Australian Communications Authority v Viper Communications Pty Ltd

Legislative Scheme 7 Section 128 of the CP Act creates an obligation for eligible carriage service providers (defined to include internet service providers) to enter into the TIO scheme. That section, as relevant here, provides as follows:

1. Each carrier and each eligible carriage service provider must, in association with other carriers and other eligible carriage service providers, enter into a scheme providing for a Telecommunications Industry Ombudsman.

Note: Section 129 provides for exemption from subsection (1) of this section.

2. The scheme is to be known as the Telecommunications Industry Ombudsmanscheme.

3. To avoid doubt, there is only one Telecommunications Industry Ombudsman scheme, namely, the scheme operated by Telecommunications Industry Ombudsman Limited (ACN 057 634 787).

4. The scheme must provide for the Telecommunications Industry Ombudsman to:

complaints about carriage services by end-users of those services.

8 Section 129 provides for declarations of exemption from the scheme. That section provides as follows:

1. The ACA may, by notice in the Gazette, declare that a specified carrier or eligible carriage service provider is exempt from the requirement set out in subsection 128(1). The declaration has effect accordingly.

Note: Carriers or providers may be specified by name, by inclusion in a particular class or in any other way.

2. In deciding whether a carrier or provider should be exempt from the requirement set out in subsection 128(1), the ACA must have regard to the following matters:

a) the extent to which the carrier or provider deals with residential customers in relation to the supply of carriage services;

b) the extent to which the carrier or provider deals with proprietors of small businesses in relation to the supply of carriage services;

c) the potential for complaints under the Telecommunications Industry Ombudsman scheme about services supplied by the carrier or provider.

3. Subsection (2) does not, by implication, limit the matters to which the ACA may have regard.

4. Before making a declaration under this section, the ACA must consult the Telecommunications Industry Ombudsman. 9 Section 101 of the Telecommunications Act provides that a service provider must comply with the service provider rules as applicable to the provider. The service provider rules require, inter alia, that service providers must comply with both the Telecommunications Act and the CP Act. Section 102 of the Telecommunications Act, as relevant here, provides as follows:

102 Remedial directions - breach of service provider rules

(1) This section applies if a service provider has contravened, or is contravening, a service provider rule.

(2) The ACA may give the provider a written direction requiring the provider to take specified action directed towards ensuring that the provider does not contravene the rule, or is unlikely to contravene the rule, in the future.

(3) The following are examples of the kinds of direction that may be given to a service provider under subsection (2):

(a) a direction that the provider implement effective administrative systems for monitoring compliance with a service provider rule;

(b) a direction that the provider implement a system designed to give the provider's employees, agents and contractors a reasonable knowledge and understanding of the requirements of a service provider rule, in so far as those requirements affect the employees, agents or contractors concerned.

(4) A service provider must not contravene a direction under subsection (2).

10 Section 564 of the Telecommunications Act empowers the Court to grant "restraining injunctions" and/or "performance injunctions" in the event of a person engaging in conduct in contravention of the Act or failing to comply with the Act. It was pursuant to this provision that the current proceedings were instituted. 11 The provisions relating to pecuniary penalties are contained within Part 31 of the Telecommunications Act, comprising sections 569 to 572. The following provisions are relevant here: Part 31 - Civil penalties 569 Simplified outline The following is a simplified outline of this Part: · Pecuniary penalties are payable for contraventions of civil penalty provisions. 570 Pecuniary penalties for contravention of civil penalty provisions (1) If the Federal Court is satisfied that a person has contravened a civil penalty provision, the Court may order the person to pay the Commonwealth such pecuniary penalty, in respect of each contravention, as the Court determines to be appropriate. (2) In determining the pecuniary penalty, the Court must have regard to all relevant matters, including: (a) the nature and extent of the contravention; and (b) the nature and extent of any loss or damage suffered as a result of the contravention; and (c) the circumstances in which the contravention took place; and (d) whether the person has previously been found by the Court in proceedings under this Act to have engaged in any similar conduct. (3) The pecuniary penalty payable under subsection (1) by a body corporate is not to exceed: (a) in the case of a contravention of subsection 68(1) or (2) or 101(1) or (2) - $10 million for each contravention; or (b) in any other case - $250,000 for each contravention. (4) The pecuniary penalty payable under subsection (1) by a person other than a body corporate is not to exceed $50,000 for each contravention. (5) If conduct constitutes a contravention of 2 or more civil penalty provisions, proceedings may be instituted under this Act against a person in relation to the contravention of any one or more of those provisions. However, the person is not liable to more than one pecuniary penalty under this section in respect of the same conduct. This subsection has effect subject to subsection (6). (6) If conduct constitutes a contravention of : (a) section 68 or 101; and (b) one or more other civil penalty provisions; proceedings must not be instituted under this Act against the person in relation to the contravention of section 68 or 101, as the case may be. (7) In this section: this Actincludes the Telecommunications (Consumer Protection and Service Standards) Act 1999 and regulations under that Act. 571 Civil action for recovery of pecuniary penalties (1) The Minister, the ACA or the ACCC may institute a proceeding in the Federal Court for the recovery on behalf of the Commonwealth of a pecuniary penalty referred to in section 570. (2) A proceeding under subsection (1) may be commenced within 6 years after the contravention. (3)…. 572 Criminal proceedings not to be brought for contravention of civil penalty provisions Criminal proceedings do not lie against a person only because the person has contravened a civil penalty provision. 12 Sub-sections 101(1) and 101(2) of the Telecommunications Act are specified in sub-section 101(3) to be civil penalty provisions.

Factual background - vIPER 13 Viper was established as an internet service provider in 1996. Mark Russell was its founder and remains its sole director. In an affidavit prepared for these proceedings Mr Russell set out Viper's present financial position. Without going into details, it is precarious. If Viper were to incur a further significant liability it would be, as Mr Russell describes it, "the last straw" which would probably lead to the winding up of the company. 14 On 17 September 1999 a remedial direction under s 102(2) of the Telecommunications Act was sent by the ACA to Viper requiring it to enter into the TIO scheme within fourteen days of receipt of the direction. It was received on 21 September 1999. There was no response. 15 On 16 December 1999 the ACA commenced the present proceedings. On 7 February 2000 and again on 4 May 2000, when the proceedings were pending, Viper forwarded an "application" to join the scheme. In each case the application form was altered so as to delete reference to the company TIO Limited. The form also had the words "under duress" inserted under Mr Russell's signature. 16 On 22 November 2000 I delivered my judgment in relation to the two preliminary questions which had been raised by the parties. In it I made findings that, first, it was a legislative requirement that each eligible service provider become a member of TIO Limited, and secondly, that the applications lodged by Viper on 4 May 2000 and Albury on 2 May 2000 were not valid applications to enter into the TIO scheme. 17 On 28 November 2000 Mr Russell downloaded an application to join the TIO scheme from the TIO's website. He completed the form that day and returned it to the TIO. As it transpired, on 16 November 2000 the Memorandum and Articles of Association of TIO Limited had been amended in a manner which affected the membership application form. However the form itself, as shown on the TIO's website, had not yet been altered. Consequently, on 29 November 2000 and again on 19 December 2000, the TIO wrote to Viper requesting that an amended form be completed and returned. Mr Russell said that neither of these letters were received by Viper or himself, at least before 24 January 2001 when his barrister showed him an affidavit filed on behalf of the ACA annexing copies of these letters. The next day, 25 January 2001, Mr Russell said that he again visited the TIO's website and downloaded an updated membership form. He completed the form on behalf of Viper and faxed it the TIO on the same day, 25 January 2001. The TIO had no record of receiving this form. 18 The result was that, at the commencement of the hearing on pecuniary penalties, the ACA was under the impression that Viper had not sought valid membership of the TIO scheme. Mr Russell, on the other hand, was under the impression that a valid application had been sent on 25 January 2001. When the actual situation became apparent Mr Russell, on the day of the hearing, lodged a further application form on behalf of Viper. At that point Viper became a member of the TIO scheme. 19 I accept that the sequence of events just described was the result of genuine confusion. There was some suggestion on the part of the ACA that Mr Russell, on behalf of Viper, was being deliberately disruptive in relation to joining the TIO scheme. However it was not Mr Russell's or Viper's fault that the application form which was downloaded from the TIO website on 28 November 2000 did not correctly represent the then current Articles of Association of TIO Limited. Had the currently applicable application form been available, then Viper would have become a member of the scheme at that time. 20 According to Ms Jane Hill, the secretary of TIO Limited and administration manager of the TIO scheme, all complaints received by the TIO are logged into a computerised complaint management system. An examination of these records revealed that between February 1998 and July 1999 three complaints were received by the TIO which probably related to Viper. A fourth complaint might also have related to Viper. Each complaint was initially classified as a level one complaint, being a complaint that can be resolved at the time the consumer calls the TIO, or within two working days. However Ms Hill said that it was possible that on further investigation these complaints, or some of them, might have been allocated a higher classification, indicating that they were a more serious complaint requiring a longer time frame to resolve. As Viper was not a member of the TIO scheme at the time of these complaints no further action could be taken in relation to them. 21 The TIO's ongoing operational costs are funded according to a formula based on each member's share of complaints made to the TIO. A member as to whom no complaints are made will bear no liability in this regard. At the time the TIO received the complaints which probably related to Viper, the cost to members of receiving a level one complaint was fifteen dollars. However the TIO had determined to waive payment from members in relation to the first four category one complaints made each quarter. Accordingly, had Viper been a member of the TIO scheme, it would have incurred no liability to contribute to the TIO's expenses by virtue of these complaints.

Factual Background - Albury 22 Albury is, as its name implies, based in Albury. According to Ross Wheeler, who commenced the enterprise and is its managing director, Albury was one of the first regional internet service providers to operate in Australia. It commenced operations over five years ago and now employs six staff. It services a large area of rural and regional Australia. Its financial position is substantially more secure than that of Viper. However, as Mr Wheeler notes, any significant unexpected liability might affect its viability. 23 On 16 December 1997 the ACA wrote to Albury noting that it had failed to join the TIO scheme and pointing out the legislative requirement that internet service providers do so. On 20 May 1998 Mr Wheeler completed a membership application form. As with Viper, the form was altered so as to delete all references to the company, TIO Limited. The words "under duress" were added to Mr Wheeler's signature. In a covering letter Mr Wheeler set out a number of his concerns as to the operation of the TIO scheme. 24 It must be assumed that this application was rejected, for on 17 November 1998 and again on 26 February 1999 the ACA wrote to Albury requesting that it take necessary steps to join the TIO scheme. In an undated letter Mr Wheeler responded on behalf of Albury saying that the company was prepared to join the TIO scheme but not to become a member of TIO Limited which, he suggested, was not the same as the TIO scheme. He expressed concern as to the financial implications of joining the company. If there were adequate safeguards in place, he said, Albury would be happy to join the scheme. However it would not "voluntarily write a blank cheque to anyone for anything". 25 On 31 March 1999 the ACA wrote to Albury addressing some of the concerns raised in Mr Wheeler's letter. On 13 May 1999 a formal warning was sent to Albury to join the TIO scheme. On 26 May 1999 a remedial direction was sent to Albury pursuant to s 102(2) of the Telecommunications Act. In the meantime Albury submitted a further application to join the TIO scheme which was altered in the same manner as described in par [23] above. This was rejected by the TIO. 26 At about that time Mr Wheeler learnt that there was provision, in s 129 of the CP Act, to claim exemption from the requirements of s 128. On 7 June 1999 Mr Wheeler wrote to the TIO indicating his intention to seek exemption and requesting that his application be considered urgently. A formal application for exemption with a lengthy covering letter was faxed to the ACA on 15 June 1999. On 16 August 1999 the ACA rejected this application. On 16 September 1999 Albury requested a reconsideration of this decision. The following day, 17 September 1999, the ACA sent to Albury a remedial direction dated 16 September 1999 pursuant to s 102(2) of the Telecommunications Act requiring that Albury enter into the TIO scheme. On 16 November 1999 the ACA gave a decision on Albury's application for reconsideration of the decision not to exempt it from the requirements of s 128. The original decision was affirmed. 27 After this decision some discussion took place between Mr Munslow of the ACA and Mr Wheeler as to the possibility of Albury seeking review of this decision from the Administrative Appeals Tribunal. However Mr Wheeler decided against this course. 28 On 13 March 2000 the ACA commenced the present proceedings against Albury based upon its failure to comply with the remedial direction under s 102(2) of the Telecommunications Act and seeking identical relief to that claimed against Viper. As indicated, the two proceedings were later consolidated. The issue relating to pecuniary penalties requires separate consideration in relation to each respondent for reasons which will emerge shortly. However all other issues in the proceedings have been common between them. 29 As mentioned, on 22 November 2000 I delivered judgment confirming that s 128 of the CP Act requires internet service providers to become members of TIO Limited. On 27 November 2000 Mr Wheeler submitted an application form on behalf of Albury, which then became a member of the TIO scheme. 30 An examination of complaints received by the TIO failed to reveal any complaints received against Albury. It must therefore be assumed that no such complaints were made.

parties' submissions - Viper 31 Dr Griffiths, who appeared for the ACA throughout the proceedings, furnished written submissions in which he discussed the matters referred to in s 570(2) of the Telecommunications Act. These considerations are, of course, non-exclusive. Dr Griffiths also submitted that there is a public interest in all carriage service providers joining the TIO scheme. The scheme is intended to provide industry-wide consumer protection which can only be achieved if all eligible service providers participate in it. By not joining the scheme Viper, it was submitted, was avoiding the consumer accountability which it is designed to provide. 32 In relation to the matters specified in s 570(2), the ACA submitted that, given that the statutory obligation to join TIO Limited arose on 1 July 1997 when s 246 of the Telecommunications Act commenced, Viper was in contravention of its obligation for over three and a half years. Moreover its failure to join TIO Limited was the subject of repeated correspondence between the ACA and Viper since at least mid 1999. Despite receiving two remedial directions, Viper continued to refuse to join TIO Limited. 33 As to the nature and extent of any loss or damage resulting from Viper's contravention (s 570(2)(b)), the ACA relied upon the fact that several complaints were received by the TIO relating to Viper which were unable to be investigated because of lack of jurisdiction. It may be inferred, it was submitted, that the relevant complainants were disadvantaged by their inability to have their complaints investigated by the TIO. 34 Section 570(2)(c) refers to the circumstances in which the contravention occurred. In this regard the ACA conceded that Viper had expressed various objections to joining the TIO Scheme as operated by TIO Limited. In ACA's submission, Viper had two principal options open to it. They were: (a) To join TIO Limited under protest and then bring legal proceedings raising the question of whether the company was legally obliged to join TIO Limited; or (b) Not to join TIO Limited, thereby exposing the company to a pecuniary penalty and other enforcement action, and raising the issue of statutory construction collaterally in any enforcement proceedings brought against it. 35 Option (a) was the more responsible course, it was submitted, but Viper elected to follow option (b), thereby prolonging its non-membership of the TIO Scheme and exposing itself to a pecuniary penalty once its contentions were rejected. 36 The ACA conceded that no issue under s 570(2)(d) arises in that no previous contraventions have been committed by Viper. 37 In general, the ACA submitted that a primary consideration in determining whether to impose a pecuniary penalty (and, if appropriate, the amount of the penalty) is that of deterrence. In this regard, it was pointed out that Viper and Albury were not the only internet service providers who had failed to join the TIO scheme. The TIO Annual Report for 1999-2000 noted that during that year the TIO had referred seven providers to the ACA for enforcement action. The report went on to state: "Two ISP's have effectively challenged a direction by the ACA to join the TIO Scheme and the ACA has commenced enforcement action in the Federal Court. The position of a number of other ISP's who have also failed to join the TIO is dependent on the outcome of these proceedings." 38 The ACA submitted that these matters highlight the appropriateness of imposing a pecuniary penalty which has a deterrent effect on other service providers who have thus far failed to join the TIO scheme. 39 Also on the issue of deterrence, Dr Griffiths tendered documents downloaded from Viper's website in which Mr Russell detailed the history of his dealings with the ACA and the TIO. It was headed "TIO Exposed as Fools". At one point, in June 1999, Mr Russell commented: "Oh shit will these guys ever learn, now they want my PC hardware supplying company to join their poxy little scheme. If you have already joined this scheme I would be VERY VERY worried." A little later he commented: "I think these guys need beating with a Clue Stick." 40 The address given for comments was "TIO@sux.dot.com". Mr Russell was asked about this by Dr Griffiths, and said that "sux" stands for "Sydney Unix Club", Unix being an operating system. 41 Dr Griffiths pointed to the generally contemptuous nature of this material, and the fact that it was available to any interested member of the public. In particular he submitted that the statement "If you have already joined this scheme I would be VERY VERY worried" may well have encouraged other internet service providers to desist from joining the TIO scheme. 42 In the light of all these considerations, the ACA submitted that an appropriate pecuniary penalty in respect of Viper was in the range of $5,000 to $7,500. This, as will be seen, is higher than the range suggested in relation to Albury. The distinguishing features between them, according to the ACA, are the fact that TIO has received complaints against Viper which were unable to be investigated, but none against Albury. In addition, Viper's public and contemptuous comments about the TIO and the TIO scheme are relevant to the issue of deterrence. 43 Mr Tyson, who appeared for Viper on this aspect of the proceedings, submitted that this is not an appropriate case for the imposition of pecuniary penalties. As to the nature and extent of the contravention (s 570(2)(a)), Mr Tyson submitted that it was an over-simplification to suggest, as the ACA had done, that Viper's contravention lasted for over three and a half years. Certainly the legislative requirement to join the scheme commenced in July 1997. However the ACA's proceedings against Viper were commenced in December 1999, after which the issue became one for determination by the Court. In any event, Viper's failure to comply with the ACA's remedial directions was motivated by a genuine belief that it was unnecessary to join TIO Limited in order to join the TIO scheme. At that stage, Mr Russell had received no legal advice on the issue. It was pointed out that the legislative scheme is a complex one, even for lawyers. People in Mr Russell's position could not be expected to understand its various ramifications. 44 As to any damage or loss suffered as a result of the contravention (s 570(2)(b)), Mr Tyson relied upon the fact that any complaints received in relation to Viper were level one complaints, namely complaints that should take less than ten minutes to resolve with no requirement for the TIO member to notify the TIO of the outcome of the complaint. In any event, the TIO's records show that less than 50 per cent of all complaints received by the TIO were resolved in favour of complainants. It therefore could not be assumed that each of these complaints was a legitimate one. 45 As to the circumstances in which the contravention took place (s 570(2)(c)), Mr Tyson pointed out that, in one sense, Viper did attempt to adopt option (b) (referred to in par [34] above) when it submitted its membership application form with the deletion of references to "TIO Limited". 46 In general it was submitted that the existence of a contravention is a necessary but not a sufficient pre-condition for the imposition of pecuniary penalties. The applicant would need to show that there was something about the applicant's conduct that was reprehensible and which justified the Court in imposing a penal sanction. No such feature has been displayed in this case, it was suggested. Mr Tyson did not cavil with the ACA's submission that there is a "clear public interest in the enforcement of the Act". However he submitted that it by no means followed, as a matter of logic or practicality, that the Court should impose a pecuniary penalty in respect of each contravention of the Act. He pointed out that shortly after my judgment of 22 November 2000 Mr Russell, on behalf of Viper, took all appropriate steps to seek membership of TIO Limited. The fact that this turned out to be ineffective, thereby delaying Viper's membership by some two months, was a result of a series of mishaps and not to any delaying tactics on the part of Viper.

Parties' submissions - Albury 47 In general the ACA relied upon the same submissions in relation to Albury as noted in relation to Viper. However, no complaints had been received in relation to Albury and there was therefore no identifiable loss or damage arising from Albury's contravention, as referred to in s 570(2)(b). It was conceded that Mr Wheeler, on behalf of Albury, had taken steps to obtain exemption from the requirements of s 128 of the CP Act. Mr Wheeler had not made public the details of his clashes with the TIO or the ACA, as Mr Russell had done. Accordingly the demands of deterrence were not so strong in the case of Albury. 48 Taking into account these distinctions, the ACA submitted that the appropriate range of penalty in the case of Albury was between $2500 and $4000. 49 Mr Davidson, on behalf of Albury, submitted that the only appropriate result should be that no pecuniary penalty be awarded against Albury. He pointed out that there was no compelling reason for the ACA to commence court proceedings against Albury given that the proceedings against Viper, involving apparently identical issues, were already underway. It was submitted that Albury's contravention was "technical in the extreme", given that there was a real issue of construction in relation to complex legislative provisions. Mr Davidson suggested that the ACA's approach in seeking pecuniary penalties, particularly given the small amount claimed, "has wasted the time of all relevant parties and has added unnecessarily to the costs". It has also contributed to the stress and other difficulties faced by Albury and Mr Wheeler. In his oral submissions, Mr Davidson referred to press releases put out by the ACA dealing with the litigation against Albury and Viper and suggested that Albury has already suffered public humiliation as a result of the stand it took. Similarly, any demands of deterrence were thoroughly met by the favourable ruling obtained by the ACA in November 2000 and the resultant publicity.

Discussion of issues 50 In my view it is not appropriate to impose pecuniary penalties upon either of the respondents. I accept, as the respondents' counsel have suggested, that something more than a mere contravention of the legislative provisions must be shown. A consideration of the matters referred to in s 570(2) must show a contravention which is in some degree culpable. Alternatively, and probably more importantly, there must be material to suggest that the imposition of pecuniary penalties will have a real deterrent effect upon others who are or might be in contravention of the Act. Neither of these features have been demonstrated here. 51 It is not disputed that both Viper's and Albury's refusal to join TIO Limited was motivated by their genuine concern as to the financial and other consequences of membership of the company and their belief that, in order to join the TIO scheme, it should not be necessary to become members of TIO Limited. Their belief in this regard was found to have been misplaced and erroneous in law. Shortly afterwards they both took steps to obtain membership of TIO Limited. Accordingly, although I cannot subscribe to Mr Davidson's view that either respondent's contravention was "technical in the extreme", there were clear ameliorating features. 52 As to any losses arising from the contraventions, no complaints had been lodged against Albury before it became a member of TIO Limited in November 2000. The three or four complaints lodged against Viper were, it would seem, of a minor nature only. They would not have resulted in any financial obligation upon Viper to contribute to the expenses of the TIO. 53 Accordingly there is nothing in a consideration of the matters referred to in s 570(2) to suggest any particular culpability on the part of either respondent in relation to their admitted contravention of the legislation. 54 In relation to the issue of deterrence, the ACA relied upon the fact that there are a number of other internet service providers who had, at least in 1999 to 2000, failed to join the TIO scheme. But, as the respondents' counsel pointed out, there is nothing to suggest that the imposition of pecuniary penalties will have any impact whatsoever upon these other carriers. 55 As to the material relating to Viper, it is, in my view, unlikely in the extreme that any comments appearing on Mr Russell's website would have encouraged other internet service providers to refrain from joining the TIO scheme. Certainly Mr Russell displayed a degree of contempt for the TIO and the ACA in his publicly available statements. This however must be looked at in the context of the dealings between them at the time. Whilst in no ways condoning Mr Russell's expressed attitudes, I do not believe that this can make the difference between an appropriate and an inappropriate case for the imposition of pecuniary penalties. 56 On the issue of costs, it was agreed by all parties that, as the ACA's claim for pecuniary penalties has constituted a discrete portion of the proceedings, costs should follow the event on this issue. Accordingly I propose to order that the ACA pay each respondent's costs relating to the issue of pecuniary penalties. I certify that the preceding fifty-six (56) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Mathews.

Associate: Dated: 5 April 2001 Counsel for the Applicant: Dr J Griffiths

Solicitor for the Applicant: Australian Government Solicitor

Counsel for the Second Respondent: Mr I E Davidson

Date of Hearing: 20 February 2001