Senator EGGLESTON (10:21 AM) —I present a statement from the Environment, Communications, Information Technology and the Arts Legislation Committee on the so-called casualties of Telstra, or CoTs, issue, together with documents received by the committee and the Hansard record of proceedings. I seek leave to table these documents and incorporate a statement into Hansard .

Leave granted.

The documents and statement read as follows—

STATEMENT TO THE SENATE ON THE CASUALTIES OF TELSTRA (COTS) ISSUE

Introduction

On 16 June 1997, the Senate Environment, Recreation, Communications and the Arts Legislation Committee resolved to hold a public hearing on Telstra's Annual Report with particular reference to progress on the Casualties of Telstra (COT) and related cases. The first public hearing on 24 June 1997 was held pursuant to Senate Standing Order 25(21b), the power to consider Annual Reports in detail. The Committee held a second public hearing on 26 September 1997. During 1998, the Committee held two in-camera hearings on 6 and 9 July.

The self-styled Casualties of Telstra were business people who claimed that inadequacies in their telephone service over a prolonged period, led to a decline in their businesses. The COTs were small business people, single operators or husband and wife partnerships generally operating in service industries.

The issues

The COTs most frequent complaint was that of a calling party receiving a ring tone whilst the complainant who was being called received no indication of the call. Other complaints centred on callers receiving a busy signal or a `number disconnected' message.

The difficulties they experienced in obtaining acknowledgment and consequent redress of the problems from Telstra had been raised at this Committee's Estimates hearings on a regular basis since 1994.

The original group of COTs comprised 4 claimants. They were Mr Alan Smith, Mrs Ann Garms, Mr Graham Schorer and Mrs Gillan. They agreed with Telstra, on 23 November 1993, to participate in a Fast Track Settlement Proposal (FTSP) developed by AUSTEL. The process never reached a satisfactory conclusion.

In April 1994, AUSTEL released a report on the COT cases, which recommended that Telstra implement an arbitration procedure to resolve a number of complaints as well as those set up in the Fast Track Settlement Proposal. The original four were joined at that stage by another 12 claimants. The Fast Track Arbitration Process (FTAP) then replaced the FTSP on 21 April 1994 for the claimants. The Telecommunications Industry Ombudsman (TIO) was involved with AUSTEL, Telstra and the COT claimants in finalising these arbitration procedures. The process was to be administered by the TIO.

While the arbitration process administered by the TIO had been used by some claimants, others had chosen to pursue their cases in courts of law. Since many of the cases refer to the period when Telstra's statutory immunity to legal prosecution applied (pre-1991) this was an obstacle to court action for some claimants. Under the rules of the Fast Track Arbitration Procedure (applicable to the four claimants listed above) the statutory immunity was waived.

The arbitrations were intended to be speedy and non-legalistic in comparison with court procedures. They featured relaxed rules of evidence. Telstra was to meet the costs of the arbitrator, including the costs of the resource unit established to aid the arbitrator, but not the legal costs of claimants. Of the 16 COT claims brought to the attention of the Committee, 11 have settled with Telstra to date.

The remaining five are Mrs Garms and Mr Schorer from the original four claimants and Mr Honner, Mr Bova and Mr Plowman.

Brief Summary of Claims

Mrs Ann Garms, Tivoli Restaurant and Theatre

Mrs Garms complaints refer to her restaurant in Fortitude Valley, which she claims lost business because her telephone was faulty—constantly engaged. She moved to new premises in the Tivoli Theatre also in Fortitude Valley but claims the problems continued, with customers complaining of engaged signals, `number not connected' messages and the phone ringing out.

Mr Graham Schorer, Proprietor, `Golden Messengers'

Mr Schorer claims he experienced power problems and overloads with his flexitel system.

Mr Ross Plowman

Mr Plowman is concerned that there is no end in sight for the arbitration process. Documents relating to his case which referred to maintenance work have been destroyed `in the normal course of business'. At the time of the first hearing of the Committee, Mr Plowman was concerned with the issue of the neutrality of the arbitrator.

Mr Ralph Bova (Bo'va Enterprises Pty Ltd)

Mr Bova experienced difficulties with his telephone lines between 1988-92. By virtue of those difficul ties Mr Bova claims his two restaurant businesses failed.

Mr Anthony Honner

Mr Honner's claims go back for 13 years, for a faulty service to his motel at Stansbury on Yorke Peninsula in South Australia. Mr Honner claims losses to his business because of the faulty service. Mr Honner chose not to use the arbitration process set up by the TIO.

The Committee's public hearing

The witnesses called at the Committee's first hearing included the Minister for Communications and the Arts, representatives of Telstra Corporation Limited, the Telecommunications Industry Ombudsman (Mr John Pinnock) and Mr John Wynack, Director of Investigations, Commonwealth Ombudsman. Representing the claimants against Telstra were Mrs Ann Garms, Mr Anthony Honner, Mr Graham Schorer and Mr Lindsay White who had been an employee of Telstra with knowledge of the technical problems that had been the subject of complaints.

The hearing was intended to focus on the processes involved in Telstra's response to the complaints and in particular on the difficulties experienced by the claimants in obtaining documentation rather than on resolution of individual cases.

The major concerns raised at the hearing included:

The lack of availability to claimants of experienced legal services. As Telstra was using approximately 45 firms to deal with its legal issues, a claimant might not be able to get representation, as there was a perceived conflict of interest.

The number of Telstra people engaged in working on one particular case was of concern as it highlighted the imbalance of resources between claimants and Telstra.

The time and complexity of the arbitration processes.

The problem of claimants not having access to technical advice, therefore making it very difficult to interpret technical reports and documents. Claimants identified this problem of obtaining technical advice as a major inhibitor to their claims. Many technical advisers had been unwilling to `challenge' Telstra. There were also financial hindrances to obtaining technical advice for some claimants.

The Telstra merged Excel file of all documents regarding the cases was not being provided to claimants in full, or not at all. Claimants did not know which documents to ask for, as they did not know what documents existed.

The issue of documents not being provided to claimants because of reasons of alleged legal professional privilege.

The delay in providing documents under the Freedom of information (FOI) Act.

The cost of defending the claims by Telstra with $18.7 million dollars ($14,285,951 for Telstra's costs and an added $4,446,341 for the costs of arbitration) spent defending claims of $44.5 million dollars, as at 24 June 1997 for the financial years 1993/94—1996/97. The payouts to claimants as at 24 June totalled $1.74 million dollars. These details were tabled at the Committee's hearing on 24 June 1997 and are included in the documents being tabled in the Senate.

Whether there was an instruction given to Mr White, a former Telstra employee, to stop the COTs at all costs.

Difficulties in obtaining Documentation

The reasons for the difficulties experienced by the parties in obtaining documentation were manifold. The claims for documents themselves were complex, with evidence often spanning a decade. The arbitration had not achieved the ideal of being non-legalistic, because of the technical and legal complexity of the claims.

Both the Fast Track and Special Arbitration Rules provided that costs could not be recovered. These rules were agreed to by all interested parties. The claimants knew they had to bear their own costs. The arbitration process ended up being significantly more legalistic than hoped, thus the complainants incurred substantial legal costs.

After these concerns were realised Telstra agreed to make certain ex-gratia payments to those who had obtained an award under arbitration. These ex-gratia costs were seen as part compensation for legal costs.

Most claimants had made extensive use of Freedom of Information (FOI) applications to obtain documents to prepare their claim, rather than seeking documents under the arbitration process. The Commonwealth Ombudsman investigated Telstra's response to requests for information from the COTs under the Freedom of information Act and criticised Telstra's administration of FOI requests.

While the report acknowledges that the task for Telstra involved some 200,000 documents at the time the Ombudsman's report was written, and that the efforts of particular staff to meet deadlines were good, it concludes that the processes adopted in making documents available to the COTs were characterised by defective administration.

The Committee's Working Party:

Following the public hearing on 26 September 1997, the Committee convened a Working Party with a view to facilitate the process involved in the claimants obtaining the necessary documents from Telstra to support the claims they wished to make against that company. The Working Party was specifically asked to provide the Committee with lists of the documents sought by the claimants from Telstra and regular reports of the progress of the search for documents. Mr John Wynack of the Commonwealth Ombudsman's Office was appointed as Chair of the Working Party.

The Terms of Reference of the Working Party were:

Part 1: The Working Party is to be chaired by a representative of the Commonwealth Ombudsman's Office

Part 2: List of Documents

The Working Party must develop a list ("List ") of all documents which:

were reviewed by Telstra in the course of preparation of its defence;

were brought into existence after Telstra prepared its defence, but which would in the opinion of Telstra's solicitors have been reviewed by Telstra if it were preparing its defence today; or

were lost or destroyed before Telstra prepared its defence, but which would in the opinion of Telstra's solicitors have been reviewed by Telstra if they had been in existence at the time Telstra was preparing its defence, in relation to the:

arbitration cases

responses to requests under FOI; and

appeals in respect of cases already decided

described in the Schedule to these terms of reference, such arbitration cases, FOI requests, appeals, cases and issues are known in these terms of reference as "Proceedings ".

The documents itemised in the List must include the documents itemised in the Excel files prepared by Telstra in relation to the Proceedings and any other relevant documents not previously provided to parties to the Proceedings ("Parties ").

The List must be sorted into separate sections, so that all documents in relation to a particular party to the Proceedings ("Party ") are contained in one section of the List.

3. Telstra must provide written advice, in respect of each Party, identifying the network or networks which were used by Telstra to service the business telephone service of that Party.

4. The List must clearly distinguish between documents which refer to service difficulties, problems and faults of Telstra's network, or of a Party's business telephone services; and documents which do not so refer.

5. The List must clearly distinguish between documents which were provided by Telstra to a party before 26 September 1997; documents which were provided by Telstra to a party on or after 26 September 1997; and documents which have not been provided by Telstra to a Party.

6. The List must clearly distinguish between documents which Telstra claims are privileged; documents which Telstra claims are confidential; and documents which Telstra does not claim are privileged or confidential.

7. Where Telstra claims that a document is privileged or confidential, the description of that document in the List must include a statement of the basis on which Telstra claims that status for the document.

8. Telstra must provide a statutory declaration, sworn by a senior executive of Telstra, declaring that in respect of all documents described in the List which Telstra claims are privileged or confidential, Telstra believes in good faith after making reasonable enquiries that these documents ought properly to be regarded as privileged or confidential, and the reasons for that status are accurately set out in the List.

9. Where a document was lost or destroyed before Telstra prepared its defence, the description of that document in the List must describe the manner in which the document was lost or destroyed.

10. Where the List is required to distinguish between documents in particular categories, the distinctions may be indicated in any manner which the Working Party considers appropriate.

Part 3: Other Sources of Information

1. The Working Party must investigate whether there are avenues not yet explored by Telstra to locate documents which are relevant to the claim of a Party under a Proceeding.

Part 4: Report to the Senate Committee

1. The Working Party must report to the Senate Committee regarding the matters with which it is charged under Parts 1 and 2 of these terms of reference. The Working Party is to report to the Senate Committee no later than Thursday, 27 November 1997.

2. The Working Party must include in its report to the Senate Committee an assessment of the processes used by Telstra in providing information to the Parties and, if the Working Party considers it appropriate, make recommendations as to additional or improved processes which should be adopted by Telstra.

3. The Working Party must include in its report to the Senate Committee recommendations as to whether:

any documents described in the List should be provided to the parties;

documents which Telstra claims are privileged or confidential should be provided to the Parties; and

if the Working Party considers that documents described in the List should be provided to the Parties, the terms on which those documents should be so provided.

Any disagreement which cannot be resolved is to be advised to the Senate Committee in writing by the Chair of the Working Party.

SCHEDULE

Arbitration of dispute between Telstra and Mr Bova.

Arbitration of dispute between Telstra and Mr Plowman.

Arbitration of dispute between Telstra and Mr Schorer.

Appeal proceedings regarding the award in the arbitration of the dispute between Telstra and Mrs Garms.

The proceedings undertaken by Mr A Honner.

Such proceedings as may have been commenced, or actions as may have been taken, under the Freedom of Information Act, to gain access to documents in the possession of Telstra, by Mr Bova.

Such proceedings as may have been commenced, or actions as may have been taken, under the Freedom of Information Act, to gain access to documents in the possession of Telstra, by Mr Plowman.

Such proceedings as may have been commenced, or actions as may have been taken, under the Freedom of Information Act, to gain access to documents in the possession of Telstra, by Mr Schorer.

Such proceedings as may have been commenced, or actions as may have been taken, under the Freedom of Information Act, to gain access to documents in the possession of Telstra, by Ms Garms.

Such proceedings as may have been commenced, or actions as may have been taken, under the Freedom of Information Act, to gain access to documents in the possession of Telstra, by Mr Honner.

As stated in Part 4 (1) of the Terms of Reference, the Working Party was to report back to the Committee by 27 November 1997.

The Chair of the Working Party requested and was granted an extension to 18 December 1997 on which date he produced his first interim report to the Committee.

The complexity of the task was great: the difficulty for the parties to specify what documents they wanted, the number of documents requested, Telstra's apparent inability to locate them or to establish and admit that they did not exist, all combined to make it increasingly difficult to bring the exercise to a successful conclusion. The Committee notes that reports on the then Telecom by Coopers and Lybrand (November 1983), AUSTEL, (1984) and the Commonwealth Ombudsman (November 1990) all condemned the company's poor record keeping. These comments are endorsed by Mr Wynack in his final report to the Committee: "I reiterate the opinion I expressed in my reports of 5 November 1998 and 8 December 1998 that it is impossible for Telstra to satisfy all the requests by the Parties. In many cases it is impossible because of Telstra's poor record keeping practices during the periods of the claims and since".

Extensions were requested of the Committee and granted periodically and a number of interim and `final' reports were produced for the Committee. Each of the Working Party's `final reports' to the Committee suffered from being incomplete due to the lateness of some of the information provided by Telstra or by one of the Parties by way of `response'. However, Mr Wynack was confident that progress was being made and both Telstra and the Parties were co-operating with the process. He reported to the Committee in early June 1998 that: "The Working Party has now been in operation for seven months. During that period, Telstra has divulged much information, including documents and the Parties have refined their requests for documents".

There were nevertheless occasional disagreement between some of the Parties and the technical adviser (the Ambidgi Group) and Telstra about the reasonableness of certain requests for documents.

In an effort to clarify the situation, the Committee held two in-camera hearings during 1998 on matters relating to the Working Party, the first with Mr John Wynack on 6 July 1998 to discuss Mr Wynack's report of 5 June 1998 and the second on 9 July 1998 with representatives of Telstra in the presence of Mr Wynack.

At that stage, the Committee resolved to ask Mr Wynack and Telstra for a fortnightly progress report. The announcement of the federal elections of 3 October 1998 intervened to delay matters further.

Conclusion

On 5 November 1998, the Chair of the Working Party reported to the Committee that "almost 150, 000 documents have been provided to the Parties". The Parties informed him that "the process has yielded only between 10% and 15% of the documents which they requested". Mr Wynack went on to say: "The Working Party is now operating in an environment of diminishing returns."

On the advice of Mr Wynack, the Committee asked Telstra to attend to a final and limited number of specific requests (principally from Mrs Garms). Telstra apparently "interpreted" the requests rather than follow them to the letter. In Mr Wynack's final report to the Committee he commented that: "I believe that much of the documentation specified by Mrs Garms would have been created and I am surprised that more of that documentation was not recovered by Telstra. I am concerned that Telstra omitted from the list of requests used during the `Final Sweep Searches' some of Mrs Garms' specific requests which covered such documentation".

However, Mr Wynack was not convinced that further searches for documents would necessarily be successful: "It is my understanding that the Parties believe that they need all of the documentation that they have requested in order to adequately present their claims. In the circumstances, the Working Party cannot achieve what I consider to be its primary purpose, viz to provide information to the Senate Committee to enable the Committee to form a view as to whether Telstra has granted access to the information the Parties require to support the claims they have made against Telstra".

The Committee has concluded, on the basis of advice that it has received from Mr Wynack that there is no longer any point in continuing the life of the Working Party since it has finally become clear that the documents needed to support the parties' claims are not likely to become available. The Committee has therefore decided to end the Working Party process.

I now table all the documents relating to the Working Party, Mr Wynack's reports to the Committee, the COTs' comments on those reports, Telstra's reports, the relevant Hansard transcripts of evidence and essential correspondence relating to the issue.

Estimates of Telstra's costs in relation to the COTs issue since the claims were made exceed $20 million ($14.285 million to 1997 and rising). Most of the expenditure has been spent, not on settlement but on administrative and legal costs. It became quite clear early in the process that the claimants had in fact been disadvantaged by malfunctions in their telephone system. It is difficult to understand why Telstra appeared to prefer to deny that there was a problem and then prolonged the difficulties in establishing the extent of that problem.

In the Committee's view Telstra should now seek to reach a negotiated agreement with the interested parties.

Senator EGGLESTON —I move:

That the Senate take note of the statement.