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.