Competition Law Update - High Court Ruling on Glencore’s Port of Newcastle Fee Dispute

Summary

This High Court appeal concerned:

1. the regulatory Access to Services regime, imposed by Part IIIA of the Competition and Consumer Act 2010 (Cth) (C&C Act), by which a “third party” buyer or supplier can negotiate access to monopoly infrastructure, or a service provided by the monopoly infrastructure, on fair and reasonable terms; and
2. its application to a legislative service charge payable by Glencore Coal Assets Australia Pty Ltd (the largest producer of coal in the New South Wales Hunter Valley) to the private operator of the Port of Newcastle (one of the world’s largest coal exporting ports), for the use of the Port’s shipping channels and berths.

The charge was a “navigation service charge” payable under the Ports and Maritime Administration Act 1995 (NSW) (PMA Act).

The parties were in dispute about the amount of the charge (specifically, whether the amount should be reduced to account for historical contributions made to the Port’s assets by users of the Port such as Glencore) and when it could be applied (specifically, only when vessels owned, chartered or controlled by Glencore moved through the Port to load and export Glencore’s coal, or also when vessels owned, chartered or controlled by Glencore’s buyers, or other parties, moved through the Port to load and export Glencore’s coal).

The dispute was highly technical and the subject of a series of decisions (starting in 2015) made by the relevant Minister, the ACCC, the Australian Competition Tribunal, the Full Court of the Federal Court and, finally, the High Court.

The High Court, in a unanimous joint judgment, partly affirmed the Full Court’s decision on a question of law arising from a decision of the Australian Competition Tribunal (Tribunal).

The High Court held that, on a proper construction of the relevant provisions of the PMA Act and C&C Act, the navigation service charge payable by Glencore to the private operator:

1. should not be confined to circumstances where Glencore owned, chartered or controlled the vessel moving through the Port (and should extend to circumstances where a buyer of Glencore’s coal, or another person, owned, chartered or controlled the vessel); and
2. should be calculated by reference to the value of the Port’s assets without regard to historical contributions made to those assets by users of the Port (by way of levies and charges imposed by the State on users in order to fund the construction of the Port).

Key background facts

The only economically viable means for Glencore to export coal from the Hunter Valley is by using the Port. Since 2014 (when the Port was privatised) Port of Newcastle Operations Pty Ltd (PNO) has been the licensed operator of the Port (PNO is partly owned by a company listed on the Hong Kong stock exchange).

Under the PMA Act, PNO can charge Glencore a “navigation service charge” for each vessel “owned” by Glencore which enters the Port, with the charge to be calculated by reference to the vessel’s gross tonnage. The PMA Act defines the “owner” of a vessel to include the owner of the vessel or its cargo, a person who charters the vessel, a person who exercises any of the functions of the owner of the vessel or its cargo, or a person who represents to PNO that it owns the vessel (or its cargo) or has accepted the obligation to exercise the functions of owner.

Shortly after PNO’s appointment as operator, PNO increased the navigation service charge payable for some vessel types by 40-60%, particularly for larger more efficient vessels (see PNO v Australian Competition Tribunal (2017) 253 FCR 115 at [11] and Application by Glencore Coal Pty Ltd [2016] ACompT 6 at [16]).

In response to the increase, in 2015 Glencore (pursuant to its rights under the C&C Act) asked the National Competition Council (NCC) to recommend that the relevant Minister “declare” the “service” provided by PNO at the Port (the “service” being the provision of access to the Port’s shipping channels and loading berths) under s 44H of the C&C Act, for the purposes of the Part IIIA Access to Services regime.

If the Minister declared the service, Glencore would, as a “third party” seeking “access” to PNO’s service, acquire a statutory right (under the C&C Act) to negotiate the terms of the navigation service charge with PNO and, if the parties could not reach agreement, to have the matter determined by way of an arbitration conducted by the ACCC.

The NCC recommended against the declaration and the relevant Minister decided not to declare the service.

The litigation history

Glencore applied to the Tribunal for a review of the Minister’s decision. The Tribunal set aside the Minister’s decision and declared the service for the purposes of Part IIIA: Application by Glencore Coal Pty Ltd [2016] ACompT 6.

PNO then applied to the Full Court for judicial review of the Tribunal’s decision (on the basis of an error of law). The Full Court dismissed the application, upholding the Tribunal’s declaration of the service: Port of Newcastle Operations Pty Ltd v Australian Competition Tribunal (2017) 253 FCR 115.

Glencore then applied to the ACCC for an arbitration in relation to the terms of the charge. The ACCC determined (in 2018) that Glencore was required to pay PNO a navigation service charge of $0.61 per gross tonne (calculated on the basis of a modified version of one of the Australian Energy Regulator’s models, which involved the value of the Port assets needed to provide the declared service) in two circumstance: (1) where Glencore owned or chartered a vessel which moved through the Port to load Glencore’s coal; and (2) where Glencore brought itself within the extended PMA Act definition of “owner” in respect of a vessel that moved through the Port to load Glencore’s coal.

In determining the amount of the charge by reference to the value of the Port assets, the ACCC (in accordance with Glencore’s submissions) deducted from the value of the Port assets the financial contributions made by past users of the Port to build the Port (on the basis that the financial contributions did not represent costs to PNO for providing the declared service and, if included in the calculation, could result in long time users of the Port, such as Glencore, paying for the same assets twice).

Glencore appealed the ACCC’s determination to the Tribunal. The Tribunal varied the ACCC’s determination by:

1. increasing the navigation service charge from $0.61 to $1.0058, after declining to deduct from the value of the Port assets the financial contributions made by past users of the Port to build the Port on the basis that: (i) the C&C Act only required the ACCC to consider past user contributions in circumstances where the contributions had been made for the extension of the Port (as opposed to its initial construction); and (ii) deducting past user contributions would send a signal to future investors in other monopoly infrastructure that they risked having their investment in constructing or acquiring rights to the infrastructure (which would be referable to the total value of the infrastructure assets) treated as sunk, with future returns on their investment in those assets being confiscated; and
2. confining the scope of the navigation service charge to one circumstance, where Glencore (as opposed to a buyer or other person) owned or chartered a vessel to enter the Port to load Glencore’s coal: Re Application by Port of Newcastle Operations Pty Ltd [2019] ACompT 1.

Glencore (and the ACCC) sought judicial review by the Full Court. The Full Court set aside the Tribunal’s decision on the basis that the Tribunal had erred in: (1) confining the scope of the navigation service charge to the circumstance where Glencore owned or chartered a vessel; and (2) declining to deduct user contributions to Port assets from the value of the Port assets for the purposes of determining the amount of the navigation service: Glencore Coal Assets Australia Pty Ltd v Australian Competition Tribunal (2020) 280 FCR 194.

PNO appealed to the High Court.

The High Court’s decision and reasoning

The High Court:

1. agreed with the Full Court’s decision that the Tribunal had erred in law in treating the ACCC’s determination of the navigation service charge as confined to circumstances where Glencore owned or chartered a vessel (or owned its cargo) by misconstruing the meaning of the word “access” in the context of the Part IIIA Access to Services regime (at [107]-[111] and [123]). The High Court, applying standard principles of statutory interpretation, endorsed the Full Court’s finding that the Tribunal had taken an unduly “physical view” of what it means to “access” a service. The High Court endorsed the Full Court’s statement that “Coal is exported in ships in respect of which any exporter may or may not have a particular or direct contractual arrangement. Whether or not an exporter makes any particular arrangement directly in controlling the physical or commercial deployment of the vessel does not affect a conclusion as a matter of meaning of the text […] that the exporter is accessing or using the shipping channels when, by its sale arrangement, it causes a vessel to enter the Port (at [74] and [85]-[107]); and
2. disagreed with the Full Court’s conclusion that the Tribunal had erred in declining to deduct user contributions to Port assets from the value of the Port assets for the purposes of determining the amount of the navigation service charge. The High Court rejected the Full Court’s finding that the Tribunal had misconstrued two provisions of the C&C Act which required the Tribunal to take into account the following matters (among others) when making its final determination in the arbitration: (i) the value to PNO of “extensions (including expansions of capacity and expansions of geographic reach) whose cost is borne by someone else” (s.44X(1)(e)); and (ii) the pricing principles specified in s 44ZCA of the C&C Act (s 44X(1)(h)). The High Court found that: (i) s 44X(1)(e) did not apply to the initial construction of the Port; it only applied to “extensions” to the Port, such that it was incorrect to deduct user contributions to Port assets from the value of the Port assets when determining the amount of the navigation service charge; and (ii) the Tribunal had not misapplied the pricing principles in s 44ZCA (at [114]-[119] and [121]-[123]).

Postscript

Following the High Court’s decision, the ACCC issued a public statement expressing concern about calculating the charge without reference to users’ historical contributions to Port assets, in circumstances where that would result in the private operator obtaining a financial return on Port assets which it did not itself pay for. The ACCC is considering its position on whether any legislative amendment is required (see https://www.accc.gov.au/media-release/high-court-rules-on-determining-access-charges-for-port-of-newcastle).