Access just got easier: The High Court redefines reviews under Part IIIA

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20 September 2012

On 14 September 2012, the High Court handed down its decision in the Pilbara rail access case.[1]  The case involved applications by Fortescue Metals Group Ltd under Part IIIA of the Competition and Consumer Act 2010 (Cth) (Act) for declaration of rail infrastructure in the Pilbara region.

The decision has dramatically reshaped the access regime in Part IIIA of the Act by making the declaration process easier and quicker.  It has also largely settled a long running dispute over the meaning of criterion (b) (that a facility be uneconomical to duplicate) and clarifies that once the declaration criteria are satisfied, there is no residual discretion “not to declare” a service. Although the decision on criterion (b) was a win of sorts for BHP Billiton and Rio Tinto, the decision overall clearly favoured Fortescue (the appellant) and access seekers by streamlining the declaration process.  As a result, applications for declarations are likely to increase.

KEY FINDINGS

• The Tribunal’s review task in relation to declaration of a service under Part IIIA is not to decide afresh on a new body of evidence and material placed before it whether a service should be declared. Its task is limited to reconsideration of the Minister's decisions having regard to the material before the Minister supplemented, if necessary, by any information, assistance or report given to the Tribunal by the NCC in response to a request made under s 44K(6).

• It will be “uneconomical for anyone to develop another facility to provide the service” under s 44H(4) if the Minister is satisfied that it would be not be profitable for any current or potential participant in the marketplace to develop an alternative facility.

• The Tribunal’s reconsideration of the “public interest” criterion in s 44H(4) should not, except in exceptional cases, go beyond a consideration of the social costs and benefits that were considered by the Minister.

• The Minister (and therefore the Tribunal) does not have a residual discretion to refuse to declare a service if all of the criteria in s 44H(4) are satisfied.

Background

Part IIIA declaration

Under Part IIIA, a service can be declared by the relevant Minister,[2] which gives rise to an enforceable right to negotiate terms of access to the service. Declaration involves two steps – recommendation by the NCC[3] and a decision by the Minister to declare.[4]  For the NCC to recommend a declaration, it must hold a public consultation and be satisfied that all of the following criteria[5] are met:

(a)   that access (or increased access) would promote a material increase in competition in al least one other market;

(b)  that it would be uneconomical for anyone to develop another facility to provide the service;

(c)   that the facility if of national significance;

(e)  that the services are not already subject to an effective access regime; and

(f)   that access or increased access to the service would not be contrary to public interest.

In declaring the service, the Minister must be satisfied of the same criteria.[6]  Merits review is available by application to the Tribunal[7] and entails a reconsideration of the matter.[8]

The Fortescue proceedings

From 2004, Fortescue Metals Group Ltd via its related entities (Fortescue) sought access to four iron ore rail lines and associated infrastructure in the Pilbara. Two of the lines were owned by BHP Billiton entities (the Goldsworthy and Mt Newman lines) and two were owned by Rio Tinto Ltd and associated entities (the Hammerlsey and Robe lines). 

The Commonwealth Treasurer, on recommendation of the Council, made declarations over the Goldsworthy, Robe and Hammersley lines, each for a period of 20 years.  BHP Billiton and Rio Tinto sought review of the Minister’s decisions in the Tribunal.  The Tribunal set aside the Minister’s decisions with respect to the Hammersley line and varied the decision with respect to the Robe line so that it expired in 10 years. The Tribunal found that criterion (b) involved a "natural monopoly" test, to the effect that the criterion would not be satisfied because the existing facility could not meet market demand at a total cost less than that required to construct a new line.  It further found that criterion (f) was not met in relation to the Hamersley line because access would be contrary to the public interest.

Both Fortescue and Rio Tinto sought judicial review by the Federal Court. The Council sought, and was granted, leave to intervene. The Court dismissed Fortescue's application and allowed Rio Tinto's. It found that criterion (b) established a test of private economic feasibility, that is, not whether it would be economically efficient from the perspective of society as a whole, but whether it was not economically feasible for a participant in the marketplace (other than the incumbent owner of the facility) to develop an alternative facility.

Fortescue was granted special leave to appeal the decision to the High Court.

The Tribunal’s review exceeded the scope of the Tribunal’s powers

The High Court held that the Tribunal had exceeded the scope of its powers by treating its review task as being to decide afresh, on the new body of evidence and material placed before it, whether the services should be declared. Instead its task was the much narrower one of reviewing the Minister's decisions by “reconsidering” them on the material before the Minister, supplemented, if necessary, by any information given to the Tribunal by the NCC in response to a request made under s 44K(6).[9]

The High Court held that, the Tribunal not having performed the task required by the Act, the Federal Court should have granted Fortescue's applications to quash the Tribunal's decision. It ordered that the matters should be remitted to the Tribunal for further consideration according to law.[10]

Section 44K of the Act has been substantially amended since the Tribunal made its decision.[11]  Section 44K(4) now expressly limits the Tribunal’s review to a reconsideration of the Minister’s decision based on information, reports and things provided by the Minister, as supplemented by information requested by the Tribunal from the Council. However, even with these amendments, the High Court’s clear statements regarding the Tribunal exceeding its powers are likely to have broader implications for the manner in which the Tribunal exercises those powers in future reviews. Although the decision is based on its interpretation of the law, one cannot but suspect that the voluminous additional evidence, including several expert witnesses put by BHP Billiton and Rio Tinto before the Tribunal, and the detailed consideration of all that evidence by the Tribunal, contributed to the High Court’s findings.

Criterion (b) – when is it “uneconomical for anyone to develop another facility to provide the service”

The High Court (with Heydon J providing a compelling dissent on this point) also confirmed the “private profitability” approach adopted by the Full Federal Court to criterion (b) in s 44H(4). It held that, if the Minister is satisfied that it would be uneconomical (in the sense of not profitable) for anyone to develop an alternative facility, criterion (b) is met.

The High Court rejected both the “natural monopoly” approach that was adopted by the Tribunal, and the “net social benefit test” that had been adopted in previous Tribunal proceedings (including Sydney Airports[12] and Services Sydney[13].  It held that these tests were inherently uncertain and difficult to apply and didn’t sit easily with the natural meaning of words in the statute.[14]

By contrast, the High Court found that the “privately profitable test” (referred to by the Full Federal Court as the “economically feasible” test) was easier to apply to the facts at hand and fitted better with the statutory language.[15]

In describing how the “private profitability” test should be applied, the High Court held that it would not be economical (in the sense of profitable) for someone to develop another facility to provide the relevant service unless that person could reasonably expect to obtain a sufficient return on the capital that would be employed in developing that facility. Significantly it noted that:

deciding the level of that expected return will require close consideration of the market under examination.  What is a sufficient rate of return will necessarily vary according to the nature of the facility and the industry concerned. And if there is a person who could develop the alternative facility as part of a larger project it would be necessary to consider the whole project in deciding whether the development of the alternative facility, as part of that larger project, would provide a sufficient rate of return.  But the inquiry required by criterion (b) should be whether there is anyone who could profitably develop an alternative facility.”[16]

The Court acknowledges that the question of profitability would require the making of forecasts and the application of judgment, but noted that the question of whether it would be economically feasible to develop an alternative facility “is a question that bankers and investors must ask and answer in relation to any investment in infrastructure. Indeed, it may properly be described as the question that lies at the heart of every decision to invest in infrastructure, whether that decision is to be made by the entrepreneur or a financier of the venture.”.[17]

Ultimately a “private profitability” test so expressed may not be that different in practice to the Tribunal’s “natural monopoly” test.

Criterion (f) – “contrary to the public interest”

The High Court’s decision regarding the application of criterion (f) (that access (or increased access) to the service would not be contrary to the public interest), was heavily influenced by its views on the scope of the Tribunal’s review task. 

The High Court acknowledged the many different considerations may be relevant to an assessment of what is “contrary to public interest”.  However, in reiterating the requirement that the Tribunal’s task was to reconsider what the Minister had decided (and not make its own assessment based on a new body of evidence), the Court found that performance of the Tribunal’s task must direct attention to the bases on which the Minister was satisfied that access would not be contrary to the public interest.  It stated that:

it is [not] to be expected that the Tribunal, reconsidering the Minister's decision, would lightly depart from a ministerial conclusion about whether access or increased access would not be in the public interest. In particular, if the Minister has not found that access would not be in the public interest, the Tribunal should ordinarily be slow to find to the contrary. And it is to be doubted that such a finding would be made, except in the clearest of cases, by reference to some overall balancing of costs and benefits.”.[18]

Justice Heydon, in his separate judgment, took a different approach to criterion (f).  He agreed that the Tribunal erred in its assessment of the criterion, but his reasoning was based on the views that criterion (f) must not be used to call into question the results obtained by application of the other criteria in s 44H(4), and that application of the criterion should not consider assumptions about the terms of access (which are to be decided in the second negotiation/arbitration stage of access, and are not relevant to the declaration stage). There is much to be said for this approach.

Residual discretion

Finally the Court confirmed that there is no residual discretion, for either the Minister or the Tribunal on review, to exercise in deciding whether to declare a service. If the criteria in s 44H(4) are satisfied, the relevant service must be declared.


[1] Pilbara Infrastructure Pty Ltd v Australian Competition Tribunal (M155/2011, M156/2011 and M157/2011); The National Competition Council v Hammerlsey Iron Pty Ltd (M45/2011); The National Competition Council v Robe River Mining Co Pty Ltd (M46/2011).

[2] Australian Competition and Consumer Act (2010) (Cth) s 44H(1).

[3] Ibid s 44F(2)(B)(i).

[4] Ibid s 44H(1).

[5] Ibid s 44G(2). Note paragraph (d) was repealed.

[6] Ibid s 44H(4).

[7] Ibid s 44K(1).

[8] ibid s 44K(4).

[9] Pilbara Infrastructure Pty Ltd v Australian Competition Tribunal (M155/2011, M156/2011 and M157/2011) (‘Pilbara’) at 21 [65].

[10] Ibid at 22 [68].

[11] Section 44K was amended by the Trade Practices Amendment (Infrastructure Access) Act 2010 (Cth)

[12] Sydney Airport Corp Ltd v Australian Competition Tribunal  (2006) 155 FCR 124

[13] Re Services Sydney Pty Ltd (2005) 227 ALR 140

[14] Pilbara at 28 [82].

[15] Pilbara at 38 [103].

[16] Ibid at 38 [104].

[17] Ibid at 39 [106].

[18] Ibid at 42 [112].


The content of this publication is for reference purposes only. It is current at the date of publication. This content does not constitute legal advice and should not be relied upon as such. Legal advice about your specific circumstances should always be obtained before taking any action based on this publication.


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