Misuse of market power – the first outcome for ‘likely effect’

The Australian Competition and Consumer Commission (ACCC) and Tasmanian Ports Corporation Pty Ltd (Port Corporation) have agreed to consent orders to resolve the ACCC’s first application of the new ‘effects test’ under the misuse of market power provisions (section 46) of the Competition and Consumer Act 2010 (CCA). 

In this landmark agreement, the Federal Court has declared by consent that the Port Corporation engaged in conduct that had the ‘likely effect’ of substantially lessening competition in the markets for towage and pilotage services in Northern Tasmania. 

Background

In this case, the ACCC alleged that the Port Corporation (a Tasmanian Government-owned corporation) misused its market power in breach of section 46 of the CCA by seeking to deny the entry of a competitor, Engage Marine Tasmania Pty Ltd (Engage), into relevant markets to supply towage and pilot services at Port Latta (whose owner and operator is Grange Resources Limited (Grange)). 

The ACCC alleged that the Port Corporation’s conduct:

• was engaged in for the purposes of preventing or hindering Engage from competing in the supply of towage and pilotage services in relevant markets
• had the effect, or was likely to have the effect, of substantially lessening competition in the relevant markets.

The resolution

The Federal Court made orders by consent on 4 May 2021, dismissing all allegations that the Port Corporation’s conduct had the “purpose” or “actual effect” of substantially lessening competition. It was, however, agreed that the Port Corporation’s conduct had the “likely effect” of substantially lessening competition. 

The Federal Court declared that the Port Corporation breached section 46(1) of the CCA by engaging in conduct between 6 November 2017 and 1 July 2019 in response to the entry or attempted entry of Engage as a competitor which had the likely effect of substantially lessening competition in the markets for towage and pilotage services in Northern Tasmania. Specifically, the Federal Court declared that competition was likely to have been substantially lessened by the Port Corporation maintaining that Grange was required to pay a new ‘marine precinct charge’ (MPTC) for vessels calling at Port Latta, in circumstances where:

• the Port Corporation first sought the MPTC from Grange after Grange had notified the Port Corporation that it would cease acquiring marine services from the Port Corporation at Port Latta and begin acquiring those services from Engage
• there was a real commercial likelihood if Grange agreed to pay the MPTC that this would have the effect of raising Grange’s future costs of acquiring services from Engage compared with if there had been no MPTC
• the Port Corporation did not, without Grange’s agreement, have a legal right to require Grange to pay the charge
• the Port Corporation sought to impose the MPTC without having conducted a full assessment of the costs to the Port Corporation of providing the services that the Port Corporation would need to provide at Port Latta in order to perform the responsibilities imposed on the Port Corporation under requirements of the Tasmanian Government’s Marine and Safety Authority. 

The ACCC agreed to not press for a penalty order, but did receive a contribution to its costs of the proceedings as part of the settlement. 

The Port Corporation did, however, provide the ACCC with a court enforceable undertaking under section 87B of the CCA regarding the tonnage charges, access to berth space and port communication systems. The terms of this undertaking can be found here.

Significance of this outcome

Entities with substantial market power have always had a special responsibility in the market when they respond to competitive threats and new entrants. This special responsibility is enforced by section 46 of the CCA.

While this matter has been resolved by consent, it does provide businesses with substantial market power with some much needed guidance as to what the ACCC will consider to be conduct that has the “likely effect” of substantially lessening competition.

The decision is also a timely reminder to businesses that have a substantial degree of market power of the importance of not only considering the purpose of their conduct but also the effect or likely effect of that conduct on the competition when exercising such power. Businesses with substantial market power that do not consider their conduct through these two prisms run the risk of falling foul of section 46 and finding themselves in a similar position.

In announcing this outcome, Chairman of the ACCC, Mr Rod Sims, stated:

“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 against them.”

The case also offers some insight as to potential terms that can be agreed upon with the ACCC should the ACCC pursue allegations under section 46. In this case, the ACCC was prepared to accept the following outcomes in settlement of the charges:

• consent orders in respect of the “likely effect” case
• dismissing the “purpose” and “actual effect” of substantially lessening competition aspects of the case
• taking a contribution to its costs
• the provision of court enforceable undertakings. 

By agreeing with this outcome, the Port Corporation was able to avoid the risk of being imposed a penalty and the significant costs that would otherwise have been spent in court.

Should you have any queries regarding the application of section 46 and the specific outcomes of this matter, please do not hesitate to contact us.

Authors: Joanne Jary & Nathan Cecil

Disclaimer
The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this article is accurate at the date it is received or that it will continue to be accurate in the future.

Published by:

Joanne Jary

Nathan Cecil

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