FEDERAL COURT OF AUSTRALIA

BHP Billiton Iron Ore Pty Ltd v The National Competition Council [2006] FCA 1764

TRADE PRACTICES – access to services – application for declaration recommendation of a service – whether rail track service is a ‘service’ within the meaning of s 44B of the Trade Practices Act 1974 (Cth) – whether the use of the rail track service would be the use of a production process – meaning of the expression ‘use of a production process’ – legislative purpose of the production process exclusion to the definition of service

STATUTORY INTERPRETATION – principles of statutory interpretation – importance of the context of the provision – role of dictionary meanings in task of statutory interpretation –application of previous judicial pronouncements – whether previous decision ‘clearly wrong’ or ‘plainly wrong’

EVIDENCE – admissibility – expert evidence – economic evidence – relevance to task of statutory interpretation of Part IIIA of the Trade Practices Act 1974 (Cth) – whether purporting to interpret statute

WORDS AND PHRASES – ‘production process’

Trade Practices Act 1974 (Cth) ss 44AA, 44B, 44F, 44G, 44H, 44S, 44V, 44W, 44X

Acts Interpretation Act 1901 (Cth) s 15AA

Bank of Western Australia Ltd v Commissioner of Taxation (1994) 55 FCR 233 cited

Boral Besser Masonry Ltd v Australian Competition and Consumer Commission (2003) 215 CLR 374 considered

Cabell v Markham (1945) 148 F (2d) 737 cited

Central Bayside General Practice Association Ltd v Commissioner of State Revenue (2006) 80 ALJR 1509 considered

Collector of Customs v Agfa-Gevaert Ltd (1996) 186 CLR 389 considered

Hamersley Iron Pty Ltd v National Competition Council (1999) 164 ALR 203 not followed/discussed

Helvering v Gregory (1934) 69 F (2d) 809 cited

Hematite Petroleum Pty Ltd v Victoria (1982) 151 CLR 599 distinguished

House of Peace Pty Ltd v Bankstown City Council (2000) 48 NSWLR 498 considered

Marr v Australian Telecommunications Corp (1991) 34 FCR 82 cited

Mills v Meeking (1989) 169 CLR 214 considered

Network Ten Pty Ltd v TCN Channel Nine Pty Ltd (2004) 218 CLR 273 considered

Newcastle City Council v GIO General Ltd (1997) 191 CLR 85 considered

Nezovic v Minister for Immigration & Multicultural & Indigenous Affairs (No 2) (2003) 133 FCR 190 considered

Pepsi Seven-Up Bottlers Perth Pty Limited v Commissioner of Taxation (1995) 62 FCR 289 cited

R v Bradbourn [1985] Crim LR 682 considered

Rail Access Corporation v New South Wales Minerals Council Ltd (1998) 87 FCR 517 considered

Re Australian Union of Students (1997) 147 ALR 458 considered

Re Michael; Ex parte Epic Energy (WA) Nominees Pty Ltd (2002) 25 WAR 511 considered

Roy Morgan Research Centre Pty Ltd v Commissioner of State Revenue (Vic) (2001) 207 CLR 72 cited

Royal Insurance Australia Ltd v Government Insurance Office (NSW) [1994] 1 VR 123 considered

Sydney Airport Corporation Ltd v Australian Competition Tribunal [2006] FCAFC 146 applied

Upperedge v Bailey (1994) 13 ACSR 541 cited

Visa International Service Association v Reserve Bank of Australia(2003) 131 FCR 300 considered

Woodside Energy Ltd v Commissioner of Taxation for the Commonwealth of Australia [2006] FCA 1303 considered

BHP BILLITON IRON ORE PTY LTD (ACN 008 700 981) v THE NATIONAL COMPETITION COUNCIL AND FORTESCUE METALS GROUP LIMITED (ABN 57 002 594 872)

VID 1641 OF 2004

FORTESCUE METALS GROUP LIMITED (ABN 57 002 594 872) v THE NATIONAL COMPETITION COUNCIL AND ORS

WAD 39 OF 2005

MIDDLETON J

18 dECEMBER 2006

MELBOURNE (heard in perth and melbourne)

the court orders that:

1.         The application be dismissed.

2.         The matter of the question of costs be adjourned to a date to be fixed.

the court directs that:

1.         The parties file and serve written submissions on the question of costs by 12 noon on 9 February 2007.

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

THE COURT DECLARES THAT:

1.         The bulk iron ore rail track transportation services provided by the Goldsworthy rail facility, as defined in Part 5.1 of the applicant’s application filed under s 44F(1) of the Trade Practices Act 1974 (Cth) (‘the Act’) and dated 11 June 2004, is a service within the meaning of s 44B of the Act.

the court orders that:

1.         The matter of the question of costs be adjourned to a date to be fixed.

THE COURT DIRECTS THAT:

1.         The parties file and serve written submissions on the question of costs by 12 noon on 9 February 2007.

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

REASONS FOR JUDGMENT

introduction

1                    BHP Billiton Iron Ore Pty Ltd (‘BHPBIO’) carries on the business of the mining, blending and other processing of various types of iron ore in the Pilbara region of Western Australia on behalf of various unincorporated joint ventures for the purpose of producing bulk iron ore products for sale. 

2                    The iron ore originates from four mining areas in the Pilbara region, consisting of the:

·                    Newman mining area;

·                    Yandi mining area;

·                    Area C mining area; and

·                    Goldsworthy mining area.

3                    The mining areas are operated by BHPBIO and the ore is transported from the mine to port via two distinct railway lines in the Pilbara region being the Mt Newman rail line and the Goldsworthy rail line.

4                    The Mt Newman rail line comprises a single track standard gauge heavy haulage rail line from the Mt Whaleback mine in the Newman mining area to Nelson Point in Port Hedland, a distance of approximately 426 kilometres (‘Mt Newman Railway Line’).  The Goldsworthy rail line is comprised of a single track standard gauge heavy haulage rail line from the Yarrie rail head in the East Pilbara to Finucane Island at Port Hedland, a distance of approximately 210 kilometres (‘Goldsworthy Railway Line’).  The two rail lines intersect approximately 15 kilometres from Port Hedland.

5                    The Mt Newman Railway Line is constructed on Crown land, known as the Mt Newman Rail Corridor.  It is leased from the State of Western Australia by the participants in the unincorporated Mount Newman Joint Venture (‘Mt Newman JV’), comprising BHP Billiton Minerals Pty Ltd (‘BHPBM’) 85%, Mitsui-Itochu Iron Pty Limited (‘Mitsui’) 10% and Itochu Minerals and Energy of Australia Pty Ltd (‘Itochu’) 5%.  The Goldsworthy Railway Line is similarly constructed on Crown land, known as the Goldsworthy Rail Corridor, and is leased from the State of Western Australia by the participants in the unincorporated Mt Goldsworthy Mining Associates Joint Venture (‘Goldsworthy JV’).  The Goldsworthy JV comprises BHPBM 85%, Mitsui 7% and Itochu 8%.

6                    BHPBIO operates both the Mt Newman Railway Line and the Goldsworthy Railway Line in its capacity as manager of the respective joint ventures.

7                    BHPBIO also operates the two port facilities on opposite sides of Port Hedland harbour, Nelson Point and Finucane Island.  The two facilities are connected by a 1.4 kilometre under-harbour tunnel conveyor belt. 

8                    Fortescue Metals Group Limited (‘Fortescue’) proposes to carry on the business of the mining, refining and sale of iron ore in the Pilbara region of Western Australia.  Fortescue is an equal share participant with Consolidated Minerals Limited in the Pilbara Iron Ore Joint Venture (‘PIO JV’).  The PIO JV holds tenements at Mindy Mindy.  The Mindy Mindy tenements are:

·                    approximately 295 kilometres south-east of Port Hedland;

·                    approximately 17 kilometres south-west from the Mt Newman Railway Line;

·                    within an approximate 75 kilometre radius of the Newman mining area;

·                    approximately 285 kilometres south-east of the Goldsworthy Railway Line; and

·                    approximately 275 kilometres south-west of the Goldsworthy mining area.

9                    Fortescue wishes to access the service provided by part of the Mt Newman Railway Line and part of the Goldsworthy Railway Line in order to haul iron ore from a rail siding to be constructed near the Mindy Mindy mine to Port Hedland. 

Fortescue’s application to the Council

10                Fortescue made an application dated 11 June 2004 to the National Competition Council (‘the Council’) pursuant to s 44F(1) of the Trade Practices Act 1974 (Cth) (‘the Act’) seeking a recommendation that the service provided by the relevant parts of the Mt Newman and Goldsworthy Railway Lines be declared as a service under Part IIIA of the Act (‘Access Application’).

11                Fortescue defined the service the subject of its Access Application as:

(1)       the use of the Facility, being:

(a)        that part of the Mt Newman Railway Line which runs from a rail siding that will be constructed near Mindy Mindy in the Pilbara to port facilities at Nelson Point in Port Hedland, and is approximately 295 kilometres long…;

(b)        the part of the Goldsworthy Railway Line that runs from where it crosses the Mt Newman Railway Line to port facilities at Finucane Island in Port Hedland, and is approximately 17 kilometres long…

(2)       access to the Facility’s associated infrastructure, including, but not limited to:

(a)        railway track, associated track structures, over or under track structures, supports (including supports for equipment or items associated with the use of the railway);

(b)        bridges;

(c)        passing loops;

(d)        train control systems, signalling systems and communications systems;

(e)        sidings and refuges to park rolling stock;

(f)        maintenance and protection systems; and

(g)        roads and other facilities which provide access to the railway line route.

For identification purposes, I will refer to the service the subject of Fortescue’s Access Application as the ‘Mt Newman Service’ and the ‘Goldsworthy Service’.

12                The Mt Newman Service does not include the use of any of the branch and spur lines of the Mt Newman Railway Line such as the Area C spur line, the Yandi spur line or any of the branch lines which run to the loadout facilities at any of the mines BHPBIO manages in the Pilbara.  The Goldsworthy Service is limited to the length of the track running from the junction of the two lines to the port facilities at Finucane Island.  It does not include the use of any part of the Goldsworthy Railway Line which runs to loadout facilities at any of the mines BHPBIO manages in the Pilbara.

13                In its Access Application, Fortescue indicated that it would arrange for the transportation of iron ore and iron ore products using the Mt Newman Service and the Goldsworthy Service by:

(a)        acquiring and utilising its own locomotives and rolling stock;

(b)        utilising employees and contractors to carry out loading and unloading, delivery and monitoring of iron ore products on and off its locomotives and rolling stocks; and

(c)        utilising employees, contractors and consultants to conduct regular operation and maintenance work where applicable to the Mt Newman and Goldsworthy Services.

14                Fortescue further stated that it only required approximately one train path each way once per day to haul iron ore from a rail siding proposed to be constructed near the Mindy Mindy mine to Port Hedland.  Fortescue indicated that it was willing to accept flexible arrangements and times for the running of its trains on both the Mt Newman and Goldsworthy Services and to work with BHPBIO to ensure that such access does not unduly interfere with or prejudice BHPBIO’s existing operations.

15                In September 2004, the Council issued a preliminary issues paper, inviting submissions on two issues: first, whether to deal with the application as two separate applications in respect of the Mt Newman Service and the Goldsworthy Service; and second, whether the service to which Fortescue seeks access is a ‘service’ for the purposes of Part IIIA of the Act. 

16                In November 2004, the Council published its statement of reasons in relation to the preliminary issues.  The Council’s decision in relation to the first preliminary issue, that the Access Application should be dealt with as two separate applications, is not in dispute for the purposes of these proceedings.  In relation to the second preliminary issue, the Council considered that the service of the specified part of the Mt Newman Railway Line was a service to which Part IIIA of the Act applies and that the Council therefore had jurisdiction to further consider Fortescue’s application with respect to the Mt Newman Service.  The Council considered that the service of the specified part of the Goldsworthy Railway Line was not a service to which Part IIIA applies, that the ‘production process’ exception in s 44B did apply, and therefore that the Council had no jurisdiction to further consider Fortescue’s application with respect to the Goldsworthy Service.

17                The Council then proceeded to consider the application under s 44G of the Act with respect to the Mt Newman Service only.  Pursuant to s 44F(2)(b)(i) of the Act, the Council recommended to the designated Minister (relevantly, the Commonwealth Treasurer) on 22 March 2006 that the Mt Newman Service be declared.

18                Having received the Council’s recommendation, the Treasurer had 60 days to decide whether to declare or not declare the service under s 44H of the Act.  That 60 day decision period expired on 22 May 2006 without the Treasurer having either published the declaration or his decision not to declare the Mt Newman Service.  As a result, the Treasurer was deemed to have decided not to declare the Mt Newman Service: s 44H(9).  

nature of the proceedings

19                Before me are two applications: an application filed in Victoria by BHPBIO (‘the Victorian Proceeding’) and an application filed in Western Australia by Fortescue (‘the Western Australian Proceeding’).

Victorian Proceeding

20                On 24 December 2004, BHPBIO filed an application in the Federal Court of Australia under ss 21 and 23 of the Federal Court Act 1976 (Cth), 163A of the Act and 39B of the Judiciary Act 1903 (Cth) seeking the following relief:

1.         A declaration that the bulk iron ore rail track transportation services provided by the Mount Newman rail facility (the Mt Newman rail track service) as defined in Part 5.1 of the application (the Access Application) filed by the Second Respondent under s 44F(1) of Part IIIA of the Trade Practices Act 1974 (Cth) (the Act) and dated 11 June 2004 is not a service within the meaning of s 44B of the Act.

2.         A declaration that by reason of the matters declared by Order 1 the First Respondent does not have jurisdiction or power to:

(a)        accept, consider, review, investigate, request or receive any submission in relation to or otherwise deal with the Access Application; or

(b)        make a recommendation regarding the declaration of the Mt Newman rail track service.

3.         An order prohibiting the First Respondent:

(a)        from further dealing with the Access Application; and/or

(b)        making a recommendation regarding declaration of the Mt Newman rail track service.

4.         Alternatively to 3 above, a permanent injunction restraining the First Respondent:

(a)        from further dealing with the access application; and/or

(b)        making a recommendation regarding declaration of the Mt Newman rail track service.

5.         Such further or other relief as this Honourable Court may deem appropriate.

Western Australian Proceeding

21                On 25 February 2005, Fortescue filed an application in the Federal Court of Australia under the same provisions as the Victorian Proceeding seeking the following relief:

1.         a declaration that the bulk iron ore rail track transportation services provided by the Goldsworthy rail facility (the “Goldsworthy rail track service”) as defined in Part 5.1 of the Applicant’s application filed under section 44F(1) of Part IIIA of the [Act] and dated 11 June 2004 is a service within the meaning of section 44B of the [Act] (the “Applicant’s Access Application”).

2.         a declaration that by reason of the matters declared by Order 1, the First Respondent has jurisdiction and power to:

(i)         accept, consider, review, investigate, request or receive any submission in relation to or otherwise to deal with the Applicant’s Access Application; and

(ii)        make a recommendation regarding declaration of the          Goldsworthy rail track service.

3.         An order requiring the First Respondent to:

(i)         further consider the Applicant’s Access Application; and

(ii)        make a recommendation regarding declaration of the                                  Goldsworthy rail track service.

4.         Such further or other relief as the Honourable Court deems appropriate.

22                At the hearing of these two applications, I was informed that the Council, in light of further information provided to it, now takes the view that the Goldsworthy Service is a service to which Part IIIA of the Act applies, but that no steps have been taken under the Act as a consequence of the new view of the Council.  The Council has not recommended to the delegated Minister that the Goldsworthy Service be declared.  No party suggested that this change in position of the Council impacted upon the relief sought by Fortescue, and the parties were content that I should proceed to determine the Western Australian Proceeding. 

Legislative framework

23                It is now useful to set out the legislative framework of the access regime in Part IIIA of the Act, which incorporates amendments made by the Trade Practices Amendment (National Access Regime) Act 2006 (Cth).  The objects of Part IIIA set out in s 44AA, which were effective from 1 October 2006, are to:

(a)       promote the economically efficient operation of, use of and investment in the infrastructure by which services are provided, thereby promoting effective competition in upstream and downstream markets; and

(b)       provide a framework and guiding principles to encourage a consistent approach to access regulation in each industry.

Declaration of a service

24                Under Part IIIA of the Act, a third party wanting access to a particular service must apply to the Council to have the service declared.  Any person can apply to the Council asking that a particular service be declared: s 44F(1).  On receipt of an application, the Council must tell the provider of the service that the Council has received the application, and must, after having regard to the objects of Part IIIA, make a recommendation to the designated Minister that the service be declared or not be declared: s 44F(2).  Without limiting the grounds on which the Council may decide to recommend that the service be declared or not be declared, s 44F(4) specifically requires the Council to consider whether it would be economical for anyone to develop another facility that could provide part of the service.

25                Further, the Council cannot recommend declaration of the service unless it is satisfied of all of the following matters set out in s 44G(2):

(a)       that access (or increased access) to the service would promote a material increase in competition in at least one market (whether or not in Australia), other than the market for the service;

(b)       that it would be uneconomical for anyone to develop another facility to provide the service;

(c)        that the facility is of national significance, having regard to:

(i)         the size of the facility; or

(ii)        the importance of the facility to constitutional trade or commerce; or

(iii)       the importance of the facility to the national economy;

(d)       that access to the service can be provided without undue risk to human health or safety;

(e)        that access to the service is not already the subject of an effective access regime;

(f)        that access (or increased access) to the service would not be contrary to the public interest.

26                On receiving a declaration recommendation, the designated Minister must either declare the service or decide not to declare it: s 44H(1).  In making his or her decision, the Minister must also have regard to the objects of Part IIIA: s 44H(1A).  Section 44H(2) specifically requires the Minister to take into account, in deciding whether to declare the service or not, whether it would be economical for anyone to develop another facility that could provide part of the service.

27                Further, the Minister must be satisfied, before he or she can declare a service, of all the following matters set out in s 44H(4):

 (a)      that access (or increased access) to the service would promote a material increase in competition in at least one market (whether or not in Australia), other than the market for the service;

(b)       that it would be uneconomical for anyone to develop another facility to provide the service;

(c)        that the facility is of national significance, having regard to:

(i)         the size of the facility; or

(ii)        the importance of the facility to constitutional trade or commerce; or

(iii)       the importance of the facility to the national economy;

(d)       that access to the service can be provided without undue risk to human      health or safety;

(e)        that access to the service is not already the subject of an effective   access regime;

(f)        that access (or increased access) to the service would not be contrary to the public interest.

28                The Minister is required to publish his or her decision (with reasons) within 60 days of receiving a declaration recommendation from the Council.  Failure to do this is deemed to be a decision of the Minister not to declare the service: s 44H(9).

Terms of access

29                If the Council recommends that the service be declared and the Minister declares that service, then access seekers have an enforceable right to negotiate access to the declared service on agreed terms.  Failing that, Part IIIA provides that access terms and conditions can be the subject of arbitration by the Australian Competition and Consumer Commission (‘the Commission’).

30                If a third party is unable to agree with the provider on one or more aspects of access to a declared service, either the provider or the third party may notify the Commission that an access dispute exists: s 44S.  The dispute then goes before the Commission for arbitration, the parties to which are the provider, the third party and any person who applies (subject to the Commission accepting they have sufficient interest).

31                Unless the Commission terminates the arbitration, it must make a written final determination on access by the third party to the service: s 44V(1).  Section 44V(2) describes the types of matters a determination may cover:

A determination may deal with any matter relating to access by the third party to the service, including matters that were not the basis for notification of the dispute.  By way of example, the determination may:

(a)       require the provider to provide access to the service by the third party;

(b)       require the third party to accept, and pay for, access to the service;

(c)        specify the terms and conditions of the third party’s access to the service;

(d)       require the provider to extend the facility;

(da)     require the provider to permit interconnection to the facility by the third party;

(e)        specify the extent to which the determination overrides an earlier determination relating to access to the service by the third party.

32                However, a determination does not have to require the provider to provide access to the service by the third party: s 44V(3).

33                Section 44W provides that the Commission must not make a determination that would have any of the effects listed in s 44W(1) as follows:

 (a)    preventing an existing user obtaining a sufficient amount of the service to be able to meet the user’s reasonably anticipated requirements, measured at the time when the dispute was notified;

(b)     preventing a person from obtaining, by the exercise of a pre-notification right, a sufficient amount of the service to be able to meet the person’s actual requirements;

(c)     depriving any person of a protected contractual right;

(d)     resulting in the third party becoming the owner (or one of the owners) of any part of the facility, or of extensions of the facility, without the consent of the provider;

(e)     requiring the provider to bear some or all of the costs of extending the facility or maintaining extensions of the facility;

(f)     requiring the provider to bear some or all of the costs of interconnections to the facility or maintaining interconnections to the facility.

34                Section 44X(1) provides the following matters must be taken into account by the Commission in making a final determination:

(aa)     the objects of this Part;

(a)       the legitimates business interests of the provider, and the provider’s interest in the facility;

(b)       the public interest, including the public interest in having competition in markets (whether or not in Australia);

(c)        the interests of all persons who have rights to use the service;

(d)       the direct costs of providing access to the service;

(e)        the value to the provider of extensions whose cost is borne by someone else;

(ea)      the value to the provider of interconnections to the facility whose cost is borne by someone else;

(f)        the operational and technical requirements necessary for the safe and reliable operation of the facility;

(g)       the economically efficient operation of the facility;

(h)       the pricing principles specified in section 44ZZCA.

Further, the Commission may also take into account any other matters it thinks relevant: s 44X(2).

Definitions

35                Section 44B defines certain key words and expressions for the purposes of Part IIIA, as follows:

In this Part, unless the contrary intention appears:

provider, in relation to a service, means the entity that is the owner or operator of the facility that is used (or is to be used) to provide the service.

service means a service provided by means of a facility and includes:

(a)       the use of an infrastructure facility such as a road or railway line;

(b)       handling or transporting things such as goods or people;

(c)        a communications service or similar services;

but does not include:

(d)       the supply of goods;

(e)        the use of intellectual property; or

(f)        the use of a production process

except to the extent that it is an integral but subsidiary part of the service.

third party, in relation to a service, means a person who wants access to the service or wants a change to some aspect of the person’s existing access to the service.

36                Of particular importance in these proceedings, the declaration process under Part IIIA of the Act only applies to a ‘service’ as defined in s 44B of the Act.  No issue in these proceedings arises as to the identity of the provider or any third party.

origins and purpose of part iiia

37                Part IIIA of the Act is to be interpreted as part of an economic statute designed to address economic activity.  This does not mean that each and every word or expression found in Part IIIA of the Act is to be interpreted as an economic word or expression, just that the economic context of Part IIIA of the Act provides the setting within which to interpret words and expressions.  The importance of the economic context was recognised by the Australian Competition Tribunal (‘the Tribunal’) in Re Australian Union of Students (1997) 147 ALR 458 at 462:

Part IIIA is based on the notion that competition, efficiency and public interest are increased by overriding the exclusive rights of the owners of “monopoly” facilities to determine the terms and conditions on which they will supply their services.

38                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 & 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. 

41                Chapter 11 of the Hilmer Report deals with access to essential facilities.  In that Chapter, the Committee said, at p 239:

An “essential facility” is, by definition, a monopoly, permitting the owner to reduce output and/or service and charge monopoly prices, to the detriment of users and the economy as a whole.  In addition, where the owner of the facility is also competing in markets that are dependent on access to the facility, the owner can restrict access to the facility to eliminate or reduce competition in the dependent markets.  Mechanisms to guard against potential abuses of this kind are expected to play a vital part in pro-competitive reforms in network industries such as electricity, gas and rail…

And at p 240 (footnotes omitted):

Some economic activities exhibit natural monopoly characteristics, in the sense that they cannot be duplicated economically.  While it is difficult to define precisely the term “natural monopoly”, electricity transmission grids, telecommunication networks, rail tracks, major pipelines, ports and airports are often given as examples.  Some facilities that exhibit these characteristics occupy strategic positions in an industry, and are thus “essential facilities” in the sense that access to the facility is required if a business is to be able to compete effectively in upstream or downstream markets.  For example, competition in electricity generation and in the provision of rail services requires access to transmission grids and rail tracks respectively.

And at p 241 (footnotes omitted):

Where the owner of the “essential facility” is vertically-integrated with potentially competitive activities in upstream or downstream markets…the potential to charge monopoly prices may be combined with an incentive to inhibit competitors’ access to the facility.  For example, a business that owned an electricity transmission grid and was also participating in the electricity generation market could restrict access to the grid to prevent or limit competition in the generation market.  Even the prospect of such behaviour may be sufficient to deter entry to, or limit vigorous competition in, markets that are dependent on access to an essential facility.

42                A key implication of the Hilmer Report is that there can be a number of stages in the provision of services that were thought to be naturally monopolistic in nature.  For instance, the provision of gas services to consumers might involve the extraction of gas from a gas field, the transportation of the gas (via a pipeline) from the gas field to a major population centre, the distribution of the gas to consumers via a reticulation system in the major population centre, and then the retailing of the gas to consumers.  While some of these stages may exhibit the characteristics that give rise to a natural monopoly, others may not.  For instance, in the gas example, while it may be uneconomic to duplicate the gas pipeline and reticulation systems at the transport and distribution stages of the supply chain, this does not mean it would be uneconomic to have more than one retailer of gas in a major population centre.  Similarly, it may not necessarily be uneconomic for there to be more than one organisation that can exist to operate gas fields served by the relevant pipeline.  However, if one organisation has control over that element in the supply chain that is naturally monopolistic in nature (i.e. the pipeline), it may be able to leverage the market power it acquires from this control into other stages of the supply chain that could otherwise be competitive.

43                One of the principal outcomes of an access regime, therefore, is that it can lead to the introduction of competition into those stages of the supply chain where it could exist by providing access to the natural monopoly infrastructure elements at other stages of the supply chain that could otherwise, in the absence of access, prevent such competition from occurring.

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.

47                The Hilmer Reportrecommended that one of the criteria for declaration (creating a right of access) should be as follows (at p 251):

II         The making of the declaration is in the public interest, having regard to:

(a)        the significance of the industry to the national economy; and

(b)        the expected impact of effective competition in that industry on national competitiveness. 

48                The Report then commented (at p 251):

These criteria may be satisfied in relation to major infrastructure facilities such as electricity transmission grids, major gas pipelines, major rail-beds and ports, but not in relation to products, production processes or most other commercial facilities.  While it is difficult to define precisely the nature of the facilities and industries likely to meet these requirements, a frequent feature is the traditional involvement of government in these industries, either as owner or extensive regulator. 

49                Whilst it may be accepted that the Hilmer Report had in mind that major utility industries (such as gas, electricity, rail, telecommunications, airports) would be subject to the regimes, and that the Hilmer Report was even primarily focused on the major utility services (which in Australia had traditionally been publicly owned monopolies), Part IIIA clearly covers privately owned infrastructure.  As the Hilmer Report says (at p 250):

These rules were designed recognising the fact that in Australia, whilst the majority of “essential facilities” have traditionally been owned by governments, there are many examples of privately owned facilities of similar nature.  The general rules proposed are intended to cover essential facilities, irrespective of ownership, where certain public interest and other criteria are met.  The need for additional adaptations in the case of government-owned facilities is considered in Section C.

50                Thus, the access regime under Part IIIA was to apply to certain facilities with monopolistic characteristics, and not to all such facilities.  That is, while it was intended the regime be used so that third parties could gain access to essential infrastructure that exhibited natural monopolistic characteristics, it was not intended that the regime be used to enable third party access to all infrastructures.  For instance, it is not intended that third parties could enter factories all around the country and demand access to machinery that may be in operation in these factories.  Rather, the regime was intended to apply only to infrastructure such as that outlined in paras (a) to (c) of the ‘service’ definition s 44B of the Act.  Undoubtedly the exclusions in paras (d) to (f) are to ensure that the access regime is not too broad in its application.

51                Hence, it is clear that the aim of the exclusion to the definition of ‘service’ in para (f) in s 44B is to place limits on the extent to which a third party is able to gain access to a provider’s infrastructure.  An important purpose of the exclusion in para (f) is to ensure that production or manufacturing plants are not brought within the access regime, and that access does not artificially interrupt or disturb a production chain.  Further, there was clearly seen to be a need to protect the viability of certain investments.  Whilst the Hilmer Report does not expressly indicate the genesis of the production process exception to the definition of ‘service’, the Report does refer to incentives for investment (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.

52                The Hilmer Report also expresses the intention that ‘products, production processes or most other commercial facilities’ should fall outside the access regime: at p 251.  In that context, the Hilmer Report referred to a decision of a United States court in Berkey Photo v Eastman Kodak Co 603 F 2d 263 (1979) in which a small photographic company sought (unsuccessfully) to obtain access to the products of Kodak’s research and development.

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. 

bhpbio’s operations in the pilbara region

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.

BHPBIO’s mining operations

56                As set out above, BHPBIO operates mines in four mining areas in the Pilbara region on behalf of the joint ventures.  Each of the joint ventures has appointed BHPBIO as the manager of the joint venture, with power to manage, supervise and conduct the business operations of the joint ventures.  BHPBIO undertakes this task using the services of employees and contractors.  The ownership of the ore mined from the mining areas is described below. 

Newman mining area

57                The Newman mining area consists of the following mines and pits currently operated by BHPBIO:

·                    Mt Whaleback;

·                    Orebodies 29 & 30;

·                    Satellite Orebody 25 (including Orebody 23);

·                    Orebody 18; and

·                    Jimblebar.

58                With the exception of Jimblebar, the lessees of the mines in the Newman mining area (and the owners of the ore from those mines) are the participants in the Mt Newman JV.

59                In relation to Jimblebar, until recently, ore from the Jimblebar mine was owned by BHP Iron Ore (Jimblebar) Pty Ltd (a wholly-owned subsidiary of BHPBM).  On 1 October 2005, ownership was transferred to the participants of the unincorporated joint venture Wheelara Joint Venture (‘Wheelara JV’), comprising BHP Iron Ore (Jimblebar) Pty Ltd 51%, Mitsui 4.2%, Itochu 4.8% and Australian subsidiaries of 4 Chinese steel mills.

Yandi mining area

60                The Yandi mining area consists of the following pits all currently operated by BHPBIO:

·                    Central 1 (‘C1’);

·                    Central 5 (‘C5’);

·                    Eastern 2 (‘E2’); and

·                    Western 4 (‘W4’).

61                With the exception of W4, ore from each of the pits that comprise the Yandi mining area is owned by the participants in the unincorporated joint venture Yandi Joint Venture (‘Yandi JV’), comprising the same participants in the same participating interests as the Goldsworthy JV.

62                Ore from W4 is owned by the participants in the unincorporated JW4 Joint Venture (‘JW4 JV’), comprising the Yandi JV and an Australian wholly-owned subsidiary of a Japanese steel mill.

Area C mining area

63                The Area C mining area consists of, at this stage, only Deposit C.  Ore from Deposit C is owned by the participants in the unincorporated POSMAC Joint Venture, comprising BHPBM 65%, Mitsui 7%, Itochu 8% and an Australian wholly-owned subsidiary of a Korean steel mill 20%.

Goldsworthy mining area

64                The Goldsworthy mining area consists of two mines known as Yarrie and Nimingarra, which are both operated by BHPBIO.  The ore from these mines is owned by the participants in the Goldsworthy JV.

BHPBIO’s iron ore products

65                BHPBIO contended that, in the production of its iron ore products, it conducts and manages an integrated and continuous process which includes:

(a)        drilling and blasting of ore at the mine;

(b)        the removal of waste from the ore;

(c)        the collection and hauling of the ore;

(d)        pre-crusher stockpiling;

(e)        crushing and screening the ore to reduce the particle size (in some cases);

(f)         beneficiation (in some cases) of the ore to increase the grade of iron in the ore;

(g)        post crusher stockpiling (in some cases);

(h)        train loading;

(i)         railing different types, grade and quantities of ore to the port in accordance with sequencing and scheduling determined by BHPBIO;

(j)         unloading at the port;

(k)        secondary (in some cases) and tertiary crushing and screening of the ore at the   port;

(l)         stockpiling and blending (in some instances) of the ore at the port to satisfy product specifications;

(m)       reclaiming the ore from stockpiles at port;

(n)        rescreening to remove undersize material; and

(o)        ship loading.

66                There was some dispute by the parties as to some of the details involved in the process, but in my view nothing turns upon the disputed elements of the process and operations as contended for by BHPBIO.  I proceed on the basis that the actual process and operations are as contended for by BHPBIO.

67                BHPBIO currently produces for sale six finished iron ore products from its Pilbara operations.  Those products are:

·                    Newman High Grade Lump (‘NHGL’);

·                    Newman High Grade Fines (‘NHGF’);

·                    Yandi Lump;

·                    Yandi Fines;

·                    MAC Lump; and

·                    MAC Fines.

68                Immediately prior to September 2006, BHPBIO also produced two other products comprising ore from the Goldsworthy mining area, being Goldsworthy Medium Grade Lump (‘GMGL’) and Goldsworthy Medium Grade Fines (‘GMGF’).  From September 2006 BHPBIO suspended the production of GMGL and GMGF.  However BHPBIO is continuing to mine within the Goldsworthy mining area at a reduced rate of approximately 2 million tonnes per annum (down from approximately 8 million tonnes per annum) with the majority of the mined ore being stockpiled at the relevant mine site.  At least until July 2007, BHPBIO will rail approximately 240,000 tonnes of ore per annum from the Goldsworthy mining area to port where that ore will be included in the blend of ores used to produce NHGL and NHGF products. 

69                NHGL and NHGF are blends of ore from the mines in the Newman mining area (and now also the Goldsworthy mining area).  Ore from each of these mines undergoes primary and secondary crushing at the mine.  It is then stockpiled at each mine, and railed to port in a form known as ‘run of mine’ (‘ROM’) ore.  The ore then undergoes tertiary crushing, if necessary, and screening and is stockpiled, blended and, in the case of lump, re-screened as finished products at the port.

70                Yandi Lump and Fines are blends of ore from the mines or pits located within the Yandi mining area.  The Yandi 1 and Yandi 2 fines are blended at the port to produce the Yandi Fines finished product.  The lump ore from Yandi 2 must be blended into stockpiles at the port prior to loading and shipment.  During the ship-loading process it is re-screened, with the screened fines being blended with the other Yandi fines. 

71                MAC Lump and Fines are produced from ore sourced from Area C mining area.  The ore undergoes primary, secondary and tertiary crushing at the mine, and is screened and stacked onto one of three lump stockpiles and one of three fines stockpiles at the mine.  At the port, the lump and fines from Area C are distributed onto stockpiles.  Lump from Area C undergoes further screening prior to shipment, with the screened fines being further blended with the port fines on stockpiles. 

72                While most of the ore railed from the mines in the Newman mining area undergoes further processing at Port Hedland including crushing and blending prior to being loaded onto a ship, some of the ore from the Area C and Yandi mining areas proceeds directly to ship from the port car dumpers.  This is known as direct to ship ore (‘DSO’).  DSO is only used with respect to two of BHPBIO’s products: Yandi Fines and MAC Fines.  DSO is only ever a portion of the ore in any given cargo.  It is mixed with other ore from the port stockpiles in the cargo hold, which is referred to as ‘in ship’ blending.  The proportion of DSO in any particular cargo is dependent on the rest of the cargo but in any event is around 20% of Yandi Fines and 25% of MAC Fines.

73                All of the iron ore produced by BHPBIO, other than the small proportion of Yandi Fines and MAC Fines that constitute DSO, is blended at the port facilities.  The blending at port occurs through the process of creating blending stockpiles at the port, and through the process of reclaiming the ore from the stockpiles.  Lump products must be re-screened at the port because lump products suffer physical degradation from the handling process between the mines and the port stockpile.  The fines that are removed from the lump are blended with the relevant fines product, which may improve the grade of the fines.

BHPBIO’s rail operations

74                Trains are dispatched from Port Hedland to train load out stations at the Newman, Yandi, Area C and Goldsworthy mining areas and travel along the Mt Newman and Goldsworthy Railway Lines.  All train movements are managed from the control centre at Port Hedland.

75                Trains on the Mt Newman Railway Line and Goldsworthy Railway Line carry ore in the following manner:

(a)               ore from the Newman mining areas is carried on the Mt Newman Railway Line and is unloaded at Nelson Point;

(b)               ore from the Yandi and Area C mining areas is either:

(i)                  carried along the Mt Newman Railway Line to Nelson Point for unloading (with a proportion of this ore being transferred to Finucane Island via the under harbour tunnel); or

(ii)                carried along the Mt Newman Railway Line until the point at which it crosses the Goldsworthy Railway Line and then carried along the Goldsworthy Railway Line to Finucane Island for unloading; and

(c)               ore from the Goldsworthy mining area is carried along the Goldsworthy Railway Line until the point at which it crosses the Mt Newman Railway Line and then carried along the Mt Newman Railway Line to Nelson Point for unloading.

76                The Mt Newman, Yandi and Goldsworthy Joint Ventures make payments to each other in respect of the use of the facilities owned by each joint venture by way of tolling formula.  The tolling amount is calculated by BHPBIO.  The Goldsworthy JV participants pay fees to the Yandi JV participants and the Mt Newman JV participants with respect to railing and, in the case of the Mt Newman JV participants, use of the Nelson Point port and Mt Newman rail infrastructure and railing of ore.  However, there are no written terms and conditions concerning the railing arrangements, and the fees are calculated by reference to a rate of return on a notional value of the assets employed. 

Generally

77                It seems clear that the overall objective of BHPBIO’s operations is to produce cargoes of iron ore products that meet customers’ expectations as to product specifications, grade variability, tonnages and timeliness.  Whether they do or do not meet customers’ expectations is not a matter of evidence before me, only that this is the objective sought by BHPBIO.

78                To consistently meet these expectations, BHPBIO uses an integrated approach to its mining, rail and port operations and marketing.  When I refer to an integrated approach, I mean by adding together each of the various operations, BHPBIO operates its production of iron ore as a whole from mine to port for the purpose of the overall objective of BHPBIO. 

79                BHPBIO’s use of the rail line is an operation that contributes to the creation of its finished product, and can even be seen as essential (as the BHPBIO’s existing operations attest) to the creation of the final export product.  Without the rail line, there would be no connection between mine and port.  The CSMS has been developed to ensure the carrying or conveying of iron ore over the rail line meets BHPBIO’s overall objective.  Of course, in itself the rail line does not create or make anything – it conveys the iron ore as part of the overall operation designed by BHPBIO to meet customers’ expectations.

the principal question in these proceedings

80                The principal question in these proceedings is whether the service provided by the relevant parts of the Mt Newman and Goldsworthy Railway Lines is a ‘service’ within the meaning of s 44B of the Act.  More specifically, the critical issue is the proper construction to be given to the expression ‘use of a production process’ in para (f) of the definition of ‘service’ as interpreted in the context of Part IIIA and the Act as a whole. 

characterisation of the service

81                There has been some debate before me as to the relevance to the issues in these proceedings of the nature of the service sought to be declared, in particular whether it should be characterised as a ‘below rail service’ or an ‘above rail service’.  The former was said by Fortescue to constitute the use of the rail line and associated infrastructure, and the latter constituting the carriage of goods on the rail line. 

82                The definition of ‘service’ in s 44B of Part IIIA of the Act specifically includes the use of an infrastructure facility such as a road or railway line.  In its terms, the definition distinguishes between the use of such an infrastructure facility and the handling or transporting of things, such as goods. 

83                In its Access Application, Fortescue identifies the services the subject of its application as a ‘below rail service’, being the use of the infrastructure facility (and associated infrastructure) consisting of the relevant parts of the Mt Newman Railway Line and the Goldsworthy Railway Line.

84                The Full Court confirmed the distinction between ‘above rail’ (transportation) and ‘below rail’ (infrastructure) services in its decision in Rail Access Corporation v New South Wales Minerals Council Ltd (1998) 87 FCR 517 (‘Rail Access Case’).  The Rail Access Case concerned the question of whether the NSW Rail Access Corporation provided a ‘government coal-carrying service’ within the meaning of Part IIIA of the Competition Policy Reform Act 1995 (Cth) which could therefore not be a ‘service’ within the meaning of Part IIIA of the Act.  Rail Access Corporation did not carry coal itself or offer the service of carrying coal, but it owned the railway line which Freight Rail Corporation used to carry coal and provided a below rail service to third parties seeking to run trains to transport coal on its tracks and related infrastructure.

85                In considering the definition of ‘service’ in s 44B, the Full Court held, at 524:

The definition of “service” in s 44B of the Act makes clear that a service is something separate and distinct from a facility.  It may, however, consist merely of the use of a facility.  The definition of “service” distinguishes between the use of an infrastructure facility, such as a road or railway line, and the handling or transporting of things, such as goods or people, by the use of a road or railway line.  The fact that one service provider, such as Freight Rail Corporation, is using the railway line infrastructure facility made available to it by Rail Access Corporation for the purposes of carrying coal by rail does not mean Rail Access Corporation is carrying on, or is the provider of, a service of carrying coal by rail.  There is a clear distinction, enshrined in the Transport Administration Act and confirmed by the NSW Rail Access Regime, between the service provided by Rail Access Corporation and the service provided by Freight Rail Corporation. Freight Rail Corporation provides the service of transporting coal.  Rail Access Corporation provides to Freight Rail Corporation the different service of making available the infrastructure facility which is necessary to enable Freight Rail Corporation to provide the transportation service.  The respondent is seeking access to the service provided by Rail Access Corporation, not the service provided by Freight Rail Corporation.

86                The Full Court concluded that the provider of a rail network or permanent way provides a different service to an entity that provides the service of carrying or transporting the coal using the rail network. 

87                Transportation of iron ore by rail from one location to another will necessarily though involve the use of above and below rail services, in the sense they are complementary to each other.  Access, if granted as sought by Fortescue, will involve the use of the rail lines and many systems employed by BHPBIO in the operation of the Mt Newman and Goldsworthy Railway Lines.  This, however, does not mean that Fortescue is to be treated as seeking anything other than the service the subject of the Access Application.  For the purposes of these proceedings, once the relevant service is identified and described by reference to the Access Application, it does not advance the matter further to characterise it either as a ‘below rail service’ or an ‘above rail service’.

principles to be adopted in the interpretation of part iiia

88                The process of construction of the definition of ‘service’ and the expression ‘use of a production process’ must begin by examining the context in which the definition appears and giving the words ‘presumptively the most natural and ordinary meaning which is appropriate in the circumstances’: Collector of Customs v Agfa-Gevaert Ltd (1996) 186 CLR 389 at 398 (‘Agfa’), applying Maunsell v Olins [1975] AC 373 at 391.  That is, the court must give the words a meaning which is consistent with the language and purpose of Part IIIA and the Act as a whole.  It is important to remember that whilst for the purpose of these proceedings one focuses upon the definition of ‘service’, it is just that, a definition.  One must consider the operative provision that incorporates that definition, and determine the purpose and ambit of the operative provisions. 

89                It is tempting to say that in any particular case a court may well be able to recognise a ‘service’ just as it can recognise an elephant when it sees one, but may not find it necessary to define it (see, e.g. R v Bradbourn [1985] Crim LR 682).  The difficulty with this approach is that it provides little, if any, guidance on the considerations that need to be considered in arriving at a reasoned decision.

90                In Network Ten Pty Ltd v TCN Channel Nine Pty Ltd (2004) 218 CLR 273 the High Court restated a number of the key principles of statutory interpretation.  In doing so, the Court cited with approval (at 280, [11]) the following extract from the judgment of the High Court in CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 at 408 (footnotes omitted):

Moreover, the modern approach to statutory interpretation (a) insists that the context be considered in the first instance, not merely at some later stage when ambiguity might be thought to arise, and (b) uses “context” in its widest sense to include such things as the existing state of the law and the mischief which, by legitimate means such as those just mentioned, one may discern the statute was intended to remedy.  Instances of general words in a statute being so constrained by their context are numerous.  In particular, as McHugh JA pointed out in Isherwood v Butler Pollnow Pty Ltd, if the apparently plain words of a provision are read in the light of the mischief which the statute was designed to overcome and of the objects of the legislation they may wear a very different appearance.  Further, inconvenience or improbability of result may assist the court in preferring to the literal meaning an alternative construction which, by the steps identified above, is reasonable open and more closely conforms to the legislative intent.

91                Furthermore, s 15AA of the Acts Interpretation Act 1901 (Cth) requires that a construction which promotes the purpose or object underlying the Act is to be preferred to a construction that would not promote that purpose or object. This is so even if the meaning of the words, interpreted in the context of the rest of the Act, is clear.  When the purpose or object is brought into account, an alternative interpretation of the words may become apparent.  However, I accept that if the words of a legislative provision are capable of only one construction, taking into account the purpose and context of the provision, then a court cannot ignore them and substitute a different construction because the court considers it somehow furthers the object of the legislation.

92                In Mills v Meeking (1989) 169 CLR 214 at 235 Dawson J clearly explains this principle, stating:

However, if the literal meaning of a provision is to be modified by reference to the purposes of the Act, the modification must be precisely identifiable as that which is necessary to effectuate those purposes and it must be consistent with the wording otherwise adopted by the draftsman.  Section 35 [of the Interpretation of Legislation Act 1984 (Vic)] requires a court to construe an Act, not rewrite it, in the light of its purposes.

93                Justice McHugh made the same observation in Newcastle City Council v GIO General Ltd (1997) 191 CLR 85 at 109:

…in applying a purposive construction, “the function of the court remains one of construction and not legislation”.  When the express words of a legislative provision are reasonably capable of only one construction and neither the purpose of the provision nor any other provision in the legislation throws doubt on that construction, a court cannot ignore it and substitute a different construction because it furthers the objects of the legislation.

94                Nevertheless, context is important.  The significance of context was articulated well by Learned Hand J, first in Helvering v Gregory (1934) 69 F (2d) 809 at 810:

It is quite true…that as the articulation of a statute increases, the room for interpretation must contract; but the meaning of a sentence may be more than that of the separate words, as a melody is more than the notes, and no degree of particularity can ever obviate recourse to the setting in which all appear, and which all collectively create. 

And also in Cabell v Markham (1945) 148 F (2d) 737 at 739:

…of course it is true that the words used, even in their literal sense, are the primary, and ordinarily the most reliable, source of interpreting the meaning of any writing: be it a statute, a contract or anything else.  But it is one of the surest indexes of a mature and developed jurisprudence not to make a fortress out of the dictionary; but to remember that statutes always have some purpose or object to accomplish, whose sympathetic and imaginative discovery is the surest guide to their meaning.

95                In the context of these proceedings, involving the application of Part IIIA, to adopt an approach which would be contrary to the main concepts referred to in the Hilmer Report as adopted by Parliament would not involve the sympathetic discovery which should take place in ascertaining the meaning to be given to the terms under consideration here.

96                I should also mention two other matters which are relevant to my deliberation.  First, one should be mindful of the well-recognised limit to the use to be made of dictionary definitions of words.  In House of Peace Pty Ltd v Bankstown City Council (2000) 48 NSWLR 498 at 505, [28], Mason P (with whom Stein and Gyles JJ agreed) observed, in relation to the role of a dictionary meaning of a word in the task of statutory interpretation, that:

They can illustrate usage in context, but can never enter the particular interpretive task confronting a person required to construe a particular document for a particular purpose.

97                The second matter is that the construction of the definition of ‘service’ and the term ‘use of a production process’ has been comprehensively considered by a single judge of this Court in Hamersley Iron Pty Ltd v National Competition Council (1999) 164 ALR 203 (‘Hamersley’). 

98                I accept that I should not depart from the ratio decidendi of the Hamersley decision unless I am satisfied it is ‘clearly wrong’ or ‘plainly wrong’: see Nezovic v Minister for Immigration & Multicultural & Indigenous Affairs (No 2) (2003) 133 FCR 190 (‘Nezovic’) at 206, [52]; Marr v Australian Telecommunications Corp (1991) 34 FCR 82; Upperedge v Bailey (1994) 13 ACSR 541 at 543; Bank of Western Australia Ltd v Commissioner of Taxation (1994) 55 FCR 233 at 255.  It would not be sufficient for a judge to merely reach one view, which he or she may prefer over that of an earlier decision, and upon that basis not follow the strong persuasive authority that has already pronounced on the same legislative provision.  Before a judge refuses to follow an earlier decision regarding the construction of the same legislative provision he or she must come to the view the earlier decision is ‘clearly wrong’ or ‘plainly wrong’.

99                Justice French in Nezovic noted that the rule that one judge of the same or co-ordinate jurisdiction should follow another has greater significance in the area of statutory construction.  His Honour said (at 206, [52]):

The judgment of Hely J in Tuncok is a carefully considered and recent judgment on the same issue as is before me in the present proceedings. Unless I was satisfied that his Honour was plainly wrong, I would not be justified in departing from the ratio of his decision on that point. In that respect I refer to what I said in Hicks v Minister for Immigration and Multicultural and Indigenous Affairs [2003] FCA 757.  Judicial comity does not merely advance mutual politeness between judges of the same or co-ordinate jurisdictions. It supports the authority of the courts and confidence in the law by the value it places upon consistency in judicial decision-making and mutual respect between judges. Where questions of law and in particular statutory construction are concerned, the view that a judge who has taken one view of the law or a statute is “clearly wrong” is not lightly to be adopted having regard to the choices that so often confront the courts particularly in the area of statutory construction.

100            Nevertheless, one must recall the statement of Kirby J in Central Bayside General Practice Association Ltd v Commissioner of State Revenue (2006) 80 ALJR 1509 at 1528, [84]:

Where the law in issue is expressed in the form of an Act of an Australian legislature, it is in the words of that statute that the content of the legal obligation is to be found, not in judicial synonyms, restatements or approximations.

101            This is a statement of principle which, as Kirby J indicated has been repeated and emphasised on many occasions: (see the cases referred to by his Honour in fn 64).

102            It is important that the courts look at the relevant statutory provisions (in their context), and not give priority to judicial exposition of legislation over the meaning to be derived from the actual legislation itself (see Roy Morgan Research Centre Pty Ltd v Commissioner of State Revenue (Vic) (2001) 207 CLR 72 at 89, [46] per Kirby J).  The Court has an obligation and duty to give effect to relevant provisions of any legislative provision upon determining the correct interpretation to be placed upon them. 

The Hamersley Decision

103            BHPBIO contends that the meaning of the expression ‘use of a production process’ was correctly stated in Hamersley.  It is contended by the Council that the Hamersley decision is clearly wrong.  Fortescue supported the decision of ‘production process’ adopted in Hamersley, but contended that the trial Judge made errors of principle in her reasoning so as to lead her to the wrong conclusion.  In addition, Fortescue contended that Hamersley was plainly distinguishable.  In view of these submissions the question of the correctness or otherwise of the Hamersley decision falls for my consideration, as does the question of whether the decision can be distinguished.

104            The decision in Hamersley arose after an application was made by one of the respondents in the proceeding (which I will refer to as ‘Robe’) to the Council under s 44F(1) of the Act to recommend to the designated Minister declaration of a service.  The service to which Robe sought access was identified in its application as ‘the bulk iron ore rail track transportation service provided by the Hamersley Rail Infrastructure Facility’.  Robe specifically distinguished this service from any rail haulage service which may be available in relation to the facility.  In essence, Robe sought access to what it termed the rail track service provided by Hamersley Iron Pty Ltd (‘Hamersley’) by means of a facility owned by Hamersley, including associated infrastructure, but not including locomotives, rolling stock, hi-rails or operational personnel.

105            One of the main issues in the proceeding was whether the service to which access was sought by Robe was a ‘service’ within the meaning of Part IIIA of the Act.  In particular, the issue was whether the rail track service involved the use of a production process.

106            In determining what was meant by the expression ‘production process’ the learned trial Judge used dictionary definitions of the word ‘production’ and the word ‘process’ as the starting point for her analysis.  Her Honour concluded (at 213, [34]) that:

The expression “production process” in the definition of “service” in s 44B of the Act means, in my view, a series of operations by which a marketable commodity is created or manufactured.

I will refer to this definition of ‘production process’ as the ‘Hamersley Construction’.

107            After referring to this definition, her Honour continued:

Hamersley’s production process in the Pilbara extends, on this view, from its commencement of mining operations at the mines to the completion of the product that it sells, namely, export product.

108            In support of her view, the learned trial Judge referred to the judicial analyses of related expressions, including the term ‘the product’ in a series of cases about whether an activity or series of activities was part of a taxpayer’s ‘mining operations’ for the purposes of income tax deductions and sales tax exemptions.

109            Having determined the meaning of the term ‘production process’, the learned trial Judge then considered the purpose of the expression as an exclusionary criterion within the definition of ‘service’ in s 44B of the Act.  In doing so, she noted that Part IIIA was introduced into the Act as a result of the Competition Principles Agreement and the recommendations of the Hilmer Report.  Her Honour concluded (at 217, [46]) that:

The purpose of the exclusion was, it seems, to permit appropriate utilisation of certain infrastructure by third parties and, at the same time, protect the viability of investments made by those who had invested in, for example, the processes of production.

110            In light of this conclusion, the learned trial Judge dismissed an argument that in order for the proposed service to come within the exemption it had to comprise the entire relevant production process and not just one part of it, such as the railway line, on the ground that such an interpretation of ‘production process’ would defeat the purpose of the exclusion. 

111            As to the concept of ‘use of’ her Honour held (at [51]) that: (emphasis in original)

To use a production process, then, is, in some way to employ, apply or exploit a process directed to production.  Most commonly, a user makes use of a production process to create the product or products which the process of production is designed to create.  That is not, however, the only sense in which a user can be said to engage in ‘the use of a production process’.  Someone may use a production process by incorporating it into another process or operation.  To use a production process may not only involve incorporating it into a larger operation; it is also possible to ‘use a production process’ by using (employing, applying, exploiting) part of that process.  That is, the use of a production process extends, in my view, not merely to the use of the whole process but also to the use of any operation (or step or procedure) that is integral (and perhaps essential or non-subsidiary) to that process as a whole.  In this case the use of the railway is integral and essential to the highly integrated series of operations that constitute Hamersley’s production process.

112            The learned trial Judge found on the evidence adduced by Hamersley that by virtue of the highly integrated nature of Hamersley’s operations in the Pilbara, Hamersley operated its railway line not simply for transporting ore from mine to port but also as a necessary component of an integrated set of operations which constituted a production process: at 220, [55].

113            In reaching her ultimate conclusion the learned trial Judge made a number of important observations and factual findings.  In considering the object of Hamersley’s use of the railway line, the learned trial Judge observed (at 215, [39]):

What is the relevance, if any, of the operational ends of Hamersley’s use of its railway line?  The respondents submitted that Hamersley’s own use of its railway line is irrelevant, because that use forms no part of the service sought by them.  That submission is, it seems to me, accurate to a limited extent only.  Thus, I accept that the ultimate issue is the correct characterisation of the service (or use of the railway line) sought by Robe.  I do not accept, however, that the operational ends that Hamersley meets by its use of the railway line are immaterial.  Those ends, or the uses to which Hamersley puts its use of the line, are relevant, in my view, to the question whether the service Robe seeks is or involves the use of a production process.

114            Her Honour then went on to set out the following central facts about Hamersley’s production process (at 216, [40]):

I have already set out the facts concerning Hamersley’s operations in the Pilbara in some detail because, in my view, the outcome of this case necessarily turns on them.  In summary, the central facts are the following.

(1)     Hamersley’s railway line carries locomotives, consists and like vehicles between Hamersley’s mines and the port at Dampier; 

(2)          Ore of differing grades, composition and quantities is carried in the consists that run along the line; 

(3)          The grades, composition and quantities of ore carried in the consists (from each mine to the port) are pre-determined by the [Batch Planning Team] in accordance with a ‘recipe’ that the [Batch Planning Team] formulates for making a particular batch of export product;

(4)          The consists carrying the ore are run over the line in a planned sequence as part of making up the recipe for a particular batch and as part of blending and stockpiling operations;

(5)          (Save for Yandicoogina) by virtue of the batch system Hamersley’s mines operate as if each were a pit within a larger mine;

(6)          Although not blended with ore from other mines, ore from Yandicoogina is subject to essentially the same process.  (The respondents did not submit that ore from Yandicoogina was subject to a relevantly different production process.);

(7)          Each step in the production process, including the use of the railway line for the carriage of ore in accordance with a recipe for a batch of product, is part of a highly integrated operation designed to make the export product; and

(8)          The export product is brought into being at the port at Dampier after all blending and stockpiling operations are complete.

115            Her Honour then concluded (at [41]):

Hamersley’s use of its railway line (and associated infrastructure) is, it seems to me, one in a series of operations that result in the creation of its export product.  (Nothing turns in this analysis on the fact that Robe seeks access to a part of the length of the railway line and not to the whole of the length of the line.)  By the use of its railway line (and associated infrastructure) it does not merely convey ore by rail from mine to port, it makes up the recipe that it has formulated for the creation of a particular batch of its product.  The making-up of a recipe for a batch of product depends on the line being made available (by Hamersley) for Hamersley’s use.  That is the effect of the undisputed evidence.  It follows from this that Hamersley’s use of its railway line is an integral (indeed, essential) operation in Hamersley’s production process.  That is, by virtue of the operations carried on by Hamersley in the Pilbara, Hamersley’s use of the railway line is an operation upon which other operations necessarily depend for the creation of its export product.  (In this connection, I emphasise that I am not concerned with the application of the exemption from the exclusion; rather, I am concerned with the operation of paragraph (f) of the exclusion.)

116            I make the following observations on the approach taken in Hamersley.  First, the learned trial Judge carefully considered the question before her, and analysed in detail the various terms used in Part IIIA.  There was a detailed consideration of the purpose of Part IIIA and of the exclusion in question.  The different conclusion I have reached, and where I find Hamersley to be ‘clearly wrong’ or ‘plainly wrong’, is in the approach taken to defining ‘the use of a production process’. 

117            Secondly, I can see no objection to interpreting a composite phrase by reference to the dictionary definitions of one or more of the words within that composite phrase.  Everything will depend upon the context and subject matter of the composite phrase.  Of course, the context is the master not the dictionary definitions of single words, particularly where one has a phrase involving a number of individual elements combining to introduce into legislation a single concept.  However, approaching the expression ‘production process’ as merely the combination of the dictionary definitions of the individual words ‘production’ and ‘process’ has its dangers, and in itself may not yield the correct interpretation of the expression in Part IIIA of the Act. 

118            I do not disagree with her Honour’s use of the definitions of ‘production’ and ‘process’ as a starting point to the sympathetic understanding of the operation of the relevant provisions.  However, as a composite phrase, in my view the emphasis is on a process of production, being a production process which in itself makes or creates one thing into another, not being so much a series of operations covering relevantly in Hamersley, mine to port operations.  If one focuses, as her Honour does, on the ‘series of operations’ concept, then one readily moves to the conclusion in Hamersley that the ‘production process’ includes the entire operation from mine to port. 

119            I do not think this is warranted as a matter of the most ordinary and natural meaning of the term, particularly when dealing with the composite term ‘production process’.  By looking at the overall series of operations one diverts attention away from the very thing to which access is sought in the Access Application (the railway line and associated infrastructure), and the function it has to perform.  The railway line in itself is not designed to make or create anything.  Further, with or without the ‘batch system’, iron ore could be carried over the rail line, and whether or not the ‘batch system’ was employed does not affect the character of the railway line itself.  The ‘batch system’ was merely a management tool in the efficient carriage of iron ore over the railway line, albeit from Hamersley’s point of view, an important one.

120            Thirdly, the concept of marketable commodity (of which I will discuss later) is not found in the dictionary references made in Hamersley.  This concept arises out of the tax cases her Honour refers to such as Federal Commissioner of Taxation v Hamersley Iron Pty Ltd (1981) 12 ATR 429 at 440 per Lush J (with whom Kaye J agreed); at 444 per Brooking J. 

121            In my view, I see no warrant to introduce such a concept into the definition of ‘service’ or the phrase ‘use of production process’ in the context of Part IIIA.  Whilst the learned trial Judge in Hamersley was acutely aware of the limited assistance to be afforded by those cases she relied upon, in my view the purposes of the statutory regimes are so dissimilar that there is no warrant to introduce the concept of ‘marketable commodity’ into the meaning to be given to a ‘production process’.  In addition, by introducing the concept of ‘marketable commodity’, as these proceedings attest, introduces an even greater uncertainty into the operation of Part IIIA.  It also detracts, in my view, from the main enquiry, which is to define what is a production process.  In looking at the most natural and ordinary meaning of the words found in the exclusion in para (f), one is not directed to an enquiry as to what is a ‘marketable commodity’, which has taken prominence in these proceedings.

122            Fourthly, her Honour recognised that the concept of ‘use of’ a production process most commonly imparts the notion of a user making use of a production process to create the product or products which the process of production is designed to create.  In my view, this is the very concept that ought be incorporated into the phrase ‘use of a production process’.  It fits well within the most natural and ordinary meaning to be given to the term ‘a production process’, and by employing that concept one does not necessarily exclude the whole rail line from the possibility of consideration for declaration under Part IIIA.  In view of the specific inclusion of a railway line as a service, the interpretation of ‘use of a product in process’ given in Hamersley is not appropriate.  It has the potential to exclude infrastructure that would normally be expected to be considered under Part IIIA for access, and does not assist in promoting the purposes of Part IIIA.

123            Fifthly, in my view the learned trial Judge focused not upon the phrase ‘use of a production process’ but the concept of ‘involving the use of a production process’.  The critical question was whether the ‘service’ in respect of which Robe sought access was or constituted the use of a production process.  The exclusion does not extend to something which merely ‘involves’ the use of a production process.  The learned trial Judge’s approach in any given circumstance may not lead to any different conclusion, but when considering the ‘highly integrated operation’ from mine to port as in Hamersley, approaching the matter as ‘involving’ the use of a production process, did lead, in my view to an erroneous conclusion.  It diverted attention away from the service the subject of the Access Application and from a proper characterisation of the railway line itself. 

124            Finally, I agree with the principle in the Hamersley decision that in determining whether the ‘production process’ exclusion is applicable, the court must consider ‘the actual operation of the activities in question, considered as a whole.  The question of characterisation is, in this sense, one of fact and degree’ (at 213, [48]).  As I have indicated, however, the use of the railway line as part of its operations, even if essential to Hamersley’s operations, does not mean that the railway line has the character of being ‘a production process’.  The use of the railway line itself was to convey iron ore by rail from mine to port by whatever management tool was appropriate to employ, and did not of itself constitute the use of a production process.

125            In light of the above, with respect to the learned trial Judge, I have come to the conclusion that the decision in Hamersley is ‘clearly wrong’ or ‘plainly wrong’, and I should not follow it in these proceedings.

Is Hamersley to be distinguished in any event?

126            Fortescue contended that Hamersley was plainly distinguishable on its facts for three principal reasons.  First, it was submitted that the above rail/below rail distinction found to be irrelevant in Hamersley was relevant on the facts in these proceedings because the Mt Newman JV and the Goldsworthy JV own the facilities which provide the two below rail services to which Fortescue seeks access, whilst BHPBIO provides to Mt Newman JV, Goldsworthy JV and the Yandi JV above rail services to which Fortescue does not seek access. 

127            Secondly, it was submitted that the production process as relied upon by BHPBIO in these proceedings is relevantly different from that found by the learned trial Judge in Hamersley, and was not the ‘highly integrated operation’ therein described.

128            Thirdly, it was submitted that, whilst the learned trial Judge in Hamersley found there was no ‘marketable commodity’ produced by Hamersley before the export product which it produced at Dampier, and concluded for that reason that Hamersley’s production process included the railing of the ore between Hamersley’s mines and Dampier, in these proceedings there are marketable iron ore products produced at the mines serviced by the Mt Newman and Goldsworthy Railway Lines prior to rail transportation to Port Hedland, and so the relevant production process is complete prior to railing the ore.

129            Accepting the approach of the learned trial Judge in Hamersley, I do not consider that a different result would have been reached in Hamersley had the three alleged distinguishing features been present in that case. 

130            In relation to the first feature, there is nothing in her Honour’s reasoning that would lead to the conclusion that she would have reached a different conclusion if joint venture parties (as providers) owned the facilities which would have provided the below rail services to which Robe sought access.  The essential question the learned trial Judge determined was whether access was being sought to the use of a production process.  On her Honour’s reasoning, as detailed above, the exception in para (f) would apply irrespective of the ownership of the facilities, and irrespective of the distinction sought to be made by Fortescue here of the above rail/below rail services. 

131            As to the second feature, upon the facts as I have found them in relation to the operations of BHPBIO, I can see no material difference in the operations of Hamersleyfound by her Honour.  In particular, BHPBIO’s operations in these proceedings effectively consist of carrying iron ore over the railway line in a planned sequence as part of making up ‘the recipe’ for the iron ore eventually blended and stockpiled, to adapt the words of her Honour.  In essence, the findings I have made in relation to BHPBIO operations indicate no material difference to the elements relied upon by her Honour in Hamersley at [40].

132            I now turn to the question of when the ‘marketable commodity’ is produced.  It is necessary for me to consider in some detail the context in which ‘marketable commodity’ was used by her Honour.  There is some dispute between the parties as to the meaning of the expression ‘marketable commodity’ used by the learned trial Judge in Hamersley.  Expert evidence was led by Fortescue in support of its position, but in light of the following analysis, nothing turns on such evidence.

133            BHPBIO submitted that the marketable commodity to which the learned trial Judge referred was Hamersley’s finished product, or ‘export product’.  The inquiry, it was submitted, was focused on the products that were produced by Hamersley for sale to end-user customers, and the series of operations undertaken by Hamersley to produce those products.  BHPBIO submitted that the interpretation did not involve or invite a hypothetical inquiry into whether a commodity capable of being sold was ‘produced’ at an earlier point in time: the case involved an inquiry into the actual operations undertaken, and the actual products created, or manufactured, for sale to end users by Hamersley.

134            Fortescue, on the other hand, contended that the term ‘marketable commodity’ in Hamersley referred to a product that is capable of being sold rather than one which is actually sold.  In its submission, whether a product is capable of being sold depends upon whether there are actual or potential transactions for that product.  The potential for transactions will exist if the transaction costs associated with the separate provision of goods or services at the two layers cannot be such that vertical integration is inevitable.

135            In my mind, it is difficult to accept Fortescue’s submissions on this point.  In the learned trial Judge’s discussion of the meaning of ‘process’, she referred to the Macquarie Dictionary, which defined ‘process’ as ‘a systematic series of actions directed to some end’ (at 213, [32]).  Her Honour also referred to the definition of ‘process’ in the Oxford Dictionary, which referred to a series of actions carried on ‘in a definite manner, and leading to the accomplishment of some result’. 

136            Having regard to the definitions of the individual terms that make up the composite phrase ‘production process’, it seems to me that the ‘marketable commodity’ to which the learned trial Judge referred was the finished product, or export product, that Hamersley sells (at 213, [34]):

Hamersley’s production process in the Pilbara extends, on this view, from its commencement of mining operations at the mines to the completion of the product that it sells, namely, export product.  There was no evidence to show that Hamersley produces a marketable commodity at an earlier stage.

137            Fortescue argued that the final sentence implies that, had there been evidence to show that Hamersley produced a marketable commodity at an earlier stage, the learned trial Judge may have reached the conclusion that the production process finished once that marketable commodity was produced, such as before the ore is railed to the port.  However, this does not detract from the learned trial Judge’s focus on the product that Hamersley ‘sells’.  Her focus is on the end product that Hamersley’s production process is directed to producing, and indeed does produce.  Accordingly, the main focus for me in this case must be the commodities that are sought to be produced by BHPBIO.

138            Even if I am wrong on this point, and accept the submission that the term ‘marketable commodity’ refers to no more than a product for which there is a potential or actual market, it is still necessary for me to assess whether the production process used by BHPBIO produces the actual marketable commodities at the port.  Whilst it may be, as Fortescue submited, that a marketable commodity is produced by BHPBIO at a stage before railing the ore to the port and therefore before the use of either the Mt Newman or Goldsworthy Railway Lines, BHPBIO also produces marketable commodities, not only capable of being sold but that are in fact sold, at the port.  Accordingly, where a marketable commodity is produced by BHPBIO at the port, all of the integrated series of operations by which that marketable commodity is produced will constitute the production process under the Hamersley Construction.

139            It is instructive to analyse the application of the Hamersley Construction to the evidence in this case to determine whether the third distinguishing feature relied upon would have produced a different result in the Hamersley case.  The issue requires an analysis of whether the railway facilities to which Fortescue seeks access are an integral part of the series of operations by which any (or all) of BHPBIO’s marketable commodities are created or manufactured.

140            The output of BHPBIO’s production process is currently six bulk iron ore products that are offered for sale to steel makers, primarily on the export market.  The iron ore products are sold as the ore is loaded onto ships at Port Hedland.  The iron ore products have consistent and specific chemical and physical properties.  Those properties are determined by BHPBIO, having regard to BHPBIO’s perception of what is acceptable to its customers, and having regard to BHPBIO’s perception of the optimal manner of using its available mineral resources.  The process by which BHPBIO produces the six finished iron ore products for export at Port Hedland involves an integrated series of operations as has been described above.

141            However, the process by which BHPBIO produces each of its six bulk iron ore products differ to some extent.  Despite this, BHPBIO submitted that it has only one overall production process for the purposes of producing all of its iron ore products.  In the alternative, BHPBIO submitted that it conducts more than one production process to the extent that the operations by which the different products are produced differ.  For the purposes of applying Hamersley, I do not accept BHPBIO’s first submission that it has only one overall production process for all its products.  However, I do accept its alternative submission.  Hamersley requires an analysis of the process by which a marketable commodity is produced and each of BHPBIO’s exported iron ore products clearly constitutes a marketable commodity whether on the definition contended by Fortescue or BHPBIO.  To the extent that the process by which each marketable commodity is produced differs, the use of the Mt Newman and Goldsworthy Services in that process will also differ.  Therefore, applying Hamersley, there would be more than one production process, but still from mine to port and involving the use of the railway line.

142            Fortescue further submitted that BHPBIO produces iron ore which is a marketable commodity prior to its transportation on either the Mt Newman or the Goldsworthy Railway Lines by reason of a number of joint venture transactions.  The facts establish that iron ore is sold between different joint ventures at the various mine sites.  In particular, the evidence shows the transfer of ownership of ores mined from Jimblebar, W4 and Mining Area C.  These joint venture transactions at the mine sites are legitimate commercial transactions and evidence a market for ROM ore at the Newman mining area.  Therefore the ROM ore is a marketable commodity (applying the definition contended for by Fortescue) produced without the use of the rail lines.  Fortescue submitted that, therefore, the use of the Mt Newman and Goldsworthy Rail Lines are used after the end of a production process. 

143            Whilst I accept that a marketable commodity (within the meaning contended for by Fortescue) is produced in these instances at the mines, the evidence establishes that after ownership of these ores is transferred at the mine, the relevant ores continue to undergo further processing.  The further processing is directed to the production of finished bulk iron ore products by BHPBIO to be loaded onto ships at Port Hedland for export.  Fortescue did not dispute that through its operations at the port BHPBIO seeks to make, in relation to some ore, a more refined and valuable product.  However, Fortescue submitted that these port operations, under which ore from some of the mines is further crushed, screened and blended and ore from other mines is blended and screened are separate production processes to those undertaken at each of the mines. 

144            Applying Hamersley, I do not accept this submission.  The extent to which the ROM ore undergoes further development in order to produce some other marketable commodity of different physical or chemical constitution, in this case NHGL and NHGF, necessarily means that the production process for NHGL and NHGF, which commences at the mine, does not finish until the finished product is produced at the port.

145            Fortescue also submitted that, in respect of at least two of the iron ore products produced by BHPBIO (Yandi Fines and MAC Fines), finished products are produced at the mine without the use of the rail line as a proportion of these products are loaded as DSO without undergoing further processing at the port after railing.  I do not accept the contention that a particular service must solely be used as part of a production process according to the principles adopted in Hamersley.  Accordingly, accepting that a proportion of Yandi Fines and MAC Fines products are finished at the mines, and accepting Fortescue’s submission that the production process in relation to that proportion of Yandi Fines and MAC Fines ends at the mine, it does not necessarily follow that the Mt Newman and Goldsworthy Railway Lines are not a part of BHPBIO’s production process used to create BHPBIO’s other finished products.

146            The evidence clearly shows that all six of BHPBIO’s final export products, apart from the small proportion of Yandi Fines and MAC Fines loaded as DSO, are produced at the port, after transportation on the relevant rail facilities.  Accordingly, in relation to all of BHPBIO’s products (or ‘marketable commodities’) on the Hamersley Construction the production process extends from the commencement of mining operations at the mines and ends at the port, when that final product is created.

147            Therefore, in light of the above, there is no basis to distinguish the ratio decidendi in Hamersley to the facts pertaining to these proceedings.

FURTHER consideration

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 Airportcase) 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.

150            Putting aside the Hamersley decision, in my view the question before the Court can be resolved by the following analysis.

151            BHPBIO uses the rail line in its operations, and schedules trains which run on the track as part of BHPBIO’s overall production of iron ore.  One can conclude that, by virtue of the operations carried on by BHPBIO, its use of the railway line is an activity upon which other operations necessarily depend for the creation of its export product.  Fortescue, by gaining access, may well interfere with BHPBIO’s operations and scheduling of trains, but this will be a matter to be assessed at a later part of the statutory investigation under Part IIIA.  The fact that access to the relevant service sought by Fortescue may impact upon, or be a part of, BHPBIO’s operations does not mean that access to the rail lines and associated infrastructure and systems is access to the ‘use of a production process’. 

152            A production process is the creation or making of a product or the transforming of one thing into another.  To use a production process is to employ, apply or exploit a process for this purpose.  This most natural and ordinary meaning can be seen from the use of the definitions of ‘production’, ‘process’ and ‘use’ in the Oxford English Dictionary and the Macquarie Dictionary, which may be used as a first point of reference.  However, as I have discussed previously, the relevant expression is a composite term and must be read in the context of the definition, Part IIIA and the Act as a whole. 

153            The focus of the enquiry is upon the essential nature of each railway line and associated infrastructure to which access is sought, and the particular ‘production process’ to which access and protection from access is respectively sought.  The issue of whether or not the infrastructure facility sought to be accessed is the use of a production process can be answered by reference to whether the process is actually creating or making a product or transforming one thing into another.  The rail service involves the use of infrastructure or a facility that enables the transportation of one product from one location to another, but the infrastructure facility (the railway line and associated infrastructure) does not transform that product into something different.  Even if the railway line is an integral and essential part of an overall process used by BHPBIO to produce an exportable iron ore product, this does not make the use of the railway line the use of a production process itself.  The railway service represent the provision of a transport service, just as the use of a gas pipeline is a conveyance or transport service used to move gas from one place to another, or an airport runway is a landing strip used to ensure airplanes can take off and touch down.  In none of these cases does the infrastructure facility itself involve a process of transformation; each constitutes an important or essential part of the overall operation of the supply of gas or the provision of air services, but does not in itself constitute a production process.  It could not have been intended in Part IIIA for the use of an infrastructure facility to be treated as part of an overall process of production and then to qualify as being the ‘use of a production process’.  Every process of infrastructure, in some way or the other, could be part of at least one production process.  Such an approach would not be consistent with the underlying purpose of the access regime, and would either eliminate or limit unreasonably the services that could be considered at least eligible for declaration under Part IIIA of the Act.

154            Apart from the decision in Hamersley,BHPBIO relied upon the case of Hematite Petroleum Pty Ltd v Victoria (1982) 151 CLR 599 (‘Pipeline Tax Case’) in the consideration of the question of what is encompassed by the concept of production process.  The question in that case was whether the Pipelines (Fees) Act 1981 (Vic) purported to impose a duty of excise, contrary to s 90 of the Constitution, and accordingly was invalid.  By majority (Mason, Murphy, Brennan and Deane JJ, Gibbs CJ and Wilson dissenting), the High Court so held.

155            The case was dealt with by way of demurrer.  The factsstated were that the plaintiff joint venturers carried on the business of exploring for, and exploiting, petroleum resources from wells in Bass Strait.  Hydrocarbons were carried from offshore production platforms to a plant at Longford in Gippsland where they were processed and separated into crude oil, liquefied petroleum gas and natural gas.  The crude oil was conveyed by a pipeline to a fractionation plant at Long Island Point on Westernport Bay.  The liquefied petroleum gas was conveyed by another pipeline to the plant at Long Island Point.  The natural gas was conveyed by a third pipeline to Melbourne.  At Long Island Point fractionating, processing and purification took place.  The resulting liquefied petroleum gas, ethane and stabilised crude oil were all marketed and sold from Long Island Point.  The natural gas produced at Longford was sold and delivered by the plaintiffs to the Gas & Fuel Corporation of Victoria at Longford and subsequently conveyed to Melbourne by the Gas & Fuel Corporation pipeline, which was owned by the Gas & Fuel Corporation.  The tax on that pipeline was not relevant to the issues before the court.

156            At p 634 Mason J said:

The co-existence of these features indicates that the pipeline operation fee payable by the plaintiffs is not a mere fee for the privilege of carrying on an activity; it is a tax imposed on a step in the production of refined petroleum products…

157            At 639-640 Murphy J said:

The challenged imposts are those on the crude oil and liquefied petroleum gas pipelines which run from one part of the plaintiffs’ plant (the gas processing and crude oil stabilization plant at Longford) to another (the fractionation plant and crude oil tank farm at Long Island).  There is no practical possibility these pipelines can be used other than for the transportation of hydrocarbons.  Transportation by pipeline is thus an integral step in the production process. 

158            Gibbs CJ (who dissented in the result) said at 622:

The conveyance of the liquid hydrocarbons to Long Island Point is an integral step in the production of the products sold by the plaintiffs.  It does not appear that the same is true of the conveyance of the natural gas to Melbourne. 

159            Brennan J said at 655 (footnotes omitted):

Kitto J. recalled in Dennis Hotels Pty. Ltd. v. Victoria, at pp 558-559 that the term ‘excise’ had come to be used in the United Kingdom as a convenient label for a mass of heterogenous taxes collected by the excise administration. In this country the meaning of the term for the purposes of s. 90 of the Constitution has been expounded in the judgments of this Court. The line of authority stretches back to Peterswald v. Bartleand it has not been uniform. However, more recent cases have taken a passage from the judgment of Kitto J. in Dennis Hotelsas an important formulation of principle:

“a tax is not a duty of excise unless the criterion of liability is the taking of a step in a process of bringing goods into existence or to a consumable state, or passing them down the line which reaches from the earliest stage in production to the point of receipt by the consumer.”

That view was adopted by the Court in Bolton v. Madsen. Nevertheless, since Bolton v. Madsen, ‘conflicting opinions have been expressed as to whether the criterion of liability under the statute imposing the tax, or the practical effect of the legislation, is determinative of the question whether the tax is a duty of excise’ (per Gibbs J. in Logan Downs Pty. Ltd. v. Queensland, at p 64. That conflict leaves untouched the notion that a tax upon the taking of a step in the process described by Kitto J. is of the essence of a duty of excise (per Barwick C.J. in Anderson's Pty. Ltd. v. Victoria).

The facts of the present case do not call for an exploration of the extremities of the line either backward to the earliest stage of production or forward to the point of receipt by the consumer.  The movement of gas liquids and crude oil through their respective pipelines is an integral part of the process of converting the petroleum brought ashore from the Bass Strait field into the products sold from the Long Island Point plant, and lies, so to speak, somewhere in the middle of the process of production.

160            I do not consider that the Pipeline Tax Case assists in the determination of the proper interpretation of the phrase ‘use of production process’ in Part IIIA.  Putting aside the fact that the question before the High Court was one to be determined in a different statutory context, and readily accepting the importance of the pipeline to the overall operation in the movement of gas liquids and crude oil, this would not answer the question whether the use of a particular infrastructure is the use of a production process for the purposes of Part IIIA.  Transportation by pipeline may well be an integral and essential part of the ‘process of production’, but as I have attempted to explain, this does not mean, for the purposes of Part IIIA, the use of the pipeline itself would be ‘the use of a production process’.  The pipeline is the means or method of conveyance of liquid hydrocarbons, it is involved in or forms part of the ‘process of production’ as described by the High Court, but it should not be considered to be the use of a production process in the context of Part IIIA.  In the same way, the railway line is the means of transporting iron ore from mine to port and necessarily forms part of the process of production or operations of BHPBIO, but is not ‘a production process’ in the context of Part IIIA.

ADMISSIBILITY OF the economic expert evidence

161            In the context of the interpretation of the term ‘production process’ in s 44B of the Act, a body of expert evidence was adduced.  Three economic experts gave written and oral evidence.  The economists were Professor P G P Rey called by the Council, Mr G J Houston called by Fortescue and Mr H I Ergas called by BHPBIO.  Whilst the whole of this body of evidence was adduced, BHPBIO objected to the admissibility of the economic evidence of Fortescue and the Council on the grounds of relevance.  BHPBIO accepted that if the economic evidence of the Council and Fortescue were ruled inadmissible, BHPBIO’s economic evidence was similarly inadmissible.  The Court received the evidence subject to this objection and it is necessary now to deal with the issue of admissibility.

162            The evidence of Mr Ergas and Professor Rey was primarily concerned with the meaning ‘from an economic perspective’ to be given to the term ‘production process’ as used in s 44B of the Act.  Having formulated a proposed economic test, they both provided an opinion of the facts and matters that would be relevant in determining whether the Mt Newman and Goldsworthy Services constitute a ‘production process’ within the meaning of those words as favoured by them.  The evidence of Mr Houston was primarily directed to the meaning ‘from an economic perspective’ of the words ‘marketable commodity’ as used by the learned trial Judge in Hamersley and he similarly arrived at a proposed test.  He then provided his opinion of the facts and matters that would be relevant in determining whether the various stages of BHPBIO’s iron ore operations are economically separable in accordance with his test.

163            BHPBIO submitted that as the words used in s 44B of the TPA, in particular the term ‘production process’, are words of ordinary meaning, expert evidence was not required for their understanding.  Therefore, BHPBIO submitted, the economic evidence cannot affect the construction of ordinary words in a statute.

164            It was further submitted that the economic evidence had to be relevant to some issue in the proceeding.  It was stressed that whilst there may be some debate in relation to how the definition of ‘service’ applies to the facts in the case, it was certainly not a matter for the economists.  It was merely a matter of argument, one in which it is clearly inappropriate for the economists to engage. 

165            The Council, however, submitted that the economic evidence was admissible in order to provide context to the task of interpreting Part IIIA of the Act.  It submitted that since Queensland Wire Industries Pty Ltd v Broken Hill Pty Co Ltd (1989) 67 CLR 77, the courts have approached the Act as an economic statute designed to address economic activity.  It was submitted that, critically, the courts have understood that the character of the Act as an economic statute must be taken into account in construing the words of the Act and, in this regard, economic theory and writings may be considered: see Boral Besser Masonry Ltd v Australian Competition and Consumer Commission (2003) 215 CLR 374 (‘Boral Besser’) at 454, [247] per McHugh J.  Like the High Court, the Tribunal recognised the importance of economic concepts in the consideration and understanding of the purpose of Part IIIA: see Re Australian Union of Students (1997) 147 ALR 458 at 462-463.

166            The Council submitted that Professor Rey’s evidence is an attempt to put before the Court some economic theory and writings so that the statutory construction task is approached from a position of economic literacy.  It’s primary submission was that, given the economic nature of the Act and particularly Part IIIA, the Court should receive economic evidence not only as to the context of the Act but also as to how, given that context, an economist would interpret the phrase in the context of the economic statute in which it appears.  In the alternative, the Council submitted that the task of the Court is to look to the range of meanings which the term ‘production process’ has in ordinary usage and then, informed by the economic evidence, choose the alternative meaning which best suits the context in which the phrase is used and best achieves the objectives of Part IIIA of the Act.

167            In principle, Fortescue’s position was similar to the Council’s.  It submitted that economic expert evidence is relevant to the extent that it gives context to the task of statutory construction of Part IIIA of the Act.  However, Fortescue submitted that the limit of the relevance of the economic evidence before the Court was in informing the Court of the economic distinction between above and below rail services. 

168            The general rule of statutory interpretation is that words used in a statute are given their most natural and ordinary meaning which is appropriate in the circumstances.  Consistent with a purposive approach to the interpretation of the expression ‘use of a production process’, the court would be entitled to receive expert economic evidence to assist in the interpretation of that phrase if it had a technical or specialised meaning: see, e.g. Agfa at 401; Pepsi Seven-Up Bottlers Perth Pty Limited v Commissioner of Taxation (1995) 62 FCR 289 at 297-8; Re Michael; Ex parte Epic Energy (WA) Nominees Pty Ltd (2002) 25 WAR 511 (‘Re Michael’) at 543-544, [107].  Whether the words of a statute are to be given their ordinary meaning or a technical or specialised meaning is a question of law for the court: see Agfa at 396-398. 

169            No party asserted that the term ‘production process’ has a technical or specialised meaning in economics.  On that basis, it is not possible for the Court to construe those words other than in accordance with their most ordinary and natural meaning.  It is therefore not permissible to receive the views of witnesses, expert or lay, as to their preferred interpretation or to explain how the words of a statute would be expected to be applied to the circumstances of the case: Royal Insurance Australia Ltd v Government Insurance Office (NSW) [1994] 1 VR 123 at 133-4.  Such evidence is nothing more than submission and argument and indeed an attempt to usurp the judicial function.

170            Accordingly, each of the tests proposed by the experts, and the application of the facts of this case, is irrelevant.  I therefore accept BHPBIO’s submission and reject the expert evidence to the extent that it is directed to the meaning to be given by the Court to the term ‘production process’.

171            However, BHPBIO also submitted that the economic evidence is not relevant to any other issue in the proceeding.  BHPBIO submitted that the evidence cannot assist the court in understanding the purposes of the legislation or the ‘production process’ exclusion.  It was contended that to the extent that Professor Rey gave evidence about the purpose of Part IIIA generally, his observations are derived from extrinsic materials available to the Court, which do not require expert explanation.

172            In the process of my reasoning, reliance has been placed upon relevant legitimate extrinsic material (referred to by the parties), including the Hilmer Report.  However, I have found helpful the discussion of the economic experts as to the nature and the context in which Part IIIA is to operate, although in this regard this has been no more than an elaboration of the relevant legitimate extrinsic material referred to me by the parties.  I see nothing inappropriate in the court having regard to and admitting into evidence expert evidence to inform itself as to the nature of and the context in which Part IIIA is to operate, just as it would be appropriate for the court to consider any economic writings on the subject: see Boral Besser at 454, [247] per McHugh J.  By admitting the expert evidence for this purpose, the material is presented in evidentiary form and all the parties know precisely the extent of the material that is before the court and that which is to be considered by the court.

173            In Re Michael, Parker J (with whom Malcolm CJ and Anderson J agreed) discussed the relevance of economic expert evidence in informing the court of the specialised usage of particular words or phrases.  Importantly, his Honour continued (at 544, [107]):

Further, the expert evidence provides an appreciation of the nature and objectives of competition policy in the field of economics and, in particular, of the regulation of essential infrastructure, so that the policy and objectives of the Act can be discerned with a greater and more reliable appreciation of the possibilities. In addition, the potential relevance of some concepts and provisions in the Act and Code can be more readily understood.

174            In Visa International Service Association v Reserve Bank of Australia (2003) 131 FCR 300, Tamberlin J made the following observation in relation to Re Michael and other cases involving admissibility of expert economic evidence (at 439, [665]):

The emphasis in these cases is on informing and assisting the court with a view to illuminating an understanding of the terms used in relation to the issues raised.

175            A similar approach, with which I agree was taken at an interlocutory level in Woodside Energy Ltd v Commissioner of Taxation for the Commonwealth of Australia [2006] FCA 1303 at [52]-[55] per French J (affirmed in [2006] FCA 1375 per Nicholson J).

176            Accordingly, I rule that the economic evidence is admissible.

OTHER EVIDENCE

177            Fortescue relied upon evidence to support the distinction between an ‘above rail service’ and a ‘below rail service’ and sought to attack the reliability of the evidence led by BHPBIO as to the integrated nature of the production process and upon the issue of marketable commodity.  I have not found it necessary to rehearse in these reasons this evidence or attack because of the approach I have taken to the construction of the phrase ‘use of a production process’.  To the extent I have found as a fact and detailed within these reasons the operations of BHPBIO, such have been determined objectively by reference to the operations actually employed by BHPBIO and not by reference to BHPBIO’s own subjective views or characterisations, nor by reference to the subjective views or characterisations of any witness called on behalf of BHPBIO.  None of the matters raised by Fortescue would otherwise detract from the essential elements of the production process as relied upon by BHPBIO nor would lead to distinguishing the ratio decidendi in Hamersley.  It may well be that the submissions made and evidence relied upon by Fortescue will be relevant at a later stage in the processes to be undertaken under Part IIIA, but these considerations do not impact upon the Court’s function in these proceedings. 

CONCLUSION

178            In the Victorian Proceeding, I will order that the application of BHPBIO dated 24 December 2004 be dismissed.  In the Western Australian Proceeding, I will declare that the bulk iron ore rail track transportation services provided by the Goldsworthy rail facility, as defined in Part 5.1 of the Fortescue’s Access Application filed under s 44F(1) of the Act and dated 11 June 2004, is a service within the meaning of s 44B of the Act.  The matter of the question of costs will be adjourned to a date to be fixed.

Associate:

Dated:         18 December 2006