Sydney Airport Corporation Limited v Australian Competition Tribunal & Ors [2007] HCATrans 98 (2 March 2007)

Last Updated: 30 March 2007

[2007] HCATrans 098

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Sydney No S390 of 2006

B e t w e e n -

SYDNEY AIRPORT CORPORATION LIMITED

Applicant

and

AUSTRALIAN COMPETITION TRIBUNAL

First Respondent

VIRGIN BLUE AIRLINES PTY LIMITED

Second Respondent

QANTAS AIRWAYS LIMITED

Third Respondent

NATIONAL COMPETITION COUNCIL

Fourth Respondent

PARLIAMENTARY SECRETARY TO THE COMMONWEALTH TREASURER

Fifth Respondent

Application for special leave to appeal

GLEESON CJ
CALLINAN J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 2 MARCH 2007, AT 2.15 PM

Copyright in the High Court of Australia

__________________

MR A.C. ARCHIBALD, QC: May it please the Court, I appear with my learned friend, MR N. MANOUSARIDIS, for the applicant. (instructed by Freehills)

MR S.J. GAGELER, SC: If the Court pleases, I appear with MS K.C. MORGAN for the second respondent. (instructed by Gilbert & Tobin)

MR J.R.J. LOCKHART: May it please the Court, I appear for the third respondent. (instructed by Minter Ellison)

MR J.B.R. BEACH, QC: If your Honours please, I appear for the fourth respondent with MS P.A. NESKOVCIN. (instructed by DLA Phillips Fox)

GLEESON CJ: Yes, Mr Archibald.

MR ARCHIBALD: If the Court please, before we go to the detailed reasons of the Full Court, could we advance five propositions. The first is that the Full Court’s construction gave no content at all to the disjunctive phrase “or increased access” in the vital statutory expression “access (or increased access)”. Secondly, we contend that the court wrongly treated restricted access in the counterfactual as a purely abstract notion devoid of any of the dimensions that would be afforded to that notion by a consideration of the facts and knowledge of dimensions is critical to appreciating what effect increased access may have on competition in the downstream market. Thirdly, we say that the court’s construction deprives criterion (a) as a whole of any effective operation for it relegates it effectively to a surrogate for criterion (b), the bottleneck criterion.

Fourthly, we submit that the court wrongly characterised the Airport’s argument as necessitating a wrong which demanded a remedy, whereas the fact was its argument was the very converse for it complained that the Tribunal declared the service because it found that the Airport had misused monopoly power.

Fifthly, and very importantly, the court relied heavily, one might rightly say decisively, on inferences which it said could be elicited from recommendations and reports which preceded the enactment of Part IIIA and in doing so the court failed to recognise that the provisions of the part as enacted were not a faithful reflection of the recommendations that had been made and the court failed to heed the warning that the Tribunal on a prior occasion in the freight handling case had issued, namely, that it is dangerous to rely upon the recommendations and reports, particularly the Hilmer Report, in seeking to construe Part IIIA because, as the Tribunal said in that case, the legal regime to enable access to essential facilities recommended by the Hilmer Committee was not implemented by Part IIIA.

So even if one were able to distil from the extrinsic materials the proposition that the court enunciated, that was no safe guide to the true construction of the critical provisions of the statute.

GLEESON CJ: Mr Archibald, by reference to the text of paragraph (a), what is the point of departure between the competing views?

MR ARCHIBALD: Between “access” and “increased access”, the legislature is plainly contemplating that there will be circumstances in which there is nil access, no access at all, and so the first leg of the composite expression is addressing that kind of case so that one will be considering in the future with and future without the effect of access being afforded against the background where there has not been access at all.

The legislature then has identified increased access for the reason, as we would contend, that there are different features which attend the case of increased access which will likely bear upon the question as to whether competition is promoted. The whole purpose of looking at access and increased access is to consider whether the access or the increased access will promote competition in the downstream market non-trivially.

If one has a case where there is call it partial access, some access, but it is inhibited in some way, it is limited or, if you like, restricted, one needs to take account of the extent of the access which does exist in order to appreciate what kind of increase may occur, of what enhancement is the present access susceptible so that one can give dimension to the increase and once one knows that one will be able to assess whether the extent and nature of the increase will or will not promote competition.

So the legislature has separated out the two because of the different ways in which nil access against full access, and partial access against increased access will need to be taken into account.

GLEESON CJ: Is the bottom line of this that once you get a declaration you are looking ultimately at the ACCC arbitrating the terms and conditions of access?

MR ARCHIBALD: Unless agreement intervenes after declaration and before arbitration.

CALLINAN J: There have to be two quantitative assessments of the current position and the position after increased access?

MR ARCHIBALD: Yes, everyone agrees that there is a factual against counterfactual comparison to be made. The prior understanding had been that one considered the future with declaration and the future without declaration. The Full Court said, essentially acceding to aspects of our argument, that is not what one does, one looks to the future with access and the future without access. We say, and we said to the Full Court, the question should be the future with access or the future with increased access to be compared with the case, the counterfactual of the future without access or without restricted access. The way in which one approaches those comparative exercises necessitates, in the case where there is partial access, consideration of what that access is and therefore the extent to which there can be an increase and the significance of that increase.

GLEESON CJ: Related to the facts of this case, what was the practical difference between the construction that you were urging and the construction that was adopted?

MR ARCHIBALD: This was a case in which there plainly was partial access. We all know that planes do take off and land on the tarmac at Sydney Airport. Therefore, if it was anything, it was a case of increased access.

GLEESON CJ: Increased in what sense?

MR ARCHIBALD: Increased compared to the present level of access being partial access if Virgin, the applicant for declaration, were right. What Virgin said is, yes, we have planes that can take off and land, but we want a change in the terms and conditions upon which those activities take place. So the argument was whether a change in terms and conditions could constitute an increase in access beyond that which presently obtained.

CALLINAN J: The per passenger as against weight?

MR ARCHIBALD: Yes, and our argument was the nature of the change, or the nature of the present access compared with what might occur by way of enhancement in the future was not such as to be capable of promoting competition in the downstream market, the air services market.

GLEESON CJ: But if Virgin obtained the benefit of a form of access according to which they could increase the number of planes they put into Sydney Airport, that would increase competition, would it not?

MR ARCHIBALD: Well, that would be the question. That would be the question. But here what the Full Court has found by way of its conclusion that there would be a finding of promotion for competition, is to focus only upon matters which are quintessentially matters for the bottleneck criterion, criterion (b), and do not, in our submission, address and certainly not satisfactorily address the considerations that attend criterion (a), the promotion of competition in that market.

So that the two critical vices that we would identify in the Full Court’s reasoning is the failure to give content or operation to the concept of increased access and the insistence that in any event whether one is looking at restricted access or increased access, one does not have regard to the factual circumstances which exist. So the concept of increased access, if it were to have any content, is one that is to be looked at on a hypothetical basis and likewise in relation to restricted access, one does not look to what the facts are about the extent of the actual restricted access, one treats it hypothetically.

Approaching the matter in that way, as we contend, involves that both of those items are meaningless abstractions which are incapable of being applied to the factual/counterfactual analysis because in order to compare, one has to know the content of that which one is comparing in the factual with the content of that which one is comparing in the counterfactual.

GLEESON CJ: Where do we most conveniently find in the reasoning of the Full Court this hypothetical as distinct from appropriately practically comparative approach?

MR ARCHIBALD: One finds it at page 217 in paragraph 84, line 13 and paragraph 86, line 44 and in paragraph 87, line 53. So in paragraph 84 the court states that:

The terms of s 44H(4)(a) do not incorporate the requirement for comparison with what is factually the current position in any given circumstances.

In paragraph 86 the fourth line the court said, “None of this material”, that is the extrinsic material, “reveals any necessity to examine the current state of access”. In paragraph 87 the court said:

Nor does the use of the phrase “increased access” lead to the conclusion that the base for the analysis is the current state of affairs.

So that at every point in relation to those two vital elements the court is saying one does not look at the facts. One simply treats oneself as having a phenomenon which is labelled restricted access in the counterfactual. One treats oneself as having a phenomenon, if one does look at it at all, of increased access in the factual. By a comparison between the two, one reaches a conclusion as to whether competition will be promoted in the downstream market.

Our contention is that devoid of any identifying elements, devoid of quantitative and qualitative features in each of those concepts, one really cannot engage in any meaningful comparison at all, for one does not have the parameters that allow one to reach a view as to what will change between the factual and the counterfactual and if you cannot identify the nature and extent of the change, one cannot reach any conclusion as to whether there will or will not be a non-trivial promotion of competition in the downstream market in consequence of the change.

GLEESON CJ: Was your argument that increased access to the facilities provided by Sydney Airport Corporation Limited would not promote competition in the market for air services?

MR ARCHIBALD: Our primary contention was logically antecedent to that. Our primary contention was that the character of the change would not itself amount to increased access at all, but, in any event, nothing in the nature of the change in the terms and conditions would, in fact, have any effect by way of promotion of competition in the air services market.

GLEESON CJ: Why not?

MR ARCHIBALD: At that point one is looking at the factual material, but the factual material we say did not demonstrate that by reason of the change in terms that had occurred there was any diminution of or alteration of competitive activity that otherwise existed and that any removal of those elements that attended the change would in turn yield no impact upon the level of competitive activity. That is to say, the environment for competition would remain the same, there being no impact of a kind that affected competition between the airlines.

GLEESON CJ: Does that mean that the only form of increased access that can be looked at is the increase that would result from change in particular terms and conditions that are the subject of complaint?

MR ARCHIBALD: Where the argument is about increased access and the increased access is not related to what I will call physical matters but terms and conditions, then one can only look to the terms and conditions and see what significance they have, whereas the Full Court appears to be saying one does not look to the facts and circumstances at all, one simply deals with the matter in an abstract fashion and asks the question, what is the difference between the future with access and the future without access?

One see from paragraph 91 at page 218 what the court regarded as germane to that exercise. It identified four matters to take into account, the first being at line 34 on page 218, “Sydney Airport is a natural monopoly”. That is classically the bottleneck point, nothing to do with promotion of competition, but looking at the elements in criterion (b) whether there is a bottleneck, whether the facility can be economically duplicated. Moving through those four points one sees that that is what those points are directed to.

That is why we contend that the construction adopted by the Full Court really equates criterion (a) with criterion (b) with the result that whenever criterion (b) is satisfied, on the Full Court’s construction criterion (a) will likewise of necessity be satisfied. That is to diminish, if not eliminate, the role and function of criterion (a) which, because it fastens upon access and increased access, is fastening on the central matters that have given rise to Part IIIA.

Access is the raison d’être of Part IIIA, yet on the Full Court’s construction it is really eliminated from practical consideration and the focus and the decisive elements will lie in criterion (b). All of that flows, as we contend, from the errors that the court has made in fastening upon the recommendations in the Hilmer Report.

The elements of the extrinsic materials, the recommendations and report, are elaborately rehearsed at paragraphs 3 to 21 of the court’s reasons and then their vital role in driving the court to the conclusions that it does about increased access and non-consideration of the factual circumstances appears at paragraphs 86 and 87 at page 217 of the reasons where the court refers to the Hilmer Report, the COAG explanatory material and the Competition Principles Agreement and says that, “None of this material
reveals any necessity to examine the current state of” affairs. Likewise as to increased access, paragraph 87 relies on the background material.

So that the court has led itself into error, in our submission, by deriving these vital elements of its conclusion from the background materials on the assumption which is ill founded that those background materials are an accurate reflex of these elements of the legislation. These questions are of central importance to Part IIIA. Part IIIA itself, in our submission, is of high relevance to industry, infrastructure and utility industries.

These provisions find their analogues in industry-specific legislation such as Part XIC of the Trade Practices Act, telecommunications, in the gas and water legislation. In those circumstances these considerations about the very notion of access are apt for consideration by this Court and, in our submission, special leave should be granted.

GLEESON CJ: Thank you, Mr Archibald. Yes, Mr Gageler.

MR GAGELER: Your Honours, there are two tenable views as to the construction of section 44H(4)(a). There is the view adopted by the Tribunal at pages 35 to 37 of the application book and there is the view preferred by the Full Court at page 216 of the application book.

GLEESON CJ: What is the essence of the difference between those two?

MR GAGELER: The essence of the difference turns not so much on the meaning of the words “access” or “increased access” because both of them accept that “access” simply has its ordinary meaning of a right or ability to use the service and “increased access” simply means an enhanced or increased right or ability to use a service.

GLEESON CJ: And covers the terms and conditions on which you are given that right?

MR GAGELER: Both of them accept that. The difference is really as to the question that is posed then by paragraph (a). What are you comparing with what? On the view adopted by the Tribunal you are looking at the future with an access regime, that is, access of the nature that is provided by declaration, that is, the ability to obtain arbitration basically. That is the future with, and you are looking at the future without declaration, the present projected into the future, effectively. That is the approach taken by the Tribunal. The approach preferred by the Full Court was to say, “Well, no, it is actually a much simpler inquiry than that. You are just looking at access, or increased access on the one hand and no access on the other.”

GLEESON CJ: In what circumstances would increased access not promote competition?

MR GAGELER: Where the need to use the facility to get to the upstream or downstream market has not been demonstrated.

GLEESON CJ: The circumstance in which increased access would not promote competition is where nobody would want increased access?

MR GAGELER: Well, put it this way. Paragraphs (a) and (b) can be considered in the case of a bridge across a river where people use the bridge to get to markets. Now, paragraph (b) really asks is it economical to build another bridge? That is the paragraph (b) question. Paragraph (a) is really asking, do you need to cross the bridge to have a material effect, or is the ability to cross the bridge something that has a material effect on competition in the other market?

GLEESON CJ: Has this produced the practical consequence that wherever you have an essential facility and the possibility that somebody might want access to it, you must have arbitration, or you will have arbitration?

MR GAGELER: Well, if by essential facility your Honour is referring to a facility that meets the criterion (a) - - -

GLEESON CJ: Where somebody is going to want to cross the bridge or somebody else - - -

MR GAGELER: No, this is the point, it is not just somebody. It has to be enough people for it to have a material effect on competition in a downstream market. Not just one person, but it has to be enough people.

CALLINAN J: You have to make assumptions about the effect of the arbitration which is another form of - - -

MR GAGELER: Well, no, that was SACL’s argument before the Tribunal that you have to make some assumptions about the effect of the arbitration, but that is not SACL’s argument now.

CALLINAN J: Whether it is the argument or not, must that not be an underlying assumption that that arbitration is, in a sense, a form of regulation that is going to enable everybody who is interested to have access upon terms determined in the arbitration?

MR GAGELER: On the approach that was taken by the Tribunal the assumption, and it is a fair assumption given the structure of Part IIIA, is that declaration is a legislative mechanism that will promote access, that is, it will lead to the ability to arbitrate, not necessarily arbitration in every case, but the ability to arbitrate which will itself have an effect on competition.

But, your Honours, can I come back to where I was. There are those two views, the view adopted by the Tribunal and the view that the Full Court preferred. On either of those views as to the construction of section 44H(4)(a) the result was reached by the Tribunal was necessarily correct and the applicant therefore necessarily loses.

On the applicant’s construction, that is, the construction that the applicant now advances, assuming it for a moment to have some adequate textual or contextual foundation, I will come back to that, the outcome is less clear and the outcome is less clear for two reasons which go very much to the exercise of your Honours’ discretion, but they also go very much as to whether this is a suitable vehicle for the consideration and the construction that the applicant now seeks to advance and those two reasons are these.

The first is that the construction that the applicant now advances was simply not put to the Tribunal. What that means is that it was never explored in the evidence and, in particular, it was not explored in the evidence of the five eminent economists who appeared before the Tribunal, two of them called by the applicant. Related to that is this, that precisely what is meant to be encompassed within this notion of restricted access that the applicant now says is the obverse of increased access and somehow has to be found for section 44H(4)(a) to be triggered has never been articulated.

Now, my learned friend says that it has dimensions. He has not told us what those dimensions are. There were certainly no dimensions ever mentioned to the Full Court and so the Full Court certainly cannot be criticised for not exploring them.

GLEESON CJ: The applicant says increased access means access over and above the access that is available at the moment.

MR GAGELER: Well, I am not hearing him say that. That is what the applicant said before the Full Court and that is the way the Full Court recorded the submission which appears at the top of page 214. What he appears to be saying today, and when I say “he”, Mr Archibald, who did not put the argument before the Full Court, is that one is, even on his test, somehow comparing future with future.

But the difficulty is, not only is the argument not particularly well articulated, not only has the argument changed, but if you take the most elementary economic analysis, and I have to say this from the Bar table because it was not explored in the evidence, if you take the most elementary economic analysis, where you have an existing and continuing exercise of monopoly power in the provision of a service, which is precisely what the Tribunal found here at page 138 of the application book, the result is that you will thereby have a reduction in the supply from that which would exist in a competitive market.

That is just what an exercise of monopoly power, particularly an exercise of monopoly power of the type that was found by the Tribunal and summarised at page 138, involves. So it is by no means clear (a) what our learned friend’s test involves and (b) how he says or how he could say that the Tribunal was wrong applying that test. But fundamentally, the so-called dimensions of this notion of restricted access were never explored and the place to explore them was before the Tribunal.

Your Honours, can I say something about the fundamental problem with our learned friend’s construction. What I had said really went to discretion assuming that there was some appropriate foothold for the construction that is now advanced. In our respectful submission, the Full Court did put its finger on the nub of the problem with the applicant’s argument and it did so at page 215 of the application book. It did so at page 215 of the application book rejecting the applicant’s argument at the top of page 216 before it went anywhere near the difference between the Tribunal’s view and the view it preferred, that is, the applicant lost before that.

The point that the Full Court correctly made, and it made it at about line 48, in a nutshell is this, that our learned friend’s argument, however it might be put, is one that converts Part IIIA into a scheme which is concerned with correcting, I thought, past market behaviour, perhaps on the version now put, some sort of future market behaviour rather than improving market structure.

That is what the Full Court meant when it said that making Part IIIA look like a remedy for wrongs rather than an instrument for promoting market efficiency. One only needs to look at the legislative history, and it does start with the Hilmer Report, to realise that this is about structural reform, not about modifying behaviour.

GLEESON CJ: Is this characterisation of the applicant’s argument one that follows from the notion that their approach is that where the problem about access is terms and conditions, you have to find something about the terms and conditions on which access is currently granted that is anti-competitive or that reduces competition?

MR GAGELER: That appears to be what the applicant is saying, yes, that is right.

GLEESON CJ: Compared with what? Reduces competition compared with what?

MR GAGELER: Your Honour asks a good question, because you only have to go on to say compared with the competition that would exist in a competitive market and you have got pretty close to the test that the Tribunal actually applied and the test upon which they lost, but that part of the analysis just has never been articulated, your Honour. It is a fundamental problem. Once one goes on, as the applicant really must, to start to articulate where it goes from there, it really reduces to economic questions that have just never been explored.

GLEESON CJ: Mr Gageler, let it be assumed that ultimately you are right in the sense that the construction for which the applicant contends is wrong, I got the impression from what you said earlier that there is a material difference between the construction that the Tribunal placed on this legislation and the construction that the Full Court placed on it, although it is not one that you would accept as material to the outcome of the present litigation.

MR GAGELER: Absolutely.

GLEESON CJ: Where does the existence of that difference leave the future application of this legislation?

MR GAGELER: It leaves the future administration of the legislation with the view that has been adopted by the Full Court obviously. It does not have any effect on the outcome of the present case. Either way the applicant loses and the difficulty with using the present case to perhaps revisit the difference between the Tribunal and the Full Court is, one, the applicant who would be the appellant in the appeal does not prefer either of those views that actually advances a third, and, two, which means that the appeal can and should be determined without needing to address the difference between those two views, which is really what the Full Court said in the present case.

Thirdly, insofar as the applicant is now raising this new idea, it is, as I have said I think too many times, an idea that is frankly half baked and which, if it were to be properly explored in a way that would make this a suitable vehicle for the Court to look generally at the operation of Part IIIA and section 44H(4)(a) in particular, ought to be the subject of some rigorous economic analysis.

GLEESON CJ: When you say it is new idea, I thought you said it was identified and answered by the Full Court.

MR GAGELER: It was not put to the Tribunal in the sense, that is what I mean.

GLEESON CJ: I understand that, but was it put to the Full Court?

MR GAGELER: What was put to the Full Court was what appears at the bottom of page 213 and I am not sure that it is the same argument as Mr Archibald now puts. This was a submission, at the bottom of page 213, the last line, by SACL:

The central question, it was submitted, was to identify whether the supply of the Airside Service had, in fact, been denied or restricted.

So what was put to the Full Court was that you needed to find some historical denial or restriction of access. That was the argument that was put. Just what that involved was never really explored, but that was the argument that was put.

Now, today I think I heard something rather different from that. I think I heard that one needs to still look to the future but find some sort of denial or restriction of access in the future. If you are looking to the future and looking for a denial or restriction of access, then that seems awfully like what the Tribunal was doing in the present case. So, your Honours, for those reasons, in our respectful submission, the present case is not appropriate to the grant of special leave.

GLEESON CJ: Thank you, Mr Gageler. Yes, Mr Lockhart.

MR LOCKHART: Firstly, we adopt what Mr Gageler has said. Sydney Airport’s construction of criterion (a) in the legislation has now been considered a considerable number of times by a number of Federal Court judges and they have all unanimously rejected that construction. Firstly, there are the three members of the Full Court which decision is under review in this sense. Secondly, there is the decision of his Honour Justice Hely in the decision of Duke. If I can ask your Honours to turn to the bundle of authorities that has been supplied by the third respondent and behind tab 2 is the decision of Duke Eastern Gas Pipeline of 2001. It is a decision of the Competition Tribunal and his Honour Justice Hely was the judicial member of that Tribunal.

GLEESON CJ: How did the construction of the Tribunal in this case, Duke, placed on the legislation compare with the construction of the Tribunal in the case we are concerned with placed on it?

MR LOCKHART: It placed the same construction.

GLEESON CJ: No, that is different from the construction placed on it by the Full Court.

MR LOCKHART: It is different to the construction placed by the Full Court, but in all of these cases that I am taking your Honours to the particular construction that is now put by Sydney Airport was raised by the owner of the facility and was rejected. To make that point good, could I ask your Honours to turn to paragraph 71 of the Duke Case. If I could ask your Honours to read that paragraph.

GLEESON CJ: All access will be on some terms and conditions. What would be an example of unrestricted access to an essential facility or to services like this?

MR LOCKHART: The question your Honour poses is a very good question and the difficulty in answering that is it is a question that is not raised on either the test that now stands as the test after the Full Court’s decision or on the test that stood prior to the Full Court’s decision. The concept of unrestricted access is a concept that was first developed in these proceedings by Sydney Airport. That is why it causes a difficulty answering your Honour’s question. We accept that, as a matter of general concept, access or increased access may include some analysis of the question of terms and conditions if that was the right approach, but for the reasons that we put, that is simply the wrong approach from the outset.

In the Duke Case the facility owner there contended that the criteria, that is criterion (a), proceed on the premise that access to the services provided by means of the pipeline is that they are unavailable or limited. That seems to suggest that before one even gets to posing the factual/counterfactual question, it has to be a case of either there is no access or there is some form of access but it is restricted in some way.

Before the Full Court Sydney Airport argued restricted in some way meant there was some form of limit on the supply available. During the course of the Full Court proceedings Sydney Airport conceded that that might involve analysing terms and conditions but only insofar as there may be some term or condition which itself involved some restriction on access.

GLEESON CJ: But price would be a form of restriction on access, would it not?

MR LOCKHART: Yes, it would, your Honour. I mean, our primary proposition is one does not even need to ask these questions.

CALLINAN J: I might say I would like to know the answer because it can create unanswered questions in all this competition law. What are the starting points? What are the yardsticks?

MR LOCKHART: In our submission, the way Part III operates and is structured is, firstly, you have Division 2 which provides the gateway before you get to the arbitration process which is in Division 3. What we are concerned about is construing one of the criterion that must be satisfied before the Minister can declare which is under Division 2. If declaration occurs, the declaration is there for the benefit of all who wish access to the services in question.

CALLINAN J: The two notions are almost antithetic in a sense, competition and regulation, and everybody assumes that you can regulate in order to produce competition. But once you regulate, you are interfering with a competitive market anyway, for the better it is suggested, but you are interfering with it.

MR LOCKHART: The purpose of Part IIIA is to, by regulation, address structural deficiencies in the market which produce anti-competitive processes. The particular structural deficiency that Part IIIA addresses is where there are owners of bottleneck facilities which, by reason of their monopoly position, either do not provide any access to this necessary service or provide it on terms which are sufficiently onerous such as to produce anti-competitive outcomes in a dependent market.

Part IIIA is remedial in the sense that it is not there to address any particular wrong that might have occurred in that particular market as a matter of assessment of the incumbent’s behaviour. It is there to address structural deficiencies by providing access seekers to that particular facility with the prospect of being able to negotiate terms knowing that the ACCC can always come in and arbitrate where there is a dispute between the facility owner and the access seeker.

It is against that background that we say that criterion (a) really involves the very simple question as found by the Full Court, that is, is there a dependent market which needs access to this service and if there is such a dependent market, then one ticks the criterion (a) box. Criterion (b) is concerned with something quite different. These are negative criteria. Criterion (b) is directed at a situation where, whilst there may be a facility which providers of services in a dependent market need, there is no economic reason why they cannot go and build one themselves. So criterion (b) is there to address the question of identification of facilities where the legislature considers that regulation is justified contrary to the interests of the infrastructure owner.

GLEESON CJ: Mr Lockhart, the Minister does not have to declare a service if he or she is satisfied of these matters. I wondered whether the discretion in the Minister to declare or not declare the service is the point at which this, as it were, remedial aspect for which the applicant contends would bite?

MR LOCKHART: We would adopt that position, your Honour. The criterion in section 44H, and that was also referred to by the Full Court at paragraph 94.

GLEESON CJ: What page is that?

MR LOCKHART: That is on page 219 of the application book.

GLEESON CJ: Did you say paragraph 94?

MR LOCKHART: I am sorry, your Honour, I have given you the wrong reference. Paragraph 35.

GLEESON CJ: What we are really dealing with here in these paragraphs, including paragraph (a) - I realise it is negative - is a series of conditions that have to be satisfied to enliven the power in the Minister to declare the service.

MR LOCKHART: Yes, they are negative criteria. The various matters that Sydney Airport urges upon your Honours as being matters that ought to be considered within subparagraph (a), that being an assessment of past behaviour and present behaviour of the incumbent, are matters - - -

GLEESON CJ: You might crudely call it abuse of monopoly power.

MR LOCKHART: Correct, which was found in this case, are matters that are or could be taken into account by the Minister.

GLEESON CJ: I am just having a little difficulty at the moment. If paragraphs (b) to (f) are satisfied, as they have to be, I am finding it difficult to imagine in what circumstances access or increased access to the service would not promote competition in a downstream market, for example.

MR LOCKHART: It may be that there is a facility which service providers in a downstream market simply do not require access to in order to compete. This is the concept of the bottleneck facility which is at the heart of Part IIIA, is that the reference in criterion (a) to the dependent market, it is an attempt to identify those facilities which cannot be easily duplicated but are necessary for competition in another market.

GLEESON CJ: The point of departure between your side and Mr Archibald’s side in relation to (a) looks as though you treat (a) as one of a number of conditions that enlivens the Minister’s discretionary power to declare a service and he treats (a) as a kind of sanction for abusive market behaviour.

MR LOCKHART: Yes, we agree with that, and we say that is not what it is. Criterion (a) is not the repository for all arguments concerning the historical and present behaviour of the incumbent. That is a matter, if the Minister considered it appropriate, the Minister could consider when exercising the discretion, which the Minister ultimately has, to declare the service or not. Criterion (a) is there for the simple point, that is, there has to be a service provided by a facility which is necessary for participants in a downstream market to properly compete. That is the reason why there is a distinction drawn between the market in which the service is provided and a dependent market. The legislation has stopped short of regulating, in a sense, the position of the monopolist such as to break up the monopoly.

I was addressing your Honours about Duke and the proposition I wish to make was that this very point has been raised before and was rejected by the Tribunal in that instance. In paragraph 74 of Duke the Tribunal discusses the “object of the Code, and its structure” and it, in our submission, roundly rejects the proposition that was put. It is suggested that the Duke decision was concerned with the gas code which is a different scheme and, therefore, not applicable. In our submission, relevantly, it is directly applicable.

In paragraph 38 of the Duke decision the statutory criteria are there set out. The relevant one, criterion (a), is, in a relevant sense, in exactly the same terms. It omits two of the criterion being the national significance criterion and the effected access regime criterion, but we say, relevantly, that does not mean that the approach taken to the gas code in the Duke Case is distinguishable in any meaningful sense from the provisions of Part IIIA.

In addition, in another Tribunal decision, Services Sydney, where the judicial member was his Honour Justice Gyles, a decision of 2005, the matter was again raised and the Tribunal in that case referred to Duke and agreed with its approach apparently untroubled by the fact that it was concerned with the gas code, not Part IIIA. So in that sense we say this is a particular point that has been raised now on a number of occasions and has been unanimously rejected by every Tribunal and Federal Court Judge that has addressed the point.

The other point we make against Sydney Airport’s construction is that to accept that construction involves accepting that there is a clear disconformity between Division 2 and Division 3 of Part IIIA. Division 2 is, in essence, the gateway to the arbitration process. Division 3 provides what matters can be the subject of arbitration and the procedures of that arbitration. Can I take your Honours to - - -

GLEESON CJ: You are appearing for Virgin?

MR LOCKHART: I am appearing for Qantas, your Honour.

GLEESON CJ: For Qantas. There seems to have been a difference, as far as I can gather from the reasons of the Full Court, between Qantas’ approach to construction and Virgin’s approach to construction, but I understand it not to be a difference that is material to the outcome of this case.

MR LOCKHART: That is right, your Honour. Both Virgin and Qantas urged what is now the ultimate test that the Full Court found upon the Full Court and in the alternative the test that hitherto had been applied I think with different emphases.

GLEESON CJ: Who is representing Virgin in these proceedings? Mr Gageler.

MR LOCKHART: In section 44S of the legislation - - -

GLEESON CJ: You were actually supportive of the Tribunal.

MR LOCKHART: Our primary position was supportive of the Tribunal’s approach to criterion (a), but our alternative position - - -

GLEESON CJ: It was Mr Gageler who put up as an alternative argument the argument that was brought by the Full Court.

MR LOCKHART: Yes, and on either test Sydney Airport’s application fails.

GLEESON CJ: I understand that.

MR LOCKHART: Section 44S, which appears in Division 3, makes it clear that if a third party is unable to agree with the provider in the sense of private discussions on one or more aspects of access to a declared service, then that third party can trigger the arbitration process. The third party, importantly, is defined as a person who wants access to the service or wants a change to some aspect of the person’s existing access to the service.

The importance of that, we say, is that the legislation contemplates that there may be persons who already have access to the service but, nevertheless, wish to avail themselves of the opportunities under Division 3, assuming access has been declared under Division 2, to alter those terms of access to the service. There is no distinction drawn in the definition of “third party” or in section 44S or in other section within Division 3 which distinguishes between terms that restrict access and those which do not restrict access. In other words, the opportunities available to an access seeker within Division 3, in respect of someone who already has access, change to terms and conditions of access, assuming the gateway has already been opened via Part III.

Now, it is clear enough that the purpose of Division 3 includes the ability of someone who already has access to negotiate and ultimately use the opportunity of arbitration to change their terms of access. There would be no distinction drawn between the types of terms of access if that opportunity is afforded in respect of.

In our submission, one would construe Division 2 and Division 3 in a way that enables conformity to be achieved, that is, what is required by the legislation for engagement of Part IIIA through the Division 2 gateway process should be conformable with the matters that Part IIIA deals with, that is, enabling access seekers to negotiate in an unlimited way the terms of their access, including those who already have access.

GLEESON CJ: Thank you, Mr Lockhart. Yes, Mr Beach.

MR BEACH: Your Honours, we contend that the applicant’s application should be refused.

GLEESON CJ: You appear for the National Competition Council?

MR BEACH: That is so, yes.

GLEESON CJ: Do you prefer the construction of the Tribunal or the construction of the Full Court?

MR BEACH: I do not need to answer that because it is not necessary from my argument to justify why the applicant’s application should be refused given the way the applicant has put its argument to the Full Court and also the way the applicant put its argument certainly in this application and the draft notice of appeal.

GLEESON CJ: Assuming you do not need to answer it, how would you care to answer it?

MR BEACH: Difficult to now answer because the particular criterion (a) was amended on 1 October 2006, so you now have, in fact, a different composite expression and therefore limited precedential value in what the Full Court has said. In fact, that is my first point.

GLEESON CJ: Where can we find the new legislation?

MR BEACH: I have copies of it here.

CALLINAN J: There would be a few pending cases under the old legislation, would there?

MR BEACH: Yes, and the question is how relevant that is, but perhaps I can explain the relevance of the amendment. You will have seen from the applicant’s materials that were filed with the Court that they, of course, appreciated the point that the statute had been amended because the description on the front page indicated that your Honours were only being given a copy of the relevant provisions as they were prior to the amendments made by the Trade Practices Amendment (National Access Regime) Act 2006. If you go to the first schedule which came into effect on 1 October 2006 and if you go particularly to clause 23 of the schedule you will see that after the word “promote” has been inserted - - -

GLEESON CJ: Sorry.

MR BEACH: The magic page is missing for some reason. Perhaps if your Honours could go to the - - -

MR ARCHIBALD: We have some copies that have the section.

GLEESON CJ: Thank you, Mr Archibald.

MR ARCHIBALD: The style of the document we are handing up is to show in bold the language introduced by the amendment.

GLEESON CJ: Thank you.

MR BEACH: You will see that for section 44H(4)(a) after the word “promote” there has been inserted the expression “a material increase in”.

GLEESON CJ: What is the purpose of that?

MR BEACH: The purpose of that apparently is to tighten up or elevate that threshold condition. You will recall that before the Tribunal and in the Full Court the term “promote competition” was construed to mean enhance the environment for competition. So if you have an essential facility, access to which is necessary in a dependent market, then providing that access is removing a barrier to entry and removing a barrier to entry arguably is a step along the way in enhancing the environment for competition and that is why the Full Court have, I suppose, put a fairly low threshold on criterion (a) that the applicant complains about.

GLEESON CJ: Is this amendment a move in the direction of the Tribunal’s construction?

MR BEACH: No, it goes beyond that because the Tribunal construed “promote” not to mean a material increase in competition but to enhance the environment for competition. In fact, you will see that if your Honours go to the application book page 43, at paragraph 158 you will see that is said:

It was common ground between the parties that the promotion of competition involves promoting the conditions or opportunity or environment for rivalry –

Then there is a reference to Sydney Airport. Now, you do have a reference to that first Sydney Airport Case and again that is in the materials that were provided by the applicant to the Court and they are under tab 2 of those materials and could I just take your Honours to that decision and paragraph 106. Your Honours will see there that the Tribunal in that earlier case says:

The Tribunal does not consider that the notion of “promoting” competition in s 44H(4)(a) requires it to be satisfied that there would be an advance in competition in the sense the competition would be increased.

In other words, it was a very low test for promoting competition and that is why the Full Court said, well, consistently with that it is a very low threshold for satisfying criterion (a) because one way to promote competition is remove a barrier to entry in the dependent market. One of the barriers of entry into the dependent market might be you have not been able to procure access to the services. So that is why it is said it is a very simple test. You do not need to get into exotic competition analysis. That can be dealt with as part of what they described as the residual discretion.

Now, the applicant’s argument has been that criterion (a) is a higher threshold condition. In fact, they go so far as to say you have to actually identify as a pre-condition factually today, no access or restricted access so that you can then - - -

GLEESON CJ: What does restricted access mean in that context? Anything other than free access?

MR BEACH: Exactly right. It might be access on prohibitive pricing terms. It might be access on terms where the price is okay but the non-price terms and conditions make it unattractive to the acquirer of the services who is an actual or potential competitor in the downstream or the dependent market. You can see precisely what the applicant’s argument has always been by going to the applicant’s application for special leave filed in this Court and the relevant question that they say is identified by them as a special leave question. That is in paragraph 1 on page 228. That is the applicant’s summary of argument. They identify the special leave question as a factual question, that is, today you have to identify factually that there is no access or that there is restricted access.

We say that criterion (a) has nothing to do with that. Criterion (a) is, in fact, looking at two hypothetical futures. It is looking at a hypothetical future with access or increased access as compared with a hypothetical future where there is no access or there is restricted access. It does not have a statutory pre-condition of identifying factually today whether or not there is access. Of course, you would look at that in terms of the competition analysis because you might use today’s conduct to infer some possibility of how people will behave in the future, but again that is not the strict or the required factual inquiry under criterion (a).

GLEESON CJ: Presumably, as that question is framed, the concept of restricted access has a pejorative element?

MR BEACH: Yes.

GLEESON CJ: It involves some criticism of what is going on at the moment?

MR BEACH: That is exactly so. We read that as factually today there is access, but it is on terms and conditions that are perhaps not suitable to the potential acquirer of services in the dependent market such as to make it unattractive for them to acquire the services on those terms and conditions such that they may not acquire at all or that if they do acquire, they may be placed at a competitive disadvantage in that downstream market or dependent market, vis-à-vis other competitors who do not require access to those services because they have other means to deal with the matter.

Now, we say that criterion (a) has nothing to do with a strict requirement about a factual inquiry today. It is all to do with two hypothetical futures and I, like Mr Gageler, did not quite understand where Mr Archibald was morphing. He seems to have moved away from the argument that was put into the Full Court and also put in his summary of argument into some analysis of the two hypothetical futures and then in its attack on the second part of the Full Court’s judgment. But the applicant’s central argument was not that at all.

GLEESON CJ: At all events, the recent amendment of the legislation does not seem to have embraced the applicant’s position?

MR BEACH: It does not, that certainly is so. On that factual question, it has raised the threshold but for different reasons. Now, if your Honours are to look at this you are going to have to look at this as a composite phrase and I pose the question, what utility is there in looking at a composite phrase whose meaning has changed such that it is no longer the lower threshold condition of promote competition which was the very assumption that the Full Court were making to say you do not need to do terribly much to - - -

CALLINAN J: I think you were going to say something about pending cases. I asked you about pending cases on this section, Mr Beach.

MR BEACH: When you say this section, you mean the 1 October 2006 amendment or the old section?

CALLINAN J: The old section.

MR BEACH: I do not have instructions about that. I am not aware.

CALLINAN J: I thought you said there were some. I suggested that there would be some pending cases.

MR BEACH: I meant to make the point, if I did not express myself clearly I apologise. What I was saying was the Full Court’s decision arguably will have no precedential effect, certainly for cases that arise from today.

CALLINAN J: I was wondering whether there are any other cases pending? I mean, I thought that perhaps there might be on the section before amendment.

MR BEACH: I cannot answer that.

CALLINAN J: You just do not know?

MR BEACH: I am not aware, no.

GLEESON CJ: Thank you, Mr Beach.

MR BEACH: There are a couple of other points. Criterion (a) is not a surrogate - - -

GLEESON CJ: Please yourself.

CALLINAN J: I do not know whether - that door has closed, I think, Mr Beach, really. We would be very interested to hear you, but - - -

GLEESON CJ: Yes, Mr Archibald.

MR ARCHIBALD: In our submission, the amendment in no way limits the significance of the questions raised by this case. The previous learning was that the unamended section required that access or increased access would promote competition non-trivially. The amendment alters the level of impact on competition that must now be satisfied to a material increase rather than merely non-trivial. That is the only significance and that is why we have not raised it before and none of the parties in their outlines raised it.

As to the notion of restricted access, in the sense in which we have been advancing that term it has no pejorative overtone at all and that is why we complained of the Tribunal’s treatment of the criterion as though it did require a pejorative component and found against us within that pejorative sphere, namely, a conclusion by the Tribunal that we had misused monopoly power.

GLEESON CJ: Mr Archibald, it was suggested against you by Mr Gageler that none of the economists who gave evidence in the proceedings before the Tribunal addressed the matter on the basis of a construction of the section for which you now contend.

MR ARCHIBALD: I am not sure that I can agree with that, your Honour. The economist addressed all the facts that were before the Tribunal. The facts before the Tribunal canvassed in extenso what the present situation was and, really, all the Tribunal hearings that have been conducted up to now have looked extensively at the facts and the economists have proffered their views and the Tribunal has pronounced upon them.

The effect and the surprising effect of the Full Court’s conclusion, which is unheralded, in our submission, by anything that has gone before, is that one really does not look at the facts at all. It is a 15 minute exercise, not a 15 day exercise and that is antithetical to the way in which all of the elements of these declaration matters have previously been addressed.

What the Full Court did, despite everything that has been said to this Court today about restricted access, what the Full Court did was to say that
it was a matter to be looked at in respect of the counterfactual that one inquired whether there was or was not restricted access. So the Full Court has, in fact, embraced the notion of restricted access as a matter to look at in the counterfactual. One sees that in the last line of page 216 of their reasons where the court said, looking at what the comparison is what:

s 44H(4)(a) requires is a comparison of the future state of competition in the dependent market with a right or ability to use service and the future state of competition in the dependent market without any right or ability or with a restricted right or ability to use the service.

So the court is endorsing the propriety and necessity of looking at restricted access, but is giving to that notion, as we have contended, elements which find themselves expressed only in abstraction. So it is right to look at restricted access. We say you look at restricted access not to look at behavioural characteristics, which may attract the odium of or epithet “anti-competitive”. One looks at the restricted access, ie, the access that does exist, which is less than full, in order to identify the structural features of the market and the present is always taken as a respectable proxy for the future. That is why one does it and that is why the Tribunal has been doing it in all of the matters that have been before it.

So we have never contended for a proposition that one looks to see restricted access in some sense of unacceptable or unlawful conduct which requires some sanction. That has not been our argument. That is why we complained about the Tribunal’s finding. The Tribunal was right in our contention to look at the present facts. It was wrong to look at them with a view to ascribing some qualitative feature in respect of them that would be characterised as unacceptable, anti-competitive or unlawful and then to provide the remedy. That was the very proposition we complained of, not the proposition for which we argued either before the Tribunal or before the Full Court, so that there is no inconsistency or movement in our position in that regard.

Duke, in our submission, is not expressing a view about the current argument. At paragraph 74 Duke was directing its attention to the proposition which effectively confined access to physical matters and what was said in the second sentence of paragraph 24 was that that attitude would not satisfactorily cope with terms and conditions which might bear upon access. We are entirely content that terms and conditions be part of the exercise, but the point is that if you are a monopolist it does not follow that every term and condition upon which you insist or you negotiate will jeopardise or inhibit access. There may be many ways in which there is nothing of that kind. If the Court pleases.

GLEESON CJ: Thank you, Mr Archibald.

We think there are insufficient prospects of success of an appeal to warrant a grant of special leave in this matter. In saying that, we do not wish to be taken to be expressing any opinion upon the apparent difference in the interpretation given to the legislative provision in question by the Australian Competition Tribunal on the one hand and the Full Court of the Federal Court on the other. It seems to be common ground that that difference is not material to the dispute between the parties that would occupy the Court if special leave to appeal were granted.

The application for special leave to appeal is dismissed with costs.

We will adjourn for a short time to reconstitute.

AT 3.31 PM THE MATTER WAS CONCLUDED