Pilbara Infrastructure Pty Ltd & Anor v Australian Competition Tribunal Ors; The National Competition Council v Hamersley Iron Pty Ltd & Ors; The National Competition Council v Robe River Mining Co Pty Ltd & Ors
[2012] HCATrans 53
[2012] HCATrans 053
IN THE HIGH COURT OF AUSTRALIA
Office of the Registry
Melbourne No M155 of 2011
B e t w e e n -
THE PILBARA INFRASTRUCTURE PTY LTD (ACN 103 096 340)
First Appellant
FORTESCUE METALS GROUP LIMITED (ACN 002 594 827)
Second Appellant
and
AUSTRALIAN COMPETITION TRIBUNAL
First Respondent
HAMERSLEY IRON PTY LTD (ACN 004 558 276)
Second Respondent
HAMERSLEY IRON-YANDI PTY LTD (ACN 009 181 793)
Third Respondent
ROBE RIVER MINING CO PTY LTD (ACN 008 694 246)
Fourth Respondent
NORTH MINING LTD (ACN 000 081 434)
Fifth Respondent
PILBARA IRON PTY LTD (ACN 107 216 535)
Sixth Respondent
RIO TINTO LIMITED (ACN 004 458 404)
Seventh Respondent
MITSUI IRON ORE DEVELOPMENT PTY LTD (ACN 008 734 361)
Eighth Respondent
NIPPON STEEL AUSTRALIA PTY LTD (ACN 001 445 049)
Ninth Respondent
SUMITOMO METAL AUSTRALIA PTY LTD (ACN 001 444 604)
Tenth Respondent
BHP BILLITON IRON ORE PTY LTD (ACN 008 700 981)
Eleventh Respondent
BHP BILLITON MINERALS PTY LTD (ACN 008 694 782)
Twelfth Respondent
Office of the Registry
Melbourne No M156 of 2011
No M157 of 2011
B e t w e e n -
THE PILBARA INFRASTRUCTURE PTY LTD (ACN 103 096 340)
First Appellant
FORTESCUE METALS GROUP LIMITED (ACN 002 594 827)
Second Appellant
and
AUSTRALIAN COMPETITION TRIBUNAL
First Respondent
ROBE RIVER MINING CO PTY LTD (ACN 008 694 246)
Second Respondent
NORTH MINING LTD (ACN 000 081 434)
Third Respondent
PILBARA IRON PTY LTD (ACN 107 216 535)
Fourth Respondent
RIO TINTO LIMITED (ACN 004 458 404)
Fifth Respondent
MITSUI IRON ORE DEVELOPMENT PTY LTD (ACN 008 734 361)
Sixth Respondent
NIPPON STEEL AUSTRALIA PTY LTD (ACN 001 445 049)
Seventh Respondent
SUMITOMO METAL AUSTRALIA PTY LTD (ACN 001 444 604)
Eighth Respondent
BHP BILLITON IRON ORE PTY LTD (ACN 008 700 981)
Ninth Respondent
BHP BILLITON MINERALS PTY LTD (ACN 008 694 782)
Tenth Respondent
Office of the Registry
Melbourne No M45 of 2011
B e t w e e n -
THE NATIONAL COMPETITION COUNCIL
Applicant
and
HAMERSLEY IRON PTY LTD (ACN 004 448 276)
First Respondent
HAMERSLEY IRON-YANDI PTY LTD (ACN 009 181 793)
Second Respondent
ROBE RIVER MINING CO PTY LTD (ACN 008 694 246)
Third Respondent
NORTH MINING LTD (ACN 000 081 434)
Fourth Respondent
PILBARA IRON PTY LTD (ACN 107 216 535)
Fifth Respondent
RIO TINTO LIMITED (ACN 004 458 404)
Sixth Respondent
MITSUI IRON ORE DEVELOPMENT PTY LTD (ACN 008 734 361)
Seventh Respondent
NIPPON STEEL AUSTRALIA PTY LTD (ACN 001 445 049)
Eighth Respondent
SUMITOMO METAL AUSTRALIA PTY LTD (ACN 001 444 604)
Ninth Respondent
BHP BILLITON IRON ORE PTY LTD (ACN 008 700 981)
Tenth Respondent
BHP BILLITON MINERALS PTY LTD (ACN 008 694 782)
Eleventh Respondent
FORTESCUE METALS GROUP LIMITED (ACN 002 595 872)
Twelfth Respondent
THE PILBARA INFRASTRUCTURE PTY LTD (ACN 103 096 340)
Thirteenth Respondent
THE AUSTRALIAN COMPETITION TRIBUNAL
Fourteenth Respondent
Office of the Registry
Melbourne No M46 of 2011
B e t w e e n -
THE NATIONAL COMPETITION COUNCIL
Applicant
and
ROBE RIVER MINING CO PTY LTD (ACN 008 694 246)
First Respondent
NORTH MINING LTD (ACN 000 081 434)
Second Respondent
PILBARA IRON PTY LTD (ACN 107 216 535)
Third Respondent
RIO TINTO LIMITED (ACN 004 458 404)
Fourth Respondent
MITSUI IRON ORE DEVELOPMENT PTY LTD (ACN 008 734 361)
Fifth Respondent
NIPPON STEEL AUSTRALIA PTY LTD (ACN 001 445 049)
Sixth Respondent
SUMITOMO METAL AUSTRALIA PTY LTD (ACN 001 444 604)
Seventh Respondent
BHP BILLITON IRON ORE PTY LTD (ACN 008 700 981)
Eighth Respondent
BHP BILLITON MINERALS PTY LTD (ACN 008 694 782)
Ninth Respondent
FORTESCUE METALS GROUP LIMITED (ACN 002 595 872)
Tenth Respondent
THE PILBARA INFRASTRUCTURE PTY LTD (ACN 103 096 340)
Eleventh Respondent
THE AUSTRALIAN COMPETITION TRIBUNAL
Twelfth Respondent
FRENCH CJ
GUMMOW J
HAYNE J
HEYDON J
CRENNAN J
KIEFEL J
BELL J
TRANSCRIPT OF PROCEEDINGS
AT CANBERRA ON WEDNESDAY, 7 MARCH 2012, AT 10.17 AM
(Continued from 6/3/12)
Copyright in the High Court of Australia
____________________
FRENCH CJ: Yes, Mr Young.
MR YOUNG: At the adjournment I was part way through a comparison of criterion (b) with other criteria. In relation to (a) and (f) I had already made the point that they addressed the consequences of postulated access, in the case of (a) for competition, in the case of (b) for the public interest. I had not completed the comparison because I needed to come back to (b). In our submission, it addresses the question of necessity for access. It does not postulate access. The question it asks is whether the development of another facility is uneconomical for anyone. If the answer is that it is, there is no need for access. Expressed positively, if new entry is economically feasible, there is no competition problem requiring access.
The effect of the argument for the NCC, for instance, is to rewrite (b) by substituting words along these lines, access or increased access to the existing facility would be more economically efficient and less wasteful from society’s perspective than the development of an alternative facility to provide the service. Fortescue was similar except they would substitute a reference to production costs for a reference to the broader notion of efficiency. If Parliament had intended any such construction, then the same formula would have been adopted as in (a) and (f). In other words, an explicit requirement of a consideration of two worlds, one with access and what are its consequences and one without access and what are its consequences.
The next point we wish to address concerns the Competition Principles Agreement. It is gratifying that Mr Gageler, the Solicitor, had adopted large parts of our argument but not entirely all of it. In his reference to the associated provisions concerning an effective access regime he omitted, perhaps, some of the most important provisions. He did not refer to subsections (5) and (6) of 44H which of course are concerned with the application of criterion (e). The effect of subsection (5) is that in applying criterion (e) the designated Minister must apply the principles set out in the Competition Principles Agreement. Subsection (6) is similar.
So there is two relevant sets of provisions; there is an independent set of provisions in sections 44M(4) and 44N(2) by which somebody can seek a declaration that a State regime or Territory regime is “an effective access regime”, but quite apart from that and very importantly, 44H(5) and 44H(6) require the Minister to apply clause 6(1)(a) in the implementation of criterion (e). The effect is that the Competition Principles Agreement construction is enshrined in section 44H. It is impossible to reach any conclusion as to the proper construction of (b) other than the fact that it is entirely consistent with and gives effect to the slightly differently expressed criterion in clause 6(1)(a). In other words, consistency of those provisions require that criterion (b) be construed as not economically feasible for anyone to develop another facility to provide the service. Without that construction, there is a disconformity between the approach to be adopted in applying 44H(4)(e) and the approach to be adopted under (b).
It follows that the Competition Principles Agreement is not a matter of extrinsic material. It is a matter of Parliament implementing the meaning in clause 6(1)(a) and carrying it directly into clause (b) of section 44H(4) and into (e) of 44H(4). The fact that “economically feasible” has the private feasibility connotation that we contend for is not only conveyed by the words “for anyone”, that is, the perspective of any firm, but it is confirmed by another provision of the Competition Principles Agreement which has not been referred to thus far. I refer to clause 6(4)(j). It is in the first volume of the extrinsic materials under tab 5. The pages of the print are not numbered but it is the third page dealing with clause 6.
This is dealing with the terms and conditions, or rather the principles that are to govern a State or Territory access regime and one of them relating to terms and conditions of access concerns extensions of the facility. Paragraph (j)(i) provides that State or Territory regimes to be effective must not require extension unless it is subject to such extension being “technically and economically feasible”. The latter part of that is consistent, of course, with economic feasibility in clause 6(1)(a). But (j)(i) clearly indicates that economic feasibility is to be assessed from the viewpoint of the owner being required to undertake an extension. He cannot be required to undertake an extension under a State regime unless the extension is both technically and economically feasible.
So that is going to have to be judged in the same way. It is an objective inquiry into the question whether the extension, having regard to its capital costs, risks, usage levels, et cetera, will provide an economic return to the owner. The owner cannot be required to undertake an extension if it will not provide him with an economic return. Likewise, he cannot be required to undertake an extension which is not technically feasible. Economically feasible must be used with the same meaning and to the same effect where it appears in the various parts of clause 6 of the CPA including subclauses 1(a), 3(a)(i) and 4(j)(i).
The Full Court accepted the force of this point in paragraphs 97 and 100 of the Full Court reasons. That should be found at 2435, particularly at the very top of 2435. The conclusion to the discussion is at paragraph 100. In the same context, I should give the Court a reference to paragraph 73 which goes back to the source of that observation in clause 6 of the Competition Principles Agreement.
In light of those references the Full Court was entirely correct to say that it is too strained a construction of (b) to try and substitute “economic efficiency” or “not wasteful to society” for the words “economically feasible for anyone”. Now, the NCC accepts large parts of that analysis, but at the final furlong they avoid the consequence of the argument or seek to avoid it by saying “feasible” means without waste from society’s perspective. With due respect, that is a distortion of the natural meaning of “not economically feasible”. “Feasible” means capable of being done and (b) confirms that it is from the perspective of anyone contemplating doing it, not from society’s perspective.
“Not economically feasible” is also a very different concept from not economically efficient. Efficiency goes to a different inquiry. It effectively assumes it is feasible to be done and then considers the outcome from the different perspective. Whilst the NCC goes some way to accepting the force of these arguments Fortescue, without much explanation, simply denies any need for conformity with the Competition Principles Agreement. That is paragraph 50 of their summary of argument and that, in our submission, is not sustainable.
The next step is to turn to the mischief which is being addressed by Part IIIA and, in particular, section 44H. We succinctly state what we say the mischief is in paragraph 9(b) of our written submission. In essence, it is a competition problem in the marketplace arising from the possession of monopoly power by the owner of a facility.
That power only arises if the owner of the facility is insulated from competition because it is not economically feasible for anyone to develop an alternative facility. That is the nature of the problem which was addressed in Hilmer and in COAG materials, and in the Competition Principles Agreement. That is largely ignored in the submissions that have been put on behalf of the other side.
I do not want to trawl through paragraphs of Hilmer. There are a couple of passages I do want to go to, but, largely, I will make a series of propositions about the effect of what is found in Hilmer. It may be of assistance though if the Court has handy volume 1 of the extrinsic materials with the Hilmer Report. We advance these submissions. The Hilmer Report was an inquiry into national competition policy and the different aspects of the inquiry covered such things as monopoly pricing and structural reforms, separation, and where there was a problem that could not otherwise be overcome by market forces, then a provision for a declaration of access by a Minister. All of those aspects of the inquiry were interrelated as part of an inquiry into competition policy. That is apparent from the executive summary at the outset, and I am not going to go to the passages but they appear at these pages, 5, 16, 17 and 19. It is also apparent from the transmittal letter which covers the report.
The next proposition is that the concern being addressed by Hilmer was the potential for monopoly power or market power to be exercised via the control of facilities which could not be duplicated economically because customers in those circumstances would have no alternative source of supply for the service or the good.
FRENCH CJ: Now, you say your construction of (b) is directed to that mischief. How does the Fortescue construction fail to address that mischief?
MR YOUNG: Well, our construction says that (b) is directed to identifying in a negative way the need for access. Fortescue’s construction is that (b) is concerned only with a comparison of production costs of a new facility versus a shared facility. To compare the efficiency of production costs does not address the need for access or the existence of a competition problem requiring access. Likewise, the NCC’s position that it is either a natural monopoly test or it is a net social benefit test does not address the need for access on the ground that there is identified under (b) a competition problem. It simply addresses in a global consideration of all of the associated costs and benefits, including efficiencies of the three dimensions, of again a new facility versus a shared facility. It simply does not address the need for intervention on grounds of a detected competition problem.
FRENCH CJ: It says something about the marketplace, though, does it not?
MR YOUNG: No, your Honour, it does not because as your Honour the Chief Justice observed yesterday, identifying a natural monopoly does not mean that you cannot have competitive entry. There was an explicit finding to that respect by the Tribunal in paragraph 816.
FRENCH CJ: Well, you can have levels of contestability, can you not?
MR YOUNG: Yes, as conceded.
FRENCH CJ: There may be a competition problem, for example, if a market is weakly contestable.
MR YOUNG: But all that (4)(b) is concerned with is a disqualifying inquiry. If it is economically feasible for a new entrant to develop another facility to provide the service, you pass the first test. There is a potential competition problem. But if the converse is answered, no, it is economically feasible for any person, any new firm, to enter the market by developing another facility then that indicates there is no competition problem, market forces can be relied upon to address any issues of accessibility to particular services.
CRENNAN J: What if the natural monopoly framework seems apt in the context of public infrastructure and the private feasibility framework seems apt in the context of privately‑owned infrastructure?
MR YOUNG: At a factual level there may be a lot of truth in what your Honour Justice Crennan says, but in terms of 4(b) which is indifferent to the ownership of the facility, it focuses, as we say, on the detection of the competition problem by asking is it uneconomical for anyone to enter that market to provide competition? If new entry is feasible, then market forces – Hilmer called them the first and best solution – can be relied upon to address the matter. There is no problem of monopoly power. The market is contestable. It is only if the market is uncontestable that you move further through the analysis.
The references to the proposition I just put about the concern being market or monopoly power include these; page xxxiii of the executive summary and then pages 240 to 241. The next proposition is that the essential facilities problem identified by Hilmer was not defined by reference to the existence of a natural monopoly. Hilmer is quite clear that much narrower and more specific features were required than merely the attachment of a label natural monopoly or the identification of natural monopoly characteristics.
I do need to go to some pages to show that, within Hilmer, firstly, but the same point emerges in COAG. In Hilmer could I go to page 240. It is the paragraph under the heading “The ‘Essential Facilities’ Problem”. The opening sentence refers to “natural monopoly characteristics” but then the class of facility that generates a competition problem is refined, it is a subset. Hilmer goes on to say:
Some facilities that exhibit these characteristics occupy strategic positions in an industry, and are thus “essential facilities” in the sense that access to the facility is required if a business is to be able to compete effectively –
et cetera. So the essential facilities that throw up the competition problem are not natural monopolies per se, it is a narrower class and the fact that the concern is with that class of facilities having the potential to exercise monopoly power is made very clear by the next two paragraphs. I will not read them. Whether vertically integrated or not, the concern is use of a monopoly power position which is more likely in a vertically integrated situation, but that is the problem. The essential facilities problem is a competition problem concerned with monopoly power.
The next point is that throughout the discussion in Hilmer, Hilmer uses the word “essential” in its ordinary sense to describe a situation where access is required if there is to be competition of a workable kind in a dependent market. So “essential” is used in the sense of indispensable or necessary in fact for competition workably to occur in dependent markets. There are many passages that indicate that but they include page xxxii of the executive summary and pages 240, 250.1 and 266.
Nowhere in Hilmer is there any suggestion that the problem being addressed is an issue of comparative production cost efficiency of two situations developing an alternative facility or sharing the existing facility. All of it is addressing the competition problem associated with latent monopoly power.
A little earlier I used the words “first best solution”. There are many passages in Hilmer indicating that competitive market forces should be relied upon unless they are foreclosed by some kind of economic barrier as they are the first best solution. I will refer quickly to these because they have not been mentioned. Page xxxiii of the executive overview, the middle paragraph at page xxxiii, it is under the heading “Monopoly Pricing” but in the middle paragraph:
The committee considers the primary response of competition policy in these markets should be to increase competitive pressures . . . and, if need be, providing third party access rights.
Next I would go to 242, the first paragraph:
a mechanism that will support competitive market outcomes by protecting the interests of potential new entrants –
Then at 248, this passage has been referred to.
FRENCH CJ: Yesterday, I suggested to Mr Gleeson that his analysis ran the risk of - or appeared to be at a level of abstraction which might be detached from real market circumstances. Could it be said of yours at what extent is your approach to (b) tied to, if you like, the accidents of the particular circumstances of a particular actor who is a potential entrant?
MR YOUNG: No, your Honour. Our construction does not depend upon the particular circumstances of a particular entrant. The question posed by (b) is whether anyone, any firm, could make the relevant investment and get an economic return. It does not depend on the circumstances of the developer.
FRENCH CJ: Any firm having deposits in this particular area and having to move them to ‑ ‑ ‑
MR YOUNG: No, not having deposits. It may be that there is a haulage company. If it is economic for a mining company to invest capital in a rail facility, it will be economic for the mining company to pay an organisation to pay them a tariff to carry goods, that tariff being one which provides the haulage operator with an economic return covering capital investment and economic costs.
FRENCH CJ: This is on the basis we are talking about haulage services?
MR YOUNG: Yes, but I can deal with it in the context of the service which, after all, is simply putting trains on somebody else’s track.
CRENNAN J: How did you invite the Tribunal to apply your construction of (b)?
MR YOUNG: In the way that we have described here. But we did point to the evidence that a number of parties were considering building their railway line and then examined the demand for the line and the economic returns that would be available from that investment. Now, that is only evidence. That is not the test. That is evidence of economic feasibility from hard market circumstances.
CRENNAN J: But that is sort of looking at volume downstream of an access seeker, is it not?
MR YOUNG: No it is not, your Honour, it is looking at volume of ore carried by putting trains on another track. Something has to be carried and these are heavy haul rail lines for the carriage of iron ore. So you have to assume that there is – and every test does this – demand, unsatisfied demand, for the carriage of iron ore. The simple question is, once the reasonably foreseeable demand for the carriage of iron ore has been identified, can somebody make the necessary capital investment in the infrastructure to provide a service consisting of building the track and then letting trains run on it and make an economic return?
Now, it may be that we looked at evidence or we did look at the evidence of Aquila, Fortescue and others who had investigated rail options, but that is only evidence concerning – real world evidence concerning economic feasibility. The example I was going to give to the Chief Justice to complete my explanation was that of contract mining. There was evidence in the Tribunal that BHP operated many of its mines and processing plants by effectively contracting them out and the contractors would provide the necessary capital equipment.
Now, BHP could make the investment itself and undertake that mining activity and the construction of a processing plant, et cetera, or they can pay somebody the tariff to do it for them. It matters not to the economic feasibility of the investment. It is the investment dollars that have to earn an economic return through the performance of the function and that is independent of profits to be made in downstream markets.
There is a fallacy underlying the arguments. It underlaid evidence from Mr Sundakov referred to yesterday that mining companies, because they make large profits from the sale of iron ore in the global market, will wastefully spend more than they need to on capital infrastructure and they will spend more than they need to spend to justify an economic return on that investment.
There was a mass of evidence that that is not how mining companies approach a capital investment. It is fit for purpose, they spend not a capital dollar more than they need to to achieve the function and they satisfy themselves that on that investment as a standalone investment it justifies the investment by having a positive NPV and making an economic rate of return having regard to the risks involved. So that is how you assess the investment. It is not tied to downstream markets.
Now, there was one other reference about first best solution being market forces, page 272, first paragraph. It is in the chapter on monopoly pricing, but all of these aspects of the inquiry are interrelated. That is confirmed by the second sentence of that paragraph because rights of access are brought into consideration there. The first best solution is to determine whether the market is contestable and if it is contestable, then a criterion properly construed like (b) says there is no problem that requires us to go further and assess the benefits and consequences of access because, in the words of Hilmer, access is not required or essential to address the problem.
The fact that all of this is addressed at a competition problem also underpins the discussion of section 46 of the Trade Practices Act in Hilmer. The Court has been taken to those passages. Whilst lack of confidence was expressed in section 46 as the solution because of the difficulty of proving proscribed purpose, Hilmer did say, at page 247, point 9, effectively that this is a recognition that all of this is aimed at a market power problem.
Now, can I turn in the same volume to the COAG legislative package, page 1.10, in the middle of the page. The focus in this material is the same as our focus in dealing with criterion (b), or that concept of not being able to duplicate economically. The document refers to “a competitor could not duplicate it economically”. That is the third and fourth lines of the fourth paragraph. It continues:
A natural monopoly becomes an essential facility –
not that it is, not that you identify the problem by identifying a natural monopoly, rather it –
becomes an essential facility when it occupies a strategic position in an industry such that access to it is required –
That again is the concept of you have to demonstrate a need for access because of a competition problem which is not otherwise going to be resolved by market forces. Now, in our submission, Fortescue’s arguments here, and the NCC as well, attribute undue focus to the references to natural monopoly in Hilmer failing to recognise that the identified problem is not co‑extensive with the identification of a natural monopoly. The Tribunal made the same error. So, in a way, this is a perpetuation of that error. It is evident how the Tribunal made the error at 557 and 558 in volume 5. It should be about page 2072, paragraph 558. In relation to the essential facilities problem, the Tribunal continues:
These facilities, which it is said (at 240-241) exhibit natural monopoly characteristics –
That is not what Hilmer said. It said “some” of these facilities. Then at 825, the decisive reasoning is premised on that error. That is at page 2141. Again, it is erroneous that the emphasis on natural monopolies identifies the problem. Subparagraph (1) is erroneous:
facilities requiring access exhibit natural monopoly characteristics
That is not what Hilmer said. They said certain of those facilities may, provided that access to them is required or needed or necessary and such words and, as the Tribunal pointed out at the end of paragraph 825:
the final recommendations of the [Hilmer] Report did not refer to natural monopolies, instead recommending that a necessary condition for access was that access be essential to permit effective competition –
So for all those reasons, in our submission, the submissions by Fortescue and the NCC in relation to natural monopoly and their insistence that that is the entirety of the problem is simply wrong. Mr Gleeson yesterday submitted that the essential facilities problem Hilmer was grappling with was natural monopoly. It was not. He also submitted that natural monopoly was a sufficient condition to identify the problem. It is not. He also said it is a sufficient condition to satisfy (b) and plainly it is not, and nor is that view consonant with the background materials.
That view that natural monopoly is sufficient is inconsistent with Mr Gleeson’s explicit concessions to the Chief Justice that a natural monopoly is contestable and it does not equate to monopoly power. The Tribunal observed that at paragraph 816 at 2138, the second sentence of paragraph 816:
It was accepted by all the economic experts that the existence of a natural monopoly does not necessarily preclude the profitable development of a second facility.
So the market is contestable. The view we have put concerning the effect of the background materials is endorsed by the Full Federal Court in the Sydney Airport (No 2) Case 155 FCR 124. Most of the passages have been referred to but one was not, of some importance. The first group of paragraphs to which reference has already been made is paragraphs 35 to 37. Paragraph 37 in particular refers to the requirement that access be necessary. We say that is addressed by (b), it is certainly not addressed by (a) which postulates access. The paragraph not yet mentioned is paragraph 86 which goes directly to the conclusion about the effect of all of the material including the background materials. In paragraph 86, at the top of page 148 the Court said that:
The essential precondition discussed was that access (that is in its ordinary meaning) was necessary to permit effective competition in a downstream or upstream market.
If that is regarded as the purpose of Part IIIA the only criterion that addresses it, aside from (f) and the discretion is (b), construed as we submit it should be construed. Now, the other body of material relevant to this identification of the mischief comprises the Tribunal cases, the earlier Tribunal cases. I will make a general submission about them rather than going through the passages. All of them, but especially Sydney Airport (No 1) and Re Services Sydney, identify the purpose of Part IIIA as being the purpose of unlocking a bottleneck by removing barriers to entry. That is, for instance, to be found in paragraph 107 of Sydney Airport (No 1) and in paragraph [115] and [131] of Re Services Sydney.
Both conceive of the necessity for access to be inextricably tied up with the question of barriers to entry. It is only (b) that addresses barriers to entry. We do not suggest nor did the Full Court suggest that there is any magic in adjectives or words like “bottleneck”. Whatever word is used, in our submission, Part IIIA was aimed at solving a competition problem, not a problem with comparative production costs of alternative developments.
BELL J: What was the paragraph number you referred to in Services Sydney?
MR YOUNG: Two paragraphs, your Honour, [115] and [131].
BELL J: Thank you.
MR YOUNG: I am sorry to race through he material but there are matters I need to cover. Can we step back a moment and examine the submission we have made a little more generally. We have made a submission in paragraph 14 of our written submissions to the effect that our construction of (b) which addresses potential new entry throws up an analogy with the assessment of market power under section 46 and the assessment of competition consequences under section 50. We have referred to Eastern Express, it is the last line of that. To what extent is it rational or possible for new entrants to enter the market? It is a fundamental inquiry about market power. It is basically the inquiry posed by criterion (b). Is it rational, that is, can anyone achieve an economic return by developing an alternative facility? Paragraph 15 completes that aspect of the submission.
GUMMOW J: All of this extrinsic material is relied on section 15AB, is it, of the interpretation statute?
MR YOUNG: Yes.
GUMMOW J: On the basis, in particular, that paragraph (b) is ambiguous or obscure?
MR YOUNG: If it is, your Honour, then 15AB would be available, but, more generally, this Court has accepted, I think, in a number of cases that it is appropriate to have regard to the mischief at which legislation is directed. What we have been endeavouring to do is to identify the mischief that the nature of the competition problem that section 44H is addressing. So aside from 15AB and its conditions, we would say it is appropriate to have regard to extrinsic material to identify the mischief being addressed in the way in which the Full Court did in Sydney Airport (No 2).
GUMMOW J: But what do we do if the extrinsic material itself is ambiguous? We would not be here listening to this hour after hour if it was clear.
MR YOUNG: Your Honour, if no regard is had to the extrinsic materials that does not cover, for instance, the CPA – the Competition Principles Agreement. It is not an extrinsic document. It is incorporated. It would require the construction that we advance, as would the natural language of the provision. Now, there are other reasons I am going to come to, your Honour, as well.
GUMMOW J: Just looking at section 44AA of the Trade Practices Act ‑ ‑ ‑
MR YOUNG: Yes, can I come to that in one moment, your Honour?
GUMMOW J: Yes.
MR YOUNG: I am going to do so directly, but just to complete the point about the analysis of market power, I was going to give the Court a reference, through our written submissions, to the fact that other jurisdictions, as part of their general competition law, make the kind of inquiry that we say criterion (b) provides for. There are two relevant bodies of jurisprudence. One consists of the US cases discussed in Hilmer and in our written submissions at paragraph 21.
The US Federal Court of Appeals has articulated what is called an essential facilities doctrine. One of its elements is that it must not be economically feasible to duplicate. That is spelled out in the Hecht Case and the MCI Case. Now, true it is there is some commentary in Hilmer about the state of US law and the US Supreme Court has said that it neither accepts nor repudiates the Court of Appeal’s cases. So there is some uncertainty about the final position in the US.
But what it does indicate is that authoritative courts have stated a relevant inquiry under the Sherman Act to be the question is it economically feasible to duplicate another facility? Similarly, in Europe under Article 82 – I think it has now been renumbered – dealing with abuse of power, one element of the European test is this. Is it not economically viable to create a second facility?
KIEFEL J: Is that what is stated in Bronner’s Case?
MR YOUNG: That is in Bronner, Oscar Bronner, a 1998 case. The references are given in footnotes 26 and 27 to paragraph 21 of our submissions. So there is nothing untoward about the inquiry we pose. It is a common inquiry to identify the existence of a market power problem.
Next, can I deal with the objects clause? In our submission, there is no tension between our construction and section 44AA. The first observation we make is that Part IIIA appears in a competition act which is concerned with enhancing “the welfare of Australians through the promotion of competition”. Section 2 says that in the general object.
Next, section 44AA(a) is not directed only at the existing facility. It is directed at investment in all of the infrastructure by which services are provided. There is no definite article before the word “services”. It is not directed at the facility by which these services, the subject of the application, are provided. It is directed as much to the potential investment in new alternative facilities by which functionally equivalent services might be provided.
What was stressed in the explanatory memorandum to the 2006 Bill that introduced 44A with effect from 1 October 2006, was – and I quote from paragraph 5.7 – the objects clause is directed to “the importance of fostering efficient investment in new infrastructure”. We emphasise the word “new”. It is repeatedly emphasised in the explanatory memorandum, in the Government’s response to the Productivity Commission at the foot of page 1 and in the second reading speech, page 2, paragraph 2.
So we are not concerned with under AA, only with the question of the efficiency of the existing infrastructure. As much, if not more, focus should be directed to the efficiency of a new investment and, particularly, the dynamic and competitive efficiencies which it might sprout. It is clear that 44AA was not intended to alter the natural meaning of the specific statutory criteria. Indeed, all the Minister is required to do under section 44H(1)(a) is to have regard to the objects in applying the criteria according their ordinary meaning.
Section 44AA arose out of the report of the Productivity Commission as the Court has seen. If the Court reads that report the Court will see the whole thrust of the report is a concern that access, unless more restrictively tightened at the declaration stage, might lead to a chilling of investment in new infrastructure or a deterrence of investment in new infrastructure. That is the mischief identified in the Productivity Commission report.
BELL J: I think that yesterday Mr Gageler’s point was that particular concern was addressed by the 2006 amendments respecting criterion (a) and that one would draw some significance from the fact that criterion (b) was left having regard to the explication of its meaning in Duke.
MR YOUNG: Your Honour accurately summarises Mr Gageler’s submission, but it does not fairly deal (a) with the content of the Productivity Commission report, (b) nor does it address the slightly different question which is the scope of the objects in the first place. The scope of the object was to direct attention to the need to consider efficiency in all investments including the new investments.
The point I am making at the moment is that that objective is entirely consonant with our argument that our construction of (b) does foster efficient investment in new infrastructure by allowing market forces to work so where new entry is economically feasible it is allowed to occur. It will bring dynamic efficiency advantages. It will bring facilities‑based competition, as the Tribunal emphasises. So that construction gives full effect to the objects. There is no tension, no inconsistency.
Now, if that is right you never get to first base on Mr Gageler’s argument because the later amendment by the introduction of 44AA does not tell anyone anything about Parliament’s intention concerning the construction of (b). What he does is to attempt to hijack that principle about later amendments and to say, “Well, look for the legislative intention, not in the amendment that was made, but in the Productivity Commission report that underlies it”.
It is there he says their main focus was on tightening (a) but leaving (b) as it was, but that is not a fair description of what they did for reasons I will come to in a moment, if I may. The Tribunal deals with the advantages of fostering new infrastructure investments in numerous places, but including paragraph 1234 to 1237 of the Tribunal decision.
GUMMOW J: What do you say the phrase “promote the economically efficient operation” means in 44AA?
MR YOUNG: Well, it is concerned, firstly, with all aspects of efficiency, not just production efficiency, but allocative and dynamic efficiencies. Secondly, it is not confined to existing infrastructure but will address the efficiency of new infrastructure if it is the subject of investment and development. It is in those two respects that we say, firstly, natural monopoly departs from the objective because it does not address all aspects of efficiency, only production cost profile, not dynamic or allocative efficiencies, so natural monopoly does not advance the subjective, and natural monopoly focuses only on one piece of infrastructure, in effect.
GUMMOW J: Now, this expression “natural monopoly”, I might be naïve, but I thought it came from Judge Learned Hand’s judgment in Alcoa ‑ ‑ ‑
MR YOUNG: That may be an early judicial ‑ ‑ ‑
GUMMOW J: ‑ ‑ ‑ as a circumstance from which one could infer monopolistic intent. It has been translated into something else, has it, in all this material we have been shown?
MR YOUNG: No, the origins of the doctrine I think ‑ ‑ ‑
GUMMOW J: The reference is 148 F.2d at 430. It is a fairly famous passage.
MR YOUNG: Yes, that may be an early judicial consideration of it, your Honour, but the origins of it go back earlier into economic theories concerning the nature of the operations of a firm and in economics it has got nothing to do with facilities. The Tribunal has taken the economic principles that relate to firms and applied it to facilities.
FRENCH CJ: There was some consideration of it in the Federal Court in Stirling Harbour Services v Bunbury Port Authority and I thought there the notion that went through to the Full Court was that of a market in which only one operator could economically operate. Not an absolute thing, of course, because it might be contestable, but it had to do with the structure of the market.
MR YOUNG: Yes. Well, our construction of (b) is concerned with ‑ ‑ ‑
FRENCH CJ: That was one economic explanation of it.
MR YOUNG: Yes, your Honour.
FRENCH CJ: The problem is it may not be the only one.
MR YOUNG: Well, our construction of (b) is likewise concerned with the structure of the market, in particular, the existence of such barriers to entry that it is not economically feasible for a new entrant to develop another facility, and it is not a long way from what your Honour describes was the subject of the Stirling Harbour Case. Can I mention one other matter. The Competition Principles Agreement was amended in February of 2006 before the enactment of section 44AA to include an objects clause. I refer to clause 6(5)(a) of the agreement. It required a State, Territory or Commonwealth access regime to incorporate a particular principle, paragraph (a):
Object clauses that promote the economically efficient use of, operation and investment in, significant infrastructure thereby promoting –
et cetera. The words are not identical, but for all intents and purposes they are substantially the same as 44AA, but the parties, the Commonwealth the States and the Territories saw absolutely no tension between that object clause and clause 6(1)(a), the economic feasibility to duplicate. So, in a way, that confirms what we have been putting. There is not tension with the objects clause in our construction, which is the clause 6(1)(a) construction.
One other observation concerning section 44AA we would make is this. It shows the unacceptability of the criterion (f) arguments of Fortescue. As the Minister is required to have regard to 44AA in applying the criteria, including (f), the Minister must have regard to the inefficiencies and costs arising from access, the disincentives to invest or expand or develop new infrastructure caused by the over ready grant of access, the risk of deterring new entry, the technological improvements, dynamic efficiencies and other advances in operating procedures that might result from new infrastructure as well as the advantages of facilities‑based competition for the economy.
All those matters are required to be taken into account because surely they fall within paragraph (a) of the objects. The effect of Fortescue’s argument is the Minister is foreclosed from having regard to any of those matters, assuming they do not fall squarely within any of the earlier criteria. So they advance a construction of (f) which is at odds with the objects clause.
CRENNAN J: If you are right on (b), does it matter if you are wrong on (f)?
MR YOUNG: It does not matter. If we are right about (b), the Full Court’s judgment should be affirmed. Time I do not think permits me to go through the Productivity Commission report in any length, but can I say this in answer to Justice Bell. The Productivity Commission clearly did not endorse the existing approach to (b). All it said was that the law was not fully settled and it preferred to adopt a wait and see approach. That appears at pages 190 to 193 and I think Mr Archibald is going to develop that point. Its references to its main concern being a chilling effect on investment in new infrastructure are to be found in the executive summary at xviii to xix, xxii and lxvi.
Our approach to criterion (b) has an added advantage which is that it provides a clean division, a clean analytical division between the criteria. In brief, criterion (b) addresses the need for access. Is there a market power problem? Does it potentially exist? That is tested for by asking if it is not economically feasible to develop a new facility then there is a potential market power problem. Conversely, if entry is economically feasible, there is no market power problem requiring the rigours or the intervention of an access regime. That is a discrete inquiry.
Criterion (a) moves on to the next step. It assumes access and asks is there a benefit to competition in dependent markets, a separate inquiry, again at a low threshold level because it is a disqualifying condition. Then, one turns to (f): is access going to have consequences which would be contrary to the public interest? The future conditional “would” requires an assessment of future commercial likelihoods, to pick up a phrase from one of the trade practices cases. That involves having regard, at least, to all economic costs and benefits and all aspects of efficiency not considered under the other criteria and because of their limited disqualifying nature few of those large matters are going to be considered under the earlier criteria. I want to deal very briefly with natural monopoly.
FRENCH CJ: You say the other criteria had no role to play in it? Well, the subject matter of the other criteria because ‑ ‑ ‑
MR YOUNG: I think we would accept, your Honour, that to the extent to which (a), for instance, is identified, a material promotion of competition in a dependent market, that is a benefit that is not discounted. It can be taken into account but it is not the whole story because the question may be how material balanced against other costs, inefficiencies and disadvantages not otherwise considered, which is the (f) question. So the results can be taken into account, your Honour, of (b) and (f) - (b) and (a) could be taken into account but they are only disqualifying conditions. They are not the full ambit of what may become relevant to the ‑ ‑ ‑
FRENCH CJ: That is why I said the subject matter of the criteria rather than the criteria themselves.
MR YOUNG: Yes, your Honour, I am perhaps being obtuse in wishing to explain that. I did want to say something about natural monopoly and why – further reasons why it is unacceptable as a construction and then I want to come to Justice Bell’s question yesterday about the net social cost test, if I may? To the extent that both our opponents argue for a natural monopoly construction, they depart from previous Tribunal decisions. Mr Gageler has a veneer of submitting that it is no real departure, but that does not really withstand analysis.
FRENCH CJ: What is our concern about that?
MR YOUNG: The natural monopoly test?
FRENCH CJ: No, what does it matter that they depart from previous Tribunal decisions?
MR YOUNG: It does not matter to this Court but by that submission Mr Gageler seeks to elide together the natural monopoly test which is production costs only and the net social benefits test. That is the only relevance, your Honour. The Tribunal thought it was a fundamental departure and it said so at 836 to 838, pages 244 to 245. There is a fundamental difference between the two which it is important to point out.
The natural monopoly test is only a comparison of static production costs. Static is really those costs assessed at a single point of time not into the future during the period of the declaration. I want to take the Court, very briefly, to the Tribunal’s explanation of its natural monopoly concept at several passages commencing at 2145 – that is paragraph 838. It is about two sentences in to 838:
production cost function which does not take into account social benefits or net social benefits.
Stagnant technology is the next point. No contemplation of developments and technological improvements is what I meant by stagnant. Then at 844, second sentence, the static test and second‑last sentence – perhaps it is the whole passage – no account is take of dynamic efficiencies.
HEYDON J: When the Tribunal says in paragraph 844, in the fourth sentence:
Indeed, a common criticism of the natural monopoly approach –
et cetera, where do we find expressions of that criticism in the appeal books?
MR YOUNG: Can I take that on notice and try and answer it immediately after the adjournment, your Honour.
HEYDON J: Yes.
GUMMOW J: But, where do they say what the content of the natural monopoly criteria is?
MR YOUNG: The Tribunal, you mean, your Honour? Earlier, in the section 8.2, commencing at page 2060 with paragraph 507. The discussion runs through until 515 and the extrapolation from this body of economics from the context of a firm to a plant is acknowledged in 515.
GUMMOW J: Well, these are just expressions used by economists.
MR YOUNG: Yes.
GUMMOW J: And they vary over time. They lack a fixed nature quite often.
MR YOUNG: I beg your pardon, your Honour, I did not quite hear what your Honour said.
GUMMOW J: They vary over time.
MR YOUNG: The expressions of economists?
GUMMOW J: Yes.
MR YOUNG: Yes, your Honour. Yes, they do.
GUMMOW J: When it says traditional formulation, when did the tradition start?
MR YOUNG: That is so, your Honour. But it underscores the inappropriateness of making (b) read as if it has said the existing facility is a natural monopoly.
GUMMOW J: These are not ideas expressed with the precision of legal criteria.
MR YOUNG: No, they are not.
FRENCH CJ: The difficulty is, as we have already discussed, that the concept of natural monopoly having a variety of expressions, one should be focusing upon in what way did the Tribunal itself characterise it for the purposes of distinguishing it from the social benefit test, and it is clear enough that they were making a distinction.
MR YOUNG: They were, your Honour, clearly.
FRENCH CJ: That is all we need to know, is it not?
MR YOUNG: Yes, your Honour. That discussion that I was at at about 844 concludes at 846.
GUMMOW J: Just to interrupt you again, where do they explain what the social benefits test comprises?
MR YOUNG: They do that, your Honour, at ‑ ‑ ‑
GUMMOW J: They are setting up an opposition between two ideas or theories.
MR YOUNG: Yes, but they do that at 836, the start of the section. That is page 2144 and it is 838 where they distinguish the two.
FRENCH CJ: When they speak of approaches in 836, what they are speaking of is competing constructions of paragraph (b).
MR YOUNG: Yes, your Honour. That is what they should be speaking of, but I think that is right, your Honour. Paragraph 846 at page 2148 makes the point that all of these costs and benefits and efficiencies left out of account by natural monopoly in its focus solely on static production costs are not irrelevant. They are clearly relevant to (f) and the discretion. That would also follow on our construction of (b) in the sense that wide‑ranging consideration of cost benefit, sufficiencies, inefficiencies falls to be considered in the public interest context under (f) on our construction. The social cost construction would have it that all of those matters are undertaken under (b).
BELL J: Is there some midway course? Was the Tribunal drawing a distinction between allocative efficiencies and dynamic efficiencies and some broader notion in 846 of social costs that include those but exceed ‑ ‑ ‑
MR YOUNG: Yes, they have in mind a broader analysis because there was hard evidence of many costs other than allocative and dynamic efficiencies or inefficiencies and they included the costs of sharing the diseconomies and inefficiencies of cramming extra traffic onto already congested rail lines.
BELL J: So if one goes back to earlier authorities in the Tribunal where a broader approach was taken than static production costs, that embraced dynamic efficiencies, allocative efficiencies within that concept, but still left in (f) other social costs?
MR YOUNG: No, it brought everything into (b).
BELL J: I see, all right.
MR YOUNG: Not just costs, but benefits.
BELL J: Yes.
MR YOUNG: It was a netting off of costs and benefits of every economic description.
KIEFEL J: The earlier decisions of the Tribunal – I am thinking of Re Duke at (2001) 162 FLR 1 at paragraph 137 – which suggest that the:
test is whether for a likely range of reasonably foreseeable demand for the services provided by means of the pipeline, it would be more efficient, in terms of costs and benefits to the community as a whole, for one pipeline to provide those services –
which seems to be the theme that the Tribunal has carried forward in the past. That, I do not think, has been taken up by the Full Court of Federal Court in the Sydney Airport Corporation Case at 155 FCR 124.
MR YOUNG: When you said “not taken up”, does your Honour mean not discussed?
KIEFEL J: Not discussed, not approved and query whether or not there is any tension between the Full Court’s approach at paragraph 86 where it states a rather simpler approach and it says that the background material does not reveal any necessity to engage:
in any inquiry based on assessing the future with and without declaration. The essential precondition discussed was that access . . . was necessary to permit effective competition in a downstream or upstream market.
MR YOUNG: Yes. The Full Court should not be read, your Honour, as excluding the need under criteria like (a) and (f) to look at the facts concerning competition or matters affecting the public interest. The court says that at paragraph 85. The main point the Full Court was addressing was that in (a) and (f) the word “declaration” should not be substituted for “access”. It is not inquiry into to consequences of declaration, it is an inquiry into the consequences of factual access, that is to say, that is why the heart of the decision is in paragraph 83, the first sentence. That also appears in paragraph 81. It is not assessing the consequences of a mere existence of a right, it is assessing the consequences of access being exercised factually and what impact and consequences that would have for competition under (a) to the limited extent defined as the threshold or under (f) for the public interest.
Can I turn to the net social benefits test. The Court yesterday by Mr Gageler was taken to the passages in Sydney Airport and Duke, Sydney Airport at 204 and 205 and Duke at 59, 63 to 64 and 137. I am not going to ask the Court to go back to the case and the paragraphs. The nub of those statements is that in applying (b) under the Tribunal’s previous approach it was necessary to postulate two situations; one, there was a new facility and the alternative was that there was a shared existing facility as a result of access being obtained. That is paragraph 137 of Duke. Then those two worlds are compared by examining in each case all of the economic costs, all of the economic benefits and all aspects of economic efficiency, both positive aspects and negative aspects.
That was the exercise taken by the Tribunal. It is important to note that it includes benefits, not just costs. When Mr Gageler made his submission to your Honour Justice Bell, he was only speaking about costs. He was saying there was no consideration of other costs other than production costs. Well, that was wrong. There was consideration of costs and benefits and both fall within the scope of the previous Tribunal test.
It cannot really be reconciled with the language of criterion (b). It amounts to inserting into criterion (b) the comparative aspect of the exercise. Would access have certain consequences for cost benefits and efficiencies compared to independent entry, which does not appear, and it involves inserting the words “wasteful from society’s perspective” or alternatively “economic efficiency”. So there is no textual support for the argument. It has the oddity that it swamps (f) entirely when one might have thought that a better context that Parliament intended to apply to this kind of analysis was the public interest context of (f). It ignores the obvious target of (b).
So for those reasons it really is not a sensible candidate for the proper construction of (b), but if it were to be applied, as the Tribunal said, it would have to take into account under (b) all of the matters, efficiencies, inefficiencies, costs and benefits, that it otherwise examined under (f) so it would not affect the result, you would simply do it under a different heading. As the Full Court said, those other costs and inefficiencies cannot be ignored; that is paragraphs 104 and 108 of the Full Court.
Now, can I come in more detail to your Honour Justice Bell’s question? Mr Gageler’s submission was, in effect, if you apply net social costs and benefits the only relevant costs are production costs. There is nothing else. The submission is both logically and factually wrong. It seems to be founded on something the Tribunal said in the context of natural monopoly, which is a very different context. It was founded on paragraph 845 at page 2147 in the Tribunal. One of the reasons the Tribunal gave for excluding diseconomies and inefficiencies from its natural monopoly analysis appears in the second sentence:
this confuses the cost of production of the service with the cost of providing access.
Now, you are only confined to the cost of production of the service if you are applying the Tribunal’s notion of a natural monopoly. If you are applying Duke’s notion of all of the cost benefits and efficiencies associated with providing access then all of these other costs and benefits would squarely fall within (b). His line of demarcation is you only look at costs of production. It ceases to be relevant if the natural monopoly is no longer the subject matter of the inquiry.
There are further reasons. The Tribunal did in fact examine many other costs, benefits, efficiencies and inefficiencies. The Tribunal accepted the economic evidence that all economic costs of sharing would have to be taken into account under a test other than a natural monopoly test – that appears at 824 in reference to the evidence of the experts – so all costs of multiuser need to be taken into account. The only reason for departing from that is the narrow conception of natural monopoly.
Next, the Tribunal analysed and made it clear that these lines were already heavily congested. So factual access would impose costs on the third party who obtains access and it would impose diseconomies and inefficiencies on the operator of the line. That appears from 1206, 1214, 1216, 1230, 1304 in the Tribunal.
The Tribunal also looked at dynamic efficiencies which the net social cost test would require analysis of. It did it under (f) not (b). But all the dynamic efficiencies and inefficiencies of access were considered. For example, if the Court looks at Tribunal 1230 to 1237, at page 2239 it starts. This was done under (f) but the heading was “Constraints on third party operations and dynamic efficiency considerations”. We refer particularly to 1234 to 1237 – 1235:
a new line which potentially uses more efficient technology . . . opex savings –
Employment growth in 1236, greater capacity would bring dynamic efficiencies in 1237. So there was much evidence about other costs efficiencies and inefficiencies and there would be effect on a delaying of technological improvement and upgrades in operating practices. That is dealt with by the Tribunal at 1238 to 1243, but summarised, ultimately, in 1304 and it is perhaps worth turning to 1304. So these are non‑production costs taken into account under (f) but they have to be taken into account under the net social benefit test as that governed (b). Discouragement of the development of alternative lines – that is because access would be less constrained there, would be an advantage:
The Tribunal expressly found at paragraph 455 that it superseded the evidence of Mr Tapp and that was a finding that relied on the presentations, plural, that were put before the Tribunal by Rio Tinto. It is said by my learned friend, Mr Young, today that the time period is irrelevant to the consideration and, therefore, there was some evidence that at some stage some line might be built. There is a number of things to be said about this. The first is that the Tribunal had expressly adopted a time period of 2014 to 2015 for the whole of their analysis. That appears at paragraph 614 of the Tribunal’s decision.
The whole analysis then proceeded on the binary basis which my learned friend, Mr Gleeson, has outlined, which is either it is all going down the Fortescue line or it is all going down the Hamersley line and no fourth possibility of no declaration and no access to Dixon was even contemplated and it was not referred to as one of the possibilities by the Tribunal in their ultimate conclusion.
The document itself, the March presentation, was pursuant to a request for information as to junior miners. I will just say briefly that the distinction between the parties on the one hand and the junior miners is not only drawn throughout the judgment but in fact was drawn in the letter itself. That letter is at appeal book 4, page 1558 and it said there, in the first sentence:
During the course of the hearing the parties ‑ ‑ ‑
KIEFEL J: I am sorry, which page are you at?
MR MOORE: Sorry, 1558 in volume 4.
During the course of the hearing the parties (FMG, BHPB and RTIO) placed considerable reliance on mining prospects . . . by the so‑called junior miners.
The request was for the NCC, not the parties, in the second paragraph, to prepare:
a report . . . regarding the junior miners –
What the Tribunal wanted, rather, was that the NCC only consider information made publicly available by the junior miners. That is at 1559, lines 12 and 13. So there was no invitation for any information about Fortescue and that is not changed by the fact that the relevant exhibit referred to Fortescue because as my learned friend, Mr Young, observed the relevant exhibit also referred to BHP, and there is no suggestion that BHP was a junior miner and nor could there be.
So the information was correctly found by the Full Court to be unsolicited. It was relied upon. Fortescue was not giving any notice that it would be relied upon and obviously there is a critical aspect to the ultimate conclusion because it affected not only the assessment of criterion (a), it was found that there was no competitive effect on the tenement’s market because of the construction of the Dixon market and only a very modest competitive – positive effect in the haulage market and, of course, it was crucial to the findings of criterion (f) in the way that my learned friend, Mr Gleeson, has analysed. For those reasons we submit that ‑ ‑ ‑
GUMMOW J: Well, what do you say, Mr Moore, about the point that all this only matters if you are unsuccessful on paragraph (f)?
MR MOORE: Well, that could depend upon a range of possible outcomes. If we are unsuccessful on paragraph (f), it clearly matters, if we succeed on paragraph (b), but I think my learned friend, Mr Young, also invited this Court to remit the matter in any event even if we were successful on all grounds because it would need some sort of wholesale reconsideration, he submitted, and in those circumstances it may well be that the findings as to procedural fairness might have some role to play in those circumstances. May it please the Court.
FRENCH CJ: Mr Gleeson, the Court is of the view in order that your reply is not unduly compressed and to have regard to the agreement that has been made that you should be able to continue it at 10 o’clock tomorrow morning. Obviously that is not carte blanche.
MR GLEESON: I should be able to continue, your Honour?
FRENCH CJ: Your reply.
MR GLEESON: At 10 o’clock tomorrow morning?
FRENCH CJ: Yes. After we rise today at 4.15 pm.
MR GLEESON: Yes, thank you, your Honours.
HEYDON J: Do you wish to amend your notice of appeal on the basis that some jurisdictional error has occurred in front of the Tribunal that matters of ‑ ‑ ‑
GUMMOW J: Having regard to that sentence to which the Chief Justice referred at paragraph 25 I think it was.
MR GLEESON: Yes, if I can consider overnight the form of that ‑ ‑ ‑
GUMMOW J: You may want to think about that.
MR GLEESON: I did wish to make a submission on that and your Honour is correct, it may need to involve the notice of appeal. What has happened is, as your Honour’s questions have exposed, the grant of jurisdiction to the Tribunal under section 44K was to review in the sense of reconsider a matter, and the matter was the decision by the Minister under section 44H based upon a particular declaration – recommendation by the NCC. What ought to have happened was for the Tribunal to be reconsidering, having a second look at a decision made in the face of a particular recommendation. The Minister’s decision itself is in volume 1, page 1. The Tribunal did have some powers. It had a power to, for example, request the NCC to provide reports and it exercised that power. What it arguably did not have was a general remit to conduct its broad‑ranging investigation of all circumstances.
GUMMOW J: It is said by Mr Archibald that 44ZZP has to be looked at. Paragraph (1)(e) speaks about regulations providing for evidence.
MR GLEESON: Yes. I would like to have those precise provisions to take your Honours to them tomorrow morning.
HAYNE J: Regulation 22B would be one of those to which you would have to take us which provides that in a review under 44K:
the person who applied for the declaration recommendation –
may participate in the review. It seems to leave open the question of what is the review. In addition to the provider (1) and (2) are mirrors according to whether the decision has gone one way or tother.
MR GLEESON: What has, in fact, occurred is that the Act was amended in mid 2010. We provided your Honours with a copy of that. It has more squarely addressed this very question by amending section 44K ‑ ‑ ‑
HAYNE J: Trade Practices Amendment (Infrastructure Access) Act 2010, No 102 of 2010.
MR GLEESON: Yes, it came into force just after the decision. It has expressly amended section 44K(4) to limit the Tribunal so it can only have regard to defined information, reports and things.
FRENCH CJ: What effect would that have on a remitter, by the way?
MR GLEESON: The submission I was planning to make, subject to checking it overnight, was we have not found any express transitional provision in there and depending on the nature of your Honour’s order, if we got to remitter, if your Honours ‑ ‑ ‑
GUMMOW J: Well, we are down to a question of characterisation as procedural or not, are we not?
MR GLEESON: Yes, and as to whether, having started on an arguably broader exercise, the law has now said the exercise must be confined in a narrower sense. If the exercise has not been lawfully completed to date and that is what your Honours were to rule ‑ ‑ ‑
KIEFEL J: Is there any background legislative material to the 2010 amendments?
MR GLEESON: Yes, there is, your Honour. We will try and get that overnight ‑ ‑ ‑
KIEFEL J: Do they refer to the earlier Tribunal decisions which go into rather large subjects?
MR GLEESON: It expressly said there is a complaint that this process is too slow and too factually intensive and so it did two things. It restricted the time limits more tightly than under the previous legislation and it put these measures in to say you cannot look at these other materials. Now, there is obviously a question of construction whether even before that amendment the nature of the reconsideration was more limited than what the Tribunal did hear. There is no doubt, from paragraph 31 of the Tribunal’s reasons, those representing Fortescue and the NCC made some sort of protest. Clearly it was not a sufficiently precise protest which identified this matter. There was a more general protest, you should not be embracing all this material.
GUMMOW J: Sorry, which paragraphs, Mr Gleeson?
MR GLEESON: Paragraph 31 of the Tribunal.
HEYDON J: No, I do not think so. That is about a road map.
MR GLEESON: Paragraph 30.
GUMMOW J: Paragraph 30, thank you.
HAYNE J: As to the application on remitter you would have to pay attention, I think, to item 72 in Part 2 of Schedule 1 to the 2010 Act. But good luck following the chain, Mr Gleeson. I would leave a thread behind you.
MR GLEESON: We will do as well as we can, your Honour.
HEYDON J: Mr Gleeson, in the appeal book is there any material indicating what form that protest took? I mean, is there a transcript in the appeal book?
MR GLEESON: I will try and pull together that material if I can overnight, your Honours.
BELL J: As it appears, it tends to be the argument that has been put respecting the distinction between stage one and two which is a different argument.
MR GLEESON: Yes. So I have acknowledged that it is a protest. It is not precisely at this point and ‑ ‑ ‑
FRENCH CJ: It underpins in part your construction of (f).
MR GLEESON: Yes. So, your Honours, if I could recognise that matter but return to it first thing tomorrow. In relation to criterion (b), what Mr Gageler has put in reply is the essence of our key point. Really, the cases come down to this fairly stark distinction. Our opponents say the whole work in identifying a competition problem is done by (b) and that is why, for instance, it becomes a section 46 inquiry, a Sherman Act inquiry, or the like. Our argument is it is the combination of (a) and (b) which identify the competition problem which is solved by access and it is (a) and (b) together which give effect to the objects.
The consequence of that critical division between us is, once you have a facility which has the feature of being able to meet the whole of the market demand at a lower cost than two, you have identified one of two necessary conditions for a competition problem. You still need to satisfy paragraph (a) and that is done separately here by the fact that even making every allowance for possible entry by people like Fortescue or Aquila – and that covers the procedural fairness issue – even making every allowance, we are left with a situation where on Hamersley anyone seeking rail haulage below Rosella siding has no option except for the incumbent Rio who has no interest in granting access. That being the competition problem identified by (a) and (b) giving effect to the objects, one can then see that the whole question of private profitability has been taken into account in its right place which is criterion (a) and within criterion (a), according to the Tribunal, it had some effect but it did not destroy that identification of the competition problem.
GUMMOW J: What do you say about Mr Archibald’s reliance and exposition of 44AA as throwing light on these provisions?
MR GLEESON: It certainly throws light on these provisions. The critical link is the “thereby”.
GUMMOW J: Yes.
MR GLEESON: As we would put it, the first part of 44AA which is focusing on the economically efficient use of an investment in infrastructure is identifying what becomes criterion (b), that is, that the efficient way to
operate in his market A is through one facility not two and that utilisation of efficiency through the right of access thereby promotes competition in the dependent market which is criterion (a). The difference between us is he has, like Mr Young, said that criterion (b) has to do more work than just identify a facility with particular characteristics. It has to also have within it some form of competition analysis, whereas we see, in crude terms, (b) is about efficiency, (a) is about competition and that is how the two parts of the object are given effect to.
Your Honours, finally for today, the consequence of course of their argument is to say, if you accept their view, the market will solve all problems and there is no remaining competition issue. That argument was addressed squarely by the Tribunal and rejected at two critical paragraphs, 823 and 824, where they explained, in effect, that where you have the vertically integrated operation, even if there might be entry, you may still have a competition problem because of the various reasons why someone like Rio will choose not to grant access voluntarily, and that is the very situation we have at least below Rosella siding.
FRENCH CJ: That might be a convenient moment. The Court will adjourn until 10 o’clock tomorrow morning.
AT 4.15 PM THE MATTER WAS ADJOURNED
UNTIL THURSDAY, 8 MARCH 2012
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