In a mixed decision for infrastructure owners and access seekers, the High Court has delivered its decision on Fortescue’s long running saga to obtain access to Rio Tinto’s railway lines in the Pilbara. The decision also represents a limiting approach to the role of the Australian Competition Tribunal in relation to appeals from declaration decisions.

On the positive side for infrastructure owners, the High Court has endorsed the position that an access seeker cannot obtain third party access in relation to a facility where it would be privately profitable for anyone to duplicate that facility. This is a higher threshold for access seekers than has been traditionally applied.

On the positive side for access seekers, the High Court rejected the ability of the Minister or Tribunal to exercise a residual discretion to refuse third party access even when the access seeker otherwise establishes that the relevant criteria for declaration are satisfied.

For Rio and Fortescue this does not mean the end of this matter as it has been remitted to the Tribunal for re-determination. The saga continues…

Background

On 14 September 2012, the High Court delivered its judgment in relation to Fortescue’s appeal against last year’s Full Federal Court decision which had the effect of not requiring Rio Tinto to provide third party access to its Hamersley and Robe railway lines in the Pilbara region. The High Court allowed Fortescue’s appeals - quashing the Tribunal’s decision and remitting the applications to the Tribunal.

The history of these proceedings is lengthy:

  • Between 2004 and 2008, Fortescue Metals Group Ltd and one of its wholly owned subsidiaries, The Pilbara Infrastructure Group Pty Ltd (together “Fortescue”) applied to the National Competition Council (“the Council”) for recommendations that part of BHP Billiton’s Goldsworthy and Mt Newman railway lines and Rio Tinto’s Hamersley and Robe railway lines be declared under Part IIIA of the (then) Trade Practices Act 1974 (“the Act”).
  • The most recent litigation in relation to these applications has concerned whether the relevant “below rail” services Fortescue is seeking access to ought to be declared by the Minister, given the six mandatory criteria set out in s44H of the Act. The outcome of each relevant decision is set out below and previous KWM Alerts have addressed the findings of both the Tribunal decision and Full Federal Court decision.

To see table click here.

  • Fortescue appealed to the High Court from the Full Federal Court’s decision and this Alert focuses on the four legal issues addressed by the High Court and their practical implications.

More limited role of the Australian Competition Tribunal

The most surprising aspect of the High Court decision is the finding that, by conducting a de-novo hearing, the Tribunal had exceeded its statutory powers. The High Court ordered the Tribunal’s decisions to be quashed and the matter to be remitted to the Tribunal. When the matter is remitted, the Tribunal must review the Minister’s original decisions by reference only to the material that was before the Minister, along with any information, assistance and reports obtained from the Council under s44K(6).

The reason for this finding is the wording of s44K, which at the time of the Tribunal’s decision provided that:

the review by the Tribunal is a re-consideration of the matter.

The majority judgement put importance on that fact that a “re-consideration” under s44K(4) should be distinguished from a “re-hearing” which is stipulated under other provisions of the Act (such as s101(2)). The majority judgement (and Heydon J in his separate judgement) also draws attention to the fact that allowing the Tribunal to conduct a de-novo hearing would undermine the strict time limits imposed on the Council and the Minister in their decision making which aim to give infrastructure owners and access seekers certainty.

The High Court’s finding on this issue is interesting in two respects:

  • First, Fortescue raised this issue late in the High Court appeal, after all parties had clearly acted on, and previously encouraged, the assumption that the Tribunal was empowered to conduct a fresh hearing on new evidence; and
  • Second, in 2010 s44K was amended to limit the Tribunal to considering the information submitted to the original decision-maker and these amendments clearly proceeded on the assumption, that pre-amendment, the Tribunal was empowered to conduct a de-novo hearing.

The implication of this finding is that pre-2010 s44K reviews will now be in line with post-2010 s44K reviews and will be in the nature of limited merits reviews.

Criterion (b) – privately profitable test confirmed

The High Court then turned to consider two of the six mandatory criteria of which the Minister has to be satisfied before declaring a service under s44H of the Act, the first being the requirement that “it would be uneconomical for anyone to develop another facility to provide the service” (“Criterion (b)”).

The High Court agreed with the Full Federal Court and adopted the “privately profitable” test in relation to Criterion (b). The following points guide application of this test:

  • “Uneconomic” means “unprofitable” rather than “inefficient”. The NCC, Minister and the Tribunal will need to consider whether a person could reasonably expect to obtain a sufficient return on the capital that would be employed in developing the facility, and what is a sufficient return will depend on the relevant industry.
  • The decision maker should not be concerned with hypothetical scenarios and ask whether another facility would be profitable if someone were to develop it. The decision maker must be satisfied that there is not anyone who could profitably develop another facility.
  • “Anyone” is a general reference requiring a consideration of whether anyone in the market or able to enter the market would find it profitable to develop another competing facility. In contrast to the finding of the Full Federal Court, the High Court held that “anyone” includes the incumbent infrastructure owner.

This interpretation of Criterion (b) strengthens the position of infrastructure owners.

Tribunal should not lightly depart from the Minister’s decision on the public interest test

Another mandatory criteria of which the Minister has to be satisfied under s44H is that “access (or increased access) to the service would not be contrary to the public interest” (“Criterion (f)”). The Full Federal Court found that Criterion (f) encompassed a great breadth of matters, including:

  • Costs of the infrastructure owner in providing access;
  • Costs involved with negotiating access to the infrastructure; and
  • General social costs and benefits in the Australian public interest, including factors such as potential delays to expansions or the retardation of technological development if access is granted.

While the majority of the High Court appeared to accept a wide interpretation of Criterion (f), the Court made it clear that the primary decision maker in relation to what is or is not in the public interest is the Minister:

[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.1

As such, the decisions of the Minister in relation to Criterion (f) can be expected to carry through in reviews by the Tribunal in all but exceptional cases.

Removal of residual discretion

The judgements of both the majority and Heydon J concluded by finding that the six criteria specified in s44H(4) constitute an exhaustive list of the considerations that may bear upon the decision to declare a service. Contrary to the findings of the Tribunal and the Full Federal Court, if satisfied of all six mandatory criteria, the Minister has no residual discretion to decide not to declare a service.

Practical implications for this case

In contrast to Heydon J who would have ordered the Treasurer’s original decision to declare the Rio lines should stand to “bring an end to these extraordinarily protracted proceedings”, the majority of the Court ordered Fortescue’s applications in relation to Hamersley and Robe lines be remitted to the Tribunal for redetermination.

The Tribunal’s review will be limited to a consideration of the material that was before the Minister five years ago. This is somewhat problematic given the dynamic nature of the mining boom.

The adoption of the privately profitable test for Criterion (b) may make it harder for Fortescue when this matter is remitted. On the other hand, it is possible that some of the material which was adverse to Fortescue’s case was provided as part of the Tribunal proceedings and should not form part of the material on which the Tribunal should now make its decision. It would also appear the Tribunal would need good reasons to depart from the Treasurer’s earlier decision that the declarations of the Rio lines were not contrary to the public interest.