Seven Network Limited v News Limited

THE COURT ORDERS: 1. The motion be stood over until 13 March 2006. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

NEW SOUTH WALES DISTRICT REGISTRY NSD 1223 of 2002

REASONS FOR JUDGMENT 1 The Third, Fifth and Sixth respondents ('Telstra') have applied by motion to set aside a notice to produce issued by the applicants ('Seven'). The notice to produce, omitting parts not now pressed, is in the following terms: '1. All documents (both in draft and final form), including without limitation: … 1.4 Board papers; and 1.5 Board minutes; relating to Project Colour which consider, examine, project, assess or estimate: (a) any potential or anticipated change (whether expressed in monetary terms, as a proportion of existing value or otherwise) to the value of Telstra's actual pay television interests or any pay television interests Telstra was contemplating acquiring; and/or (b) any potential or anticipated synergies, in the form of cost savings or increased revenue, with Telstra's actual pay television interests or any pay television interests Telstra was contemplating acquiring; if Telstra were to acquire an interest (whether directly or indirectly held) in a free-to air television network. 2. All documents (both in draft and final form), including without limitation: … 2.4 Board papers; and 2.5 Board minutes; relating to Project Patrick which consider, examine, project, assess or estimate: (a) any potential or anticipated change (whether expressed in monetary terms, as a proportion of existing value or otherwise) to the value of Telstra's actual pay television interests or any pay television interests Telstra was contemplating acquiring; and/or (b) any potential or anticipated synergies, in the form of cost savings or increased revenue, with Telstra's actual pay television interests or any pay television interests Telstra was contemplating acquiring; if Telstra were to acquire an interest (whether directly or indirectly held) in a free-to-air television network. Definitions For the purpose of this notice to produce: … "valuation" means an assessment of all or any of the monetary value, the market value, the indicative worth, or potential range of values of any thing.' 2 It is common ground that Project Patrick involved Telstra giving consideration to acquiring an interest in Publishing and Broadcasting Ltd, which owns all of the issued shares in Nine Network Australia Pty Ltd, whose wholly owned subsidiaries operate free to air commercial television stations. Similarly, it is common ground that Project Colour involved Telstra giving considerationto acquiring interests in other corporations operating or having interests in free to air channels. Telstra did not proceed with either Project. 3 The documentary evidence justifies an inference that Telstra also gave consideration to acquiring a controlling interest in Foxtel Management Pty Ltd or an associated corporation ('Foxtel'), the operator of a pay television service. There is evidence suggesting that Telstraundertook internal assessments of the 'synergies' that might be achieved if Telstra acquired full ownership of Foxtel and ownership or control of a free to air operator. The recorded calculations appear to suggest that very large 'savings' might be achieved and that 'integration' might produce more modest, but nonetheless substantial increases in revenue. 4 The Federal Court Rules ('FCR'), O 33 r 12, provide as follows: (1) Where a party to any proceedings serves on another party notice … requiring the party served to produce at any trial or hearing in the proceedings, or before any Judge … having authority to take evidence in the proceedings any document or thing for the purpose of evidence and the document or thing is in the possession, custody or power of the party served, the party served shall, unless the Court otherwise orders, produce the document or thing in accordance with the notice, without the need for any subpoena for production. (2) …'. A notice to produce served pursuant to O 33 r 12, despite the ambiguous form of the rule, has the same coercive effect as a subpoena duces tecum: Seven Network Ltd v News Ltd (No 5) (2005)216 ALR 147, at [6], and cases cited there. 5 As with a subpoena, when a notice to produce is issued, three steps must be taken before the documents identified in the notice can be admitted into evidence. The steps were described by Glass JA (with whom Moffitt P and Hutley JA agreed) in National Employers' Mutual General Insurance Association Ltd v Waind & Hill [1978] 1 NSWLR 372, at 381, as follows: 'The first is obeying the subpoena, by the witness bringing the documents to the court and handing them to the judge. This step involves the determination of any objections of the witness to the subpoena, or to the production of the documents to the court pursuant to the subpoena. The second step is the decision of the judge concerning the preliminary use of the documents, which includes whether or not permission should be given to a party or parties to inspect the documents. The third step is the admission into evidence of the document in whole or in part; or the use of it in the process of evidence being put before the court by cross-examination or otherwise. It is the third step which alone provides material upon which ultimate decision in the case rests. In these three steps the stranger and the parties have different rights, and the function of the judge differs.' 6 It is now established that lack of apparent relevance is a ground for setting aside a subpoena or notice to produce: Trade Practices Commission v Arnotts Ltd (1989) 88 ALR 90 at 101-103, per Beaumont J. In an earlier interlocutory judgment delivered in these proceedings, I said that the test of apparent relevance is whether the documents are 'reasonably likely to add, in the end, in some way or other, to the relevant evidence in the case': Seven Network Ltd v News Ltd (No 5), at [10], citing Spencer Motors Pty Ltd v LNC Industries Ltd [1982] 2 NSWLR 921 at 927, per Waddell J. Neither party disputes that this is the appropriate test. 7 The onus is on Seven to demonstrate the apparent relevance of the documents sought by the notice to produce. Sevensays that the documents are relevant, in the requisite sense, to what is said to be the integrated media company ('IMC') component of their damages claim. The 'pith' of that component is said to be that: '(a) the forced closure of the second applicant [C7], resulting from the alleged anti-competitive conduct of the respondents, impaired [Seven's] strategy to become an IMC; (b) unimpaired that strategy would have generated synergies between [Seven's] various media interests, including their free-to-air and pay television interests; and (c) accordingly, in assessing the loss to [Seven] caused by the alleged anti-competitive conduct, it is necessary to take account of the value of these synergies'. 8 Telstra argues that Seven's IMC damages claim provides no justification for opening up a 'collateral investigation of the supposed existence, nature, and quantification of synergies thought to be associated with unexecuted projects'. Mr Castle, who appeared with Mr Pike for Telstra, submits that the documents sought by the notice to produce are not likely to be useful in the proceedings. He says that: · the Court could not conclude from the documents alone that any synergies or any internal modelling of those synergies by Telstra, would have actually been realised had the transactions been consummated; · if the modelling is to be meaningful, the Court will need to consider evidence about the assumptions used in preparing the models or in making predictions; · the probative value of the documents is likely to be diminished, since the Court will not know whether the models and predictions were final or merely constituted intermediate working drafts; and · in any event, there is nothing to indicate that the circumstances of Telstra corresponded to those that would be experienced by Seven in the hypothetical circumstances that need to be explored in the damages aspect of the case. 9 Mr Castle also contends that there are sound reasons why, in the interests of ensuring an orderly trial, Seven should not be permitted to open up a new line of enquiry at this stage. He points to the following: · Seven has closed its case in chief, insofar as lay evidence is concerned; · the documents which Sevennow relies upon to prove the existence of Project Patrick and Project Colour were discovered by Telstra as long ago as mid-2004; · the two expert reports filed by Seven which are relevant to the IMC claim do not refer to synergies that might be derived from any actual or contemplated transaction in Australia, although they do analyse at considerable length mergers or acquisitions in the United States; · Seven'sproposed tender list at one point included the discovered documents referring to the two Projects, but the documents were removed in late 2005 from the tender list; and · if Seven is permitted to raise these issues, the likelihood is that their counsel will wish to cross-examine Telstra's witnesses on the assumptions underlying the projected synergies and it may well become necessary for Telstra to call evidence explaining the internal documentation and demonstrating that Telstra's position was different from that hypothetically facing Seven. 10 The notice to produce is drafted in wide terms, notwithstanding that it is limited to Board Papers and Minutes relating to Project Patrick and Project Colour. In my opinion, there are likely to be some documents within the classes of documents sought by Seven that satisfy the test of apparent relevance. I have in mind Board Papers and Minutes which record or comment on potential cost savings or increased revenues likely to flow from Telstra's ownership or control of Foxtel and its ownership or control of one or other of the free to air operators. Documents of this character might well bear on the question of whether Seven lost the opportunity of achieving 'synergies' of the kind identified in the experts' reports. 11 It is true, as Mr Castle submits, that before any internal Telstra documents of this kind could be of probative value, it almost certainly would be necessary to examine the assumptions upon which the projections were based, the reasons why Telstrachose not to proceed with the proposals and the similarities and differences between Telstra's position and the hypothetical circumstances facing Seven. However, in my view, these matters do not detract from the conclusion that Seven have shown that some of the documents they seek satisfy the test of apparent relevance. 12 It is important to stress, however, that as Waind demonstrates,granting a party access to documents is one thing; admitting the documents into the proceedings is another. Mr Sheahan SC, who appeared with Mr Darke on the motion, urged me not to decide the first question by reference to considerations going to the admissibility of the documents in evidence. Questions of admissibility, so he argued, should be dealt with if and when they arise, on the basis of the appropriate criteria. 13 It follows from what Mr Sheahan has put, that an order granting access to Seven to documents identified in the notice to produce is not to be taken in any way as an indication by me that the documents so produced may be adduced in evidence by Seven. If the documents are tendered, or if Seven's experts seek to add material to their reports in order to refer to documents produced by Telstra in answer to a notice to produce, it will be necessary to consider whether it would be compatible with the just and orderly conduct of the trial to permit Seven to introduce the evidence at this stage. To do so may well cause prejudice to Telstra and the other respondents. The curing of any prejudice may disrupt the trial to such an extent as to warrant rejection of the proffered evidence. 14 As I indicated in the course of argument, I think the scope of the notice to produce, in its present form, is too broad. No issue of oppression has been raised by Telstra. Nonetheless, the notice to produce seeks classes of documents that could not, on any reasonable view, add to the relevant evidence in the proceedings. I have in mind, for example, that the notice to produce seeks board papers and minutes considering any potential change to the value of any of Telstra's pay television interests (existing or contemplated) in consequence of it acquiring any interest whatsoever in a free to air television network. A notice to produce in these broad terms should not be upheld in its entirety merely because it includes a narrow category of documents of apparent relevance to the issues in the proceedings. 15 In my opinion, the notice to produce ought to be reframed so as to narrow its scope along the lines I have indicated in par 10 above. If any disagreement remains between the parties, they can present the issue for determination by me. 16 The only order I propose to make at present is to stand over the motion for a short period of time. This should enable Seven to redraft the notice to produce so as to confine it to a narrower class of document. If no further dispute arises, formal orders can be made in due course disposing of the motion. I certify that the preceding sixteen (16) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Sackville.