Australian Retailers Association v Reserve Bank of Australia

[2005] FCA 1707

FEDERAL COURT OF AUSTRALIA

Australian Retailers Association v Reserve Bank of Australia [2005] FCA 1707

SUMMARY

AUSTRALIAN RETAILERS ASSOCIATION, AUSTRALIA POST, BP AUSTRALIA PTY LIMITED (ACN 004 085 616), BUNNINGS PTY LIMITED (ACN 008 672 179), CALTEX AUSTRALIAN PETROLEUM PTY LIMITED (ACN 000 032 128), COLES MYER LIMITED (ACN 004 089 936) and SPARKS SHOES PTY LIMITED (ACN 000 916 138) v RESERVE BANK OF AUSTRALIA

VID 1387 OF 2004

WEINBERG J

28 NOVEMBER 2005

MELBOURNE

1. In accordance with the practice of the Federal Court in some cases of public interest, importance or complexity, the following summary has been prepared to accompany the orders made today.  This summary is intended to assist in understanding the outcome of this proceeding and is not a complete statement of the conclusions reached by the Court.  The only authoritative statement of the Court’s reasons is that contained in the published reasons for judgment which will be available on the internet at < together with this summary.

2. This is an application for review of a decision of the Reserve Bank of Australia (“the RBA”) to “designate” the EFTPOS system.  These proceedings have been brought by a group of retail merchants who claim to be aggrieved by the decision (“the applicants”).  The applicants argue that the decision to designate was not made according to law, and is therefore invalid. 

3. Under the Payment Systems (Regulation) Act 1998 (Cth), the RBA has the power to “designate” a payment system if it considers it would be in the “public interest” to do so. Once a payment system has been “designated”, the RBA has the power to, amongst other things, make standards that must be complied with by participants in the payment system. In determining what is in the “public interest”, the RBA is required, under the Act, to have regard to payment systems being, in its opinion, “efficient” and “competitive”.

4. While the power to determine standards has not, at this stage, been exercised by the RBA, the applicants claim, with much force, that it is the clear intention of the RBA, now that EFTPOS has been designated, to use its powers to reduce or eliminate “interchange fees”.

5. “Interchange fees” are the fees paid by a cardholder’s financial institution to the merchant’s financial institution each time an EFTPOS transaction occurs.  For example, if a customer with an ANZ card makes an EFTPOS transaction at Caltex (whose EFTPOS services are provided by the Commonwealth Bank), ANZ will pay a fee to the Commonwealth Bank for processing that transaction.  The cardholder’s financial institution is called the “issuer” and the merchant’s institution is called the “acquirer”.  The actual fee that is paid by the issuer to the acquirer is determined by the specific terms of an interchange agreement between the two.  There are many of these bilateral interchange agreements between financial institutions. 

6. The relationship between merchants and acquirers differs depending on whether the merchant is a large merchant, which provides its own infrastructure (for instance PINpads and other equipment), or a small merchant, which has this infrastructure provided by its acquiring institution.  In the case of small merchants, they generally pay a fee to their acquirer for the provision of EFTPOS services.  In the case of large merchants, many have negotiated to be paid by their acquirer for EFTPOS transactions. In effect, large merchants have negotiated to “share” the interchange fee their acquiring bank receives from issuers.

7. The RBA’s reason for designating the EFTPOS system is that it concluded that current interchange arrangements were not conducive to the efficiency of the overall payments system.  It determined that current interchange arrangements contribute to the effective price that cardholders are charged for EFTPOS transactions being higher than for payments using credit cards.  This was despite EFTPOS having relatively lower costs.

8. The applicants’ concern is that if the RBA reduces or eliminates interchange fees, acquirers will seek to recover that loss in revenue from merchants.  Therefore, the applicants claim that smaller merchants will have to pay increased fees to their acquiring bank, and larger merchants will no longer receive fees from their acquirer, or at least will have those fees reduced.  In turn, the applicants argue, this will affect investment in EFTPOS infrastructure and costs will be passed on to the merchants’ customers.

9. The applicants’ challenge to the RBA’s decision to designate is an action in judicial review.  The applicants must therefore demonstrate that there was an error of law in the RBA’s decision.  It is not enough to show that a different decision is preferable on the facts, or is preferable from a policy perspective.

10. I have concluded that the applicants have not succeeded in establishing any of the grounds upon which they say the RBA erred in law.  In particular, I have rejected the applicants’ arguments that the form of the RBA’s designation was not consistent with the relevant legislative requirements, that the RBA failed to take into account various considerations it was bound to take into account, that it took into account various irrelevant considerations, that it pre-judged the matter and that there was no evidence to support the findings that formed the basis of the decision to designate.

11. In summary, it is plain that the discretion conferred upon the RBA under the relevant statutory regime is broad.  Added to that is the fact that the applicants’ challenge to the exercise of that discretion must be viewed in the context of the decision in question being merely a decision to designate, and not a decision to impose specific regulations upon the EFTPOS system, at least at this stage.  Having regard to these matters, the applicants set themselves a very “high bar” in terms of what they had to establish in order to make good their challenge to the RBA’s decision.  Notwithstanding their best efforts, they have not succeeded in making good that challenge.

FEDERAL COURT OF AUSTRALIA

Australian Retailers Association v Reserve Bank of Australia [2005] FCA 1707

ADMINISTRATIVE LAW – decision by Reserve Bank of Australia to “designate” EFTPOS system pursuant to s 11 of the Payment Systems (Regulation) Act 1998 (Cth) (“PSR Act”) – whether excluding merchants as “participants” in EFTPOS system was an error of law – whether requisite opinions regarding efficiency and competition were formed – whether irrelevant considerations were taken into account – whether failure to take into account relevant considerations – whether ground of Wednesbury unreasonableness extends to reasoning process of decision-maker – whether the decision and reasoning underlying decision were unreasonable in the Wednesbury sense – whether no evidence for factual findings – whether Reserve Bank of Australia biased – conduct of judicial review litigation

STATUTORY INTERPRETATION – construction of ss 7, 8 and 11 of the Payment Systems (Regulation) Act 1998 (Cth) – construction of s 10B of the Reserve Bank Act 1959 (Cth)

EVIDENCE – expert economic evidence – admissibility and use of – meaning of “competition” and “efficiency” – relevance to judicial review

BANKING – payment systems – EFTPOS system

Administrative Decisions (Judicial Review) Act 1977 (Cth), s 5

Judiciary Act 1903 (Cth), s39B

Payment Systems (Regulation) Act 1998 (Cth), ss 7, 8, 11, 12, 18

Reserve Bank Act 1959 (Cth), s 8A, 10B, 25A

Abebe v Commonwealth of Australia (1999) 197 CLR 510 cited

Arnotts Limited v Trade Practices Commission (1990) 24 FCR 313 referred to

Australian Securities & Investments Commission v Rich [2005] NSWCA 152 referred to

Associated Provisional Picture Houses, Limited v Wednesbury Corporation [1948] 1 KB 223 discussed

Attorney-General (NSW) v Quin (1990) 170 CLR 1 cited

Attorney-General for the Northern Territory v Minister for Aboriginal Affairs (1989) 23 FCR 536 cited

Australian Broadcasting Tribunal v Bond (1990) 170 CLR 321 cited

Buck v Bavone (1976) 135 CLR 110 cited

Church of Scientology Inc v Woodward (1982) 154 CLR 25 cited

Collector of Customs v Agfa-Gevaert Limited (1996) 186 CLR 389 referred to

Corporation of the City of Enfield v Development Assessment Commission (2000) 199 CLR 135 cited

Craig v South Australia (1995) 184 CLR 163 cited

Cubillo v Commonwealth (2001) 112 FCR 455 cited

Curragh Queensland Mining Limited v Daniel (1992) 34 FCR 212 referred to

Ebner v Official Trustee in Bankruptcy (2000) 205 CLR 337 referred to

Elias v Commissioner of Taxation (2002) 123 FCR 499 cited

Foster v Minister for Customs and Justice (2000) 200 CLR 442 referred to

H G v The Queen (1999) 197 CLR 414 referred to

Inglewood Olive Processors Limited v Chief Executive Officer of Customs [2005] FCAFC 101 cited

Luu v Renevier (1989) 91 ALR 39 referred to

Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705 cited

McCormack v Commissioner of Taxation (2001) 114 FCR 574 cited

Minister for Aboriginal Affairs v Peko-Wallsend Limited (1986) 162 CLR 24 referred to

Minister for Immigration and Ethnic Affairs v Wu Shan Liang (1996) 185 CLR 259 cited

Minister for Immigration and Multicultural Affairs v Jia Legeng (2001) 205 CLR 507 referred to

Minister for Immigration and Multicultural Affairs v Rajamanikkam (2002) 210 CLR 222 referred to

Minister for Immigration and Multicultural Affairs v Yusuf (2001) 206 CLR 323 cited

Minister for Immigration and Multicultural Affairs v Eshetu (1999) 197 CLR 611 cited

Minister for State and for Immigration and Ethnic Affairs v Teoh (1995) 183 CLR 273 referred to

Plaintiff S157/2002 v Commonwealth (2003) 211 CLR 476 cited

Prasad v Minister for Immigration and Ethnic Affairs (1985) 6 FCR 155 referred to

Price v Elder (2000) 97 FCR 218 referred to

Quick v Stoland Pty Ltd (1998) 87 FCR 371 referred to

R v Connell; Ex parte Hetton Bellbird Collieries Limited (1944) 69 CLR 407 cited

Randwick City Council v Minister for the Environment (1998) 54 ALD 682 cited

Randwick City Council v Minister for the Environment (1999) 167 ALR 115 cited

Re EFTPOS Interchange Fees Agreements [2004] A Comp T 7 discussed

Re Minister for Immigration and Multicultural Affairs; Ex parte Applicant S20/2002 (2003) 198 ALR 59 referred to

Sean Investments Pty Ltd v MacKellar (1981) 38 ALR 363 referred to

Short v Poole Corporation [1926] 1 Ch 66 cited

Singh v Minister for Immigration and Multicultural Affairs (2000) 105 FCR 453 cited

Singh v Minister for Immigration and Multicultural Affairs (2001) 109 FCR 152 cited

Sydneywide Distributors Pty Ltd v Red Bull Australia Pty Ltd (2002) 55 IPR 354 referred to

Taveli v Minister for Immigration, Local Government and Ethnic Affairs (1989) 86 ALR 435 referred to

Telstra Corporation Ltd v Seven Cable Television Pty Ltd (2000) 102 FCR 517 cited

Visa International Service Association v Reserve Bank of Australia (2003) 131 FCR 300 discussed

Williams v Giddy [1911] AC 381 referred to

M Aronson, B Dyer and M Groves, Judicial Review of Administrative Action (3^rd ed, 2004)

Justice F Marks, “Expert Evidence” (2005) 7 The Judicial Review 329

C Beaton-Wells, “Judicial Review of Migration Decisions: Life After S157” (2005) 33 Federal Law Review 141

AUSTRALIAN RETAILERS ASSOCIATION, AUSTRALIA POST, BP AUSTRALIA PTY LIMITED (ACN 004 085 616), BUNNINGS PTY LIMITED (ACN 008 672 179), CALTEX AUSTRALIAN PETROLEUM PTY LIMITED (ACN 000 032 128), COLES MYER LIMITED (ACN 004 089 936) and SPARKS SHOES PTY LIMITED (ACN 000 916 138) v RESERVE BANK OF AUSTRALIA

VID 1387 OF 2004

WEINBERG J

28 NOVEMBER 2005

MELBOURNE

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VID 1387 OF 2004

BETWEEN:

AUSTRALIAN RETAILERS ASSOCIATION
FIRST APPLICANT

AUSTRALIA POST
SECOND APPLICANT

BP AUSTRALIA PTY LIMITED (ACN 004 085 616)
THIRD APPLICANT

BUNNINGS PTY LIMITED (ACN 008 672 179)
FOURTH APPLICANT

CALTEX AUSTRALIAN PETROLEUM PTY LIMITED
(ACN 000 032 128)
FIFTH APPLICANT

COLES MYER LIMITED (ACN 004 089 936)
SIXTH APPLICANT

SPARKS SHOES PTY LIMITED (ACN 000 916 138)
SEVENTH APPLICANT

AND:

RESERVE BANK OF AUSTRALIA
RESPONDENT

JUDGE:

WEINBERG J

DATE OF ORDER:

28 NOVEMBER 2005

WHERE MADE:

MELBOURNE

THE COURT ORDERS THAT:

1.           The application be dismissed.

2.The applicants pay the respondent’s costs of and incidental to the application, such costs to be taxed in default of agreement.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VID 1387 OF 2004

BETWEEN:

AUSTRALIAN RETAILERS ASSOCIATION
FIRST APPLICANT

AUSTRALIA POST
SECOND APPLICANT

BP AUSTRALIA PTY LIMITED (ACN 004 085 616)
THIRD APPLICANT

BUNNINGS PTY LIMITED (ACN 008 672 179)
FOURTH APPLICANT

CALTEX AUSTRALIAN PETROLEUM PTY LIMITED
(ACN 000 032 128)
FIFTH APPLICANT

COLES MYER LIMITED (ACN 004 089 936)
SIXTH APPLICANT

SPARKS SHOES PTY LIMITED (ACN 000 916 138)
SEVENTH APPLICANT

AND:

RESERVE BANK OF AUSTRALIA
RESPONDENT

TABLE OF CONTENTS

The legislative framework   [6]

The EFTPOS system  [22]

The application for review   [36]

The Visa case   [44]

Designation – the context in which the Decision was taken                    [57]

Designation – is the challenge premature?  [58]

The applicants’ case – an overview  [61]

The Joint Study  [81]

The RBA’s reliance upon the Joint Study  [113]

The RBA Consultation Document  [123]

The August 2002 Document  [138]

The banks and the authorisation application   [149]

The ACT’s reasons for decision  [154]

Additional RBA documents submitted to the ACCC, and the ACT  [184]

The Statement  [194]

The applicants’ detailed attack upon the PSB’s Statement                  [203]

The RBA’s case - an overview   [226]

The memorandum of 11 August 2004  [255]

The minutes of the PSB meeting held on 17 August 2004  [260]

The memorandum of 1 September 2004  [262]

Other aspects of the RBA’s case  [271]

The RBA’s outline of its evidence  [274]

The RBA’s objections to the applicants’ evidence  [275]

The applicants’ witnesses  [284]

Mr Charles Gove  [284]

Dr Phillip Williams  [305]

Mr David Howell  [332]

Mr Ian Nicol  [352]

Mr Gary Lembit  [363]

Mr Russell Zimmerman  [369]

The applicants’ objections to the RBA’s evidence  [373]

The RBA’s witnesses  [380]

Professor Michael Katz  [380]

Professor Joseph Farrell  [406]

Dr Vincent Fitzgerald  [422]

Professor William Dunsmuir  [436]

Conclusions  [439]

Ruling on objections to evidence  [439]

Construction issues – section 7 of the PSR Act [488]

Construction issues – section 8 of the PSRAct [499]

Construction issues – section 10B of the RBA Act [503]

Taking into account irrelevant considerations  [511]

Failure to take into account relevant considerations   [520]

Wednesbury Unreasonableness  [542]

No evidence ground  [572]

Natural justice  [586]

Remaining matters  [604]

Final Observations  [624]

Orders  [638]

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VID 1387 OF 2004

BETWEEN:

AUSTRALIAN RETAILERS ASSOCIATION
FIRST APPLICANT

AUSTRALIA POST
SECOND APPLICANT

BP AUSTRALIA PTY LIMITED (ACN 004 085 616)
THIRD APPLICANT

BUNNINGS PTY LIMITED (ACN 008 672 179)
FOURTH APPLICANT

CALTEX AUSTRALIAN PETROLEUM PTY LIMITED
(ACN 000 032 128)
FIFTH APPLICANT

COLES MYER LIMITED (ACN 004 089 936)
SIXTH APPLICANT

SPARKS SHOES PTY LIMITED (ACN 000 916 138)
SEVENTH APPLICANT

AND:

RESERVE BANK OF AUSTRALIA
RESPONDENT

JUDGE:	WEINBERG J
DATE:	28 NOVEMBER 2005
PLACE:	MELBOURNE

REASONS FOR JUDGMENT

1. This is an application by the Australian Retailers Association, and six retail merchants, for review of a decision (“the Decision”) by the Payment Systems Board (“PSB”) of the Reserve Bank of Australia (“RBA”) made on 3 September 2004, and published in the Commonwealth Gazette on 9 September 2004. The Decision, taken pursuant to s 11 of the Payment Systems (Regulation) Act 1998 (Cth) (“PSR Act”) was to “designate” the debit card payment system known as the EFTPOS system. This would enable the RBA, pursuant to s 18 of that Act, to determine standards to be complied with by participants in that system. It would also enable the RBA to impose an access regime on those participants, pursuant to s 12. The application is brought pursuant to both s 5 of the Administrative Decisions (Judicial Review) Act1977 (Cth) (“ADJR Act”) and s 39B of the Judiciary Act 1903 (Cth).

2. The applicants claim to be aggrieved by the Decision. There is no dispute about the fact that they are all participants in the EFTPOS system within the meaning of s 7 of the PSR Act or, alternatively, are directly involved in and participate in the operation of the system as a payment system pursuant to that section.  More particularly, the applicants all operate EFTPOS terminals and related software and infrastructure at the point of sale, through which payments using EFTPOS are electronically processed. 

3. According to the application for an order of review, the applicant retail merchants, apart from Australia Post and Sparks Shoes Pty Limited (the second and seventh applicants), dispense cash to customers of banks and other financial institutions at EFTPOS terminals. 

4. In addition, Coles Myer Limited (“Coles Myer”), the sixth applicant, is what is described as a “merchant principal” within the Consumer Electronic Clearing System (“CECS”) managed by the Australian Payments Clearing Association Limited (“APCAL”). I shall return to the significance of this factor later in these reasons for judgment.

5. The reasons for the Decision were not published by the RBA and the PSB until 14 October 2004.  They are contained in a twenty-seven page document which, for convenience, will be described as “the Statement”.

   the legislative framework

6. In order to understand the nature of the applicants’ challenge to the Decision, it is necessary to set out in some detail the legislative framework under which it was taken. 

7. There are two principal statutes to be considered. 

8. The Reserve Bank Act1959 (Cth) (“RBA Act”) provides, in s 8A that the RBA shall have two Boards, the Reserve Bank Board and the Payments System Board. The Reserve Bank Board is responsible for the RBA’s monetary and banking policy, and its policy on all other matters apart from its payments system policy. The PSB is responsible for the RBA’s payments system policy.

9. Section 10B of the RBA Act sets out the functions of the PSB.  Relevantly, it provides:

   “(1) The Payments System Board has power to determine the Bank's payments system policy.

   (2) The Payments System Board has power to take whatever action is necessary to ensure that the Bank gives effect to the policy it determines.

   (3) It is the duty of the Payments System Board to ensure, within the limits of its powers, that:

   (a)the Bank's payments system policy is directed to the greatest advantage of the people of Australia; and

   (b)the powers of the Bank under the Payment Systems (Regulation) Act 1998 and the Payment Systems and Netting Act 1998 are exercised in a way that, in the Board's opinion, will best contribute to:

   (i)controlling risk in the financial system; and

   (ii)promoting the efficiency of the payments system; and

   (iii)promoting competition in the market for payment services, consistent with the overall stability of the financial system; …”

10. Section 25A of the RBA Act provides that the PSB shall consist of the Governor of the RBA, one representative of the RBA to be appointed by the Governor, one representative of the Australian Prudential Regulation Authority, and up to five other members appointed by the Treasurer.

11. The PSR Act provides, inter alia, for the regulation of payment systems and purchased payment facilities. Section 7 defines a “payment system” as:

    “… a funds transfer system that facilitates the circulation of money, and includes any instruments and procedures that relate to the system.”

12. Section 7 also defines “participant in a payment system” as, inter alia:

    “(a)a constitutional corporation that is a participant in the system in accordance with the rules governing the operation of the system”.

1. The expression “the rules governing the operation of the system” in s 7, is regarded by the RBA as a reference to the rules set out in a manual produced by CECS (“the CECS manual”), a copy of which was tendered before me.

2. The expression “designated payment system” is defined in s 7 as a payment system that is designated under s 11. That section confers upon the RBA the power to “designate” a payment system. The section is as follows:

   “(1) The Reserve Bank may designate a payment system if it considers that designating the system is in the public interest.  The designation is to be by notice in writing published in the Gazette.

   (2) The designation has effect until it is revoked.

   (3) The Reserve Bank may revoke the designation if it no longer considers that it is in the public interest that the system be designated.  The revocation is to be by notice in writing published in the Gazette.”

3. Section 8 provides that, for the purposes of the PSR Act, the RBA, when determining whether a particular action is, or would be in, or contrary to, the “public interest”, shall have regard to the desirability of “payment systems”:

   “…(a) being (in its opinion):

   (i) financially safe for use by participants; and

   (ii) efficient; and

   (iii) competitive; and

   (b) not (in its opinion) materially causing or contributing to increased risk to the financial system.”

4. Section 8 goes on to say that, in determining whether an action would be in, or contrary to, the public interest, the RBA “may have regard to other matters that it considers are relevant, but is not required to do so”.

5. Section 18, which allows the RBA to determine standards to be complied with by participants in a designated payment system, also provides that regard must be had to the public interest. It is in the following terms:

   “(1)The Reserve Bank may, in writing, determine standards to be complied with by participants in a designated payment system if it considers that determining the standards is in the public interest.

   Note:A failure to comply with a standard is not an offence, but it may lead to a direction being given under section 21.

   (2) A standard:

   (a) comes into force:

   (i) unless subparagraph (ii) applies—on the day on which the determination of the standard is made; or

   (ii) if that determination specifies a later day as the day on which the standard comes into force—on the day so specified; and

   (b) continues in force until it is revoked.

   (3)         The Reserve Bank may, in writing, vary or revoke a standard.

   (4) The Reserve Bank must not determine or vary a standard unless it has first consulted in accordance with section 28.

   (5) The Reserve Bank may determine or vary a standard without complying with subsection (4) if:

   (a) the Reserve Bank considers that there is an urgent need for the determination or variation of the standard; or

   (b) in the case of a variation—the Reserve Bank considers that the variation is of a minor technical nature.

   (6) If the Reserve Bank determines a standard, or varies or revokes a standard, it must, as soon as practicable, provide notification under section 29.

   (7) A failure to comply with subsection (6) does not affect the validity of a standard or of the variation or revocation of a standard.”

6. Section 12 provides that the RBA may impose an access regime on the participants in a designated payment system. The access regime imposed must be one that the RBA considers appropriate, having regard to “the public interest”, the interests of the current participants in the system, the interests of people who, in the future, may want access to the system, and any other matters that the RBA considers relevant. The RBA cannot impose an access regime unless it has first consulted in accordance with s 28.

7. Section 28 provides that if the RBA is under an obligation to consult, as for example would be the case in relation to determining a standard under s 18, or imposing an access regime under s 12, it must cause a notice to be published in the Gazette, invite people to make submissions regarding the proposed action, and consider those submissions. It is important to note, by way of contrast, that the RBA is under no specific obligation to consult anyone before it makes a decision to designate a payment system under s 11.

8. Something should be said about the history and background to the PSR Act.  That Act formed part of a package of legislation to implement the 1997 Final Report of the Financial System Inquiry (“the Wallis Committee”).  The Explanatory Memorandum to the PSR Act identified the fundamental goals of the Government in introducing these reforms as being to increase competition and improve efficiency in the financial system, while preserving its integrity, security and fairness.  The Explanatory Memorandum stated:

   “1.3       The payments system covers the system of payment instruments (cash, cheques, smart cards among others), their delivery, the exchange of clearance of payment messages, and the final settlement of value between intermediaries providing payment services.

   1.4         The payments system plays a central role in the financial system.  The Government has decided to strengthen, and make more transparent and accountable, the regulation of the payments system undertaken by the Reserve Bank of Australia.  Until now, the Reserve Bank has played a substantial regulatory role in the payments system as a direct participant and through the use of its banking powers.  Regulation of the payments system is to be separated from the prudential regulation of banks because an increasing number of non-bank participants in the payments system are emerging to increase competition in the system.  More direct means for achieving effective regulation are required for this purpose.

   1.5         The Reserve Bank of Australia will be the regulator of the system, given the importance of the payments system to the overall stability of the financial system and given the central role of the Reserve Bank itself in the core areas of the payments system”  

9. During the Second Reading Speech of the Bill in the House of Representatives, the Treasurer, the Hon Peter Costello MP, elaborated upon these matters.  He observed that in future, payments system regulation was to be separated from the prudential regulation of banks because of the increase in number of non-bank participants in that system.  The RBA was to be the regulator of the system, given its importance to the overall stability of the financial system, and its central role in core areas of the payments system.  The Treasurer went on to say:

   “This bill proposes a new regulatory framework for the payments system.  While existing industry self-regulatory arrangements will be retained wherever these are performing satisfactorily, the bill provides powers to the Reserve Bank to enable it to undertake more direct regulation by designating payment systems as subject to the law where it is considered in the public interest to do so.” 

   the eftpos system

10. The Statement, at [12]-[17], contains a useful summary of the general operation of the EFTPOS system in Australia.  There is nothing contentious about this summary, and accordingly I adopt it. 

11. The Australian non-cash payments system is made up of a number of separate payment systems.  These include:

    ·the debit and credit card systems predominately used for retail payments by consumers;

    ·the direct credit and debit payment systems used by both consumers and businesses; and

    ·the cheque payment system that, today, is mainly used by business.

12. It is clearly the case that, over time, and particularly over the last ten years or so, the use of these different payment systems has changed substantially.  The use of credit cards has increased dramatically, as has the use of EFTPOS, albeit less rapidly than credit cards.  By contrast, the use of cheques has declined.  In the case of bill payments, direct credits, direct debits, credit cards and “BPay” have largely displaced cheques.

13. For many payments, consumers have a choice as to which method of payment to use.  For example, credit cards, debit cards or cash can be used more or less interchangeably to pay for groceries.  Similarly, cheques, credit cards, direct debit, direct credit and BPay can be used to pay most household bills. 

14. The EFTPOS debit card system is but one of a number of card payment systems now generally available.  It allows cardholders to make payments for the purchase of goods or services at participating merchants and, in some cases, to obtain cash as well.  The cardholder authorises the transaction by entering a personal identification number (PIN) into a terminal at the point of sale.  Transactions are debited electronically to cardholders’ accounts at authorised deposit taking institutions (“ADIs”). 

15. More specifically, the EFTPOS system, as designated by the RBA, and as defined in the Gazette, is “the electronic funds transfer at point of sale payment system described in cl 1 of the CECS manual for the Consumer Electronic Clearing System”.  The system is governed by the rules set out in that manual, supplemented or modified by contracts, arrangements or understandings between individual issuers, acquirers and merchants principal. 

16. The EFTPOS system was created in the early 1980s as a series of bilateral linkages between institutions that issue EFTPOS cards (“issuers”), and institutions that provide payment services to merchants (“acquirers”).  As the number of bilateral linkages grew, cardholders gained access to a large number of merchants, and merchants were able to accept cards from more issuers. 

17. According to the RBA, by October 2004 there were 465,000 EFTPOS terminals in Australia, with over 980 million transactions processed each year.  There were numerous banks, building societies and credit unions issuing debit cards that could be used in the EFTPOS system.  However, there were only about ten financial institutions offering EFTPOS acquiring services to merchants.  One retail merchant, Coles Myer, acts as its own acquirer.  It is for that reason it is known as a “merchant principal”. 

18. Currently, each time a cardholder makes a payment to a merchant using the EFTPOS system, the issuer pays an “interchange fee” to the acquirer.  These interchange fees generally range between about 18 cents and 30 cents per transaction, and are said to average about 20 cents.  Interchange fees are agreed between issuers and acquirers on a confidential basis.  According to the RBA, they have remained at broadly the same levels for many years. 

19. In Australia, there is a difference in the flow of fees between acquirers and merchants, depending upon the particular type of merchant and scale of activities involved.  Large merchants, who install EFTPOS infrastructure at their own expense, recover part of the costs associated with doing so by being paid a fee by acquirers.  Put another way, they receive part of the fee paid by issuers to acquirers, or “share” the interchange fee.  Small merchants, on the other hand, generally pay a fee to their acquirers to meet the cost of this infrastructure and related services.

20. The interchange fees that are paid by issuers to acquirers under EFTPOS should not be confused with the interchange fees paid under credit card systems.  Bankcard, MasterCard and Visa credit card systems also have interchange fees.  However, acquirers pay these fees to issuers, and not the other way around. 

21. Interchange fees in relation to credit cards (and in relation to Visa debit cards) are calculated as a percentage of the amount spent and not, as in the case of EFTPOS, as flat per transaction fees.  While they vary across the three major credit card schemes in Australia, the average interchange fee for credit cards is now just below 0.55% of the transaction value, down from around 0.95% in 2000. 

22. The RBA states that this reduction in interchange fees is the result of its earlier decision to designate the credit card system, and impose standards limiting the amount that can be charged as an interchange fee in relation to such transactions.  In 2003, both Visa and MasterCard challenged the decision to limit interchange fees.  That challenge ultimately failed:  see Visa International Service Association v Reserve Bank of Australia (2003) 131 FCR 300 per Tamberlin J (“the Visa case”). 

23. The RBA also notes that any new entrant seeking access to the EFTPOS system, whether as an issuer, or as an acquirer, would have to arrange bilateral linkages with around eight other participants.  Alternatively, any such entrant might seek to establish gateway arrangements with existing participants.  An important aspect of the RBA’s concerns regarding the current interchange fee system in EFTPOS is whether these arrangements are conducive to competition in the acquiring business.  Competition among acquirers is considered desirable, and in the public interest.  APCAL is said to be currently reviewing existing arrangements with the aim of improving access.  The RBA says that it is closely monitoring that work. 

    the application for review

24. The applicants contend that the Decision is invalid, and should be set aside. Although all that has occurred until now is “designation”, pursuant to s 11 of the PSR Act, they submit that this is the inevitable forerunner to the determination of standards, under s 18, and that this in turn will lead to the elimination or reduction of EFTPOS interchange fees. The applicants say that if that were to occur, acquirers would inevitably seek to make up for losses in interchange fees. They would do so, in the case of small merchants, by increasing the merchant service fees that acquirers charge, or, in the case of large merchants, by reducing or eliminating the fees that acquirers currently pay. This loss of revenue would then either have to be absorbed by merchants, or passed on to consumers by way of higher prices. The applicants claim that the elimination or reduction of interchange fees in EFTPOS would do nothing to benefit consumers, and would only serve to protect banks and other financial institutions from competitive pressure.

25. The applicants identify a large number of errors which they say invalidate the Decision. In broad terms, they say in ground 8 of their application that the Decision was based upon or involved one or more errors of law. Under “particulars” marked (a) of this ground they say that the RBA misconstrued ss 7, 8 and 11 of the PSR Act. They identify eleven separate examples of such errors. They further say, under “particulars” marked (b) of this ground, that the RBA misconstrued and failed to comply with its duties under s 10B of the RBA Act.  They identify four examples of such errors. 

26. The applicants say, under ground 9, that the making of the Decision involved an improper exercise of the power conferred by s 11 of the PSR Act, and s 10B of the RBA Act.  They say under “particulars” marked (a) of this ground, that the RBA took into account four irrelevant considerations, which they specify.  They say under particulars marked (b) of this ground that the RBA failed to take into account a series of relevant and necessary considerations, and point to ten such matters.  They claim under particulars marked (c) of that ground that the RBA exercised the power to designate in a manner that was unreasonable in the Wednesbury sense, and they provide 22 separate examples of such misuse of power. 

27. The applicants say, in ground 10, that there was no evidence or other material to justify the making of the Decision, and under “particulars” they point to 17 separate findings that are alleged to have been made without any such support. 

28. Finally, the applicants say in ground 11, that a breach of the rules of natural justice occurred in connection with the making of the Decision.  They allege a reasonable apprehension of bias on the part of the RBA in connection with the making of the Decision, and provide two separate bases for that contention. 

29. It can be seen, therefore, right from the outset, that the applicants have gone through the Statement with a fine tooth comb, and have identified no fewer than 77 separate errors which they say, either alone or in combination, vitiate the Decision.  Even if one allows for the fact that a number of these alleged errors simply replicate points made under the rubric of earlier grounds, the attack upon the RBA’s reasons is both painstaking, and unrelenting. 

30. In ordinary circumstances, an application for judicial review, whether under the ADJR Act or at common law, is based essentially upon the reasons for decision given by the decision-maker.  It is an unusual feature of this proceeding that each side led a prodigious body of evidence in support of its case.  In the Visa case a similar approach was taken. 

31. It may be accepted that the very nature of the applicants’ challenge to the Decision warranted the reception of some such evidence. For example, their contention that the RBA misconstrued the terms “efficient” and “competitive” in s 8 of the PSR Act opened the door to expert economic opinion regarding the meaning of these words, as technical terms of art.  Regrettably, the expert evidence was not merely exceedingly detailed, but also highly contentious.  Each of the experts was cross-examined at considerable length.  It will be necessary, in the course of these reasons for judgment, to summarise that evidence, both as set out in the voluminous reports tendered, and as given orally. 

    the visa case

32. The background to the Decision is important.  As previously indicated, it is not the first designation decision taken by the RBA in response to a determination by the PSB.  In the Visa case, applications were brought against the RBA to set aside five decisions in relation to what are known as four-party credit card schemes in Australia.  Those schemes include issuers (financial institutions such as banks that issue credit cards and extend credit to their customers), cardholders (purchasers of goods and services from merchants and customers of the issuers), merchants (who accept the credit cards and claim on issuers for payment), and acquirers (financial institutions such as banks that “acquire” merchants’ claims against issuers) who agree to pay the merchant under the credit card schemes. 

33. In one sense, the challenge that was mounted to the RBA’s actions under the PSR Act in the Visa case was even more extensive than the challenge to the Decision in the present case. 

34. In the Visa case, the first two decisions challenged were both taken on 11 April 2001, and gazetted the following day. They involved decisions to designate, pursuant to s 11 of the PSR Act, each of the Visa and MasterCard schemes as “a payment system”.  The consequence was to bring each of those schemes within the reach of the RBA’s powers to regulate under that Act. 

35. The second set of decisions challenged in that case were made on 20 August 2002, and gazetted the following week.  Those decisions were to determine an “Interchange Standard” which imposed a limit on “interchange fees”, sometimes described as “wholesale fees”, charged by issuers of four-party credit scheme cards to acquirers participating in the schemes. 

36. The third set of decisions challenged were also made on 20 August 2002 and gazetted a week later.  They involved a “Surcharge Standard” which permitted merchants using the schemes to impose a charge upon customers notwithstanding that the rules of Visa and MasterCard prohibited such a practice. 

37. The fourth set of decisions challenged were also made on 20 August 2002.  However, those decisions had not been gazetted at the time the proceedings in the Visa case were commenced, and were therefore not operative at the time those proceedings were heard.  They imposed upon the applicants an “Access Regime” which provided for access to the schemes to be available to a greater number of potential participants. 

1. The fifth decision challenged was the RBA’s decision not to revoke the designation of the applicants’ schemes.  However, that challenge was not pressed, and was not an issue in the proceeding. 

1. In the Visa case, interchange fees were defended by the applicants on the basis that they allowed the acquirer to recoup costs of the card infrastructure and processing.  The merchant could then bear the interchange fee, or pass it on to its customers, both cardholders and non-cardholders, by way of general price increase.  It was clear, in that case, that issuers and acquirers derived substantial income from interchange fees.  It also emerged that these fees were set by financial institutions removed from the merchants and cardholders who ultimately had to bear them. 

2. A number of the issues determined in the Visa case are of relevance to this proceeding.  For example, it was contended in that case that the proposed access regime was manifestly unfair and unreasonable, in the Wednesbury sense.  That was an argument that Tamberlin J rejected. 

3. His Honour also gave careful consideration to the general principles that govern an application for judicial review of this type.  He said, at [7]-[12]: 

   “7          In this case it is particularly important from the outset to keep in mind the function of the court on a judicial review application.  This is because much of the subject matter includes controversial economic issues which, as the evidence demonstrates, are the subject of strong and sharp differences of opinion between economic experts.  In such circumstances the danger of sliding into a consideration of the relative merits of economic theories is substantial, especially where, as is the case in these proceedings, claims of Wednesbury unreasonableness are raised: see Associated Provincial Picture Houses Ltd v Wednesbury Corporation [1948] 1 KB 223. It is therefore helpful to refer to those principles at this point.

   Judicial Review

   8            The nature of judicial review proceedings before the court has a bearing on the approach and the matters for consideration by the court and the limited scope of review.  On judicial review the court does not reconsider the merits of the RBA decisions, but is confined to examining decisions sought to be challenged in order to determine whether the decision-maker complied with the required legal process for decision-making.  That is to say that it is not for the court to perform the function assigned to the RBA by the legislation.  The court on review must not substitute its own conclusion for that of the decision-maker simply because it would have been minded to reach a different conclusion in circumstances where it was reasonably open to the decision-maker to reach that conclusion.

   9            The function of the court on an application for judicial review was described by Brennan J in Attorney-General (NSW) v Quin (1990) 170 CLR 1 at 35-36:

   The duty and jurisdiction of the court to review administrative action do not go beyond the declaration and enforcing of the law which determines the limits and governs the exercise of the repository’s power.  If, in so doing, the court avoids administrative injustice or error, so be it; but the court has no jurisdiction simply to cure administrative injustice or error.  The merits of administrative action, to the extent that they can be distinguished from legality, are for the repository of the relevant power and, subject to political control, for the repository alone.

   10          The focus by the court is directed to the legality of the decision-making process taken by the RBA and that must be distinguished from a re-examination of the merits of the decisions made.  At 37, his Honour sounded the following caution:

   If it be right to say that the court’s jurisdiction in judicial review goes no further than declaring and enforcing the law prescribing the limits and governing the exercise of power, the next question immediately arises: what is the law?  And that question, of course, must be answered by the court itself.  In giving its answer, the court needs to remember that the judicature is but one of the three co-ordinate branches of government and that the authority of the judicature is not derived from a superior capacity to balance the interests of the community against the interests of an individual.  The repository of administrative power must often balance the interests of the public at large and the interests of minority groups or individuals.  The courts are not equipped to evaluate the policy considerations which properly bear on such decisions, nor is the adversary system ideally suited to the doing of administrative justice: interests which are not represented as well as interests which are represented must often be considered.  Moreover, if the courts were permitted to review the merits of administrative action whenever interested parties were prepared to risk the costs of litigation, the exercise of administrative power might be skewed in favour of the rich, the powerful, or the simply litigious.

   11          To similar effect are the observations of Gleeson CJ, Gummow, Kirby and Hayne JJ in Corporation of the City of Enfield v Development Assessment Commission (2000) 199 CLR 135, especially at 152-153, which recently followed and applied the above remarks of Brennan J in Quin.

   12          It is not a function of the court on judicial review to form its own independent opinion in relation to issues on which reasonable minds may differ.  That consideration is equally applicable when the ground of unreasonableness is relied on in the application for review, where the court may be required to examine the decision-maker’s state of satisfaction in evaluating the opinions formed.  To similar effect is the decision of the High Court in Minister for Immigration and Multicultural Affairs v Jia Legeng (2001) 205 CLR 507 at 532, where Gleeson CJ and Gummow J described the approach as follows:

   The question then on judicial review is whether the decision‑maker could have attained that satisfaction reasonably, in the sense explained in numerous authorities in this Court.  In Foley v Padley [(1984) 154 CLR 340], Brennan J emphasised that the question on judicial review is not whether the court would have formed the opinion in question, and that an allegation of unreasonableness in the formation of the opinion by the decision‑maker may prove to be no more than an impermissible attack on the merits of the decision.

   By way of illustration, diametrically opposed views have been expressed by economists as to the advantages and disadvantages of the interchange fee in credit card transactions.  It is not the function of the court in these proceedings to decide which of the two views is correct or preferable.  That is a question for the RBA under the legislation.”

4. His Honour went on to discuss the relevant principles concerning judicial review in the present context at [589]-[604].  I shall return to these passages later in my reasons for judgment.

5. Tamberlin J ultimately concluded that no error of any material kind had been demonstrated such that it could have impacted on the validity of the RBA’s determinations in relation to access and standards.  Having regard to that conclusion, it was hardly surprising that he found no reviewable error in relation to the earlier designation decision of April 2001.

6. It should be noted that, in February 2004, after the Visa case was decided, the RBA considered, and designated, the Visa Debit payment system.  This is a matter to which several of the experts have adverted in their evidence before me, and to which I shall return.

   designation – the context in which the decision was taken 

7. It may be seen that the decision to designate the EFTPOS system is, in effect, the third stage of an ongoing process involving reform of card payment systems in Australia.  In deciding to designate EFTPOS, the RBA concluded that current interchange arrangements in relation to that system were “not conducive to the efficiency of the overall payments system”.  In particular, it determined that the current interchange arrangements contribute to the effective price that cardholders are charged for payments using EFTPOS being higher than for payments using credit cards, or scheme based debit cards such as Visa Debit.  This was despite EFTPOS having relatively lower costs.  In substance, the RBA judged that a narrowing of this differential in relative prices, and costs, would promote the efficiency of the “overall payments system”. 

   designation – is the challenge premature?

8. One issue that will have to be determined is whether, as the RBA contends, the applicants’ challenge to the Decision is premature since there is no certainty that the RBA will set standards for interchange fees, or impose an access regime. 

9. At a formal level, there may be substance in this point.  However, there are a number of factors that make it tolerably clear that designation will be followed by regulation in one form or another.  Indeed, in its media release dated 9 September 2004, the RBA indicated that it would:

   “… now proceed to consider the desirability of setting standards for interchange fees for both the EFTPOS debit card payment system and the Visa Debit payment system with the objective of improving the efficiency of Australia’s payments system.”

10. By way of contrast, at the same time as issuing this media release, the RBA said that after considering whether it would be in the public interest to designate the automatic teller machine (ATM) system, it had decided against doing so “at this stage”.  The inference is plain.  The RBA does not contend that there is no decision that would be amenable to review, or that the applicants are not persons aggrieved.  It does submit, however, that the challenge to the designation decision should be approached upon a somewhat different basis than the challenge mounted in the Visa case to the decisions to determine standards taken in August 2002.

    the applicants’ case – an overview

11. The applicants contend that the rationale and actuating purpose of the RBA emerged clearly from any fair reading of the Statement.  They say that it is obvious that the RBA intends to eliminate or substantially reduce fees paid by issuers to acquirers within the framework of the EFTPOS system.  They claim that the RBA’s object is precisely the same as that sought to be achieved by the banks when they entered into a price-fixing agreement to set EFTPOS interchange fees at zero, which the RBA supported subject to the authorisation of the Australian Competition and Consumer Commission (“the ACCC”).  In due course, as will be seen, that price-fixing agreement was rejected by the Australian Competition Tribunal (“the ACT”) upon the grounds that it would lead to public detriment, with no countervailing benefits.  The applicants say that the ACT was entirely correct in arriving at that conclusion. 

12. The applicants say that the fees paid by issuers to acquirers, and in turn by acquirers to some merchants, are intended to compensate them for a range of functions they undertake, and services they provide, within the EFTPOS system.  These include access to EFTPOS infrastructure installed at point of sale.  The infrastructure is costly, both in terms of initial investment, and maintenance and operating costs.  They say that the evidence shows that for the majority of transactions, both by value and by volume, the infrastructure is installed by merchants, and not by banks. 

13. The applicants submit that these are costs of the EFTPOS system which, in the ordinary course, one would expect to be recoverable from parties engaged in that system who derive benefits from it.  As previously indicated, the large merchants who install this infrastructure recover these costs from the banks out of the interchange fee.  In other words, they receive part of the fee paid by issuers to acquirers (or share the interchange fee).  The applicants say that if the Decision stands, and if the RBA then proceeds to impose standards that limit interchange fees, the effect will be to prevent merchants from recovering the costs incurred by them from the banks.  Those costs will not be eliminated.  They will simply be borne by the merchants or, more likely, passed on by them to consumers generally. 

14. The applicants further submit that the Decision will have the effect of eliminating or reducing the competition currently faced by banks from merchants.  Interchange fees in relation to EFTPOS are set by competitive bilateral negotiations.  The Decision will ultimately insulate the banks from that competitive pressure. 

15. As previously indicated, the applicants claim that the Decision involves a misuse, by the RBA, of its statutory powers, is based upon a misconstruction of the relevant statutory provisions, involves a failure to have regard to relevant evidence, and is based upon incorrect and outdated material, which the RBA is alleged to have “manipulated to produce a contrived result”. 

16. More specifically, the applicants identify the infrastructure that lies behind the functioning EFTPOS system as including, at point of sale, a pin pad (an encrypting device used to swipe an EFTPOS card that contains coded information in a magnetic strip) and an associated security code.  This infrastructure is expensive, must be maintained, and is regularly replaced.  As a general rule, large merchants install their own equipment.  They do so at a cost of many millions of dollars.  That cost is currently recouped from fees charged by these merchants to acquiring banks. 

17. In the case of smaller merchants, the equipment is often installed by acquiring banks.  The merchants pay the acquiring banks a merchant service fee to cover the infrastructure costs. 

18. Thus, depending upon whether the merchant owns the equipment, or whether the equipment is purchased by the acquiring bank, there will be a movement of funds to meet these costs. 

19. Putting to one side the question of infrastructure, the applicants rely, in support of the continued existence of interchange fees, upon the competitive nature of those fees.  The EFTPOS system is supported by bilateral agreements.  These are agreements between issuers and acquirers and, in the case of merchants principal, between issuers and merchants.  They are freely negotiated between participants in the system.  They cover the communication links and access to the point of sale equipment, whether owned by the acquirer or the merchant.  In substance, issuers pay a fee for access to that point of sale equipment. 

20. The applicants say that an examination of the agreements discovered by the RBA in this proceeding shows that they have resulted in a wide range of negotiated fees payable by issuers to acquirers, or in some cases, by issuers to merchants.  Some fees are subject to a CPI adjuster, while others provide for different forms of review.  Some fees are tiered according to the level of transactions generated.  Most agreements are for limited duration, one to three years being typical.

21. Another feature of the existing EFTPOS system is that banks charge their customers fees in relation to EFTPOS transactions.  These fees are charged as part of the customers’ ordinary account fees.  This is understandable, because the same card functions for ATM withdrawals as for EFTPOS transactions.  The fees charged are normally bundled into account keeping fees, though in limited cases, there are separate transaction fees. 

22. An important aspect of the applicants’ case is that most banks now have no limit on the number of fee free EFTPOS transactions.  All transactions are free on payment of a small monthly fee.  The RBA itself was aware, at the time of the Decision, that the number of accounts that attracted per transaction debit card fees was significantly less than 18%.  That number had fallen steadily over many years, and was still falling at the time of the Decision.  In essence, the banks used bundled pricing to recover costs associated with EFTPOS, and transaction fees were no longer being utilised. 

23. The final feature of the EFTPOS system to which the applicants drew attention was its use as a method of cash distribution.  Merchants frequently provide a cash withdrawal service to bank customers, at considerable cost to themselves.  Banks actively promote that service to their cardholders.  In 2004, 15% of EFTPOS transactions involved a cash-out service.  That was 170 million transactions per annum, representing billions of dollars.  These were transactions that would otherwise have to be serviced by a bank, either at a branch or an ATM.  In other words, merchants operate as de facto bank branches, a situation that the banks entirely support, though they do not wish to be charged for it. 

24. Merchants currently receive some recompense for providing this service where they charge acquiring banks a fee for the functions they perform.  According to the applicants, the effect of the Decision, and the likely future elimination or reduction of interchange fees, will be to prevent merchants from doing so.  They will be forced to absorb the cost themselves, or more likely, cast it upon the general consuming public by means of an increase in the price of goods and services.  The applicants claim that this is the anthesis of a “user pays” principle, which lies at the heart of economic efficiency.  Indeed, they claim that the thrust of the RBA’s reasoning is that of all the people involved in the EFTPOS system, merchants alone are to be denied the right to recover costs from other participants in that system who benefit from it. 

25. Turning to the relevant legislative provisions, the applicants focus upon the PSB’s power to determine “the Bank’s payments system policy” (s 10B(3)(a) of the RBA Act), the duty of the PSB to ensure that the RBA’s powers are exercised in a way that, in the PSB’s opinion, will best contribute to “promoting the efficiency of the payments system”, and “promoting competition in the market for payment services” (s 10B(3)(b)(ii) and (iii) of the RBA Act).  They note that these references are to the overall payments system, within Australia, which includes many different payment systems, such as cheques, cash, credit cards, debit cards, ATMs, BPay and internet payments.  They say that “the market for payment services” is an even broader concept that plainly includes merchants who are both acquirers and suppliers in that market.  They complain that despite that fact, the RBA excluded merchants from consideration in making the Decision. 

26. The applicants distinguish between the broader concept of “payments system” in the RBA Act, and the concept of “a payment system”, in the singular, in s 11(1) of the PSR Act. As previously noted, the term “payment system” is defined in s 7 as a funds transfer system that facilitates the circulation of money, and includes any instruments and procedures that relate to the system. The applicants say that the reference to “a payment system” in the PSR Act is a reference to EFTPOS, and that it is not open to the RBA to designate merely part of an actual funds transfer system that is operational in the community.  Rather, the RBA’s power is to designate the entirety of the system in question, including any instruments or procedures that relate to it.  They say that this issue was resolved in their favour by Tamberlin J in the Visa case where his Honour concluded at [305] that, in the case of credit cards, merchants were part of the funds transfer system. They say the same must be true of debit cards.

27. The applicants then turn to s 8(a) of the PSR Act. They note that for the purposes of that Act, and when considering whether particular action is or would be in, or contrary to, the public interest, the RBA is to have regard to “the desirability of payment systems being … (in its opinion) … efficient … and … competitive”. They say that the expression “payment systems” in that context does not refer to the “overall payments system”, as the RBA concluded, but rather the particular payment system, being the specific payment system in question. In other words, the RBA is required to confine its consideration under s 8 to the EFTPOS system itself, and not have regard to other payment systems when considering matters of efficiency and competitiveness. They again rely upon the judgment of Tamberlin J in the Visa case in support of that conclusion. 

1. In the applicants’ words, the RBA:

   “… is required to consider in this case the desirability of the EFTPOS system in its actual functioning scope being, in its opinion, efficient and competitive as a result of the mooted changes.”

2. The applicants’ complaint is that the RBA failed to carry out that very function.  Rather it looked past that issue to the payments system as a whole, and thereby failed to perform its statutory duty. 

3. The applicants’ attack upon the Decision rested in part upon a detailed analysis of various documents that were before the RBA when it made the Decision.  It is necessary, in order to understand the applicants’ case, to set out in some detail the nature and terms or these documents.

   the joint study

4. The applicants’ acknowledged that their case depended to a considerable degree upon an analysis of the Statement in the light of the material that the RBA relied upon in arriving at the Decision.  Of foremost importance was a document described as the “Joint Study”, which was produced jointly by the RBA and the ACCC in October 2000. 

5. The full title of that document was “Debit and Credit Card Schemes in Australia – a Study of Interchange Fees and Access - October 2000”.  It stated its objectives as being to:

   “h        obtain information on interchange fees paid by financial institutions;

   ·clarify the basis on which interchange fees are set, looking particularly at the role of costs;

   ·assess whether current interchange fees are encouraging efficient provision of debit and credit card services; and

   ·obtain information on current restrictions on credit card scheme membership.”

6. The Joint Study was confined to “one aspect of the Australian payments system“ – the networks for ATMs, credit cards and debit cards.  It concentrated on two features of these card networks, namely interchange fees and conditions of entry into the industry.  It was concerned with the economic efficiency of these networks.  In particular, it focused upon the question whether they delivered the best possible service at the lowest cost to end users.  It recognised that an expensive payments instrument would, at the margin, mean higher prices for goods and services, and a more cost effective one would mean lower prices.  It postulated that the incentives in an economy should ensure that the lowest cost and most efficient payment instruments thrive at the expense of the more expensive or less efficient ones.

7. The Joint Study noted that the incentives in question were largely the fees and charges that consumers face when choosing a payment instrument.  Some fees and charges were transparent.  Others were less so but potentially just as important in influencing the payment instrument used, and the resulting cost to the economy.  Interchange or “wholesale” fees, paid between financial institutions when customers of one institution are provided with card services by another, were described as an example of non-transparent fees. 

8. Interchange fees were seen as unique to card networks.  Such fees did not apply to payment by cheque, direct credit or direct debit.  In those cases, financial institutions sought to recover their costs directly from their own customers. 

9. The Joint Study saw the rationale for interchange fees as encouraging the growth of payment networks by redistributing revenues between participants to induce them to join.  Australia’s card networks had grown strongly under that system, and received widespread public acceptance.  However, pricing in those networks was said, at (ii), to still be based on interchange fees which were:

   “… set by financial institutions at one remove from the cardholders and merchants that ultimately bear these fees.  Hence, in contrast to most other markets, end-users of card services do not have any direct influence on the price-setting process.  This reduction in the normal market discipline has potential implications for efficiency and equity which need to be weighed against potential network benefits.” 

10. After dealing extensively with ATM networks and credit card networks, the Joint Study said this about debit card payment networks:

    “16.In debit card payment networks, interchange fees are negotiated bilaterally and are paid by the card issuer to the merchant’s financial institution (the acquirer).  These fees have been justified as a means by which the acquirer can recoup the costs of the debit card infrastructure from cardholders.  Acquirers earn revenues from interchange fees of around $0.20 per transaction, and revenues from merchant service fees of around $0.12 per transaction.  They incur costs of around $0.26 per transaction, giving a mark-up of revenues over costs of 23 per cent.  This mark-up is much lower than in credit card acquiring although infrastructure and procedures are very similar.  The major reason is that large merchants have invested in their own acquiring infrastructure and have negotiated arrangements to share interchange fees with their financial institution.

    17.The payment of a debit card interchange fee to acquirers is an arrangement unique to Australia.  In other countries, the payment is to the card issuer or there are no interchange fees at all.  The study did not find a convincing case for an interchange fee in the debit card payment network in Australia, in either direction.” 

11. The Joint Study then concluded:

    “18.Competitive pressures in card payment networks in Australia have not been sufficiently strong to bring interchange fees into line with costs.  The end-users of these services – cardholders and merchants – have no direct influence over the setting of interchange fees but must rely on their financial institutions to represent their interests.  Large financial institutions have the dominant influence on interchange fee setting; however, since they are both issuers and acquirers and benefit from the revenue generated, they have little incentive to press for lower interchange fees.  Where financial institutions can readily pass interchange fees onto their customers, as they can for ATM and credit card transactions, there is even less pressure for interchange fees to be lowered.  As a consequence, the price signals and competitive responses that would be expected to put pressure on margins in card payments networks have not worked effectively.  These difficulties are reinforced by restrictions on entry to the card networks, both explicit and informal, and by the ‘no surcharge’ rules in credit card schemes.  In the debit card payment network, however, large merchants with their own acquiring infrastructure have provided a countervailing force to traditional acquirers.

    19.Under current arrangements, cardholders are effectively being paid by card issuers to use a credit card as a payment instrument, but they face a transaction fee for using a debit card (after a number of fee-free transactions).  This structure of incentives has encouraged the growth of the credit card network at the expense of other payment instruments, particularly debit cards and direct debits, that consume fewer resources.  As a result, Australia has a higher cost retail payments system than necessary, and much of this cost is borne by consumers who did not use credit cards.

    20.The study has concluded that the interests of end-users of card payment services need to be more directly engaged in the pricing process and conditions of entry to card payment networks need to be more open than at present.”

12. The focus of the Joint Study was on wholesale pricing structures in credit and debit card schemes.  At the same time, it was recognised that interchange fees were important determinants of the charges facing merchants and cardholders, and that those relationships had to be explored.  Importantly, however, the report made plain that retail fees and charges as such were not the focus of the study. 

13. During the course of the study, the ACCC conducted a separate investigation into interchange fees in credit card schemes. Following that investigation, the ACCC wrote to various financial institutions, and to Visa, MasterCard and Bankcard, the three credit card schemes in Australia, informing them that, in its view, the joint setting of credit card interchange fees was a likely breach of s 45 of the Trade Practices Act 1974 (Cth). Indeed, the study noted that the ACCC had already instituted proceedings under that section against one major bank, which, it transpired, was the National Australia Bank (“NAB”).

14. The Joint Study concluded that a payment network could be said to operate efficiently if the net benefits it provided to society were being maximised.  In practice, there were two main approaches used to determine an interchange fee.  The first viewed such a fee as the means by which financial institutions recovered the costs of providing a card payment service from those who were the beneficiaries of the network.  The alternative was to assess whether the revenues earned by issuers and acquirers from their own customers were adequate to recover costs for both parties.  If not, an interchange fee might help by redistributing revenues. 

15. Two additional comments were made in the Joint Study.  First, the level of the interchange fee would determine whether the main incentive was to encourage acquiring or card issuance.  In the case of credit cards, for example, the interchange fee – and therefore the merchant service fee – might be set lower for all transactions than a formal methodology would suggest, to encourage merchant acceptance of credit cards, or lower for certain classes of transactions to attract new categories of merchants into the card scheme.  Alternatively, the interchange fee might be set higher to encourage card issuance.  Second, interchange fees were normally calculated on the basis of average (or total) revenues and costs.  This focus on average costs derived from the economic characteristics of most payment networks.  Such networks tended to involve significant set-up costs.  Once established, however, the per unit cost of providing payment services fell sharply as usage of the network increased.  In electronic payment systems, for example, substantial fixed costs might be incurred initially, but the marginal cost of electronic messages was relatively low and constant.  Moreover, where economies of scale existed, average costs were likely to exceed marginal costs.  Cost recovery based on marginal cost calculations would produce revenue streams that did not cover total costs.

16. The Joint Study noted that interchange fees in credit card schemes were paid to the card issuer by the merchant’s financial institution (the acquirer) whenever the merchant accepted a credit card for payment.  In Australia, such fees were agreed jointly by the financial institutions which were members of the card schemes.  The interchange fees for Visa and MasterCard were 0.8% of the value of the transaction for transactions that qualified as electronic, and 1.2% for other transactions.  The interchange fee for Bankcard was 1.2% for all transactions. 

17. In 1999, the amount of interchange fees paid by acquirers to issuers in relation to credit cards was in the order of $550 million.  Data on credit card costs and revenues, supplied by the major banks and some smaller institutions, showed that the average interchange fee for a transaction received by card issuers was $0.95.  Acquirers passed that fee on in full to their merchants, together with a margin to cover the costs of providing acquiring services.  The resulting merchant service fee averaged $1.78 per transaction. 

18. Costs and revenues from the provision of credit card services were summarised in the Joint Study in a table that featured heavily as part of the applicants’ case before me:

    TABLE 5.1 FOLLOWS

19. The data in this table included both paper and electronic transactions, and so the figures were an average of the two.  The Joint Study concluded that credit card issuing and acquiring in Australia generated revenue well above costs. 

20. In the case of credit card issuing, costs averaged $1.93 per transaction.  However, total revenues averaged $2.69, a mark-up over costs of $0.76 or 39%.  Loyalty schemes were not included in Table 5.1 because they were not a “resource cost”.  Nonetheless, card issuers paid an average of $0.46 per transaction for benefits provided to cardholders in loyalty schemes. 

21. In the case of credit card acquiring, costs averaged $0.43 per transaction.  However, fee revenues, after interchange fees were passed on to issuers, averaged $0.72.  This was a mark-up over costs of $0.29 or around 67%. 

22. Turning to debit card networks, the Joint Study noted that when a cardholder used a debit card to make a purchase from a merchant, the card issuer paid an interchange fee to the merchant’s financial institution (the acquirer).  This was the reverse of what took place in credit card systems.  These interchange fees were negotiated bilaterally between card issuers and acquirers, and were fixed as a flat amount rather than a percentage of the value of the transaction.

23. There were 39 bilateral interchange agreements reported to the Joint Study, of which 34 had interchange fees falling within a range of $0.18 to $0.25.  Interchange fees for debit card transactions were said to have “hardly changed” since they were introduced in the early 1990s.  Newer agreements simply replicated earlier agreements, without regard for changes in costs that may have warranted a revision to those fees. 

24. The Joint Study noted that merchants negotiated fees for accepting debit card transactions directly with their financial institutions.  There were two distinct merchant segments in the debit card network:

    ·smaller merchants, who purchased the full range of acquiring services from their financial institution, and paid a merchant service fee.  Although the Joint Study did not collect specific data on merchant fees, it inferred an average fee of $0.80 per transaction; and

    ·larger merchants, which took on some of the capturing, transmission, and processing of debit card transactions using their own facilities.  Many of these merchants had negotiated arrangements under which they shared the interchange fee with their financial institution.  For the acquirers, the amount of interchange fee revenue shared with merchants reduced the total revenue they received from merchants. 

25. The Joint Study observed, at 63:

    “Large merchants with their own acquiring infrastructure account for the majority of debit card payments accepted, in terms of both numbers and value.  As a result of their investment in debit card infrastructure, and their market size, these merchants have had sufficient bargaining power with their acquirers to be able to share part of the interchange fee received from issuers.” 

26. The Joint Study then set out a table containing data on debit card costs and revenues for 1999.  That data had been supplied by a group of eight financial institutions, including the four major banks.  Together that group accounted for around 80% of debit card transactions by issuer, and 99% of transactions by acquirer.  The table is as follows:

    TABLE 6.1 FOLLOWS

27. The data was said to be subject to certain caveats.  On the acquiring side, many of the costs included were common to the acquiring of debit card transactions and electronic credit card transactions, and most institutions treated acquiring of these two types of transactions as one business.  Where possible, costs specific to debit card acquiring had been identified, and common costs allocated between debit and credit card transactions on the basis of transaction volume.  On the issuing side, many institutions found it difficult to isolate costs attributable to debit credit card transactions from other costs associated with transaction accounts. 

28. The Joint Study’s observations regarding this data, at 66, were as follows:

    “The evidence suggests that debit card acquiring generates revenues above costs, but the margin is well below that in credit card acquiring.  Costs average $0.26 per transaction and total revenues, from both interchange fees and merchant service fees, average $0.32 per transaction.  This is a mark-up over costs of $0.06 or 23 per cent.  The lower cost of acquiring debit card transactions compared to credit card transactions ($0.43) appears to be due to the more complex electronic messages required for credit card transactions and to the continued existence of paper-based credit card transaction that are more expensive for acquirers to process than electronic transactions. 

    In the case of card issuing, interchange fees are paid largely by revenues from transaction fees on cardholders who use their debit cards beyond their fee-free limit each month.  The average cost of $0.15 per transaction is recovered as part of the overall cost of providing a transaction account, through account maintenance fees and payment of below-market rates of interest on balances.  The average issuing cost per transaction is substantially lower than those for credit card transaction ($1.93); most of the major costs incurred by credit card issuers (eg credit losses and the interest-free period) do not arise in debit card networks.

    The margins between revenues and costs have not incorporated a return on the capital committed to debit card issuing and acquiring.  As far as debit card issuing is concerned, a major difficulty in determining a return on capital is separating debit card services from the broader account relationship.  Collecting information on the broad range of costs and revenues associated with the provision of transaction accounts was outside the scope of this study.  The operational aspects of debit card acquiring are very similar to credit card acquiring, which was discussed in Chapter 5.  On the same analysis, preliminary figuring would suggest that a margin over costs of only a few cents per transaction would provide a competitive rate of return for debit card acquiring.”

29. The Joint Study then turned to the rationale for an interchange fee.  It observed, at 66:

    “The direction of debit card interchange fee payments in Australia is unique.  In other countries the payment is to the card issuer, or there are no interchange fees at all.  None of the participants in the Australian debit card network could provide a formal methodology or empirical evidence to support either the existing direction and level of interchange fees, or a change in these arrangements.” 

30. Finally, the Joint Study stated in its conclusions.  It said that it had not found a convincing case for an interchange fee in the debit card network in Australia, in either direction.  A debit card was simply a method of accessing a transaction account.  It was an alternative to cheques, direct debits and direct credits, all other methods of accessing the same funds.  None of these other payment instruments had an interchange fee.  Each financial institution recovered its costs from its own customers.  Consumers paid for the provision of payment services, increasingly through a direct charge, while merchants paid a fee for services associated with accepting and processing these payments.  To the extent that merchants performed some processing themselves, these fees were reduced. 

31. The absence of interchange fee revenues to issuers had not constrained the issuance of debit cards, and their use at point of sale in Australia.  To the contrary, the use of debit cards had grown strongly.  Financial institutions, to allow their customers access to ATMs, had issued the debit cards on which the network was based.  There had been no need to provide further incentives for their issue.

32. In summary, the Joint Study found that the debit card network in Australia did not need an interchange fee.  It saw no compelling reason why the viability of the network would be threatened if, as with other payment instruments which accessed a transaction account, each financial institution were to recover its debit card costs from its own customers. 

1. In Minister for Immigration and Multicultural Affairs v Rajamanikkam (2002) 210 CLR 222, the High Court was concerned with the equivalent to s 5(1)(h) of the ADJR Act, which formerly appeared in the Migration Act as s 476(1)(g). The equivalent to s 5(3) was s 476(4). There are difficulties with aspects of the reasoning in Rajamanikkam, and these are canvassed by Aronson at 242-5. However, it can at least be said that Curragh was cited with approval by Gleeson CJ at [33], Kirby J at [115]-[118] and Callinan J at [140] in Rajamanikkam. 

2. The last element of s 5(3)(b) operates to confine the “no evidence” ground to a case where the applicant can actually negative the fact on which the decision was based. It requires the applicant to adduce evidence positively establishing the contrary to the “fact” that it is alleged the decision-maker based its decision on, and in respect of which it is claimed there is no supporting evidence or other material. Meeting this second limb of s 5(3) can be extremely difficult. The mere absence of evidence as to a fact will not establish its non-existence. As Aronson notes, at 244:

   “Further second limb questions have concerned whether it covers: a decision-maker’s finding of a fact’s non-existence; a state of affairs rather than a specific fact; predicted facts rather than just past facts; a decision-maker’s disbelief (either wholly, or to the relevant level of persuasion) of an assertion of facts; or a refusal to exercise a statutory power, rather than a decision to exercise it.” (footnotes omitted)

3. A further limitation upon the operation of the “no evidence” ground of review in s 5(1)(h) is that it must be confined to findings of fact, and does not extend to expressions of opinion. In Seven Cable Television, the Full Court stressed the importance of this distinction in the context of a “no evidence” challenge to a finding by the ACCC that the making of a declaration would be likely to increase competition. That finding was said to involve matters of judgment, and not to be a finding of fact. Accordingly, s 5(1)(h) had no application. See also Randwick City Council v Minister for the Environment (1998) 54 ALD 682 at 717 per Finn J, affirmed on appeal by the Full Court in Randwick City Council v Minister for the Environment (1999) 167 ALR 115.

4. I accept the RBA’s submission that a number of the matters relied upon by the applicants under their “no evidence” ground are not, in truth, findings of fact, but rather opinions or conclusions in the nature of value judgments.  Indeed, it is difficult to find in any of the “facts” or “elements” identified in par 10 of the application anything that could properly be described as a finding of fact in the sense spoken of in Seven Cable Television. For that reason alone, s 5(1)(h) of the ADJR Act can have no application.

5. The RBA provided a useful example of this failing in the applicants’ case in their written submissions.  It said, at [191]:

   “That is apparent from the terms of the RBA’s reasons which make repeated reference to the Board’s conclusions being very much in the nature of “opinion” or “judgement”.  Take, for example, the Applicants’ allegation in paragraph 10(n) of the Application, which is to the effect that there was no evidence or other material upon which the RBA could reasonably be satisfied that if EFTPOS interchange fees were reduced, there would be some substitution towards EFTPOS and away from other forms of the card based payments.  That allegation appears to be based on the contents of paragraph 76 of the Reasons, which are relevantly in the following terms:

   “Given the evidence, discussed above, that cardholders respond to changes in relative prices, the Board’s opinion was that, were there to be a change in interchange arrangements, some substitution towards EFTPOS and away from the other forms of card based payments would take place” (emphasis added)

   Not only does the Board give express emphasis to the matter being one which it has arrived at in its opinion, but the evaluative nature of that statement is reinforced in paragraph 77 of the Reasons, which makes express reference to the Board having made “judgements”.”

6. If I am wrong in regarding the applicants’ case as being flawed in this way, I would nonetheless reject their submissions based upon the “no evidence” ground in s 5(1)(h) because I am not persuaded that any of the various matters identified in par 10 of the application was relevantly “critical” to the RBA’s decision. Rajamanikkam confirmed that an applicant who relies upon a ground of this type must show that the fact was “critical” to the impugned decision.  See [35]-[39] per Gleeson CJ, [56]-[58] per Gaudron and McHugh JJ, and [155] and [161] per Callinan J. 

7. Finally, I am not persuaded that the applicants have established that any of the “particular facts” upon which the Decision was based (if any of the matters raised by the applicants are such “facts”) have been shown not to exist.  That is so notwithstanding the plethora of evidence adduced by both sides, said to be relevant to that issue.

   NATURAL JUSTICE

8. The last ground upon which the applicants rely in support of their application for review concerns an alleged failure to accord natural justice.  Ground 11 is in the following terms:

   “A breach of the rules of natural justice occurred in connection with the making of the Decision.

   Particulars

   There was a reasonable apprehension of bias on the part of the Respondent in connection with the making of the Decision, in that:

   (a)the Respondent had determined to make the Decision irrespective of the decision and findings of the Australian Competition 'Tribunal in the EFTPOS Case, the evidence presented to the Australian Competition Tribunal in the EFTPOS Case (including unchallenged factual evidence and expert economic evidence), and the evidence and arguments presented to the Respondent in connection with the making of the Decision;

   (b)the reasons for the Decision published by the Respondent on 14 October 2004 misstate or ignore material facts, evidence and/or expert opinion that was before the Respondent.”

9. The denial of natural justice alleged involves a claim of bias.  The claim has two limbs.  The first is that the RBA pre-judged the issue as to whether to designate EFTPOS, irrespective of the decision and findings of the ACT, and the evidence and arguments presented as part of the process of consultation.  The second is that the PSB, in the Statement, misstated or ignored relevant facts and other material.

10. The general principles governing this branch of the law are well settled.  In Ebner v Official Trustee in Bankruptcy (2000) 205 CLR 337, the High Court distinguished between Court proceedings and other kinds of decision-making when dealing with claims of pre-judgment.

11. That distinction was reaffirmed in Minister for Immigration and Multicultural Affairs v Jia Legeng (2001) 205 CLR 507 (“Jia Legeng”).  In that case it was held that in considering whether an administrative decision-maker’s conduct indicated pre-judgment, careful attention had to be given to the nature of the decision-making process, and the repository of the power in question.  A distinction should be drawn between the standards of behaviour expected of a Minister, and those expected of a Judge or Tribunal.

12. It follows that it is important to have regard to both the nature of the decision-making process, and the membership of the decision-making body when determining whether there has been pre-judgment of the kind that would vitiate the Decision. 

13. In the Visa case, Tamberlin J noted, at [605], the importance of keeping in mind the role of the RBA in the administrative and economic hierarchy of the nation, and the nature and scope of the discretions exercised by it.  His Honour stressed the role of the RBA as “the Central Bank of Australia and principal regulator of the Australian economy”.  He said that its functions, powers and discretions were not only to formulate broad economic policy, but also to implement that policy in such a way that it achieved the relevant statutory objectives. 

14. Tamberlin J also acknowledged the importance of understanding the “level of operation” of the decision-making body when construing the exercise of its powers.  His Honour noted at [606] that the decisions under challenge in the Visa case were “an exercise of the RBA power by officers at the highest level of the RBA”.  The ultimate decisions were a result of the cumulative considerations of materials, reports and discussions over a long period.  It was important to bear that in mind when considering, for example, whether relevant considerations were taken into account.   

15. His Honour went on to say, at [607], that it did not follow that decisions on matters of this type taken by the RBA should be accorded any particular deference.  The Court had to ensure that the statutory process, correctly interpreted, had been undertaken in accordance with law.  Nevertheless, in carrying out its role, the approach of the Court was not the same as that which would be appropriate if the court were considering decisions of, for example, a junior official in the administration of a closely prescribed regulatory scheme.  The Court should recognise that it was evident from both the PSR Act and the RBA Act that both the PSB and the RBA were intended to exercise functions and powers which embodied a broad range of discretion, leaving extensive room for movement within the parameters of reasonableness, without travelling beyond the statutory limits.   

16. A similar point was made by Gummow J in Eshetu. His Honour said, at [140]:

    “Further, whilst it is for this Court to determine independently for itself whether in a particular case a specialist tribunal has or lacks jurisdiction, weight is to be given, on questions of fact and usage, to the tribunal's decision, the weight to vary with the circumstances.  The circumstances will include such matters as the field in which the tribunal operates, the criteria for appointment of its members, the materials upon which it acts in the exercise of its functions and the extent to which its decisions are supported by disclosed processes of reasoning.  A similar doctrine has been developed by the Supreme Court of Canada, at least with respect to findings of non‑jurisdictional fact.” (footnotes omitted)

17. It is important to remember that neither the PSB, nor the RBA, is a court, or an adjudicative tribunal.  Rather, they exercise purely administrative powers on matters of public policy and national interest. 

18. The RBA was under no statutory obligation to engage in public or private consultation with relevant stakeholders before making the Decision.  The PSR Act provides for such consultation after such a decision is taken, but is silent with regard to the procedures to be followed prior to designation.  Nonetheless, as is evident from the Statement, and the minutes of various meetings tendered before me, the PSB gave careful consideration to a wide range of matters, including representations made on behalf of retailers, before deciding on designation.  The PSB gave the most scrupulous attention to the findings and general observations of the ACT in the EFTPOS Interchange Fees Agreement decision, having understood full well the implications of disagreeing with a body of that stature.  The extensive consultations that the PSB engaged in produced a large body of material that was expressly taken into account, and clearly influenced to some extent the PSB’s final views. 

19. Unless this whole consultation process was little more than a sham, designed to conceal the fact that the RBA had, all along, a fixed agenda, from which it would not depart, no matter how compelling a case that might be mounted against it, it is difficult to see how the claim of pre-judgment can succeed. 

20. Because the PSB was only required to determine whether EFTPOS should be designated, and not what, if anything, should be done thereafter, its role can hardly be described as adjudicative.  The procedure to be followed leading up to the Decision was essentially a matter for the PSB to determine.  Beyond the need to ensure that it complied with all statutory requirements, and accorded natural justice, that procedure is not a matter to be dictated by this Court.

21. When an allegation of pre-judgment is made, at least in the context of administrative decision-making, the fact that there may be evidence of some predisposition or inclination is not of itself sufficient to establish a denial of natural justice.  In Jia Legeng, Gleeson CJ and Gummow J said, at [71]-[72]:

    “Decision-makers, including judicial decision-makers, sometimes approach their task with a tendency of mind, or predisposition, sometimes one that has been publicly expressed, without being accused or suspected of bias.  The question is not whether a decision-maker’s mind is blank; it is whether it is open to persuasion.  The fact that, in the case of judges, it may be easier to persuade one judge of a proposition than it is to persuade another does not mean that either of them is affected by bias.

    … The state of mind described as bias in the form of prejudgement is one so committed to a conclusion already formed as to be incapable of alternation, whatever evidence or arguments may be presented.  Natural justice does not require the absence of any predisposition or inclination for or against an argument or conclusion.” (footnotes omitted)

22. The onus of establishing a denial of procedural fairness rests upon the applicants.  In my view, they have not established that there was any pre-judgment of the type alleged. There is no reason, in my opinion, to doubt the truthfulness, or accuracy, of the PSB’s assertion in [5] of the Statement that it had taken into account the various matters there identified.  These included the written and oral submissions made to the RBA by industry participants and interested parties.  They also included the submissions made to the ACCC, and subsequently to the ACT, on behalf of the retailers, and the actual decisions made by those bodies. 

23. If the PSB’s apparently careful consideration of the competing arguments for and against designation was nothing more than a sham, it is difficult to explain why, at its meeting on 17 August 2004, it specifically sought additional advice, and further comment, from RBA staff on the ACT’s findings, and the implications of those findings for the decision whether or not to designate.  As previously indicated, RBA staff prepared a comprehensive paper in response.  It is of course possible that the staff who prepared that paper were labouring under a sense of grievance, and seeking to vindicate an earlier stance that had not found favour with the ACT.  However, there is no evidence to support any such conclusion.  The authorship of the paper is unknown.  I am not prepared to infer bad faith or malice on the part of those who advised the PSB regarding this matter, still less on the part of those who acted on that advice. 

24. In the circumstances, I am not prepared to draw the inference for which the applicants contended that the process through which the Decision was arrived at was essentially fraudulent, designed to make it appear that the PSB approached this matter with an open mind when, in truth, that was not the case.

25. It follows that the applicants’ claim that the Decision should be set aside on the ground of denial of natural justice must be rejected. 

    Remaining matters

26. There were several additional points developed in the parties’ closing submissions that should be addressed. 

27. The first is the RBA’s point that the applicants had failed to come to grips with the fact that the decision under challenge was, in truth, nothing more than a first step in what might be an ongoing process.  It was not a decision to determine a particular standard, or to impose an access regime. 

28. The applicants characterised this submission as going to form rather than substance. They pointed out, with some force, that the evidence made it plain that once EFTPOS had been designated, it was almost certain that the RBA would take the next step, and determine a standard, as well as imposing an access regime. 

29. I do not think that this submission adequately meets the RBA’s contention that, on an application for judicial review, the legality of the Decision, namely the decision to designate, must be considered on its own terms.  The fact is that, as a matter of law, the Decision merely opens up the possibility that further regulatory steps may be taken.  The applicants have chosen, no doubt for reasons that were carefully considered, to anticipate these further regulatory steps, and to mount their challenge without awaiting further developments.  That makes this case different to the Visa case where the relevant further steps had already been taken.  The applicants are of course entitled to choose the point at which they bring their challenge.  However, they must accept the consequence that, in challenging the lawfulness of a decision that does no more than open up the possibility that other consequences may follow, their task may be made all the more difficult.

30. I should indicate there is one aspect of the applicants’ case that caused me some concern.  It is a point that was not identified expressly, or perhaps even by implication, in their application for review.  However, it emerged throughout this proceeding, and was the subject of extensive submissions by both sides. 

31. The applicants contended that whatever else might be in dispute in this case, there was one matter that was beyond argument.  That was that “efficiency”, in the sense in which that term is used in the PSR Act, is promoted by what the experts in this case all describe as the “user pays principle”. 

32. “User pays” means essentially that the users of a product pay a price that reflects the costs incurred by society in producing that product.  Professor Williams explained that the efficiency of an allocation is assessed, in economic terms, on the basis of the net benefits of that allocation.  Those benefits are calculated as the difference between the willingness to pay for a particular service, and the resource costs associated with producing that service.  As previously indicated, this approach is known as the “total surplus” approach to efficiency. 

33. I note that Professor Farrell, whose evidence in-chief I have rejected, adopted a similar approach.  I also note that under cross-examination, he agreed that the user pays principle was both necessary, and broadly sufficient for economic efficiency, and acknowledged that a policy that worked against that principle would, prima facie, be detrimental to such efficiency. 

34. On one view, Professor Katz supported a similar analysis.  So too did Dr Fitzgerald, who accepted that, for the most part, the PSB was concerned with allocative efficiency, which in his opinion, revolved around whether the effective prices charged to cardholders for different payment systems reflected the relative resource costs associated with making a payment via each of those systems.  In Dr Fitzgerald’s view, allocative efficiency would be attained when price was set equal to marginal cost.  Accordingly, efficiency would be promoted by the user pays principle.  It would not be promoted if a user were to pay a price that did not reflect the costs of the use of the service because those costs were effectively borne by non-users.

35. The applicants submitted that the PSB, in its framework document, entitled “Payments System Efficiency – the Issues” dated November 1998, had adopted essentially the same approach to this issue as did the various experts called before me.  They submitted that the RBA had also, correctly, approached the credit card reforms with a “user pays principle” in mind. 

36. However, the applicants submitted that when it came to EFTPOS, for some inexplicable reason, the RBA had abandoned its commitment to user pays, and instead adopted an approach that was its very antithesis. They submitted that in designating EFTPOS with the specific aim of reducing EFTPOS interchange fees, the RBA was consciously shifting costs away from users of that system, and transferring them to the general public. This was said to be in plain and deliberate disregard of the fundamental, and basic, user pays principle, an essential component of the “public interest” through s 8 of the PSR Act, and its requirement that payment systems be “efficient”. 

1. The RBA responded to this submission by pointing out that EFTPOS was a two-sided market and, as a result, the user pays principle did not assist in the consideration of competition and efficiency.  The applicants challenged the adequacy of that response.  Were that all that the RBA had said, there would be considerable force in the applicants’ submission.  However, the two-sided market argument was not the entirety of the RBA’s response.

2. What the RBA actually said was that the applicants, and their expert witnesses, had failed to define “the user pays principle in a two-sided market”.  More importantly, the RBA said that the applicants’ criticisms were misconceived because they were directed beyond designation to another decision - not yet made – to determine an interchange standard. 

3. In any event, the RBA submitted that whatever importance might attach to the user pays principle in abstract terms, it was not a consideration that the RBA was bound to take into account, in the Peko-Wallsend sense. 

4. There is no doubt, from the evidence before me, that the RBA was well aware that a change in merchants’ costs, arising from a reduction in EFTPOS interchange fees, could possibly be passed on to customers in the form of higher prices for goods and services.  However, the PSB responded expressly, and in terms, to that concern.  It noted, in [81] of the Statement, that any switch from credit cards to EFTPOS might result in lower costs to merchants even with higher merchant service costs for EFTPOS.  According to the PSB, that was because the merchant service fee on a typical credit card payment was higher than the merchant service fee on an EFTPOS payment of the same value.  That was likely to remain the case.  Moreover, the PSB considered that, in the event that overall merchants’ costs increased as a result of lower EFTPOS interchange fees, this needed to be viewed in the context of the overall reform process, a point already addressed in these reasons for judgment. 

5. In effect, this reasoning on the part of the PSB shows that it appreciated the importance of the user pays principle as a component of economic efficiency, and allowed for that principle in arriving at its Decision.  Whether or not particular economists who are expert in matters of regulatory theory agree with the PSB’s treatment of this issue is not to the point.  The fact is that the matter was given careful consideration.

6. It is true that the PSB did not reach any definitive conclusion as to the extent of any “switch” from credit cards (and Visa Debit) to EFTPOS.  However, its assessment was consistent with the basic economic proposition that consumers, in general, are responsive to changes in price.  As such, any reduction in the price of EFTPOS as a result of the reforms would be likely to result in consumers switching from the higher cost payment methods to EFTPOS.  This in turn would result in a fall in merchants’ costs. 

7. Finally, it may be said that the PSB’s reasoning, in [81] of the Statement, which took into account the fall in merchants’ costs as a result of the credit card reforms, and the effect that any increase in EFTPOS costs would have on merchants, was broadly consistent with its general approach to efficiency in considering the EFTPOS system within the context of the overall payments system. Given the width of the RBA’s power to have regard to such “other matters that it considers are relevant”, under s 8 of the PSR Act, it is difficult to see how the applicants can succeed in demonstrating that, by having regard to efficiency within the overall payments system, the RBA failed, in some way, to perform its statutory duty.

8. I should add a final note.  Designation is a precursor not merely to the determination of a standard, but also to the imposition of an access regime.  The RBA pointed out, in its written submissions, that the imposition of such a regime had at one stage been considered desirable by at least two of the present applicants. 

9. Even if the material before the PSB fell short of making a sufficient case for designation with a view to determining a standard, the Decision would still be capable of being upheld on the alternative basis that designation was appropriate in order to consider the imposition of an access regime.  The applicants have not demonstrated that this alternative justification for designation cannot be legally supported.

   final observations

10. I cannot pass from this case without commenting upon the burden that litigation of this type, conducted in this hard fought manner, with no quarter being given, imposes upon the Court.  It goes without saying this case is important.  Cases that involve serious challenge to administrative decisions are fundamental to our system of justice, and to the rule of law.  It is essential that the government, and various governmental bodies, including the RBA, be held to account, through the process of judicial review: See generally Church of Scientology Inc v Woodward (1982) 154 CLR 25 at 70 per Brennan J and Plaintiff S157/2002 v Commonwealth (2003) 211 CLR 476 at 492 per Gleeson CJ.

11. At the same time, the process of judicial review must be kept within reasonable bounds.  I do not intend to be unduly critical of the parties in this case.  Nonetheless, it should be noted that they have, between them, provided me with twenty arch lever folders, euphemistically described as a “court book”.  Together these twenty folders contain approximately 7000 pages of material, much of it closely typed, and requiring careful analysis.  In addition, the parties, between them, provided me with a further fourteen arch lever folders of exhibits, legislation and case law.  There are more than 800 pages of transcript of this proceeding. 

12. I have already noted the comment in Aronson that courts confronted with claims of Wednesbury unreasonableness do not normally receive evidence additional to that which was before the original decision-maker.  If that be so, this case is very much the exception.  Not only did the parties tender the material before the RBA when it made the Decision, they also led a substantial body of evidence from an array of experts analysing that decision in the most minute detail.  As I have already indicated, a good deal of their evidence was highly technical and difficult to follow. 

13. I appreciate that the stakes in this case are large.  I also appreciate that the provisions of the PSR Act under which the Decision was taken, are by no means straightforward and simple to apply. 

14. The fact remains, however, that it has taken me, and I think would take most judges, months to work through the vast body of material presented to the Court.  In my view, something has gone wrong.  An application for judicial review, no matter what the decision under challenge may be, or how important it is, should not require the expenditure of as much time and effort as this case has done. 

15. I note that the applicants required eighty-three pages to summarise, in the most general of terms, their closing submissions.  In addition, they handed up four sets of supplementary closing submissions, totalling a further twenty-five pages.  Those submissions were supplemented by a day of oral argument.

16. Not to be outdone, the RBA required one hundred and nineteen pages, in its case heavily footnoted, and prepared in a more condensed typeface, for its closing submissions.  It too supplemented those submissions with a day of oral argument. 

17. I understand that the conduct of litigation is becoming increasingly complex, and time consuming.  There are those who would say, and I am one of them, that this does not necessarily lead to better decision-making.  Nor does it enhance the quality of justice as it is administered through the courts.  In making these comments, I mean no disrespect to the legal representatives of either side in this proceeding.  They have prepared their cases in a timely, and generally helpful manner, and have done their best, in difficult circumstances, to assist the Court in dealing with an extraordinarily challenging case.

18. It must be remembered however, that the RBA’s decision to designate EFTPOS, important though it may be to the applicants, and potentially to consumers generally, is still only a first step towards other, more critical, decisions that have not yet been taken.  Designation is a preliminary matter, potentially triggering other decisions that may have a real impact across payment systems at large.  If a decision on such a preliminary matter can engage the commitment of resources that have been applied to this case, it is daunting to contemplate the scope of any future challenge to any decisions of consequence that might be taken, arising out of the designation. 

19. The application for review identified something like seventy-seven separate errors on the part of the RBA in relation to the Decision.  A number of these alleged errors were simply replicated under different grounds of review.  I doubt that it is necessary, or appropriate, to canvass so many different grounds, or to particularise so many separate errors, as part of any application for judicial review.  An appellate court, confronted with a notice of appeal containing seventy-seven grounds of appeal arising out of a twenty-seven page judgment (the length of the Statement), would surely require the appellant to be more judicious in its complaints.   The same principle should apply in relation to judicial review.

20. In Wu Shan Liang (1996) 185 CLR 259 at 272, the High Court said, in words that are often cited, and may be apposite to this case:

    “the reasons of an administrative decision-maker are meant to inform and not to be scrutinised upon over-zealous judicial review by seeking to discern whether some inadequacy may be gleaned from the way in which the reasons are expressed.”

21. It is possible that both sides have embarked upon the process of tendering voluminous evidence, on this application, in part because of the criticisms levelled at the banks by the ACT for their failure to adduce before it adequate evidence in the earlier authorisation decision. 

22. It must be remembered however, that the ACT was engaged in merits review. That made it entirely appropriate to lead a significant body of evidence in support of, and in opposition to, the particular decision then under challenge. I have already indicated that there are some cases, involving judicial review, where additional evidence not before the decision-maker will be relevant, and admissible. An example is the need to satisfy the requirements of s 5(3)(b) of the ADJR Act by establishing that the fact found by the decision-makers “does not exist”. 

23. It does not follow that there is open slather, in cases of judicial review, to lead any evidence that may be thought to impugn, or support, the merits of the decision at issue.  Proceedings for judicial review are not, and should not be regarded as, full blown trials.  They should not ordinarily require the tender of new evidence in relation to the decision under challenge, or the resolution of heavily contested issues of fact.  When matters are conducted in a way that involves an enormous amount of court time, as well as judgment writing time, other litigants, whose cases are as important to them as this case may be to the parties in this proceeding, are deprived of access to the court, and a timely resolution of their cases.

    orders

24. It follows from these reasons for judgment that the application for an order of review must be dismissed.  There is no reason, in my view, why the ordinary rule as to costs should not apply.

I certify that the preceding six hundred and thirty-eight (638) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Weinberg.

Associate:

Dated:                 28 November

Counsel for the Applicants:	Mr N.J. Young QC with Mr M.H. O’Bryan
Solicitor for the Applicants:	Minter Ellison
Counsel for the Respondent:	Mr T.F. Bathurst QC and Dr J.E. Griffiths SC, with Mr A.J. Payne and Ms K. Barrett
Solicitor for the Respondent:	Clayton Utz
Dates of Hearing:	23, 24, 25, 26, 27 and 30 May 2005 and 14, 17, 21, 22 and 23 June 2005
Date of Judgment:	28 November 2005