Federal Court confirms access is straightforward in Port of Newcastle case - for now

By Paul Burton

25 Aug 2017

The Court's decision maintains the low bar for declaration of key infrastructure services, including at other Australian ports.  

Establishing that access will lead to a promotion of competition remains a relatively straightforward task for "bottleneck" infrastructure, following the Full Federal Court's dismissal of an application for judicial review of last year's decision of the Australian Competition Tribunal to declare the shipping channel service at the Port of Newcastle.

The effect of the decision in Port of Newcastle Operations Pty Ltd v Australian Competition Tribunal [2017] FCAFC 124 may be short-lived, however; the Government already has a Bill before Parliament to amend Part IIIA of the Competition and Consumer Act 2010 (Cth) which would have the opposite effect to the conclusion reached by the Court in this case.   

Background to the Port of Newcastle case

In May 2014 the New South Wales State Government entered into a long-term lease of the assets of the Port of Newcastle, including the shipping channels.  Port of Newcastle Operations Pty Limited (PNO) assumed responsibility for the functions at the Port that were previously performed by the Port Authority of New South Wales.

PNO's ability to charge users for use of the Port's shipping channels was not made subject to any controls (under the Ports and Maritime Administration Act 1995 NSW or otherwise).

On 13 May 2015, following a significant increase in port charges (between 40% and 60%) after PNO's acquisition of the Port, Glencore applied for the declaration of the shipping channel service at the Port of Newcastle under Part IIIA of the Competition and Consumer Act 2010 (Cth) as a means of seeking to limit future increases in port charges.

On 2 November 2015 the National Competition Council recommended that the shipping channel service not be declared. This was because it was not satisfied that declaration of the service would promote a material increase in competition in an upstream or downstream market (criterion (a)). 

The Acting Treasurer, as the designated Minister, agreed with the National Competition Council's recommendation and on 8 January 2016 decided not to declare the shipping channel service.

On 29 January 2016 Glencore applied to the Tribunal for merits review of the Minister's decision.

On 31 May 2016 the Tribunal set aside the Minister's decision and decided to declare the shipping channel service at the Port of Newcastle. 

The Tribunal's decision on the meaning of "access (or increased access)"

The Tribunal disagreed with the Minister's approach on how criterion (a) should be interpreted and applied.  The Tribunal concluded that the consideration of criterion (a) was, in that case, "quite straightforward".  In the case of Glencore's application, the Tribunal held that:

"the Service providing access to the shipping lanes is a natural monopoly and PNO exerts monopoly power; the Service is a necessary input for effective competition in the dependent coal export market as there is no practical and realistically commercial alternative; so access to the Service is essential to compete in the coal export market. In the circumstances … s 44H(4)(a) must have been satisfied."

The Tribunal held that criterion (a) does not involve an assessment of the future state of competition of the dependent market (without any right or ability to use the service) by reference to any pre-existing usage of the service. That is, consideration of the phrase "access (or increased access)" precludes the comparison with whatever usage or access the service provider does or will provide voluntarily or with the terms on which the service provider provides voluntarily such usage or access.

This meant that the Minister was not required to consider what (if any) access is already provided to access seekers.  This approach, according to the Tribunal, was consistent with the approach previously set out by the Federal Court in Sydney Airport Corporation Ltd v Australian Competition Tribunal (2006) 155 FCR 124.

The Full Federal Court confirms the Tribunal's view of "access (or increased access)"

PNO sought judicial review of the Tribunal's decision.  In doing so, it submitted that the earlier Sydney Airport decision had been wrongly decided.

The Court, comprised of five judges, unanimously dismissed PNO's application for judicial review.  It upheld the Tribunal's decision and also held that the Court's earlier Sydney Airport decision should stand. 

While numerous submissions were made to the Court, the key issue for decision concerned how criterion (a) should be construed.  Put another way, was the Tribunal's approach to the construction of criterion (a) incorrect?

The Court reiterated that the starting point of statutory construction is the ordinary and grammatical meaning of the words in criterion (a) having regard to their context and legislative purpose.  It was agreed that the word "access" is to be given its ordinary meaning and not some specialised meaning:

"Criterion (a) does call for a comparison between two circumstances in order to assess whether one of those will promote a material increase in competition in a dependent market.  The difficulty with the construction advanced by PNO … is to state what those two circumstances are and to avoid re-entering the territory of a future with a declaration and a future without a declaration.  With respect we think the Full Court's construction, which involves a comparison between access and no access and increased access and restricted access, is the more natural one."

The Court did accept that this construction of criterion (a) does have the effect of lowering the bar for an applicant to satisfy it.

Would access not be contrary to the public interest?

The Court was also required to consider criterion (f) which requires the decision-maker (the Minister) to be satisfied "that access (or increased access) to the service would not be contrary to the public interest". 

The Tribunal in its decision held that criterion (f) required the Tribunal to address anything that had not been considered under criteria (a)-(e) that rendered or might render access or increased access contrary to the public interest.  That is, criterion (f) should not be used to call into question the results obtained by the application of criteria (a)-(e). That approach was upheld by the Court. 

The future for Part IIIA infrastructure access

The Court's decision confirms the lowering of the bar for access-seekers if they can show that having enforceable rights of access to the relevant service will promote a material increase in competition in a dependent market compared to not having any enforceable access rights, without taking into account whether the service provider already provides access and whether anything would be likely to change if the service was to be declared.

So far as bottleneck infrastructure services are concerned (which port services typically are) they will quite easily meet this test, irrespective of whether the service provider already provides access to access seekers.  

Interestingly, the decision now gives rise to different interpretations being given to the term "access" when used in criterion (a) as compared to criterion (f). In relation to criterion (f) the Court upheld the approach of the Tribunal which was to construe "access" as a synonym for declaration of the service - that is, it requires consideration of the costs and uncertainties which would arise from declaration, whereas such consideration is not undertaken in relation to criterion (a) where the term "access" is not used as a synonym for "declaration". 

Perhaps even more curious is that the decision-maker, in determining whether or not a particular service should be declared, and thereby potentially lead to an increase in competitive outcomes in one or more markets reliant on the service, is by this decision prohibited from considering what, if any, actual impact a declaration will have on competition in such markets

However, despite the Court's decision, its impact is likely to be short-lived as the Commonwealth Government has already introduced a Bill into Parliament which will amend criterion (a) in accordance with the recommendation made by the Productivity Commission in its October 2013 Report into the National Access Regime.  That amendment will require an applicant (for declaration) to demonstrate that access to the service on reasonable terms and conditions through declaration (rather than access of itself) would promote a material increase in competition in a dependent market. 

This will involve a comparison of the existing state of competition against the state of competition where access is granted on reasonable terms and conditions.  Under this test, criterion (a) would not be satisfied where there is already effective competition in dependent markets - in effect reversing the outcome of the Court's decision in this case.     

While the effect of the Court's decision in relation to the National Access Regime may be short-lived, it will continue to have an impact so far as the statutory language used in criterion (a) has been adopted in other State-based or industry sector access regimes (such as Part 5 of Queensland Competition Authority Act 1997 (Qld) and the National Gas Law).  Unless amended, the access provisions in those access regimes would be construed in accordance with the Court's decision.    

Finally, the resolution of this case will mean that the ACCC can now proceed with its arbitration of the access dispute previously notified to it by Glencore.  That arbitration is of particular interest as it represents only the second occasion the ACCC has been called upon to arbitrate an access dispute under the National Access Regime. 

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