FEDERAL COURT OF AUSTRALIA Australian Gas Light Company ACN 052 167 405 v Australian Competition & Consumer Commission [2003] FCA 1101 PRACTICE AND PROCEDURE – subpoenas for production – leave to issue – leave opposed – criteria for grant of leave – apparent relevance – utility to requesting party – case management considerations – width of request – inconvenience – proposed acquisition of electricity power plant and coal mine – application for declaration of compliance with s 50 of Trade Practices Act 1974 – application opposed by Australian Competition and Consumer Commission – Australian Competition and Consumer Commission seeking leave to issue subpoenas to other participants in market – subpoenas seeking 'consideration' by other participants of possible acquisitions – leave refused Trade Practices Act 1974 (Cth) s 50 AUSTRALIAN GAS LIGHT COMPANY v AUSTRALIA COMPETITION AND CONSUMER COMMISSION AND OTHERS V880 OF 2003 FRENCH J 8 OCTOBER 2003 MELBOURNE IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY V880 OF 2003 BETWEEN: AUSTRALIAN GAS LIGHT COMPANY ACN 052 167 405 APPLICANT AND: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION RESPONDENT JUDGE: FRENCH J DATE OF ORDER: 8 OCTOBER 2003 WHERE MADE: MELBOURNE THE COURT ORDERS THAT: 1. Leave is refused to the Australian Competition and Consumer Commission in respect of the issue of proposed subpoenas relating to consideration by senior executives or directors of each of: (i) National Power Australia Investments Ltd and associate companies; (ii) Origin Energy Ltd; and (iii) TXU Electricity Ltd. of proposals by itself or Australian Gas Light Company to acquire substantial economic interests in Victorian electricity generation assets. 2. The Australian Competition and Consumer Commission is to pay the costs of the proposed recipients of the subpoenas in resisting the leave application as though on a party and party basis. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY V880 OF 2003 BETWEEN: AUSTRALIAN GAS LIGHT COMPANY APPLICANT AND: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION RESPONDENT JUDGE: FRENCH J DATE: 8 OCTOBER 2003 PLACE: MELBOURNE REASONS FOR JUDGMENT 1 In these proceedings the Australian Gas Light Company ('AGL') seeks declarations against the Australian Competition and Consumer Commission ('ACCC') that its proposed acquisition, in conjunction with others, of shares in an entity intended to acquire the Loy Yang Power Station A and the Loy Yang Coal Mine will not contravene s 50 of the Trade Practices Act 1974 (Cth). Proceedings were commenced on 15 September. Because of the terms of contractual arrangements related to the acquisition and the existence of a condition precedent concerning compliance with s 50 prior to a payment due on 19 December there is a degree of urgency attending the litigation. 2 Programming orders were made by Heerey J on 17 September. Those orders provided for the matter to be set down for hearing for three weeks commencing on 18 November. They provided also for applications for leave to issue subpoenas to be filed and served by 26 September. Further directions were made at a telephone directions hearing on 30 September. Leave was then granted to the ACCC to issue subpoenas to various parties, and in its terms provided that the issues of production, inspection and confidentiality were to be the subject of submissions at a directions hearing on Friday, 3 October or such later time as might be appointed. 3 The question of leave to issue subpoenas to two Victorian electricity retailers and an electricity generator was also stood over to that date. The Victorian retailers in question are Origin Energy and TXU Electricity Ltd. The generator is Hazelwood Power which involves four companies the subject of the one subpoena. They are National Power Australia Investments Ltd, Hazelwood Pacific Pty Ltd, Australian Power Partners and Hazelwood Investment Company Pty Ltd. The matter came on again for directions on Friday, 3 October in Melbourne. At that time I heard argument on the question whether I should give leave to issue subpoenas to these and other parties. In respect of the three Victorian electricity retailers mentioned, I gave leave to issue certain subpoenas which it is expected will be the subject of motions to set them aside this afternoon. I reserved the question of leave in respect of one category of subpoenas which the ACCC proposed to direct to these parties and which might be said broadly to relate to strategic business documents. 4 The class of documents concerned was initially described in common form terms, which I take from the subpoena directed to Origin Energy Electricity Ltd. That subpoena would have required production of the following documents: 1. All business plans, strategic studies, board papers, reports or analysis prepared by, for, or on behalf of, Origin during the period between 1 June 2000 and the date of this subpoena concerning, considering, assessing or relating to the acquisition or possible acquisition (including the reasons therefore) by Origin directly or indirectly of a financial or controlling interest in any business or assets involved in the generation of electricity in Victoria; 2. All business plans, strategic studies, board papers, reports or analysis prepared by, for, or on behalf of, Origin during the period between 1 January 2003 and the date of this subpoena concerning, assessing or considering the possible effect on the competitive position of Origin or the state of competition in any market in which Origin competes of the acquisition by AGL of an interest in the Loy Yang A Power Station. A subpoena to the same effect was proposed to issue to TXU. Paragraphs to like effect were contained in a subpoena proposed for the Hazelwood group of companies. This morning, shortly prior to delivering this ruling, I received a new form of proposed draft subpoena to these prospective recipients in which the classes of documents had been narrowed and are now described as follows: '1. Documents which disclose considerations since 1 January 2002 by senior executives, management or directors of Origin of any proposal by Origin to acquire directly or indirectly a substantial economic interest (15 per cent or more) in any Victorian electricity generation assets. 2. Documents which disclose consideration since 1 January 2003 by senior executives or directors of Origin of any proposal by AGL (or other retailers) to acquire directly or indirectly a substantial economic interest (15 per cent or more) in Loy Yang A power station or any other Victorian electricity generation assets.' The ACCC continued to rely substantially upon the submissions made in support of the application for leave to issue the subpoenas in their earlier, wider form. In an earlier written submission in support of leave to issue the subpoenas in their original form, the ACCC said that they were designed to elicit information as to the competitive implications of the likely reactions of other market participants, should the proposed acquisition proceed. The documents sought to be produced and the evidence obtained from them would be directly relevant to material contained in reports of expert economists, which it is anticipated will be filed on behalf of the ACCC. 5 In oral submissions on Friday, 3 October, senior counsel for the ACCC referred to the complex issues of market definition and participation in the markets in this case. He referred to the statement of claim and to s 50 of the Trade Practices Act and in particular the factors set out in subs 50(3) which must be taken into account in determining whether an acquisition would have the effect, or be likely to have the effect, of substantially lessening competition. Counsel also referred to what he called key factors raised in the statement of claim and in particular the question of barriers to entry and countervailing power pleaded in paragraphs 109 and 111 of the statement of claim. Paragraph 109 asserts that the barriers to entry in the retail and generator markets are not high. Paragraph 111 asserts that retail customers and electricity retailers in those respective markets can exercise countervailing power. It may be noted that in its defence filed since these submissions were put, the ACCC does not admit those allegations. It does not put forward a positive case of its own by contradictory pleading. 6 Referring to the factors set out in s 50(3) generally, counsel said that there is a number of them which requires the ACCC to fully investigate and place before the Court evidence as to facts and expert opinions in respect of them. In connection with the strategic documents sought in the subpoena specifically he referred to the dynamic characteristics of the market and the constraints imposed by other participants. Consideration of these matters in the context of the likely effect of the acquisition would require a measure of prediction. If the documents sought disclosed plans, strategies and anticipations about the competitive response of these parties, they would be of considerable significance as those parties are right at the heart of the pleaded markets. 7 Order 27 Rule 6 of the Federal Court Rules provides for the Court or a judge to give leave generally or in relation to particular subpoenas for the issue of a subpoena for production or to give evidence, or both. Order 27 Rule 6(1)(a) provides that an application for leave may be made without notice to the person named in the subpoena and the other parties in the proceedings. In this case, however, at my request the ACCC delivered copies of the draft subpoenas to parties, to whom they were intended to issue, so they could be heard on the leave application. This has the benefit, particularly in a case such as this where time is short, that matters relating to the proper scope of the subpoenas, confidentiality requirements and production arrangements can be integrated with the grant of leave. Where a party opposes leave and leave is refused, the additional step of a motion to set aside is avoided. 8 It is not appropriate to be overly prescriptive in setting out criteria for the grant of leave to issue a subpoena. Plainly, the documents sought must have at least some apparent potential relevance to the matters in issue in the litigation. The assistance that the requesting party may derive from the production of such documents must be taken into account. Case management considerations are also relevant. A wide-ranging subpoena, seeking documents of doubtful relevance at great inconvenience to, or that risk compromising the commercial privacy of, a third party, may not readily attract the grant of leave. Where the issue of such a subpoena is likely to delay progress to trial because of the legitimate interests of a party in resisting its issue, that may also be a practical factor to be weighed. 9 Mr O'Bryan, senior counsel for the ACCC, has indicated that in respect of the narrower form of subpoena now proposed he relies upon the arguments advanced in relation to the wider form earlier proposed. In addition, he has referred me to an affidavit of Mr Uthmeyer which does not appear to add anything to the arguments which he has already made. The proposed subpoenas in their narrower form are opposed by their prospective recipients. 10 With respect to the arguments put by counsel for the ACCC, I am not persuaded that it has been shown that the classes of strategic documents sought, even in their narrower form, are likely to be of material assistance in the case. Indeed, I would go further and say that their relevance is questionable. The papers sought go well beyond papers relating to any formulated policies or resolutions as to acquisition of a business or assets involved in retailing electricity in Australia. Indeed, it may be doubtful whether absent the concrete possibility of such an acquisition, such definitive evidence of corporate decisions or states of mind could exist. What remains is at the level of 'consideration', which encompasses a variety of possibilities, including proposals, advices, opinions, analyses or the like. 11 Such papers are unlikely to be of assistance to the Court in assessing the dynamics of the relevant marketplace. They are rightly, I think, regarded by their prospective recipients as highly sensitive, internal intellectual resources. In a sense, what these subpoenas seek to do is to mine the corporate offices of the two electricity retailers and the generator for the thoughts of senior executives, managers or directors about possible acquisitions in the relevant market. A skilled economist can presumably formulate his or her own thoughts about likely relevant competitive responses to changing market characteristics or behaviour where the structure and dynamics of the markets in question are known. 12 In my opinion, the case for leave to issue the subpoenas in respect of these documents has not been made out. The orders I will make to give effect to that conclusion are as follows: 1. Leave is refused to the Australian Competition and Consumer Commission in respect of the issue of proposed subpoenas relating to consideration by senior executives or directors of each of: (i) National Power Australia Investments Ltd and associate companies; (ii) Origin Energy Ltd; and (iii) TXU Electricity Ltd. of proposals by itself or Australian Gas Light Company to acquire substantial economic interests in Victorian electricity generation assets. 2. The Australian Competition and Consumer Commission is to pay the costs of the proposed recipients of the subpoenas in resisting the leave application as though on a party and party basis. I certify that the preceding twelve (12) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice French. Associate: Dated: 10 October 2003 Counsel for the First Respondent: Mr N O'Bryan SC and Mr J Beach QC with Mr MJ O'Bryan Solicitor for the First Respondent: Phillips Fox Counsel for Origin Energy: Solicitors for Origin Energy: Counsel for TXU: Mr KWS Hargrave QC with Mr MP Barrett Solicitors for TXU: Mallesons Stephen Jaques Counsel for Hazelwood Power: Mr WT Houghton QC with Mr SR Horgan Solicitors for Hazelwood Power: Baker and McKenzie Mr PW Collinson Mallesons Stephen Jaques Date of Hearing: 3 October 2003 Date of Judgment: 8 October 2003