Sky Channel Pty Limited v Austar Entertainment Pty Limited & Thoroughvision Pty Limited

Sky Channel Pty Limited v Austar Entertainment Pty Limited & Thoroughvision Pty Limited - [2005] NSWSC 815 - NSWSC 2005 case summary — Zoe

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Sky Channel and TVN 5 There are presently two content aggregators of horseracing content in Australia - Sky Channel and TVN. 6 Sky Channel produces the Sky Racing Channel (which covers thoroughbred racing, greyhound racing and harness racing); and TVN produces the TVN Channel [which only covers thoroughbred racing]. Sky contends and TVN denies that they may be regarded as long-term competitors. Sky's contention is that ultimately each is vying for viewers interested in watching horseracing on television. 7 TVN is a recent entrant to the business of aggregating racing content and providing a television channel for showing on Pay TV. Until TVN's advent, Sky Channel was the sole provider of racing content. 8 Prior to the events of the last few days which give rise to these proceedings, Sky Channel was (and continues to be) available to viewers through platforms operated by Foxtel, Optus and Austar; TVN Channel was available to Pay TV viewers on the Foxtel digital platform. 9 As will appear from what follows the instant interlocutory injunctive proceedings concerning TVN's commencement to make its TVN Channel available to viewers through Austar. New South Wales races 10 Thoroughbred race meetings in New South Wales are principally conducted by the Australian Jockey Club ("AJC"), the Sydney Turf Club ("STC") (both in Sydney), by a number of provincial clubs which are members of the Provincial Association of NSW, based in major centres to the north and south of Sydney ("Provincial Clubs"), or by clubs which are members of the Country Racing Council, which are scattered through the rest of the State ("Country Clubs"). 11 Of these, Sky presently has, and has had since 4 May 2005, the rights to telecast the race meetings of all the Country Clubs and all the Provincial Clubs. It has not had the rights to broadcast the race meetings of the AJC or STC. Prior to 4 May 2005, Sky had broadcast the race meetings of the AJC and STC. The material provisions of the Pay TV Agreement 12 [

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We believe that ultimately this is going to be a win-win for all parties involved… While we believe that Sky is in breach of its obligations under our Agreement and as such cannot rely on the exclusivity clause any longer, without prejudice to that position we are willing to present this to the public as a three-way deal. We could announce publicly that Austar, Sky Channel and TVN have reached agreement that TVN is to be made available to Austar viewers, as a way of trying to salvage some improved public positioning for everyone out of this situation…" 21 In a further letter of 2 August 2005 Austar stated that rather than take the extreme measure of termination it was attempting to be responsible and mitigate its loss. 22 Also on 2 August 2005 Sky responded by suggesting a mediation and putting forward a proposal that it would be prepared, on an interim basis [pending resolution of the disputes with TVN over Pay TV exclusivity], to televise Sydney Metropolitan and Victorian races on its Sky Racing Channel so that regional viewers could see the relevant meetings through Austar. It made the point that this would achieve a position where the respective rights of Sky and TVN were maintained pending resolution of their differences, either by agreement or through the courts. 23 Austar then responded on 4 August stating inter alia that it had no wish to be involved in the dispute between Sky and TVN. It also contended that Austar could no longer wait in the hope that Sky and TVN could reach some resolution and that it was necessary for Austar to address the fact that it was not receiving from Sky "the minimum racing content it bargained for". It went on to formally request under clause 8.3 of the Pay TV Agreement that Sky now provide evidence of its compliance with clause 8.2. 24 The letter also stated that without prejudice to all of its rights, Austar was presently addressing the impact of Sky's failure to provide the minimum content requirements and would without prejudice to its rights against Sky proceed to make the TVN service available to its subscribers. 25 An attached press release stated that Austar had announced that TVN would be available to its residential Austar Digital viewers from for August 2005 as a standalone channel costing one dollar per month and could be subscribed to by all Austar Digital customers. 26 These proceedings were commenced by application for ex parte injunctive relief made late on 5 August and continued over the next few days. The principles 27 In approaching the interlocutory application it has seemed to me that the principles which govern the Court's approach to the question are those generally dealt with and set out in Appleton Papers Inc v Tomasetti Paper Pty Limited [1983] 3 NSWLR 208. In Appleton McLelland J pointed out the importance of recalling that the Court here deals with a discretionary power conferred on the court in very general terms referring to section 66(4) of the Supreme Court Act which provides that the Court may at any stage of proceedings on terms grant an interlocutory injunction in any case in which it appears to the Court to be just or convenient to do so.

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And as I understood the submission by both Mr Walton and Mr Rushton, they accepted that there was sufficient in terms of the degree of likelihood of success here demonstrated as in this particular case, to warrant consideration of where the balance of convenience lies." The overall litigious position 41 These proceedings have proved to be the third set of proceedings of relevance commenced over the past few months. In particular: · On 27 April 2005 Sky Channel Marketing Pty Ltd commenced proceedings against AJC, STC and TVN in the Commercial List of this Court ["the first Commercial List proceedings"]. [In these proceedings Sky asserts that AJC, STC AND TVN have breached certain 'first and last' rights which would otherwise have entitled Sky to obtain certain broadcast rights] · On 2 June 2005 TVN commenced proceedings against Sky Channel, Tabcourt and associated companies in the Federal Court [545/2005-Victorian Registry]. [In the Federal Court proceedings TVN makes sundry claims of breaches of Part IV of the Trade Practices Act said to be constituted by inter alia the terms of the Pay TV Agreement asserted as including covenants that Austar would not make available to its subscribers any services transmitting coverage of thoroughbred, harness all greyhound race meetings other than Sky Racing [clause 3.2 is referred to as "the Lock-out Term" cf Statement of Claim paragraph 47]. The proceedings claim inter alia a declaration that by entering into the Pay TV Agreement, Sky Channel has engaged in the practice of exclusive dealing within the meaning of s 47 (2) of the Trade Practices Act 1974] 42 The rights in question in the first Commercial List proceedings broadly described as arising under other agreements [and referred to during the hearing before me as "the jewels in the Crown"] are: · the Pay TV rights to all Victorian races (ie the right to broadcast them to homes on a Pay TV platform such as Foxtel or Austar); · the 'Commercial Rights' to broadcast all Victorian races (ie the rights to broadcast them to pubs, clubs, TAB agencies and various other commercial premises); and · the Commercial Rights to broadcast the AJC's and STC's races. The issues litigated on the interlocutory hearing 43 The interlocutory hearing was conducted over in excess of one day. Substantial material was mobilised by each of the parties by way of affidavits and very detailed submissions were addressed to the Court. 44 It is appropriate to summarise the parameters generally the subject of evidence and submissions: ·

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· All parties closely addressed questions of the balance of convenience through a variety of routes examined below, the cross contentions being that damages would be an adequate remedy as far as the other party was concerned but not as far as it was concerned. Exploring these matters in more detail 45 It is quite plain that Austar has eschewed taking the route of giving to Sky a clause 16.1 notice to remedy breach. Austar clearly accepts that the Pay TV Agreement is presently on foot. Its approach [notwithstanding the recent events] is to submit that it has been and remains entitled to await determination of the first Commercial List proceedings and arguably of the Federal Court proceedings, in order to ascertain whether or not the Agreement is enforceable. It is appropriate to infer that this stance is heavily influenced by a sound realisation that to take a misconceived step by way of electing to terminate the Agreement on the basis of an event of default having occurred [where in fact no such event of default has occurred] may very well lead to substantial damages being recovered by Sky in the event that Sky was to determine to accept Austar's action as a repudiation. It is important to keep steadily in mind that the Pay TV Agreement constitutes a license the term of which as matters presently stand, is still to continue for another eight years. 46 In terms of the principled approach to the exercise of the discretion as to whether or not the Court should grant the injunctive relief sought by Sky, the considerations to be taken into account include: · the fact that Austar, so long as the Pay TV Agreement is on foot and regardless of the fact that its enforceability is to be tested in curial proceedings, must accept that prima facie it is bound by the Agreement; · the legal position created by clause 16.1. 47 Whilst ever Austar fails to take action to validly terminate the extant Agreement, it is clearly disentitled from breaching that Agreement. Yet that is precisely what it has been about doing in its decision to permit TVN to transmit its product over Austar. It comes before the Court claiming that the entirety of injunctive proceedings commenced by the innocent party seeking to maintain the status quo, should on balance of conveniences considerations, be seen to overwhelmingly favour a radical movement away from the position ante. 48 In relation to the clause 16.1 question it is of course inappropriate for the Court presently to travel into the proper construction of this clause. It suffices to make the point that, unlike the clause under consideration in Burger King v Hungry Jack's [2001] NSWCA 187, where the material provisions required a particular notice to be given in respect of any breach "capable of cure ", clause 16.1 (a) has no such express qualification. In the Court of Appeal the joint judgment accepted as a correct statement of principle the following proposition laid down by Sugarman J in Batson v De Carvalho (1948) 48 SR (NSW) 417at 427:

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· it is extremely difficult to quantify the value to Sky of a loss of exclusivity; · once exclusivity is lost, it is very difficult for it to be restored; · if Austar is permitted to enter into agreements with customers under which those customers subscribe to the TVN Channel in contravention of clause 3.2, this will create multiple third party rights and will make the obtaining of a permanent injunction by Sky must more difficult even if its position in these proceedings and in the Federal Court proceedings is ultimately vindicated; · leaving Sky to its remedy and damages will also not address the detriment it will suffer as a result of the undermining of its position in the Sky Channel proceedings it has brought in this Court (Warner, paras 25 and 32); · Sky will also suffer damage to its reputation if the Court does not protect its exclusive right by way of interlocutory injunction (Warner, para 34). 55 Sky has adduced evidence which to my mind in the context of the present application may be accepted as of substance, that at a practical level, if Austar is permitted to enter into numerous agreements with customers under which those customers subscribe to the TVN Channel, it may be more difficult, because of the intervention of multiple third party rights, for Sky Channel to obtain a permanent injunction, even if its position in these proceedings and the TVN proceedings is ultimately vindicated. The consequence of the Court refusing to grant an interlocutory injunction at this stage is therefore likely to be that the very issue concerning the Pay TV Agreement which is central both to these proceedings and to the relevant part of the TVN Proceedings will have been pre-judged once and for all. 56 There is also adduced evidence by Sky that it has legitimate concerns that TVN, as a competitor, should not be able to profit from what ultimately turns out to be a wrongful dealing with Austar in breach of Sky Channel's rights. The evidence is that while Sky Channel has no objection to competition which does not transgress its long-term enforceable contractual rights, it is concerned that it should not be prejudiced if, at the end of the TVN Proceedings and these proceedings, the Pay TV Agreement is upheld and Sky Channel has, in the meantime been deprived of its exclusivity in a way which has allowed its competitor to build up its competing business. 57 Sky has also adduced evidence that it is likely that there will be damage to Sky Channel's reputation - irrespective of the merits of its legal position - if, customers having been permitted to sign up to the TVN Channel, are subsequently deprived of it because Sky Channel's rights are vindicated by the Court. Sky Channel is likely to be seen (unfairly) as responsible for those customers then being deprived of a product they have been enjoying in the interim period while the proceedings were being determined. Likewise it seems to me that this evidence has material weight. 58 I note also Sky's contention that if it should succeed in the first Commercial List proceedings, then, even if Austar's construction of clause 8.2 of the Pay TV Agreement is correct, Sky will not be in breach of the clause because it will have the rights to all (and therefore more than 65% of) Victorian races. 59 There is also presently before the court evidence to the effect that the continued exclusivity of Sky on Austar, and thus its continued attractiveness to racings clubs, is important to ensure that Sky can continue to meet its minimum content requirements. 60 The fear is that one result of the loss of such exclusivity if Austar is permitted to transmit to the TVN Channel may be that, even if Sky is ultimately successful, race clubs will have moved away from Sky or will not have signed with Sky because it has become less attractive to them. 61 A further focus of the evidence adduced by all parties has concerned whether or not Sky is likely to be adversely affected by advertisers or sponsors in the event that its exclusivity entitlement be breached. The broader picture 62 A principle focus addressed by both Austar as well as TVN has concerned: · suggestions that the TVN Channel [even if transmitted on Austar alongside the Sky Channel], is in truth not shown to be in competition with Sky; · the effect upon subscribers in regional and rural Australia of denying TVN and entitlement to broadcast over Austar . 63 These matters may be shortly summarised by simply setting out certain of the paragraphs from the affidavit of Mr Sweeney the Chief Executive of TVN, who deposed inter alia as follows:

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For similar reasons, I would anticipate that, over the course of a year of consistent promotion, at least 10-15% of Austar's digital subscription television base would enter into agreements with Austar for access to the TVN Channel. The figure is likely to be even higher because the bulk of thoroughbred breeding, training and racing is undertaken in country areas, and as a result there is a high level of interest in racing in regional and rural Australia. I note that during the brief period on 4 and 5 August 2005 when Austar digital subscribers were able to enter into agreements for access to the TVN Channel, more than 1.5% of the available subscribers signed up." Dealing with these issues 64 In my view it is a fairly blinkered view which suggests that in truth the TVN and Sky Channels, cannot be said to be competitive with one another. Whilst it is no doubt true that a subscriber to Austar may elect whether or not to view one rather than the other Channel, this is not to say that the whole of the exercise involved in providing both channels on Austar, demonstrates a lack of competition. The competition which would exist where Sky loses its exclusivity involves questions of high significance including: the attitude of advertisers and additionally the possibility of race clubs moving away from Sky or determining not to further sign new contracts with Sky, simply because Sky has seemed to them to have become less attractive. 65 One has to keep in mind that it is apparently possible for the number of Pay Television subscribing viewers who access any particular Channel as at any particular time to be accurately identified. 66 The suggested effect of the grant of the injunctions sought upon subscribers who reside in regional and rural Australia cannot be gainsaid. However the impact on third parties is only one of the many factors to be taken into account in the principled exercise by the Court of its discretion. Clearly another very significant and powerful factor may be seen in the following proposition taken from joint judgement in Zhu (supra at [129]:

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"My Lords, when an application for an interlocutory injunction to restrain a defendant from doing acts alleged to be in violation of the plaintiff's legal right is made upon contested facts, the decision whether or not to grant an interlocutory injunction has to be taken at a time when ex hypothesi the existence of the right or the violation of it, or both, is uncertain and will remain uncertain until final judgment is given in the action. It was to mitigate the risk of injustice to the plaintiff during the period before that uncertainty could be resolved that the practice arose of granting him relief by way of interlocutory injunction; but since the middle of the nineteenth century this has been made subject to his undertaking to pay damages to the defendant for any loss sustained by reason of the injunction if it should be held at the trial that the plaintiff had not been entitled to restrain the defendant from doing what he was threatening to do. The object of the interlocutory injunction is to protect the plaintiff against injury by violation of his right for which he could not be adequately compensated in damages recoverable in the action if the uncertainty were resolved in his favour at the trial; but the plaintiff's need for such protection must be weighed against the corresponding need of the defendant to be protected against injury resulting from his having been prevented from exercising his own legal rights for which he could not be adequately compensated under the plaintiff's undertaking in damages if the uncertainty were resolved in the defendant's favour at the trial." 70 Having carefully taken into account to the extent necessary the strength of the so-called 'serious case', and the balance of convenience [weighed in light of the entirety of the evidence], the principled exercise of the relevant discretion requires that the Court make the interlocutory orders sought. The contention that Sky should be limited to its damages as an adequate remedy is rejected. Those orders will be made pending determination of the final hearing.

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Judgment (57 paragraphs)

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Cases Cited (6)

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