not be disclosed. It is also put for the respondents that having in mind the limited purpose of O 15A, the obligation to disclose should not be as great as it might be in relation to discovery after action. I do not think that the question of onus is of any great importance. Evidence has been led on both sides and there are obviously pros and cons to be weighed. In principle, once the conditions of O 15A are satisfied then an order will be made in the absence of good reason being established to the contrary by the respondents but once they produce acceptable evidence of commercial confidence the balancing process must be undertaken. The respondents are on slightly firmer ground in relation to the difference between discovery after action and preliminary discovery. Once a case has commenced the necessity of deciding the case according to law fully comes into play. I referred to this issue in par [48] of the December judgment. However, even after action, general discovery is not now an entitlement. It is pointed out on behalf of the respondents that an order such as this involves production of documents to someone who, but for the order, would have no right to see them and who may well have no viable course of action. As "fishing" is permitted by a person who may have no course of action without even having to show a prima facie case the form of order including the breadth of disclosure, should be strictly controlled. The purpose of disclosure is only in order to enable a decision to be made whether to sue.

8 The respondents complain of what they describe as the high level of generality in the evidence led on behalf of the applicants and there is some substance to this complaint. They start from the fact that in a letter to the solicitors for the first to fourth respondents the solicitors for the applicants said, inter alia, "we have reviewed the documents your clients have provided pursuant to the Orders and are now in a position to advise our client in relation to commencing proceedings." The substance of that advice has not been disclosed in evidence and counsel for the applicants also kept his submissions on the point at a high level of generality. This is somewhat surprising as, by now, the disclosure of documents must have advanced the knowledge of the lawyers very significantly beyond that which pertained in December last year. There is no evidence, for example, whether the conclusion reached so far is that proceedings will be recommended or not. The lack of any detailed or rigorous examination of the case which might be brought does not assist in assessing how important particular parts of documents may be.

9 I have little doubt that there are aspects of a complex commercial matter such as this that would not be perceived or properly understood by lawyers and it may also be accepted that the lawyers may not know what they do not know. However, this is not a case where the lawyers are confronted with highly technical or obscure material which requires translation or interpretation in the primary sense. I have read the disputed portions of the documents. Although I do not have anything like the understanding of the facts as a whole which the applicants' lawyers would have, I do not find the documents particularly obscure in themselves save for some of the financial modelling. It is relevant in this connection to appreciate that elucidation of the bidding process, which lies at the heart of the issue, is very much assisted for the layman because Telstra management did their own critical analysis of that process as it unfolded, dealing with both broad strategy and the detailed figures. In my opinion this is likely to be as revealing as an independent analysis would now be. It is true that Telstra is not a media organisation in the sense that the applicants and some of the respondents are but it had been closely involved in the development of pay television from its inception and would have acquired a good deal of relevant expertise. I also recognise the possibility that if the real agenda were to achieve a monopoly position for Fox Sports in relation to the provision of sport to pay television the wool may have been pulled over the eyes of Telstra in a way which may be clear to those associated with the applicants. However it is difficult to accept that there are no persons with relevant experience of that kind from the television industry independent of Seven Network who, under appropriate restraint, could play that role. The respondents point out that the applicants have made no suggestion of that kind notwithstanding the fact that it was flagged as a possibility on more than one occasion during the course of argument.

10 On the other hand, having looked at the disputed portions of the documents in the light of the analysis by Telstra management, and having in mind the various publications in the press as to the bidding for both AFL and NRL rights, there is an element of exaggeration in the respondents position as to confidentiality. I am satisfied that so far as the bidding process from October 2000 to December 2000 is concerned there is no particular secret methodology involved, knowledge of which would be significant in relation to the acquisition of other sporting rights. I am also satisfied that by the time the NRL and AFL rights come up for renegotiation neither the structure of the bids nor the dollar amounts will retain any great significance. Indeed, much of that information is already in the public domain although, as pointed out by the respondents, most of that is by unsourced statements in the media rather than direct information from the participants. Disclosure of the full detail of the internal development of the bids, with all of the financial modelling which was involved, is a more difficult issue. On the one hand this would disclose material concerning Foxtel's own business plans and assumptions together with material relating to Fox Sports, Austar and Optus which is not generally available and which is still current enough to warrant protection. On the other hand I am satisfied that a proper understanding of the development of the bids is crucial to understanding whether there was any breach of Pt IV of the Trades Practices Act 1974 (Cth) involved in what occurred. However, I am not satisfied that any of the disputed material prior to 1 October 2000 is of sufficient significance to require further disclosure.

11 It is relevant to note that there is material in the documents produced which would support the hypothesis put forward by counsel for the applicants that a purpose of the bids and the form they took was the elimination of C7 as a supplier of sporting rights to pay television to the advantage of Foxtel and Fox Sports. It is not possible to simply eliminate that hypothesis from consideration. This, of course, is not to indicate a ruling in advance that such a conclusion would necessarily establish a breach of Pt IV. However, it follows that the applicants are involved in more than a mere fishing expedition.

12 I have come to the conclusion that the applicants could make no informed decision as to whether to commence proceedings or not on the basis of advice from solicitors and counsel uninstructed by representatives of the client in relation to the confidential material. If this cannot take place the proper purpose and application of the O 15A will be frustrated. In my opinion a proper resolution of the problem is to afford a full opportunity for the solicitors and counsel involved in giving advice to fully and frankly explore all of the facts and circumstances with two nominees of the applicants in conference with no notes to be taken by or on behalf of those persons of any of the internal material of the respondents to which objection is taken and with no copies of any such information to be provided. No extract from that information is to be included in any advice given by the solicitors or counsel to the applicants although I see no reason why the details of the final bids should not be provided to the directors in so far as it may be necessary for the purpose of any advice which is given subject to the overall confidentiality regime. I would not impose any particular inhibition upon the ability of the two nominated persons to continue to take part in the affairs of the applicant beyond the usual confidentiality regime. There is no reason to believe that any director or executive from Channel 7 would act deliberately in breach of an order in utilising that information for collateral purposes. I recognise the difficulty of separating sources of knowledge and also recognise the difficulty of detecting any breach but in my opinion the limitation of access to information to a conference with the lawyers will go a long way to reducing that possibility. As my concern is primarily directed to ensuring the opportunity for reasoned decision making by the applicants it is essential, in my opinion, that the board of directors should be entitled to nominate those who will have the benefit of the full briefing on the matter, and it would be wrong to deprive the company of the services of those persons nominated from participation in full decision making in the future. In particular I think it is inappropriate that the other parties should nominate the directors it wishes to participate and impose any inhibitions upon what those directors can thereafter do. I recognise that the solution I favour does not afford the applicants the opportunity for consideration and analysis of the confidential material which would be available to it if it were able to have copies of the material available for close scrutiny by a range of persons with relevant knowledge and experience. However, the respondents have legitimate business interests which are entitled to be weighed on the scales.

13 In summary my view is as follows:

(i) I do not regard it as necessary that any of the material claimed to be confidential prior to 1 October 2000 be disclosed.

(ii) That the material post 1 October 2000 which is claimed to be confidential may be disclosed to two persons nominated by the applicants being either a director or executive of either applicant in the course of conference with counsel and/or solicitors for the applicants but no notes may be taken by those persons of any of that material and none of that material should be copied and supplied to them otherwise than for inspection in the course of such a conference. The normal confidentiality regime should apply to those persons. I would exclude from such material to be made available any reference to the structure of the bidding vehicle which had been proposed in negotiations prior to October 2000 but not included in the post 1 October proposals.

(iii) Full details of the successful bids for AFL and NRL (including all associated bids such as those for internet rights, naming rights and so on) may be disclosed to all directors of Seven Network Ltd in so far as it may be deemed necessary to do so for the purposes of giving advice as to the commencement of proceedings on a confidential basis.

14 The matter will stand over to enable the applicants to bring in minutes of order which will give effect to this judgment including reference to particular documents. It need not be taken that the summary of my view is expressed in final form or is intended to be exhaustive as to the contents of the orders.

I certify that the preceding fourteen (14) numbered paragraphs are a true copy of the Reasons for Judgment of Justice Gyles.

Associate:

Dated: 25 September 2002

Counsel for the applicants:	A J Myers QC and C A Moore
Solicitor for the applicants:	Freehills
Counsel for the 1st - 4th respondents:	A Leopold
Solicitor for the 1st - 4th respondents:	Allens Arthur Robinson
Counsel for the 5th - 7th respondents:	T D Castle
Solicitor for the 5th - 7th respondents:	Mallesons Stephen Jacques
Counsel for the 8th respondent:	D B Studdy
Solicitor for the 8th respondent:	Gilbert & Tobin
Date of Hearing:	22, 23 July, 5 September 2002
Date of Judgment:	25 September 2002