JUDGMENT No. 2.0.2.1 (222 CATCHWORDS # INTERLOCUTORY INJUNCTION ~- injunction sought against proposed discontinuance of telecommunications services - whether requirement of reasonableness - serious issue to be tried as to whether contract permits discontinuance for non-payment of disputed accounts or for failure to provide security in respect of those accounts - whether security for future charges can be required - damages as an adequate remedy - security in respect of the undertaking as to damages PACIFIC STAR COMMUNICATIONS PTY LIMITED, SunNET PTY LIMITED and ComsWEST PTY LIMITED -v- TELSTRA CORPORATION LIMITED No. NG 498.of 1997 EINFELD J SYDNEY 14 NOVEMBER 1997 \ COURT OF AUSTRALIA ) NEW SOUTH WALES DISTRICT REGISTRY ) No. NG 498 of 1997 GENERAL DIVISION ) Between: PACIFIC STAR COMMUNICATIONS PTY LIMITED First Applicant SunNET PTY LIMITED Second Applicant ComsWEST PTY LIMITED Third Applicant And: TELSTRA CORPORATION LIMITED Respondent MINUTE OF ORDERS The Court orders that: 1. "" . a tay al 1997 nn neu ee the third applicant having by its counsel undertaken to pay to the respondent or any other party adversely affected by the interlocutory injunction such compensation (if any) as the Court thinks just, in such manner as the Court directs, the respondent be restrained until further order of the Court from discontinuing the supply of telecommunications services to the third applicant by not later than 4pm on Friday 28 November 1997 in a form satisfactory to a Registrar of the Court, the third applicant provide security for .its undertaking as to damages in an amount representing one third (to the nearest one thousand dollars upwards) of the total amount expected or likely to be owing or in dispute at the end of the contract between the third applicant and the Government of Western Australia the applicants' and the respondent's motions be otherwise dismissed each party pay its own costs there be liberty to apply on 3 days notice Settlement and entry of orders are dealt with in accordance with Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA ) NEW SOUTH WALES DISTRICT REGISTRY ) No. NG 498 of 1997 GENERAL DIVISION ) Between: PACIFIC STAR COMMUNICATIONS PTY LIMITED First Applicant SunNET PTY LIMITED Second Applicant ComsWEST PTY LIMITED Third Applicant And: TELSTRA CORPORATION LIMITED Respondent REASONS FOR JUDGMENT EINFELD J SYDNEY 14 NOVEMBER 1997 The facts Since about 1992 the three applicants, Pacific Star Communications Pty Limited (PacStar), SunNet Pty Limited (SunNet) and ComsWest Pty Limited (ComsWest) (together, the Pacific Star Group) have been in business as service providers under the Telecommunications Act 1991. Their business involves acting as brokers or "middlemen" between the major suppliers of telecommunications services, Telstra and Optus, and customers for those services, in that they contract with the major suppliers for and obtain these services for their customers, often large corporations, institutions and governments. The two principal benefits offered by service providers are discounts, usually obtained for volume of service use, and one account for all services, whether local, trunk, overseas, mobile, fax or any others. The Pacific Star Group gains income by passing on only part of the volume discounts obtained, and by charging a management fee for the consolidation of the various accounts received from the major suppliers. The major customer of PacStar and SunNet has been the Queensland Government while ComsWest's major customer is the Western Australian Government. Over a period of at least a year, the Pacific Star group and Telstra have been in dispute about certain unpaid bills. In general Telstra has claimed that services have been provided to the customers of companies in the group which have not been paid for. The group has said that the unpaid bills are disputed either because the records supplied by Telstra have not been accurate or complete or because details have not been supplied at all. On 27 March 1997 Telstra commenced proceedings in the Supreme Court of Queensland against PacStar and SunNet for (in round figures) $84 million and $14 million respectively for unpaid calls and services. The assertions are disputed on the grounds that the amounts claimed do not arise from services to the two companies which have cross claimed for breaches of contract, misleading and deceptive conduct in contravention of section 52 of the Trade Practices Act, and Telstra's misuse of market power in breach of section 46 of that Act. By facsimile transmission on 16 June 1997 Telstra informed PacStar that it intended to discontinue all telecommunications services to PacStar's customers on 14 July 1997 and to notify them by letter a draft of which was supplied. On 25 June 1997 Telstra advised SunNet that unless it provided security as requested, Telstra would do precisely the same to it and its customers as was threatened to PacStar, including the various agencies, departments and institutions of the Queensland Government. It appears that a Telstra representative had previously informed a representative of the Queensland Government of its intentions in these regards. Albeit only by including ComsWest in the heading to the letter, the letter of 25 June also contained a threat to take exactly the same actions in relation to ComsWest and each of the agencies, departments and institutions of its client, the Western Australian Government. No reference was actually made to ComsWest in the body of the letter which dealt only with PacStar and SunNet. The reasons offered by Telstra for its proposed actions, again without any particulars as concerns ComsWest, were the failure to pay past accounts and the failure to offer security for both past debts and future services. As of the end of March 1997, PacStar had sold its entire business, including its contracts with its telecommunications customers, to another company. As of 26 August 1997, SunNet's contract with the Queensland Government expired. The ComsWest contract with the Western Australian Government still has until February 1998 to run but according to the evidence the company was expected to be sold in September 1997. At some time between those dates, the current relationship between ComsWest and Telstra will end. The current proceedings By application filed on 27 June 1997 under sections 80, 82 and 87 of the Trade Practices Act and section 186 of the Telecommunications Act, PacStar, SunNet and ComsWest sought declarations that in respect of each of them, Telstra has breached its contract and statutory obligations, that it has engaged in misleading and deceptive conduct in contravention of section 52 of the Trade Practices Act, that it has used confidential information for an unauthorised purpose, and that it has engaged in unconscionable conduct, misused its market power and discriminated against them. The application seeks a series of injunctions, damages and other orders. On the same day, the applicants gave notice of a motion for interim injunctions that, in respect of each of them, Telstra be restrained from discontinuing telecommunications services and billing information, and from communicating with their customers as threatened. They also sought a mandatory injunction that Telstra advise the Queensland Department of Public Works and Housing and the Western Australian Department of Public Works that it would continue to supply services to the applicants until further order of the Court. They claimed that great disruption would be caused to the two State Governments if the proposed letters were sent and discontinuance occurred. They added that the effect. of discontinuance would or was likely to be that the two "Governments would thereafter be forced to use a.competitor to supply them with telephone services, possibly Telstra itself. In a letter dated 18 July 1997 (a Friday), the last working day before the hearing of the applicants' motion, Telstra's solicitors sent to my Associate notice of a motion it was seeking to have heard at the same time (the following Monday) for orders that PacStar and SunNet provide security for past charges incurred and to pay certain charges in advance. It also sought security for the applicants' undertaking as to damages if the Court granted any relief to the applicants on their motion. It appears that leave was not sought for the short service or expedited hearing of this motion but as the parties have purported to argue the entitlement of Telstra to these orders, I have treated it as legitimately and consensually before the Court in the present proceedings. As PacStar and SunNet no longer have contracts under threat, there are no grounds for any injunctions being pronounced in their favour or for any relief to be given against them. Indeed it is difficult to understand why PacStar applied at all, as it was no longer providing the relevant services on the day its application was filed, and Telstra's threat to discontinue was therefore irrelevant. The motion therefore concerns only ComsWest and its relations with the Western Australian Government. Telstra's proposed actions have been withheld until this judgment has been given. The Court has not been informed whether the expected sale of ComsWest has occurred. In view of the positive evidence led on the likelihood of this development, the unchallenged evidence on the subject attracts scepticism and doubt to the approach of both sides. It is also grossly discourteous to the Court and hardly understanding of its workload that the matter has been left in this quite unsatisfactory state. As far as I am aware, there is no legal action outstanding against ComsWest for its alleged debts and Telstra has elicited no evidence as to how much that company is claimed to owe. There is no evidence that ComsWest's contract with the Western Australian Government is likely to be extended beyond its remaining three months. If relief is granted, ComsWest has offered the usual undertaking as to damages but Telstra argued that the company's financial situation renders this undertaking as worthless or at best of doubtful value. The only matter available to be dealt with under Telstra's motion is therefore the request for security for ComsWest's undertaking as to damages if the Court grants any of the relief it seeks. Serious issues to be tried The parties argued three principal issues on the appropriateness of interim injunctive relief: 1. Threat to discontinue services and billing information due to non-payment of accounts and failure to offer security The applicants (now relevantly only ComsWest) denied that their contract with Telstra permits discontinuance for non- payment of disputed accounts or non-provision of security. ComsWest argued that its past unpaid accounts are disputed, that the dispute is bona fide, and that the dispute cannot be resolved, even prima facie, at this stage of the proceedings. ComsWest said that the contract between the parties makes no provision for security for past debts and in any event, that security can only be required in respect of identifiable charges actually incurred. All these matters, it is said, raise serious issues to be tried. Alternatively, security of any kind is inappropriate for dealing with in interlocutory proceedings. ComsWest also argued that there is or will be an arguable case that Telstra's threat to discontinue is an abuse of its monopoly position in relation to local calls. As to the Telecommunications Act, an issue is raised that the contractual conditions upon which Telstra is claiming to act do not apply any longer to ComsWest as a service provider. Telstra's contention was that there is no genuine issue about its right to cease its supply of services for unpaid accounts but if there is, an injunction should not go because damages would be an adequate remedy. 2. Reasonableness of discontinuance or security ComsWest argued that if there is a power to discontinue or require security, the contract should be construed as requiring Telstra to act reasonably in or before doing so. The principal contention is that it would be unreasonable to discontinue for non-payment or non-provision of security because the debt is disputed, because Telstra continued to deal with the company throughout the period when the debt was incurred without requiring security, and because Telstra's procedure was to quarantine disputed amounts from other accounts. It was also submitted that the Western Australian Government should not be put to the difficulty of changing service providers when there is so little time for the contract to run. i | | i | ; ComsWest said that future charges are not in danger, that the level of dispute is low and the rate of payment high, and that the Western Australian Government is not a credit risk and is willing to keep paying. ComsWest has working capital and an adequate cash flow to meet liabilities and has offered Telstra a charge over its receivables. Telstra argued that no criterion of reasonableness arises from the contract and that in any event none of the considerations mentioned raises any serious question of unreasonableness. Telstra said that ComsWest has not demonstrated solvency or produced any evidence suggestive of a likelihood that Telstra will be paid in the future. Telstra pointed to the fact that ComsWest has not paid any of the charges for services known as Spectrum of about $1.5 million per month notwithstanding that it has charged and been paid by its clients for these services. The creditworthiness of the Western Australian Government does not protect Telstra with which it is not contracted. 3. Telstra's abuse of market power As far as I could detect, ComsWest presented no case, arguable or otherwise, for relief under Part IV of the Trade Practices Act, contenting itself with a mere statement that there would be an argument in due course. There is therefore no basis for - 10 - an interlocutory injunction to protect any rights it may have in that connection. Conclusion In my opinion, there is an air -- perhaps it is more like a stratosphere -- of unreality about the arguments on both sides embodied, as they were, in the three hearing days and sixty pages of written submissions required by the parties to put their cases. Telstra has taken no action to enforce its debt or recover it from ComsWest. There is very little evidence about this dispute at all. Clearly ComsWest may dispute or query Telstra's charges. Just as clearly, Telstra is entitled to refuse to provide further services if there is reason to believe that ComsWest is not paying its bills because of intransigence or a lack of liquidity. The fact that a dispute of this kind is being argued in the very limited atmosphere of cross applications for interlocutory relief when the parties' contract is all but ended and there is no movement or proposal to move to resolve the central dispute itself, suggests that each is using the Court for tactical, even unworthy, certainly not genuine forensic purposes. As no argument was raised by Telstra that ComsWest is not and should not be entitled to injunctive relief because there are no substantive proceedings for an interlocutory injunction to aid, I will proceed on the basis that there is no threshold - ll - bar to the intervention of the Court at this time. I must apparently treat ComsWest's application as a substantive suit for an injunction against a situation of no definitive action and at best only desultory efforts by Telstra to recover its debts through an appropriate medium despite the fact that the substantive dispute between these parties has been in existence for many months at least. The first order sought in Telstra's motion is thus quite inappropriate in the case. of ComsWest. This is also one of the reasons why the balance of convenience clearly favours an injunction to prevent discontinuance of services. Another is the short time left before the expiry of the contract. Another is the inconvenience to the Western Australian Government. In my opinion, damages are manifestly not an adequate remedy for a company winding down its business. That leaves the issue of whether at least one seriously triable case has been made out. I think that the contract might very well permit discontinuance for non-payment of accounts and security for future charges. However, there is in my view an arguable and serious case to the contrary, as well as for a requirement of reasonableness on the part of Telstra in this connection, and for its unreasonableness in fact -- none of which issues can be sensibly decided at this time. - 12 - I therefore propose to pronounce an injunction that ComsWest having given through its counsel the usual undertaking as to damages, Telstra be restrained until further order of the Court from discontinuing the supply of telecommunications services to ComsWest. Security for the undertaking as to damages in a sum representing one third of the total amount (to the nearest one thousand dollars upwards) expected or likely to be owing or disputed by the end of ComsWest's contract with the Western Australian Government is to. be supplied by not later than 4pm on Friday 28 November 1997 in a form satisfactory to a Registrar of the Court. Liberty to apply will be reserved. The remainder of the applicant's motion and order 1 of Telstra's motion will be dismissed. Each party will pay its own costs. | certify that this and the GCG ven Preceding pages are a true copy of the Reasons for Judgment herein of his Honour Justice Einfeld NW Associate Dated: /4- 1) 97 For the applicant For the respondent Date of Hearing Date of Judgment Mr P. Hely OC and Mr S. Finch instructed by Freehill Hollingdale & Page Mr D. Jackson QC and Mr C. Hodgekiss instructed by Mallesons Stephen Jaques 21, 22 July and 14 August 1997 14 November 1997