FEDERAL COURT OF AUSTRALIA

Australian Competition & Consumer Commission v Australian

Competition Tribunal (No 2) [2006] FCAFC 127

PRACTICE AND PROCEDURE – application to set aside and vary final orders – orders made setting aside decision of Tribunal – where only part of Tribunal decision was challenged on review – whether statement in reasons for judgment that exercise of discretion of primary decision maker was reasonable was too broad – scope of remitter to Tribunal.

Gas Pipelines Access (South Australia) Act 1997 (SA): Sch 1 s 39(2)(a)

Federal Court Rules: O 35 r 7(1)

Application by Epic Energy South Australia Pty Ltd (2004) ATPR 41‑977, discussed

Australian Competition & Consumer Commission v Australian Competition Tribunal [2006] FCAFC 83, varied

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION v AUSTRALIAN COMPETITION TRIBUNAL and EAST AUSTRALIAN PIPELINE LIMITED

NSD 1191 of 2004

FRENCH, GOLDBERG AND FINKELSTEIN JJ

18 AUGUST 2006

MELBOURNE

THE COURT ORDERS THAT:

1. Paragraph 1 of the order of the Court made on 2 June 2006 is revoked.

2. Paragraph 1 of the order of the Australian Competition Tribunal made on 19 May 2005 is varied in the following respects:

(a) subparagraph (a) thereof is set aside;

(b) subparagraph (c) thereof is set aside to the extent that it proceeds on the basis that the life of 60 years of the Moomba to Sydney Pipeline System between Moomba and Wilton is used as reference to and a proportion of the Initial Capital Base of $834.66 million (July 2003 dollars) for the Moomba to Sydney Pipeline System.

3. Paragraphs 2 and 3 of the order of the Australian Competition Tribunal made on 19 May 2005 are set aside.

4. The matter be remitted to the Australian Competition Tribunal for reconsideration by it according to law.

5. The second respondent is to pay the applicant’s costs of the application.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules

SUPPLEMENTARY REASONS FOR JUDGMENT

1                     On 2 June 2006 we published our reasons for judgment in this review: [2006] FCAFC 83. In par [4] of our reasons we said:

“We consider that the approach taken by the ACCC was correct in law and that the exercise of its discretion reaching the conclusions it did was reasonable. We will therefore set the Tribunal decision aside and invite submissions from the parties as to the consequential orders that should now be made.”

On that date we made the following orders:

“1. The Australian Competition Tribunal decision of 19 May 2005 is set aside.

2. The parties are to file written submissions within seven days as to which, if any, portion of the reasons for the judgment of the Court should be treated as confidential on account of reference to confidential information before the Court.

3. The parties are to file submissions within seven days as to any consequential orders which should be made.

4. The second respondent is to pay the applicant’s costs of the application.”

2                     The parties filed written submissions. As a result of those submissions no part of the reasons for judgment need be treated as confidential.

3                     The second respondent East Australian Pipeline Limited (“EAPL”) also filed a notice of motion on 9 June 2006 pursuant to O 35 r 7(1) of the Federal Court Rules seeking an order that orders 1, 3 and 4 of the orders made on 2 June 2006 be set aside and that in lieu thereof directions be given for the future conduct of the proceedings. In the alternative EAPL sought orders in the following terms:

“1. Orders thatorder 1 of the orders made on 2 June 2006 be set aside.

2. In lieu of order 1 of the orders made on 2 June 2006, Orderspursuant to s 16(1)(a) of the Administrative Decisions (Judicial Review) Act 1977 (‘ADJR Act’) that the Decision be set aside in part, that part being:

(a) paragraph 1(a) of the Australian Competition Tribunal (the ‘Tribunal’) decision made on 19 May 2005 (the ‘Decision’); and

(b) those changes to the access arrangement approved by the applicant on 8 December 2003 (a copy of which is referred to annexed to in paragraph 2 of the Decision) that were made to give effect to paragraph 1(a) of the Decision.

3. Declarespursuant to s 16(1)(c) of the ADJR Act that in its reasons delivered on 8 July 2004 (the ‘Reasons’) the Tribunal made the following errors of law:

(a) The Tribunal in paragraph [16] of the Reasons failed to pay sufficient attention to the various factors which s 8.10 of the National Third Party Access Code for Natural Gas Pipeline Systems (‘Code’) requires to be considered in establishing the ICB for a Covered Pipeline that was in existence at the commencement of the Code.

(b) The Tribunal in paragraph [19] of the Reasons construed s 8.10 of the Code as giving a primacy to the valuation methodologies set out in subpars (a), (b), and (c) of the Code and then allowing reference to the factors in subpars (e) to (f) to enable a final decision to be made as to the particular valuation method identified in subpars (a), (b) and (c) to be selected as the ICB, albeit with some adjustment.

(c) The Tribunal in paragraph 19 of the Reasons construed s 8.10 as requiring the regulator to undertake a quest for value.

(d) The Tribunal ought to have applied the reasoning of the Full Court of the Supreme Court of Western Australia in Re Michael; ex parte Epic Energy (WA) Nominees Pty Ltd (2002) 25 WAR 511.

(e) The Tribunal in paragraph 26 of the Reasons misunderstood the range of factors to be considered under s 8.10 of the Code.

(f) The Tribunal in paragraph 27 of the Reasons construed s 8.10(f) as not permitting the ACCC to:

(i) have ORC ‘tweaked’ or adjusted or varied by reference, for example, to the factors set out in s 8.10(f) of the Code before reaching a final figure for the ICB, albeit one which uses a forward-looking figure for depreciation after 2000; and

(ii) take account the amounts EAPL had used for depreciating in the past in determining the extent of the adjustment to be made to ORC under s 8.10(f) of the Code in relation to ‘the economic depreciation of the Covered Pipeline’.

(g) The Tribunal construed s 8.10 as requiring the ACCC to establish the ICB solely by reference to a well recognized or a known valuation methodology.

4. Orderspursuant to s 16(1)(b) of the ADJR Act that, subject to the direction in paragraph 5 and the declaration in paragraph 6, the matter to which that part of the Decision which by reason of order 2 above has been set aside relates (the ‘matter’) be referred to the Tribunal for further consideration.

5. Directspursuant to s 16(1)(b) of the ADJR Act that in its further consideration of the matter, the Tribunal will not be bound by any findings made by the Court in its reasons for judgment published on 2 June 2006 other than the findings of error of law referred to in paragraph 3 of these orders.

6. Declares pursuant to s 16(1)(c) of the ADJR Act that s 38(3) of the Gas Pipelines Access Law does not apply to the Tribunal’s further consideration of the matter.” (emphasis omitted)

4                     We accept that par 1 of the order made on 2 June 2006 was expressed too widely as par 1(b) of the Australian Competition Tribunal’s order on 19 May 2005 was not challenged by the Australian Competition and Commission (“the ACCC”) and par 1(c) was only challenged to the extent to which it was inseverable from par 1(a) of that order. Paragraph 1 of the order made on 2 June 2006 should have been expressed in the following terms:

“Paragraph 1 of the Order of the Australian Competition Tribunal made on 19 May 2005 is varied in the following respects:

(a) subparagraph (a) thereof is set aside;

(b) subparagraph (c) thereof is set aside to the extent that it proceeds on the basis that the life of 60 years of the Moomba to Sydney Pipeline System between Moomba and Wilton is used as reference to and a proportion of the Initial Capital Base of $834.66 million (July 2003 dollars) for the Moomba to Sydney Pipeline System.”

5                     Paragraph 4 of the reasons for judgment published on 2 June 2006 included a statement that the exercise by the ACCC of its discretion reaching the conclusions it did was reasonable. We accept that this statement is capable of being read as a statement about the whole of the ACCC’s conclusions. It was not so intended and the context contained in pars [181] to [199] of the reasons for judgment makes this clear. The statement, in particular at par [199]:

“… nor was the exercise of the ACCC’s discretion in reaching that determination incorrect or unreasonable having regard to all the circumstances.”,

was part of a conclusion that the grounds for a review of the decision of the ACCC by the Tribunal set out in s 39(2)(a) of sch 1 of the Gas Pipelines Access (South Australia) Act 1997 (SA) had not been established having regard to the Tribunal’s reasoning in its interpretation and application of ss 8.10 and 8.11 of the Code.

6                     In par [27] of its reasons the Tribunal said:

“It was incorrect and unreasonable to adopt a methodology which does not reflect the terms of the Code and which is not supportable in principle. We are satisfied that the ICB fixed by the Final Approval cannot stand and must be set aside.”

We observed in par [195] of our reasons for judgment that we did not agree that the methodology adopted by the ACCC was incorrect or unreasonable. We said that that methodology was in conformity with the terms of the Code.

7                     Any observation about the reasonableness of the ACCC decision is to be read in the context of the matters in respect of which the Tribunal decision was challenged before this Court. This did not require us to engage in an exhaustive definition of the scope of unreasonableness on review by the Tribunal. We would not accept that the unreasonableness ground allows the Tribunal to find that the decision under review is wrong simply on the basis that it would exercise any relevant discretion or draw inferences or make evaluative judgments in a way that would differ from what was done by the ACCC. As was said by the Tribunal in Application by Epic Energy South Australia Pty Ltd (2004) ATPR 41‑977 at par [15]:

“… before it will intervene and substitute its own view, the Tribunal must be satisfied that the applicant has established that the decision under review is wrong for the reasons particularised in the ground of review. The Tribunal may then intervene to correct the error”.

We do not regard anything we have said as inconsistent with what was said in Application by Epic Energy South Australia Pty Ltd (supra), provided that what was there said is not regarded as a comprehensive and complete statement of the ground of unreasonableness.

8                     Nothing we said in relation to s 8.10(f) of the Code, (see pars [193] and [194] in particular), was intended to preclude consideration by the Tribunal of the question whether the approach taken by the ACCC to the depreciated figures which it did adopt was erroneous and was subject to reviewable error. As we said in par [195] of our reasons:

“The ACCC had a considerable discretion in determining or establishing the ICB for the pipeline, albeit a discretion circumscribed by the factors set out in s 8.10(a) to (k) of the Code.”

The particular exercise of that discretion remains subject to review by the Tribunal, albeit within the constraints discussed in relation to the scope of s 8.10(f) of the Code.

9                     We accept the submission of EAPL, which was accepted by the ACCC that the Tribunal had not dealt with what the parties call the s 8.10(g) point. It had been accepted by the parties that it was not necessary for this Court to determine that matter and accordingly, that matter needs to be remitted to the Tribunal for further consideration. In short, EAPL had contended before the ACCC that s 8.10(g) of the Code would justify a finding of a potential ICB of at least $784 million based upon the reasonable expectations of EAPL under the prior regulatory regime. The ACCC rejected the argument of EAPL and it was the subject of detailed challenge by EAPL before the Tribunal. EAPL reserved its position before this Court in respect of the s.8 10(g) argument and it will be necessary for the Tribunal to consider that matter on remittal.

10                  A number of EAPL’s written submissions in support of its motion, in substance, challenge our reasoning. That is not a basis upon which a motion pursuant to O 35 r 7(1) of the Federal Court Rules can be brought. We have not sought to substitute our own decision for that of the Tribunal. We have found that none of the grounds upon which the Tribunal interfered with the ACCC’s determination of the ICB of the Moomba to Sydney pipeline had been made out.

11                  Having regard to the role of the Tribunal on the review of the decision of the ACCC to draft and approve its own access arrangement for the Moomba to Sydney pipeline it is appropriate that the matter be remitted to the Tribunal for reconsideration according to law and, in particular, in accordance with our reasons for judgment.

12                  The Tribunal can undertake that reconsideration notwithstanding the provisions of s 38(3) of Sch 1 to the Gas Pipelines Access Law because the Tribunal initially made its decision within the time specified by that section and its operation is now spent.

13                  We are not disposed to make the orders in the terms of the short minutes attached to EAPL’s notice of motion having regard to the reasons to which we have referred above.

14                  Save for the matters to which we have referred, EAPL’s motion is dismissed. The matters raised by EAPL are essentially a challenge to the reasoning in our reasons for judgment.

Associate:

Dated: 18 August 2006