Australia: An Uncertain Landing!

The recent decision of the Full Federal Court in Sydney Airport Corporation Limited v Australian Competition Tribunal¹(Sydney Airport) arguably creates considerable uncertainty as to whether particular services are likely to be declared under the Trade Practices Act 1974 (Cth) (Act) and therefore whether access seekers will be able to obtain statutory access to essential facilities, such as ports, rail tracks and airports.

This uncertainty arises from the Full Federal Court increasing the scope and significance of the relevant Minister’s undefined residual discretion in a declaration decision. As the residual discretion is by its nature undefined, how can infrastructure owners and access seekers have any certainty as to the application of the declaration provisions?

Sydney Airport Corporation Limited (SACL) is a privately owned company which holds a long term lease over Sydney Airport.

In 2002, Virgin Blue Airlines Pty Ltd (Virgin) applied to the National Competition Council (NCC) for a recommendation that ‘Airside Services’ at Sydney Airport be declared under Part IIIA of the Trade Practices Act.

‘Airside Services’ (Airside Services) (as distinct from ‘landside services’) were defined to include the use of runways, taxiways, parking aprons and other associated facilities to allow aircraft to take off and land and passengers to board and disembark.²

In late 2003, the NCC recommended that Airside Services not be declared and in early 2004, the Parliamentary Secretary to the Treasurer, as the ultimate decision maker, decided not to declare the Airside Services.

In 2004, Virgin successfully appealed to the Australian Competition Tribunal (Tribunal) with the effect that Airside Services were declared for a period of five years. Therefore, should Virgin and SACL not reach agreement on the terms and conditions for the use the Airside Services, Virgin has the right to have the ACCC arbitrate.

In the present case, SACL appealed the decision of the Tribunal in the Full Federal Court. The Full Federal Court refused to set aside the Tribunal’s decision with the result that Airside Services remain declared.

However, the Full Federal Court stated that it preferred a different construction of the legislation to that adopted by the Tribunal (although this alternative interpretation did not lead to a different result). Set out below are the implications of that alternative construction.

DLA Phillips Fox acted for the NCC in this case.

Section 44H(2) of the Act states that:

‘In deciding whether to declare the service or not, the designated Minister must consider whether it would be economical for anyone to develop another facility that could provide part of the service. This subsection does not limit the grounds on which the designated Minister may make a decision whether to declare the service or not.’

Section 44H(4) of the Act states that the Minister cannot declare a service unless he or she is satisfied of subsections (a)-(f). Subsection (a) stated:

‘That access (or increased access) to the service would promote competition in at least one market (whether or not in Australia), other than the market for the service.’³

Judgment Of The Full Federal Court

The Full Federal Court unanimously rejected SACL’s appeal, stating that:

‘The submissions of SACL that it is necessary for the engagement and operation of s44H(4)(a) to identify and determine the existence and extent of a denial or restriction of access should be rejected.’

The Full Federal Court went on to state, in obiter, that it agreed with Virgin’s submission in respect of section 44H(4)(a):

‘Virgin is correct in its submission that all s44H(4)(a) requires is a comparison of the future state of competition in the dependent market with a right or ability to use service [sic] and the future state of competition in the dependent market without any right or ability or with a restricted right or ability to use the service.’⁵

Departure From Interpretation Previously Adopted By The Tribunal

The decision of the Full Federal Court marks a significant departure from the interpretation of the relevant provisions that had previously been adopted by the Tribunal.

In particular, we note that the Full Federal Court:

• Read the words 'access' (or increased access) according to their ordinary meaning and not as declaration under the access regime in Part IIIA of the Act; and
• Agreed with Virgin's submission that the test of section 44H(4)(a) simply involves a comparison of the future state of competition in the dependent market with and without access to the service.

This latter conclusion differs significantly from the Tribunal which found that while it was not required to surmise possible outcomes of any access arbitration following a declaration , its task in determining whether section 44H(4)(a) was satisfied involved a with/without declaration⁶ test.

The key differences between the Full Federal Court’s interpretation and the approach previously adopted by the Tribunal are set out in Table 1 below.

Table 1

The Full Federal Court’s with/without access test in our view significantly lowers the bar for satisfaction of the criterion in section 44H(4)(a).

The Federal Court’s test arguably involves abstracting from the current reality (where, despite Airside Services not being declared, Virgin had some access), and comparing the effect on competition in the airline market of Virgin having some access to Airside Services as against a counterfactual of no access. It is not in our view clear from the judgment whether this counterfactual involves only Virgin being without access, or whether it also requires an assumption that other existing or prospective airlines also do not have access.
An amendment to section 44H(4)(a) came into effect after the Full Federal Court’s judgment. The effect of the amendment is that the subsection will not be satisfied unless the access (or increased access) promotes ‘a material increase in’ competition. In our view, however, this amendment, which would, ceteris paribus, have increased the threshold for satisfaction of section 44H(4)(a), will only counteract the effect of the Full Court’s judgment to a minor extent.

Prior to the decision of the Full Federal Court, we contend that in regard to the Minister’s decision on declaration:

The main criteria were those set out in section 44H(4); and

Although the Minister had a residual discretion, this was extremely limited.¹²

In our view, the effect of the Full Federal Court’s interpretation of the relevant provisions has the effect of increasing the scope and importance of what was previously referred to as residual discretion. The Full Federal Court stated:

‘Whilst we consider that the Tribunal misconstrued s44H(4)(a) by infusing an overly elaborate body of considerations into that criterion, the nature of those detailed considerations (the comparison of the future with and without declaration) are not such as to be irrelevant (as understood by reference to Peko- Wallsend) to the enquiry as a whole as to whether to declare the service, even though they were irrelevant to a consideration of s44H(4)(a)’.¹³

While the Full Federal Court suggests that a with/without declaration test (which was previously considered to be relevant to section 44H(4)(a)) is relevant to the exercise of this discretion, the other factors which may be relevant to the exercise of this discretion remain undefined.

We consider that this creates significant uncertainty as to the application of the declaration provisions because by its very nature the residual discretion has no clear boundaries. Therefore, it is practically impossible for any person to have any degree of certainty whether a service may or may not be declared.

In summary, we consider that the Full Federal Court’s judgment in the Sydney Airport case marks a significant departure from the previous interpretation of the relevant provisions of the law. In particular, we consider that the judgment:

• Lowers the bar for satisfaction of the criterion in section 44H(4)(a).
• Leads to significant uncertainty in relation to the likelihood of services being declared as a result of:

• The increased but undefined scope of the residual discretion; and
• The uncertainty surrounding the application of the new test of section 44H(4)(a).

We note that SACL has sought leave to appeal in the High Court of Australia. This application is not expected to be heard until early in 2007.

Footnotes

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