01 Apr 2021

High Court set to clarify important Part IIIA provisions dealing with access to declared infrastructure

By Bruce Lloyd, Sian Ooi and Damiano Fritz

The High Court will decide significant questions about Part IIIA of the Competition and Consumer Act, which will have important implications for regulated infrastructure of national significance.

On 12 March 2021, the High Court granted special leave to appeal the decision of the Full Court of the Federal Court in Glencore Coal Assets Australia Pty Ltd v Australian Competition Tribunal [2020] FCAFC 145. The proceeding before the High Court is the latest in a long running dispute between Port of Newcastle Operations (PNO) and Glencore under Part IIIA of the Competition and Consumer Act 2010 (Cth) (CCA).

Part IIIA provides for the arbitration of bilateral disputes about access to a "declared" service between the service provider and an access seeker. Essential facilities (such as airports, railways, gas pipelines and ports) may be "declared" under Part IIIA if they satisfy the declaration criteria in the CCA. Previous decisions of the High Court have considered the process by which a particular service may be declared, however the High Court has not previously examined the processes for obtaining access to declared infrastructure.

This appeal to the High Court raises important questions about the scope of the regulated access provisions in Part IIIA of the CCA, including:

  • whether persons who have merely an economic interest in an arbitrated determination under Part IIIA, or who cause access to occur, are validly access seekers under the CCA - and whether the meaning of “access” in the competition law extends to “economic access”; and
  • the proper approach to historical contributions to capacity expansions made by users of the facility by means of which the declared service is supplied when setting terms and conditions of access.

Who is an access seeker under Part IIIA of the CCA?

The dispute between PNO and Glencore arose at a time when the shipping channel service (Service) at the Port of Newcastle was declared under Part IIIA of the CCA. On 4 November 2016, Glencore notified the Australian Competition and Consumer Commission (ACCC) of an access dispute between the parties concerning the terms of access to the Service.

In the initial arbitration between PNO and Glencore before the ACCC, and again on review to the Tribunal, a key dispute between the parties related to the scope of the determination: that is, whether Glencore could arbitrate the terms of access to the Service where Glencore was not itself chartering a vessel which would use the shipping channels at the Port, but rather, was the producer of the coal collected by the vessel on behalf of coal purchasers.

Both the ACCC in 2018 and the Tribunal on review in 2019 determined that the scope of the determination applied only in relation to Glencore in circumstances where Glencore, either directly or by agent, charters a vessel to enter the Port and load Glencore coal. That is, the determination was expressed to apply only in a situation where the party seeking access actually acquired the relevant Service at the Port (either directly or by an agent).

The Full Court on appeal in 2020 overturned these two arbitral determinations on this point, and found that Glencore was a relevant access seeker whenever Glencore coal was being carried. It did so by introducing a concept of "economic access" to a declared service in its construction of Part IIIA, stating that Glencore “had an economic interest in being able to enter into an agreement with PNO as to the terms upon which ships carrying its coal would be able to use the Service” (emphasis added). On the Full Court's reasoning, “an exporter is accessing or using the shipping channels when, by its sale arrangements, it causes a vessel to enter the port”, suggesting that a mere causal link between a contractual arrangement and physical access would be enough to render the contracting party a person obtaining access.

"Access" is not defined in Part IIIA, but the Full Court held in an earlier consideration that it should be given its ordinary meaning, that is "a right or ability to use a service" (Port of Newcastle Operations Pty Ltd v Australian Competition Tribunal (2017) 253 FCR 115, [137]). By recognising the interests of those who "economically access" services, the Full Court's approach significantly extends the potential scope of Part IIIA and the regulation of essential facilities of national interest under the CCA.

As a result of the Full Court's approach, there is now the potential for a multitude of people with an economic interest, in the terms of access to seek to have arbitrated by the ACCC the terms of access of the actual user of the service, even where the actual user of the service does not seek arbitration. This includes participants up and down the supply chain.

Taken sufficiently broadly, should for example, a railway line be a declared service, ordinary Australians who send or receive parcels that happened to be carried by freight trains on the line might have an “economic interest” in the terms of access by reason of their participation in a dependent market to which the rail service is an input. They would not, however, ordinarily be regarded as "accessing and using" the service provided to train operators by means of the rail network facility.

The proper approach to user contributions

There was also a dispute between the parties as to the relevance of historical user contributions to Port assets when calculating the maximum allowable revenue that PNO should be entitled to recover under the regulated price. The ACCC calculated the regulated price for the statutory navigation service charge using a depreciated optimised replacement cost (DORC) methodology, which involves a hypothetical exercise of calculating how much a hypothetical competitor would have to spend to duplicate the Port, and therefore how much the Port could charge in a competitive market.

However, the ACCC adjusted the DORC value downwards to take account of various historical dredging projects at the Port which expanded its capacity but had been partially funded or undertaken by third parties. The Tribunal on review found that there was no basis for the deduction for user contributions, including as a result of historical under-recovery at the Port before privatisation.

The Full Court found that the Tribunal erred in its approach and was required to take user contributions in account. It did so based on section 44X(1)(e) of the CCA, which requires regard to be had to "the value to the provider of extensions (including expansions of capacity and expansions of geographical reach) whose cost is borne by someone else". The Full Court held that the user-funded assets the subject of the dispute were "extensions…whose cost [was] borne by someone else" and therefore had to "be taken into account" under section 44X(1)(e). The Full Court did not expand on the meaning of the words "value to the provider". The High Court will consider whether the Full Court's construction and application of this section is correct.

The High Court will also consider the correctness of the approach of deducting from the hypothetical DORC value the historical costs associated with providing the service.

The final word

The appeal to the High Court should result in greater clarity concerning the proposition that a person with a mere economic interest in a declared service is an access seeker who may benefit from the arbitration model in Part IIIA of the CCA, and the proper approach to historical user funding in the determination of regulated pricing in the resolution of access disputes.

The clarification of these issues will have important implications for all regulated infrastructure of national significance, given the difficulties and uncertainties produced by the concept of “economic access" introduced by the Full Court, and the financial impacts that may flow from that court's approach to user contributions.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.