The High Court recently handed down an important decision in relation to access to railways operated by BHP Billiton Iron Ore (BHPB) in the Pilbara region of Western Australia.
The High Court decision concerns the scope of the access regime. The access regime applies to services. Services are defined to not include the use of a production process. The High Court confirmed its approach that a production process means ‘the creation or manufacture by a series of operations of some marketable commodity’. The High Court concluded that Fortescue Metals Group Ltd (Fortescue) was seeking access to services, not to the use a production process. Therefore, Fortescue could use the access regime to seek to obtain the services from BHPB.
A two-stage access process
The access regime is set out in Part IIIA of the Trade Practices Act 1974 (Cth) (Act). This establishes a two-stage access process.
Declaration – the first stage
A person seeking access to a service provided by a particular facility can apply to the National Competition Council (NCC) for the service to be ‘declared’. The NCC makes a recommendation to the relevant minister, who makes the ultimate decision.
Access terms – the second stage
If a service is declared, the person seeking access will need to negotiate terms and conditions of access with the service provider. In the event that the parties cannot come to a commercial agreement, the ACCC can act as an arbitrator.
In reaching its decision in an arbitration, the ACCC must take into account, among other things, the legitimate business interests of the service provider and its investment in the facility, the interests of all persons who have rights to use the service and the economically efficient operation of the facility. The ACCC may ultimately decide not to allow access.
Background – Fortescue seeks access
In June 2004, Fortescue applied to the NCC to have parts of the Mount Newman and the Goldsworthy railway lines ‘declared’ under Part IIIA of the Act.
In relation to the Mount Newman line, the NCC recommended to the minister that the relevant services be declared. The minister did not publish a decision within 60 days of receiving the NCC’s recommendation and so was deemed to have decided not to declare the services.
In relation to the Goldsworthy line, the NCC concluded that Fortescue was actually seeking the use of a production process. As this is not a service, the NCC decided that declaration was not appropriate.
The court proceedings
BHPB and Fortescue both appealed the NCC’s decision. The appeals were eventually heard together by the High Court.
BHPB argued that the railway lines are part of an integrated management system which involves the coordination of mining, rail and port operations. It argued that Fortescue was seeking the use of a production process and that, as this is excluded from the definition of a service, declaration was not available.
The High Court made a distinction between the management system and the use of the railway lines. The High Court held that the services to which Fortescue was seeking access (the right to use the railway lines, train control systems, signalling systems and communication systems) satisfied the definition of services. Therefore, declaration was available.
The High Court also considered the question of when the use of a production process could arise in these types of circumstances. The High Court observed that Fortescue was not seeking access to BHPB’s rolling stock or seeking to add its stock to trains operated by BHPB in the course of its management system. If it had been, the High Court noted that this would ‘present a possibly decisive distinction’ from what Fortescue was seeking (that is, this would have been more likely to amount to use of a production process and so not come within the scope of the access regime).
Implications for access seekers and providers
In reaching its decision, the High Court made several observations about the access regime, which could have important implications for access seekers and access providers.
Nature of the services
It is critical to identify precisely what is being sought and to ensure that it can properly be regarded as a service.
Two-stage process
Access seekers need to firstly get the relevant minister to declare the services to which it is seeking access and secondly negotiate terms of access with the service provider (with arbitration by the ACCC as a fallback).
Negotiation/arbitration
In an arbitration the ACCC must take into account, among other things, the service provider’s legitimate business interests and the interests of existing users of the services. Parties are entitled to raise these issues in the course of negotiation because they know that, failing agreement, the fallback position is an arbitration by the ACCC, which will apply those factors. This is an example of ‘bargaining in the shadow of the law’.
Implications for Fortescue
The decision does not provide Fortescue with access to BHPB’s railway lines. Fortescue will only gain access if:
- the relevant services are declared, and
- either Fortescue agrees terms of access with BHPB or the ACCC provides for access via arbitration.
Additionally, Fortescue has:
- appealed the minister’s failure to declare the Mount Newman railway line to the Australian Competition Tribunal. This is due to be heard in early December 2008, and
- made a new application to the NCC seeking declaration of services provided by means of three other railway lines in the Pilbara (Goldsworthy, Robe and Hamersley). The NCC has submitted its confidential recommendation to the Federal Treasurer. The decision is due by 28 October 2008.
This article was written by Donald Robertson, Partner, Sydney, and Matthew Bull, Senior Associate, Melbourne.
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