28 March 2022
11 min read
#Administrative Law, #Competition & Consumer Law
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A key aspect of Australia’s market system grants an infrastructure owner the right to deal with whom they choose, while the threat of competition limits their ability to charge excessive prices or restrict supply. However, in circumstances where this competition does not exist and such infrastructure owners are natural monopolists, the infrastructure owner will have significant market power that may need to be controlled.
Part IIIA of the Competition and Consumer Act 2010 (Cth) (CCA) establishes what is known as the National Access Regime. It creates a regime that enables third party access to services that have natural monopoly characteristics and are of national significance. Part 5 of the Queensland Competition Authority Act 1997 (Qld) (QCA Act) creates for Queensland the State Access Regime, which too establishes a regime that enables third party access to services that have natural monopoly characteristics and are of state significance.
Both the National and State Access Regimes have to, as their purpose, promote effective competition by promoting the economically efficient operation of, use of and investment in significant infrastructure by which services are provided across upstream and downstream markets.
Under the National and State Access Regimes, the National Competition Council (NCC) and the Queensland Competition Authority (QCA) respectively are tasked with considering and recommending to their respective ministers whether a particular service should be a declared service.
Declaration of a service provides access seekers with a legal right to negotiate the terms and conditions of access to the service with the service operator and failing agreement, the access seeker can have their request for access determined by the ACCC (in the case of the National Access Regime) and the QCA (in the case of the State Access Regime).
The Commonwealth and Queensland relevant minister then makes the declaration decision (albeit being able to take different decision making approaches in response to a recommendation).
For a service to be declared, both the National Access Regime and the State Access Regime require the relevant minister to be affirmatively satisfied that the relevant prescribed access criteria in Part IIIA of the CCA or Part 5 of the QCA Act are met.
Amendments were made to both the National and State Access Regime criteria, following the Harper Review of the CCA, to amend and clarify the access criteria that must be used by the NCC, QCA and the respective Commonwealth and Queensland ministers.
Whilst these access criteria have been assessed by the NCC, the QCA and the respective ministers, they have not been tested by a court until the recent case of DBCT Management Pty Ltd v Treasurer and Minister for Infrastructure and Planning (Qld) & Ors [2021] QSC 335 (DBCT Decision).
While not a merits review, given the importance of infrastructure access to the National and Queensland economy, the DBCT Decision provides considerable insight regarding:
Following a series of judicial decisions concerning the interpretation of the access criteria under the National Access Regime and significant reviews at a Commonwealth level by the Commonwealth Productivity Commission’s Inquiry into the National Access Regime (2013) and the Competition Policy Review (Harper Review)(2015), the Commonwealth made changes to the National Access Regime including changes to the access criteria. The QCA Act was amended to reflect these changes at a national level.
Section 76 of the QCA Act and section 44CA of the CCA set out four access criteria which needs to be satisified by the QCA, NCC, and the relevant minister before recommending (and ultimately) declaring a service. Section 76(2) of the QCA Act provides that:
“(2) The access criteria are as follows—
(a) that access (or increased access) to the service, on reasonable terms and conditions, as a result of a declaration of the service would promote a material increase in competition in at least 1 market (whether or not in Australia), other than the market for the service; (Criterion A)
(b) that the facility for the service could meet the total foreseeable demand in the market—
(i) over the period for which the service would be declared; and
(ii) at the least cost compared to any 2 or more facilities (which could include the facility for the service); (Criterion B)
(c) that the facility for the service is significant, having regard to its size or its importance to the Queensland economy; (Criterion C)
(d) that access (or increased access) to the service, on reasonable terms and conditions, as a result of a declaration of the service would promote the public interest. (Criterion D)”
The significant amendments were to Criterion A and B. In its original form, Criterion A concerned whether access or increased access to the service “would promote competition in at least 1 market”[1] and involved comparing the extent of future competition in an upstream or downstream market if there was access with that which there was no access.
Following the amendment, the question is whether a declaration of the service “would promote a material increase in competition in at least 1 market”. This is answered by comparing the extent of future competition in an upstream or downstream market where a declaration of the service was made with the same if there was no declaration.
Criterion B was amended to confirm that the test to be applied requires an assessment of whether the facility for the service in question could meet the total foreseeable demand in the market at the least cost compared to any combination of two or more facilities, as opposed to the prior so-called “private profitability test”.
Of most relevance in the DBCT Decision is the application of the new Criterion A.
DBCT Management Pty Ltd (DBCTM) is the operator of Dalrymple Bay Coal Terminal, which is located at the Port of Hay Point south of Mackay. The terminal is a natural monopoly as there are no other common user facilities servicing the mines connected to the Goonyella system within a reasonable distance without incurring significantly higher rail access and haulage costs.
With a declaration, DBCTM would be constrained from engaging in monopoly pricing through a regulatory pricing regime that would apply to existing and new users alike.
In order to prevent a declaration, DBCTM signed a deed poll to give access on terms for the next 10 years to 2030. The deed poll referred to two documents, the Access Framework and Standard Access Agreement, that contained the terms of access to the service for new users.
The QCA had recommended that DBCTM need not be declared a service because it was not satisfied of Criteria A and D, based in large part on its consideration of the interpretation and application of the deed poll and associated documents. But the QCA Minister (the Treasurer) ultimately found that the service satisfied all of the access criteria and reversed the recommendation made to him by the QCA.
DBCTM sought to review the decision on the grounds that the terminal did not satisfy Criterion A, being the “declaration of the service would promote a material increase in competition in at least 1 market”, or Criterion D, which required the declaration being in the public interest.
Criterion A
After considering the effect of the existing users’ agreements and the deed poll imposed for new users, the QCA Minister compared the likelihood of competitive outcomes with a declaration compared to a future without a declaration and was satisfied that increased access as a result of a declaration would promote a material increase in competition.
The QCA Minister had reasoned that existing users would have certainty in the pricing of the service beyond 10 years (due to the “evergreen nature” of their access agreements), but beyond 2030, new users would not and this uncertainty would affect any decision by those seeking to invest in the market. In light of this, the QCA Minister found a declaration would promote a material increase in competition in a relevant market (here the development stage tenements market).
Ground 1 – would a declaration promote a material increase in competition?
Ground 1 concerned the Minister’s decision that a declaration would promote a material increase in competition in the development stage tenements market. DBCTM alleged the QCA Minister had made an error of law, that there was no evidence to justify making the decision and that the decision was an improper use of power.
However, the court confirmed the existing case law continued to be relevant despite changes to the access criteria. It held there was nothing in the reasons to suggest the QCA Minister had not identified the correct test, and when applying it, correctly considered the market itself rather than the position of individual players. Further, the QCA Minister’s logic was considered sound and emphasised that the Minister, not the QCA, was the decision-maker, and there was no error of law in drawing different factual conclusions from the QCA.
The court also found that section 76 of the QCA Act did not provide discretion if the QCA Minister was satisfied with all of the access criteria for the service, and ultimately held the QCA Minister was not compelled to consider any other factors in making the decision. As a result, Ground 1 failed.
Ground 2 – would there be uncertainty over pricing when the deed poll expires?
Taking issue with the QCA Minister’s finding that new users would assess there to be uncertainty over pricing and other terms following the conclusion of the term of the deed poll after 2030, Ground 2 alleged the QCA Minister had made an error of law, that there was no evidence to justify making the decision and that the decision was an improper use of power.
The court agreed with the QCA Minister in finding the deed poll ceased to operate after 10 years and the pricing after this time was uncertain as a result. Additionally, the court held the Minister had correctly considered the respective conditions imposed on new and existing users post-2030, and the approach taken and the conclusions reached were logical and rational. Therefore, Ground 2 also failed.
Ground 3 – were there any risks affecting new users’ investment decisions?
Ground 3 referred to the risks the QCA Minister assessed which might have adversely affected the investment decisions of new users in the market. DBCTM contended that there was no evidence to justify the QCA Minister making the decision and that the decision was an improper use of power. This argument was also rejected by the court on the basis that it was not unreasonable for the QCA Minister to arrive at the conclusion.
Criterion D
Ground 4 – would a declaration promote public interest?
Being satisfied that Criterion A was fulfilled, the Minister found that making a declaration would promote a material increase in competition and consequently, Criterion D was satisfied. As the court confirmed the Minister’s decision that Criterion A was proved, DBCTM’s argument that Criterion D was not made out was rejected.
The DBCT Decision provides insight into the court’s interpretation and ultimate operation of the new access criteria that apply under both the National and State Access Regimes. In particular, it has confirmed that there is no practical difference between the former test would “promote competition” and would “promote a material increase in competition” and therefore the prior case law continues to apply that “the notion of promoting competition… involves the idea of creating conditions or environment for improving competition from what it would be otherwise. That is to say, the opportunities and environment for competition given declaration will be better than they would be without declaration”.
This case also demonstrates the difficulties for infrastructure owners and operators to prevent a declaration by proposing self-imposed constraints. This here is particularly shown by the fact that the QCA and the QCA Minister considering the same submissions and facts took different views on the operation of the deed poll and critically, the uncertainty faced by new users after the deed poll and access framework expires in 2030.
The DBCT Decision also demonstrates how complex decisions of economic regulation can be approached and how critical it is that such decisions follow a clear and logical approach to the reasons given.
In reaching the decision, the court commended the way the Minister outlined the steps through which he reached his decision and the clear reasoning applied at each juncture to conclusively deal with the issues and rebut any criticism.
Decision-makers may consider emulating this approach when dealing with this complex area of economic regulation in order to successfully avoid a judicial review challenge.
Our team can assist you in understanding the access criteria and navigating a declaration process whether under the National or State Access Regime.
We can also assist regulatory decision makers in preparing a statement of reasons to ensure that the reasons appropriately reflect the clear and logical approach taken by the decision maker and which the court’s demand. If you have any questions, please contact us or send us your enquiry here.
Authors: Joanne Jary & Kayla Plunkett
[1] whether or not in Australia, other than the market for the service.
Disclaimer
The information in this article is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this article is accurate at the date it is received or that it will continue to be accurate in the future.
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