Australia: Fortescue Wins High Court Decision In Long Running Pilbara Rail Access Dispute

Last Updated: 23 September 2012
Article by Simon Uthmeyer and David Peters

On Friday the High Court handed its decision in relation to the long running access dispute between Fortescue Metals and BHP Billiton and Rio Tinto over access to BHP Billiton's and Rio Tinto's iron ore railways in the Pilbara. DLA Piper acted for Fortescue in the Proceedings.

The High Court allowed Fortescue's appeal in all three of the matters before it. By majority decision the High Court quashed the determinations of the Australian Competition Tribunal (Tribunal) and remitted the matters to the Tribunal to be decided according to law. Justice Heydon, who dissented in part, would have declared the services provided by BHP Billiton's and Rio Tinto's iron ore railways in the Pilbara without remittal to the Tribunal.

With only one exception, Fortescue was successful on all the grounds it argued. In particular, the court was emphatic in its view that the Tribunal had misapprehended its task in reviewing the Minister's decision to declare or not declare infrastructure services under the Trade Practices Act 1974 (Cth) (now the Competition and Consumer Act 2010 (Cth)) (Act). In addition the court significantly pared back the ability of the Tribunal to look at extraneous matters under the guise of (what Rio Tinto and BHP Billiton unsuccessfully argued was) a wide public interest test and discretion.

The High Court did not accept Fortescue's interpretation of section 44H(4)(b) (criterion b) of the Act. The High Court's preferred interpretation of criterion b is likely to have significant consequences for the regulation of infrastructure under both state and federal law. Criterion b will no doubt be further argued before the Productivity Commission in its upcoming review of Part IIIA of the Act.

Set out below, in table form, is a summary of the result and a brief background to the dispute.

Result by railway line

Railway line Declaration status Winner
Hamersley line Remitted to Tribunal for decision according to law Fortescue
Robe line Remitted to Tribunal for decision according to law Fortescue

Result by matter

Matter Matter description Overall result Decision made by
M155 of 2011 Declaration of service provided by Hamersley line Decision remitted to Tribunal

Majority

Chief Justice Robert French

Justice William Gummow

Justice Kenneth Hayne

Justice Susan Crennan

Justice Susan Kiefel

Justice Virginia Bell

Dissenting in part

Justice John Heydon

M156 of 2011 Declaration of service provided by Robe line for 10 years (Tribunal decision) Decision remitted to Tribunal

Majority

Chief Justice Robert French

Justice William Gummow

Justice Kenneth Hayne

Justice Susan Crennan

Justice Susan Kiefel

Justice Virginia Bell

Dissenting in part

Justice John Heydon

M157 of 2011 Declaration of service provided by Robe line for 20 years (Minister's decision) Decision remitted to Tribunal

Majority

Chief Justice Robert French

Justice William Gummow

Justice Kenneth Hayne

Justice Susan Crennan

Justice Susan Kiefel

Justice Virginia Bell

Dissenting in part

Justice John Heydon

Result by grounds of appeal

Ground Description Result Decision made by
2 Criterion b - uneconomical for anyone to develop another facility to provide the service Rio win - private profitability test

Majority

Chief Justice Robert French

Justice William Gummow

Justice Kenneth Hayne

Justice Susan Crennan

Justice Susan Kiefel

Justice Virginia Bell

Dissenting

Justice John Heydon

3 Criterion f - access to the service not contrary to the public interest Fortescue win - limited public interest test Unanimous
4 Residual discretion Fortescue win - no residual discretion Unanimous
5 Tribunal powers Fortescue win - Tribunal acted outside powers Unanimous

BRIEF BACKGROUND OF FORTESCUE PILBARA RAIL ACCESS DISPUTE

BHP Billiton lines

BHP Billiton operates the Goldsworthy rail line (Goldsworthy line) and the Mt Newman rail line (Mt Newman line) in the Pilbara iron ore region of Western Australia. Each line is used to haul BHP Billiton's iron ore from its mines to port.

The Goldsworthy line is located in the north-east of the Pilbara. It extends from near Yarrie in the east to BHP Billiton's port at Finucane Island at Port Hedland, a distance of some 210km. The Mt Newman line runs from near the town of Newman to BHPB's port at Nelson Point at Port Hedland, a distance of around 400km. The Mt Newman line intersects with the Goldsworthy line at Goldsworthy junction, 14km south of Nelson Point.

Rio Tinto lines

Rio Tinto operates the Hamersley rail line (Hamersley line) and the Robe rail line (Robe line), also in the Pilbara region, to the west of BHP Billiton's rail lines. Each line is used to haul Rio Tinto's iron ore from its mines to port.

The Hamersley line runs from Rio Tinto's port at Dampier south to Rosella junction, a distance of some 235km. From the junction the line has three branches. There is a spur heading west to mines at Brockman No 2, a distance of around 40km. There is a second spur heading south toward Paraburdoo, around 135km away. The third spur heads southeast to Yandicoogina (a distance of 193km) with a further spur to the Hope Downs and West Angelas mines.

The Robe line runs from Rio Tinto's port at Cape Lambert to the Mesa J mine near Pannawonica, a distance of 182km. It interconnects with the Hamersley line near Emu junction, approximately 60km south of Cape Lambert.

Applications to the NCC

On 11 June 2004 Fortescue applied to the National Competition Council (NCC) that it recommend that the Federal Minister make a declaration under Part IIIA of the Act in respect of the service provided by part of the Mt Newman railway line and part of the Goldsworthy line.

On 16 November 2007, Fortescue applied to the NCC that it recommend that the Federal Minister make a declaration in respect of the Goldsworthy line.

On 18 January 2008 Fortescue made application to the NCC that it recommend that the Federal Minister make a declaration in respect of the Hamersley line.

The NCC made the recommendations applied for on 23 March 2006 for the Mt Newman line, and 29 August 2008 for the Goldsworthy, Hamersley and Robe lines.

Ministers' decisions

By virtue of a deeming provision in the Act, the then Treasurer Peter Costello, having made no decision within 60 days of the NCC's recommendation on 23 March 2006, decided on 23 May 2006 to not declare the Mt Newman line.

On 27 October 2008, Treasurer Wayne Swan declared services provided the Hamersley, Robe and Goldsworthy lines for a period of 20 years from 19 November 2008.

Competition Tribunal proceedings

Fortescue applied on 9 June 2006 to the Tribunal, under section 44K of the Act, for a review of the Minister's decision regarding the Mt Newman line.

BHP Billiton subsequently applied to the Tribunal for a review of the Minister's decision regarding the Goldsworthy line. Rio Tinto applied to the Tribunal on 13 November 2008 for a review of the Minister's decision regarding the Hamersley and Robe lines.

The Tribunal agreed that the four reviews should be heard concurrently.

The Tribunal determined on 30 June 2010 that:

  • The Minister's decision to not declare the service provided by the Mt Newman line be affirmed
  • The Minister's decisions:
    • To declare the service provided by the Goldsworthy line be affirmed
    • To declare the service provided by the Robe line be varied such that the declaration period be for a period of 10 years, rather than the 20 years provided for by the Minister's decision
    • To declare the service provided by the Hamersley line be set aside.

The Tribunal reached its conclusions on the basis that:

  • Declaration criterion b was a natural monopoly test
  • Declaration criterion f involved a weighing of benefits accruing from satisfaction of the other declaration criteria and other costs and benefits of access
  • A residual discretion following satisfaction of the declaration criteria permitted a detailed inquiry of the effect of declaration and access on public welfare.

Full Court decision

Fortescue brought proceedings in the Full Federal Court challenging the Tribunal's decision to set aside the Minister's decision to declare the Hamersley line. Fortescue argued that the Tribunal had misconstrued and misapplied s 44H(4)(a) and (f) (criterion a and criterion f respectively) and that the Tribunal had acted in breach of the requirements of procedural fairness because it received and acted on material provided by Rio Tinto after the conclusion of the proceedings before the Tribunal.

By notice of contention, Rio Tinto alleged that the Tribunal had misconstrued and misapplied criterion b in its application to the Hamersley line but that, properly applied, criterion b required the Tribunal to refuse to declare the Hamersley line.

In a separate proceeding, Fortescue also challenged the Tribunal's decision to vary the period for which the Robe line was to be declared. Fortescue alleged that the Tribunal's decision was unreasonable in light of the findings that it had made in relation to the application of criterion f.

By another separate proceeding, Rio Tinto challenged the decision of the Tribunal not to set aside the Minister's declaration of the Robe line. Rio Tinto advanced its argument on the basis of the same construction of criterion b that underpinned its notice of contention in Fortescue's proceeding about the Hamersley line.

The Tribunal's determinations with respect to the BHP Billiton lines were not challenged in the Full Court.

In judgment given on 4 May 2011, the Full Court concluded that the Tribunal had misconstrued and misapplied criterion b. The Full Court also concluded that the Tribunal had not accorded Fortescue procedural fairness. But the Full Court held that, on the construction of criterion b which it favoured, Fortescue was bound on the facts found by the Tribunal to fail in its application to the Tribunal in relation to the Hamersley line. The Full Court further held that, because the Tribunal had misconstrued criterion b, Rio Tinto's appeal in relation to the Robe line should be allowed and the Tribunal's decision set aside. The court ordered that the Minister's decision to declare the Robe line should be set aside.

By special leave, Fortescue appealed to the High Court against the orders dismissing Fortescue's application to the Full Court in relation to the Hamersley line and against both the orders allowing Rio Tinto's application in relation to the Robe line and the orders dismissing Fortescue's application in relation to the period for which that line should be declared.

© DLA Piper

This publication is intended as a general overview and discussion of the subjects dealt with. It is not intended to be, and should not used as, a substitute for taking legal advice in any specific situation. DLA Piper Australia will accept no responsibility for any actions taken or not taken on the basis of this publication.


DLA Piper Australia is part of DLA Piper, a global law firm, operating through various separate and distinct legal entities. For further information, please refer to www.dlapiper.com

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