Seven Network Limited v News Limited

Federal Court of Australia|2005-04-29|Before: Sackville J

background 13 The effect of the First and Last Deed, as pleaded in par 96 of the Fourth Further Amended Statement of Claim ('FASC') is as follows: (i) the AFL can negotiate with any party other than Seven Network (and its associates) (the 'Third Party') for the grant of an exclusive licence of the free-to-air television rights to AFL matches (the 'Third Party Licence'); (ii) prior to granting such a licence, the AFL must offer to grant an exclusive licence of the same rights to Seven Network on the same terms; and (iii) if Seven Network rejects this offer, the AFL must not grant any licence of the free-to-air television rights to AFL matches to any person except by granting a licence to the Third Party on the terms of the Third Party Licence. 14 It is common ground that the First and Last Deed applied to the bidding for the AFL broadcast rights to the 2002-2006 seasons and that it also applies to the bidding for the rights to the 2007-2011 seasons. As I have noted, Seven Network has announced that it has given notice to the AFL to include Network Ten as a party to the First and Last Deed in relation to the rights for the 2007-2011 seasons. 15 In assessing the relevance to the issues in dispute of the documents sought in the notice to produce, reference should be made to the so-called anti-siphoning regime established under the Broadcasting Services Act 1986 (Cth), ss 99, 115(1), Sch 2, Pt 6, cl 10(1)(e). It is common ground that the effect of the regime is that a subscription television licensee (that is, the operator of a pay television service) cannot acquire the rights to televise any event on the anti-siphoning list (specified in a notice under s 115(1)) unless:

the Australian Broadcasting Corporation ('ABC') or the Special Broadcasting Service Corporation ('SBS'); or
a free-to-air television licensee whose broadcasting services cover at least fifty per cent of the Australian population, already has the right to televise the event live on its broadcasting service. 16 All AFL matches are on the anti-siphoning list. Thus no subscription television licensee can acquire the right to televise AFL matches unless and until a free-to-air licensee (or the ABC or SBS) already has the right to televise such matches. Of course, the fact that a free-to-air licensee has the rights to televise AFL matches does not necessarily mean that it will exercise those rights to the full. There seemed to be no dispute that the value of the AFL pay television rights will depend upon the extent to which the rights, in practice, are exclusive. If all eight weekly AFL matches are televised live on free-to-air stations, the rights to broadcast the same matches on pay television will be worth relatively little. If, however, it is known that several of the eight matches will not in fact be broadcast on free-to-air television, the pay television rights to those matches may be quite valuable. 17 The evidence establishes that the recent arrangement between Seven Network and Network Ten addresses, among other things, 'bid parameters including monetary and non-monetary consideration'; the amount and allocation of rights fees between the parties; and specific free-to-air broadcast arrangements for AFL games in particular locations.

reasoning 18 The documents sought by PBL fall into two general categories. The first broadly comprises documents evidencing or recording the terms of any written or oral arrangement or understanding between Seven Network and Network Ten relating to those parties bidding alone or in combination for the broadcast rights for the AFL for any period from 1 January 2007 (pars 1 and 2 of the notice to produce). 19 The second broadly comprises documents brought into existence in the course of negotiating any such arrangement or understanding (pars 3 and 4) or considering the proposed arrangement or understanding (par 5). The second category is, however, limited to documents which relate to or concern any one of the five 'Defined Matters', namely: (a) the capacity of the parties to broadcast different numbers of live AFL matches on free-to-air television; (b) the numbers of AFL matches to be broadcast live and where and by whom the broadcasts are to occur; (c) the likely effect of the arrangement or understanding on the value of any remaining AFL pay television rights or the acquisition price likely to be achieved for those rights; (d) the ability of Seven Network to acquire any remaining AFL pay television rights following entry into the arrangement or understanding; and (e) the likely effect of the arrangements or understanding on future bidding for AFL pay television rights by any person.

category 1 20 PBL puts forward a number of arguments why the documents in the first category are of apparent relevance to the pleaded issues in the proceedings. It is necessary to consider only one of these arguments. 21 The FASC alleges that Foxtel (a partnership comprising the second respondent ('Sky Cable') and the third respondent ('Telstra Media')) acquired the AFL pay television rights in 2001 (par 116). This is said to have occurred in consequence of an arrangement between the AFL and the first respondent ('News'). News is said to have been part of a consortium which was created to acquire the AFL broadcast rights and which did acquire those rights in opposition to Seven Network (pars 100, 103, 104, 116). 22 The FASC pleads (par 193) that by reason of certain matters 'the effect or likely effect of the acquisition by Foxtel of the AFL pay rights is to substantially lessen competition in [several markets, including the 'AFL sports rights pay television market']'. The paragraphs preceding par 193 plead, relevantly, that: (i) following the acquisition by Foxtel of the AFL pay rights and the failure by the second applicant ('C7') to obtain pay television rights to the National Rugby League ('NRL'), C7 is unable to compete with Foxtel in the acquisition of (among other things) AFL television rights (par 188(a)); (ii) there is no effective competition for the acquisition of pay television rights because only Foxtel can compete effectively for them (par 190(d)) and thus there is likely to be no effective competition among purchasers of pay television broadcast rights (par 190(f)); and (iii) Foxtel and Fox Sports can exercise considerable control over the terms on which such rights are sold (par 190(g)). 23 The first category of documents seems to me to be reasonably likely to add to the relevant evidence in the proceedings. The terms of any arrangement or understanding between Seven Network and Network Ten are likely to shed light on the ability of Seven Network (or any associated corporation) to bid for the AFL free-to-air and, more importantly, the AFL pay television rights. For example, the arrangement may well be designed to maximise Seven Network's chances of securing the exclusive pay television rights to some of the AFL matches. Any such arrangement is likely to be relevant to whether (as the FASC alleges) Seven Network can compete with Foxtel in the acquisition of AFL pay television rights; whether there is any effective competition among purchasers of pay television rights; and whether Foxtel can exercise considerable control over the terms on which pay television broadcast rights are sold. 24 It is true that the arrangement or understanding between Seven Network and Network Ten is recent and events pleaded are said to have taken place primarily in 2001 and 2002. Nonetheless, the arrangement between Seven Network and Network Ten may provide evidence relevant to whether Seven Network can establish its case that Foxtel's acquisition of the AFL pay rights substantially lessened or was likely substantially to lessen competition in the AFL sports rights pay television market. I appreciate that the terms of the arrangement between Seven Network and Network Ten are highly confidential. Provided an appropriate confidentiality regime is put in place, however, I do not think that the hardship to Seven Network and Network Ten is such that PBL should be denied production of documents within the first category.

the second category 25 The relevance of the documents within the second category to any issue in the proceedings is less obvious. Paragraphs 3, 4 and 5 of the notice to produce are not limited to documents recording or evidencing an arrangement or understanding between Seven Network and Network Ten. On the contrary, they are expressed in very wide terms so as to include documents recording communications between the parties concerning the making of the arrangement that they have apparently now entered into. PBL has restricted the scope of these paragraphs of the notice to produce by requiring the documents to 'relate to or concern any one or more of the Defined Matters'.

Paragraphs (a) and (b) of the Defined Matters 26 Mr Meagher submitted that the documents in pars 3, 4 and 5, as limited by pars (a) or (b) of the Defined Matters, are relevant to Seven Network's plea (par 153) that there is in Australia a market for the acquisition and supply of pay rights to broadcast AFL matches (described in the FASC as 'the AFL sports rights pay television market'). He pointed specifically to par 153(b)(ii) which pleads that AFL pay television rights are distinct from and are not substitutable for the AFL free-to-air television rights: '(ii) due to capacity constraints on broadcasting hours on free-to-air television, in order for the AFL to obtain maximum value for the AFL rights, it is generally possible to sell both Free-to-Air AFL rights and Pay AFL rights'. 27 Mr Meagher further submitted that the documents sought, as limited by par (b) of the Defined Matters, are relevant to Seven Network's pleading that:

in order for a rights holder to obtain maximum value for broadcast rights to sports events, it is necessary to sell both free-to-air and pay television rights (par 190(e)); and
there is, or is likely to be, no substantial competition between purchasers of pay television sports rights (par 190(g)). 28 Mr Meagher pointed out that in Rural Press Ltd v Australian Competition and Consumer Commission (2003) 216 CLR 53, at 73 [45], Gummow, Hayne and Heydon JJ (with whom Gleeson CJ and Callinan J agreed) observed that the 'views and practices of those within an industry can often be most instructive not only on the question of achieving a realistic definition of the market, but also on the question of assessing the quality of particular competitive conduct…' (Citation omitted.) 29 Paragraph 153(b)(ii) of the FASC supports Seven Network's plea that the pay television rights to AFL matches are distinct from and not substitutable with free-to-air AFL rights. The sub-paragraph does this (somewhat inelegantly) by alleging that due to 'capacity constraints' affecting free-to-air television, in order for the AFL to maximise its returns, it is generally possible to sell both the pay television and free-to-air rights. The thrust of the sub-paragraph is that the AFL can maximise its returns by selling both kinds of rights. The reference to capacity constraints provides the pleader's explanation for the AFL's ability to sell both kinds of rights. 30 Assuming the expression 'capacity constraints' as applied to the live broadcasting of AFL matches has a clear meaning, I accept that it is likely that Seven Network and Network Ten have discussed between themselves the nature of the 'capacity constraints' currently affecting them and how they affect the ability of each network to utilise any free-to-air AFL rights they may succeed in acquiring. I also recognise that the question of apparent relevance is not easy to resolve given that, by hypothesis, the Court does not know what documents might be produced in answer to the notices to produce. No doubt there is always the chance that a party required to produce a wide class of documents will produce some documents that are capable of being tendered in evidence. 31 Nonetheless, I do not think that production of the documents sought in pars 3, 4 and 5 of the notice to produce, as limited by pars (a) and (b) of the Defined Matters, can be said to be reasonably likely to add to the evidence in the case. The actual arrangement between Seven Network and Network Ten may be relevant to whether it is generally possible for the holder of broadcast rights to sell both free-to-air rights and pay television rights. The agreement might be expected, for example, to include provisions allocating the free-to-air and pay television rights between the two networks (assuming that their bid is successful). The proposed allocation may shed light on the significance and worth of each set of rights to the networks. That in turn may be relevant to the existence of the market pleaded in par 153. But pre-arrangement communications between Seven Network and Network Ten relating to 'capacity constraints' or the number of matches to be broadcast live seem to me to be tangential to the market definition issue presented by par 153. The observations of the High Court in Rural Press do not mean that every communication by a party which operates within a particular market is necessarily relevant to the definition of the market. 32 I do not think that pars 190(e) and 190(g) of the FASC advance matters from PBL's perspective. Paragraph 190(e) alleges that a sports rights holder, in order to maximise its returns, must sell both free-to-air and pay television rights. Neither Seven Network nor Network Ten appears to be a sports rights holder in the sense used by par 190(e). I am not persuaded that production of pre-arrangement communications between these parties relating to the numbers of live AFL matches that can or might be broadcast by them is reasonably likely to add to the evidence concerning the allegation pleaded in par 190(e). 33 Similarly, par 190(g) alleges that Foxtel, as the only purchaser of pay television rights, can exercise considerable control over the terms on which the rights are sold. The fact that Seven Network and Network Ten have entered into an arrangement to bid for the AFL sports rights perhaps could be relevant as tending to show that someone other than Foxtel has the means and ability to bid for Australian sports rights. The terms of the arrangement might also be relevant. But the pre-arrangement communications between Seven Network and Network Ten concerning the particular topics identified in pars (a) and (b) of the Defined Matters would seem to have little bearing on the truth or otherwise of the pleaded allegation. 34 I should add that, in any event, as I put to Mr Meagher in argument, the drafting of par (a) of the Defined Matters lacks precision. In my view, the recipients of the notice to produce would be hard pressed to make a judgment as to whether particular communications relate to their 'capacity' to broadcast different numbers of live AFL matches. If this is intended to refer to commercial capacity (as apparently is the case), what matters relate to the relevant capacity? Is it purely a question of the availability of particular time slots? Do the matters include the desirability of scheduling so as to protect or promote high-rating programs? Is the network's general advertising strategy to be taken into account? In my view, a notice to produce incorporating par (a) of the Defined Matters is uncertain in scope and, on the principles to which I have referred, is liable to be set aside as oppressive.

Paragraph (c) of the Defined Matters 35 Paragraph (c) of the Defined Matters may also present a drafting difficulty. The paragraph refers to communications relating to the effect of the arrangement between Seven Network and Network Ten on the value of 'any remaining AFL pay television rights'. It is not entirely clear what this expression is intended to mean. Does it mean the AFL pay television rights (if any) for which Seven Network and Network Ten intend to bid? Does it mean the AFL pay television rights left over after the arrangement between Seven Network and Network Ten has led to certain AFL rights being acquired by them? 36 Neither Seven Network nor Network Ten took any point about the drafting of par (c) of the Defined Matters. I shall therefore proceed on the basis that the language is sufficiently clear to prevent pars 3, 4 and 5 of the notice to produce (as qualified by par (c)) being challenged as oppressive. I interpret par (c) as intended to limit the documents sought to those relating to the value or likely price of the pay television rights to which the arrangement between Seven Network and Network Ten relates. 37 Mr Meagher submitted that the documents sought in pars 3, 4 and 5 of the notices to produce, as limited by par (c) of the Defined Matters, were likely to be relevant to the pleading in par 153(b)(v). This supports the plea that the AFL pay rights are distinct from the free-to-air rights because: 'the price at which Pay AFL rights are sold is generally not determined by the price at which Free-to-Air AFL rights are sold'. 38 Although I do not regard the question as clear-cut, I think that PBL's submission should be accepted, at least insofar as it relates to documents recording communications or analyses of the acquisition price likely to be achieved for the AFL pay television rights. One of the issues in dispute is whether the price at which AFL pay television rights are sold is determined by or linked to the price at which the AFL free-to-air rights are sold. The documents sought are likely to indicate the views of Seven Network and Network Ten on this subject. Since they are apparently to bid for the AFL pay rights, their views might be material to the issue raised by par 153(b)(v) of the FASC. Of course, the documents actually produced may turn out to support Seven Network's pleaded case, but that does not detract from their apparent relevance to an issue in the proceedings. 39 However, I qualify my acceptance of PBL's submission in one respect. Paragraph (c) of the Defined Matters refers to documents concerning the effect of the arrangement between Seven Network and Network Ten on the 'value of any remaining AFL pay television rights'. While no point was specifically taken about these words, it is very difficult to understand what they means. The word 'value' is ambiguous, not least because par (c) does not specify from whose perspective 'value' is to be assessed. I propose to grant leave to issue the notice to produce only if these words are deleted from par (c) of the Defined Matters.

Paragraphs (d) and (e) of the Defined Matters 40 Mr Meagher submitted that the documents caught by pars 3, 4 and 5 of the notice to produce, as limited by pars (d) and (e) of the Defined Matters, are relevant particularly to the issues raised by pars 188(a) and 190(a), (e), (f) and (g) of the FASC. As I have noted, 188(a) of the FASC pleads that following the acquisition by Foxtel of the AFL pay rights and the failure by C7 to secure the National Rugby League pay rights, C7 cannot compete with Foxtel in the acquisition of rights to broadcast sports events on television. This is said to be for two reasons: first, C7 has no guaranteed avenue of supply and thus cannot effectively bid for rights; secondly, no holders of sports rights will be interested in dealing with C7 because it cannot guarantee an audience in advance (par 167(c)). Reference has already been made to sub-pars 190(d), (e), (f) and (g) of the FASC. 41 Subject to the question I have raised about the expression 'remaining AFL television rights', in my view pars 3, 4 and 5 of the notice to produce, as limited by par (d) of the Defined Matters, satisfy the test of apparent relevance. Communications between Seven Network and Network Ten which address the ability of Seven Network or its affiliates (including C7), following the making of their arrangement, to acquire AFL pay television rights are likely to be material to the allegation in par 188(a) of the FASC. That is, some of the documents sought are likely to be directly relevant to the question of whether C7 is able to compete with Foxtel for the acquisition of rights to broadcast sports events. The perceptions of Seven Network as to its own ability to acquire AFL rights in the future may well have a bearing on whether it can make out the allegations in par 188(a). It is less clear that the perceptions of Network Ten, on the same topic, unless adopted by Seven Network, will have similar probative value. Nonetheless, Network Ten's views, if communicated to Seven Network, may be relevant to the issue if only because they may have been adopted or commented on by Seven Network. 42 Paragraph (e) of the Defined Matters is wider than par (d). It covers documents evidencing communications between Seven Network and Network Ten which concern the making of the arrangement between them and which relate to the effect of the arrangement on future bidding for AFL pay rights by any person. While I cannot rule out that some documents within this category might be relevant to the issues identified by PBL, I think that the likelihood is that their relevance will be marginal. Any comments by Seven Network as to the effect of its arrangement with Network Ten on future bidding for AFL pay television rights is likely to be speculative in the matter and thus of little relevance to the pleading that there is likely to be no substantial or effective competition between purchasers of pay television broadcast rights. The perceptions of Network Ten as to the effect of its arrangement with Seven Network on future bidding for AFL pay television rights is likely to be of even less relevance to that issue. 43 Taking into account the marginal apparent relevance of the documents sought, the width of the notices to produce (even as limited by par (e) of the Defined Matters) and the commercial sensitivity of the communications sought by PBL, I think that par (e) of the Defined Matters should be deleted from the notices to produce.

CONCLUSION 44 I propose to grant leave to PBL to serve the notices to produce on Seven Network and Network Ten subject to the following: (i) deletion of pars (a) and (b) of the Defined Matters; (ii) deletion of the words 'the value of any remaining AFL pay television rights or' in par (c) of the Defined Matters; and (iii) deletion of par (e) of the Defined Matters. 45 My present view is that Seven Network and Network Ten should pay fifty per cent of PBL's costs of the motion. I have taken into account that PBL has not had unqualified success on the motion and that the form of confidentiality orders was in dispute until a late stage. My present view is also that the parties supporting PBL were in the same interest and should bear their own costs of the motion. If, however, the parties wish to make submissions that different costs orders should be made, I shall give them the opportunity to do so. 46 I shall direct PBL to bring in short minutes of order giving effect to this judgment. The short minutes should incorporate the agreed confidentiality regime. I certify that the preceding forty-six (46) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Sackville.

Associate: Dated: 29 April 2005 Counsel for the Applicants: JC Sheahan SC with CA Moore

Solicitor for the Applicants: Freehills

Counsel for the First, Second, Fourth, Ninth, Thirteenth, Fifteenth, Nineteenth and Twentieth Respondents: PR Whitford SC with MR Pesman

Solicitor for the First, Second, Fourth, Ninth, Thirteenth, Fifteenth, Nineteenth and Twentieth Respondents: Allens Arthur Robinson

Counsel for the Third, Fifth and Sixth Respondents: IR Pike

Solicitor for the Third, Fifth and Sixth Respondents: Mallesons Stephen Jaques

Counsel for the Seventh, Eighth and Twenty-First Respondents: AJ Meagher SC with AJ Payne

Solicitor for the Seventh, Eighth and Twenty-First Respondents: Gilbert + Tobin

Counsel for the Tenth Respondent: FM Douglas QC with JRJ Lockhart

Solicitor for the Tenth Respondent: Blake Dawson Waldron

Counsel for the Eleventh Respondent: TF Bathurst QC with MN Connock

Solicitor for the Eleventh Respondent: Brown & Co

Counsel for the Sixteenth and Twenty-Second Respondents: AJL Bannon SC

Solicitor for the Sixteenth and Twenty-Second Respondents: Atanaskovic Hartnell

Date of Hearing: 20 April 2005

Date of Judgment: 29 April 2005

Broadcasting Services Act 1986(Cth)ss 99, 115, Sch

Seven Network Limited v News Limited (No 5) [2005] FCA 510

CCom Pty Ltd v Jiejing Pty Ltd (1992) 37 FCR 1 cited Microsoft Corporation v CX Computer Pty Ltd (2002) 116 FCR 372 cited Mulley v Manifold (1958) 103 CLR 341 cited Beecham Group Ltd v Bristol-Myers Co [1979] VR 273 cited BP Australia Pty Ltd v Nyran Pty Ltd [2003] FCA 834 cited National Employers' Mutual General Association Ltd v Waind and Hill [1978] 1 NSWLR 372 followed Spencer Motors Pty Ltd v LNC Industries Ltd [1982] 2 NSWLR 921 followed Liberty Financial Pty Ltd v Scott [2004] VSC 382 cited Re ACI International Ltd (1986) 11 ACLR 240 considered Apache Northwest Pty Ltd v Western Power Corporation (1998) 19 WAR 350 followed Spatialinfo Pty Ltd v Telstra Corporation Ltd [2005] FCA 455 followed Hamilton v Oades (1989) 166 CLR 486 considered Trade Practices Commission v Arnotts Limited (No 2) (1989) 88 ALR 90 cited Rural Press Ltd v Australian Competition and Consumer Commission (2003) 216 CLR 53 considered SEVEN NETWORK LIMITED and ANOR v NEWS LIMITED and ORS NSD 1223 of 2002 SACKVILLE J SYDNEY 29 APRIL 2005

At a glance

Court

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Before

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Judgment (24 paragraphs)

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Legislation Cited (1)

Cases Cited (13)

Cited By (16)