Application by Port of Newcastle Operations Pty Limited (No 2)
[2022] ACompT 1
•18 FEBRUARY 2022
AUSTRALIAN COMPETITION TRIBUNAL
Application by Port of Newcastle Operations Pty Limited (No 2) [2022] ACompT 1
Review of: Application for authorisation AA1000473 lodged by New South Wales Minerals Council on behalf of itself, certain coal producers that export coal through the Port of Newcastle, and mining companies requiring future access through the Port, and the determination made by the ACCC on 27 August 2020 File number: ACT 2 of 2020 Tribunal: JUSTICE O’BRYAN (Deputy President)
DR D ABRAHAM (Member)
MS D EILERT (Member)Date of Determination: 18 February 2022 Date of publication of reasons: 4 March 2022 Catchwords: COMPETITION – review under s 101 of the Competition and Consumer Act2010 (Cth) of authorisation granted by the Australian Competition and Consumer Commission – authorisation sought for collective bargaining in respect of terms and conditions of access to the Port of Newcastle – whether collective bargaining would result in public benefits comprising more efficient contract terms and lower transaction costs – whether collective bargaining would result in public detriments comprising increased risk of collusive conduct and marginalisation of individual interests and preferences of coal producers – authorisation refused and determination of the Australian Competition and Consumer Commission set aside Legislation: Competition and Consumer Act 2010 (Cth) ss 88, 90, 91, 101, 102
Competition and Consumer Amendment (Competition Policy Review) Act 2017 (Cth)
Trade Practices Act 1974 (Cth) s 90(5)
Trade Practices Amendment Act 1977 (Cth)
Explanatory Memorandum, Competition and Consumer Amendment (Competition Policy Review) Bill 2017 (Cth)
Ports and Maritime Administration Act 1995 (NSW) ss 48, 50, 51, 60, 61, 67
State Owned Corporations Act 1989 (NSW)
Cases cited: Application by Concrete Carters Association (Victoria) (1977) 31 FLR 193
Application by Flexigroup Ltd (No 2) [2020] ACompT 2
Application by Medicines Australia Inc [2007] ACompT 4; ATPR 42-164
Application by New South Wales Minerals Council (No 3) [2021] ACompT 4; 361 FLR 24
Application by Port of Newcastle Operations Pty Ltd [2019] ACompT 1
Australian Competition and Consumer Commission v Australian Competition Tribunal (2017) 254 FCR 341
Australian Competition and Consumer Commission v NSW Ports Operations Hold Co Pty Ltd [2021] FCA 720
Australian Competition and Consumer Commission v Pacific National Pty Ltd (2020) 277 FCR 49
Australian Gas Light Company v Australian Competition and Consumer Commission (No 3) (2003) 137 FCR 317
Glencore Coal Assets Australia Pty Ltd v Australian Competition Tribunal (2020) 280 FCR 194
Port of Newcastle Operations Pty Limited v Glencore Coal Assets Australia Pty Ltd [2021] HCA 39; 395 ALR 209
Port of Newcastle Operations Pty Ltd v Australian Competition Tribunal (2017) 253 FCR 115
Re 7-Eleven Stores Pty Ltd [1998] ACompT 3; ATPR 41‑666
Re 7-Eleven Stores Pty Ltd [1994] ATPR 41-357
Re EFTPOS Interchange Fees Agreement [2004] ACompT 7; ATPR 41-999
Re Glencore Coal Pty Ltd (No 2) [2016] ACompT 7; 309 FLR 358
Re Glencore Coal Pty Ltd [2016] ACompT 6
Re Herald & Weekly Times Ltd (1978) 17 ALR 281
Re Howard Smith Industries Pty Ltd (1977) 28 FLR 385
Re Lamont (1990) 96 ALR 475
Re Qantas Airways Ltd [2004] ACompT 9; (2005) ATPR 42-065
ReQueensland Co-operative Milling Association Ltd (1976) 8 ALR 481
Re Rural Traders Cooperative (WA) Ltd (1979) 37 FLR 244
Re VFF Chicken Meat Growers’ Boycott Authorisation [2006] ACompT 2; ATPR 42-120
United States v Socony-Vacuum Oil Co 310 US 150 (1940)
Number of paragraphs: 352 Date of hearing: 11-14 October 2021 Counsel for Port of Newcastle Operations Pty Ltd: Mr C Moore SC with Dr D Roche and Mr A d’Arville Solicitor for Port of Newcastle Operations Pty Ltd: Clayton Utz Counsel for New South Wales Minerals Council: Mr N De Young QC with Mr K Raghavan Solicitor for New South Wales Minerals Council: Clifford Chance LLP Counsel for the ACCC: Dr R C A Higgins SC with Mr C Tran Solicitor for the ACCC: Australian Government Solicitor
ORDERS
IN THE AUSTRALIAN COMPETITION TRIBUNAL ACT 2 of 2020 RE: APPLICATION FOR AUTHORISATION AA1000473 LODGED BY NEW SOUTH WALES MINERALS COUNCIL ON BEHALF OF ITSELF, CERTAIN COAL PRODUCERS THAT EXPORT COAL THROUGH THE PORT OF NEWCASTLE, AND MINING COMPANIES REQUIRING FUTURE ACCESS THROUGH THE PORT, AND THE DETERMINATION MADE BY THE ACCC ON 27 AUGUST 2020 APPLICANT: PORT OF NEWCASTLE OPERATIONS PTY LIMITED
DETERMINATION TRIBUNAL:
JUSTICE O’BRYAN (DEPUTY PRESIDENT)
DR D ABRAHAM (MEMBER)
MS D EILERT (MEMBER)DATE:
18 FEBRUARY 2022
THE TRIBUNAL DETERMINES THAT:
1.The determination of the Australian Competition and Consumer Commission dated 27 August 2020 granting authorisation to application AA1000473 made by the NSW Minerals Council on behalf of itself and Glencore Coal Assets Australia Pty Ltd, Yancoal Australia Ltd, Peabody Energy Australia Pty Ltd, Bloomfield Collieries Pty Ltd, Centennial Coal Company Pty Ltd, Malabar Coal Ltd, Whitehaven Coal Mining Ltd, Idemitsu Australia Resources Pty Ltd and MACH Energy Australia Pty Ltd (together, the authorisation applicants) be set aside.
2.The interim authorisation granted to the authorisation applicants by the Australian Competition and Consumer Commission on 2 April 2020 in respect of application AA1000473 be revoked.
3.The reasons for determination of the Tribunal in this proceeding are not to be disclosed to any person other than the external legal representatives of the parties in order that any party may make an application to redact or suppress any part of the reasons on the grounds of commercial confidentiality, any such application to be filed and served on or before 4pm on 4 March 2022. If no application is made by that time, the Tribunal will publish its reasons in full. If any application is made within that time, the Tribunal will determine the question of publication in the resolution of that application.
TABLE OF CONTENTS
A. INTRODUCTION
[1]
B. STATUTORY FRAMEWORK FOR THE TRIBUNAL’S REVIEW
[18]
Nature of the Tribunal’s review
[18]
Statutory preconditions for authorisation
[22]
C. CONTENTIONS OF THE PARTIES
[61]
The authorisation applicants’ contentions
[62]
PNO’s contentions
[70]
D. EVIDENCE AND MATERIAL BEFORE THE TRIBUNAL
[78]
Overview
[78]
PNO’s witnesses
[80]
The authorisation applicants’ witnesses
[86]
The ACCC’s witness
[92]
E. FINDINGS OF FACT
[94]
Introduction
[94]
The Port and the Hunter Valley coal industry
[98]
Coal demand, supply and prices
[106]
Port capacity and development
[111]
Port charges
[119]
Glencore Coal’s application for the declaration of Port services
[131]
Glencore Coal arbitration of Port charges
[132]
The revocation of the declaration
[138]
PNO’s pricing arrangements from 2020
[140]
The terms and conditions of the Pricing Deeds
[155]
The Vessel Agent Pricing Deeds
[170]
Application for declaration by NSWMC
[174]
Why the authorisation applicants seek to bargain collectively
[175]
Why PNO opposes collective bargaining
[179]
Materiality of the navigation service and wharfage charges to coal producers’ investment decisions
[184]
Transaction costs of collective bargaining
[192]
Future negotiations between PNO and coal producers
[195]
F. EXPERT EVIDENCE ADDUCED ON THE APPLICATION FOR REVIEW
[207]
Introduction
[207]
Economic framework
[211]
Applying the economic framework
[225]
The experts’ opinions on category (a) effects
[248]
The experts’ opinions on category (b) effects
[277]
The experts’ opinions on category (c) effects
[283]
G. PORT AUTHORITY OF NSW
[291]
Overview
[291]
Facts relied upon
[297]
Consideration
[308]
H. THE TRIBUNAL’S ASSESSMENT OF BENEFITS AND DETRIMENTS
[317]
Introduction
[317]
Public detriments
[321]
Public benefits
[331]
I. DETERMINATION
[352]
REASONS FOR DETERMINATION
THE TRIBUNAL:
A. INTRODUCTION
Port of Newcastle Operations Pty Limited (PNO) has applied to the Tribunal pursuant to s 101 of the Competition and Consumer Act 2010 (Cth) (Act) for review of an authorisation granted by the Australian Competition and Consumer Commission (ACCC) on 27 August 2020 under s 90 of the Act (ACCC Determination). PNO became the operator of the Port of Newcastle (Port) in 2014, following its privatisation by the State of NSW. PNO controls the terms and conditions of access to the Port, pursuant to the terms of a 98-year lease with the State of NSW.
The applicants for the authorisation are the New South Wales Minerals Council (NSWMC) and certain of its members. NSWMC is the leading mining industry association in NSW and its members include exporters of coal (and other commodities) from the Hunter Valley region who are major users of the Port. The coal producers on behalf of whom NSWMC sought authorisation from the ACCC are listed in Schedule 1 to the authorisation application and are as follows: Glencore Coal Assets Australia Pty Ltd (Glencore Coal), Yancoal Australia Ltd (Yancoal), Peabody Energy Australia Pty Ltd (Peabody Energy), Bloomfield Collieries Pty Ltd (Bloomfield Collieries), Centennial Coal Company Pty Ltd (Centennial), Malabar Coal Ltd (Malabar), Whitehaven Coal Mining Ltd (Whitehaven), Idemitsu Australia Resources Pty Ltd (Idemitsu), MACH Energy Australia Pty Ltd (MACH Energy), and Hunter Valley Energy Coal Pty Ltd. It should be noted that Hunter Valley Energy Coal, owned by BHP Group Ltd (BHP), was one of the coal producers that initially sought authorisation but is no longer seeking to negotiate collectively with PNO. In this determination, the phrase “authorisation applicants” refers to NSWMC and the coal producers on whose behalf the application for authorisation was made (excluding Hunter Valley Energy Coal). While NSWMC participated in this proceeding to contest PNO’s application to review the ACCC Determination, the Tribunal understands that it did so on behalf of itself and the other authorisation applicants.
The application for authorisation was filed with the ACCC on 5 March 2020. The authorisation applicants sought authorisation to:
(a)collectively discuss and negotiate the terms and conditions of access, including price, to the Port for the export of coal (and any other minerals) through the Port;
(b)discuss amongst themselves matters relating to the above discussions and negotiations; and
(c)enter into, and give effect to, contracts, arrangements or understanding with PNO containing common terms which relate to access to the Port and the export of minerals through the Port,
(the proposed collective bargaining conduct).
In the supporting submission attached to the authorisation application, the authorisation applicants stated that the application is in relation to the broad range of contractual arrangements involved in the task of exporting coal from the Port. In that regard, the authorisation applicants described that task as involving vessels entering the Port, transiting the channels in the Port, tying up at the berths to load coal at the coal terminals and then once again transiting the channels before exiting the Port for delivery of the coal to its ultimate destination. While the authorisation applicants sought authorisation for the proposed collective bargaining conduct in respect of all such contractual arrangements at the Port, their submissions focussed solely on Port charges and specifically the navigation service and wharfage charges. As stated by the authorisation applicants in their written submissions in this proceeding, it is the terms of the Producer Pro Forma Long Term Pricing Deed (Producer Pricing Deed) (which has been offered by PNO to all coal producers as common terms governing the navigation service and wharfage charges) which the authorisation applicants seek to negotiate collectively with PNO.
In the authorisation application, the applicants submitted that, since the revocation of the declaration of the Port under Pt IIIA of the Act, there is no other form of constraint on PNO’s pricing power. They argued that there have been significant increases in the navigation service and wharfage charges since privatisation and there is uncertainty as to future increases. The authorisation applicants submitted that they are seeking to negotiate collectively as an industry to achieve a long term commercial solution for channel and berthing charges that provides the industry with certainty for long term investment in the Hunter Valley region. The authorisation applicants submitted that the key public benefit that would arise from the proposed collective bargaining conduct is increasing certainty for investment in the Hunter Valley, which would facilitate employment and growth in the Hunter Valley region. The application made clear that the applicants hoped that collective bargaining would result in reduced charges at the Port over time. In that regard, the applicants submitted that:
…the authorisation will, inter alia, enable users to collectively, as an industry, discuss with PNO the basis on which costs will be allocated by PNO and means for PNO to more efficiently engage in capital expenditure on a transparent basis. It is hoped that such increased transparency on expenditure and how costs are allocated, will lead to more efficient investment and therefore the potential for reduced charges being imposed on the mining industry over time.
The authorisation applicants also submitted that collective bargaining would result in transaction cost savings for both PNO and the mining industry, and that the result of the above benefits would be a material increase in competition in a number of dependent markets including the coal export market, the markets for the acquisition and disposal of exploration and/or mining authorities and the markets for services such as geological and drilling services, construction, operation and maintenance.
Conversely, the authorisation applicants submitted that the conduct is likely to result in minimal if any public detriment because:
(a)participation by the coal mining industry in the proposed collective bargaining conduct is voluntary;
(b)there is no obligation on PNO to negotiate collectively;
(c)the authorisation will not extend to collective boycott activity; and
(d)PNO already publishes its access terms with the result that there is no risk of any information sharing between the authorisation applicants that would be prohibited under the Act.
On 2 April 2020, the ACCC granted interim authorisation pursuant to s 91(2)(d) of the Act to enable the authorisation applicants to commence collective discussion amongst themselves and negotiations with PNO in relation to the terms and conditions of access, including price, to the Port (but not enter into collectively negotiated agreements). The interim authorisation commenced immediately and was stated to remain in place until revoked or the ACCC’s final determination comes into effect. Pursuant to the interim authorisation, on 29 April 2020 the authorisation applicants wrote to PNO requesting an initial meeting to commence negotiations around pricing and access principles. In response, PNO wrote to NSWMC on 11 May 2020 declining the request for an initial meeting and indicating that PNO does not support the proposed collective bargaining. The evidence before the Tribunal is to the effect that PNO has maintained that position and that no collective negotiations have occurred between the authorisation applicants and PNO since the grant of the interim authorisation.
On 27 August 2020, the ACCC granted authorisation in respect of the proposed collective bargaining conduct for ten years, until 30 September 2030, pursuant to s 90 of the Act. The authorised conduct is voluntary for all parties, including PNO. The ACCC Determination expressly noted (at [5.10]) that certain conduct was not covered by the authorisation:
The authorisation does not extend to permit the Applicants to engage in any collective boycott activity, and does not involve the sharing of competitively sensitive information that relates to customers, marketing strategies, or volume/capacity projections for individual users.
In its Determination, the ACCC summarised its conclusions in the following terms:
The ACCC considers that the Proposed Collective Bargaining Conduct is likely to result in public benefits. In particular, the ACCC considers that the bargaining group will have greater input into the terms and conditions of access under the Producer Deed, and increased transparency around capital expenditure plans and cost allocation at the Port. This will provide greater certainty for the delivered price of Hunter Valley coal, more timely resolution of industry-wide issues, and facilitate more efficient investment decisions at the Port and across the Hunter Valley coal industry. The ACCC also considers these outcomes will enhance the international competitiveness of the Hunter Valley coal industry, with investment and employment benefits in Australia.
Further, collective bargaining conduct can result in more efficient contracting, which can benefit both PNO and the bargaining group. The ACCC considers the proposed collective bargaining conduct is also likely to result in public benefits from lower transaction costs.
The ACCC considers there is likely to be minimal public detriment from the proposed collective bargaining conduct because participation in the proposed collective bargaining conduct is voluntary for both coal producers and PNO, and does not include boycott activity. The ACCC considers that there is unlikely to be an impact on competition between the coal producers. Individual coal producers are still free to negotiate terms and conditions of Port access separately through bilateral discussions with PNO if they believe it is in their commercial interests to do so. In addition, the proposed collective bargaining conduct does not involve coal producers sharing individual coal projection volumes, customer pricing information or marketing strategies.
Therefore, the ACCC is satisfied that the proposed collective bargaining conduct is likely to result in a public benefit and that this public benefit would outweigh any likely detriment to the public from the proposed collective bargaining conduct.
PNO has applied for review of the ACCC Determination on the basis that the Tribunal could not be satisfied that the proposed collective bargaining conduct would be likely to result in a benefit to the public, or alternatively, not one that would outweigh any detriment likely to result from the conduct.
As a result of PNO’s application for review, the ACCC’s authorisation has not come into effect: s 91(1A)(b). However, the interim authorisation has remained in effect until the date of this determination by the Tribunal: s 91(2AA).
Each of PNO and the authorisation applicants adduced evidence before the Tribunal, largely in the form of affidavits and supporting documents. A number of the witnesses were cross-examined. Each of PNO, the authorisation applicants and the ACCC also tendered expert economic reports. The expert economic witnesses conferred prior to the hearing and produced a joint report and, during the hearing, were cross-examined concurrently.
The Tribunal also received a submission, with supporting documents, from the Port Authority of NSW, which the Tribunal addresses below. The Port Authority is a state-owned corporation established under the State Owned Corporations Act 1989 (NSW) (State Owned Corporations Act) and the Ports and Maritime Administration Act 1995 (NSW) (PAMA Act). It is responsible for and manages the navigation, security and operational safety needs of commercial shipping in the Port of Newcastle, as well as the Sydney Harbour, Port Botany, Port Kembla and the ports of Eden and Yamba.
The ACCC participated in the proceeding to assist the Tribunal. As the authorities make clear, the ACCC’s role in the review of an authorisation determination made by the ACCC is to assist the Tribunal in an impartial manner and the ACCC ought not act as an advocate for its original decision: see for example ReQueensland Co-operative Milling Association Ltd (1976) 8 ALR 481 (QCMA) at 485. Given the presence of the authorisation applicants as a (collective) contradictor, it was unnecessary for the ACCC to test all the evidence before the Tribunal or to present opposing points of view on every issue. The ACCC did, however, make submissions in respect of matters of principle. The ACCC also adduced an expert economic report from Dr Rhonda Smith, to which PNO and the authorisation applicants responded by adducing expert reports from Mr Greg Houston and Mr Euan Morton respectively. No objection was taken by PNO or the authorisation applicants to the ACCC adducing Dr Smith’s report. The questions on which Dr Smith was asked to express opinions were framed by the ACCC in a relatively neutral manner and the assumptions of fact she was asked to make by the ACCC were uncontroversial. In those circumstances, the Tribunal received the report.
As the Tribunal is conducting a de novo review of the grant of authorisation, the Tribunal must decide for itself whether authorisation should be granted.
For the reasons that follow, the Tribunal has determined not to authorise the proposed collective bargaining conduct and that the determination of the ACCC should be set aside and the interim authorisation should be revoked.
B. STATUTORY FRAMEWORK FOR THE TRIBUNAL’S REVIEW
Nature of the Tribunal’s review
Section 88 of the Act, within Div 1 of Pt VII, empowers the ACCC to grant an authorisation to a person to engage in conduct, specified in the authorisation, to which one or more provisions of Pt IV specified in the authorisation would or might apply. While the authorisation remains in force, those provisions of Pt IV do not apply to the conduct to the extent it is engaged in by the applicant for authorisation, any other person named or referred to in the application as a person who is engaged in or who is proposed to be engaged in the conduct and any other particular persons or classes of persons, as specified in the authorisation, who become engaged in the conduct.
Section 101 of the Act, within Div 1 of Pt IX, provides that a person dissatisfied with a determination by the ACCC under Div 1 of Pt VII may apply to the Tribunal for a review of the determination. Subject to exceptions that are not presently relevant, a review by the Tribunal is a re-hearing of the matter. Section 102 provides that, on a review, the Tribunal may make a determination affirming, setting aside or varying the determination of the ACCC and, for the purposes of the review, may perform all the functions and exercise all the powers of the ACCC. The Tribunal is expressly permitted to have regard to any information furnished, documents produced or evidence given to the ACCC in connection with the making of the determination (s 102(7)).
As the Tribunal observed in Application by Flexigroup Ltd (No 2) [2020] ACompT 2 (Flexigroup) at [107], a review under s 101 is a de novo review, meaning that the Tribunal conducts a fresh hearing and determination of the authorisation. The Tribunal must “make its own findings of fact and reach its own decision as to whether authorisation should be granted or not and, if so, any conditions to which it is to be subject”: Application by Medicines Australia Inc [2007] ACompT 4; ATPR 42-164 (Medicines Australia) at [135] (French J, Mr G Latta and Prof C Walsh); Flexigroup at [135]. That function is not performed by considering “whether the ACCC was right or wrong in the conclusion it reached or whether it could have better formulated its determination”. Rather, the Tribunal must “assess the applications for authorisation on their merits and by reference to the information and evidence given to the ACCC and any material that the parties wish to put before the Tribunal”: Medicines Australia at [138].
The role of the Tribunal in conducting the review is not confined by the issues raised by the parties to the review and the Tribunal must determine itself whether the statutory test for authorisation is satisfied. However, as observed by the Tribunal (Deane J, Mr J Shipton and Mr J Walker) in Re Herald & Weekly Times Ltd (1978) 17 ALR 281 at 296, “[t]he published reasons for determination of the Commission may, in an appropriate case, prove a convenient reference point for defining the matters which are truly in dispute between all or any of the Commission, the applicants, and other parties represented, or interested, in the proceedings”. Further, where the parties agree with factual findings made by the ACCC in its determination, ordinarily the Tribunal need not itself examine the facts in detail. As explained by the Tribunal (von Doussa J, Dr B Aldrich, Prof D Round) in Re 7-Eleven Stores Pty Ltd [1998] ACompT 3; ATPR 41‑666 at 41,453:
In curial proceedings based on the adversarial system, the role of a court is to determine issues identified by the parties, usually in pleadings. Proceedings before the Tribunal are not adversarial in nature, and the role of the Tribunal is not merely to resolve issues in dispute between the parties. It is an administrative tribunal with a much wider role. It is required to determine whether anti-competitive conduct or anti-competitive provisions in a contract, arrangement or understanding that would otherwise be unlawful, should, in the public interest, be authorised because the public benefit outweighs the detriment constituted by any lessening of competition. Determinations of the Tribunal are likely to impact on the commercial interests of many people who are not participants in the proceedings before the Tribunal.
Notwithstanding the positions taken by the parties in this case, the Tribunal in the exercise of its statutory functions, must consider each of the issues arising under [the applicable statutory provisions] which precede a consideration of the terms and duration of the further authorisation granted by the determinations under review. On these essential steps, the Tribunal must reach its own conclusions. It must make its own assessment of both benefit and detriment.
However, where the applicants and other parties participating in proceedings before the Tribunal agree with findings on factual matters set out in the Commission's published reasons for determination, the Tribunal would ordinarily be justified in treating those findings as common ground which significantly limits the areas of primary fact which the Tribunal is itself required to examine in detail; see Re Herald & Weekly Times Ltd (Media Council of Australia (No 1)) (1978) ATPR ¶40-058 at 17,601; (1978) 17 ALR 281 at 296 where the Tribunal (Deane J, President, Shipton and Walker, Members) observed that fairness and common sense combine to require that the Tribunal determine an application for review within the context of matters which can properly be seen to be in issue between the parties or which the Tribunal itself raises or indicates that it regards as being at large.
Statutory preconditions for authorisation
The statutory preconditions for authorisation were amended by the Competition and Consumer Amendment (Competition Policy Review) Act 2017 (Cth) (2017 Amendment Act), broadly adopting the recommendations of the Competition Policy Review chaired by Prof Ian Harper (see Explanatory Memorandum to the Competition and Consumer Amendment (Competition Policy Review) Bill 2017 (Cth) at [9.17]). The amended preconditions are stated in ss 90(7) and (8) of the Act in the following terms:
(7) The Commission must not make a determination granting an authorisation under section 88 in relation to conduct unless:
(a) the Commission is satisfied in all the circumstances that the conduct would not have the effect, or would not be likely to have the effect, of substantially lessening competition; or
(b) the Commission is satisfied in all the circumstances that:
(i) the conduct would result, or be likely to result, in a benefit to the public; and
(ii) the benefit would outweigh the detriment to the public that would result, or be likely to result, from the conduct; or
(c) [not applicable].
(8) Paragraph (7)(a) does not apply if any of the following provisions would (apart from an authorisation under section 88) apply to the conduct:
(a) one or more provisions of Division 1 of Part IV (cartel conduct);
(b) one or more of sections 45D to 45DB (secondary boycotts);
(ba) one or more provisions of section 45E or 45EA (contracts etc. affecting the supply or acquisition of goods or services);
(c) section 48 (resale price maintenance).
The provisions listed in s 90(8) are commonly described as per se prohibitions. In contrast to the other provisions of Pt IV of the Act, the provisions listed in s 90(8) do not require proof that the prohibited conduct has the purpose or would have or would be likely to have the effect of substantially lessening competition. The nomenclature “per se” derives from the use of that phrase in the United States in which the courts have determined that certain categories of anti-competitive conduct are illegal without proof of anti-competitive effects. The use of the Latin phrase “per se” can be traced to United States v Socony-Vacuum Oil Co 310 US 150 (1940) in which Douglas J stated (at 218):
… for over forty years this Court has consistently and without deviation adhered to the principle that price-fixing agreements are unlawful per se under the Sherman Act and that no showing of so-called competitive abuses or evils which those agreements were designed to eliminate or alleviate may be interposed as a defense.
Thus, the scheme of the Act is that:
(a)in so far as the proposed conduct might otherwise contravene a per se prohibition in Pt IV of the Act, the ACCC is only permitted to grant authorisation if it is satisfied that the proposed conduct would result, or be likely to result, in a benefit to the public and the benefit would outweigh the detriment to the public that would result, or be likely to result, from the conduct; and
(b)in so far as the proposed conduct might otherwise contravene a prohibition in Pt IV that depended on proof that the conduct has the purpose or would have or would be likely to have the effect of substantially lessening competition, the ACCC is also permitted to grant authorisation if it is satisfied that the proposed conduct would not have the effect, or would not be likely to have the effect, of substantially lessening competition.
In their application to the ACCC, the authorisation applicants acknowledged that the cartel conduct provisions in Div 1 of Pt IV, the secondary boycott provisions in ss 45D to 45DB and the resale price maintenance provisions in s 48 might apply to the proposed collective bargaining conduct. Accordingly, the applicable precondition for the grant of authorisation is that stated in s 90(7)(b), namely that the conduct would result, or be likely to result, in a benefit to the public and the benefit would outweigh the detriment to the public that would result, or be likely to result, from the conduct.
While the statutory preconditions for authorisation were amended by the 2017 Amendment Act, the terminology used and underlying concepts in the amended provisions are based on the previous law. In particular, and as observed by the Explanatory Memorandum at [9.41], the precondition for the grant of authorisation stated in s 90(7)(b) is consistent with the tests previously contained in s 90. In respect of conduct that might have contravened a per se prohibition, the previous statutory test was to the effect that the conduct would result, or be likely to result, in such a benefit to the public that the proposed conduct should be allowed. That test required consideration of the benefits and detriments likely to result from the conduct, and involved a comparison of the future with, and without, the conduct for which authorisation is sought: Flexigroup at [137]; Medicines Australia at [117]. As the statutory precondition in s 90(7)(b) requires the ACCC (or the Tribunal on review) to be satisfied that the public benefits likely to result from the conduct outweigh the public detriments likely to result from the conduct, it is convenient to refer to the test by the shorthand “net public benefit”.
Meaning of public benefit and detriment
A benefit to the public includes “anything of value to the community generally, any contribution to the aims pursued by society including as one of its principal elements (in the context of trade practices legislation) the achievement of the economic goals of efficiency and progress”: QCMA at 507-8; Medicines Australia at [107]. The relevant “public” is the Australian public: Re Qantas Airways Ltd [2004] ACompT 9; (2005) ATPR 42-065 (Qantas Airways) at [196] citing Re Howard Smith Industries Pty Ltd (1977) 28 FLR 385 (Howard Smith) at 392. Similarly, a detriment to the public includes “any impairment to the community generally, any harm or damage to the aims pursued by the society including as one of its principal elements the achievement of the goal of economic efficiency”: Re 7-Eleven Stores Pty Ltd [1994] ATPR 41-357 at 42,683 (Lockhart J, Prof M Brunt and Dr B Aldrich).
In Qantas Airways, the Tribunal concluded that in assessing whether an increase in economic efficiency constitutes a public benefit for the purposes of the Act, it was appropriate to apply a total welfare or surplus standard of economic efficiency. Accordingly, cost savings (productive efficiency gains) will constitute a public benefit even if the efficiency gain is captured in the first instance by the (private) parties to the proposed conduct. The Tribunal explained at [187]-[189]:
187We consider that the phrase “benefit to the public” is to be given a broad definition which, in addition to group interests, takes into account (with appropriate weighting) individual interests to the extent that such interests are considered by society to be worthy of inclusion and measurement. This broad approach to public benefit promotes the achievement of both static and dynamic efficiencies.
188 Given the above reasoning, we have formed the view that the “public versus private” dichotomy used by the parties in relation to cost savings is of fairly limited assistance when examining the benefits relied upon for the purposes of s 90. Rather, the enquiry should be directed towards the extent to which the benefit has an impact on members of the community, that is society. Does it fall into the category of “anything of value to the community generally”? If it does, what weight should be given to that benefit, having regard to its nature, characterisation and the identity of the beneficiaries of it?
189It follows that cost savings achieved by a firm in the course of providing goods or services to members of the public are a public benefit which can and should be taken into account for the purposes of s 90 of the Act, where they result in pass through which reduces prices to final consumers, or in other benefits, for example, by way of dividends to a range of shareholders or being returned to the firm for future investment. However, the weight that should be accorded to such cost savings may vary depending upon who takes advantage of them and the time period over which the benefits are received.
In relation to public detriments, the Tribunal stated in Medicines Australia that (at [108], citations omitted):
108Although “detriment” covers a wider field than anti-competitive effects in many cases the important detriments will have that character. The relevant detriment will flow from the anti-competitive effect of the conduct to which authorisation is sought. This does not exclude consideration of other detriments which may be incidental to and therefore detract from a claimed public benefit. To that extent such detriment will be relevant in weighing the public benefit.
The citation of conclusory statements in previous Tribunal decisions about public benefits is of little assistance in applying the net public benefit test in s 90(7)(b) in a particular case. For example, the authorisation applicants placed reliance on the statement of the Tribunal in Application by Concrete Carters Association (Victoria) (1977) 31 FLR 193 (Concrete Carters) at 244-245 that:
Authorization in the terms sought by the Applicants would… authorize the participation of the producers, as a group, in negotiations as to such industry-wide rates and conditions. In this sense, the result of the conduct for which authorization is sought is likely to make more even the bargaining power of owner/drivers and producers. This, we see, as a benefit to the public.
The Tribunal’s decision in Concrete Carters does not stand for the proposition that conduct which makes the bargaining power of traders more even will always constitute a public benefit. As the Tribunal went on to explain, there were particular features of the industrial landscape with which that case was concerned, whereby the owner/driver concrete carters were already represented by the Transport Workers Union in negotiations with concrete producers, and particular features of the proposed collective bargaining conduct that preserved the freedom of individual producers to negotiate individually with concrete carters, that led the Tribunal to conclude that the authorised conduct would be conducive to competition both within the cartage industry and, in consequence, within the pre-mixed concrete industry (at 245).
The authorisation applicants also placed reliance on the statement of the Tribunal in Re Lamont (1990) 96 ALR 475 (Re Lamont) that the achievement of industrial harmony is a public benefit which may appropriately be taken into account in determining whether authorisation should be granted (at 488). That determination concerned an application for authorisation of a private arbitration of cartage rates for premixed concrete as between lorry owner-drivers (acting collectively) on the one hand and the National Readymixed Concrete Association of the ACT (which represented producers of concrete in the ACT) on the other hand. The Tribunal’s conclusion that industrial harmony may constitute a public benefit was qualified by the observation that lorry owner-drivers are more akin to employees than small business operators and that industrial disruption, which creates delays and uncertainty in the delivery of concrete, is one of the limited options available to lorry owner-drivers when seeking changes to their cartage rates (at 488). The Tribunal also observed that industrial harmony is a somewhat nebulous concept and rather fragile and therefore the Tribunal would require clear evidence that the grant of authorisation would be likely to lead to significantly greater industrial harmony (at 489). Ultimately, the Tribunal was not so satisfied and refused authorisation. The authorisation applicants did not address those conclusions of the Tribunal in Re Lamont, or explain how the proposed collective bargaining conduct related to industrial harmony in the sense considered in Re Lamont.
As the Tribunal explained in QCMA, in assessing public benefits (and detriments) it is necessary to go beyond labels or catchphrases. The Tribunal observed that its appraisal of claimed benefits must depend upon its appreciation of the competitive functioning of the industry and predictions about market behaviour and performance (at 510(2)). The validity of claimed benefits will rarely be self-evident and “[a] claimed benefit may in fact be judged to be a detriment when viewed in terms of its contribution to a socially useful competitive process” (at 510(2) and (3)).
Quantification of public benefits and detriments
The necessity for authorisation applicants to quantify public benefits claimed to arise from proposed conduct was discussed by the Tribunal in Qantas Airways. Citing Howard Smith, the Tribunal said (at [201]) that the Act does not require an applicant to quantify, in precise terms, the benefits claimed to arise if authorisation is granted but there must be a factual basis for concluding that the public benefits are likely to result. The Tribunal further explained (at [203]-[209]):
203An accurate, objective quantification of public benefits is difficult, in part because benefits have to be estimated for some period in the future and so their magnitude becomes a matter not only of empirical estimation based on assumptions but also one of statistical likelihood. Data, assumptions and models can be, and indeed in this proceeding have been, hotly contested.
204We consider that the nature of public benefits needs to be defined with some precision, a degree of precision which lies somewhere between quantification in numerical terms at one end of the spectrum and general statements about possible or likely benefits at the other end of the spectrum. Whilst the diverse and speculative nature of potential benefits makes it impossible to lay down any definitive test of the degree to which, or manner in which, benefits should be quantified, the following observations should be borne in mind by any party seeking to assert a likely benefit.
205 Benefits must be of substance and have durability…
206Any estimates involved in benefit analysis should be robust and commercially realistic, in the sense of being both significant and tangible. The assumptions underlying their calculation must be spelled out in such a way that they can be tested and verified. Care must be taken to distinguish between one‑off benefits and those of a more lasting nature. Appropriate weighting will be given to future benefits not achievable in any other less anti‑competitive way, and so the options for achieving the claimed benefits must be explored and presented.
207Whilst we recognise that public benefits are easy to assert, but are much harder to prove in advance of their creation, that does not deter us from demanding a high standard of commercial and social accountability in the estimates presented to us. Accordingly, we do not believe that there is anything to be gained by fanciful and speculative modelling of benefits where the underlying assumptions are not clearly spelled out, where the estimates have not been subject to rigorous sensitivity analysis, and where the estimating process is not wholly transparent. Further, we observe that point estimates of the estimated dollar value of benefits purport to give the estimates a level of specificity that cannot be justified in most circumstances.
208All other things being equal, detailed quantification is the best option. However, quantification at all costs is not required by the Act, and has never been sought by the Tribunal. There are diminishing returns to the quantification exercise. Benefits should be quantified only to the extent that the exercise enlightens the Tribunal more than the alternative of qualitative explanation.
209Where benefits cannot be quantified in monetary terms, they can still be claimed in qualitative terms. The authorisation test is, after all, a balancing exercise that requires judgment over a wide range of tangible and intangible factors. The final result will depend on the relative weight assigned to each of these factors.
Subject to one qualification, the Tribunal agrees with the foregoing statements. The qualification concerns the statement that benefits must be “of substance”. When first enacted, the power to grant authorisation was subject to a condition that the proposed conduct would result or be likely to result in a substantial benefit to the public (see s 90(5) of the Trade Practices Act 1974 (Cth) as originally enacted). In its report to the Minister for Business and Consumer Affairs published in August 1976, the Trade Practices Act Review Committee (otherwise known as the “Swanson Committee”) recommended that the condition for authorisation be amended to remove the requirement of substantiality (see para 11.14). That amendment was made by the Trade Practices Amendment Act 1977 (Cth). The legislative history indicates that the statutory precondition for authorisation is not subject to an implied requirement of substantiality.
A public benefit must, though, rise above the ephemeral and the trivial (see Re Rural Traders Cooperative (WA) Ltd (1979) 37 FLR 244 at 262-263, referred to in Qantas Airways at [205], and Medicines Australia at [128]). As observed by the Full Federal Court in Australian Competition and Consumer Commission v Australian Competition Tribunal (2017) 254 FCR 341, the need for a benefit to be non-ephemeral can be deduced from the word “benefit” itself and Parliament is unlikely to have intended the Tribunal to concern itself with trifles (at [8]-[10]).
In the present case, no attempt was made to quantify either the claimed public benefits or the claimed public detriments. All claims were put on a qualitative basis. As the above passage from Qantas Airways makes clear, numeric quantification of benefits is not essential, but there must be a factual basis for concluding that the public benefits are likely to result from the proposed conduct. In the present case, the evidence adduced by all parties in respect of claimed benefits and detriments was largely at the “general statements” end of the spectrum (see Qantas Airways at [204]).
Exercise of discretion
The satisfaction of the statutory precondition to the grant of authorisation does not oblige the ACCC, or the Tribunal on review, to grant authorisation: Medicines Australia at [106]. Nevertheless, as the Tribunal observed in Flexigroup, if the ACCC or the Tribunal on review were to be satisfied that the conduct is likely to result in a net public benefit, ordinarily authorisation would be granted (at [138]).
In Medicines Australia, the Tribunal considered whether authorisation should be granted in circumstances where the public benefits were assessed as insubstantial. The Tribunal said (at [128]):
Similarly, where the anti-competitive detriment is low to non-existent the ACCC may be entitled to say, as a matter of discretion, that it would only authorise the conduct if the public benefit to be derived from it, beyond that necessary to outweigh the anti-competitive detriment, or satisfy the per se conduct test is substantial. That is to say that the ACCC can require, in the proper exercise of its discretion, that the conduct yields some substantial measure of public benefit if it is to attract the ACCC’s official sanction. The Tribunal is in a similar position.
It is important to observe that the above statements in Medicines Australia concern the exercise of the discretion to grant authorisation once the statutory precondition is satisfied; the statements do not concern the content of the statutory precondition (which, as noted above, does not require the benefits to be substantial).
There was no material disagreement between the parties with respect to the foregoing principles. However, the parties disagreed about two aspects of the statutory test: the first concerned the proper approach to the assessment of the public benefits or detriments likely to result from the conduct the subject of the application for authorisation required by s 90(7)(b); and the second concerned the meaning of the word “likely” in s 90(7)(b).
The conduct the subject of the authorisation
The statutory test in s 90(7)(b) requires the ACCC (and the Tribunal on review) to assess whether the conduct the subject of the application for authorisation would be likely to result in public benefits or detriments. In the present case, the conduct the subject of the application for authorisation is the proposed collective bargaining conduct which encompasses the authorisation applicants:
(a)collectively discussing and negotiating the terms and conditions of access, including price, to the Port for the export of coal (and any other minerals) through the Port;
(b)discussing amongst themselves matters relating to the above discussion and negotiations; and
(c)entering into, and giving effect to, contracts, arrangements or understandings with PNO containing common terms which relate to access to the Port and the export of minerals through the Port.
As can be seen, the proposed collective bargaining conduct contemplates certain actions being undertaken by the authorisation applicants (engaging in collective discussions between themselves, engaging in collective negotiations with PNO and entering into contracts with PNO which contain common terms). However, the conduct also contemplates certain actions being undertaken by PNO (participating in collective negotiations with the authorisation applicants and entering into contracts with common terms). The parties agreed that, in assessing the public benefits and detriments likely to arise from the proposed collective bargaining conduct, the Tribunal must assume, for the purposes of the assessment, that the authorisation applicants will themselves engage in that conduct. However, there was some disagreement whether the Tribunal should assume, for the purposes of the assessment, that PNO would participate in collective negotiations with the authorisation applicants. As discussed below, since the grant of the interim authorisation by the ACCC, PNO has in fact refused to participate in collective negotiations with the authorisation applicants and, in this proceeding, has adduced evidence that that will remain its position into the future.
In opening written submissions, the authorisation applicants argued that the statutory test required the Tribunal to assume that the collective bargaining conduct the subject of the authorisation application would occur (including PNO’s participation in collective negotiations). They submitted that such an approach is mandated by s 90(7)(b) which requires an assessment of the conduct that is the subject of the authorisation. In the present case, the conduct includes PNO engaging in collective negotiations. In support of that submission, the authorisation applicants relied on the reasoning of the Tribunal in Medicines Australia at [120]:
The so called ‘‘future with or without test’’ is not a comparison of a hypothetical future in which the proposal the subject of the application is authorised against a hypothetical future in which it is not authorised. What the test requires is comparison of a future in which the conduct, the subject of the authorisation application, occurs with a future in which that conduct does not occur. …
The authorisation applicants submitted that that approach is consistent with the purpose of the authorisation regime in Pt VII of the Act. In that regard, the authorisation applicants referred to the observation of the Tribunal in Medicines Australia that the regime provides “an administrative process to remove the risk that proposed beneficial conduct may contravene competition laws” (at [105]). The authorisation applicants further submitted that it would frustrate the purpose of Pt VII of the Act if the target of the proposed conduct (such as PNO) were able to defeat an application for authorisation of collective bargaining simply by asserting that it will refuse to participate in the conduct.
PNO did not contest the applicable principle as stated by the Tribunal in Medicines Australia. It submitted, however, that the authorisation applicants confuse the authorisation applicants’ conduct, in relation to which authorisation is sought, with PNO’s likely response to that conduct. PNO argued that the Tribunal should assume that the authorisation applicants will seek to engage in collective bargaining, but not that PNO will necessarily take up this opportunity. Instead, in assessing the likely benefits of the conduct, it is relevant to consider, among other factors, PNO’s likely response to that conduct.
As to the issue of legal principle, the ACCC adopted a similar approach to PNO (although it differed on the factual assessment of PNO’s likely future response to collective negotiations).
In oral submissions during the hearing, the authorisation applicants altered their position from that stated in their written submissions, largely to conform with the approach of PNO and the ACCC. The authorisation applicants submitted that, for the purposes of the statutory assessment, the Tribunal should assume that they would engage in the proposed collective bargaining conduct (ie, they would collectively discuss terms and conditions of Port access and put a collective negotiating position to PNO). However, PNO’s response to that conduct is a factual matter for the Tribunal to assess, not assume, in applying the statutory test.
The Tribunal considers that the authorisation applicants may have conceded too much in their oral submissions, although the resolution of the issue does not make a material difference to the outcome of this application.
The Tribunal agrees with the applicable principle as stated in Medicines Australia that the statutory test requires a comparison of a future in which the conduct, the subject of the authorisation application, occurs with a future in which that conduct does not occur. That comparison is required in order to assess whether the conduct the subject of the authorisation would or would be likely to result in a net public benefit. The statutory test uses a conditional tense (would or would be likely) in which the condition is that the defined conduct is engaged in. As such, the assessment does not require the ACCC (or the Tribunal on review) to form any view about the likelihood of the conduct being engaged in. The statutory requirement can be illustrated by the following example. A company may apply for authorisation in respect of the acquisition of shares in a second company. In applying the statutory test, the ACCC/Tribunal forms an assessment of whether the acquisition, assuming it occurs, would result in a net public benefit. It is irrelevant to the assessment whether a contract has been entered into in respect of the proposed acquisition, or whether the proposed acquisition is hostile and the current owners of the second company have stated that they oppose the acquisition and may be able to prevent the proposed acquisition from occurring. The purpose of the authorisation regime is to exempt the defined conduct from the prohibitions in Pt IV of the Act. The ACCC/Tribunal is empowered to grant that exemption if satisfied that the defined conduct, if it were to be engaged in (the condition), would or would be likely to result in a net public benefit. If the answer is in the affirmative, authorisation can be granted and the applicant is able to engage in the defined conduct without the risk of contravening any provision of Pt IV.
In principle, there seems to be no reason why a different approach should be taken in respect of collective bargaining conduct. As defined by the authorisation applicants, the collective bargaining conduct extends to collective negotiation with PNO, and the entering into, and giving effect to, contracts, arrangements or understandings with PNO containing common terms. That is the conduct for which authorisation is sought and in respect of which there is otherwise a risk of contravention of one or more provisions of Pt IV. That is the conduct which forms the condition for the application of the statutory test: whether the conduct would result or be likely to result in a net public benefit.
For those reasons, the Tribunal considers that the correct approach is to assess whether the proposed collective bargaining conduct, which includes collective negotiations with PNO and entering into contracts with PNO containing common terms, would result or be likely to result in a net public benefit. In doing so, however, the Tribunal makes no assumptions about the outcome of any such negotiations or contracts. A possible outcome of collective negotiations is a stalemate in which no agreement is reached and no benefits are gained. The statutory test requires the Tribunal to assess whether such collective negotiations, if they were to be engaged in, would or would be likely to result in a net public benefit. That requires the Tribunal to take into account all the surrounding circumstances, including the history of negotiations and commercial dealings between the parties, in order to form an assessment of the likely benefits or detriments of such negotiations, if any.
The meaning of “likely”
PNO submitted that “likely” in the context of s 90(7)(b) should be read to mean “more probable than not”, although it accepted that the Tribunal has consistently taken the view that “likely” refers to a “real chance”: Howard Smith at 405; Re EFTPOS Interchange Fees Agreement [2004] ACompT 7; ATPR 41-999 at [26]; Qantas Airways at [153]-[156]; Re VFF Chicken Meat Growers’ Boycott Authorisation [2006] ACompT 2; ATPR 42-120 at [83]; and Medicines Australia at [109]. PNO submitted, however, that the previously accepted interpretation should not be followed for at least the following reasons:
(a)it does not accord with the ordinary meaning of the expression (as confirmed by the Full Court in Australian Competition and Consumer Commission v Pacific National Pty Ltd (2020) 277 FCR 49 (Pacific National) at [222]);
(b)the “real chance” meaning of “likely” comes from decisions interpreting the meaning of the word in the context of other provisions in the Act, which use similar language, but are concerned with a different legal question (namely, the likelihood of harm resulting from a substantial lessening of competition);
(c)as observed by the Full Court in Pacific National at [223], the reasoning in those cases for rejecting the ordinary meaning of likely, in favour of the “real chance” meaning, involves a conflation between the matter to be proved (“would result”) and the standard of proof (in a civil matter, the balance of probabilities);
(d)the balancing test enshrined in s 90(7)(b) suggests an intention that the Tribunal would be weighing something more concrete than a “real chance” of a benefit against a “real chance” of a detriment;
(e)as distinct from the Full Court’s decision in Pacific National (which concerned the meaning of the word “likely” in s 50), the meaning of “likely” as it appears in the statutory context of s 90 does not appear to have been the subject of previous consideration by the Federal Court; and
(f)the decision of the Tribunal in Howard Smith, which first adopted the “real chance” construction of the word “likely”, concerned an earlier statutory test for authorisation which did not involve the weighing of benefits and detriments.
The authorisation applicants submitted that none of PNO’s arguments withstand scrutiny and PNO’s proposed construction of “likely” should be rejected because it involves a departure from the established interpretation of s 90(7) and its predecessor provisions which has stood for more than 40 years.
The Tribunal accepts the authorisation applicants’ submissions and sees no reason to depart from the established interpretation of “likely” in the context of s 90(7). That is for four principal reasons.
First, the meaning of the word “likely” as used in many of the prohibitions in Pt IV of the Act has been authoritatively re-affirmed by the Full Federal Court in Pacific National. The Full Court (at [245]-[246]) approved the meaning of “real commercial likelihood” as explained by French J in the following passage from Australian Gas Light Company v Australian Competition and Consumer Commission (No 3) (2003) 137 FCR 317 (at [348]):
The meaning of “likely” reflecting a “real chance or possibility” does not encompass a mere possibility. ... The assessment of the risk or real chance of a substantial lessening of competition cannot rest upon speculation or theory. To borrow the words of the Tribunal in the Howard Smith case, the Court is concerned with “commercial likelihoods relevant to the proposed merger”. The word “likely” has to be applied at a level which is commercially relevant or meaningful as must be the assessment of the substantial lessening of competition under consideration.
Second, the Tribunal does not accept PNO’s contention that the context in which the word “likely” is used in s 90(7)(b) (and its predecessor provisions) differs materially from the context in which the word is used in the prohibitions in Pt IV. In the context of the prohibitions in Pt IV, the law is concerned with the likely effect of the impugned conduct on competition. As recently reiterated in Pacific National, the legal test requires a comparison between the nature and extent of competition in any relevant market with and without the conduct being engaged in or undertaken (at [103]). In the context of an application for authorisation of particular conduct under Pt VII, the law is concerned with the benefits to the public and the detriments to the public that are likely to result from the proposed conduct. That is expressly the case in respect of the current test as amended by the 2017 Amendment Act, but was also implicitly the case under its predecessor provisions: see Howard Smith at 391. The authorisation test requires a comparison between the relevant trading and commercial environment with and without the conduct being engaged in or undertaken, in order to assess whether the conduct is likely to give rise to any public benefits or detriments. The context in which the word “likely” is used in s 90(7)(b) does not require the word to be given the meaning “more probable than not”.
Third, there are two contextual reasons why the word “likely” should be given the same meaning in the prohibitions in Pt IV and in the tests for authorisation in Pt VII. The first reason is that the alternative test for authorisation in s 90(7)(a) is the mirror of the prohibitions in Pt IV that depend upon proof that the conduct would have or would be likely to have the effect of substantially lessening competition. The ACCC is empowered to grant authorisation, in effect, if it is satisfied that the proposed conduct would not contravene the relevant prohibition in Pt IV. It follows that the word “likely” in s 90(7)(a) must be construed in the same manner as the underlying prohibition. The second reasons is that there is a close correspondence between the tests for authorisation in s 90(7)(a) and (b) which strongly suggest that the word “likely” should be construed in the same manner in each paragraph. In applying the test under s 90(7)(b), the ACCC (and the Tribunal on review) will usually be concerned to identify and weigh the potential anti-competitive effects of the proposed conduct, as such anti-competitive effects will constitute public detriments. The policy that informs the interpretation of the word “likely” in the prohibitions in Pt IV, to prohibit conduct if there is a real commercial likelihood of the conduct substantially lessening competition, is equally relevant to the application of the authorisation test. It is logically consistent, in the context of determining whether to grant authorisation, to assess whether there is a real commercial likelihood of the conduct harming competition, including the degree of likelihood and the nature and extent of the harm, while weighing those factors against the real commercial likelihood of public benefits.
Fourth, and consistently with the view expressed by the Full Court in Pacific National (at [243]), the word “likely” in the context of the tests for authorisation has been construed to mean a likelihood that is less than probable for 40 years (from Howard Smith) and there is no evidence of widespread inconvenience in the application of the law. Indeed, the law has been amended on numerous occasions, including most recently by the 2017 Amendment Act, without any suggestion that the legal standard should be changed.
As a final observation, it necessarily follows that the word “likely” should be given the same meaning in paragraphs (i) and (ii) of s 90(7)(b). In other words, the statutory test requires the ACCC (and the Tribunal on review) to assess whether there is a real commercial likelihood of the conduct resulting in public benefits and in public detriments and to determine whether the anticipated public benefits outweigh the anticipated public detriments. In weighing the benefits and detriments, the decision maker must, as a matter of rationality, take into account not only the nature and extent of the anticipated benefits and detriments to the public but also the degree of likelihood of the anticipated benefits and detriments resulting from the conduct. In some cases, it may be necessary to weigh a large benefit that has a low likelihood of resulting from the conduct with a small detriment that has a high likelihood of resulting from the conduct and vice versa.
C. CONTENTIONS OF THE PARTIES
Although PNO is the applicant for review of the ACCC Determination, as the Tribunal is conducting a de novo review it is convenient to refer to the contentions of the authorisation applicants in favour of authorisation before considering the contentions of PNO opposing authorisation.
The authorisation applicants’ contentions
The authorisation applicants contend that the proposed collective bargaining conduct would be likely to result in two categories of public benefits.
The first category of public benefit was described as facilitating “more economically efficient contracts”. By way of explanation of that phrase, the authorisation applicants referred to an article authored by Prof Stephen King: “Collective Bargaining in Business: Economic and Legal Implications” (2013) UNSW Law Journal 36(1) 107. Prof King’s article is referred to in the expert reports of both Dr Smith and Mr Houston. The parties’ contentions generally adopted Prof King’s categories of potential benefits and detriments of collective bargaining. In that article, Prof King outlined the Australian law on collective bargaining authorisation and notification, developed an economic framework to analyse collective bargaining, against which the ACCC’s approach at the time was compared and contrasted, and described the economic literature concerning transaction costs and contracting.
Prof King concluded with the following summary of the ways in which collective bargaining can enhance economic efficiency (at p 119):
1.Authorisation permits bargaining group members to share the costs of negotiation… By sharing negotiation and contracting costs between group members, the collective bargaining group helps parties to negotiate past inefficient take-it-or-leave-it contracts in order to design more complex, mutually beneficial contracts that have fewer economic imperfections. The gains created by more efficient bargaining arise from the economies of scale in negotiations and can be shared by both the collective bargaining group and the counterparty. In other words, both sides to the negotiations can become better off if collective bargaining occurs.
2. Collective bargaining can change the incentives in the contracting process in ways that enhance the ability of parties to undertake non-contractible investments that increase economic surplus. We discussed two channels for this improvement. First, collective bargaining can make delegation desirable where delegation to the group overcomes issues of individual incentives. Second, collective bargaining may alter bargaining power and this can alter incentives to engage in non-contractible investments.
In the article, Prof King observed that while increases in bargaining power from collective bargaining may change the incentives for parties to invest in ways that raise the gains from bargaining (and improve economic efficiency), changes in bargaining power may simply change the distribution of the surplus generated from bargaining (which does not affect economic efficiency). Prof King also commented that while collective bargaining can improve the efficiency of contracts in one market, it can also assist the participants to anti-competitively coordinate their behaviour in a functionally separate market, including by means of the information exchanged as part of the collective bargaining.
The authorisation applicants’ contentions were exclusively directed to the Producer Pricing Deed which, as noted earlier (and is discussed further below), has been offered by PNO to all coal producers as common terms governing the navigation service and wharfage charges. The authorisation applicants contend that the Producer Pricing Deed in its present form contains inefficient terms. The Producer Pricing Deed contemplates that PNO will separately meet at least twice annually, throughout the 10-year term, with each and every coal producer who has entered into a Deed in relation to issues which are common to all coal producers, including capital expenditures at the Port and price increases. In addition, the Deed contemplates that price increase disputes can only be resolved through a multiplicity of confidential bilateral negotiations, mediations and arbitrations with each and every coal producer, notwithstanding that the dispute will be common to all coal producers and the resolution of any pricing dispute under one of the Deeds (including as a result of arbitration) can only be implemented under the “non-discriminatory pricing” clause if it is applied across all Deeds. The terms of the Producer Pricing Deed, if agreed, would impose inefficient transaction costs on all parties.
The authorisation applicants further contend that the proposed collective bargaining conduct will also help to address the imbalance of bargaining power that exists between PNO and individual coal producers. They argued that the imbalance of bargaining power arises from the fact that the Port is a bottleneck facility and PNO, as operator of the Port, is a monopoly service provider where the coal producers have no practical alternative to the Port for the export of their coal. They argued that the imbalance in bargaining power has resulted in the Producer Pricing Deed containing inefficient terms, including the likelihood that the Port charges under the Deed during the 10-year term will exceed efficient prices. They also argued that the price rise methodology in the Deed creates substantial future pricing uncertainty for all parties. Further, the very high transaction cost of price increase disputes under the Deed (including bilateral arbitration) is likely to operate as a substantial disincentive for individual coal producers to dispute PNO’s price increases.
The second category of public benefit is a likely reduction in transaction costs of negotiating the terms of the Producer Pricing Deed. In that regard, the authorisation applicants argued that there are normal transaction costs for each coal producer of preparing for and engaging in negotiations and that those costs would likely be less if costs were pooled and shared in collective bargaining. Likewise, there would be significant transaction costs savings for PNO as collective bargaining will allow PNO to deal with the group rather than negotiating with each coal producer individually. Such cost savings generate productive efficiencies. The authorisation applicants argued that the transaction costs of coordination within the bargaining group are likely to be small because the Producer Pricing Deed raises largely common issues for all coal producers.
The authorisation applicants contend that the proposed collective bargaining conduct would not be likely to result in any public detriments. They argued that the conduct gives rise to no material risk of collusive conduct between coal producers because the collective bargaining is limited in scope: it relates to PNO’s publicly available Producer Pricing Deed and authorisation is not sought to share competitively sensitive information that relates to customers, marketing strategies or volume or capacity projections. Nor will the conduct marginalise the individual interests and preferences of coal producers: participation in collective bargaining is voluntary and the Producer Pricing Deed has been proffered by PNO to all coal producers in a standard form.
PNO’s contentions
In relation to the first claimed public benefit, more efficient contracting, PNO contends that the evidence does not support the claims made by the authorisation applicants.
PNO contends that the fact that PNO operates a bottleneck facility does not mean that it has unfettered market power and the true relationship between PNO and coal producers is one of mutual dependence. A variety of commercial, regulatory and economic factors are likely to constrain PNO’s market power across the medium term including that:
(a)coal vessels currently provide the majority of the Port’s revenue;
(b)the Port is not capacity constrained and PNO does not have an incentive to set prices in a way that reduces coal production and exports;
(c)coal exported through the Port competes against coal from several other countries in a competitive, international market in which coal producers are price takers;
(d)for the next ten years, PNO is also constrained in its ability to increase prices by the deeds it has entered with vessel agents; and
(e)PNO is also constrained by the threat of declaration under Pt IIIA of the Act.
PNO also contends that there is no evidence as to how the proposed collective bargaining conduct would be likely to result in better outcomes for coal producers. PNO is not compelled to participate in collective bargaining, but even if PNO were to participate, there is no basis to consider that the navigation service and wharfage charges would be set at a different level given that PNO is already constrained in the prices it has set.
PNO further contends that, even if the proposed collective bargaining conduct resulted in better outcomes for coal producers, there is no evidence to support a conclusion that that would generate a public benefit (in the form of an improvement in economic efficiency) as opposed to a private benefit (in the form of a transfer of surplus from PNO to the coal producers). In particular, PNO contends that there is no evidence to support a conclusion that the conduct would be likely to promote more certain investment conditions in the Hunter Valley and lead to improvements in efficiency and competition in the coal export market and other dependent markets.
In relation to the second claimed public benefit, transaction costs savings, PNO contends that the claimed benefit is both incomplete and theoretical. It is incomplete in the sense that it ignores new transaction costs which would not need to be incurred in the absence of collective bargaining, specifically the costs of coordination within the bargaining group. It is theoretical in the sense that the authorisation applicants have made no attempt to quantify or estimate the savings or their significance.
PNO contends that there are two categories of public detriments likely to arise from the proposed collective bargaining conduct.
First, collective bargaining by coal producers in respect of Port services increases the risk of collusive conduct between coal producers in respect of the acquisition or supply of other goods or services.
Second, collective bargaining, which requires the group to reach a collective position on contractual issues, increases the risk that the collective position will reflect the interests and preferences of those members of the group with the loudest voice or deepest pockets, at the expense of the interests and preferences of other, less influential members. PNO contends that the coal producers have different concerns or, at least, prioritise concerns differently. The differences may arise from matters such as differences between coal producers’ size, mine life or operational complexity. PNO contends that the risk in a collective negotiation framework is that no agreement will be reached unless everyone’s concerns can be addressed, or at least not until the concerns of the largest, most influential, members of the negotiating group have been satisfactorily addressed. This may mean that some individual coal producers will not sign a contract even though their own concerns have been satisfactorily addressed, which has the potential for inefficiency.
D. EVIDENCE AND MATERIAL BEFORE THE TRIBUNAL
Overview
The evidence and material before the Tribunal comprised the following:
(a)all of the material that was before the ACCC in making its decision including the original application filed by the authorisation applicants and subsequent submissions, as well as submissions made by other persons;
(b)the ACCC’s draft and final determinations;
(c)affidavits filed on behalf of PNO comprising industry evidence given by Mr Simon Byrnes, Ms Gabriella Sainsbury and Mr Bruce Lloyd and expert economic evidence given by Mr Greg Houston;
(d)affidavits filed on behalf of the authorisation applicants comprising industry evidence given by Mr Michael Dodd, Mr Keiron Rochester, Mr Brett Lewis and Mr Dave Poddar and expert economic evidence given by Mr Euan Morton;
(e)expert evidence given by Dr Rhonda Smith which was adduced by the ACCC for the assistance of the Tribunal;
(f)the Joint Expert Report dated 29 September 2021 prepared by the economic experts following their conferral (the Joint Report);
(g)a number of additional documents including particularly PNO’s Producer Pricing Deed and Vessel Agent Pro Forma Long Term Pricing Deed (Vessel Agent Pricing Deed) and the Whitehaven Annual Reports for 2020 and 2021; and
(h)a submission, with supporting documents, from the Port Authority of NSW.
With respect to the material that was before the ACCC in making its decision, the Tribunal was taken to parts of the original application and subsequent submissions filed by the authorisation applicants, but not to any part of the submissions filed by other persons. In those circumstances, and in light of the new evidence filed in this proceeding, it has not been necessary for the Tribunal to refer to the submissions filed with the ACCC by other persons.
PNO’s witnesses
Mr Byrnes affirmed four affidavits, dated 15 March 2021, 25 June 2021, 30 July 2021 and 10 October 2021 respectively. Mr Byrnes is the Chief Commercial Officer and General Counsel for PNO, a role that he has held since April 2019. As General Counsel, Mr Byrnes leads PNO’s legal services division. He is also responsible for overseeing the commercial, property, environment, business intelligence, planning, corporate governance, company secretarial and compliance management functions of PNO. Together with the Chief Financial Officer, Mr Nick Livesey, and the Deputy General Counsel, Ms Sainsbury, he is responsible for leading PNO’s pricing strategy and commercial negotiations from a legal perspective, and was authorised to represent PNO in the course of its dealings with coal producers generally (including in the specific dealings in the period November 2019 to April 2020). Mr Byrnes principally gave evidence about:
(a)the relevant charges levied by PNO at the Port, and the relative significance of those charges to coal producers, by reference to recent trends in the coal export market and the volume of coal exported through the Port;
(b)vessel movements and the total capacity of the shipping channel at the Port;
(c)forecasted coal export volumes through the Port for the period of collective bargaining authorisation to 2030-31;
(d)the possible development of a container terminal by PNO at the Port; and
(e)negotiations between PNO and coal producers from around November 2019 to 2 April 2020 in respect of proposed long term pricing arrangements for the navigation service and wharfage charges at the Port.
Mr Byrnes was cross-examined. There was no challenge to his credit and the Tribunal accepts his evidence as to matters of fact, but matters of opinion are discussed below.
Ms Sainsbury affirmed an affidavit dated 15 March 2021. Ms Sainsbury is the Deputy General Counsel and Assistant Company Secretary for PNO. She has worked at PNO since April 2018 and has held her current role as Deputy General Counsel and Assistant Company Secretary at PNO since 1 July 2019. Together with Mr Byrnes, Ms Sainsbury has been responsible for leading PNO’s pricing strategy from a legal perspective. Ms Sainsbury gave evidence about relevant charges and open access arrangements at the Port, and the Vessel Agent Pricing Deeds that have been entered into with ships’ agents representing the operators of coal vessels that use the Port. Ms Sainsbury was not cross-examined.
It follows that the Port Authority has failed to persuade the Tribunal that the proposed collective bargaining conduct would or would be likely to result in a public detriment.
H. THE TRIBUNAL’S ASSESSMENT OF BENEFITS AND DETRIMENTS
Introduction
In this section, the Tribunal sets out its assessment of the public benefits and detriments likely to arise from the conduct sought to be authorised. In doing so, the Tribunal draws on the factual findings and economic conclusions as stated earlier in these reasons.
In the Tribunal’s view, many of the contentions advanced by the parties in this proceeding have an air of unreality about them. The contentions were put as a matter of economic theory, but with little regard to the underlying facts and circumstances (which were not the subject of any significant dispute). In the case of the authorisation applicants, the contention that collective bargaining would improve contractual certainty and thereby increase investment was not supported by any information or data concerning investment in upstream markets (particularly relating to coal production) and whether and to what extent the navigation service and wharfage charges impacted investment decisions. The contention that collective bargaining would reduce transaction costs was not supported by any information or data about such costs, whether historical or forecast. In the case of PNO, the contention that collective bargaining would cause the marginalisation of the individual interests and preferences of coal producers ignored the fact that the proposed collective bargaining conduct is directed to the terms governing the navigation service and wharfage charges, which PNO has published as common terms for coal producers (through the Producer Pricing Deed).
While the application for authorisation was framed in broad terms, applicable to any and all arrangements between the authorisation applicants and PNO concerning access to the Port, the evidence and submissions of the authorisation applicants were focussed solely on the navigation service and wharfage charges and the terms of the Producer Pricing Deed proffered by PNO. The terms of the Producer Pricing Deed were almost exclusively focussed on the setting of the navigation service and wharfage charges over the term of the Deed. Only one clause was directed to the subject of service quality (cl 10) and that clause merely required the parties to meet twice yearly to consult on service delivery and means to improve the efficiency of service delivery. While the evidence and submissions of the authorisation applicants contained some complaints about the current level of the navigation service charge, the principal concern advanced was the prospect that PNO may make a material increase to that charge in the future. The authorisation applicants argued that that prospect created commercial uncertainty which had adverse efficiency effects. They argued that collective bargaining would result in more efficient contracting and reduce the transaction costs associated with bargaining.
The Tribunal observes that the authorisation applicants provided no support for the authorisation of collective bargaining in respect of dealings with PNO beyond the use of the shipping channel and berthing services for the shipment of coal (and the accompanying charges). No evidence was adduced about other commercial dealings or arrangements between the authorisation applicants and PNO. In the absence of such evidence, it is not possible for the Tribunal to make any assessment of the potential public benefits or detriments that may result from collective bargaining in respect of any broader commercial arrangements. In those circumstances, the Tribunal could not be satisfied that collective bargaining in respect of access to the Port generally would be likely to result in a net public benefit. Accordingly, if the Tribunal were to grant authorisation, it would be limited to collective bargaining in respect of the use of the shipping channel and berthing services for the shipment of coal (and the accompanying charges).
Public detriments
In the Tribunal’s assessment, collective bargaining in respect of the use of the shipping channel and berthing services for the shipment of coal (and the accompanying charges) is unlikely to result in any public detriments. The two claimed detriments are the risk of collusive conduct and the marginalisation of the individual interests and preferences of coal producers.
Risk of collusive conduct
With respect to the potential for the conduct to facilitate or encourage collusive conduct, the Tribunal considers that all forums in which competitors meet together increase the risk of collusive conduct. However, the proposed collective bargaining conduct by the authorisation applicants, directed to the terms governing the shipping channel and berthing services at the Port (and particularly the level of the navigation service and wharfage charges levied in respect of those services), creates an immaterial or remote risk of unlawful collusive conduct in other markets. That is for the following reasons.
First, the authorisation granted by the ACCC was restricted such that the authorisation applicants were not permitted to share competitively sensitive information that relates to customers, marketing strategies or volume/capacity projections for individual users. If authorisation were to be granted, the Tribunal would impose the same limitation. The limitation would significantly impede the ability of the authorisation applicants to collude.
Second, collective bargaining in respect of the navigation service and wharfage charges does not readily create an opportunity for collusive conduct in respect of upstream inputs to coal production which are supplied in entirely different markets.
Third, and as observed by Dr Smith, any attempt by the coal producers to raise prices in the coal export market would be likely to be unprofitable by reason that the Hunter Valley coal producers are competing with other Australian coal mining companies and other coal producers around the world for sales and are price takers on the world market.
During the hearing, a question arose whether collusive conduct in the coal export market would constitute a relevant public detriment in the sense of being a detriment to the Australian public. The answer to that question is complex. On the one hand, an increase in prices in export markets may benefit producers in Australia and thereby constitute a public benefit. On the other hand, if the export commodity is transformed into, or used in the production of, other products which are imported into Australia, an increase in the price of the export commodity may result in an increase in price of an imported product. No evidence or submissions were advanced on that issue and it is accordingly unnecessary to address it further.
Marginalisation of individual interests and preferences
With respect to the potential for the collective bargaining conduct to marginalise the individual interests and preferences of coal producers, the significance of the issue diminishes when it is appreciated that the authorised conduct is directed to the terms governing the navigation service and wharfage charges. PNO itself has unilaterally proffered uniform terms governing those charges, being the open access terms and the Pricing Deeds. Indeed, there was a high degree of unreality in PNO’s protestations that coal producers have individual requirements and preferences that would be suppressed or inhibited by collective bargaining when PNO seeks to put in place uniform terms.
The Tribunal accepts that, in other areas of commercial dealings with PNO, coal producers may have individual requirements and preferences. However, as the Tribunal has noted, the authorisation applicants did not advance submissions or evidence about any such arrangements and the Tribunal would not, therefore, grant authorisation in such broad terms. If authorisation is limited to the terms governing the navigation service and wharfage charges, PNO and coal producers would be expected to conduct individual negotiations in respect of the supply of Port services in which the individual requirements and preferences of the coal producers would be taken into account.
In respect of the terms governing the navigation service and wharfage charges, the issues that fall to be negotiated between coal producers and PNO are relatively narrow. The primary points of contention between the parties concern the principles that govern any material increase in the navigation service and wharfage charges and the duration of any agreement governing those charges. The two issues are related. While the Tribunal accepts that individual coal producers may have different views on aspects of those issues, the evidence indicates that any differences are within a narrow compass. To the extent that any coal producer considers that its views are not being recognised through collective bargaining, it is free to cease its participation. Overall, the Tribunal gives this issue no material weight.
Conclusion
In conclusion, the Tribunal considers that the proposed collective bargaining conduct in respect of the use of the shipping channel and berthing services for the shipment of coal (and the accompanying charges) would not be likely to result in any public detriment having any material weight.
Public benefits
On the evidence before it, the Tribunal is not satisfied that the proposed collective bargaining conduct in respect of the use of the shipping channel and berthing services for the shipment of coal (and the accompanying charges) is likely to result in any public benefit. The two claimed public benefits are more efficient contracting and reduced transaction costs.
More efficient contracting
The Tribunal agrees with the theoretical framework advanced by Prof King in assessing whether collective bargaining may result in public benefits, including by resulting in more efficient contracts, being contractual terms that increase economic efficiency. However, whether collective bargaining in a given market context is likely to do so depends on a consideration of the facts and circumstances concerning the goods or services being supplied, including the number and nature of the parties to negotiations, any information asymmetries between the parties to the negotiations, the existence of market power in the supply or acquisition of the goods or services being supplied, the alternatives faced by the parties, and the likely effects in related markets of any change in the terms of supply of those goods or services.
Despite the wide range of potential impediments to efficient contracting that might be alleviated by collective bargaining (as discussed by Prof King in his article), in the present case the conduct in which the authorisation applicants wish to engage has a relatively narrow focus: the terms governing the navigation service and wharfage charges. The question to be addressed is: how might collective bargaining result in a more efficient contract governing those charges? It is necessary to consider the current level of charges and the terms governing material increases in those charges. In doing so, it is convenient to adopt the three areas of possible negotiations between the authorisation applicants and PNO in respect of the navigation service and wharfage charges which were considered earlier:
(a)the current level and price path of the navigation service and wharfage charges as proposed in the Producer Pricing Deed;
(b)the contractual terms governing material increases in the navigation service and wharfage charges proposed in the Producer Pricing Deed; and
(c)the resolution of any future dispute arising in respect of a material increase in the navigation service and wharfage charges under the Producer Pricing Deed (if entered into), or under the Vessel Agent Pricing Deed, or negotiated between PNO and coal producers outside of any contractual framework.
Negotiations concerning the current charges and price path
In relation to the current level and price path of charges, PNO is contractually bound to the level of charges stipulated in the Vessel Agent Pricing Deed for a period of 10 years from 1 January 2020 (being the period of authorisation determined by the ACCC). In those circumstances, the contention that collective bargaining would be likely to result in a public benefit through more efficient contracting depends upon three premises: that the current level of charges has been set at an inefficient level (in other words, at a level that is harming economic efficiency); that collective bargaining would be likely to cause a change (reduction) in the current level of charges (in comparison to bilateral negotiations); and that the reduction in charges would result in a public benefit. None of the premises have been shown to be likely on the evidence before the Tribunal.
First, the final determination of the navigation service and wharfage charges in the Glencore Coal arbitration indicates that the current charges are not set at an inefficient level, and there is no evidence before the Tribunal suggesting that the current level of charges has reduced economic output in any market.
Second, for the reasons given earlier, the Tribunal considers that the proposed collective bargaining conduct is unlikely to result in a bargaining change or outcome that differs from bilateral negotiations.
Third, even if collective bargaining were to result in some reduction in the current level of charges (in an amount that differs from what would be achieved through bilateral negotiations), there is no evidence to support a conclusion that the reduction would improve economic efficiency in any market. The arguments advanced by the authorisation applicants were not supported by any financial or quantitative evidence concerning the coal tenements market (or any other upstream market), its structure, prices or expected returns. There is also a complete absence of evidence before the Tribunal concerning investment decisions in coal production (or any other upstream market) and whether and how Port charges factor into such decisions. On the evidence before it, the Tribunal could only conclude that a reduction in the current level of charges would result in a transfer of surplus from PNO to coal producers, which does not increase economic efficiency and is not otherwise a public benefit.
Negotiations concerning the contractual terms governing material increases in charges
In relation to the terms governing material increases in the navigation service and wharfage charges, the contention that collective bargaining would be likely to result in a public benefit again depends upon three premises: that the current terms are harming economic efficiency or giving effect to the current terms will harm economic efficiency; that collective bargaining would be likely to cause a change in the terms (in comparison to what would be achieved through bilateral negotiations); and the change would result in a public benefit. Again, the premises have not been shown to be likely on the evidence before the Tribunal.
In relation to the first premise, that the current terms are harming economic efficiency, the principal contention advanced by the authorisation applicants is that the material price increase terms in the Producer Pricing Deed are uncertain which has a negative effect on coal producers’ investment decisions. The two components of the contention require consideration: that the material price increase terms in the Producer Pricing Deed are uncertain (and, on the second premise, can be made more certain through collective bargaining); and that the uncertainty is having a negative effect on coal producers’ investment decisions (and, on the second and third premises, which will be remedied by more certain terms).
Uncertainty in relation to future input costs is an unexceptional aspect of commerce. The risk of future input cost increases may be able to be reduced by contracts that fix prices and/or price increases over the period of the contract. However, contracts typically involve an allocation or transfer of risk. While the risk of future price increases may be eliminated or reduced for one contracting party, typically a corresponding risk is transferred to the other contracting party. At best, contracts can minimise the overall impact of risk by allocating responsibility or exposure to different sources of risk to the parties best able to control them.
Currently, PNO offers the shipping channel and berthing services on two bases. The first is an open access basis where prices are set from time to time and there are no contractual constraints on future price increases. The second is under the Pricing Deeds where increases in price during the term of the Deeds are governed by the provisions of those Deeds.
It can be accepted that the material price increase provisions in the Pricing Deeds are uncertain in the sense that they require the application of economic and commercial principles which in turn require the exercise of judgment and about which minds may differ. However, the Tribunal disagrees with the implicit premise of the contention of the authorisation applicants that price uncertainty is only faced by coal producers (and vessel agents). The material price increase provisions also involve uncertainty for PNO. It must bear the risk of increases in costs that, although not insignificant, nevertheless fall below the threshold of materiality set in the Deeds. Further, in the event of a dispute in respect of a material price increase, PNO must abide by the decision of an independent arbitrator as to the application of the pricing principles stated in the Deeds. PNO has no control over the level of any increase approved by an arbitrator.
Critically, though, the authorisation applicants have failed to substantiate their contention that uncertainty in the terms governing increases in the navigation service and wharfage charges is having a negative effect on coal producers’ investment decisions. As already noted, the authorisation applicants failed to adduce any evidence concerning investment decisions in coal production (or any other upstream market) and whether and how Port charges factor into such decisions. The evidence that was adduced by the authorisation applicants, through Messrs Lewis, Rochester and Dodd, did not provide any support for the contention. As noted earlier, Whitehaven’s 2021 Annual Report contains an extensive list of business risks faced by Whitehaven, but potential increases in Port charges is not mentioned. In his evidence, Mr Lewis acknowledged that there had not been price certainty in terms of Port charges since the Port was privatised in 2014 and also acknowledged that, in that period, Bloomfield Collieries had not made any decision not to proceed with an investment by reason of that uncertainty.
In relation to the second premise, that collective bargaining would be likely to cause a change in the terms which could not be achieved through bilateral negotiations, the Tribunal considers that unlikely for the reasons given earlier. In short, while the Tribunal considers that there is a possibility that future negotiations between PNO and coal producers may bring about changes to the pricing principles in the Producer Pricing Deed, there is nothing in the evidence that suggests that individual coal producers who are members of the authorisation applicants are incapable of negotiating such issues with PNO, or that individual coal producers are at a disadvantage in negotiations that can only be remedied by collective bargaining. The Tribunal does not find credible the contention that collective bargaining in respect of the pricing principles in the Producer Pricing Deed would result in a different outcome in comparison to multiple bilateral negotiations.
In relation to the third premise, that a postulated change in the terms governing material increases in the navigation service and wharfage charges would result in a public benefit, again there is a complete absence of evidence to support such a conclusion. First, and as stated above, there is no evidence before the Tribunal concerning investment decisions in coal production (or any other upstream market) and whether and how Port charges factor into such decisions. Second, there is no evidence before the Tribunal that, in the period since privatisation, any investment decisions have been delayed, deferred or otherwise altered by reason of uncertainty over Port charges when, on the case advanced by the authorisation applicants, such uncertainty has existed. Third, the Tribunal has earlier indicated its agreement with the conclusion of a differently constituted Tribunal in NSWMC No 3 (at [240]) that the terms of the Pricing Deeds provide a reasonable degree of pricing certainty to coal producers, with any price increase subject to arbitration applying pricing principles which are similar to those governing arbitrations under Div 3 of Pt IIIA.
Negotiations concerning any future dispute arising in respect of a material increase in charges
In relation to future disputes governing a proposed material increase in the navigation service and wharfage charges, the Tribunal is not satisfied that the authorised collective bargaining conduct would be likely to result in a public benefit. For the reasons expressed earlier, the Tribunal is not persuaded that the proposed collective bargaining conduct would be likely to result in bargaining outcomes that differ from outcomes without the proposed conduct. In short, even without authorisation, there is likely to be a high degree of commonality, if not collectivity, in the conduct of any negotiations and dispute resolution process in respect of a material price increase. This is because, as discussed earlier, the Pricing Deeds contain uniform terms governing any material price increase, including in respect of arbitration, and also contain a “most favoured nation” (non-discrimination) clause. The Tribunal considers that the arbitration of a material price increase dispute under the Pricing Deeds would inevitably be consolidated and that the prior negotiation and mediation of a material price increase dispute would almost inevitably be conducted on a collective or consolidated basis. The Tribunal considers that there is no real likelihood of the authorised collective bargaining conduct producing an outcome in respect of a material price increase dispute that differs from negotiations and arbitration conducted without the authorised conduct.
Reduced transaction costs
The Tribunal accepts, at a theoretical level, that collective bargaining may reduce transaction costs. The Tribunal also accepts that a reduction in overall transaction costs improves productive efficiency and is a public benefit. However, collective bargaining also has the potential to increase overall transaction costs (because contracting parties may incur two levels of costs, internally in forming their own views and seeking advice, and externally when participating in collective discussions with members of the bargaining group). Whether transaction costs are likely to increase or decrease and whether any change is more than trivial depends on the specific circumstances in which a particular contract is negotiated, the number of contracting parties involved, the degree of homogeneity of interests of the contracting parties and the extent to which each contracting party will wish to be involved in individual negotiations and collective negotiations.
In the present application, almost no evidence was adduced by the authorisation applicants on the question of transaction costs. It would have been possible for the authorisation applicants to adduce evidence as to the collective bargaining procedures implemented by them to date (pursuant to the interim authorisation) and proposed to be implemented in the future, the likely budget for such collective bargaining procedures, the likely budgets for individual costs to be incurred in the course of negotiations, and an estimate of overall cost savings for each authorisation applicant. However, no such evidence was adduced. The contentions with respect to transaction cost savings barely rose above assertion.
In the present case, it is not self-evident that collective bargaining in respect of the terms governing the navigation service and wharfage charges would result in transaction cost savings. The evidence of Messrs Dodd, Lewis and Rochester suggests that many, if not all, of the nine coal producers who form part of the authorisation applicants have a strong interest in those terms. It is reasonable to infer that each such coal producer would wish to be represented in collective discussions amongst the bargaining group, but would also wish to consider the contractual terms within their own management teams and potentially take their own advice on the issues raised. Further, the Tribunal accepts the evidence of Mr Byrnes that PNO will engage in individual meetings and discussions with coal producers in the ordinary course of business in relation to the services supplied by PNO including the shipping channel and berthing services. In the absence of collective bargaining, negotiations with respect to the navigation service and wharfage charges would be expected to occur in such bilateral forums. Collective bargaining would require additional forums to be convened for negotiations, but it is unlikely that individual meetings and discussions would cease.
Overall, it is not self-evident that collective bargaining with respect to the terms governing the navigation service and wharfage charges would result in transaction cost savings of any significance. In the absence of some evidence concerning expected transaction cost savings, the Tribunal is unable to infer that collective bargaining would be likely to result in a net saving in a more than trivial amount.
Conclusion
In conclusion, the Tribunal considers that the proposed collective bargaining conduct in respect of the use of the shipping channel and berthing services for the shipment of coal (and the accompanying charges) would not be likely to result in any public benefits having any material weight.
I. DETERMINATION
For the reasons given in this determination, the Tribunal is not satisfied that the proposed collective bargaining conduct would result, or be likely to result, in a benefit to the public. Accordingly, the Tribunal’s determination is that the conduct should not be authorised and the determination of the ACCC should be set aside. It also follows that the interim authorisation granted to the authorisation applicants on 2 April 2020 should be revoked.
I certify that the preceding three hundred and fifty-two (352) numbered paragraphs are a true copy of the Reasons for Determination herein of the Honourable Justice O'Bryan, Dr D Abraham and Ms D Eilert. Associate:
Dated: 18 February 2022
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