Rod Sims, the Australian Competition & Consumer Chairman, has forcefully argued that market competition in Australia is facing big challenges.
Speaking at the UniSA & ACCC Competition Law and Economics Workshop recently, Mr Sims addressed a variety of topics including merger law reform, and the requirement to prove the future in competition-centred lawsuits.
Mr Sims noted that Australia is an “outlier” compared with other advanced economies in its approach to mergers. Competition law should be capable of preventing the formation of monopolies, or near monopolies.
However, he pointed to the Acacia Ridge intermodal terminal, Brisbane.
The ACCC was unable to stop Pacific National from buying the Acacia Ridge intermodal terminal from Aurizon, which had also closed down its competing interstate rail operations when the deal with Pacific National was announced. And, he added, even while the ACCC’s Federal Court litigation was “afoot” Aurizon entered into an agreement for Pacific National to operate the terminal that was the subject of the litigation.
“Australians are now worse off as a consequence of Aurizon selling to its only competitor rather than one of the available new entrants. We have ended up with a 2 to 1 (plus a partial competitor in SCT) in the nationally important interstate rail haulage market, with the near monopolist controlling the critical infrastructure which any new entrant would need to access.
“When a company sells its assets, it is not surprising that the highest bidder is often the one that has the most to gain from market power or the raising of barriers to its rivals. In Pacific National-Aurizon, we saw Aurizon’s interstate intermodal business shut down because Pacific National was prepared to pay a high price for the terminal alone, despite there being alternative bidders who were prepared to purchase that business as a going concern as well as the terminal,” he said.
The ACCC obtained a court order requiring Aurizon to continue operating the business while the litigation played out and the interstate business was sold to Linfox.
The requirement to prove the future: the NSW Ports case
The key legal test that the ACCC has to meet is the “substantial lessening of competition” test. However, that test has resulted in a requirement for the ACCC to be required to prove the likely future state of competition with and without the anti-competitive conduct to the civil standard of proof.
Ports Botany, Kembla and Newcastle were privatised some years ago. A complex system of compensation was set up at the time of privatisation so that if Newcastle handles above a certain volume of containers then a cascade of money transfers is triggered, ultimately resulting in payments to the operator of Port Botany. The rules apply for 50 years from when the agreement was made in 2013.
The ACCC regarded these provisions as anti-competitive and sued.
At first instance, the ACCC’s case was dismissed.
According to Mr Sims, the Federal Court ruled that the ACCC had not proved that, at the time of the deal, it was likely that a container terminal would be established at Newcastle.
“In essence, the ACCC had to prove that, at the time of the privatisations, that a container terminal at the Port of Newcastle would be viable in the next 20 or 30 years… requiring the ACCC to prove that a container terminal would be viable, before all the groundwork for a business case has been done and when circumstances concerning coal exports are changing rapidly, highlights the inappropriateness of the existing legal test, because it is being confined to what is currently known and provable about future developments,” Mr Sims commented.
He added that the assessment of substantial lessening of competition should focus on disruption to the competitive process caused by the alleged anti-competitive conduct / merger rather than requiring evidence to establish future events which might occur.
The ACCC v NSW Ports case is under appeal to the Full Federal Court.