Alinta Asset Management Pty Ltd v Essential Services Commission

SUPREME COURT OF VICTORIA

COURT OF APPEAL

No 8453 of 2006

ALINTA ASSET MANAGEMENT PTY LTD
ALINTA ASSET MANAGEMENT PTY LTD	Appellant
v
ESSENTIAL SERVICES COMMISSION	Respondent

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JUDGES:	ASHLEY and DODDS-STREETON JJA and HANSEN AJA
WHERE HELD:	MELBOURNE
DATE OF HEARING:	30 January 2008
DATE OF JUDGMENT:	18 December 2008
MEDIUM NEUTRAL CITATION:	[2008] VSCA 273

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STATUTORY CONSTRUCTION – Purposive approach – Context including Hilmer Report, prior and related legislation - Gas Industry Act 2001 (Vic) s 22(1) – Whether appellant operating gas distribution pipeline pursuant to agreement with owner provides services by means of pipeline under s 22(1) requiring licence - Whether provision of services under s 22(1) must be contractual grant by pipeline owner, lessee or licensee.

STATUTORY CONSTRUCTION - Gas Pipelines Access (Victoria) Act 1998 enacting Gas Pipelines Access (South Australia) Act 1997 (SA) Schedule 1 (Third Party Access to Natural Gas Pipelines) (the ‘Law’) and Schedule 2 (National Third Party Access Code for Natural Gas Pipelines (the ‘Code’) (together, the ‘Access Law’) – Whether appellant is operator in relation to a pipeline and hence Service Provider under s 2 of the Law, subject to obligations under the Code – Relevance of capacity to provide services as defined in s 10.8 of the Code.

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APPEARANCES:	Counsel	Solicitors
For the Appellant	Mr A J Myers QC and Mr C J Delany SC	Blake Dawson
For the Respondent	Mr A C Archibald QC, Mr C M Scerri QC and Mr P R D Gray	Gilbert & Tobin Lawyers

TABLE OF CONTENTS

A.Introduction................................................................................................................................. 1
B.The Judgment below................................................................................................................... 5
Essential features of the natural gas industry..................................................................... 5
Alinta's powers under the Operating Services Agreement.............................................. 7
Analysis of s 22(1) of the GIA 2001..................................................................................... 11
‘Service Provider’ under the Law....................................................................................... 13
Conclusions of trial judge.................................................................................................... 15
C.Notice of Appeal....................................................................................................................... 16
D.Principal contentions................................................................................................................ 16
Alinta’s submissions............................................................................................................. 17
The ESC’s submissions......................................................................................................... 20
E.Relevant Legal Principles......................................................................................................... 21
F.Context of the disputed provisions........................................................................................ 26
History of reform and associated legislative developments.......................................... 27
The Hilmer Report................................................................................................................ 27
Other communiqués, agreements and enactments relevant to context........................ 31
The enactment of national legislation................................................................................ 34
G.The Access Law......................................................................................................................... 34
Relevant provisions of the Law........................................................................................... 35
Relevant Provisions of the Code......................................................................................... 35
Construction of ‘Service Provider’ in s 2 of the Law....................................................... 40
Multiple service providers................................................................................................... 45
The GIA 1994......................................................................................................................... 47
‘provide services … by means of a distribution pipeline’ under the GIA 2001........... 48
Gas Distribution System Code............................................................................................ 64
H.Functional or Factual Approach............................................................................................. 67

The Declarations........................................................................................................................ 69

J.Conclusion.................................................................................................................................. 69

ASHLEY JA:

Having had the advantage of reading in draft the reasons for judgment of Dodds-Streeton JA and Hansen AJA, I agree that the appeal should be dismissed.

The resolution of the appeal turned upon the meaning to be assigned to a very few statutory provisions. In an attempt to give meaning to those provisions, the Court was taken to many other provisions – most extant, some repealed; and to a mass of extrinsic material. Unfortunately, the basis of reliance upon other provisions was not always explained; whilst the usefulness of some of the extrinsic material depended, in turn, upon the meaning which was assigned to it; and there, room for disagreement emerged. In the event, the Court was asked to consider a mass of material, the meaning and possible significance of at least some of which was left opaque.

The task of statutory construction was also made less easy, I think, because there are aspects of the relevant legislation which – probably as a consequence of history - do not fit together very comfortably.

Another matter which complicated the task of statutory construction was that the appellant’s argument in this Court was not always consistent; a matter well-described by Dodds-Streeton JA.

In my respectful opinion, the reasons for judgment of Dodds-Streeton JA and the further reasons of Hansen AJA convincingly find a path through the various problems to which I have adverted, and arrive at a statutory construction which is compatible both with the plain words of the relevant provisions and with those provisions understood in context.

DODDS-STREETON JA:

A.Introduction

This appeal principally concerns the construction of s 22(1) of the Gas Industry

Act 2001 (‘GIA 2001’) and the meaning of the term ‘operator’ in the definition of ‘Service Provider’ in the Gas Pipelines Access Law (‘Access Law’).[1] A judge of the trial division found that, on a proper construction, the appellant, Alinta Asset Management Pty Ltd (‘Alinta’), which operates a gas distribution pipeline pursuant to an operating services agreement with the pipeline’s owner (but is not party to the haulage contracts with the retailers who receive the distribution) is a person providing services by means of a gas distribution pipeline within the meaning of s 22(1) of the GIA 2001 and is also an ‘operator’ of the pipeline within the definition of a ‘Service Provider’ in the Access Law; Alinta contends that the concepts of providing services and Service Provider apply only to a party such as the pipeline owner, lessee or licensee, who contracts with retailers to provide the relevant services.

[1]The Access Law is made up of two parts. Both are schedules to the Gas Pipelines Access (South Australia) Act 1997 (SA), which is enacted as a law of Victoria by the Gas Pipelines Access (Victoria) Act 1998. Schedule 1 is Third Party Access to Natural Gas Pipelines (‘the Law’) and Schedule 2 is the National Third Party Access Code for Natural Gas Pipelines (‘the Code’). The Gas Pipelines Access (South Australia) Act, by s 3(1), provides that the term ‘Gas Pipelines Access Law’ means both Schedule 1 and Schedule 2 as enacted and amended from time to time.

The respondent, the Essential Services Commission (‘ESC’), is the independent regulator of prescribed essential utility services for the purpose of the Access Law and the GIA 2001.

Alinta appeals from the judgment given on 22 August 2007, in which the trial judge declared that:

(a)Alinta is providing services (other than the sale of gas by retail) by means of a distribution pipeline either as a principal or agent within the meaning of s 22(1) of the GIA 2001 and has at all material times since 23 July 2003 been providing such services; and
(b)Alinta is and has at all material times since 23 July 2003 been an operator of a pipeline within the meaning of ‘Service Provider’ in the Gas Pipelines Access Law, and is and was required to comply with the requirements of the Code,[2] including the requirement to establish an access arrangement to the satisfaction of the ESC and to comply with ring fencing requirements.

[2]See footnote no. 1 above.

By s 22(1) of the GIA 2001, it is an offence for a person to provide services[3] by means of a distribution pipeline either as principal or agent, unless the person holds a licence under Part 3 of the GIA 2001, or is exempt from the licensing requirements. The Access Law defines a Service Provider[4] in relation to a pipeline (which includes a distribution pipeline) as the owner or operator of the pipeline and the Code defines service[5] as a service provided by means of a pipeline, including haulage services, the right to interconnect and services ancillary to the provision of such services. The Access Law requires a Service Provider, inter alia, to submit a proposed access arrangement to the regulator, to comply with ring fencing arrangements under Part 4 of the Code and to satisfy other requirements of the Code and the Law.
[3]Other than sale of gas by retail, which is dealt with in s 22(2).
[4] Section 2 of the Law defines ‘Service Provider’ as follows:
[5]          Section 10.8 of the Code defines ‘service’ as:
Service means a service provided by means of a Covered Pipeline or when used in section 1 a service provided by means of a pipeline including (without limitation):
(a)haulage services (such as firm haulage, interruptible haulage, spot haulage and backhaul);
(b)        the right to interconnect with the Covered Pipeline; and
(c)        services ancillary to the provisions of such services,
but does not include the production, sale or purchasing of Natural Gas.

The effect of the decision below is, therefore, that Alinta is and was at all material times required to hold a licence under Part 3 of the GIA 2001 and to comply with the obligations of a Service Provider under the Code, including the establishment of an access arrangement setting out the basic terms on which services will be made available and ring fencing arrangements segregating its pipeline business from other businesses conducted by it or its associates. Alinta does not, however, hold a licence under Part 3 of the GIA 2001 and has not been exempted from the licensing requirements. It has not established an access arrangement or ring fencing arrangements under the Code.

Rather, Alinta, which does not own a gas distribution pipeline itself, provides operations and management services to operate one for its client, Multinet.

Multinet owns a gas distribution network and holds a licence to provide services by means of a distribution pipeline under the GIA 2001. It also complies with the obligations of a Service Provider under the Code. It had access arrangements containing the mandatory specified matters, such as the haulage tariffs, approved by the ESC to the end of 2007 ,under which Multinet, as Service Provider, undertook to make available to users ‘haulage reference services’ (allowing the injection of gas at transfer points, conveying gas from transfer points to distribution supply points and allowing withdrawal of gas at distribution supply points) and ‘ancillary reference services’ (metering, gas installation, testing, disconnection works and turning on and reconnecting gas). Multinet is and was party to the haulage contracts (known as use of system agreements (‘UoSAs)) with retailers and large consumers (‘users’) who receive the natural gas transported through its gas distribution system. It is and was the party entitled to receive the revenue from those contracts. It is not and was not party to contracts with the end users to whom the retailers supplied gas.

Alinta provides services to Multinet under an Operating Services Agreement dated July 2003 (‘OSA’), whereby Multinet appointed Alinta, for an initial five year term (subject to renewal) to operate, construct and manage its entire gas distribution network. It conferred extensive powers on Alinta, including access rights in relation to the gas distribution pipeline and associated land. Originally, it also conferred on Alinta a power of attorney to enter contracts with retailers on Multinet’s behalf. The power of attorney was subsequently withdrawn on 20 October 2006. Thereafter, Multinet has executed the contracts itself, but the removal of the power of attorney resulted in no other practical change. Pursuant to the OSA, Multinet agreed to deliver up operating control of its gas distribution system to Alinta, which has in fact operated and managed it. The trial judge concluded that there was effectively ‘a handover of all functions required to operate the system’ by Multinet to Alinta. It was common ground that Alinta engaged sub-contractors to perform some of the operational functions.

B.The Judgment below

Essential features of the natural gas industry

The construction of the provisions the subject of the present appeal requires some understanding of the essential features of Victoria’s current natural gas industry. A summary of the trial judge’s description,[6] the accuracy of which was not disputed, is set out below.
[6]Alinta v Essential Services Commission (No 2) [2007] VSC 210.

After December 1994, the gas industry in Victoria was restructured. Gas distribution was gradually corporatised and privatised pursuant to ‘interim’ legislation and instruments. In 1994, two public authorities were established to separate the distribution function from the transmission and retail functions (for which services fixed tariffs were charged). In 1997, three businesses with stapled distribution and retail businesses were established. Multinet’s gas distribution business was at that date one of the three distribution businesses which covered a specified geographical area. It was stapled to Ikon Energy, a gas retail business.

The business was conducted by two companies, one of which owned the physical distribution assets, including the pipeline, while the other leased the assets and operated the distribution business pursuant to a distribution licence, granted from 11 December 1997 for an unlimited term.

In the first quarter of 1999, the stapled distribution and retail businesses were sold by the Victorian government to private interests. On 24 February 1999, the Multinet partnership purchased the assets and undertaking of the Multinet distribution business and acquired the Multinet distribution licence.

The supply of natural gas in Victoria currently involves the four successive stages of production, transmission, distribution and retailing. Natural gas is initially produced and processed to the stage where it becomes sales gas. It is then transmitted by a pipeline system known as the principal transmission system (‘PTS’), into which it is injected at a number of points, controlled and operated by the Victorian Energy Networks Corporation (VENCorp). VENCorp is a statutory body established on 11 December 1997 by the Gas Industry Act 1994 (‘GIA 1994’). Its functions and powers (contained in Part 8 of the GIA 2001) include controlling the operation of the PTS, operating and administering a competitive wholesale gas market within Victoria, and facilitating competition in the retail market for gas. VENCorp monitors injections, withdrawals and delivery of gas from the PTS to connecting gas distribution networks. During periods of low demand, surplus gas is stored in storage facilities and returned to the PTS for periods of higher demand.

Natural gas is transported through the PTS for direct supply to particular customers or delivery to one of the three Victorian gas distribution networks, including that of Multinet.

Each gas distribution system comprises a network of underground distribution pipelines through which gas is hauled for delivery to users, who are principally retailers, but may include some large individual customers. Multinet’s gas distribution network is connected to the PTS at various connection points pursuant to a systems connection deed with VENCorp dated 3 September 1999. The gas enters the distribution system at the connection points and is ‘hauled’ to customer supply points, where it is withdrawn.

Gas retailers are the primary buyers and sellers of natural gas. Most end users acquire gas through a retailer. As a consequence of the reform and restructure of the gas industry following the recommendations of the Hilmer Report,[7] referred to below, Victorian consumers of natural gas may choose from a range of competing retailers. Retailers acquire the gas from producers or gas traders. They obtain transmission services to convey the gas through the PTS and distribution services to convey the gas through a distribution system, to which the customer’s gas supply pipeline is connected. The owners or operators of the transmission systems transport the gas through their networks of pipelines and charge the retailer for the haulage, of which there are several types. In some types of haulage, availability is essentially guaranteed, while in others, it is interruptible. In Victoria, a market carriage access system applies, in which users of gas do not contract with distributors for a specific quantity of services and cannot trade their rights.
[7]Hilmer, F., Rayner, M., and Taperell, G. (1993), National Competition Policy, Report by the Independent Committee of Inquiry, AGPS, Canberra, ACT.

Multinet owns one of the three principal gas distribution systems in Victoria. It is the largest distributor of natural gas in Victoria. While its network covers the smallest geographic area, it has the largest number of consumers.

The Multinet system is a grid of supply pipelines, gas reticulation mains and services of varying sizes, which are all owned by Multinet. They are supplied from the PTS through various custody transfer meters. Those pipelines in the gas distribution network with operating pressures greater than 1050 kilopascals must be licensed under the Pipelines Act 2005 (‘PA 2005’). Some of Multinet’s pipelines have maximum permitted pressure of over 1050 kilopascals, while others have different maximum permitted pressure. Gas is transported through Multinet’s distribution network to its customers (typically retailers) who are party to contracts with Multinet.

Alinta's powers under the Operating Services Agreement

By cl 5.1 of the OSA, Multinet appointed Alinta to provide the ‘services’ defined in the OSA schedule 1 for the term. (The term was defined to mean an initial period from commencement date up to and including 30 June 2008, a first renewal period from 1 July 2008 to 30 June 2013 and any subsequent renewal periods, being each period of five years commencing on 1 July 2013.)

Schedule 1 of the OSA, in relation to services, states in cl 1(a), broadly, that Alinta will operate and manage or procure the operation of the distribution network (being ‘Multi-net’s gas distribution network as defined in the licence’) and the Business (defined as the business carried out by Multinet of distributing gas to customers connected to Multinet’s gas distribution network in Victoria), in accordance with good industry practice and service standards.

The schedule 1 services provided by Alinta under the OSA were broadly categorised by the trial judge as follows:

(a)Regulatory services: including proposing distribution and network tariffs; drafting submissions to the ESC in relation to the access arrangements and other Code requirements; making recommendations to Multinet for the setting of additional charges; and providing reports to the ESC as required;
(b)Network management: including managing the business, the network and associated assets; and network planning engineering and market development services;
(c)Construction management: including network expansion and replacement of minor and major capital works;
(d)Network customer services: including retailer management; tariff management; billing; and access systems and policies;
(e)Network planning and engineering services: including network design and planning; and network asset data management and network engineering support; and
(f)Network operation, incident management and supervisory control.

The excluded services which Alinta does not provide[8] were summarised by the trial judge as:
[8] Clause 9.1 of the OSA provides that, as primary obligations, Multinet must:

(a)Approval of final submissions to the ESC in relation to the access arrangement, revisions to the access arrangement and other requirements under the Code;
(b)Regulatory strategy, including strategy for network pricing and tariff reassignment;
(c)Determining reference tariffs and submissions to the ESC in relation to revisions to the access arrangement and other requirements under the Code;
(d)Claims by customers or third parties as at the date of entering into the OSA;
(e)General management and operation of Multinet, including the board of Multinet; and

(f) Press releases and publications of Multinet.

The trial judge described Alinta’s business as the provision of:

a variety of management, operation, construction and regulated services to owners of infrastructure and assets, including Multinet, in both regulated and unregulated services.

The trial judge found that, although the contracts between Multinet and retailers were largely standard form, in so far as there was any negotiation of their terms, it was undertaken by Alinta. Alinta also dealt with the retailers in relation to all operational and relationship issues (albeit subject to key performance indicators, which imposed only weak control). Alinta operated and monitored the SCADA System (which monitored gas flows, pressure and temperatures) and coordinated its maintenance. It performed all routine operations, including maintenance, replacement, expansion, upgrade, incident response and long term planning, which were all necessary in a technical sense for the distribution of gas to occur. It also prepared and submitted Multinet’s safety case (required by the Gas Safety Act 1997 and undertook long term planning.

Further, prior to October 2006, Alinta executed contracts on Multinet’s behalf. Alinta also engaged and controlled sub-contractors in relation to the Multinet system.

The trial judge concluded that:

(a)The OSA appoints [Alinta] exclusively to operate and manage, or procure the operation or management of, the entire Multinet system;
(b)Multinet has agreed to deliver up, and has in fact delivered up, operating control of the system to [Alinta], or as [Alinta] directs;
(c)[Alinta] in fact operates and manages, or procures the operation and management, of the Multinet system. The contractual mechanisms of KPIs and other reporting obligations, and the limited amount of actual involvement by Multinet through meetings and the like, do not detract from that essential position;
(d)The operation of the Multinet system undertaken, or caused to be undertaken, by [Alinta] is what facilitates the flow of gas through the system;
(e)Sub-contractors and other third parties who contribute to, or assist [Alinta] with, the functioning of the Multinet system, do so under [Alinta’s] management or control;
(f)In performing its obligations to provide the services under the OSA, [Alinta] has extensive decision-making functions about incurring operating expenditure in order to meet the requirements of the OSA and the asset management plan (as proposed by [Alinta] and approved by Multinet from time to time);
(g)Under the OSA, [Alinta] negotiates on Multinet’s behalf in connection with UoSAs, and deals with or manages dealings with system users on all other matters;
(h)Prior to October 2006, [Alinta] had an irrevocable power of attorney from Multinet to perform the services, enter into any UoSA, and do anything necessary or desirable to deliver the services. It is irrelevant that [Alinta] was not a party to the UoSAs which it executed under the power of attorney. The nature and extent of the power of attorney clause further confirmed the extent to which [Alinta] was in fact operating and managing the entire Multinet system;
(i)Although since October 2006 the power of attorney clause has been deleted, and [Alinta] is declared not to be [Multinet’s] agent, no other provision in the OSA has been amended. Most importantly, no practical change has occurred in performance of [Alinta]’s functions under the OSA, save that Multinet now signs UoSAs itself.

Analysis of s 22(1) of the GIA 2001

Having set out the description of the gas industry, the history of its restructure, and related reform recommendations, legislation and rules, the trial judge separately analysed each constituent element of s 22(1) of the GIA 2001.

Her Honour concluded that according to its ordinary or natural meaning, ‘provide’ means to ‘furnish or supply’ and the concept of providing or supplying services does not connote any particular contractual or legal relationship.

Her Honour observed that ‘to be a provider or supplier, a person has to have an actual ability to deliver the service, whatever they are.’ She did not, however, accept that access to the infrastructure could be provided only pursuant to contracts with retailers, or that only a party to such contracts could provide the relevant services. She rejected the view that the purpose of a licence under Part 3 of the GIA 2001 was to protect the regulated monopoly and to control access to the monopoly infrastructure. She observed that ‘there is no basis for believing that the purpose of a licence under the GIA 2001 is to protect monopolies.’ There was thus no policy justification for reading down the word ‘provide’ to mean ‘provide under a contract with retailers.’

The trial judge acknowledged that the term ‘services’ was undefined in the GIA 2001, but, from the heading of s 22 (‘offence to distribute or retail gas without a licence’) inferred that s 22(1) was concerned with the distribution of gas. ‘Distribute’ was defined in s 3 of the GIA 2001 as to ‘convey gas through distribution pipelines’ which the judge concluded to be, ‘in ordinary language, a description of a functional activity.’

Her Honour apparently accepted Alinta’s contention that in s 22(1) of the GIA 2001, ‘services’ had the same meaning as ‘service’ defined in s 10.8 of the Code. She noted that ‘service’ was inclusively defined in s 10.8 of the Code and concluded that services were therefore not limited to the specific examples given. Further, there was no indication that they were restricted to services provided pursuant to a contract.

She also observed that s 22(1) of the GIA 2001 did not identify to whom the relevant services were to be provided. While Alinta submitted that retailers were the likely recipients, her Honour observed that ‘services’ (whether they were the ‘distribution of gas’ as suggested by the heading to s 22(1) of the GIA 2001 or as defined in s 10.8 of the Code) could be provided to users other than retailers.

The trial judge held that ‘by means of’ in s 22(1) simply meant ‘using’. She rejected Alinta’s contention that the GIA 2001 was concerned with the ownership or exclusive possession of the infrastructure.

Her Honour considered that the phrase ‘either as principal or agent’ in s 22(1) of the GIA 2001 indicated ‘the breadth of the offence, namely, that it applies to any person who provides relevant service in any capacity’ and ‘emphasised that the prohibition applies irrespective of whether the person concerned is a party to a contract which confers the benefit of those services on another person (such as a retailer or customer). The language confirms that the legislature intended the prohibition to operate on a person who is providing the stipulated services in a functional or factual sense.’ Her Honour rejected Alinta’s contention that the words ‘either as principal or agent’ were retained by legislative oversight. She did not accept that the term ‘either as principal or agent’ in s 22(1) or the provisions in ss 25 to 27 of the GIA 2001 indicated that the GIA 2001 contemplated a sole exclusive licence and prohibited multiple licensees in relation to the one pipeline.

The trial judge did not consider that the provisions governing the conditions applicable to licences, the ‘deemed contract’ provision in s 48(1) of the GIA 2001 or the other relevant legislation and rules relied on by Alinta supported its construction of s 22(1) or Service Provider in s 2 of the Law.

‘Service Provider’ under the Law

The trial judge also concluded that Alinta was an operator of Multinet’s gas distribution pipeline and hence was a Service Provider for the purposes of the Law. In that context, she considered that the word ‘operator’ was part of the concept of ‘Service Provider’ and was not controlled by the definition of ‘service’. She therefore rejected Alinta’s argument that, if a party did not provide any ‘service’ as defined in s 10.8 of the Code, it was not a Service Provider within terms of s 2 of the Law.

Her Honour considered that a ‘service’ was not, in the context of the Code, limited to the conferral of contractual rights, but encompassed ‘factual functional services.’ She noted that a contrary construction would exclude bare owners who were not in privity of contract with retailers (or indeed with other users). Such an outcome could not have been intended, she said, because, among other things, the position of the asset owner was a necessary consideration in the tariff setting process.

Her Honour observed that the Code expressly recognised the possibility of multiple Service Providers in respect of the same pipeline and concluded that the relevant provisions should not be read down to apply only to the case of an operator with a lease of the pipeline.

She also noted that the Code provided for satisfaction of its requirements (save for ring fencing obligations) by any one of multiple Service Providers.

In her Honour’s opinion, the specific provision for the owner and operator as multiple Service Providers (when not joint venturers or partners) fortified the conclusion that the relevant ‘service’ did not consist of ‘the formal legal right to grant access’, because, typically, only one of the two parties would hold that legal right.

The trial judge accepted that, as was common ground, Alinta could not submit its own free-standing access arrangement under the Code. Most saliently, as a non-owner, it did not invest capital in the pipeline and therefore could not provide the required reference tariff or reference tariff policy. Further, because it did not contract with customers, Alinta could not specify the terms and conditions of supply. Nor was it entitled to ‘make available’ services, so it could not provide the required services policy.

Her Honour did not, however, consider that Alinta’s incapacity to fulfil all the requirements of a Service Provider under the Code independently was determinative, because, as she observed, ‘there is no need under the Code for an operator which is not an owner to fulfil its own free-standing access arrangement.’ She noted that a bare owner would be equally incapable of satisfying all of the requirements, but should none the less be regarded as a Service Provider. She observed that ‘the question is not whether [Alinta] on its own has the ability to do everything required by the Code, it is rather whether [Alinta] is the operator within the meaning of the Code and the Law’. Her Honour did not accept Alinta’s alternative argument that if (contrary to its primary submission) it were a Service Provider, it was exempt from compliance with the Code because compliance by either an owner or an operator sufficed.

She rejected the contention that the Code was directed only at ensuring third party access to monopoly infrastructure. The critical ring fencing requirements were, she said, on a proper construction, directed ‘not at the power to grant the right of access but to the isolation of business operations and information concerning the covered pipeline’. Her Honour stated that the ring fencing obligations ‘demonstrate a legislative intention to regulate an operator who may favour its “associates” in operational matters, irrespective of whether access to other users has been granted or denied.’ The ring fencing obligations included, but extended beyond, the provision of accounting information to the regulator. The trial judge considered that they were imposed on a Service Provider in order to segregate its business for the stated reasons, and were not simply a consequence of being party to an access agreement. The ring fencing provisions thus told against the contention that the Code was concerned only with granting access to third parties by way of contractual grant.

Conclusions of trial judge

Her Honour concluded:

AAM provided and provides relevant services under section 22(1) of the GIA 2001
Section 22(1) requires the application of a functional or factual approach to the question of whether a person provides services by means of a distribution pipeline, either as principal or agent. It does not require that the person provide all the relevant services which are provided by means of the pipeline. There can be more than one person who provides distribution services in respect of the same pipeline. A person may provide some of those services as principal and some as agent.
The critical issue in determining whether a person provides services is not whether they are a party to the relevant haulage contracts, or who owns the pipeline, it is whether the person in fact uses the distribution pipeline to distribute gas, according to the ordinary and natural meaning of those concepts. A person such as AAM who undertakes, controls and directs the activities constituting the distribution of gas is providing those services.
The extent of the contractual powers conferred on AAM under the OSA, and actually exercised by AAM, are such as to bring it within the ordinary and natural meaning of a person who provides services by means of a distribution pipeline. The fact that subcontractors undertake some of the particular activities, under the direction and control of AAM, does not diminish that conclusion.
At all material times (including since October 2006), AAM has in fact provided sufficient relevant services by means of the Multinet system, either as principal or agent, to bring it within section 22(1) of the GIA 2001.
AAM is a “service provider” under the Code
The Code is not concerned with whether a person is acting as principal or agent. It is concerned with whether a person is the owner or operator of a covered pipeline.
The Code clearly conceives of the possibility of there being a separate owner and operator for some or all of a covered pipeline.
Where it appears that the owner has handed over the operation of some or all of the pipeline, there is a need to undertake a factual enquiry to determine who is in fact the operator of the pipeline. This involves an inquiry as to the functions actually performed by the parties, not merely an inquiry as to who is a party to contracts with third parties.
The extent of the contractual powers conferred on AAM under the OSA, and actually exercised by AAM, are such as to bring it within the ordinary and natural meaning of the “operator” of the pipeline. The fact that subcontractors undertake some of the particular activities, under the direction and control of AAM, does not diminish that conclusion.
Those conclusions are not affected by the amendment to clause 32 of the OSA in October 2006. That is to say, AAM was the operator of the pipeline at all relevant times before and after October 2006.
AAM therefore fell and falls within the definition of “service provider” for the purposes of the Code.
As such, AAM is required to comply with the access arrangement provisions in respect of the Multinet system. How it chooses to comply with that obligation is a matter for it and Multinet to determine. One obvious possibility would be for AAM and Multinet to submit a joint access arrangement.
In any event, AAM is required to comply with the ring fencing requirements of the Code.
C.Notice of Appeal

Alinta appeals on many grounds almost all of which, on analysis, are elements of its fundamental construction arguments.

D.Principal contentions

On appeal, there was much common ground. The parties’ dispute centred on the construction of s 22(1) of the GIA 2001 and the meaning of an ‘operator’ within the definition of Service Provider under s 2 of the Law.

Alinta’s submissions

Alinta did not dispute the trial judge’s general summation of the relevant legislation, her exposition of its history and background, or her description of the organisation, processes and entities relevant to the structure and operation of the gas industry. Nor did it challenge the trial judge’s findings of fact or stated principles of statutory construction. Rather, it disputed her Honour’s conclusion that Alinta required a licence under s 22(1) of the GIA 2001 and was an operator of the pipeline and hence a ‘Service Provider’ under the Law.

Alinta submitted that the fundamental flaw in her Honour’s construction of s 22(1) was the failure to recognise that the provision of services must be by way of a contractual grant. The error arose because she construed the provision of services in a ‘functional or factual’ sense, to which strict contractual relationships were irrelevant. Alinta submitted that although the trial judge correctly assumed that the services referred to in s 22(1) of the GIA 2001 were services as defined in s 10.8 of the Code, her conclusion that Alinta was caught by the prohibition in s 22(1) was not logically compelling, because it was incapable of providing those services. It was neither the owner nor the lessee of the pipeline and had no other entitlement to grant haulage services or interconnection rights. It was not, in fact, a party to any contracts with retailers.

Although conceding that the definition of ‘Service’ in the Code was inclusive and ‘without limitation’, Alinta contended that haulage and the right to interconnect were not only central, but were (save for ancillary services), effectively exhaustive. No other services provided by means of a pipeline had been identified.

Alinta thus contended that her Honour’s construction of the provision of services by means of a distribution pipeline under s 22(1) was inconsistent with her recognition that the provision of services depended on an antecedent capacity to provide them, because she also acknowledged that the services referred to in s 22(1) were those in the definition of ‘Service’ in s 10.8 of the Code. Such services could be provided, it said, only by an owner, lessee or a party whose legal entitlements otherwise empowered it to confer contractual rights on the retailers.

Alinta submitted that the trial judge’s construction of the term ‘operator’ within the definition of Service Provider in the Law was wrong for the same reason. It erroneously assumed that Alinta was providing services which it was legally incapable of providing. Her construction of Service Provider in s 2 of the Law was wrong for the added reason that it applied to a party such as Alinta, which was incapable of full, independent compliance with the obligations (including the submission of a satisfactory access arrangement) imposed on a Service Provider under the Access Code. Alinta submitted that the trial judge’s construction of both s 22(1) of the GIA 2001 and ‘Service Provider’ produced an unreasonable and inconvenient outcome, because two or more parties would require concurrent licences under the GIA 2001. Concurrent Service Providers would also be recognised in relation to the same pipeline under the Code.

Alinta acknowledged, in that context, that the Code expressly recognised and provided for multiple Service Providers, but argued that ordinarily, there would be only one licensee or Service Provider in relation to a particular pipeline.

Alinta submitted that the trial judge’s ‘functional or factual’ approach was elusive and productive of uncertainty. It required, in every case, an ‘open ended’ factual analysis of the alleged operator’s contract with the pipeline owner, in order to identify the parties who were required to be licensed under the GIA 2001 or subject to the obligations of a Service Provider under the Code. Such uncertainty was inimical to the relevant legislative goals, as it would discourage investment in infrastructure.

Alinta contended that if its construction were rejected, every subcontractor involved in the operation of the gas distribution network and the delivery of gas through the pipes would, irrespective of the extent of its role and powers, constitute both a provider of services required to be licensed under s 22(1) of the GIA 2001 and a Service Provider subject to the requirements of the Code. Such an outcome undermined, rather than served, the legislative objectives. In the context of widespread outsourcing, it was so unreasonable that it could not have been intended.

Alinta submitted that, in the present case, Multinet itself was the operator of its gas distribution network, while Alinta was a subcontractor to Multinet. Alinta provided services to Multinet alone pursuant to the OSA and not by ‘means of the pipeline’, but rather, ‘in respect of the pipeline’.

Alinta argued that its construction was required by the modern purposive approach to statutory interpretation, which directs attention to legal and historical context in the broad sense and to the mischief the legislation was designed to overcome. It contended that in the present case, the legal and historical context, (comprising the Hilmer Report, government statements and communiqués, preceding and related legislation, the associated Gas Distribution System Code[9] and relevant rules) established that the object of both the GIA 2001 and the Access Law was to provide third party access to natural monopoly infrastructure assets (in this case, gas pipelines), as recommended by the Hilmer Report.
[9]Defined as the Gas System Distribution System Code lodged with the Office of the Regulator-General on or about 3 November 1997.

Alinta further submitted that the Hilmer Report advocated third party access in the restricted sense of a conferral of a contractual right of access. The GIA 2001 and the Access Code were, it submitted, discrete components of a legislative scheme, with a common genesis in the Hilmer Report and a shared legislative history. The legislation was economic legislation informed by the common economic goal of third party access.

When read in context and in the light of the statutory purpose, it was clear, Alinta argued, that the provision of services by means of a pipeline meant a contractual grant of such services and an operator of a pipeline was necessarily a party whose legal rights in relation to the pipeline entitled it to make such a grant.

The ESC’s submissions

The ESC contended that Alinta’s construction restricting the application of the prohibition in s 22(1) to the provision of services pursuant to a contract with a retailer depended on ‘the injection of impermissible glosses upon the provisions in question’. Implicitly, at least, it required either ownership or exclusive possession of the pipeline and required the term ‘operator’ in the definition of Service Provider in s 2 of the Law to be read, contrary to its ordinary meaning, as a synonym for ‘lessee’ or ‘licensee’. The ESC submitted that the limitations advocated by Alinta were neither expressed in the language of the legislation nor legitimately derived from its statutory context, history or purpose. Rather, Alinta’s restrictive construction was underpinned by a number of false premises.

First, Alinta’s argument depended on the unjustified assumption that third party access was the sole goal of the Hilmer Report and denoted access in the limited sense of a contractual grant. It also incorrectly assumed that the GIA 2001 was underpinned by the same restricted goal, whereas, on the contrary, its objectives extended to the general regulation of the gas industry.

Secondly, Alinta’s argument that its provision of services to Multinet under the OSA precluded its provision of services by means of the pipeline to Multinet’s customers depended on a false dichotomy between, on the one hand, providing operating services to Multinet, and, on the other hand, providing the services to retailers in discharge of Multinet’s contractual obligations. The provision of services in the one sense did not exclude the other.

Thirdly, Alinta’s contention that its incapacity to provide the service[s] as defined in s 10.8 of the Access Code excluded it from the ambit of the definition of ‘Service Provider’ was inherently circular, depending on its unfounded contention that the contemplated ‘provision’ of services was solely by means of contractual grant.

Fourthly, it was logically untenable that Alinta’s incapacity independently to comply with the obligations of a Service Provider under the Code (including satisfaction of the mandatory minimum elements of an access arrangement) excluded it from the definition of a Service Provider. The meaning of Service Provider in s 2 of the Law could not be dictated by the ability or otherwise of a particular party to comply with the attendant obligations.

Fifthly, Alinta’s argument disregarded the express recognition, in s 10.1-10.3 of the Code, of the potential for a plurality of Service Providers resulting from, inter alia, a separation of ownership and operation, and the detailed provision for the satisfaction of applicable obligations (save for ring fencing) by one Service Provider on behalf of all, including the submission of an access arrangement. While the relevant provisions were merely permissive, the inability of a particular party to engage them did not detract from the Code’s detailed scheme for the distributive satisfaction of its obligations where relevant functions and capacities were divided between, inter alia, pipeline owners and operators.

E.Relevant Legal Principles

The principles which govern modern statutory construction were undisputed. It is well established that a purposive approach must be adopted and that purpose must be determined in the light of ‘the language of the relevant provision and the scope and object of the whole statute’.[10]
[10]Tasker v Fullwood 1978 1 NSWLR 20, [24] approved by McHugh ACJ, Gummow, Kirby and Hayne JJ in Project Blue SkyInc v Australian Broadcasting Authority (1998) 194 CLR 355.

In Project Blue Sky Inc v Australian Broadcasting Authority (‘Project Blue Sky’),[11] McHugh ACJ, Gummow, Kirby and Hayne JJ, in their joint judgment, stated:

[t]he primary object of statutory construction is to construe the relevant provision so that it is consistent with the language and purpose of all the provisions of the statute. (See Taylor v Public Service Board (NSW) (1976) 137 CLR 208 at 213 per Barwick CJ.) The meaning of the provision must be determined “by reference to the language of the instrument viewed as a whole” (Cooper Brookes (Wollongong) Pty Ltd v Federal Commissioner of Taxation (1981) 147 CLR 297 at 320 per Mason and Wilson JJ. See also South West Water Authority v Rumble's [1985] AC 609 at 617 per Lord Scarman, "in the context of the legislation read as a whole".) In Commissioner for Railways (NSW) v Aqalianos (1955) 92 CLR 390 at 397, Dixon CJ pointed out that “the context, the general purpose and policy of a provision and its consistency and fairness are surer guides to its meaning than the logic with which it is constructed.” Thus, the process of construction must always begin by examining the context of the provision that is being construed. (Toronto Suburban Railway Co v Toronto Corporation [1915] AC 590 at 597; Minister for Lands (NSW) v Jeremias (1917) 23 CLR 322 at 332; K & S Lake City Freighters Pty Ltd v Gordon & Gotch Ltd (1985) 157 CLR 309 at 312 per Gibbs CJ, 315 per Mason J, 321 per Deane J. )
A legislative instrument must be construed on the prima facie basis that its provisions are intended to give effect to harmonious goals. (Ross v The Queen (1979) 141 CLR 432 at 440 per Gibbs J. )[12]

[11](1998) 194 CLR 355.

[12]Project Blue SkyInc v Australian Broadcasting Authority (1998) 194 CLR 355, 381-382 [69]–[70].

Their Honours observed that where provisions of an Act appear, on the basis of their language, to conflict, conflict must be alleviated to the extent possible by adjusting the meaning of the competing provisions to:

best give effect to the purpose and language of those provisions while maintaining the unity of all the statutory provisions. (See Australian Alliance Assurance Co Ltd v Attorney-General of Queensland [1916] St R Qd 135 at 161 per Cooper CJ; Minister for Resources v Dover Fisheries (1993) 43 FCR 565 at 574 per Gummow J; 116 ALR 54 at 63).[13]

[13]Ibid, 382 [70].

Furthermore, they noted that:

a court construing a statutory provision must strive to give meaning to every word of the provision. (The Commonwealth v Baume (1905) 2 CLR 405 at 414 per Griffith CJ, 419 per O'Connor J; Chu Kheng Lim v Minister for Immigration (1992) 176 CLR 1 at 12-13 per Mason CJ ).[14]

[14]Ibid, 382 [71].

In CIC Insurance Ltd v Bankstown Football Club Ltd,[15] the High Court stated:

Moreover, the modern approach to statutory interpretation (a) insists that the context be considered in the first instance, not merely at some later stage when ambiguity might be thought to arise, and (b) uses “context” in its widest sense to include such things as the existing state of the law and the mischief which, by legitimate means such as those just mentioned, one may discern the statute was intended to remedy. Instances of general words in a statute being so constrained by their context are numerous. In particular, as McHugh JA pointed out in Isherwood v Butler Pollnow Pty Ltd (1986) 6 NSWLR 363 at 388, if the apparently plain words of a provision are read in the light of the mischief which the statute was designed to overcome and of the objects of the legislation they may wear a very different appearance. Further, inconvenience or improbability of result may assist the court in preferring to the literal meaning an alternative construction which, by the steps identified above, is reasonable open and more closely conforms to the legislative intent. [16]

[15](1997) 187 CLR 384.

[16]CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384, 408.

A purposive approach is also required by s 35 of the Interpretation of Legislation Act 1984 (Vic). Further, s 7 of the Appendix to Schedule 1 (‘the Law’) provides:

(1)In the interpretation of a provision of this Law, the interpretation that will best achieve the purpose or object of this Law is to be preferred to any other interpretation.
(2)Sub-clause (1) applies whether or not the purpose is expressly stated in this Law.

Section 8 of the appendix to the Law provides for the use of extrinsic material as follows:

Use of extrinsic material in interpretation
8. (1) In this clause—
extrinsic material means relevant material not forming part of this Law, including, for example—
(a)material that is set out in the document containing the text of this Law as printed by authority of the Government Printer of South Australia; and
(b)a relevant report of a Royal Commission, Law Reform Commission, commission or committee of inquiry, or a similar body, that was laid before the Legislative Council or House of Assembly of South Australia before the provision concerned was enacted; and
(c)a relevant report of a committee of the Legislative Council or House of Assembly of South Australia that was made to the Legislative Council or House of Assembly of South Australia before the provision was enacted; and
(d)a treaty or other international agreement that is mentioned in this Law; and
(e)an explanatory note or memorandum relating to the Bill that contained the provision, or any relevant document, that was laid before, or given to the members of, the Legislative Council or House of Assembly of South Australia by the member bringing in the Bill before the provision was enacted; and
(f)the speech made to the Legislative Council or House of Assembly of South Australia by the member in moving a motion that the Bill be read a second time; and
(g)material in the Votes and Proceedings of the Legislative Council or House of Assembly of South Australia or in any official record of debates in the Legislative Council or House of Assembly of South Australia; and (h) a document that is declared by this Law to be a relevant document for the purposes of this clause;

ordinary meaning means the ordinary meaning conveyed by a provision having regard to its context in this Law and to the purpose of this Law.
(2)Subject to subclause (3), in the interpretation of a provision of this Law, consideration may be given to extrinsic material capable of assisting in the interpretation—
(a)if the provision is ambiguous or obscure, to provide an interpretation of it; or
(b)if the ordinary meaning of the provision leads to a result that is manifestly absurd or is unreasonable, to provide an interpretation that avoids such a result; or
(c)in any other case, to confirm the interpretation conveyed by the ordinary meaning of the provision.

(3)In determining whether consideration should be given to extrinsic material, and in determining the weight to be given to extrinsic material, regard is to be had to—
(a)the desirability of a provision being interpreted as having its ordinary meaning; and
(b)the undesirability of prolonging proceedings without compensating advantage; and

(c) other relevant matters.

In Project Blue Sky, McHugh, Gummow, Kirby and Hayne JJ stated:

However, the duty of a court is to give the words of a statutory provision the meaning that the legislature is taken to have intended them to have. Ordinarily that meaning (the legal meaning) will correspond with the grammatical meaning of the provision. But not always. The context of the words, the consequences of a literal or grammatical construction, the purpose of the statute or the canons of construction (for example, the presumption that, in the absence of unmistakeable and unambiguous language, the legislature has intended to interfere with basic rights, freedoms or immunities: Coco v The Queen (1994) 179 CLR 427 at 437) may require the words of a legislative provision to be read in a way that does not correspond with the literal or grammatical meaning.[17]

[17]Project Blue SkyInc v Australian Broadcasting Authority (1998) 194 CLR 355, 384 [78].

The above statement was approved by McHugh ACJ, Gummow and Hayne JJ in Network Ten Limited v TCN Channel Nine Pty Ltd (‘Network Ten’).[18]
[18](2004) 218 CLR 273.

Their Honours also there reiterated McHugh J’s observation, in Newcastle City Council v GIO General Ltd[19] that –

[A] Court is permitted to have regard to the words used by the legislature in their legal and historical context and, in appropriate cases, to give them a meaning that will give effect to any purpose of the legislation that can be deduced from that context.[20]

[19](1997) 101 CLR 85, 112.

[20]Network Ten Limited v TCN Channel Nine Pty Ltd (2004) 218 CLR 273, 280 [11].

In Network Ten, Kirby and Callinan JJ dissented. They considered that the construction approved by the majority involved distorting or ignoring the language of the statute. While Kirby J endorsed the contemporary purposive approach to statutory construction, he considered ‘that purpose must be found in the command of the Parliament, expressed in the Act’.[21]
[21]Ibid, 306 [89].

While the High Court was divided in Network Ten, the majority did not expressly or implicitly reject Kirby J’s caveat that ‘the application [of the purposive construction of legislation] is always subject to textual limits’[22] or his related observation that ‘[u]ltimately, in every case, statutory construction is a text-based activity. It cannot be otherwise.’[23]
[22]Ibid, 312 [105].
[23]Ibid, 306 [87].

Similarly, Callinan J’s caveat that –

Although a Court is entitled to have regard to the legal and historical context of legislation, and in particular the mischief that it is enacted to cure, care must always be exercised in using all extrinsic material, including in particular assumed historical facts, to ensure that those facts are accurately and relevantly completely stated.[24]

is self-evident and uncontroversial.

[24]Ibid, 320 [129].

In Mills v Meeking,[25] Dawson J also stated that:

However, if the literal meaning of a provision is to be modified by reference to the purposes of the Act, the modification must be precisely identifiable as that which is necessary to effectuate those purposes and it must be consistent with the wording otherwise adopted by the draftsman. Section 35 [of the Interpretation of Legislation Act 1984 (Vic)] requires a court to construe an Act, not rewrite it, in the light of its purposes. [26]
F.Context of the disputed provisions

[25](1990) 169 CLR 214.

[26]Mills v Meeking (1990) 169 CLR 214, 235.

In the present case, it was not disputed that the genesis of the GIA 2001 and the Access Law lay in the Hilmer Report and that their broad context included the resultant government communiqués and statements and a series of successive enactments at national and state level. Nor was it disputed that the regulation of the gas industry in Victoria is governed by a number of related statutes, and codes or rules[27] made pursuant to them, which should be read harmoniously.
[27]Rules are considered in paragraphs [230] – [232].

While it was common ground that such extrinsic material constituted a legitimate guide to the purpose of the relevant legislation, the parties advanced different interpretations of the material.

It is therefore necessary to consider in some detail the context of the disputed provisions.

History of reform and associated legislative developments

The present structure and legal regulation of the gas industry, which permits access to essential facilities hitherto owned by the State, represents the culmination of a staged shift from the position which obtained prior to December 1994. At that time, gas distribution in Victoria was conducted by the Gas & Fuel Corporation as a state-owned, vertically integrated monopoly utility, supplied principally by the primary producer under restrictive, long term gas supply contracts.

The Hilmer Report

The fundamental restructuring of the gas industry was instituted as a result of the recommendations of the Hilmer Report.[28]
[28]See above no. 7.

In the present case, Alinta placed heavy reliance on its submission that the sole goal of the Hilmer Report was third party access to monopoly infrastructure in the sense of access by way of a contractual grant.

No expert evidence as to the meaning of the Hilmer Report was adduced by either party. It was, however, common ground that the principal recommendations of the Hilmer Report in relation to the gas industry were aimed at establishing a national access regime to address the denial of access to essential services, such as gas.

The Hilmer Report proposed ‘the establishment of a new legal regime under which firms can be given a right of access to essential facilities when the provision of such a right meets certain public interest criteria’.[29]
[29]Hilmer, F., Rayner, M., and Taperell, G. (1993), National Competition Policy, Report by the Independent Committee of Inquiry, AGPS, Canberra, ACT, 239.

An essential facility was, ‘by definition a monopoly, permitting the owner to reduce output and/or service and charge monopoly prices to the detriment of users and the economy as a whole’. [30] When the owner of the facility was also ‘competing in markets that are dependent on access to the facility, the owner can restrict access to the facility to eliminate or reduce competition in the dependent markets’. [31]
[30]Ibid.
[31]Ibid.

The Hilmer Report noted that although the owner of an essential facility had little incentive to deny access when it did not compete with upstream or downstream markets, it could still use its monopoly power to charge higher prices to the detriment of consumers and efficiency. If, on the other hand, the owner of an essential service were vertically integrated, with competitive activities upstream or downstream, the potential evil of charging monopoly prices combined with the incentive to inhibit its competitors’ access to the facility. [32]
[32]Ibid, 241.

The Hilmer Report’s recommended solution to that problem was to ensure that natural monopoly elements were fully separated from potentially competitive elements. It stated:

In this regard it is important to stress that mere “accounting separation” will not be sufficient to remove the incentives for misuse of control over access to an essential facility. Full separation of ownership or control is required. [Emphasis added] [33]

[33]Ibid.

The Hilmer Report concluded that:

The Committee is conscious of the need to carefully limit the circumstances in which one business is required by law to make its facilities available to another. Failure to provide appropriate protection to owners of such facilities have the potential to undermine incentives for investment.
Nevertheless … where there is a strong public interest in ensuring that effective competition can take place, without the need to establish any anti-competitive intent on the part of the owners … but not otherwise the Committee supports the establishment of a legislated right of access, coupled with other provisions to ensure that efficient competitive activity can occur with minimal uncertainty and delay arising from concern over access issues.[34]

[34]Ibid, 248.

It recommended that the legitimate interests of the owner of the infrastructure must be protected through a fair and reasonable fee for providing access and other appropriate terms and conditions, such as imposing quality requirements for the gas to be put in a pipeline or minimum or maximum volumes of throughput.[35]
[35]Ibid, 256.

It recommended that the access regime should have the following features:

(a)       an access declaration should indicate:
(i)        the facility or facilities subject to the declaration;
(ii)       the user or class of users benefiting from the right;
(iii)      the pricing principles governing access to the facility;
(iv)any other terms and conditions to protect the legitimate interests of the owner of the facility;
(v)any additional safeguards required to protect the competitive process;
(vi)whether arbitration is required to be conducted by the Australian Competition Commission, or whether it may be conducted by others acting under the auspices of the Commission; and
(vii)what, if any, specific penalties should be available for non-compliance with an access right.

(b)if the parties cannot agree on particular terms and conditions, either party may seek binding arbitration by, or under the auspices of, the Australian Competition Commission;
(c)agreements, whether achieved through negotiation or arbitration should be placed on a public register held by the Australian Competition Commission;
(d)declarations should be subject to periodic and open review at periods appropriate to the circumstances of the industry, and should lapse automatically unless renewed following a review; and
(e)firms party to an access declaration should be provided with a formal mechanism to petition for revocation or modification of a declaration based on a material change in market circumstances.[36]

[36]Ibid, 266.

The Hilmer Report referred only to the ‘owner’ of the infrastructure in relation to providing third party access. It was written in a historical context where ownership and control typically coalesced in a state owned entity. It did not address, or recommend provision for, the potential effect of the fragmentation of ownership rights or the potential divergence of ownership from operation of the infrastructure. It is clear, however, that the Hilmer Report sought to address ‘misuse of control over access to an essential facility’.

When ownership and rights of operation diverge, it would appear self-evident that control over infrastructure assets sufficient to inhibit or manipulate third party access may exist independently of proprietary or quasi proprietary rights in the pipeline or of privity to the contract granting the third party access. A party exercising such control could impose practical impediments or restrictions on the access granted pursuant to contract or could misuse its control detrimentally to the terms, conditions or price of access in order to advantage its own competitive activities.

The mischiefs identified by the Hilmer Report were not simply a denial of access, but included a denial of access on fair terms, and the manipulation of control of access in order to disadvantage the controller’s upstream or downstream competitors. Such mischiefs would not be eliminated by the implementation of third party access in the limited sense of a contractual disposition by the owner of the pipeline or a party with an analogous quasi-proprietary interest.

Further, as Middleton J observed in BHP Billiton Iron Ore Pty Ltd v National Competition Council (‘BHP’),[37] not all the recommendations of the Hilmer Report have been implemented. Conversely, it cannot be assumed that the legislation at issue in the present case represents no more than an implementation of any one or more of its recommendations. Neither the GIA 2001 nor the Access Law expressly states such a goal.
[37](2007) ATPR 42–141, 46,736 [39].

Contrary to the appellant’s submission, the Hilmer Report does not, on a fair reading, manifest a single aim of mandating third party access by contractual grant. Even if it be accepted that the sole goal of both GIA 2001 and the Access Law is the implementation of the Hilmer Report recommendations, the Hilmer Report does not support the contention that a provider of services by way of relevant infrastructure assets may properly be equated with the contractual grantor.

Other communiqués, agreements and enactments relevant to context

Further, the history of the communiqués and legislation implemented after the Hilmer Report indicate, from an early date, recognition that the control of infrastructure assets warranting regulation for the purpose of third party access could reside in an operator, as well as an owner.

Subsequent governmental communications, agreements and enactments dealing with third party access to gas pipelines expressly distinguished between an owner and an operator of a pipeline, but envisaged the regulation of both such parties.

The Council of Australian Governments Communiqué dated 25 February 1994 noted agreement on a broad set of principles to ensure, inter alia, third party access to gas pipelines as part of facilitating a free and fair trade in natural gas, which would allow gas consumers and producers in any State or Territory to buy or sell in any other State or Territory on normal commercial terms.[38] It requested a report on implementation by the Working Group on Gas Reform by 1 July 1996.[39]
[38]Council of Australian Governments’ Communiqué, 25 February 1994, 3.
[39] The Communiqué noted:

The Communiqué stated[40] that Heads of Government were addressing the question of access to essential facilities in the context of their consideration of the Hilmer Report and that any legislation arising from decisions in that context could cover gas pipelines. Although the Communiqué distinguished between owners and operators, and recognised that the latter could provide access to pipelines, it offered no definition of ‘operator’ in that context.
[40]Ibid, at point 4.

In April 1995, each of the Australian governments entered into the following agreements, collectively comprising the National Competition Policy:

(a) The Competition Principles Agreement, which, amongst other things, provided for the reform of public monopolies and established arrangements for access by third parties to services provided by significant infrastructure facilities;

(b) The Conduct Code Agreement, which extended prohibitions against anti-competitive conduct in the Trade Practices Act 1974 (Cth) (‘TPA’) to almost all businesses in Australia; and

(c)The Agreement to Implement the National Competition Policy and Related Reforms, which set out the reform obligations covering national markets in electricity and gas, water reform and national road transport regulations, and provided for Commonwealth payments to the States and Territories where satisfactory progress in implementing the National Competition Policy and related reforms was achieved.

Pursuant to the Competition Principles Agreement, the Commonwealth enacted a regime for access by third parties to services provided by significant infrastructure facilities in Part IIIA of the TPA,[41] which was not specific to the gas industry. Section 44B of the TPA relevantly provides:

“service” was (and is) defined as “a service provided by means of a facility” including “the use of an infrastructure facility such as a road or railway line” and “handling or transporting things such as goods or people”.
“provider” was (and is) defined in relation to a service as “the entity that is the owner or operator of the facility that is used (or is to be used) to provide the service”.

[41]By the Competition Policy Reform Act 1995 (Cth).

Part IIIA of the TPA also had its genesis in the recommendations of the Hilmer Report. Middleton J, in BHP recognised that Part IIIA of the TPA:

is to be interpreted as part of an economic statute designed to address economic activity. This does not mean that each and every word or expression found in Part IIIA of the Act is to be interpreted as an economic word or expression, just that the economic context of Part IIIA of the Act provides the setting in which to interpret words and expressions. [42]

[42]BHP Billiton Iron Ore Pty Ltd v National Competition Council (2007) ATPR 42-141, 46,735 [37].

The trial judge in the present case agreed with Middleton J’s approach.

The enactment of national legislation

The Federal, State and Territory governments established the Gas Reform Task Force to develop and implement reforms to achieve national competition within the national gas industry. The Task Force sought to introduce third party access to the downstream pipeline system, which was hitherto a natural monopoly. Under the Natural Gas Pipelines Access Agreement (‘NGPAA’), the Commonwealth, State and Territory Governments (the members of the Council of Australian Governments (‘COAG’)) agreed on 7 November 1997 to establish a uniform national framework for third party access to natural gas pipelines. The COAG Communiqué dated 7 November 1997 stated ‘[a]ny supplier, retailer or gas consumer will be able to contract with pipeline owners on fair and reasonable terms to transport gas across a pipeline’.

South Australia, the lead legislator, passed the Gas Pipelines Access (South Australia) Act 1997 (SA) which contained the Access Law, which was annexed to the NGPAA. The fundamental legislative basis for the implementation of the national scheme reforms recommended by the Hilmer Report and contained in the proposed national code thus took the form of enabling legislation enacted in South Australia, comprising an act the Gas Pipelines Access (South Australia) Act 1997 (SA), with two schedules constituting the Law and the Code respectively.

Each state subsequently enacted legislation adopting the national legislation. In Victoria, the legislation took the form of the Gas Pipelines Access (Victoria) Act 1998 which enacted schedule 1 (the Law) and schedule 2 (the Code), together comprising the Access Law.

G.The Access Law

The Access Law consists of the Law (Schedule 1) and the Code (Schedule 2). The Law prevails over the Code to the extent of any inconsistency.[43]

[43]Section 5 of the Law.

Relevant provisions of the Law

The Law (Schedule 1) defines ‘pipeline’ (subject to specified exceptions) to means a pipe, or a system of pipes or part of a pipe, or a system of pipes, for transporting natural gas, and any tanks, reservoirs, machinery or equipment directly attached to the pipe, or system of pipes.

Section 2 of the Law defines ‘Service Provider’ as follows:

service provider , in relation to a pipeline or proposed pipeline, means the person who is, or is to be, the owner or operator of the whole or any part of the pipeline or proposed pipeline

Relevant Provisions of the Code

The Code states its objectives and important features in an introduction which (although it does not form part of the Code), states that ‘in certain circumstances, regard may be had to [it] in interpreting the Code (see ss 10.4 and 10.5)’. The introduction contains an overview which includes the following:

Under the Code, the owner or operator of a Pipeline that is Covered under the Code is required to lodge an Access Arrangement with the Relevant Regulator. The Access Arrangement is similar in many respects to an undertaking under Part IIIA of the Trade Practices Act and is designed to allow the owner or operator of the Covered Pipeline to develop its own Tariffs and other terms and conditions under which access will be made available, subject to the requirements of the Code. The Relevant Regulator will seek comments on the Access Arrangement and then may either accept it or reject it and specify amendments it requires to be made to the Access Arrangement. If rejected, the Access Arrangement must be modified and resubmitted. Under certain circumstances, the Relevant Regulator may draft and approve its own Access Arrangement. The legislation which implements the Code provides for administrative review of certain regulatory decisions made under the Code.

Section 10.1 of the Code provides:
10.1—
(a)This section 10.1 applies if there is more than one Service Provider in connection with a Covered Pipeline, including if:
(i)the Covered Pipeline is owned or operated by two or more persons as a joint venture or partnership; or
(ii)the Covered Pipeline is owned and operated by different persons; or
(iii)a Covered Pipeline is legally owned by a person or persons on trust for others.
In such a case each Service Provider in connection with the Covered Pipeline is referred to in this section 10.1 as a "Participant".
(b)If this Code requires or permits something to be done by the Service Provider, that thing may be done by one of the Participants on behalf of all the Participants. So, for example, a proposed Access Arrangement may be submitted under section 2.2 by one Participant on behalf of all Participants.
(c)If a provision of this Code refers to the Service Provider bearing any costs, the provision applies as if the provision referred to any of the Participants bearing any costs.
(d)If a provision of this Code, other than section 4, refers to the Service Provider doing something, the provision applies as if the provision referred to one or more of the Participants doing the thing on behalf of all the Participants.
Section 10.2 of the Code provides:
Where:
(a)there is more than one Service Provider in connection with a Covered Pipeline;
(b)one is the owner and another is the operator; and
(c)responsibility for complying with the obligations imposed by this Code on the Service Provider is allocated among them by their Access Arrangements or their Access Arrangement,
each Service Provider is responsible for complying with the obligations allocated to it.
Section 10.3 of the Code provides:
(3)If a person becomes a Service Provider in relation to a Covered Pipeline (for example, if the person purchases a Covered Pipeline):
(a)the Covered Pipeline shall remain a Covered Pipeline;
(b)any Access Arrangement approved pursuant to the Code shall continue to apply to the Covered Pipeline concerned despite the change in Service Provider and shall bind the person in the same way it bound other Service Providers immediately before the person became a Service Provider with respect to the Covered Pipeline concerned; and
(c)any arbitration decision made pursuant to the Code shall continue to apply to the Covered Pipeline concerned despite the change in Service Provider and shall bind the person in the same way it bound other Service Providers immediately before the person became a Service Provider with respect to the Covered Pipeline concerned.
Section 10.4 of the Code provides:
10.4 The introduction to the Access Code and the overview in italics at the beginning of each section of the Access Code do not form part of the Access Code.
Section 10.5 of the Code provides:
10.5 In interpreting a provision of this Code consideration should be given to the introduction to this Code and the overview in italics at the beginning of the relevant section of this Code:
(a)to confirm that the meaning of the provision is the ordinary meaning conveyed by the text of the provision; or
(b) to determine the meaning of the provision when:
(i) the provision is ambiguous or obscure; or
(ii)the ordinary meaning conveyed by the text of the provision leads to a result that is manifestly absurd or unreasonable.
Section 10.8 of the Code relevantly provides:

Definitions
10.8The following definitions apply unless the context otherwise requires:

Service means a service provided by means of a Covered Pipeline or when used in section 1 a service provided by means of a pipeline including (without limitation):
(a)haulage services (such as firm haulage, interruptible haulage, spot haulage and backhaul);

(b) the right to interconnect with the Covered Pipeline; and
(c) services ancillary to the provisions of such services,

but does not include the production, sale or purchasing of Natural Gas.
Services Policy has the meaning given in sections 3.1.
Service Provider has the meaning given in the Gas Pipelines Access Law.

The Code requires a Service Provider to submit an access arrangement in relation to a regulated pipeline to the relevant Regulator (in this case, the ESC). The access arrangement must set out the policies and basic terms and conditions on which the third party may obtain access to the pipeline. The Service Provider must also submit the applicable access arrangement information, to permit both users and the Regulator to assess whether the access arrangement complies with the Code. The access arrangement must include, as a minimum, the elements described in s 3.1-3.20 of the Code and categories of specified information. It may also include any other relevant matters. The access arrangement must be approved by the Regulator before it becomes operative under the Code, in accordance with s 2 of the Code. The Regulator can approve the access arrangement only if satisfied that it contains the prescribed elements.

Alinta did not, on appeal, appear to press its argument, made at trial, that s 27 (in permitting the grant of or variation of a licence for provision of services in a particular area on an exclusive basis), envisaged a sole licensee in relation to a pipeline. In my view, the trial judge correctly rejected that contention, on the basis that s 27 is merely permissive and does not circumscribe the ESC’s power to determine the conditions of a licence.

Section 29 is also permissive and includes only examples of conditions. The licensee may be required to establish and maintain separate accounts for specified business activities, and keep the activities separate from other activities. It may be prohibited from engaging in specific business activities or from providing services to particular classes of customers. It may be required to provide such information as the ESC requires, in the manner and form specified.

As s 29 is not exhaustive, even if the examples of conditions which may be imposed were uniquely applicable to a provider in privity of contract with customers, they would not be determinative of the construction of s 22(1). In any event, the examples of conditions applicable to the distribution of gas (as distinct from sale) are not, in my opinion, uniquely applicable to a provider of services pursuant to a contract, but are capable of more general application. While some appear to overlap with ring fencing or other requirements imposed on a Service Provider under the Code, not all specified examples of conditions are clearly directed only at the regulation of provision of access by means of a contractual disposition. Rather, they contemplate the wider objectives of the Act and the ESC in relation to granting licensee.

Section 36(1) of the GIA 2001 provides that a licence must be issued subject to a condition that the licensee enter an approved customer dispute resolution scheme. Because s 36 contemplates that the licensee has customers, and all licences must contain such a scheme, it appears to support the contention that the provider must be in privity of contract with customers. A ‘customer’ however, is widely defined as a person to whom a gas company transmits, distributes or supplies gas or provides goods or services. It therefore extends to end user customers or retailers, with whom Multinet itself has no contract.

While the GIA 2001 does not itself provide extensive detailed regulation of all aspects of the gas industry, it was common ground that it is an element in a scheme of related legislation, to be construed harmoniously with the other components that share its genesis, legislative history and policy goals.

The objectives of the GIA 2001 and its licensing regime are not, in my opinion, limited to the facilitation of third party access to the infrastructure, whether in the narrow sense of access rights pursuant to contract or otherwise. They extend to, inter alia, technical regulation of the gas industry in order to ensure safe operation and secure supply.

The statement in s 1 that the GIA 2001’s main purpose is to ‘regulate the gas industry’ is supplemented by the purpose of technical regulation of the gas industry. That is the stated purpose of the Gas Industry Residual Provisions Act 1994 (s 1(c)), which, by s 6 of the GIA 2001, is to be read and construed as one with the GIA 2001.

Section 18 and s 26(1) of the GIA 2001 and s 8 of the Essential Services Commission Act 2001 (‘ESC Act’), when read together, illuminate the purpose of the licence system established by Division 2 of the Act.

Section 18 of the GIA 2001 states that the objectives of the ESC under the GIA 2001 are:

(a)to the extent that it is efficient and practicable to do so, to promote a consistent regulatory approach between the gas industry and the electricity industry; and
(b)to promote the development of full retail competition.

Section 26(1) of the GIA 2001 provides for the grant or refusal of an application for a licence as follows:

(1)The Commission may grant or refuse an application for the issue of a licence for any reason it considers appropriate, having regard to the objectives of the Commission under this Act and under the Essential Services Commission Act 2001.

Section 8 of the ESC Act states:

8. Objectives of the Commission
(1)In performing its functions and exercising its powers, the primary objective of the Commission is to protect the long term interests of Victorian consumers with regard to the price, quality and reliability of essential services.
(2)In seeking to achieve its primary objective, the Commission must have regard to the following facilitating objectives:
(a)to facilitate efficiency in regulated industries and the incentive for efficient long-term investment;
(b)to facilitate the financial viability of regulated industries;
(c)to ensure that the misuse of monopoly or non-transitory market power is prevented;
(d)to facilitate effective competition and promote competitive market conduct;
(e)to ensure that regulatory decision making has regard to the relevant health, safety, environmental and social legislation applying to the regulated industry;
(f)to ensure that users and consumers (including low-income or vulnerable customers) benefit from the gains from competition and efficiency;
(g)to promote consistency in regulation between States and on a national basis.

(3)Without derogating from subsections (1) and (2), the Commission must also perform its functions and exercise its powers in such a manner as the Commission considers best achieves any objectives specified in the relevant legislation under which a regulated industry operates.

Section 26(1) of the GIA 2001 provides that the ESC may grant or refuse an application for the issue of a licence for any reason it considers appropriate having regard to its objectives under the Act and under the ESC Act. The objectives of the ESC in s 18 of the GIA 2001 and s 8 of the ESC Act are thus considerations central to the decision to grant or refuse a licence.

I am not persuaded that the sole objective of the GIA 2001 or its licensing regime is affording third party access to the relevant infrastructure assets.

The objective of the ESC both under the GIA 2001 and the ESC Act include promotion of a consistent regulatory approach between the gas industry and the electricity industry, the development of full retail competition and the protection of the long term interests of Victorian consumers with regard to the price, quality and reliability of essential services. While the facilitation of effective market competition and comprehensive conduct and prevention of the misuse of monopoly or non-transitory market power are facilitating objectives of the ESC in the Act, it is clear that the objectives of the licensing system under the GIA 2001 are not limited to ensuring third party access (in the sense of a contractual grant) to monopoly infrastructure.

In my opinion, Alinta’s narrow construction of s 22(1) would not serve the protection of ‘the long-term interests of Victorian consumers with regard to the price, quality and reliability’ of the relevant essential service, together with the facilitating objectives, including the facilitation of the efficiency and financial viability of the industry, ensuring that monopoly power is not misused, and the development of full retail competition under s 18(b) of the GIA 2001.

To the contrary, the goals of the licensing system under the GIA 2001 do not accord with its application only to parties privy to contracts with retailers, as the trial judge correctly observed. The scope of the objectives suggests that their effective fulfilment would require the regulation of parties with operational control over the infrastructure and the process of delivery of the services.

I am therefore not persuaded that the context of s 22(1) of the GIA 2001, (whether in the sense of its relationship to other provisions of the Act or in the wider sense of its goals, objectives, genesis and legislative history), dictates the conclusion that, although not expressly stated, the provision of services by way of a pipeline subject to the licensing regime in Part 3 of the Act is limited to the provision of services pursuant to a contractual grant.

Further, such a construction would impede the regulation of all parties save the grantor of access to infrastructure in privity of contract with the grantee under the Gas Safety Act 1997 (‘GSA’), Gas Distribution System Code, market rules and retail rules.[51] In consequence, a party controlling the performance of the activities and processes necessary to achieve the delivery of the relevant services could be beyond direct regulation.
[51]Rules are considered further in paragraphs [230] – [232].

Section 22(1) is, fundamentally, a prohibition on a species of conduct, subject to the grant of a licence. It is an element of a tripartite prohibition on specified activity. Under Alinta’s construction, all save the grantor of the contractual right of access may engage in activities associated with the operation of the pipeline and the delivery of gas without a licence and without subjection to direct regulation under the GIA 2001, the rules and Gas Distribution System Code made pursuant to it or automatic regulation under the GSA.Thus, some significant aspects of complementary statutory regulation could miss its mark.

The principal aspects of the gas industry specifically regulated by the GIA 2001 are, as indicated by the Parts, tariffs and charges, licences, the appointment of an administrator, the terms and conditions of the sale and supply of gas, hardship policies, community service agreements and ‘supplier of last resort’ provisions. They concern the level of charges, customers’ access to supply, the terms and conditions applicable to the sale and supply of gas, and prohibition on the licensee from disconnecting customers where there is compliance with a financial hardship policy. Much of the detailed regulation is, however, contained in rules or codes made under the GIA 2001 and safety is regulated by the GSA.

The GSA imposes obligations on, inter alia gas companies, defined in section 3 to include a gas distribution company within the meaning of the GIA 2001.[52] The main purpose of the GSA is to make provision for the safe conveyance, sale, supply, measurement, control and use of gas, and generally to regulate gas safety.
[52]See definitions of “gas company” and “gas distribution company”.

The definition of a ‘gas company’ in s 3 of the GSA includes not only a gas transmission company, gas distribution company or gas retailer within the meaning of the GIA 2001, but relevantly includes, by subparagraphs (a) and (f), an owner or operator of a facility or service for the control of the conveyance of gas and an owner or operator of a pipeline who is declared under s 5 to be a gas company for the purposes of the GSA.

Section 5 of the GSA empowers the Governor in Council to declare the owner or operator of a pipeline (s 5(a)) or the owner or operator of a facility or service for the control of the conveyance of gas to be a gas company for the purposes of the GSA.

Section 3 of the GSA defines ‘facility’ to include, relevantly, a pipeline or a facility or service for the control of the conveyance of gas.

Section 37 of the GSA requires a gas company to submit a safety case to Energy Safe Victoria for each of its facilities.

The objectives of Energy Safe Victoria under the GSA are stated in s 9 to include, relevantly (a) to ensure the safety of the conveyance, sale, supply, measurement, control and use of gas and (b) to control the safety standards of gas works.

By s 10, the functions of Energy Safe Victoria include monitoring the compliance of gas companies with accepted safety cases (10(a)).

Section 32 imposes a duty on a gas company to manage and operate each of its facilities to minimise, as far as practicable, hazards and risks to the safety of the public and customers and their property from gas, including hazards and risks arising from interruptions to conveyance or the reinstatement of supply.

Section 36 of the GSA requires a gas company to report any gas incident which occurs in relation to a facility of the gas company and any gas incident of which it is aware in relation to a gas installation to which it supplies or sells gas.

Section 33 requires a gas company to ensure that, as far as practicable, the gas which it conveys meets prescribed quality standards and requirements. By s 34, it is an offence for a gas company to knowingly sell or supply unsafe or non-complying gas for use in a gas installation.

It appears clear that the objectives of the GSA could not be adequately fulfilled if it were limited to the direct regulation of a pipeline owner which, although privy to contracts with retailers, had, in substance, divested itself of the power to operate a pipeline.

While it could be contended that the express power in s 5(a) to declare an owner or an operator of a pipeline a gas company for the purposes of the GSA argues against the inclusion of an operator as a provider of services under s 22(1) (because it would then automatically be covered), the provision is equivocal, as the same reasoning would apply to a pipeline owner which, on Alinta’s construction, would usually qualify as a provider of services.

The fact that a licensed gas distribution company under the GIA 2001 is automatically subject to the GSA tends to support a construction of a provider of services under s 22(1) which extends beyond an owner (or analogously entitled party) in privity of contract with the retailer. The GIA 2001 does not provide for the regulation of safety, save perhaps in the peripheral sense of imposition of a relevant licence condition. Where an owner has divested itself of the power to control the operation of the gas distribution network, effectively vacating the operational field, direct regulation of the entity with immediate control of the operation would seem essential for an effective safety regime.

The status of a licensed provider of services within terms of s 22(1) is the precondition of the application of the Gas Distribution System Code and the requirement to observe relevant council industry codes, market rules and retail rules. While the subordinate regimes must assume, rather than dictate, the construction of the statutory terms on which their application depends, Alinta contended that their content is consistent with, and thus supports, its construction of s 22(1).

The Victorian wholesale gas market is managed and administered by VENCorp. It is governed by the rules made on 2 February 1999 under section 48N of the GIA 1994 and now in force pursuant to the GIA 2001 (‘MSO Rules’). The purpose of the MSO Rules is to provide an efficient, competitive and reliable market for gas, to regulate the operation and administration of market participants and to regulate VENCorp’s operation of the gas transmission system. Most MSO Rules apply to specified parties, including a distributor, which, under ch 11 of the MSO Rules, is defined as a person who owns (whether legally or equitably) or operates the whole or any part of a distribution pipeline. That, in turn, is defined to encompass the Multinet distribution network. Therefore, Alinta’s subjection to the MSO Rules depends on whether it is an operator of the Multinet distribution system in the relevant sense.

The Victorian Gas Market Retail Rules (‘retail rules’), given effect through the GIA 2001, prescribe processes, responsibilities and obligations to ensure that customers in the gas retail market can transfer from one retailer to another. The retail rules impose obligations on distributors. The obligations include the registration of metering, installation, registration numbers, access to customer meter data, processes for the transfer of customers between retailers and the provision, installation and maintenance of metering installation for the purposes of the retail gas market. A distributor is defined as ‘[a] person authorised to provide services by means of a distribution pipeline under a Distribution Licence issued by the ORG [Office of Regulator General]’[53] issued under the GIA 2001.
[53]VENCorp Gas Market Retail Rules Version 9 dated 1 February 2007, Attachment 1, 50.

Whether Alinta is directly subject to the retail rules depends upon its status as a licensed provider of services under the GIA 2001.

Gas Distribution System Code

The Gas Distribution System Code may apply to a party as a condition of a licence under the GIA 2001. It is produced and promulgated by the ESC in order to regulate the industry pursuant to its statutory powers. As the trial judge pointed out, the Gas Distribution System Code does not apply automatically or in full to every distributor. The ESC could, in its discretion, impose those obligations appropriate to a pipeline owner on the owner alone.

Alinta contended that the most recent Gas Distribution System Code was inconsistent with ESC’s construction of s 22(1) of the GIA 2001 and ‘service provider’ under the Access Code, because it established that a party such as Alinta was not, and could not, undertake ‘distribution’ as defined.

The Gas Distribution System Code Version 8.1, promulgated by the ESC for the stated purpose of ‘setting out the minimum standards for the operation and use of the distribution system’, is effective from 30 March 2007. By cl 1.1, it applies to each distributor (by cl 13.1, ‘a person who holds a Distribution Licence under the Gas Industry Act) as the holder of a Distribution Licence and as operator of a distribution system’ (defined in cl 13.1 as a network of pipes, meters and controls which the Distributor uses to supply gas).[54]
[54]Emphasis added.

‘Distribution service’, by cl 13.1, means ‘the service of receipt of gas at transfer points, haulage of the gas through the distribution system and delivery of the gas at distribution supply points’.

The Gas Distribution System Code, in cl 2.1, sets out the obligations of a distributor as follows:

2.1 Distributor obligations
In operating the distribution system, a Distributor must:
(a)establish operational and system security standards for its distribution system and for all connections and proposed connections to its distribution system;
(b)maintain the delivery pressure of gas from the distribution system to ensure the minimum supply pressure is maintained at the outlet of the meter as set out in Schedule 1, Part A to the Distribution System Code to the extent to which it is within its power;
(c)subject to the Distribution System Code, deliver gas received from a User at a transfer point through its distribution system to distribution supply points nominated by the User on terms and conditions set out in an Access Arrangement, or otherwise nominated by the User on terms and conditions set out in an Access Arrangement, or otherwise on fair and reasonable terms and conditions;
(d)install and maintain metering installations and perform meter readings at basic metering installations (at least annually) and manage metering data in accordance with the meter provisions in clauses 5 to 8 of the Distribution System Code;
(e)except where the Distributor is prevented from doing so by force majeure, ensure that gas which meets the prescribed standards of quality when delivered into the distribution system at a transfer point also meets the prescribed standards of quality (including odorisation) when it is delivered to a customer at a distribution supply point; and,
(f)on request by a customer, provide (at no charge other than the cost of printing and posting for item 2.1(f)(i)):
(i)a copy of the Distribution System Code or other regulatory documents relevant to the customer’s request;

(ii)details as to the Distributor’s requirements in relation to:
A. the protection of the Distributor’s equipment; and
B. non-interference by the customer with the Distributor’s distribution system or with the supply to any other gas installation;

(iii)an explanation for any non-compliance with clauses 2.1(b) and 2.1(d),

within 10 business days of the request.

By cl 12.2, ‘a distributor may contract with another person to perform the distributor’s function, but it remains responsible for ensuring those functions are performed’.

By cl 3.1 of the Gas Distribution System Code (subject to certain exceptions not relevant to the present issue), a distributor must connect to its distribution system a customer’s gas installation, provided that the gas installation complies with regulatory requirements and

(ii) the customer
A.has a contract with the distributor for the haulage of gas; or
B.has a contract for the purchase of gas with a retailer which has a contract with the Distributor for the haulage of gas; …

Therefore, the obligation upon a distributor to connect a customer depends, inter alia, on privity of contract between the distributor and that customer, or between the distributor and a retailer who has a contract for sale of gas with the customer.

The Gas Distribution System Code, however, as its initial definition of a ‘distributor’ makes clear, assumes that the holder of the distribution licence is also the operator of the system. It appears to proceed on the unstated basis that the operator is also the owner of the system. The Gas Distribution System Code thus does not address a divorce of ownership from operation, illuminate the meaning of the provision of services under s 22(1) of the GIA 2001 or the question whether s 22(1) or the definition of ‘Service Provider’ in the Access Law extend to an operator who is not an owner of the pipeline.

In my opinion, the contents of the Retail Rules, MSO Rules and Gas Distribution Systems Code do not advance Alinta’s restrictive construction of the provision of services. To the contrary, the nature of the obligations they impose tends to support the desirability of their direct application to a party controlling the operation of a gas distribution system.

H.Functional or Factual Approach

In rejecting Alinta’s construction, the trial judge observed that s 22(1) of the GIA 2001 and the concept of an operator within the meaning of Service Provider in s 2 of the Access Law were based on the provision of services in a ‘functional or factual sense’. Before us, counsel for the respondent conceded that the phrase ‘functional or factual’ was oblique and somewhat unsatisfactory, although it served to exclude Alinta’s contractual approach.

If a ‘functional or factual’ approach suggested that the prohibition in s 22(1) and the concept of an ‘operator’ in the Access Law applies to any person who is, as a matter of fact, performing an activity related to operating the pipeline, irrespective of their legal status, degree of control or involvement, it would be unpersuasive. On that view, any employee or a sub-contractor performing minor works would require a licence and would constitute a Service Provider. Her Honour, however, recognised that mere ‘de facto’ activity, divorced from the power to control the total operation of the pipeline, was insufficient to bring a party within the relevant statutory definitions. Nor did she consider legal status wholly irrelevant. She concluded that the relevant definitions applied to Alinta based on her acceptance that, under the OSA, it had, and exercised, the exclusive legal right to operate and manage the entire Multinet system, controlled all sub-contractors and third parties who contributed to the functioning of the system on which the flow of gas depended and exercised many related decision-making powers and functions, independently of Multinet.

While it was unnecessary for her Honour or this Court, to propound an exhaustive exposition of the disputed provisions, the judgment below does not, on a fair reading, depend on a construction based merely on activity, to which formal legal status is irrelevant.

Her Honour, in my opinion, correctly concluded that a party legally empowered exclusively to operate the gas distribution pipeline, and in fact exercising those powers, constituted a provider of services by means of the pipeline within terms of s 22(1), although it had no interest in the pipeline entitling it to grant third parties, such as retailers, access.

I.The Declarations

Before us, counsel did not elaborate on the ground of appeal challenging the utility and appropriateness of the declarations made by the trial judge. In circumstances where, as her Honour observed, no criminal penalty could be imposed on Alinta until the ESC served a notice of contravention under s 22(1) of the GIA 2001 (which it had not done) and any liability under s 230 of the GIA 2001 was accessorial to an offence under s 22 of the GIA 2001, the relevant declarations clarified the legal position and status of Alinta at a particular time and constituted an authoritative curial statement for educative purposes in the relevant industry. In my opinion her Honour’s discretion did not miscarry in making the declarations.

J.Conclusion

In my opinion, the appeal should be dismissed.

HANSEN AJA:

I have had the advantage of reading in draft the judgment of Dodds-Streeton JA. I agree that the appeal should be dismissed with costs. I wish only to make a few observations.

The case required resolution of the questions whether in its conduct of Multinet’s gas distribution pipeline the appellant (a) provided services by means of a distribution pipeline within the meaning of s 22(1) of the Gas Industry Act 2001, and (b) was an ‘operator’ of the pipeline within the definition of ‘service provider’ in the Access Law. These questions required the ascertainment of the facts constituting the appellant’s relevant conduct and the application to those facts of the respective statutory provisions as properly interpreted. Thus, at the trial it was necessary to inquire as to, and find, the relevant facts and, having done so, to then determine whether the appellant, in its conduct as found, came within the statutory provision.

To put it that way is to describe a common-place curial exercise. In this case, however, the exercise became burdened with a heavy load of materials that went not merely to describe the appellant’s activities but to place them, and the statutory provisions, in a historical context. The trial judge and Dodds-Streeton JA have recorded the path which led to the present structure of the gas industry. On the one hand there was the determination, in accordance with national competition policy, to establish a competitive market in the supply of natural gas and to provide for access to the supply of gas on fair terms and, on the other hand, there was a series of deregulatory changes in the supply of gas in Victoria which led to privatisation and deaggregation of the means of supply. These strands of change came together, as it were, to result in the present structure which rests on a number of statutes, regulations and rules. The Victorian legislation in relation to the gas industry takes its place in the context and framework of the national scheme contained in the Access Law and Code.

It is simple to state, but important not to overlook, that the Access Law and Code, are the expression of a new national regime which has, as a central purpose, the establishment and maintenance of a competitive market in the supply of natural gas. It provides a framework for the regulation of that industry and with which participants in the industry must comply. As may be expected the Access Law and the Code place a number of requirements on persons or entities who, or whose activities, fall within their provisions. Thus, for instance, they provide for the terms of access to supply including the setting of tariffs, matters of safety, ring fencing the business and numerous others of a readily identifiable significance in the operation of a market in a vital national resource.

It is also plain that while the first task is to read a statute in accordance with the ordinary and natural meaning of the words used, it is also correct to have regard to the context and the purpose or purposes sought to be attained by the statute and, in particular, the provisions in question. Dodds-Streeton JA has sufficiently referred to authority in this regard.

In undertaking that task concerning s 22(1) the trial judge sought to identify the meaning of the several words and expressions in s 22(1). In doing so her Honour concluded that the expression ‘by means of’ meant ‘use’ or ‘using’. That may be correct but I tend to doubt that ‘using’ is in every respect synonymous with ‘by means of’. In my view the expression ‘by means of’ speaks for itself, and the danger in seeking another word whereby to represent the meaning of the expression is the risk of the possible alteration of meaning and thus application of s 22(1). As to this sort of risk in interpreting a statute, see K & S Lake City Freighters Pty Ltd v Gordon & Gotch Ltd.[55]
[55](1985) 157 CLR 309, 315.

In my view the expression ‘by means of’ requires no such explanation. I read it as an expression carefully chosen to enable the licensing requirement to engage in the appropriate case. That is when the services are provided ‘by means of’ the distribution pipeline. Whether it can be said of services that they are so provided will turn on the nexus or relationship between the provision of those services and the pipeline. That will be determined upon the evidence.

For this purpose the evidence would include the capacity in which the person in question is providing services by means of the distribution pipeline. That is to say, whether the person is providing such services by virtue of being the owner of the pipeline or in virtue of some other right, contractual or otherwise and, if so, the relevant terms providing for the establishment and exercise of that right. The expression ‘by means of’ comprehends consideration of such matters as well as the facts and circumstances otherwise pertaining to the provision of the services. It is in light of all such matters that it will be determined whether the person was or is providing services ‘by means of’ the distribution pipeline.

As Dodds-Streeton JA has stated, a central aspect of the appellant’s submissions was that the expression ‘either as principal or agent’ incorporated concepts – principal and agent – known to the law of contract. Regarding the provision through that prism, s 22(1) was to be understood as applying with regard to such legal concepts. So approaching the matter, and in light of the fact that the appellant did not have the right to agree to provide haulage or grant a right to inter-connect or rights in relation to ancillary services, and was not able to make an access application that complied with the Code, the appellant lacked power such as an owner or lessee or licensee would have over or in respect of the pipeline to undertake a distribution service. Thus understood, in the circumstances it was Multinet who fell within s 22(1) and was required to be licensed. While the appellant provided services it was not ‘by means of’ the pipeline.

The appellant’s submissions were far more extensive than I have indicated. Dodds-Streeton JA has discussed them in detail. I observe only that in my view the expression ‘principal or agent’ means and has the effect that a person cannot avoid the obligation to obtain a licence simply on the basis that he is a principal but the agent is providing the services or vice versa. So understood the purpose is to ensure that the requirement cannot be avoided on an argument based on the existence in a particular case of persons who in relation to the provision of services are in the relationship of principal or agent. The purpose of the reference is to ensure the cover of the provision and not otherwise to narrow its application.

These observations have concentrated upon s 22(1), but as with that provision so does the provision in the Access Law as to a ‘service provider’ turn for its application on the facts and circumstances of the particular case.

I generally agree with Dodds-Streeton JA, for the reasons she gives, that the appeal should be dismissed with costs.

- - -

service provider, in relation to a pipeline or proposed pipeline, means the person who is, or is to be, the owner or operator of the whole or any part of the pipeline or proposed pipeline;

(a)provide to [Alinta] full co-operation and assistance to allow [Alinta] to provide the Services in accordance with this document (without Multinet being in any way responsible for performing the Services itself);

(b)provide access to the Distribution Network in accordance with clause 19.1;

(c)make available (but not sell), without restriction or interference from any other party, to [Alinta] all Equipment at no cost to [Alinta];

(d)replace all Equipment when required, the costs of which will be included in the Capex Budget;

(e)obtain, maintain, renew and comply with all Authorisations held by Multinet including the Distribution Licence and the MSO Rules except to the extent that [Alinta] is responsible for compliance under this document and [Alinta’s] rights or non-performance of any obligation under this document does not prevent Multinet from doing any of those things;

(f)comply with all Gas Laws except to the extent that [Alinta] is responsible for compliance under this document and [Alinta’s] rights or non-performance of any obligation under this document does not prevent Multinet from doing any of those things;

(g)pay or bear all costs associated with Unaccounted for Gas except to the extent that payment or cost relates to a failure to perform any Service by [Alinta] in accordance with this document;

(h)pay all costs to VENCorp and GasNet except to the extent that payment or cost relates to a failure to perform any Service by [Alinta] in accordance with this document;

(i)pay all fees associated with any Authorisations or to any Regulator; and

(j)execute all or any documents reasonably required to be executed by Multinet to allow [Alinta] to provide the Services, comply with or exercise its rights under this document provided such documents do not impose any additional liability or obligation on Multinet other than in the ordinary course of the Business.

…that legislation to promote free and fair trade in gas, through third party access to pipelines, should be developed co-operatively between jurisdictions and be based on the following principles:

· Pipeline owners and/or operators provide access to spare pipeline capacity for all market participants on individually negotiated non-discriminatory terms and conditions;

· Information on haulage charges, and underlying terms and conditions, to be available to all prospective market participants on demand;

· If negotiations for pipeline access fail, provision be made for the owner/operator to participate in compulsory arbitration with the arbitration based upon clear and agreed set of principles;

· Pipeline owners and/or operators maintain separate accounting and management control of transmission of gas;

· Provision be made for access by a relevant authority to financial statements and other information necessary to monitor gas haulage charges; and

· Access to pipelines would be provided by either Commonwealth or State/Territory legislation based on these principles by 1 July 1996…

[2008] VSCA 273

18 December 2008