Case: Sydney Airport Corporation Ltd v Australian Competition Tribunal [2006] FCAFC 146
Outcome: applied
In order to understand the economic theory underpinning Part IIIA of the Act, it is useful to consider its origins and purpose. The Full Court recently set out the background and context to Part IIIA in its decision in Sydney Airport Corporation Ltd v Australian Competition Tribunal [2006] FCAFC 146 (' Sydney Airport') , to which I will briefly return. 39 Part IIIA of the Act was introduced by the Competition Policy Reform Act 1995 (Cth) and had its genesis in the recommendations of the report entitled 'National Competition Policy Report by the Independent Committee of Inquiry, August 1993' by F Hilmer, M Rayner &amp; G Taperell. The report is more commonly known as the 'Hilmer Report'. Of course, one must recall that not all the recommendations of the Hilmer Report were adopted by Parliament. Nevertheless, it provides an insight into the purpose of the access regime in Part IIIA of the Act. 40 The Hilmer Report made a number of recommendations as to how concerns over access to 'essential facilities' could be dealt with under a national competition policy. The Hilmer Report recognised that in some markets the introduction of effective competition requires competitors to have access to facilities which exhibit natural monopoly characteristics and therefore cannot be duplicated economically. 44 The concept is not complex, as the Full Court in Sydney Airport said (at [36]): ...the background material does not reveal any complexity in the concepts behind what the access regime is directed to: essential facilities that cannot be duplicated economically (to use the words of the Hilmer Report) and services being provided by means of significant infrastructure facilities in circumstances set out in cl 6(1)(a)-(d) of the Competition Principles Agreement of 11 April 1995... Further, as the Full Court went on to say (at [37]): ...in none of the various materials was there any discussion of any complexity of notion or anticipated complexity of assessment involved in respect of the consideration contained in cl 6(1)(b) of the Competition Principles Agreement: that access to the service is necessary in order to permit effective competition in a downstream or upstream market. Rather, the essential notion to be derived from the Hilmer Report, the outline of legislation issued by COAG, the Explanatory Memorandum and the Competition Principles Agreement is that it is necessary for the fact of access (in its ordinary meaning) to be relevant to effective competition in another market (upstream or downstream). 45 The Hilmer Report itself makes it clear that notions of access and the circumstances in which access rights should arise are separate from whether in any given situation vertical integration exists. Vertical integration in itself cannot be a basis to exclude the operation of Part IIIA. The notion of shared access within the context of a vertically integrated operation is part of the scenario the Hilmer Report was seeking to address. That is, it is the very prevention of a vertically integrated organisation using its control over access to an essential facility to limit effective competition in dependent markets that is a key activity that the access regime seeks to deal. Hence, it was envisaged certainly by the Hilmer Report that the access regime would be applied to require vertically integrated organisations to provide access to services provided over some of their infrastructure. 46 This is not to say, however, that the Hilmer Report envisaged the automatic and indifferent application of the access regime to vertically integrated operations. In this regard, the Hilmer Report cautioned that a legislative right of access to private property and facilities may have undesirable economic consequences, and that competition policy needed to strike a balance between protecting private property and freedom of contract on the one hand, and requiring access to essential facilities on the other (at p 242): As a general rule, the law imposes no duty on one firm to do business with another. The efficient operation of a market economy relies on the general freedom of an owner of property and/or supplier of services to choose when and with whom to conduct business dealings and on what terms and conditions. This is an important and fundamental principle based on notions of private property and freedom to contract, and one not to be disturbed lightly. And at p 248: The Committee is conscious of the need to carefully limit the circumstances in which one business is required by law to make its facilities available to another. Failure to provide appropriate protection to the owners of such facilities has the potential to undermine incentives for investment. 53 However, it is to be recalled that even if there be an opportunity for access to a particular service should the exclusion in para (f) not apply, Part IIIA provides for a two-stage process as described by the Full Court in Sydney Airport (see [25]-[34]). Even a declaration of the service under the first part of the process does not necessarily ensure access to the service, but rather confers a right on the access-seeker to negotiate with the provider. Whether access occurs and on what terms will involve questions of 'an economic, commercial and social character' (see Sydney Airport at [35]). It seems to me this is an important consideration in determining the interpretation to be given to the exclusion in para (f). Protection of the viability of certain investments is not just found in the interpretation to be given to the exclusion in para (f), but is also found in the two-stage process that is to be undertaken even if the exclusion is inapplicable. 54 BHPBIO's business in the Pilbara consists of three main operations: (a) A mining operation which extracts the iron ore from the various mines; (b) A rail operation that transports ores from the different mines to port facilities at Port Hedland, using either, or a combination of, the Mt Newman Railway Line and Goldsworthy Railway Line and associated facilities; and (c) A port operation at Port Hedland (with infrastructure located at both Nelson Point and Finucane Island) at which ore is crushed and screened (in some instances), blended in stockpiles (in most instances), reclaimed and loaded onto ships (where in some instances further blending occurs) for transportation to customers. 55 BHPBIO uses a Continuous Stockpile Management System ('CSMS') as a production and grade control system that involves its mining, rail and port operations. The CSMS is part of the production and grade control system that is involved in BHPBIO's operations from mine to ship loading at the port. It assists in the development of the daily blend for each mining area, and determines the required sequence of trains necessary for BHPBIO's operation and requirements for finished iron ore products. Essentially the CSMS was intended to be a more efficient and effective form of the 'batch system' which was employed prior to the introduction of the CSMS. 148 The Hilmer Report itself does not set the specific boundaries in which the access regime would apply. Other than giving guidance as to the aims and potential parameters of the access regime, the Hilmer Report (and for that matter other extrinsic material referred to in the Sydney Airport case) provides little guidance as to the ambit of the exclusion found in para (f) of the definition of 'service'. In view of the general application of the access regime this is not surprising. Part IIIA is not referable to any particular industry. This is to be contrasted with similar regimes in other jurisdictions, such as New Zealand, where access regimes are introduced in the context of a particular industry, such as the telecommunications, gas or electricity industries. Similarly, Part XIC of the Act specifically deals with a telecommunications access regime. However, Part IIIA applies generally to a wide range of potential industries and circumstances. Therefore, the court must apply Part IIIA to a range of services and this will be done on a case by case basis. 149 It can be accepted that the use of rail infrastructure generally is the type of essential facility infrastructure which was intended to be included within the scope of Part IIIA. The services provided by a railway line would be obvious candidates for declaration given that they would often be prohibitively expensive to duplicate. The width of exception in para (f) must balance the desire to preserve the viability of investment in production facilities whilst at the same time preserving the aims of the access regime. Whether or not access to a particular railway line should be declared would need to be determined following the two-stage process set out in Part IIIA and referred to in the Sydney Airport case. So much is clear from the legislative scheme and by reference to the Hilmer Report to the extent adopted by Parliament.