The CCA does not apply to the privatisation of Port Botany and Port Kembla

Australian Competition and Consumer Commission v NSW Ports Operations Hold Co Pty Ltd [2023] FCAFC 16

Background

This case concerned three ports in New South Wales: Port Botany, Port Kembla and the Port of Newcastle.

In 2013, NSW Ports, a privately owned company, acquired Port Botany and Port Kembla from the State of NSW.

As part of the privatisation, NSW Ports entered into a “Port Commitment Deed” with the State of NSW (PCD), pursuant to which the State agreed, for a period of 50 years, to pay compensation to NSW Ports if container cargo through the Port of Newcastle (a competing port) exceeded a specified cap and diverted container cargo away from Port Botany or Port Kembla (compensation provision).

In 2014, the Port of Newcastle was also privatised.  As part of the privatisation (implemented by way of contractual arrangements), the “Port of Newcastle” (PON) consortium was contractually required to reimburse the State for any compensation payments that the State was required to make under the compensation provisions to NSW Ports (reimbursement provision).

In 2018, the ACCC commenced proceedings against NSW Ports claiming, among other things, that the compensation provision in the PCD had the purpose and had or was likely to have the effect of substantially lessening competition in the market for the supply of port services for container cargo in NSW, in contravention of s 45(2)(a)(ii) of the Competition and Consumer Act 2010 (Cth) (CCA). The ACCC alleged that, but for the reimbursement provision, PON would be likely to build a container terminal at the Port of Newcastle to compete with Port Botany and, in the longer term, with Port Kembla, in the supply of port services for container cargo in NSW.

Primary decision

In summary, the primary judge found the compensation provision did not have the purpose or likely effect of substantially lessening competition such that NSW Ports did not contravene s 45 of the CCA.

The compensation provision did not seek to forestall the development of a terminal. Rather, it sought to regulate what would happen to the economic rights between the State and NSW Ports if a container terminal was developed at the Port of Newcastle. In the context of the privatisation of Port Botany and Port Kembla, the compensation provision addressed the risk of the State changing its policy to favour the development of a container terminal at the Port of Newcastle (which was required to avoid a material reduction in bid prices). As to the likely effect of the compensation provision, it was the State’s policy rather than the compensation provision that made it improbable that there would be the development of a container terminal at the Port of Newcastle whilst there was capacity at Port Botany. The primary judge found there was no real chance of the State’s policy changing to enable a container terminal to be developed at the Port of Newcastle whilst Port Botany had capacity, and even if there was such a possibility, the compensation provisions did not prevent that from occurring or rendering it less likely.

In any event, the primary judge found that the State was not bound by Part IV of the CCA because it was not relevantly carrying on a business for the purposes of s 2B of the CCA (which would render s 45 of the CCA applicable to the State if the impugned conduct, the entry into the PCD and the compensation provision, was engaged in in the course of the State carrying on a business). In turn, NSW Ports was entitled to the derivative benefit of that immunity (that is, in the context of the CCA, its limited application to the Crown under s 2B) through non-application of the CCA to the State). This is because to subject NSW Ports to s 45, in relation to the PCD between it and the State, would be to affect the State in such a way as to adversely affect some interest in the State in a manner and to a degree identified in the authorities (in respect of which, see below).

The appeal

The key issues on appeal were:

1. whether the State was entitled to Crown immunity in relation to the impugned conduct;
2. whether NSW Ports was entitled to the benefit of Crown immunity (by reference to derivative Crown immunity);
3. if NSW Ports was not entitled to derivative Crown immunity, whether the compensation provisions had the purpose of substantially lessening competition; and
4. whether the compensation provisions had the likely effect of substantially lessening competition.

Chief Justice Allsop (as he then was, and with whom Yates J agreed) upheld the decision of the primary judge. Justice Beach agreed with the majority on all issues except for the question of derivative Crown immunity.

In respect of the compensation provisions, Allsop CJ found the purpose of the compensation provision was to ensure that bidders did not discount their bids because of the risk of a future change of government policy, which was not a purpose of preventing or hindering competition: [192]. Further, Allsop CJ found no error in the primary judge’s conclusions that (in summary), given there was no real chance of a container terminal being developed at Newcastle while Botany had capacity (or a change in State policy regarding same), there was no likely effect of substantially lessening competition: [287]-[288], [290]-[291].  

Regarding the questions relating to Crown immunity (that is, in the context of the CCA, the Act’s limited application to the Crown pursuant to s 2B), Allsop CJ found:

1. For the reasons given by the primary judge, the privatisation of Botany and Kembla, and the entry into the PCD and the compensation provision was not in the course of the port business, there being a valid distinction between governmental policy (here, the privatisation) and the operation of a business (here, the operation of a port): [337]-[341].
2. Because the CCA did not bind the Crown, if the application of the CCA to NSW Ports would, by extension, be an application of the CCA to the Crown, then NSW Ports was not bound: [401].
3. The relevant proprietary, legal or equitable or statutory right or rights of the State that were divested by applying s 45 of the CCA to NSW Ports in respect of the compensation provision were identifiable as those rights under the Act pursuant to which the Treasurer, as a Minister of the State, effectively privatised Port Botany and Port Kembla  (being the Ports Assets (Authorised Transactions) Act 2012 (NSW)): [404]-[408].
4. These rights and interests (in the relevant legal sense) were real, of substance, and of a character informed by the valuable proprietary interests and rights directed and controlled in the transaction by the Treasurer and were not to be categorised as somehow merely being equivalent to the general capacity or freedom of the Executive to contract: [408].

As a final point, the broader issues raised by this decision, at least in relation to the operation of ports in NSW, are now somewhat diminished. On 25 November 2022, the Port of Newcastle (Extinguishment of Liability) Act 2022 (NSW) came into effect. In substance, the Act sets out a process for extinguishing the liability of PON to reimburse the State for any compensation paid to NSW Ports.