The Pilbara Infrastructure Pty Ltd v Brockman IronPty Ltd & Anor

[2016] HCATrans 198

[2016] HCATrans 198

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Perth  No P9 of 2016

B e t w e e n -

THE PILBARA INFRASTRUCTURE PTY LTD (ACN 103 096 340)

Applicant

and

BROCKMAN IRON PTY LTD (ACN 122 652 886)

First Respondent

ECONOMIC REGULATION AUTHORITY

Second Respondent

Application for special leave to appeal

KEANE J
NETTLE J

TRANSCRIPT OF PROCEEDINGS

FROM CANBERRA BY VIDEO LINK TO PERTH

ON FRIDAY, 2 SEPTEMBER 2016, AT 11.05 AM

Copyright in the High Court of Australia

MR B.W. WALKER, QC:   May it please the Court, I appear with my learned friend, MR B. DHARMANANDA, SC, for the applicant.  (instructed by Allen & Overy)

MR K.J. MONY DE KERLOY:   May it please the Court, I appear for the first respondent.  (instructed by Herbert Geer Freehills)

MR WALKER:   There is a submitting appearance for the second respondent. 

KEANE J:   Thank you, Mr Walker.

MR WALKER:   Your Honours, the argument for which we seek special leave concerns the propriety of the approach taken to what might be called a gateway provision in an important statute governing the resort to what would otherwise be private property, the result of capitalist investment by rivals in one or other of the markets involved, in other words, part of the regulated access regimes which have become such an important part of national economic regulation.  This, of course, is a State matter, but it is a matter of great importance to the nation bearing in mind the kind of exports that are transported on these railways.

Section 8 is a gateway provision in the sense that, unless a so‑called proposal complies with it, there need not be either the burdensome, somewhat vexing response to what might be called a purported rival in relation to so‑called negotiations, negotiations in which fairly soon, as his Honour observed in the postscript to his reasons at first instance, would confront commercial…..section 14 of the Code, as your Honours appreciate, requiring sooner or later the “put up or shut up” in relation to commercial capacity.

But, section 8, we submit, served a purpose quite distinct from section 14 and at an earlier anterior stage.  It reflects, at a point of proposal, being a unilateral statement of intention or desire - it reflects what comes at the end of the process, to anticipate a point our friend has raised against us, namely, section 36 which has to do with ascribing a purpose and a sole purpose to the access governed by an agreement that emerges either from negotiation or arbitration, and negotiation and arbitration, as your Honours have seen from the reasons below and from both sides’ written submissions, is in itself a highly‑regulated and burdensome process.

The gateway provision, in other words, is a gateway provision governing the exposure of parties such as our client to a burdensome process – one might say against the inherent nature of rivalrous capitalists – namely, to have to deal so as to provide access to one’s own infrastructure to a firm who may very well be, in one or other of the markets in question, a rival. 

That is why, in our submission, the error emerges, which we would characterise as being reducing the safeguard of paragraph 8(2)(b) to mere paperwork of a kind which would present no substantive inquiry at all and, therefore, provide no safeguard at all. 

May I explain in particular, by reference to the definitions that give content to section 8, why the conclusions against us in both courts below must be regarded as highly doubtful as to correctness?  If I could take your Honours, please, to section 8 itself.  In subsection (1), there are a number of defined expressions used.  Relevantly, “a proposal” is a proposal, we know, under section 8, and we know under subsection (1) that “access” means the use of railway infrastructure.

Pausing there, your Honours could be forgiven for thinking from some of the reasons – in particular of Justice Edelman at first instance, but repeated by the Court of Appeal – that railway infrastructure could be used for things other than the operation of a railway.  These, in our submission, are purely theoretical and un‑useful examples because of the embedded definition to which I next come.

“Railway infrastructure” is itself defined, and so reading in its definition as to material parts, a section 8(1) proposal for access means a proposal for the use of railway infrastructure being:

the facilities necessary for the operation of a railway . . . 

but not including . . . 

(i)rolling stock –

That last phrase is a critical part of the definition.  You cannot propose under section 8 access which involves use of the railway owner’s own rolling stock.  This is a very longwinded way of saying this is not a means of forcing a freight or haulage arrangement with one of your rivals.  It is only a means of getting access to their railway infrastructure which are the facilities necessary for the operation of a railway not including rolling stock.

When we come to subsection (2), which is the critical safeguard provision, it is expressed obviously in the passive voice, but is expressed in a way, “can be made”, so as to regulate the only kind of proposal which will be a proposal under section 8 and without such a proposal there cannot be an arbitration, for example, forced under section 25.

First of all, in paragraph (a), it is made clear – one might question, is this redundant, but nonetheless, it is emphatic – that the only access for which a proposal can be made under section 8 is for a route to which the Code applies.  The Code applies to this route by reason of the agreements and the statutes to which reference is made in the written submissions, but generally speaking, as a category generically, section 5 of the Act itself makes it clear that when the Minister generally prescribes routes – I do not say for this particular one, but when it is generally done – it is because the route has significance by reason of importance to trade…..economy, coming back to why we submit that the point of statutory interpretation about West Australian enactment is nonetheless of sufficient importance for this Court to consider a grant of special leave.

Then we come to the critical words.  Under section 8(2)(b), in order for a proposal to be a compliant proposal in order to force an arbitration that may produce an agreement, it must be one that is made – the proposal must be made:

for the purpose of carrying on rail operations –

That means:

the operation of rolling stock on a part of the railways network -

These are the defined terms:

and for no other purpose.

When one puts all of that together, it means that the proposal must be of its essence as required by section 8 through the definitions embedded in those expressions – it must be one which is for the operation of your rolling stock or rolling stock over which you have control on somebody else’s track.  That comes from the defined terms and their use in section 8(1) and (2).

What we know as a matter of fact found, it has to be said, without any difficulty, without any subjective individuals having testimony evaluated, but rather from the respondent’s own documents, that the significant or dominant motive for making the proposal was not to operate rolling stock on your rival’s track, but rather to gain leverage, commercial leverage, in order to obtain a haulage contract which means, of course, having resort to your rival’s rolling stock on your rival’s track which, in economic terms, is of course the very antithesis of the competitive effect designed to be achieved by this forced access regime.

Now, your Honours, we lost, notwithstanding the clarity of that antithesis, that is, the proposal was made with the significant or dominant motive of achieving the opposite of the only kind of access for which a proposal could be made - we lost because of what, in our submission, were anti‑purposive and artificial - and therefore obviously wrong approach to the critical word “purpose”, particularly when it appears the second time in paragraph (b), that is, the last five words “and for no other purpose”. 

We know that that word “other” contrasts the universe of “other purposes” with the one that has been specified at the beginning in paragraph (b), namely, “the purpose of carrying on rail operations” which means, to quote the definition again:

the operation of rolling stock on a part of the railways network -

The finding of what is called motive is, in our submission, the antithesis in question.  We lost because it is said by dint of arguments based upon the word “purpose”, which is a protean word that requires careful attention, as Chief Justice Gleeson has pointed out, to the particular legislative context…..we lost because of resort to other cases about other acts and to the possible distinction – contradistinction in some contexts between, on the one hand an aim, and the other hand a reason for seeking to achieve an aim.

NETTLE J:   Does your construction require that “purpose” where it first appears in paragraph (b) means purpose and where it…..appears means motive?

MR WALKER:   Not at all.  In both cases, we say that ordinary, really quite robust English word “purpose” is precisely equivalent in both cases.

NETTLE J:   Meaning motive in each case?

MR WALKER:   It could mean the desired end or it could mean the reason for desire in the end.  In each case, it has to do with an intention that looks to achieve something.  In our submission, the notion of motive is only part, but is a highly informative part, of ascertaining purpose.

NETTLE J:   The purpose is undoubtedly to conduct rail operations, even if the motive is thereby to squeeze a better deal in negotiations.

MR WALKER:   Your Honour, that really comes to the nub of the matter, with respect.  The purpose in question is the purpose for making a proposal; it is not the purpose of the access.  That is the difference between section 8 and section 36.  The words of subsection (2) are:

A proposal can be made –

…

(b)for the purpose of carrying on rail operations, and for no other purpose.

That is quite different from section 36, which is of course the ultimate bilateral matter where, of course, you are just construing the terms of an agreement.  But here we are talking about the unilateral act of a person, which is making a proposal. 

So there is no difference between the purposes in paragraph (b), on our argument.  Mind you, it would appear to be a fatal step for me to propose that the same important word would be construed differently in one sentence.  But no, we insist we are talking about how do you describe the purpose of carrying on a rail operation from a proposal and the short answer is the paperwork answer must be wrong because subsection (3) makes it crystal clear that the paperwork of the proposal must declare the nature of the proposed rail operations.

So the paperwork perforce, in order for it to be a proposal at all, will say that there are proposed rail operations, which I stress means the operation of rolling stock.  So has Parliament really, in the last five words of paragraph (b) of subsection (2) said “and it must comply with subsection (3) by proposing rail operations?” and the short answer is no, of course not.

KEANE J:   But it is consistent with it, is it not?

MR WALKER:   They are of course consistent.

KEANE J:   The elaboration in (3) in relation to specifying the infrastructure and so forth is an elaboration, if you like, in the paperwork of the purpose.

MR WALKER:   Yes, quite so, and you must propose rail operations – that is what subsection (3) says.

KEANE J:    Is it not consistent with an idea that the recipient is able to tell from looking at the documents that the proposal is a conforming one, without having to worry about what is in the hearts of men?

MR WALKER:   But the recipient may be very worried, as in this case, about what is in the hearts of men, which was very easily demonstrated - a billion dollars or more necessary, $4 million perhaps in the bank.  You would be worried being put through the trouble of dealing with such a person, bearing in mind what you know is coming up under section 14. 

This is a gateway provision.  The document itself will tell you, it has to, because of a combination of section 8(1), (2) and (3) – will tell you it is a proposal for rail operations.  It does not have provision for carrying on for proposing access for any other purpose.  By definition the access is, it must be, for the purpose of rail operations.  So that the five words at the end of paragraph (b) will do nothing, could do nothing, on that reading.  That is the difficulty of the reasoning against us.  It simply says if you make a proposal then you have made a proposal and there is nothing further that anyone can inquire in order to know whether you have complied with the requirement that there be “no other purpose”. 

Now, those words “no other purpose” enacted by Parliament make it clear that there was contemplation that there might be another purpose in a proposal which, in fact, can only be for access to carry on rail operations, in other words, that there may be something between commercial rivals that lies behind the making of the proposal, I stress, the making of the proposal – other than that for which the proposal can only be.  In short, and eschewing all words like “subjective” or “objective”, it is simply a question of fact, is there another purpose for making the proposal than that for which the proposal must, by statute, be restricted to.

KEANE J:   If there is a proposal that conforms, at least so far as the paperwork is concerned, with 8(2) and (3) and then, in the course of negotiations, the applicant says, well, how about we bin this and enter into an arrangement in relation to the use of your rolling stock, does the legislation prohibit the making of such an agreement?

MR WALKER:   There are several levels of answer to that.  Under section 4A there can be other negotiations for agreements outside but they still must be for access, meaning operation of your rolling stock, not the owners’ rolling stock.  That was an error made, as we pointed out, by Justice Edelman at first instance but not reproduced in the Court of Appeal.  So, yes, there can be other negotiations but it does not have the effect on the reading of these provisions that we think Justice Edelman considered. 

The second point is that, particularly if one got to the point of arbitration, if it emerged that it was…..commercial leverage that the proposal had been made and the negotiations continued then the arbitrator can bring it to a peremptory end and so it can be seen ‑ ‑ ‑

KEANE J:   Because such a conclusion, such an outcome cannot be forced upon your client.

MR WALKER:   No, quite so.  This is not an Act which is to be wielded to achieve commercial leverage to get haulage contracts.  This is an Act for people to obtain access to operate their own…..stock.  It is not an Act designed to put a thumb in the scales between commercial rivals, bargaining as they are otherwise entitled to, with respect to haulage contracts, freight contracts.  I see the light, may it please your Honours.

KEANE J:   Thank you, Mr Walker.  Mr de Kerloy.

MR DE KERLOY:   Your Honours, I just want to address three points shortly:  firstly, the surplusage point; secondly, the forensic exercise point; and, thirdly, a point in relation to context.  It is said that the critical five words would be surplusage, if it was not interpreted in the way in which my learned friend suggests.

Can I suggest some examples which demonstrate that the words do have an important function?  The proposal must be to carry on the operations of rolling stock on the railway network and for no other purpose but if there was a proposal coupled with a proposal to use the infrastructure for the purpose of hoteling people in the building and workshops, for example, that would be an example of a non‑compliant proposal.

Similarly, a proposal for using the workshops for construction of, for example, submarines, would not be a compliant proposal and finally, a proposal for using the communications systems of the relevant infrastructure, for example, for military purposes, would also not be a compliant proposal.  It is clear, your Honours, that the purpose which is spoken about in section 8(2) is the purpose of the activity.  It is not the motive of the person making the proposal.

The second point is the forensic exercise point which has been diminished by my learned friends but which was influential both with Justice Edelman and for the Court of Appeal.  If I can take your Honours to paragraph 2 of Justice Edelman’s decision on page 11 of the application book, whilst it is true that no evidence was given by any officer of Brockman, it is not correct to say that there was not a very significant, indeed a massive forensic exercise involved in this case.  As his Honour says:

This trial and the related judicial review application were concerned with issues arising from Brockman Iron’s proposal.  Although thousands of pages of evidence and submissions raised numerous factual and legal issues, the overarching question in this trial can be stated shortly -

There were a huge number of documents put into evidence by my learned friends.  They were ultimately rejected as irrelevant because it did not go to the question of motive or the court found that the question of motive was not relevant to the disposition of the application.

The third point which arises is this question of how this legislation can be used.  My learned friends put into evidence an extra report by Ms Jaffer which is replicated at paragraph 28 on page 19 of Justice Edelman’s decision and it is not right to say that there must be a purity of purpose in relation to the approach that is taken by the negotiating parties.  As Ms Jaffer puts at the bottom of page 19:

Since arbitration is costly, in terms of uncertainty, time and cost, the threat of arbitration provides an incentive to reach agreement.  The threat of arbitration also serves to condition the negotiations.  For example, if an infrastructure service provider expected that an arbitrator would remove monopoly rents from a proposed access price, the service provider would have an incentive to negotiate a lower price with the access seeker in order to avoid a words outcome under arbitration.

Finally, I wanted to deal with the question of context.  The aim of the Act, the main object, is to facilitate a contestable market for all rail operations.  That is because the idea behind this legislation is to enable parties who are developing or are in the process of developing mines having an access regime to the existing railways rather than having to build a railway of their own. 

It would be utterly commercially unusual if parties in that situation did not have in contemplation a variety of options which they might employ or deploy in relation to getting their mine into a state which can be financed, into a state which can be built and into a state which can be operated.  The applicant’s construction seeks to convert an access regime into a journey to the horizon.  It can never be reached.  If, as they say in their submissions in reply at paragraph 7:

The “other purpose” to which reference is made may be any extraneous purpose or aim.  If such an extraneous purpose or aim is found, the proposal is not compliant.

So, in other words, if a railway owner can find any extraneous aim in the documents of the applicant which suggests that it has made the proposal with other options in mind at the same time, the proposal is not valid.  They are my submissions, your Honours.  May it please the Court.

KEANE J:   Thank you, Mr de Kerloy.  Mr Walker, anything in reply?

MR WALKER:   Just one thing.  Your Honours, our learned friend refers to the matters scarcely, one would have thought, actually requiring evidence, that the burden of an arbitration and the uncertainty of its outcome may induce a party who has hitherto unsuccessfully negotiated to reach a negotiated price.  But all of that was directed, of course, to the negotiations for the access which is governed by these provisions.  That is access to operate one’s own rolling stock on somebody else’s rail.

What we are talking about is something antithetical to that and outside the scheme of the Act and safeguarded by the last five words of paragraph 8(2)(b), namely, it is not to include – you do not make the proposal for the purpose of gaining leverage in order to obtain a haulage contract.  That is what, with respect, our learned friend’s argument, in particular concerning so‑called context, repeats as a fallacy already to be found in the reasons below. 

In our submission, there is an important schematic element of this very important economic regulation which has been reduced to a paperwork nullity, a complete redundancy, by the reasoning against us and, in our submission, this is a short, sharp and important point deserving of special leave.  If it please the Court.

KEANE J:   Thank you, Mr Walker.  The decision of the Court of Appeal is not attended with sufficient doubt to warrant the grant of special leave.  Special leave will be refused with costs.

The Court will now adjourn until Tuesday, 4 October at 2.15 pm in Canberra.

AT 11.33 AM THE MATTER WAS CONCLUDED