Allphones Retail Pty Ltd v Optus Networks Pty Limited

1. The application filed on 11 December 2015 be dismissed.
2. The prospective applicant pay the prospective respondents' costs of the application, as agreed or taxed. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

JAGOT J: 1 This is an application for preliminary discovery under r 7.23 of the Federal Court Rules 2011 (Cth) which provides that: (1) A prospective applicant may apply to the Court for an order under subrule (2) if the prospective applicant: (a) reasonably believes that the prospective applicant may have the right to obtain relief in the Court from a prospective respondent whose description has been ascertained; and (b) after making reasonable inquiries, does not have sufficient information to decide whether to start a proceeding in the Court to obtain that relief; and (c) reasonably believes that: (i) the prospective respondent has or is likely to have or has had or is likely to have had in the prospective respondent's control documents directly relevant to the question whether the prospective applicant has a right to obtain the relief; and (ii) inspection of the documents by the prospective applicant would assist in making the decision. (2) If the Court is satisfied about matters mentioned in subrule (1), the Court may order the prospective respondent to give discovery to the prospective applicant of the documents of the kind mentioned in subparagraph (1)(c)(i). 2 The prospective applicant is Allphones Retail Pty Ltd (Allphones). The prospective respondents are companies within the Optus group (referred to collectively as Optus). 3 Until 30 August 2013 Allphones was an authorised Optus dealer. Arrangements between Optus and Allphones required Optus to pay commissions to Allphones based on customer use of a mobile phone on an Optus plan purchased from Allphones. The preliminary discovery application relates to Optus's calculation of these commissions and consequential payments to Allphones. 4 The relief on which Allphones relies in terms of r 7.23(1)(a) is breach of contract in Optus's alleged non-payment of commissions calculated in accordance with a master agreement into which the prospective parties entered in 2010, misleading and deceptive conduct in Optus issuing commission reports which were inaccurate, and unconscionable conduct for failing to disclose that Optus could unilaterally alter commissions and calculating commissions without proper regard to customer billings. 5 The principles to be applied are not in dispute. In particular, it is common ground that the reasonableness of the prospective applicant's belief is to be assessed objectively. Further, as Lindgren J observed in Glencore International AG v Selwyn Mines Ltd [2005] FCA 801; (2005) 223 ALR 238 while a reasonable belief that the prospective applicant may have the right to obtain relief is a low threshold, "there must be some tangible support that takes the existence of the alleged right beyond mere 'belief' or 'assertion' by the applicant" (at [16]) and "the measure of any preliminary discovery to be ordered is the extent of information that is necessary, but no more than that which is necessary, to overcome the insufficiency of information already possessed by the applicant after the making of all reasonable inquiries, to enable a decision to be made whether to commence a proceeding" (at [13]). 6 There is no evidence which supports the notion that Allphones may have a right to relief against Optus for unconscionable conduct. The evidence in this regard rises no higher than the statement of Allphones' then general counsel that, if preliminary discovery is provided, Allphones will consider instituting proceedings for unconscionable conduct. This is insufficient to meet even the low threshold constituted by the requirement that there be "some tangible support" for the prospective applicant's belief that it may have a right to relief. Further, insofar as it is said such a claim will be considered for a failure by Optus to disclose its ability to unilaterally alter commissions, it is not apparent that Allphones does or could reasonably believe that Optus has or had documents relevant to this issue or that discovery of any documents held by Optus might assist Allphones in making its decision whether or not to commence proceedings. Otherwise, the claim for unconscionable conduct based on Optus allegedly not having proper regard to customer usage when calculating commissions can yield no different result from the contractual and misleading conduct foundations for the application. 7 The problem with the evidence which relates to these foundations is that, assessed objectively, it does not provide any tangible support taking existence of the belief beyond mere assertion or, at its highest, suspicion arising from speculation that Allphones might be able to obtain relief on these causes of action. 8 First, there is the evidence of Allphones' then general counsel. Yet her evidence, that Allphones believes that it might not have been paid all commissions due based on an analysis undertaken of certain sample plans and periods, pre-dates Optus's evidence in response. That evidence in response, from Leong Chi Wong, a commission analyst employed by Optus, provides a cogent analysis that demonstrates that all commissions for the sample plans and periods have been accurately calculated. Allphones places substantial weight on Mr Wong's statement that he was unable to reconcile the mobile numbers between two of Optus's information systems. Mr Wong, however, explains that as a result of this fact he, along with another Optus employee, analysed the data and identified the reasons for the discrepancies (of which Allphones' general counsel would have been unaware). More importantly, Mr Wong and the other employee then carried out an analysis which allowed for those discrepancies, which was more labour intensive and time consuming than mere reliance on the raw data, the results of which were that there was no shortfall in commissions paid for the sample plans and sample periods. Contrary to the submissions for Allphones, there is no reason to doubt the cogency of that evidence. It explains why Allphones' exercises yielded discrepancies and why, once allowance is made for the information captured by different aspects of the recording systems is taken into account, there are no discrepancies in the results obtained. 9 Second, there is the evidence of Armando Mendes, Allphones' Commercial Manager, to the following effect: 15. I believe that errors may have been made by Optus in the calculation of commissions payable to Allphones over the term of the Master Dealer Agreement (17 December 2009 - 30 August 2013), and that Allphones may have a right to seek relief against Optus in relation to such errors given the following matters: a. first, it is not in dispute that Optus has made significant errors in the calculation of commissions payable. In this regard, I refer to: i. paragraphs 11 and 12 of the affidavit of Sarah Gerung sworn 7 March 2016; ii. paragraph 39 of the affidavit of Karen Simpson sworn 20 June 2016; iii. paragraphs 39 - 44 of my previous affidavit sworn 26 August 2016; iv. paragraph 10, above. b. secondly, without access to the documents and data referred to in paragraph - (c), above, I am unable to verify whether commissions have been correctly paid or whether the overpayments and underpayments alleged by Optus actually exist and, if so, whether they have been correctly calculated; c. thirdly, the analysis conducted by Allphones in respect of the $60 cap plan, $99 plan and $79 plan, which are referred to in paragraphs 17 - 22 of Ms Gerung's affidavit sworn 11 December 2015 and paragraphs 18 - 26 of Ms Gerung's affidavit sworn 7 March 2016, were managed by me and lead me to believe that there may be further errors made by Allphones in addition to the known errors referred to in sub-paragraph (a), above. 16. Given the inability to verify whether commissions have been correctly paid or whether the overpayments and underpayments alleged by Optus actually exist, Allphones is unable to make a decision whether or not to commence proceedings against Optus in relation to the payment of commission to Allphones. I believe that access to the documents and data referred to in paragraph - (c), above, would enable Allphones to make a decision in this regard. 10 It is true that the evidence discloses that Optus's calculation of commissions payable to Allphones has involved errors resulting in not insubstantial overpayments and underpayments. These errors are described in detail by Karen Simpson, Optus's Associate Directors of Commissions. Ms Simpson's evidence discloses the following errors in this regard: (1) Optus failed to take into account commissions which would have been payable but for re-contracting of customers by its affiliates in the period May 2011 to May 2013, leading to an underpayment of $294,883.75 to Allphones (which was rectified). (2) Optus failed to deduct equipment charges from the customer usage charges in the period between October 2007 and August 2011 leading to an overpayment to Allphones of $830,198.09 (now rectified by a set-off undertaken by Optus to which Allphones objected). (3) Optus incorrectly configured a suite of new customer plans in its system from December 2012. The error was discovered in November 2013. It led to an overpayment to Allphones of $126,343.28. (4) At the same time, in November 2013, Optus discovered that it had duplicated certain figures in its billing system, leading to an underpayment to Allphones of $279,447.43. The amounts overpaid and underpaid were set of against each other resulting in Optus paying Allphones $153,104.15 on 4 December 2013. (5) These errors led Optus in early 2014 to review its overall billing system by a random sampling and testing program. This disclosed an error in the treatment of insurance which meant that Optus had underpaid Allphones by $43,783 which was paid on 26 February 2014. 11 Allphones placed substantial weight on these errors as the foundation of the belief that it may have a right to relief against Optus which required the discovery of documents. It described the errors as disclosing significant systemic problems with Optus's billing systems, the errors being of numerous different kinds, a number of which remained undetected over six years, some of which were as recent as 2014, and more of which had been uncovered by Allphones' analysis (discussed above). 12 As noted, I do not consider Allphones' analysis can withstand scrutiny once Mr Wong's evidence is properly understood and is taken into account. That does not change the fact that Optus's evidence discloses that its billing systems have resulted in underpayments and overpayments over many years (the net result overall being overpayments to Allphones). 13 In the light of the evidence of Mr Wong and Ms Simpson, I do not accept that the disclosed errors provide a basis for a reasonable belief that Allphones might have a right to a remedy (be it for breach of contract or misleading and deceptive conduct) where Allphones does not have sufficient information to decide whether to start a proceeding in the Court to obtain that relief. The latter qualification is necessary because there is one class of conduct in which Allphones might reasonably believe it has a right to relief but it must already have sufficient information to decide whether or not to start a proceeding to try to vindicate that potential right. It is that Optus issued commission statements to Allphones which stated the commission owing on which Allphones might have relied (for example, when dealing with its franchisees) and Optus subsequently issued amended commission statements containing different figures. These facts are capable of giving rise to a reasonable belief that Allphones might have a right to relief against Optus for misleading and deceptive conduct. But Allphones already has all documents it needs to decide whether to try to obtain relief in respect of any such right. It does not need anything for that purpose other than the original and amended commission statements and knowledge of what it did or did not do in reliance thereon. No records of Optus of the type sought can assist in Allphones deciding whether or not to start proceedings in respect of any such right. 14 Otherwise, the fact is that Mr Wong's analysis (albeit based on an analysis of samples) is strong evidence that Optus's billing system, once proper inputs are made, has yielded accurate results. All of the errors are of one kind, in that they relate to inputs into the system, not the operation of the system itself. Moreover, all of the errors have been discovered by Optus itself, carrying out reviews as a result of its own initiatives. The fact that the trend of the errors has been in favour of overpayments by Optus supports the submission that Optus has good reason to want to ensure its system produces accurate results. 15 Accordingly, the fact that Optus has discovered and rectified errors, as described above, does not form a foundation for a reasonable belief that Allphones might have a right to relief against Optus. If anything, the review carried out by Optus in early 2014 and Mr Wong's analysis, taken together, indicate to the contrary. The fact that the review covered all dealers so that the focus was not on Allphones in particular does not alter the result that one kind of input error only was discovered and thereafter rectified. Nor does it alter the fact that Mr Wong's analysis showed no error at all in the specific samples he tested in common with Ms Gerung. 16 At best, Allphones might hold a suspicion that Optus has not correctly paid it commissions. Even if this suspicion could amount to a belief, the suspicion, based on the evidence, should be a suspicion of overpayment, not underpayment. Leaving aside the fact that Optus clawed back the overpayments by setting them off against commissions (in respect of which Allphones might reasonably believe it has a right to relief at least for misleading and deceptive conduct, as discussed above), nothing in the evidence rises above the merest, and unfounded in any evidentiary sense, suspicion that Optus still might not have got things right. 17 So much is apparent from the second reason Mr Mendes gives in support of his asserted belief, which is that without the information he is unable to verify whether commissions have been correctly paid, the overpayments and underpayments actually exist, and if Optus has correctly calculated them. This may be accepted. However, inability to verify is a neutral factor. It cannot add to the foundation for the existence of a belief or not. 18 The third reason given by Mr Mendes is that the analysis of Ms Gerung leads him to believe that Optus might have made further errors not known to Allphones. Yet Mr Wong's subsequent evidence provides a full and cogent answer to Ms Gerung's analysis and demonstrates that the billing system has produced accurate results. How Mr Mendes can assert his belief in the face of Mr Wong's evidence, once that evidence is properly understood, is not apparent. 19 For these reasons, I consider that r 7.23(1)(a) is not satisfied. 20 I also consider that there is a difficulty facing Allphones' application in terms of r 7.23(1)(b) (the prospective applicant after making reasonable inquiries, does not have sufficient information to decide whether to start a proceeding to obtain the relief) and, related thereto, r 7.24(2)(b) (which requires an application to be accompanied by an affidavit which identifies "as precisely as possible, the documents or categories of documents to which the application relates"). 21 The difficulty arises from a number of circumstances. The first is that it is apparent that Optus provided information to Allphones as a result of a without prejudice series of meetings. The information is described by Optus as "a large amount of data" provided to Allphones to "enable it to verify the accuracy" of the overpayment and underpayment as a result of recontracting and equipment charges. Allphones' evidence does not identify that information or what analysis of it has yielded in terms of those overpayments and underpayments. The second is that Mr Mendes' description of the information he says he needs not only fails to refer to the information already held by Allphones as a result of Optus providing data, but also does not match the terms of the application - which is more expansive. The third is that much was made in the submissions for Allphones that, if it was decided that prospective discovery should be ordered, then orders could be moulded to require discovery only of, for example, a reasonable sample of data which could then be analysed by Allphones. Yet that is not what the application seeks and none of the evidence gives a clue as to Allphones' view of what information would be sufficient for it to decide whether or not to start proceedings. The fourth is that Mr Wong's final affidavit, which admittedly was filed the day before the hearing, disclosed at least part of the information Mr Mendes said he needed. Yet no attempt was made to adduce further evidence from Mr Mendes explaining why that information together with all of the data already provided, would be insufficient for Allphones to decide whether to start proceedings. Nor was any explanation given as to why this had not been done, or could not be done. 22 These circumstances cast real doubt on the evidence of Mr Mendes to support the assertion that Allphones does not have sufficient information to decide whether to start proceedings. They also indicate that Allphones has not given sufficient focus to the requirements of r 7.24(2)(b) or the principle that preliminary discovery is to be confined to no more than that which is necessary to assist in the making of a decision whether to start proceedings. In a case where the requirements of r 7.23(1)(a) are satisfied, it might be appropriate to disregard any failure by a prospective applicant to identify as precisely as possible, the documents or categories of documents to which the application relates and mould relief accordingly. The present case is different. Rule 7.23(1)(a) is not satisfied and, apart from that, the evidence indicates that Allphones has given insufficient attention to the information it already has in order to ensure that its application is confined to discovery of no more than necessary to assist in the making of a decision whether to start proceedings. As such, it is not possible to reach any inclination in Allphones' favour that it does not already have sufficient information to decide whether to start proceedings. 23 As a result, the application should be dismissed with costs. I certify that the preceding twenty-three (23) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jagot.