Summary

The High Court has referred back to the Australian Competition Tribunal (Tribunal) Fortescue Metals Group’s application for access to Rio Tinto’s Hamersley and Robe railway lines in Western Australia.

The court confirmed that the relevant test when making declarations as to access regimes was the ‘privately profitable’ test (if any person would find it profitable to establish another railway line to provide the relevant service, the access regime would not apply), rather than the broader ‘natural monopoly’ test originally preferred by the Tribunal.

The facts

Fortescue and its subsidiary, The Pilbara Infrastructure Pty Ltd, have made various applications to the National Competition Council (NCC) seeking declaration of services provided by BHP Billiton’s Goldsworthy and Mount Newman railway lines and Rio Tinto’s Hamersley and Robe railway lines.

The access regime

Under Part IIIA of the Competition and Consumer Act 2010 (Cth) (Act), a ‘service’ can be declared by the relevant Minister, giving rise to a right to negotiate terms of access (in this case, smaller miners such as Fortescue can negotiate with BHP Billiton and Rio Tinto for access to existing railway lines).

Declarations were made in respect of the Goldsworthy, Robe and Hammersley lines.  The Tribunal set aside the Minister’s decisions with respect to the Hammersley line and varied the declaration with respect to the Robe line so that it expired in 10, rather than 20 years.  The Tribunal found that the criteria to make a declaration involved a "natural monopoly" test, which assessed whether the relevant railway line could provide society’s reasonably foreseeable demand for the service at a lower total cost than two or more railway lines.

The decision of the High Court

The High Court confirmed the later Federal Court’s interpretation that required a ‘privately profitable’ test. This test assessed whether any person would find it profitable to establish a second facility.

The court found that an extensive, court-style review process of the decision by the Minister was not the Tribunal’s task. Rather, the Tribunal’s role is a ‘re-consideration’ of the Minister’s decision. The Tribunal should start by looking at the material that was before the Minister (rather than requiring significant extra material). If the Tribunal requires any additional material, it can require the NCC to give assistance.

The court also considered whether, if all criteria set out in the Act were satisfied, the Minister (and therefore the Tribunal) had a ‘residual discretion’ to refuse to declare the service.

The court held that if the Minister was satisfied as to the criteria in the Act, no residual discretion was to be exercised.

Ramifications

The case is an example of the courts’ preference for practical, commercial tests rather than more abstract, economic tests. It means that an analysis of the investment considerations of industry participants is likely to be increasingly important in access matters in the future.