Australian Retailers Association v Reserve Bank of Australia [2005] FCA 1707 (incuding summary)

FEDERAL COURT OF AUSTRALIA

Australian Retailers Association v Reserve Bank of Australia [2005] FCA 1707

SUMMARY

AUSTRALIAN RETAILERS ASSOCIATION, AUSTRALIA POST, BP AUSTRALIA PTY LIMITED (ACN 004 085 616), BUNNINGS PTY LIMITED (ACN 008 672 179), CALTEX AUSTRALIAN PETROLEUM PTY LIMITED (ACN 000 032 128), COLES MYER LIMITED (ACN 004 089 936) and SPARKS SHOES PTY LIMITED (ACN 000 916 138) v RESERVE BANK OF AUSTRALIA VID 1387 OF 2004 WEINBERG J 28 NOVEMBER 2005 MELBOURNE

1 In accordance with the practice of the Federal Court in some cases of public interest, importance or complexity, the following summary has been prepared to accompany the orders made today. This summary is intended to assist in understanding the outcome of this proceeding and is not a complete statement of the conclusions reached by the Court. The only authoritative statement of the Court's reasons is that contained in the published reasons for judgment which will be available on the internet at <http://www.fedcourt.gov.au> together with this summary. 2 This is an application for review of a decision of the Reserve Bank of Australia ("the RBA") to "designate" the EFTPOS system. These proceedings have been brought by a group of retail merchants who claim to be aggrieved by the decision ("the applicants"). The applicants argue that the decision to designate was not made according to law, and is therefore invalid. 3 Under the Payment Systems (Regulation) Act 1998 (Cth), the RBA has the power to "designate" a payment system if it considers it would be in the "public interest" to do so. Once a payment system has been "designated", the RBA has the power to, amongst other things, make standards that must be complied with by participants in the payment system. In determining what is in the "public interest", the RBA is required, under the Act, to have regard to payment systems being, in its opinion, "efficient" and "competitive". 4 While the power to determine standards has not, at this stage, been exercised by the RBA, the applicants claim, with much force, that it is the clear intention of the RBA, now that EFTPOS has been designated, to use its powers to reduce or eliminate "interchange fees". 5 "Interchange fees" are the fees paid by a cardholder's financial institution to the merchant's financial institution each time an EFTPOS transaction occurs. For example, if a customer with an ANZ card makes an EFTPOS transaction at Caltex (whose EFTPOS services are provided by the Commonwealth Bank), ANZ will pay a fee to the Commonwealth Bank for processing that transaction. The cardholder's financial institution is called the "issuer" and the merchant's institution is called the "acquirer". The actual fee that is paid by the issuer to the acquirer is determined by the specific terms of an interchange agreement between the two. There are many of these bilateral interchange agreements between financial institutions. 6 The relationship between merchants and acquirers differs depending on whether the merchant is a large merchant, which provides its own infrastructure (for instance PINpads and other equipment), or a small merchant, which has this infrastructure provided by its acquiring institution. In the case of small merchants, they generally pay a fee to their acquirer for the provision of EFTPOS services. In the case of large merchants, many have negotiated to be paid by their acquirer for EFTPOS transactions. In effect, large merchants have negotiated to "share" the interchange fee their acquiring bank receives from issuers. 7 The RBA's reason for designating the EFTPOS system is that it concluded that current interchange arrangements were not conducive to the efficiency of the overall payments system. It determined that current interchange arrangements contribute to the effective price that cardholders are charged for EFTPOS transactions being higher than for payments using credit cards. This was despite EFTPOS having relatively lower costs. 8 The applicants' concern is that if the RBA reduces or eliminates interchange fees, acquirers will seek to recover that loss in revenue from merchants. Therefore, the applicants claim that smaller merchants will have to pay increased fees to their acquiring bank, and larger merchants will no longer receive fees from their acquirer, or at least will have those fees reduced. In turn, the applicants argue, this will affect investment in EFTPOS infrastructure and costs will be passed on to the merchants' customers. 9 The applicants' challenge to the RBA's decision to designate is an action in judicial review. The applicants must therefore demonstrate that there was an error of law in the RBA's decision. It is not enough to show that a different decision is preferable on the facts, or is preferable from a policy perspective. 10 I have concluded that the applicants have not succeeded in establishing any of the grounds upon which they say the RBA erred in law. In particular, I have rejected the applicants' arguments that the form of the RBA's designation was not consistent with the relevant legislative requirements, that the RBA failed to take into account various considerations it was bound to take into account, that it took into account various irrelevant considerations, that it pre-judged the matter and that there was no evidence to support the findings that formed the basis of the decision to designate. 11 In summary, it is plain that the discretion conferred upon the RBA under the relevant statutory regime is broad. Added to that is the fact that the applicants' challenge to the exercise of that discretion must be viewed in the context of the decision in question being merely a decision to designate, and not a decision to impose specific regulations upon the EFTPOS system, at least at this stage. Having regard to these matters, the applicants set themselves a very "high bar" in terms of what they had to establish in order to make good their challenge to the RBA's decision. Notwithstanding their best efforts, they have not succeeded in making good that challenge.