Earlier this week, the Australian Competition Tribunal (Tribunal) decided that the shipping channel and wharfage service (the Wharfside Service) at the Port of Newcastle (Port) should be declared under Part IIIA of the Competition and Consumer Act 2010 (Cth). The Tribunal’s decision represents a victory for Glencore Coal Pty Ltd (Glencore) in its battle against price increases at the Port. It also reminds infrastructure investors, owners and users that the National Access Regime still has teeth.

BACKGROUND

As set out in A bow wave of reform at our ports? and What does Glencore’s Tribunal application mean for infrastructure investors? Glencore applied to the National Competition Council (NCC) for declaration of the Wharfside Service in May 2015.  Following the recommendation of the NCC, Acting Treasurer Mathias Cormann decided not to declare the Wharfside Service.  Glencore applied to the Tribunal for review of the Minister’s decision on 29 January 2016.  The Tribunal published its decision and reasons[1] on 31 May 2016.  The Tribunal’s decision can be found here.

THE TRIBUNAL’S DECISION

As we foreshadowed, the Tribunal’s decision turned upon the proper construction of criterion (a), namely, whether access (or increased access) would promote a material increase in competition in a dependent market.  While the Tribunal’s decision was an administrative one, it turned upon the meaning given to criterion (a) by the Federal Court in Sydney Airport FC[2].  This point was grasped decisively by the Tribunal in its decision, notwithstanding various arguments to the contrary.  As the Tribunal points out, it was obliged to follow Sydney Airport FC unless and until it was overturned by a higher court.[3]

Sydney Airport FC makes it clear that, in assessing whether competition is promoted, the comparison is not between the current level of access and some future level of access post declaration, but simply between access and no access.  As the Tribunal observed at [64], Virgin Blue already had access to the airside service provided by Sydney Airport and was using it for arrivals and departures.  However, that did not prevent a finding that access (or increased access) would promote competition.

What the Tribunal makes clear in Glencore is that the real issue is whether the service has natural monopoly characteristics.  If it does, and the service is a necessary input for effective competition in a dependent market with no practical commercial alternative, it follows that access will likely promote competition.[4]  While many, including the Harper Review Panel and to a lesser extent, the Productivity Commission, have expressed the view that this sets the bar for declaration too low, it remains the law.

The Tribunal also rejected the Port’s argument that the High Court’s finding in Pilbara HC[5] that the decision maker had no “residual discretion” in relation to declaration impliedly changed the construction of criterion (a).[6]

Interestingly the Tribunal did find that, were it wrong on the construction of criterion (a) and the correct comparison was between the current level of access and the level of access if the Wharfside Service were declared, it would have agreed with the Minister’s decision.[7]  This may become relevant if an appeal is successful.

Finally, the Tribunal rejected the Port’s argument that the Minister erred in deciding that declaration of the Wharfside Service was not contrary to the public interest (criterion (f)).  In doing so it followed the decision of the High Court in Pilbara HC that the Tribunal would not “lightly depart from a ministerial conclusion about whether access or increased access would not be in the public interest”.[8]

WHAT HAPPENS NEXT?

This decision is likely to have a significant impact on the Port and could lead to applications for declaration of a landside service as well.  As a result, it is likely the Tribunal’s decision will be appealed to the Full Bench of the Federal Court, potentially under theAdministrative Decisions (Judicial Review) Act 1977 (Cth).  If the Federal Court appeal is unsuccessful the Port may well seek special leave to appeal to the High Court.  Any such appeals are likely to be hugely influential as to the future direction of the National Access Regime.

There is also an interesting question as to whether the service will remain declared while the appeals are heard.[9]

WHY IS IT SO IMPORTANT?

As we have previously said, governments across the country are looking to privatise significant infrastructure assets or have already done so.  Many of these assets, like the Port, have natural monopoly characteristics and are the subject of relatively light handed regulatory regimes.  In an environment of declining resource prices, there is a strong incentive for companies reliant on bottleneck infrastructure to consider all regulatory levers at their disposal to secure better terms of access, including price.  The National Access Regime provides such a lever.

The ACCC will no doubt be delighted with the outcome as, following the Tribunal’s decision, it has the opportunity to set terms and conditions of access in a bilateral arbitration.  While those arbitrations have been relatively infrequent, the Tribunal’s decision may see that change.