THE TRIBUNAL'S DECISION AND REASONS
28 As part of its own management practices, Brightstar prepares monthly financial statements, which are audited annually for the purposes of consolidation in the accounts of Brightstar Corporation. While the form of those financial statements and the content of the auditor's reports may not necessarily constitute compliance with Division 2M.2 and Division 2M.3, the Tribunal characterised that as a matter of form rather than of substance.
29 The Tribunal observed that, where a corporation's financial statements are duly audited and its financial affairs involve relatively few creditors, the benefits of compliance with the relevant requirements of lodging reports with the Commission may be difficult to assess and might be justifiably characterised as minimal. However, the Tribunal considered that the absence of a significant expected benefit arising from compliance with the relevant lodgement requirements of the Corporations Act does not require a conclusion that compliance would necessarily involve an unreasonable burden. Rather, the Tribunal considered that the primary emphasis must be on assessment of the nature and extent of the apprehended burden and whether it should be assessed as sufficiently unreasonable to justify an order relieving a company from compliance.
30 The Tribunal summarised Brightstar's contentions as follows:
· There is no real or significant benefit to be derived from compliance with the lodgement requirements of Division 2M.3.
· Lodgement of the relevant reports would allow Telstra or Brightstar's competitors or suppliers to estimate Brightstar's profitability meaningfully, particularly in relation to its handset sourcing arrangements with Telstra.
· Such disclosure and the analysis that it would facilitate could be used to the detriment of Brightstar.
· That detriment could extend to the loss of the contractual arrangements between Brightstar and Telstra and could lead to major adverse effects on Brightstar's employees, creditors and investors.
The Tribunal considered that that summary of Brightstar's contentions highlighted the emphasis placed by Brightstar on the comparison between expected benefit and apprehended burden. However, the Tribunal considered that, while the statutory criteria permits such a comparison, the exercise of the power to relieve under s 340(1) is not dictated by the result of the comparison. The Tribunal considered that it was relevant, independently of any consideration of the benefit of compliance, to consider the nature of the apprehended burden and the mechanism by which the cause of that burden is apprehended.
31 The Tribunal accepted that lodgement of the relevant reports would result in a motivated inquisitor concluding that Brightstar was deriving both substantial revenue and profit from the totality of its arrangements with Telstra. The Tribunal also accepted that such an inquisitor would be able to make a reasonably accurate differentiation between the financial performance of Brightstar's logistics services for Telstra, on the one hand, and the remainder of its Telstra business, on the other. However, the Tribunal did not accept that such an inquisitor:
· would be able to differentiate further between Brightstar's advisory functions and its product sourcing activities on Telstra's behalf (Finding 4.a);
· would either assume that Brightstar's advisory functions were remunerated merely on [a particular basis as alleged by Brightstar] or that Brightstar was not incurring any significant costs in relation to its product sourcing business (Finding 4.b);
· would, even if it analysed Brightstar's financial statements and calculated the profit proportion mathematically equivalent to its own market share of Telstra's product range, would characterise that share as a discount it was either giving away to Brightstar or that it could relevantly apply to Brightstar's disadvantage (Finding 4.c).
The Tribunal gave four reasons for those conclusions.
32 The first reason is that it was most unlikely that anyone familiar with the complexity and competition in the market place for the relevant products would realistically expect that Brightstar would be able to extract significant revenue from its dealings with Telstra merely by onselling handsets after imposing a mark-up. Rather, the relevantly informed inquisitor would know that there was no such mark-up under Brightstar's back to back product invoicing arrangements with Telstra.
33 The second reason is that the motivated inquisitor would understand that Brightstar's remuneration arrangements with Telstra would most likely not be confined to mere fee for service charges. The Tribunal found that commission incentive arrangements are commonplace and that the likelihood of an incentive fee arrangement was even greater where the monetary value of the real commercial benefit cannot fairly and reasonably be measured by reference to the costs incurred in providing the service.
34 The third reason is that the motivated inquisitor would understand that one of the principal functions of Brightstar's advisory services to Telstra was to assist Telstra in its product planning and acquisition. The informed inquisitor would apprehend that, whatever their precise nature, the detailed remuneration arrangements between Brightstar and Telstra would be complex and that complexity would likely preclude any useful inferred differentiation for the purpose of analysing the significance of Brightstar's trading statement profitability, between the impact of Brightstar's activities related to initial product acquisition and the effect of its ongoing advisory functions (Finding 4.d). Rather, the motivated inquisitor will expect that Brightstar has some kind of incentive arrangement with Telstra.
35 The fourth reason is that the motivated inquisitor would be embarking on a very uncertain exercise in assuming that its own product market share relevantly corresponded with any proportion of Brightstar's inferred profit (Finding 4.e). The Tribunal considered that the task that Brightstar hypothesised in its contentions, and sought to illustrate in its evidence, stopped at what the Tribunal characterised as a merely banal conjecture that an individual supplier's market share meaningfully corresponds to a proportion of Brightstar's trading result. The Tribunal observed that Brightstar did not pursue any analysis that would illustrate how individual suppliers might realistically use the hypothesised information in their actual product pricing. Rather, Brightstar's contention was left at the proposition that, having calculated their percentage contribution to Brightstar's profit, a motivated supplier could then simply offer Telstra a corresponding discount. The Tribunal characterised that proposition as deceptively and unrealistically simplistic.
36 The Tribunal did not accept that the revenue and costs information that would be provided by Brightstar's accounts would result in suppliers being likely to conclude that Brightstar's revenue was quantifiably and reliably related to the supplier's market share of Telstra's product acquisition. Nor did the Tribunal accept that suppliers would in any sense characterise Brightstar's revenue as money that the suppliers were merely "giving away" to Brightstar. Rather, the Tribunal considered that suppliers would have no reasonable basis for any such conclusion, since suppliers neither know, nor could they determine from Brightstar's financial statements, any meaningful details of the remuneration arrangements with Telstra.
37 The Tribunal considered that all suppliers would know that they had agreed on pricing that was acceptable to them with full knowledge of a commercial environment in which Telstra has long and loudly declared both its intention, and its success, in achieving savings as a result of its arrangements with Brightstar. However, that commercial background does not demonstrate, the Tribunal considered, that Telstra's savings reflect a corresponding cost or loss that has been inflicted on the product suppliers (Finding 4.f). The Tribunal considered that that background was not a context that justified an apprehension that suppliers would be influenced to offer corresponding, or greater, discounts to Telstra, merely for the purpose of eliminating Brightstar's future involvement with Telstra (Finding 4.g).
38 The Tribunal said that Brightstar's apprehensions about the consequences of lodgement of reports principally concerned the conduct of product suppliers and, to a considerably lesser extent, other competitors. The Tribunal said that Brightstar apprehended that lodgement of the relevant report would, or at least might, provide either suppliers or competitors with sufficiently improved information and awareness to be able to quantify competitive propositions that Telstra would find attractive. Telstra could then either acquire products outside the ambit of the Umbrella Agreement or, ultimately, not renew the Umbrella Agreement and replace it with other arrangements, including provisions for competitive tender.
39 The Tribunal accepted, at a level of generality, the contentions advanced by Brightstar as to its apprehensions. Brightstar contended to the Tribunal that its apprehensions should be assessed, not just on the balance of the probability of their occurrence, but whether or not they are merely possible, rather than probable, occurrences. The Tribunal considered that an inescapable consequence of Brightstar's reluctant acknowledgement that lodging the relevant reports was unlikely to affect Telstra, is that it was similarly unlikely to afford any meaningful opportunity to suppliers (Finding 4.h). Brightstar submitted to the Tribunal that even a small likelihood of detriment could be a determinative consideration if the actual nature and extent of the detriment was sufficiently significant. In particular, Brightstar contended that, in assessing the benefits and burdens of compliance with the lodgement requirements, the Tribunal should not lightly, or indeed at all, put aside the considered apprehensions of Brightstar's experienced executives and directors, given their intimate knowledge of the complex, competitive commercial environment in which Brightstar operates and the very large monetary values involved in that environment.
40 However, the Tribunal was not satisfied that lodgement of the relevant reports would materially, or even meaningfully, increase either the commercial incentives for disruption of Brightstar's commercial arrangements with Telstra or the information that might materially influence the ability of others to act effectively on those incentives (Finding 4.i). The Tribunal gave six reasons for that conclusion.
41 First, Telstra embarked on its comprehensive and complex contractual relationship with Brightstar because of the advantages Brightstar promised in relation to Telstra's proper acquisition and management costs. Telstra is well satisfied with Brightstar's performance and has taken no steps to deal with other suppliers or competitors outside the terms of the Umbrella Agreement. Telstra is probably highly unlikely to be inclined to replace its arrangement with Brightstar if that means going back to a situation where it would have to deal directly with product suppliers (Finding 4.j).
42 The second reason is that the extent of Telstra's satisfaction poses very considerable difficulties for individual product suppliers and other competitors in providing Telstra with a sufficient incentive to depart from such an apparently satisfactory relationship. It is only if suppliers could either assume a substantial part of Brightstar's existing advisory functions or dissuade Telstra from the current extent of its satisfaction, that the future operation of the Umbrella Agreement would be jeopardised. The Tribunal considered that neither of those possibilities could be assessed as at all likely. The Tribunal found that that assessment would not be materially affected by lodgement of relevant reports with the Commission (Finding 4.k). The Tribunal found that, while the possibility of effective and increased competition for Brightstar could not be entirely discounted, it is not at all likelythat the prospect would be meaningfully increased by the lodgement of relevant reports.
43 The third reason is that even if a motivated inquisitor could use the revenue and expenses disclosed in the relevant reports to determine a supposed range for the profitability of Brightstar's product sourcing business, that determination would not provide any meaningful information about the way in which the revenue was generated or about the complexity of the services and performance criteria that apply under the Umbrella Agreement. The Tribunal was not persuaded that whatever prospects a supplier or potential competitor might have would be materially influenced by lodgement of the relevant reports since it would be extremely difficult for a new potential supplier or other competitor to provide Telstra with any real incentive to depart from the substance of the arrangements between Brightstar and Telstra (Finding 4.l).
44 The fourth reason is that Brightstar's intermediary role between Telstra and suppliers is well known. That role involves highly skilled consultation and negotiation designed to promote the relevant advantage of both Telstra and the product suppliers. Suppliers have themselves benefited from the growth of Telstra's own purchasing volumes. The Tribunal found that, against that background, there was very little justification to apprehend that lodgement of the relevant reports would be at all likely to affect Brightstar adversely.
45 The fifth reason described by the Tribunal derives from the fact that Brightstar's remuneration from Telstra is influenced by the pricing of product manufacturers and those of any other product supplier. However, the details of those sensitivities do not operate in a way that provides either any real incentive for Telstra, or opportunities for others, to precipitate termination or abandonment of the Umbrella Agreement. Accordingly, lodgement of the relevant reports by Brightstar seems highly unlikely to provide any material causal influence on either product price competition or competition about the details of Brightstar's remuneration arrangements with Telstra.
46 The Final reason is the Tribunal's assessment that it was highly improbable that lodgement of the relevant reports would pose any real risk to the continuation of the Umbrella Agreement. The Tribunal considered that, even if that termination was contemplated, it was another matter to conclude that Brightstar's potential detriment should be assessed on the basis that its product sourcing revenue would entirely end. The Tribunal considered that that conclusion was highly unlikely, given the history of Brightstar's proven satisfactory performance in its dealings with Telstra. The Tribunal found that Brightstar's financial success under the Umbrella Agreement was not materially attributable to the mere fact of its contractual status as an exclusive product supplier to Telstra, but was directly related to the quality of its services, the extent of its skill and its own commercial advantages. The Tribunal concluded that, even in the very unlikely event of the termination of the Umbrella Agreement, Brightstar would itself be an interested and very likely successful new contractor with Telstra (Finding 4.m).
47 The Tribunal then summarised the nature and extent of the financial detriment apprehended by Brightstar. The Tribunal concluded that lodgement of the relevant reports was most unlikely to contribute towards either termination of the Umbrella Agreement or to competitive behaviour that would lead directly to reduction of the sourcing revenue Brightstar derives from the operation of the Umbrella Agreement with Telstra. The Tribunal considered that the most that could realistically be said was that financial statement disclosure might increase the level of scrutiny of the nature and effect of the contractual arrangements between Telstra and Brightstar. The Tribunal considered that the nature of the market in which Brightstar operates must already contain very significant incentives to scrutiny and assessment of Brightstar's performance and that that scrutiny would almost inevitably be conducted against a background of very well educated estimates of Brightstar's level of revenue and profitability.
48 While the Tribunal considered that there was a measure of justification for Brightstar's general apprehension of increased commercial scrutiny, it was not satisfied that lodgement of the relevant reports would in fact materially increase either the real incentives for critical evaluation of Brightstar's dealings or materially influence commercial and competitive behaviour in response to them (Finding 4.n). The Tribunal found that Brightstar had thrived in the existing commercial environment in which it operates and that it would not likely be materially burdened and certainly not unreasonably burdened, by the disclosure that will flow from lodgement of the relevant reports.
49 The Tribunal concluded that there was no unreasonable burden for Brightstar in lodging the relevant reports with the Commission. The Tribunal was prepared to accept that there was much interest in, and considerable public importance reputedly attached to, the efficiency and effectiveness of the telecommunications industry and that Telstra is a major Australian corporation with enormous revenues and significance to the Australian economy. Accordingly, at least at that level of generality, audited financial statements in relation to Brightstar in lieu of existing public information was desirable and therefore preferable. Against that preference, the Tribunal considered Brightstar's apprehension that lodging the relevant reports might jeopardise its existing commercial arrangements.
50 While the Tribunal considered that that apprehension has a basis in reason, it was not directly related, in any sufficiently persuasive way, to the burden of compliance itself. The Tribunal characterised Brightstar's apprehension as being much more related to the fact that it operates in an area where revenues are enormous and competitive incentives and imperatives correspond in their magnitude. The Tribunal considered that there was little reason to apprehend that Brightstar would not continue to maintain the confidence of both the suppliers with which it deals and Telstra, the only customer who provides its revenue. The Tribunal found no significant persuasive reason to accept that its capacity to do so would be unreasonably influenced by the consequences of lodging the relevant reports.
51 The Tribunal found that, while the disclosure that would follow from lodging the relevant reports would reveal the true value of Brightstar's revenue, profit and costs, it would not provide any information that could be used in any real, or meaningfully unreasonable, way, adverse to Brightstar's interests. The Tribunal gave two reasons. First, the information is unlikely to differ materially from the existing reasonable expectations that Telstra and Brightstar's suppliers and competitors are capable of drawing from the existing information and knowledge available to them (Finding 4.o). The second reason was the nature of Brightstar's activities and the details of its relationship with Telstra, particularly the terms of its remuneration entitlements under the Umbrella Agreement.
52 The Tribunal considered that the complexity of the integers that affect the pricing of the products with which Brightstar's activities are concerned, and the details of its entitlements under the Umbrella Agreement, were not such as to satisfy the Tribunal that lodging the relevant reports would be at all likely to burden Brightstar, other than by some potential, and marginal, increased scrutiny of the quality of its service performance under the Umbrella Agreement. The Tribunal did not consider that that increased scrutiny constituted an unreasonable burden upon Brightstar.