Australian Competition and Consumer Commission v The Adelaide Steamship Company Ltd & Ors [1996] FCA 10

CATCHWORDS TRADE PRACTICES - enforcement and remedies - injunction - proposed acquisition of assets - interim injunctions - exercise of discretion where divestiture order possible on acquisition of assets Trade Practices Act 1974, ss 80, 81 Trade Practice Commission v Santos Limited (1992) 38 FCR 382 AUSTRALIAN COMPETITION AND CONSUMER COMMISSION v THE ADELAIDE STEAMSHIP COMPANY LIMITED and Ors No. NG 38 of 1996 Coram:Whitlam J Place: Sydney Date: 25 January 1996

IN THE FEDERAL COURT OF AUSTRALIA ) ) NEW SOUTH WALES DISTRICT REGISTRY ) NG 38 of 1996 ) GENERAL DIVISION ) AUSTRALIAN COMPETITION AND CONSUMER COMMISSION Applicant THE ADELAIDE STEAMSHIP COMPANY LIMITED First Respondent HOWARD SMITH INDUSTRIES PTY LIMITED Second Respondent WARATAH TOWAGE PTY LTD Third Respondent J. FENWICK & CO. PTY LTD Fourth Respondent Coram:Whitlam J Place: Sydney Date: 23 January 1996 MINUTES OF ORDER THE COURT ORDERS THAT: 1. The applicant's claim for interlocutory relief be refused. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA ) ) NEW SOUTH WALES DISTRICT REGISTRY ) NG 38 of 1996 ) GENERAL DIVISION ) AUSTRALIAN COMPETITION AND CONSUMER COMMISSION Applicant THE ADELAIDE STEAMSHIP COMPANY LIMITED First Respondent HOWARD SMITH INDUSTRIES PTY LIMITED Second Respondent WARATAH TOWAGE PTY LTD Third Respondent J. FENWICK & CO. PTY LTD Fourth Respondent Coram:Whitlam J Place: Sydney Date: 25 January 1996 REASONS FOR JUDGMENT On 23 January 1996 I refused to grant certain interim injunctions. These are my reasons for making those orders. The applicant ("the ACCC") commenced this proceeding as an application under s 80(1) of the Trade Practices Act 1974 ("the Act"). The respondents are The Adelaide Steamship Company Limited ("Adsteam"), Howard Smith Industries Pty Limited ("Howard Smith"), Waratah Towage Pty Limited ("Waratah") and J. Fenwick & Co. Pty Limited ("Fenwick"). The interim injunctions sought were intended to restrain the respondents from giving effect to certain agreements concluded on 22 December 1995. The same injunctive relief is asked for by way of final relief. The background to the application may be briefly described. Adsteam and Howard Smith each own 50 per cent of Waratah. Towage services in Sydney Harbour and Botany Bay ("the Sydney ports") are provided by Waratah and Fenwick, each of which operates four tugs. On 22 December 1995 the respondents' solicitors wrote to inform the ACCC of the effect of several agreements entered into that day consequent upon the decision of Fenwick to withdraw from the provision of towage services in the Sydney ports. Those agreements (copies of which were received by the ACCC on 28 December 1995) may be summarized this way. Adsteam agreed to purchase two of Fenwick's tugs, which it proposes to charter to Waratah. Fenwick granted Howard Smith an option to purchase its two other tugs. This option is exercisable between 1 March 1996 and 30 June 1996. Fenwick agreed to the bareboat charter of these two tugs by Waratah from 17 January 1996 to 31 July 1996. Such charter period may be extended for up to an additional six months. If Howard Smith exercises its option to purchase the tugs, the charter will terminate upon completion of the sale. Fenwick and Waratah also agreed upon arrangements relating to the employment and superannuation of tug crews formerly employed by Fenwick. Completion of the agreements was scheduled for 17 January 1996. However, on that day the ACCC notified the parties of its view that the contemplated arrangements are "likely to substantially lessen, prevent or hinder competition in the supply of towage services in the Ports of Sydney in breach of section 50 and/or section 45 of the Trade Practices Act". Further correspondence and discussion ensued. The respondents gave undertakings, initially inter partes and subsequently to the Court, not to complete the agreements before 2.15 pm on 23 January 1996. The trial of the allegation that ss 45 and 50 of the Act have been contravened will require determination of the relevant market for towage services from which Fenwick is withdrawing. The ACCC has adduced evidence from Ms Linley Johnson of its view that "there is a market within the meaning of section 50 of the Act for harbour towage services in the ports of Sydney". Ms Johnson was manager of a recent inquiry which required the ACCC to examine (inter alia) the prices and competitive conditions of harbour towage services. The report of that inquiry was produced on 1 December 1995, and it has also been received in evidence. The ACCC dealt with market definition in Chapter 4 of its report. It noted that Adsteam, Howard Smith and Fenwick had all submitted that the geographic market for harbour towage services is defined on a port-by-port basis. It also noted that in 1977 the Trade Practices Tribunal ("the Tribunal") had considered that there was a national market for the provision of towage services in ports around Australia. (See Re Howard Smith Industries Pty Ltd (1977) 28 FLR 385.) However, the ACCC concluded that, on balance, the relevant market is largely defined on a port by port basis. In its report the ACCC examined basic market conditions in Chapter 5. It estimated market shares on a national basis. Different ports were, in fact, identified as sub-markets. By 1995 Waratah was said to provide 60 per cent of tug jobs in the Sydney ports. The ACCC assessed competition in the market in Chapter 7. It concluded that there is very little price or non-price competition in the harbour towage market. Specifically (and quite importantly, in my view) the ACCC said that in the Sydney ports there is little evidence of effective competition. For the purposes of its inquiry the ACCC concluded that competition is weak in the industry and that prices oversight continues to be necessary. At the hearing the respondents placed some emphasis on the Tribunal's 1977 view of the geographic dimensions of the towage market. Whilst none of the respondents conceded that there was a serious question to be tried that the proposed acquisitions or charters would constitute a contravention of the Act, it was accepted that, if the market were defined as the Sydney ports, then a duopoly would be replaced with a monopoly. I am satisfied that there is a serious question to be tried whether there will be a contravention of ss 45 and 50 of the Act. Against that background debated focussed on the balance of convenience. In conducting that balancing exercise, each side has urged that regard be had to the strength of their case. I decline to speculate about the outcome of a trial of the issue of the market for harbour towage services. However, even if it be assumed in favour of the ACCC that the Sydney ports constitute a substantial market for such services, contravention will still require the effect or likely effect of substantially lessening competition. The ACCC's own very recent report suggests that no such competition presently exists. This contradicts the ACCC's views expressed by Ms Johnson. I am mindful of the provisions of s 4G of the Act and the contents of the statutory check-list in s 50(3) of the Act. No doubt for this reason, Ms Johnson devotes the final sentence of her first affidavit to the possibility of a new entrant in the market. But again the ACCC's own report suggests that such a possibility is only likely to be realized in special situations such as the port at Newcastle where there is a degree of vertical integration. The only evidence from a ship operator adduced by the ACCC is a letter dated 19 January 1996 from the Blue Star Line's Australian operations manager to the Australian Chamber of Shipping. This does not assist this aspect of its case. The protection of the public interest against contravention of the Act cannot be dictated by the form of the final relief sought by the ACCC. I realize that my failure to grant the interim injunctions may effectively put an end to the present proceeding. However, if the acquisition proceeds, it seems to me that the "remedy of divestiture is in reality an alternative remedy open to the [ACCC]", as Hill J identified in Trade Practices Commission v Santos Limited (1992) 38 FCR 382 at 397. As his Honour said in that case, the court must "weigh up the real consequences to each party, taking in mind not only the public interest but also the private interests involved." Those private interests are dealt with in the evidence of Mr C.J. Frederick, the chief executive officer of Adsteam's Marine Division; Dr K.J. Moss, the managing director of Howard Smith's holding company; and Mr John Fletcher, the chief executive officer of Fenwick's parent company Brambles Industries Limited ("Brambles"). Ms Johnson's first affidavit also annexes financial information furnished to the ACCC by Brambles. There is no suggestion that the sale of Fenwicks' assets would be aborted, had interim injunctions been granted. But each of the executives did specifically refer to industrial relations concerns if implementation of the agreements were delayed. The respondents' discussions with the relevant unions have proceeded on the basis that the agreement between Fenwick and Waratah relating to the employment of the Fenwick crews will be implemented this month. I was invited to speculate about the industrial difficulties that might befall tug operations in the Sydney ports if divestiture were required at a later date. I can, of course, conceive of some difficulties, but the only evidence on the topic is that of the executives which addresses their clear and present concerns. It is difficult to estimate how long an interim injunction granted pending determination of the ACCC's application would be in force. Even if the case were speedily prepared and court time made available, I cannot conceive of the application being determined in this financial year. The consequence would be that the Brambles group would be deprived of the sale proceeds for the time being and of the opportunity to achieve a better rate of return on its investments. After all, Fenwick has decided to quit the provision of towage services in the Sydney ports. Delay would mean a loss of opportunity to its parent and, as I have said, would pose real industrial difficulties for the surviving operator, Waratah. The respondents all accepted that, if the acquisition of Fenwick's assets proceeds and it is subsequently found that such acquisition contravenes the Act, the Court may order divestiture of those assets under s 81 of the Act. No party submitted that the power of the Court under s 81 was confined in any relevant respect. The ACCC did submit that it would be impossible, in fact, to "unscramble" the arrangements once they were effected and that, importantly, competition could not be restored. The last part of that submission again begs the question whether there is presently any effective competition in the Sydney ports. The relevant agreements are all in evidence. So far as the tugs are concerned, the sale agreements and charters are in standard BIMCO forms. These assets are quite discrete. The ancillary employment agreement does involve the surrender of the sub-lease or licence in respect of Fenwick's tug berths. Otherwise whilst that agreement does provide for many of the employment matters dealt with on the transmission of a business, the arrangements between Fenwick and Waratah do not involve the transfer of Fenwick's towage business in the Sydney ports. I am quite satisfied that all the assets to be disposed of by Fenwick are easily identified and capable of being divested. Appropriate undertakings were originally proffered to the ACCC by Adsteam, Howard Smith and Waratah. If the acquisition proceeds, the ACCC can request such undertakings be renewed. If the ACCC succeeds at trial in establishing a contravention of the Act, an order for divestiture of the assets acquired will provide appropriate and effective relief. However, on the balance of convenience, the grant of the interim injunctions could not be justified in order to protect the public interest that the Act should not be contravened. I certify that this and the preceding six pages are a true copy of the reasons for judgment herein of the Hon. Justice A.P. Whitlam Associate: Date: 25 January 1996 R.C. McDougall QC, instructed by the Australian Government Solicitor, appeared for the applicant. Mr W.R. McComas of Clayton Utz appeared for the first and third respondents. A.I. Tonking, instructed by Allen Allen & Hemsley, appeared for the second respondent. J.V. Nicholas, instructed by Allen Allen & Hemsley, appeared for the fourth respondent. Dates of hearing: 22 and 23 January 1996