Federal Court of Australia
 ACCC v NSW Ports
Issue
 The role of government in
affecting port competition
Solution
 Legal judgment - role of
government in balancing
public interest and
competition
Benefits
 Legal ruling provides
improved clarity around
crown immunity
Team
 Steve Meyrick, Euan
Morton, Gayle Andrews
Industry – choose from
list (fixed)
Transport
Discipline – choose from
list (fixed)
Competition policy
analysis
Tools – choose from list
(fixed)
Stakeholder engagement
Publication / Report
☒ Yes
☐ No
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Competition Law and Transport Policy:
ACCC v NSW Ports
23 July 2021
Earlier this week, Justice Jagot published her reasons for dismissing the ACCC’s action against NSW Ports in
connection with the Ports Commitment Deeds that accompanied the privatisation process. Her Honour found that, in
its capacity as operator of a business, the State is subject to the provisions of the Competition and Consumer Act
2010 (Cth); but in its broader roles of policy formulation and implementation in particular, it is not. She also found that
the Port Commitmeent Deeds had no effect on competition, as there was no real prospect of the development of a
container terminal in Newcastle. We discuss the Federal Court decision in more detail below.
DN Andria – can you insert an image of the Port of Newcastle please – have used in previous case studies on web]
both legal considerations and an evaluation of the
economic arguments in the case.
In December 2018, the ACCC instituted proceedings
First, the judgment finds that NSW Ports has the
in the Federal Court against NSW Ports Operations
benefit of ‘derivative crown immunity’ with respect to
Hold Co Pty Ltd and its subsidiaries Port Botany
the compensation provisions. By virtue of this
Operations Pty Ltd and Port Kembla Operations Pty
immunity, the agreement was not subject to s45 of
Ltd for making agreements with the State of New
the CCA.
South Wales that the ACCC alleged had an antiSecondly, the judgment finds that, even if this were
competitive purpose and effect.
not the case, the making of the compensation
The NSW Government privatised Port Botany and
provisions did not have the purpose or the likely
Port Kembla in May 2013 and agreements, known
effect of lessening competition; and that this would
as Port Commitment Deeds, were entered into as
not change even if the provisions came into effect
part of the privatisation process, for a term of 50
(S9).
years.
Background
The Botany and Kembla Port Commitment Deeds
oblige the State of NSW to compensate the
operators of Port Botany and Port Kembla if
container traffic at the Port of Newcastle is above a
minimal specified cap (the compensation
provisions). A separate Deed, signed in May 2014
when the Port of Newcastle was privatised, requires
the Port of Newcastle to reimburse the State of NSW
for any compensation paid to NSW Ports under the
Botany and Kembla Port Commitment Deeds (the
reimbursement provisions). The ACCC had also
argued that the reimbursement provisions were a
consequence of the Port Commitment Deeds
The ACCC had alleged that the compensation
provisions were likely to prevent or hinder the
development of a container terminal at the Port of
Newcastle, and had the purpose, or likely to have the
effect of, substantially lessening competition.
Implications of judgment
The direct consequences of Justice Jagot’s decision
are important, but limited and local. The judgment
confirms the status quo. It leaves the roles of the
major ports in NSW unchanged and consistent with
the plans articulated in the State’s 2013 Freight and
Ports Strategy. The decision also requires no
change to contractual arrangements made between
the State and port lessees at the time of
privatisation.
The status that is given to State policy in the
judgment is of more general interest. There are three
elements of the judgment (and the reasoning
supporting it) that are worth pointing out.
1.
The judgment makes a clear and important
distinction between the State as the operator
of a business and the State as the formulator
and implementer of public policy.
2.
The judgment responds directly to allegations
made by the ACCC that the State policy ‘was
substantially (if not predominantly) a
consequence of a desire by the State to
protect the successful bidder from the threat of
Federal Court Judgment
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In a judgment handed down on 29 June 2021, the
court dismissed the ACCC action. In her detailed
reasoning, released publicly on 20 July, Justice
Jagot sets out two main grounds for this ruling – one
that is purely a matter of law, and one that involves
3.
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Melbourne
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competition from the Port of Newcastle’. Jagot
J goes to some lengths to establish the
integrity and credibility of the relevant public
policy decisions of the State. Following a
detailed review of the process by which the
policy was developed, Her Honour concludes
that it was clear from the documentary
evidence that ‘Transport for NSW and
Infrastructure NSW evaluated the issue of the
use and development of container port
capacity in NSW on the basis of the best
interests of NSW as a whole’ (s949).
the system, and when the benefits of coordination
require the scope for competition to be constrained.
It is in the public interest that ACCC, as an engaged
and informed observer, has and expresses an
opinion on whether the balance struck by
government is likely to serve the interests of the
public. But it is not in the public interest for the
competition regulator to be able to overturn or
trammel the policy decisions that are the rightful
province of an elected government
The judgment makes State policy an integral
part of the context within which the impact of
the provisions must be assessed. The case
presented by the ACCC and PON assesses
the competitive effect as if the clearly
enunciated policy of the State did not exist.
Undertaking the analysis of competitive
effects in this way implicitly delegitimises State
policy where that policy imposes limits on
competition. The judgment takes a very
different approach. It makes the nature of the
policy constraints explicit; places them at the
centre of the analysis; and evaluates the effect
of the PCDs on competition on the assumption
that, unless there is a strong case for changing
it, the policy will remain in place.
The ACCC has made no secret of its dissatisfaction
with the way in which infrastructure facilities — and
ports in particular — have been privatised. Its core
criticism, levelled at State governments, has been
that privatisation frameworks have been designed to
obtain the greatest returns from asset sales. In
doing so, they have failed to foster economic
efficiency by maximising competition and, where
effective competition is not feasible, to effectively
constrain market power.
The recognition accorded to State policy in the
judgment is a welcome development.
Competitive neutrality considerations argue strongly
that, in its capacity as operator of a business, the
State should be subject to the provisions of the CCA.
Considerations of democratic governance and good
public policy — and of good transport policy in
particular — argue equally strongly that, in its
capacity as the formulator and implementer of policy,
it should not.
Guiding the development of an efficient and effective
transport system is a complex balancing act. It
requires coordination and the encouragement of
cooperation as well as the promotion of competition.
It cannot be achieved simply by ensuring that each
element of the system is internally efficient; it must
also ensure that the parts fit together well. It will
inevitably require limits to be placed on the actions
of individual actors within the system, including
decisions on what type of facilities will be built where.
This cannot be done without placing some
restrictions on competition.
It is the role of government, acting as the formulator
and implementer of public policy, to get this balance
right; to decide when it is appropriate to allow the
free play of competitive forces to shape elements of
ACCC views
One feature of the privatisation of the ports of New
South Wales has been the subject of particular
disquiet. NSW privatised its major commercial ports
in two transactions: the first involved the leasing to
NSW Ports of Port Botany and Port Kembla; in the
second, the port of Newcastle was to Port of
Newcastle Ltd (PON).
Each port transaction included an agreement
referred to as a Port Commitment Deed (PCD).
Each PCD contained provisions specifying what
would happen if, at some time in the future, a
sizeable container terminal was developed in the
port of Newcastle. The PCDs for Port Botany and
Port Kembla were made between the NSW
government and NSW Ports in May 2013. These
provided that, if container volumes through
Newcastle exceeded a specified (low) level, and
NSW Ports could demonstrate that this had led to a
reduction in volumes at Port Botany and/or Port
Kembla, the government would reimburse NSW
Ports for lost wharfage revenue. These provisions
are referred to as the ‘compensation provisions’.
The second agreement, made between the
government and PON in May 2014, provides that, if
the government becomes liable for payments to
NSW Ports under the compensation provisions,
PON will make a corresponding payment to the
government. This aspect of the Newcastle PCD is
referred to as the ‘reimbursement provisions’. NSW
Ports was not a party to this agreement.
The ACCC took the view that the compensation
provisions of the Port Commitment Deeds ‘the
purpose and/or effect or likely effect of substantially
lessening competition’ (S1); and that NSW Ports, by
agreeing to them, was therefore in breach of s45 of
the Competition and Consumer Act 2010 (CCA).
Accordingly, it initiated an action against NSW Ports
in the Federal Court, seeking pecuniary penalties in
respect of the alleged contraventions of the CCA and
permanent injunctions preventing NSW Ports from
giving effect to the compensation provisions in the
future (S1).
Reasoning behind the judgment
such a way as to favour the development of a
container terminal at the port of Newcastle ahead of
the full utilisation of the Port Botany and/or the
development and full utilisation of container facilities
at Port Kembla.
Jagot J concluded that the purpose of the
compensation provision was to insure NSW Ports
against the financial consequences of possible
future entry into the container market by PON. She
holds that purpose to be quite different from the
purpose of protecting NSW Ports from possible
future competition:
The derived crown immunity finding
… The subjective understanding of the
compensation provisions by the State and NSW
Ports is clear – they did not intend that NSW Ports
would be inoculated against the threat of entry
into the market for Container Port Services by the
Port of Newcastle. They intended that if that threat
materialised NSW Ports would be compensated for
the loss of containers over and above a specified
natural growth rate of container volumes at the
Port of Newcastle if it had continued without a
container terminal..(s939).
The reasoning behind the derived crown immunity
finding proceeds in two steps: first, to establish
whether the State enjoyed crown immunity; and
second, whether, if it did, that immunity extended to
NSW Ports.
Jagot J’s judgment on the first of these issues draws
a clear distinction between the State as a business
operator and the State’s role as the party formulating
and implementing public policy.
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Perth
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Darwin
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Melbourne
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The State is bound by Pt IV of the CCA so far as it
carries on a business, either directly or by an
authority of the State… It necessarily follows that,
otherwise, the State is not bound by Pt IV of the
CCA…In formulating the State policy, the NSW
government was not carrying on a business.
Accordingly, the implementation of the State
policy is not subject to s 45 of the CCA. (ss 337-339).
Justice Jagot’s reasoning on the conditions under
which the immunity of the State, acting as the
formulator and implementer of policy, from s45 of the
Act extends to private parties (such as NSW Ports)
is complex and nuanced. There is no general
presumption that immunity would extend to private
counterparties. But Justice Jagot concludes that
extension of the immunity applies in particular
circumstances — specifically, when applying the
proscriptions of s45 to the private party would
‘adversely affect some proprietary right or interest of
the Crown, legal equitable or statutory’ (s114), Her
Honour further concludes that these circumstances
apply in the case of the compensation provisions.
The purpose of the compensation
provisions
Jagot J rejected the proposition that the purpose of
compensation proposition was to bring about a
substantial reduction in competition. Her Honour
characterised the compensation provisions as a
means of insuring the purchaser of the port against
a sovereign risk (s363). This risk was that a future
State government may modify its transport policy in
This conclusion as to the purpose of the agreement
stands even if an effect of the agreement is to
substantially lessen competition. But, as we shall
see, Her Honour does not accept that this is the
case.
The effect of the compensation
provisions
Critical to the reasoning of the judgment is an
assessment of whether there was (or is) a genuine
possibility that, in the absence of the compensation
and reimbursement provisions, PON would develop
a container terminal. If this is not the case, then it
necessarily follows that the provisions of the PCDs
cannot have the effect of substantially lessening
competition (s1226).
Jagot J gives considerable weight to State policy in
making this assessment. Her Honour explicitly
adopts the position that ‘unless and until the NSW
government can be persuaded to change the State
policy neither PON nor any third party would be
willing to commit to the development of a container
terminal at the Port of Newcastle’ (s1219;s1246).
She therefore identifies two conditions that would be
essential for there to be a ‘real chance’ of a container
terminal being constructed in Newcastle while Port
Botany has capacity:

PON would have to satisfy itself that there
was a good [commercial] case for a container
terminal

PON would also require a good case to
attempt to persuade the NSW government to
change the State policy (s1226; s1502).
The second condition is necessitated, in part,
because PON would require planning approvals to
proceed with any plans, and it is not plausible that
these approvals would be issued unless PON’s
plans aligned with government policy (s1461). But it
is also required because material infrastructure
investments would be required to support the
viability of the terminal (e.g. s1469).
After reviewing evidence including the PON’s
Preliminary Business Case, Her Honour concluded
that there was no sound basis for believing that
either of these two conditions could be met while
Port Botany had excess capacity. This conclusion
held with or without the compensation and
reimbursement provisions. Her Honour expressed
this view rather forcefully in her introduction:
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PON had and has mere speculative hopes that it
might be able to: (a) satisfy its board, its
shareholders and the NSW government that a
container terminal at the Port of Newcastle while
Port Botany has capacity might be viable, and/or
(b) persuade the NSW government to change the
State policy which has been in place since July
2012…These mere speculative hopes were and
remain far-fetched and fanciful on the evidence,
and were and are not a real chance or real
possibility. As such, there was and is not any
credible threat of entry by PON into the pleaded
market for Container Port Services in New South
Wales. (s10)
The conclusion that, for as long as Port Botany has
spare capacity, the PCDs could not have the effect
of substantially lessening competition necessarily
follows.
Her Honour expresses the view that ‘one objective
of PON must be for its container terminal to take
precedence over Port Kembla’ (s1359).
She
therefore considers the possibility that, when Port
Botany approaches capacity, but no container
terminal has yet been constructed at Port Kembla, a
window of opportunity may open up in which the
development of a container terminal at Newcastle
may be a real prospect. It is clear that she is not
persuaded that this is likely:
If a container terminal at Port Kembla is currently
a mere “vision”, then a container terminal at the
Port of Newcastle while Port Botany has capacity
(or before a container terminal is developed at Port
Kembla) is a mere mirage (s1560).
But even if this mirage became a reality, it would do
so at a time when not be spare capacity at either Port
Botany or Port Kembla. The existence of such spare
capacity is one of the conditions required to trigger
the compensation provisions (and hence the
reimbursement provisions). So, once again, the
provisions would have no effect on the competitive
landscape (s1603).
Final comments
No doubt the ACCC will be continuing to closely
scrutinise this week’s judgment, having lost on both
legal and economic matters. But the recognition of
State policy in competition matters and drawing a
much needed balance is a welcome development.
Steve Meyrick
Associate
p: +61 7 3227 9500
e: s.meyrick@synergies.com.au
Euan Morton
Principal
p: +61 7 3227 9556
e: e.morton@synergies.com.au