In the Matter of Fortescue Metals Group Ltd

Federal Court
[2010] ACompT 2
Justice Finkelstein (President), Mr Grant Latta and Professor David Round

Note: This was subject to appeal - see also:

• Appeal - Full federal court: Pilbara Infrastructure Pty Ltd v Australian Competition Tribunal [2011] FCAFC 58 (4 May 2011) ➤
  [(Chief Justice Keane and Justices Mansfield and Middleton) - external case link]
  The Federal Court denied an appeal by Fortescue to obtain access to Rio Tinto's Hamersley rail line in the Pilbara. In addition, Rio Tinto succeeded in a an appeal to overturn the ACT's decision to declare the Robe River line. Fortescue was ordered to pay costs.

• Appeal - High Court: Pilbara Infrastructure Pty Ltd v Australian Competition Tribunal [2012] HCA 36 ➤

  • See also High Court case page ➤ for transcripts and other documents.
    The High Court agreed with the Full Federal Court. In particular, it concluded that Criterion (b) should be determined by reference to a 'private profitability' test and not a 'social benefit' or 'natural monopoly' test. It remitted the matter back to the Tribunal for determination.

• Remission to Tribunal by High Court: Applications by Robe River Mining Co Pty Ltd and Hamersley Iron Pty Ltd [2013] ACompT 2 ➤

  • Applying the law as determined by the High Court, the Tribunal concluded there was insufficient evidence to satisfy criterion (b) and therefore set aside the Minister's declarations in relation to the Robe and Hamersley Lines.

Summary

The Tribunal (1) affirmed the deemed decision of the Treasurer not to declare the Mt Newman line; (2) varied the decision of the Treasurer to declare the Robe line to reduce the access expiry date from 2028 to 2018; (3) set aside the decision of the Treasurer to declare the Hamersley line and (4) affirmed the decision of the Treasurer to declare the Goldsworthy line.

On whether criterion (a) was satisfied - access would promote a material increase in competition in at least one other market:

For 'each service except the Mt Newman service, access would promote a material increase in competition in a rail haulage market' (para 17 summary) but not in the other markets claimed by Fortescue (the Pilbara tenements market and the seaborne iron ore market)

On whether criterion (b) was satisfied (uneconomical to develop another)

Tribunal held that this criterion tests 'whether a facility has natural monopoly characteristics' and held that all lines but the Mt Newman line were natural monopolies. The Tribunal rejected the previously favoured 'net social benefit' test in favour of the 'natural monopoly' test.

On whether criterion (f) was satisfied (not contrary to public interest)

The Tribunal held that in making the public interest assessment it was 'necessary to weigh up the benefits and costs of access to society, going forward.' The key benefits from access included '(1) savings from sharing the existing railways rather than duplicating them; and (2) making rail services available for some mining projects ...' (summary page 19).

There would, however, be significant costs resulting from access. 'Where there was high demand for a line, there would be severe logistical and commercial constraints imposed on third parties to ensure there was no interference with the owners' highly flexible business models. Access would also delay the owners' future expansions plans or changes in operating practice or technology. This could result in billions of dollars of lost export revenues.' (summary page 20)

The balance of cost/benefit varied between lines, largely because of intensity of existing use and potential for additional demand. The costs from access to Mt Newman or Hamersley were likely to be so great that access would be contrary to the public interest. The benefits from access to Goldworthy and Robe would, however, outweigh the costs and so access would not be contrary to the public interests.

External case links

• In the matter of Fortescue Metals Group Limited [2010] ACompT 2 ➤(30 June 2010) (first instance)

• Pilbara Infrastructure Pty Ltd v Australian Competition Tribunal [2011] FCAFC 58 ➤(4 May 2011) (appeal to Full Federal Court)
  [(Chief Justice Keane and Justices Mansfield and Middleton) - external case link]
  The Federal Court denied an appeal by Fortescue to obtain access to Rio Tinto's Hamersley rail line in the Pilbara. In addition, Rio Tinto succeeded in a an appeal to overturn the ACT's decision to declare the Robe River line. Fortescue was ordered to pay costs.

• Pilbara Infrastructure Pty Ltd v Australian Competition Tribunal [2012] HCA 36 ➤ (appeal to High Court)

  • See also High Court case page ➤

• Applications by Robe River Mining Co Pty Ltd and Hamersley Iron Pty Ltd [2013] ACompT 2 ➤ (Remission to Tribunal by High Court)