Government authorities and the TPA

By Jonathan Hoyle and Simon Chapple.

Key Points:
The NT Power Generation case broadens the scope of Government business activities subject to the Trade Practices Act, and reaffirms the statutory prohibition against the misuse of market power.

The recent case of NT Power Generation Pty Ltd v Power and Water Authority [2004] HCA 48 (6 October 2004) is important because not only does it broaden the scope of Government business activities that will be subject to the Trade Practices Act 1974 (Cth) (TPA), but it also reaffirms the statutory prohibition against the misuse of market power.

Background

The Power and Water Authority (PAWA) was a body corporate constituted under section 4 of the Power and Water Authority Act 1987 (NT) and was subject to the directions of the Minister for Essential Services for the Northern Territory. PAWA operated a vertically integrated electricity enterprise. It generated electricity or purchased electricity generated by others; transported that electricity from generation sites to distribution points via transmission equipment; transported electricity from distribution points to the customers via distribution equipment; and charged the customers.

NT Power, a private company, requested that PAWA supply the electricity transmission and distribution infrastructure services needed for its plan to sell electricity to consumers in competition with PAWA. This request was rejected by PAWA, even though there was no safety, technical or other problem preventing PAWA from acceding to the request.

NT Power commenced proceedings against PAWA in the Federal Court on the basis that PAWA's refusal to grant access to its infrastructure services constituted a misuse of market power in breach of section 46 of the TPA. NT Power's application was dismissed at first instance. The decision was subsequently upheld on appeal to the Full Federal Court.

NT Power appealed to the High Court, and three main issues were considered:

1. Whether PAWA was carrying on a business within the meaning of section 2B of the TPA. If this was the case, then PAWA could not claim immunity from the TPA.
2. Assuming that the TPA did apply to PAWA's conduct, did PAWA's rejection of NT Power's request contravene section 46 of the TPA?
3. Whether Gasgo Pty Ltd, a wholly owned subsidiary of PAWA, enjoyed crown immunity? The Court held that Gasgo was not a part of the Northern Territory Government and therefore subject to section 46 of the Act. This issue was referred to the trial judge for determination of the section 46 issue.

Was PAWA carrying on a business?

The High Court held that PAWA was carrying on a business for the purpose of section 2B of the TPA. The decision turned on the fact that, although the conduct in question did not constitute the actual business of PAWA, the conduct nevertheless formed part of "carrying on a business" under section 2B and therefore section 46 applied.

More particularly, the Court held that PAWA's decision not to permit the use of its transmission and distribution services in relation to electricity generated by a competitor for no reason other than protecting its revenue position in relation to electricity sales was conduct which advanced the business of PAWA and this was within the scope of section 2B.

Did PAWA take advantage of its market power?

PAWA contended that there was no relevant market because of the absence of transactions in the Electricity Infrastructure Market or the Electricity Carriage Market. This argument rested on the supposed fact that PAWA had never sought to supply any goods or services in those markets, since it only used the infrastructure for its own purposes and had not granted access to others.

The Court held that even if there had been no transactions, the potential for transactions remained, which was held to be sufficient. The Court followed Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Co Ltd (1989) 157 CLR 177 as authority that "a market can exist if there be the potential for close competition even though none in fact exists".

Furthermore, PAWA argued that its conduct should be characterised as PAWA taking advantage of its proprietary rights rather than misusing market power. The Court held that this was a false distinction. Property rights can be a source of market power which would attract liability under section 46. Thus, PAWA did take advantage of market power because it was only by virtue of its control of the market for the supply of services for the transport of electricity along its infrastructure and the absence of other suppliers that PAWA could withhold access to infrastructure.

PAWA also submitted that its actions were in response to a ministerial direction. The Court held that a briefing note, alleged by PAWA to constitute a direction, was too vague to amount to a direction. Notwithstanding this, even if a ministerial direction had been given, the Court held that this did not prevent a finding that PAWA took advantage of its market power under section 46. The Court was of the opinion that what PAWA did in response to a direction of the Minister, was the conduct of PAWA.

Implications

This case has two broad implications. First, consistent with the trend of recent authority, a wide range of Government activity of a business-related nature may be subject to the operation of the TPA. Secondly, despite recent cases which have demonstrated the difficulties of establishing misuse of market power, NT Power Generation reaffirms the statutory prohibition against the misuse of market power, particularly where the alleged misuse is by a Government party. In his dissenting judgment, Justice Kirby noted this apparent inconsistency of approach when he suggested:

"No doubt others will contrast the energetic deployment of trade practices law in the circumstances of this case, affecting a Governmental corporation having Governmental obligations to the public welfare, with the repeated refusal of this Court in recent times to do the same thing where the corporation concerned was private, successfully defending its market power against smaller private would-be competitors."