TasPorts sails to a smooth end

Published On 24/05/2021 | By Jeremy Chan | Enforcement, Litigation, Reform, Uncategorized

After a tonne of anticipation, the first judgment considering the new misuse of market power provision following the Harper Review has now berthed. This follows TasPorts’ admission to contravening s 46 of the Competition and Consumer Act (CCA). In accordance with a proposed minute of orders provided by TasPorts and the ACCC, the Federal Court has declared that TasPorts contravened s 46 of the CCA, ordered that TasPorts pay a contribution of $200,000 to the ACCC’s costs, and noted that the proposed s 87B undertaking provided by TasPorts was within the power of the ACCC to accept.

In light of previous settlements and the unresolved tug of war between Epic Games and Apple, the TasPorts case provides some much-needed piloting on how courts might interpret the new misuse of market power provision. Indeed, the judgment suggests a broad ambit for the new s 46, at least relative to its predecessor, as detailed further below.

This interpretation may have significant ramifications for firms, particularly those that are vertically integrated or provide a range of goods and services in a diverse number of markets. However, given the admissions of TasPorts in this case, the full scope of the operation and application of the new s 46 remains to be seen.

Background: A New Berth for s 46

The current prohibition against misuse of market power under s 46 took effect on 6 November 2017 and states:

(1) A corporation that has a substantial degree of power in a market must not engage in conduct that has the purpose, or has or is likely to have the effect, of substantially lessening competition in:

(a) That market; or

(b) Any other market in which that corporation, or a body corporate that is related to that corporation [supplies or acquires goods or services, or is likely to supply or acquire goods or services] …

Although the previous form of the prohibition was present for some time, the current s 46 was recast following the Harper Review. This was because the Harper Review identified that the old ‘take advantage’ limb was not ‘a useful test by which to distinguish competitive from anti-competitive unilateral conduct’ (see our previous summary here). The key differences between the new and old s 46 are outlined below:

Table 1: Comparison of New and Old s 46.
  New Law Old Law
Prerequisite Substantial degree of power in a market Substantial degree of power in a market
Trigger Conduct with effect or purpose Taking advantage of that market power
Contravention   Substantially lessening competition (SLC) in that or any other market in which the corporation supplies or acquires goods or services (or is likely to supply or acquire goods or services). Purpose of:
  • Eliminating or substantially damaging a competitor; or
  • Preventing the entry of a person into that or any other market; or
  • Deterring or preventing a person from engaging in competitive conduct in that or any other market.

ACCC v TasPorts: Tug of War

Background

The TasPorts case is the first judgment on the new misuse of market power provision. It deals with the admitted conduct of TasPorts between 6 November 2017 and 1 July 2019 that had the “likely effect” of SLC in the towage market and the pilotage market in Northern Tasmania.

TasPorts is a State owned company which provides marine services including infrastructure management, towage services, and pilotage services at ports in Northern Tasmania. Grange Resources Limited (Grange) is the owner and operator of one of the major ports in Northern Tasmania, Port Latta. For a number of years prior to 1 July 2018, TasPorts was the sole provider of marine services at major ports in Tasmania, including Port Latta.

Following failed negotiations between Grange and TasPorts on a Services Agreement, Grange advised TasPorts that it would obtain towage and pilotage services from another port services provider, Engage Marine Pty Limited (Engage Marine). At this point, TasPorts advised Grange that it would need to pay a “Marine Precinct Tonnage Charge” (the Charge) for vessels calling on Port Latta once Grange’s Services Agreement with TasPorts had expired (see further background to the proceedings here).

Admissions of TasPorts

TasPorts admitted that it had a substantial degree of market power in managing and maintaining infrastructure in ports (other than Port Latta) in Northern Tasmania. It also admitted that it engaged in conduct, in response to the entry or attempted entry of Engage Marine as a competitor for towage and pilotage services, that was likely to have the effect of SLC in the markets for towage and pilotage services in Northern Tasmania.

Specifically, the admitted conduct involved maintaining that Grange was required to pay the Charge for vessels calling at Port Latta, in circumstances where TasPorts:

  1.  first sought the Charge from Grange after Grange notified TasPorts that it would cease acquiring towage and pilotage services from TasPorts at Port Latta and begin acquiring those services from Engage Marine;
  2. did not, without Grange’s agreement, have a legal right to require Grange to pay the Charge; and
  3. sought to impose the Charge without having conducted a full assessment of its costs of providing the services that it would need to provide at Port Latta in order to perform the responsibilities imposed on it under separate agreements.

It was also an agreed fact that, if Grange agreed to pay the Charge, there was a “real commercial likelihood” that such payment would have the effect of raising Grange’s future costs of acquiring services from Engage Marine, compared with if there had been no Charge.

Judgment

The Court outlined that under the current s 46, for a corporation to contravene the provision, it must:

  1. have a substantial degree of power in a market; and
  2. engage in conduct which, relevantly, is likely to have the effect of SLC in that market or another market in which it trades or is likely to trade.

On the basis of this test and the statement of agreed facts, Justice Davies was satisfied that the Court should declare that TasPorts had contravened s 46 of the CCA. Her Honour also noted that the proposed s 87B undertaking, as offered by TasPorts to the ACCC, was within the power of the ACCC to accept. The Court also ordered TasPorts to pay a $200,000 contribution to the ACCC’s costs. While the ACCC initially did seek pecuniary penalties and injunctive relief, it did not pursue these in the final agreed orders.

Despite not having the benefit of opposing submissions, the judgment still provides some valuable insight into how courts might interpret the new s 46. In particular:

  • it’s relatively clear that there is no requirement to prove any ‘take advantage’ under the new s 46. The new test focusses on whether ‘the conduct by a corporation with substantial market power has the purpose, effect or likely effect of substantially lessening competition’.
  • the reasoning suggests that the new s 46 no longer requires any direct connection between a firm’s anti-competitive conduct and its degree of market power. All that needs to be demonstrated is:
    • that the firm has a substantial degree of market power in a market; and
    • the firm has engaged in conduct that SLC in any market in which it trades or is likely to trade.

Indeed, the judgment accepts TasPorts’ admissions that: (1) it had a substantial degree of market power in managing/maintaining port infrastructure, and (2) that it engaged in conduct that had the “likely effect” of SLC in the towage market and the pilotage market. However, it does not provide any reasoning on the connection between the two.

Taken together, this suggests that the ambit of the new s 46 is indeed wider than its predecessor.

Conclusion: A wide berth for the new s 46?

The interpretation of the new misuse of market power provision in the TasPorts case may have significant ramifications for businesses, particularly those that are vertically integrated or provide a range of goods and services. Unlike the ‘taking advantage’ test under the old s 46, this interpretation means, for example, that a vertically integrated firm could breach s 46 for conduct in a market in which it trades, even if it does not have substantial market power in that market (assuming it has substantial market power in some other market).

However, the TasPorts case is the first judgment on the new s 46 prohibition and was decided on the basis of an agreed statement of facts and proposed orders. Thus, the TasPorts case may not be the definitive answer to the question of how courts will interpret the operation and scope of the new s 46 prohibition.

Nevertheless, at the very least, the reasoning in the TasPorts case suggests that courts will interpret the new s 46 as having a wider ambit than that of its predecessor. But given the admissions of TasPorts, it remains to be seen just how far courts will go in giving the misuse of market power provision a wide berth.

And so, the ACCC appears to have begun its own piloting.

Image credit: Ronan Furuta / Unsplash.com / Remixed to B&W and resized

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About The Author

Jeremy Chan is a Law Graduate in the competition litigation team in the Sydney office of King & Wood Mallesons. Jeremy has a particular interest in the convergence of law, economics and emerging technologies, as well as 'hole in the wall' food joints.

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