‘Play nice’ outcome secured in ACCC misuse of market power prosecution

The Australian Competition and Consumer Commission (ACCC) has secured an important settlement in its action against Tasmanian Ports Corporation (TasPorts) in the Federal Court. In the first case since an ‘effects test’ was added to the ‘purpose test’ as a basis for establishing ‘misuse of market power’, TasPorts admitted that it had engaged in conduct:

…that had the likely effect of substantially lessening competition in the markets for towage and pilotage services in northern Tasmania.

Additionally, TasPorts has entered into powerful and far-reaching undertakings about its future conduct, undertakings that will facilitate and support the market entry of its ‘wronged’ competitor and help to open-up the market to competition more broadly.

The ACCC will be buoyed by this first deployment of its new ‘fair competition’ powers. However, the resolution of the litigation without formal adjudication extends the period of uncertainty about the meaning and therefore the extent of the new ‘misuse of market power’ test, which is yet to be pronounced by the Court.[1]

In this article, Emily Jennings and Lochlan Worrell of Moulis Legal explain the facts of the TasPorts case and discuss how the outcome might influence business behaviours across Australian markets in the future.

When the boat comes in

Marine pilotage and towage are essential services for the navigation and docking of ships in commercial harbours.

TasPorts owns and operates all but one of the ports in northern Tasmania and offers pilotage and towage services to vessels using the harbours as well. In August 2017, the owner and operator of Port Latta, the only port not owned by TasPorts, advised TasPorts that it intended to switch pilotage and towage service providers to a new entrant, Engage Marine. Prior to this, TasPorts had been the only supplier of pilotage and towage services in Tasmania.

The ACCC alleged that TasPorts misused its market power in response to this move by Port Latta. Amongst other things, the ACCC accused TasPorts of:

  • refusing to provide long term berths for Engage Marine tugboats;
  • leaving Engage Marine out of shipping schedules; and
  • restricting access to port communications systems required to provide towage services.

In summary, the ACCC’s position was that TasPorts had prevented Engage Marine from entering or expanding in the relevant market.

Competition is ‘good’ but what if the effects are ‘bad’?

The 2017 amendments to the Competition and Consumer Act 2010 intend to make it easier to establish that a business has used its market power to fend-off a business competitor. The case brought against TasPorts was the first test of the ACCC’s new powers.

Before the amendments, business entities with a substantial degree of market power could be found to have misused their power if they used it to their advantage with the purpose of:

  • substantially damaging a competitor;
  • preventing the entry of a competitor into the market; or
  • preventing a person from engaging in competitive behaviour.

However, the amended provision says that conduct which ‘has the purpose, effect or likely effect of substantially lessening competition in that or any other market’ is sufficient to constitute a misuse of market power. Showing that certain conduct has had an effect on competition or will likely affect competition is thought to be easier than having to show that the purpose or intent of that conduct was to reduce competition. The question of degree – that the effect must ‘substantially lessen’ competition - remains an important factor as well.

Tide turns against TasPorts

On 4 May 2021, orders were entered whereby TasPorts agreed that its conduct in preventing Engage Marine from competing in the market had the likely effect of substantially lessening competition in the markets for towage and pilotage services in northern Tasmania.

TasPorts provided an undertaking that for a period of five years, it would not:

  • require payment of any ‘tonnage charge’ (or any other similar charge) in respect of Port Latta other than in accordance with certain requirements; or
  • change any charge relating to TasPort’s services because of the identity of the supplier of towage and pilotage services at Port Latta.

Furthermore, TasPorts undertook that it will:

  • offer a licence to Engage Marine to access berth space at the wharf at another northern Tasmania port, Inspection Head, for a period of not less than 5 years;
  • spend a minimum of AUD1 million on the wharf and other facilities at Inspection Head to allow the continued berthing of tugs and other commercial vessels; and
  • allow port users to access TasPorts’ communications system to book towage services provided by Engage Marine at the ports of Bell Bay, Burnie, and Devonport in northern Tasmania.

No fine was imposed against TasPorts but an order requiring TasPorts to pay AUD $200,000 towards the ACCC’s legal costs was made.

Power tends to corrupt

ACCC Chair Rod Sims celebrated the ‘win’ against TasPorts, stating that the consent declaration was:

…an important decision because port services play a pivotal role for the Tasmanian economy, and this is the first time a corporation has been declared to have breached the revised misuse of market power law.[2]

There is no doubt that the outcome which suited the ACCC’s policy imperatives was achieved. Ultimately, however, achieving those imperatives will rely not upon a settlement negotiated between two parties but on the legal interpretation of a number of subjective concepts that will be strongly argued by future litigants. When will competitive conduct by powerful business entities trespass into the territory of ‘misuse’?

It is clear that the ACCC remains willing to take enforcement action in this area, with Rod Sims issuing this warning:

Businesses with substantial market power have a special responsibility when deciding how to respond to competitive threats. If they respond in a competitive way, for example by offering customers better products at better prices, they will not face the risk of enforcement action. However, when they hinder a competitor from competing on its merits, the ACCC will not hesitate to take enforcement action.[3]

Thus, the ACCC remains strong in its resolve to combat anti-competitive behaviour, and the wait continues for the first contested judgment from the Federal Court with respect to the new ‘misuse of market power’ test.

Businesses holding strong market positions, whether in products or services, should always focus on price and quality to maintain their edge. Modes of entrenching market power, such as through access to private systems, long lock-in periods, sole-supplier agreements, and other such mechanisms need to be more carefully considered. Other variables need to be considered, such as market definition and the customary features of competition in the market itself.

Dropping anchor in a ‘safe harbour’ involves a robust analysis of the dynamics of your market place, in a legal context. Failure to do so could leave you in rough seas.

This memo presents an overview and commentary of the subject matter. It is not provided in the context of a solicitor-client relationship and no duty of care is assumed or accepted. It does not constitute legal advice.

© Moulis Legal 2021

 

[1]        Competition and Consumer Act 2010, Section 46.

[2]        https://www.accc.gov.au/media-release/tasports-declared-to-have-misused-its-market-power

[3]        Ibid.

Key contacts
Emily Jennings
Senior Associate and Head of Brisbane office
Lochlan Worrell
Lawyer
M.