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Marshall, Brenda; Mulheron, Rachael --- "Access to essential facilities under section 36 of the Commerce Act 1986: lessons from Australian competition law" [2003] CanterLawRw 11; (2003) 9 Canterbury Law Review 248


Brenda Marshall[*] and Rachael Mulheron[**]

I. Introduction

The adequacy of New Zealand's misuse of market power provision to regulate access to 'essential facilities'[1] was investigated as part of the 1989 review of the Commerce Act 1986 (NZ).[2] In a dramatically divergent outcome to that recommended by Australia's Hilmer Committee in 1993,[3] New Zealand's Ministry of Commerce concluded that '[r]eliance on general competition law is the Government's favoured approach for guaranteeing access to essential facilities. '[4] It was made clear, however, that industry-specific regulation would be introduced to supplement the Commerce Act,[5] if necessary.[6] Accordingly, the denial of access to an essential facility in New Zealand -whether manifest from an outright denial or by offering to provide access on terms and conditions that are impractical or uneconomic - is commonly treated as a type of refusal to supply under s 36 Commerce Act.[7] However, the notion that s 36 might incorporate an essential facilities doctrine based on that developed in the United States[8] was specifically rejected by the New Zealand High Court in Union Shipping New Zealand v Port Nelson Ltd.[9] In declining to import the doctrine into New Zealand competition law, the Court warned that a 'wrong turning at this point may prove painfully difficult to correct'.[10] New Zealand essential facilities cases are required to be determined, therefore, strictly in accordance with the terms of s 36.[11]

Following recent amendments,[12] that section has been brought into line with Australia's s 46 Trade Practices Act 1974, whereby previous references to 'use' and 'dominant position in a market' have been replaced by 'take advantage of’ and 'substantial degree of power in a market', respectively. The following table illustrates the changes in wording and the relevant comparison:

'Old's 36(1)
'New' s 36(2)
Commerce Act (NZ)
Commerce Act (NZ)
No person who has a dominant position in a market shall use that position for the purpose of-
(a) restricting the entry of any person into that or any other market; or
(b) preventing or deterring any person from engaging in competitive conduct in that or in any other market; or
(c) eliminating any person from that or any other market.
A person that has a substantial degree of power in market must not take advantage of that power for the purpose of-
(a) restricting the entry of a person into that or any other market; or
(b) preventing or deterring a person from engaging in competitive conduct in that or any other market; or
(c) eliminating a person from that or any other market.
A corporation that has a substantial degree of power in a market shall not take advantage of that power for the purpose of-
(a) eliminating or substantially damaging a competitor of the corporation or of a body corporate that is related to the corporation in that or any other market;
(b) preventing the entry of a person into that or any other market; or
(c) deterring or preventing a person from engaging in competitive conduct in that or any other market

In Australia, the Hilmer Committee accepted the potential application of s 46 Trade Practices Act to essential facility situations.[13] Referring to the elements of s 46, the Committee noted: first, if a facility is truly essential, its owner will always have 'a substantial degree of power in a market'; secondly, a refusal to grant access to an essential facility will usually constitute a 'taking advantage' of market power, given that, in the absence of such power, access to the facility would probably be available; and thirdly, the refusal to deal could conceivably occur for any of the proscribed purposes in s 46(1 )(a), (b) or (c).[14] Although the Committee concluded that 'an administrative solution was preferable to reliance upon s 46',[15] Australia's misuse of market power provision retains a residual role in cases not covered by the access regime contained in Part IIIA Trade Practices Act.[16]

A denial of access to an essential facility will not automatically result in a contravention of either s 46 Trade Practices Act or s 36 Commerce Act. In any given case, it must be established that the constituent elements of the relevant provision are satisfied, particularly that the impugned conduct involved a taking advantage of market power for one of the three proscribed purposes. Certainly, it is not the possession of market power that offends per se. As McGechan J said in Commerce Commission v Port Nelson Ltd:[17]

A firm ... may have a dominant position in a market. That is not unlawful. The firm, in that dominant position, may trade in a competitive fashion. That is not unlawful... It is only when the dominant firm oversteps that mark and 'uses' its dominant position for anti-competitive purposes ... that the law steps in.[18]

The experience in New Zealand is that access seekers have met with very little success in disputes with facility owners determined under s 36 Commerce Act.[19] The practical difficulty of satisfying the terms of s 36 has acted as a significant constraint on the usefulness of the provision as a means of regulating access to the country's essential facilities.[20] This unsatisfactory situation[21] is largely the legacy of the Privy Council's decision in the much-cited Telecom Corp of New Zealand Ltd v Clear Communications Ltd.[22] Such is the perceived difficulty that New Zealand access seekers have preferred to base recent claims, albeit with no greater degree of success, on the common law doctrine of prime necessity.[23]

Australian competition law appears to offer a solution, however. Drawing on Australian jurisprudence and academic commentary in respect of s 46 Trade Practices Act, this article sets out an approach to the interpretation of s 36 Commerce Act that will enable New Zealand's misuse of market power provision to operate more effectively in the access context. The similarity between New Zealand's s 36 and Australia's s 46 speaks to the relevance of this trans-Tasman perspective - even more so now that New Zealand legislators have brought the wording of s 36 into close alignment with s 46.[24]

The article proceeds as follows. The next part briefly examines recent attempts in New Zealand to invoke the doctrine of prime necessity, the failure of which has placed access disputes squarely within the purview of s 36 Commerce Act. Part III revisits the Privy Council's decision in Telecom v Clear, in order to highlight certain 'idiosyncratic' pronouncements in that judgment stifling the effective operation of s 36. How these matters would be treated under Australian law is explained in Part IV of the article, which, through discussion of seminal decisions on s 46 Trade Practices Act, provides a template for judicial interpretation and application of New Zealand's misuse of market power provision. Final conclusions are presented in Part V.

II. Doctrine of Prime Necessity

Inorderto avoid the spectre of failure surrounding s 36 Commerce Act, third party access seekers in New Zealand have attempted to address essential facilities issues under the common law 'doctrine of prime necessity'.[25] This doctrine may be traced to the 17th century musings of Lord Hale[26] who, in his 'Treatise de Portibus Maris', wrote of a wharf owner not being permitted to charge 'arbitrary and excessive duties' for wharfage and cranage because 'the wharf and crane and other conveniences are affected with a public interest and they cease to be juris privati only.'[27] Thus, the 'venerable'[28] doctrine imposes upon monopoly suppliers of essential services (or 'prime necessities') a common law duty to supply at a reasonable price.[29] Lord Hale's treatise was cited at length in the English case ofAllnutt v Inglis,[30] and its principles adopted by the Privy Council in Minister of Justice for the Dominion of Canada v City of Levis,[31] in respect of the 'prime necessity'[32] (water) at issue in that case. Known thereafter by that moniker, the doctrine of prime necessity has been applied in New Zealand in relation to, for example, the supply of water,[33] electricity,[34] and drainage[35] and sewerage services.[36]

However, in Mercury Energy Ltd v Transpower New Zealand Ltd,[37] the New Zealand High Court struck out a cause of action alleging that Transpower, the operator of the national electricity grid, was under a common law obligation to charge reasonable prices to users. The subsequent appeal by Vector Ltd (previously Mercury Energy Ltd) was unanimously dismissed by the Court of Appeal in Vector Ltd v Transpower New Zealand Ltd.[38] The Court accepted that the doctrine of prime necessity formed part of the common law of New Zealand,[39] but held that there was 'no room for the operation of the doctrine'[40] in the instant case. In the Court's judgment, the doctrine would involve 'heavy-handed regulatory intervention on Transpower's pricing'[41] and this was precluded by the Commerce Act, reinforced by the State-Owned Enterprises Act 1986 (NZ), which had established a 'light-handed'[42] and 'exclusive'[43] statutory scheme for achieving price control in New Zealand.[44] It was the Court's view that the methods of price control introduced under the Commerce Act were intended by the New Zealand Parliament to be the only methods of price control available under New Zealand law.[45] The Vector decision was recently endorsed by the Court of Appeal in Pacifica Shipping Ltd v CentreportLtd.[46] There, by parity of reasoning with Vector, the doctrine of prime necessity was held to have no application in circumstances where Pacifica, a long-term user of wharf facilities at the Port of Wellington, claimed that rent sought by Centreport, the port owner and operator, under the terms of anew lease was 'unreasonable'.[47] Pacifica had sought to distinguish Vector, arguing that what was at issue in the present case was not price control, but a refusal to supply. This argument was rejected by the Court of Appeal on the basis that the invocation of the doctrine of prime necessity 'necessarily involves at least an attempt at price control' ,[48] since it is 'designed to control the prices which qualifying monopolists may impose on their customers'.[49] Thus, Pacifica could not, on the one hand, seek to invoke the doctrine of prime necessity to control the rent which Centreport wished to charge, and yet, on the other hand, assert that Vector could be distinguished.[50] By effectively closing off the avenue of'prime necessity',[51] the decisions in Vector and Pacifica leave little doubt that access disputes in New Zealand will continue to be litigated principally under s 36 Commerce Act. This further reinforces the imperative of ensuring the efficacy of s 36 as a means of regulating access to essential facilities.

III. Telecom v Clear Revisited

The outcome of the long-running dispute between Clear Communications and New Zealand Telecom[52] guaranteed that new entrants in privatised monopoly sectors of New Zealand's economy would struggle to secure access to the incumbent's essential facility on fair and reasonable terms under s 36 Commerce Act.[53] Notwithstanding that the 'old' version of s 36 was in force at the time, it has been suggested that the Privy Council's reasoning in Telecom v Clear will continue to apply in cases falling for determination under the recently amended version of that section.[54] The authors do not share that view, and the present discussion is pertinent to providing a basis for arguing the point in detail in Part IV of the article below.

In that now infamous case,[55] Clear attempted to enter the market for the provision of local telecommunications services in New Zealand, in competition with Telecom. Clear required access to the public switched telephone network (PSTN), owned by Telecom, as the size and nature of this telecommunications infrastructure made duplication uneconomic for rivals. However, the parties were unable to reach agreement on the price at which interconnection would be provided.

Telecom relied on the Baumol-Willig rule[56] to assert that the price of interconnection included both the direct incremental costs of producing the interconnection and the opportunity cost foregone by Telecom as a result of Clear's use of the facility.[57] Clear's response was to allege, under s 36 of the Commerce Act, that the price offered by Telecom was so high as to constitute a denial of access.

Telecom's claim that an appropriate interconnection fee comprised incremental and opportunity costs was approved by the New Zealand High Court at first instance,[58] and then disapproved by the Court of Appeal.[59] The matter went to the Privy Council,[60] which reinstated the High Court's decision.[61] The Privy Council held that a person in a dominant market position does not 'use' that position for the purposes of s 36 if they act 'in a way which a person not in a dominant position but otherwise in the same circumstances would have acted.'[62] Accordingly, Telecom's reliance on the Baumol-Willig rule did not breach s 36 'since it did not involve the use by Telecom of its dominant position'.[63]

Underpinning their Lordships' judgment is the following reasoning: a hypothetical non-dominant firm in a competitive market, if asked to supply a component of a service to a competitor, would price it on the basis of its opportunity cost. Telecom, therefore, could not be faulted for doing likewise; it could not be said to be using its dominance in charging its opportunity cost, since that is what it would have charged in a fully competitive market.[64] The fact that Telecom's opportunity cost included monopoly profit did not concern the Privy Council, which denied that s 36 had any 'wider purpose, beyond producing fair competition, of eliminating monopoly profits currently obtained by the person in the dominant market position.'[65] In any event, their Lordships surmised that the charging of monopoly profit foregone by Telecom would only continue until they were competed away by Clear's competition in the contested local telephone market.[66] Ahdar has criticised the Privy Council's approach as being 'extremely artificial and prone to mislead'.67 He argues that there is an 'air of unreality'[68] in asking how a non-dominant firm in a competitive market would have priced its essential facility, when firms do not control essential facilities in competitive markets 'nor is their provision a sine qua non to effective competition flourishing at all' .[69] Certainly, opportunity cost would not reflect monopoly profit in a competitive market, and Telecom would not have been able to include in its price a margin designed to yield an overall rate of return at monopoly levels. That is the crux of the matter. By treating monopoly rents as incidental to Telecom's opportunity cost, rather than as a manifestation of the firm's monopoly power, the reasoning of the Privy Council was, with respect, incomplete, and quite unlike that of the Australian High Court in Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Co Ltd.[70] This issue is further discussed in the next part of the article, as it impacts on the correct application of the test of 'taking advantage' under s 46 Trade Practices Act.

Afinal pointto make about the Privy Council's decision in Telecom v Clear relates to their Lordships' view that it was not helpful to ask whether a monopolist had acted 'reasonably' or 'with justification'.[71] If this were so, their Lordships reasoned, a monopolist would have little idea what, in the future, a court might find to be reasonable or justifiable.[72] Accordingly, their Lordships said that s 36 must be construed in such a way as to enable a monopolist, before it enters into a line of conduct, to know with some certainty whether or not it is acting lawfully.[73] However, as explained in Part IV below, such concerns seem out-of-step with the recognition in Australian, and United States' and European, competition law of 'legitimate business reasons' for refusing supply.

IV. Australia' s Misuse of Market Power Provision

Seminal s 46 Decisions

Three elements must be satisfied before a contravention of s 46 of the Trade Practices Act will arise: (i) a corporation with a substantial degree of market power; (ii) must take advantage of that power; (iii) for a purpose proscribed by s 46(1)(a), (b) or (c). In the context of refusal to supply (and, by logical extension, refusal to grant access), two substantive expositions on the three elements of s 46 have been handed down by the High Court to date: Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Co Ltd[74] in 1989 and Melway Publishing Pty Ltd v Robert Hicks Pty Ltd[75] in 2001.[76]

This part of the article re-examines the seminal s 46 principles articulated by the High Court in Queensland Wire andMelway. However, for the purposes of the ensuing discussion, the threshold requirementto the operation of s 46, that a corporation must have a 'substantial degree of power in a market', is taken to have been established. This assumption is uncontroversial, since it is not anticipated that the first element of s 46 will be difficult to satisfy in essential facilities cases. As the Hilmer Committee noted, if a facility 'is truly essential, its owner will always have a substantial degree of market power within the meaning of s 46.'[77] The analysis here focuses, therefore, on the 'take advantage' and 'purpose' elements of s 46, taking into account, in respect of the latter element, the mitigating impact of legitimate business reasons. Brief recitals of the facts of Queensland Wire andMelway provide contextual background to the discussion that follows in this part.

1. Queensland Wire

BHP, responsible for approximately 97 per cent of Australia's steel output, produced Y-bar,[78] which it sold exclusively to its wholly owned subsidiary Australian Wire Industries (AWI). AWI produced fence posts from the Y-bar and sold these as a producer. Queensland Wire Industries (QWI) sought supply of the Y-bar produced by BHP in order to produce fence posts and compete against AWI in the rural fencing market. BHP offered to supply the Y-bar at prices which were so high that its conduct amounted to a constructive refusal to supply.[79] Before the High Court, QWI successfully claimed that BHP had misused its market power in contravention of s 46 of the Trade Practices Act. The parties then settled their dispute out of court in confidential negotiations.

2. Melway

Melway published a street directory for the Melbourne metropolitan area and had captured 80-90 per cent of the local street directory market. The company attributed its success, in part, to its wholesale distribution system, under which it supplied directories to a limited number of distributors who were authorised to sell those directories only in the particular market segments allocated exclusively to them. Auto Fashions had been the appointed distributor for the automotive parts segment of the market for a number of years when Melway terminated its distributorship. On being informed by Auto Fashions that it nevertheless wished to obtain copies of the directory (30,000-50,000 per annum) for sale to the retail market, Melway refused supply. On appeal to the High Court, Melway was found not to have breached s 46.

Taking Advantage of Market Power

The Hilmer Committee considered that that there would be 'little difficulty'[80] in establishing that a refusal to deal in an essential facilities context constitutes a taking advantage of the facility owner's market power because, it said simply, 'in the absence of such market power access to the facility would be available'.[81] While this conclusion is no doubt correct, the Committee's statement does not elucidate the test of taking advantage adopted by the High Court in Queensland Wire, and confirmed in Melway. The discussion here explains that test, and illustrates its practical application in the refusal to supply/denial of access context.

In Queensland Wire at first instance, Pincus J held that for a corporation to 'take advantage' of its power in a market, there must be some misuse of that power in an unfair or predatory manner.[82] In his Honour's view, a proper construction of the section required those words to be read in a pejorative sense.[83] On final appeal to the High Court, however, it was unanimously held that 'take advantage' is a neutral concept, meaning nothing materially different to 'use', and so does not require proof of hostile intent.[84] As to whether market power has been 'used', the test discernible from the High Court judgments in Queensland Wire is that a corporation's conduct will amount to a use, or taking advantage, of market power when that conduct is possible, in a commercial sense, only because of its market power.[85] In other words, a firm should be regarded as having taken advantage of market power when it has behaved differently from the manner in which it would be likely to behave if it were operating in a competitive market.[86] This approach may conveniently be described as the 'competitive market' test, to borrow from the judgment of Mason C J and Wilson J in Queensland Wire. In applying the test in that case, their Honours stated:

It is only by virtue of its control of the market and the absence of other suppliers that BHP can afford, in a commercial sense, to withhold Y-bar from the appellant. If BHP lacked that market power - in other words, if it were operating in a competitive market - it is highly unlikely that it would stand by, without any effort to compete, and allow the appellant to secure its supply of Y-bar from a competitor.[87]

In drawing the inference that BHP had taken advantage of its market power, the High Court took account of the following factors: BHP supplied Y-bar to AWI but not QWI; BHP made available for general sale at competitive prices all the other steel products from its rolling mills, so that BHP's conduct with respect to Y-bar was not in accordance with the general terms of its commercial behaviour; in every other steel product line in which BHP experienced some competition, it supplied that product.[88] As the High Court's decision in Queensland Wire demonstrates, the practical application of the competitive market test generally involves an examination of the counter-factual. That is to say, whether a corporation has taken advantage of its market power is determined by asking whether the corporation would be likely to engage in the same conduct in a competitive market. The corollary is to ask whether the conduct depends on the possession of market power and is an exercise of that market power. Whichever way the question is phrased, the enquiry seeks to ascertain whether the conduct at issue is attributable to market power.[89] In Natwest Australia Bank Ltd v Boral Gerrard Strapping Systems Pty Ltd,[90] French J explained very clearly the need for a causal nexus between a corporation's market power and its conduct:

If a corporation with substantial market power were to engage an arsonist to burn down its competitor's factory and thus deter or prevent its competitor from engaging in competitive activity, it would not thereby contravene s 46. There must be a causal connection between the conduct alleged and the market power pleaded such that it can be said that the conduct is a use of that power.[91]

This requirement has been reinforced by the High Court's recent decision inMelway. In a joint majority judgment, Gleeson CJ, Gummow, Hayne and Callinan JJ[92] pointed out that s 46 requires 'not merely the co-existence of market power, conduct, and proscribed purpose, but a connection such that the firm whose conduct is in question can be said to be taking advantage of its power.'[93] The lack of any causal link between Melway's dominant market position and its refusal to supply Auto Fashions provided the basis for the majority's conclusion that Melway had not taken advantage of its market power.[94]

In affirming the competitive market test from Queensland Wire, the High Court majority in Melway said:

To ask how a firm would behave if it lacked a substantial degree of power in a market, for the purpose of making a judgment as to whether it is taking advantage of its market power, involves a process of economic analysis which ... is consistent with the purpose of s 46.[95]

However, their Honours clarified the nature of the hypothetical market underlying this test[96] by observing that the absence of a substantial degree of market power does not mean the presence of 'an economist's theoretical model of perfect competition' .[97] All that is required is a sufficient level of competition 'to deny a substantial degree of power to any competitor in the market'.[98] In the majority's view, this qualification was necessary because:

It is one thing to compare what it [the respondent] has done with what it might be thought it would do if it lacked market power. It is a different thing to compare what it has done with what it would do in circumstances that are completely divorced from the reality of the market.[99]

Their Honours explained that the lower courts had fallen into the latter trap in the Melway case by failing to consider the nature of the wholesale distribution arrangements, both of Melway and its competitors, that would exist in a competitive market.[100]

The majority viewed the refusal to supply Auto Fashions as a manifestation of Melway's distribution system, so that the 'real question'[101] in the case was whether, without its market power, Melway could have maintained that system.[102] Their Honours noted that Melway had adopted its segmented distribution system before it secured its position of market dominance, and there was no reason to believe it would not have been both willing and able to continue that system in a competitive market.[103] They reasoned that the creation and maintenance of the distribution system by Melway 'at a time when it did not have a substantial degree of market power, shows that its maintenance, when the appellant had market power, was not necessarily an exercise of that power.'[104] Thus, the majority concluded:

... it does not follow that because a firm in fact enjoys freedom from competitive constraint, and in fact refuses to supply a particular person, there is a relevant connection between the freedom and the refusal. Presence of competitive constraint might be compatible with a similar refusal, especially if it is done to secure business advantages which would exist in a competitive environment.[105]

These comments reinforce the conclusion that the decision in Melway is simply another way of saying that that there must be a causal connection between a corporation's market power and its impugned conduct.[106] An opportunity to consider the application of the competitive market test in an essential facilities context is provided by the recent case of NT Power Generation v Power & Water Authority.[107] There, the respondent, PAWA, a statutory authority established as a body corporate by the Power and Water Authority Act 1987 (NT), generated electricity and distributed it, across its own power transmission lines, for sale to consumers in the Northern Territory. The appellant, NT Power, wished to sell electricity, produced by its own generation facilities, to persons in the Northern Territory, in competition with PAWA. NT Power sought access to PAWA's electricity distribution infrastructure, as the cost of constructing its own transmission lines and associated facilities was prohibitive. After months of negotiations, PAWA refused to grant the access which had been sought. NT Power claimed that this refusal amounted to a misuse by PAWA of its market power.

In the result, the Full Federal Court held that s 46 had no application in the case, since PAWA's refusal to make its infrastructure available for use by NT Power was not conduct by PAWA in the course of carrying on its business.[108] However, had s 46 been relevant, the Court would have found that PAWA had taken advantage of its monopoly power to prevent NT Power from becoming a supplier of electricity.[109] Finkelstein J's treatment in this case of the 'take advantage' element of s 46 is particularly deft. His Honour's judgment contains a very useful application of the competitive market test in an essential facilities context.

Invoking the counter-factual, Finkelstein J asked how PAWA would behave in a 'hypothetical competitive market' for the supply of electricity distribution and transmission facilities,[110] if PAWA were asked to make its infrastructure available to a third party who wished to compete with PAWA in the downstream electricity supply market.[111] His Honour's answer was that a profit-maximising firm would not stand by and allow a competitor to supply the third party with distribution and transmission facilities, without at least bidding for that business.[112] In other words, PAWA would not simply refuse to grant access to its infrastructure.[113] His Honour explained:

In a competitive market for the supply of distribution and transmission facilities PAWA could not prevent the third party from competing for PAWA's customers with the potential that it would lose business. This is because in our hypothetical competitive market there is an organisation that can provide distribution and transmission facilities to the third party. So it is impossible for PAWA to keep the third party away from its customers. How would a rational firm act in that situation? ... [A] rational firm would act pragmatically and make its infrastructure available. It would do so to get what it could from the difficult situation in which it found itself. The only thing it could get by way of recompense for the loss of business that it would be likely to suffer in a competitive market is a, perhaps smaller, return from letting out its infrastructure.[114]

This explanation confirms the Hilmer Committee's view that that it would be a straightforward matter to satisfy the 'take advantage' element of s 46 in essential facilities cases.[115]

Yet this has not been so in New Zealand. Although the 'use' test articulated by the Privy Council in Telecom v Clear[116] appeared to be a restatement of the 'take advantage' test advanced by the Australian High Court in Queensland Wire,[117] their Lordships' conclusion that Telecom had not 'used' its dominant position in charging its opportunity cost (since that is what it would have done in a competitive market) has caused the defeat of most subsequent attempts to gain 'fair' access to an essential facility under s 36 Commerce Act. The recent amendments to s 36 are aimed at addressing this problem. According to the Select Committee report, 'Government members wish to make very clear that the intention of Parliament in adopting the words "take advantage of” would be to reverse ... [the effect of the Privy Council's decision in Telecom v Clear] and to provide the New Zealand courts with the opportunity to apply the test with an appropriate level of flexibility.'[118] Plainly, it is intended that the Australian approach to the 'take advantage' element of the provision should be adopted.

Given the apparent similarity between the formulations of the Privy Council's 'use' test in Telecom v Clear and the High Court's 'take advantage' test in Queensland Wire, it has been argued that the amendments to s 36 Commerce Act achieve nothing more than a 'semantic alignment'[119] with s 46 Trade Practices Act. However, it is submitted that the Australian approach to the 'take advantage' element of the misuse of market power provision represents the interpretation and application of the competitive market test. There can be no question that in Telecom v Clear the Privy Council misapplied this test. To see the flaw in their Lordships' reasoning, it is helpful to recall the saying, 'All squares are rhombuses, but not all rhombuses are squares'. Yes, all firms may price on the basis of opportunity cost, but, no, not every opportunity cost incorporates monopoly profit. For the Privy Council to maintain that Telecom was merely charging its opportunity cost presents an incomplete picture and distorts the reality of the situation in Telecom v Clear. Telecom was in fact charging a monopoly price, something it would not be able to do in a competitive market. Hence, it was 'taking advantage' of its market power. Only this line of reasoning is consistent with the conclusion in Queensland Wire that BHP had 'taken advantage' of its market power.

However, it does not follow that by 'taking advantage' of market power, a corporation has misused such power. That will depend on the outcome of the analysis of the separate 'purpose' element of s 46 Trade Practices Act or s 36 Commerce Act, and, particularly, whether the corporation's conduct may be justified on the basis of some legitimate business reason.

Anti-competitive Purpose

Although the High Court in Queensland Wire eliminated any notion that the concept of 'taking advantage' requires conscious predatory activity, it is nevertheless necessary for the party seeking to establish a contravention of s 46 to prove that one or more of the proscribed purposes in s 46(1) is present on the facts of the case.[120] As Mason CJ and Wilson J explained:

... it is significant that s 46(1) already contains an anti-competitive purpose element. It stipulates that an infringement may be found only where the market power is taken advantage of for a purpose proscribed in par (a), (b) or (c). It is these purpose provisions which define what uses of market power constitute misuses.[121]

An unavoidable element of intention is thereby incorporated into the section, in the sense that s 46(1) requires purposive action undertaken with the express aim of: (a) eliminating or substantially damaging a competitor; (b) preventing the entry of a person into a market; or (c) deterring or preventing a person from engaging in competitive conduct in a market. McMahon has complained that the proscribed purposes in s 46(1) are 'widely drawn and ill-defined',[122] and deal exclusively with injury to competitors which is the very nature of competitive conduct.[123] Certainly,

the section is expressed in terms of protecting firms who wish to compete with the dominant corporation, rather than in terms of protecting competition itself or the interests of consumers.[124]

However, on the question of whether s 46 requires proof of an anticompetitive purpose or mere injury to a competitor, the High Court in Queensland Wire denied that the protection of individual competitors is an objective of s 46. Mason CJ and Wilson J said:

... the object of s 46 is to protect the interests of consumers, the operation of the section being predicated on the assumption that competition is a means to that end. Competition by its very nature is deliberate and ruthless. Competitors jockey for sales, the more effective competitors injuring the less effective by taking sales away ... and these injuries are the inevitable consequence of the competition s 46 is designed to foster.[125]

Although it is not entirely clear what the 'interests of consumers' means when used in relation to s 46, it may be argued that because the consumer is primarily concerned with obtaining goods and services at the lowest possible price, the welfare of consumers depends on a competitive market in which corporations compete against each other in order to produce goods and services as cheaply and efficiently as possible. Section 46 is aimed therefore at preventing corporations with substantial market power from using this power to deter or prevent competition.[126] In Queensland Wire, Deane J certainly spoke of s 46 in terms which suggest he was of the view that it is designed to protect and advance competition per se. His Honour stated that the objective of s 46 is 'the protection and advancement of a competitive environment and competitive conduct'.[127] Toohey J similarly noted that the objective of Part IV of the Trade Practices Act (in which s 46 appears) is 'to promote and preserve competition'.[128] This approach was confirmed in Melway, where the High Court majority was emphatic that s 46 'aims to promote competition, not the private interests of particular persons or corporations'.[129] The Hilmer Committee acknowledged that a refusal to grant access to an essential facility 'could conceivably occur for any of the three proscribed purposes'[130] in s 46, but anticipated considerable difficulty for an applicant in demonstrating that the facility owner had an anti-competitive purpose when it refused access.[131] However, the challenge under s 46 is no greater than that inherent in establishing a party's purpose in any other context; arguably less so, in fact. While the relevant 'purpose' in s 46 proceedings is the subjective purpose of the respondent corporation,[132] this purpose is determined objectively.[133] Accordingly, primary consideration should be given to an analysis of the impugned conduct and the inferences which can be drawn from that conduct.[134] Robertson makes the point neatly:

The ultimate issue for determination when a court is assessing purpose is: What is the economic actor really trying to do in commercial or economic terms? ... In asking this question we are asking for an explanation of commercial conduct - to make the best sense we can of the conduct - not a psychological analysis of the minds of the economic agents.[135]

Both objective and subjective factors will be important to this enquiry. That is to say, the 'purpose' element of s 46 requires an objective test,[136] to which subjective evidence may be relevant.[137] It must be appreciated, however, that if conduct is not objectively anti-competitive, the fact that it was motivated by hostility to competitors is inconclusive. In other words, while hostile intent may be relevant to proving the conduct, it does not constitute some overriding prerequisite to a contravention of s 46. Most relevant to countering allegations that its conduct was motivated by one of the proscribed purposes in s 46(1) will be evidence from the respondent corporation of a legitimate business reason that objectively justifies the conduct. This issue is examined next.

Legitimate Business Reason

Justifying a refusal to deal

In Queensland Wire, Mason CJ and Wilson J held that their conclusion that 'the effective refusal to sell was for an impermissible purpose was supported by the fact that BHP did not offer a legitimate reason for the effective refusal to sell.'[138] No doubt their Honours were cognisant of the wide range of legitimate purposes that may motivate a refusal to deal.[139] Past unsatisfactory dealings with a customer, a customer's poor credit record, a lack of confidence in a customer's business ethics, a customer's inability to maintain accurate records or propensity to engage in deceptive advertising or unfair practices, concerns about the quality of a customer's after-sales service or other matters affecting the commercial reputation of the supplier are all factors which may impact upon the decision.[140] While there is no obligation on the respondent corporation to advance a legitimate business justification,[141] it is most advisable for it to do so.[142] Indeed, Kiefel J's remark, in Photo-Continental Pty Ltd v Sony (Aust) Pty Ltd,[143] that a finding of a breach of s 46 should be 'subject to other explanations offered or appearing from the circumstances'[144] highlights the important role of legitimate business reasons in countering an allegation of misuse of market power. That perspective is now widely supported in the academic literature on s 46.[145] Thus, if a legitimate business reason substantially explains the respondent's ostensibly anti-competitive conduct, there will be no contravention of s 46.[146]

These comments apply equally to those 'residual' essential facilities cases that fall for determination under s 46. There, again, the question of the legitimacy of the reasons for refusing access will arise. As Kench has explained:

Section 46 is capable of applying to an outright or constructive or discriminatory refusal by the owner of an essential facility to supply services using that facility ... A non-integrated facility owner will be dealing with third party suppliers and customers, and ... faces serious issues about proper business justifications for refusing to deal. A vertically integrated essential facility owner, by virtue of its ownership interest, needs to take even greater care about the formulation of a legitimate business reason for its refusal to deal.[147]

Such comments call to mind the 'business justification' defence available in the United States and European Union. In those jurisdictions, antitrust law acknowledges that an undertaking which is dominant with regard to the production and supply of certain products or services which are necessary to compete in another market may not, without a legitimate business justification, refuse to supply these products or services and thereby reserve the market for itself.[148]

The defence has also been invoked successfully in that subset of United States' and European refusal to deal cases involving denials of access to essential facilities.[149] In such cases, legitimate business reasons for denying access to the facility have been held to include: that sharing will result in a reduction in the quality of the owner's product; that excess capacity is not available; that the owner will be prevented from serving its own clients adequately; that the proposed use is inconsistent with the safety or technical standards of the facility; that the applicant is not of good standing, or creditworthy, or financially independent; and that the applicant does not possess the technical skills and capacity required for the operation and security of the facility.[150]

It is reasonable to expect that such reasons would also be accepted by Australian and New Zealand courts in essential facilities cases brought under s 46 Trade Practices Act and s 36 Commerce Act, respectively. This represents a small step in Australia, where the relevance of legitimate business reasons is already entrenched in refusal to supply cases.[151] New Zealand, on the other hand, is faced with the Privy Council's dismissive view of legitimate business reasons expressed in Telecom v Clear.[152] However, those comments were merely obiter, and are unlikely to withstand comparison with international antitrust jurisprudence in this area. Of course, some commentators claim that it cannot be said that the mere existence of an explanation consistent with a legitimate commercial purpose establishes that the conduct was actually engaged in for that purpose.[153] The response to this is simply to issue a reminder that the 'purpose' element of s 46 requires an objective test.[154] If business reasons are advanced by the respondent corporation to explain the motivation for its conduct, the court must determine, objectively, whether such reasons are valid, or 'legitimate', in the circumstances of the case.[155] However, even if the reasons are accepted as valid,[156] it will always be impossible to know whether the corporation has succeeded in masking a hidden or secret anticompetitive purpose. On the other hand, an objective test means that proffered business reasons will not be upheld merely because the corporation genuinely believes that its conduct was motivated by such reasons.

Monopoly pricing

Returning to the facts of Queensland Wire, McMahon has raised the interesting argument, especially relevant in the essential facilities context, that BHP merely set a monopolistic price for its Y-bar and that this amounts to a legitimate business reason for its conduct, since the charging of a monopoly price is a defensible use of monopoly power.[157] In extending the argument in a subsequent article on related s 46 themes, Hay and McMahon assert that so long as a monopolist is free to charge the monopoly price for its product, it has no reason not to sell to independent downstream producers even though this may cause the monopolist itself to lose sales in the downstream market.[158]

However, this assertion provides the very basis for justifying the High Court's conclusion in Queensland Wire that there was a constructive refusal to supply. A letter from BHP, quoted in the joint judgment of Mason CJ and Wilson J,[159] establishes that BHP's purpose in offering to supply at the prices in question was to achieve the same result as an outright refusal to supply at any price. BHP described its conduct as 'either to refuse supply of steel Y-bar or to offer to supply steel Y-bar at an uncompetitive price',[160] treating these alternatives as equivalent. In the absence of any explanation from BHP, the High Court was entitled to treat the prices at which BHP was prepared to supply as tantamount to an outright refusal to supply. This was not a situation in which BHP was prepared to supply, even at a monopoly price. Rather, BHP did not want to supply at all.[161] According to Hay and McMahon's own arguments, there is no economic justification for this behaviour.

No issue is taken with McMahon's original point regarding the defensibility of monopoly pricing under s 46.[162] Indeed, in ASX Operations Pty Ltd v Pont Data Australia Pty Ltd[163] the Full Federal Court plainly stated:

... s 46 does not strike at 'monopolists' or those in a 'monopolistic position'. Nor does it look to the attainment of a commercially 'reasonable' result. It asks whether a corporation has a substantial degree of power in a market and then proscribes the taking advantage of that power for certain purposes. Therefore, there is no contravention of that provision by a corporation with a substantial degree of power in a market which uses that power to attain a particular price, provided that in doing so the corporation has not taken advantage of that power for a proscribed purpose.[164]

It follows that a corporation with a substantial degree of market power may charge what might be described as 'monopoly prices' (that is, prices above the level that would be charged in a competitive market), unless it puts itself in breach of s 46 by taking advantage of that power for a proscribed purpose.[165]

Does this analysis alter when an essential facility is involved? In other words, if access is sought to an essential facility, does s 46 require the facility owner to cease charging monopoly prices? O'Bryan argues that the answer to this question depends on the answer to a further question: presuming that an 'excessive' price manifests at least one of the proscribed anti-competitive purposes in s 46(1),[166] at what price does the facility owner cease to have such a purpose?[167] At thatprice, the facility owner may still be taking advantage of its market power; but is no longer contravening s 46. As O'Bryan has explained, the answer to the latter question is the 'price at which the competitor in the dependent market is able to compete effectively'.[168] That price may or may not be a monopoly price, thereby providing the answer to the former question. Ahdar helps to put the matter in perspective with this comment:

The real question is not the issue of monopoly rents at all but whether the charge ... (which contains an unqualified monopoly rent component) is sufficiently high to substantially restrict or deter competition.[169]

With respect, this is the reasoning the Privy Council should have employed in Telecom v Clear in relation to Telecom's monopoly pricing.

V. Conclusion

In New Zealand, the favoured method for establishing and administering access to essential facilities involves reliance on general competition legislation governing misuse of market power, supplemented by industry-specific regimes. Insofar as the former is concerned, a 'misuse of market power' arises from the cumulative effect of the elements of s 36 Commerce Act. Under that provision, an entity must first possess market power; secondly, because of this market power, it must act in a way in which it would not be likely to act under competitive conditions; and, thirdly, its conduct must be directed towards achieving one of the specified anti-competitive purposes.

This article has reviewed Australia's interpretation and application of its own misuse of market power provision, s 46 Trade Practices Act, advocating that the same approach be applied in respect of s 36 Commerce Act. The intention of the New Zealand parliament in amending s 36 Commerce Act to accord so closely with the terms of s 46 Trade Practices Act will thereby be given effect. At a practical level, this requires a more realistic application of the competitive market test under the new 'take advantage' element of s 36 Commerce Act, and an appreciation of the relevance of legitimate business reasons in demonstrating that the impugned conduct of the respondent corporation was not motivated by a proscribed purpose.

An 'Australian approach' to s 36 Commerce Act may not preclude the need for further industry-specific access regimes in New Zealand. However, it will provide an appropriate basis for evaluating the necessity for such regimes by allowing s 36 to provide a measure of access regulation in industries where, previously, the legacy of Telecom v Clear prevented the provision from so doing.

[*] BCom(Hons), LLB(Hons), LLM, Qld. Lecturer, TC Beirne School of Law, University of Queensland

[**] BCom, LLB(Hons), LLM, Qld, DPhil, Oxon. Lecturer, School of Law, University of Warwick

[1] For example, electricity transmission grids, telecommunications networks, gas and water pipelines, railroad terminals and tracks, airports, ports and wharves.

[2] For background information on this review, see R Patterson, 'Harmonisation of Australian and New Zealand Competition Law: Never the Twain Shall Meet?' (2000) 8 Trade Practices Law Journal 17, 21.

[3] The Hilmer Committee eschewed reliance on Australia's general competitive conduct rules governing misuse of market power and recommended the introduction of a comprehensive, codified regime to facilitate third party access to 'essential facilities' - subsequently enacted as Part IIIA of the Trade Practices Act 1974 (Cth). See Independent Committee of Inquiry into Competition Policy in Australia, National Competition Policy (1993) (hereafter, 'Hilmer Report') 266-8.

[4] Ministry of Commerce, 'Guarantee of Access to Essential Facilities', Discussion Paper (Wellington, 1989) 27.

[5] The Electricity Industry Reform (Amendment) Act 2001 (NZ) and the Telecommunications Act 2001 (NZ) are two industry-specific access regimes now supplementing the general competition law.

[6] In response to the threat of additional regulation, many industries implemented their own voluntary industry codes. See, for example, the New Zealand Gas Pipeline Access Code, which defines standards of behaviour and information disclosure with respect to gas transport systems.

[7] In such cases, a contravention of s 36 can effectively result in the imposition of a duty to deal.

[8] See, for example, MCI Communications Corp v American Telephone & Telegraph Co [1983] USCA7 822; 708 F 2d 1081 (1983).

[9] [1992] NZLR 662. In Australia, the Full Federal Court did likewise in Queensland Wire Industries Pty Ltd v Broken Hill Pty Co Ltd [1988] ATPR 40-841, 49,076-7.

[10] [1992] NZLR 662, 705.

[11] This policy of 'light-handed' regulation has been endorsed by some commentators. See, generally, J Farmer, 'Transition from Protected Monopoly to Competition: The New Zealand Experiment' (1993) 1 Competition & Consumer Law Journal 1; H Ergas, 'Telecommunications Across the Tasman: A Comparison of Regulatory Approaches and Economic Outcomes in Australia and New Zealand' in M Richardson (ed), Deregulation of Public Utilities: Current Issues and Perspectives (1996) 117; and A Bollard, 'Utility Regulation in New Zealand' in M Arblaster and M Jamison (eds), Infrastructure Regulation and Market Reform: Principles and Practice (1998) 27. Others, however, are more critical. See, for example, R Ahdar, 'Battles in New Zealand's Deregulated Telecommunications Industry' (1995) 23 Australian Business Law Review 77, 116; S King and R Maddock, Unlocking the Infrastructure: The Reform of Public Utilities in Australia (1996) 30; and A Abadee, 'The Essential Facilities Doctrine and the National Access Regime: A Residual Role for Section 46 of the Trade Practices Act?' (1997) 5 Trade Practices Law Journal 27, 46.

[12] The changes were effected by Commerce Amendment Act 2001 (NZ) s 9, which Act was assented to on 25 May 2001 (Public Act 2001 No 32). For a review of the package of amendments introduced by this statute, see T Gilbertson, 'New Zealand's Commerce Act Reforms: An Australian and International Perspective' (2002) 10 Trade Practices Law Journal 150.

[13] Hilmer Report, above n 3, 243. Academic commentators have endorsed this position as well. See, for example, W Pengilley, 'Hilmer and "Essential Facilities”’ [1994] UNSWLawJl 2; (1994) 17 University of New South Wales Law Journal 1, 58; King and Maddock, above n11, 70; M O'Bryan, 'Access Pricing: Law Before Economics?' (1996) 4 Competition & Consumer Law Journal 85, 88; P Shafron, 'QWI v BHP: A Flash in the Section 46 Pan?' (1998) 72 Australian Law Journal 53, 60; F Zumbo, 'Access to Essential Facilities in Australia' [2000] New Zealand Law Journal 13, 14; and J Kench, 'Part IIIA: Unleashing a Monster' in F Hanks and P Williams (eds), Trade Practices Act: A Twenty-Five Year Stocktake (2001) 122, 141.

[14] Hilmer Report, above n 3, 243.

[15] Explanatory Memorandum, National Competition Policy Draft Legislative Package (1994), 1.11. The reluctance and/or inability of the courts to engage in access pricing was the principal misgiving expressed by the Hilmer Committee about using the provision as the primary means of resolving access disputes, although the problem of proving that a monopolist's conduct was engaged in for a purpose proscribed by s 46 was cited as a concern as well: Hilmer Report, above n 3, 243-4.

[16] For example, s 46, and not the access regime, will apply to those activities specifically excluded from the ambit of Part IIIA, namely: 'the supply of goods', 'the use of intellectual property' and 'the use of a production process'. See the definition of 'service' in s 44B Trade Practices Act.

[17] (1995) 5 NZBLC 49-352.

[18] Ibid 103,789.

[19] See further, Gilbertson, above n 12, 154.

[20] Although the Hilmer Committee was most concerned about the 'purpose' element of s 46 Trade Practices Act, see above n 15, it is the 'use' (now 'take advantage') element of s 36 Commerce Act that has proved problematic in New Zealand.

[21] If a facility produces an input to which access is essential in order to compete in another market, then, in the absence of effective access regulation, the facility owner can abuse its monopoly status with impunity: S King and R Maddock, 'Competition and Almost Essential Facilities: Making the Right Policy Choices' (1996) 15 Economic Papers 28, 29.

[22] [1995] 1 NZLR 385 (Telecom v Clear).

[23] For example, Pacifica Shipping Ltd v Centreport Ltd [2002] NZCA 168; [2003] 1 NZLR 433 (discussed in Part II of the article).

[24] See Table, Introduction. Indeed, the recent amendments were intended to encourage an 'Australian approach' to the interpretation and application of s 36: Commerce Select Committee, Commentary on the Commerce Amendment Bill (2001) 8.

[25] For discussion of the doctrine in the New Zealand context, see:R Patterson, 'Making Hilmer Clear: The Essential Facility Recommendation and the New Zealand Experience' (1994) 2 Trade Practices Law Journal 131, 141-5; Ahdar, above n 11, 112; and A Bollard and M Pickford, 'New Zealand's "Light-Handed" Approach to Utility Regulation' (1995) 2 Agenda 411, 420.

[26] Lord Chief Justice of the King's Bench in the 1670s.

[27] These extracts are set out in Allnutt v Inglis (1810) East 527, 538-9. See also B McAllister, 'Lord Hale and Business Affected with a Public Interest' (1929-30) 43 Harvard Law Review 759.

[28] Auckland Electric Power Board v Electricity Corp ofNZ Ltd [1994] 1 NZLR 551, 557.

[29] Ibid.

[30] [1810] EngR 359; (1810) 12 East 527, 538-9.

[31] [1919] AC 505, 512-3.

[32] Ibid 513. The term 'prime necessity' was used for the first time in this case.

[33] For example, State Advances Superintendent v Auckland City Corp and the One Tree Hill Borough [1932] NZLR 1709.

[34] For example, Wairoa Electric-Power Board v Wairoa Borough [1937] NZGazLawRp 13; [1937] NZLR 211; and South Taranaki Electric-Power Board v Patea Borough [1955] NZLR 954.

[35] For example, Hutt Golf Course Estate Co Ltd v Hutt City Corp [1944] NZGazLawRp 83; [1945] NZLR 56.

[36] For example, Huntly Borough v South Auckland Education Board [1963] NZLR 282.

[37] (1999) 8 TCLR 554.

[38] [1999] NZCA 167; [1999] 3 NZLR 646. 39 Ibid 663.

[40] Ibid 665 (Richardson P, Gault, Blanchard and Tipping JJ). Thomas J concurred in a separate judgment.

[41] Ibid.

[42] Ibid.

[43] Ibid 666.

[44] Ibid.

[45] Ibid.

[46] [2002] NZCA 168; [2003] 1 NZLR 433.

[47] Ibid 439-40, affirming the decision of Ronald Young J at first instance.

[48] Ibid 439 (Gault P, Tipping and McGrath JJ).

[49] Ibid. 50 Ibid.

[51] This accords with the Australian position. In Bennett & Fisher Ltd v Electricity Trust of South Australia [1962] HCA 11; (1962) 106 CLR 492, the High Court held that the doctrine of prime necessity had no application in Australia, and there has been no attempt to resuscitate it.

[52] Telecom v Clear [1995] 1 NZLR 385. For a full description of proceedings before the New Zealand High Court and Court of Appeal, and the Privy Council, see Ahdar above n11; and V Korah, 'Charges for Inter-Connection to a Telecommunications Network' (1995) 2 Competition & Consumer Law Journal 213.

[53] For example, in Vector Ltd v Transpower New Zealand Ltd [1999] 3 NZLR 64,6 where the appellant challenged the access pricing practices of Transpower, the New Zealand Court of Appeal stated plainly that 'there is no control under s 36 over monopoly rents', ibid 666.

[54] See Gilbertson, above n 12, 154.

[55] Insofar as the determination of access disputes is concerned, Abadee claims that the case demonstrates the 'total unsuitability' of the courts and general competition law provisions, and Ahdar, 'the danger of placing too heavy a reliance on courts, operating under general antitrust law'. See Abadee, above n11, 46; and Ahdar, above n11, 116.

[56] Promulgated by the American economists, Professors W Baumol and R Willig, it is also known as the efficient components pricing rule (ECPR).

[57] In Clear Communications Ltd v Telecom Corp of New Zealand Ltd (1992) 5 TCLR 166, 203, the New Zealand High Court (Ellis J and M Brunt) succinctly explained the Baumol-Willig rule as follows: 'Where the firm supplies components or intermediate goods to another firm ... and thereby gives up some capacity that it would otherwise have used itself, then the supplier firm must be permitted to price the article in question at a level sufficient to compensate it for the profit it is forced to sacrifice because of its supply to the other firm. Economists refer to the sacrifice of profit ... as the opportunity cost of that activity.'

[58] Ibid.

[59] Clear Communications Ltd v Telecom Corp of New Zealand Ltd (1993) 4 NZBLC 103,340, 103,344 (Cooke P) and 103,360 (Gault J, with whom Richardson J concurred).

[60] Patterson thought it a 'chilling prospect' that the issues would be determined by five Law Lords (Lord Keith of Kinkel, Lord Jauncey of Tullichettle, Lord Browne-Wilkinson, Lord Lloyd of Berwick and Lord Nolan) who had 'no first-hand experience of New Zealand economic and social conditions': see above n 25, 137.

[61] Telecom Corp of New Zealand Ltd v Clear Communications Ltd [1995] 1 NZLR 385, 408 (judgment delivered by Lord Browne-Wilkinson).

[62] Ibid 403. At this stage, s 36 contained the terms 'use' and 'dominant position': see Table, Introduction.

[63] Ibid 408.

[64] Ibid 405-6. The Baumol-Willig rule is not without practical difficulties, however. The rule does not fix the terms for interconnection, but establishes a methodology for determining a price. Agreement would be required as to the extent of Telecom's opportunity cost in losing custom to Clear; and since this cost would not be static, regular reviews would be necessary, as with any long-term supply contract. See, further, M Ross, 'New Zealand's Experiment in Pricing Access to Essential Facilities' (1995) 2 Agenda 366, 369-70.

[65] [1995] 1 NZLR 385, 407.

[66] Ibid 407-8. The Privy Council reasoned that where Clear provided a more efficient service to its customers, Telecom would be forced to reduce its prices, thereby diminishing its opportunity cost and so diminishing the amount of the access levy charged to Clear. This process of forcing down the price would continue until any element of monopoly price was competed out of Telecom's charges. For further explanation, see Ross, above n 64, 368.

[67] Ahdar, above n 11, 103. 68 Ibid.

[69] Ibid.

[70] [1989] HCA 6; (1989) 167 CLR 177.

[71] [1995] 1 NZLR 385, 403.

[72] Ibid.

[73] Ibid.

[74] [1989] HCA 6; (1989) 167 CLR 177 ('Queensland Wire'). The Full Federal Court's decision is Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Co Ltd [1988] ATPR 40-841; and the Federal Court's is Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Co Ltd [1987] ATPR 40-810.

[75] [2001] ATPR 41-805 ('Melway'). The Full Federal Court's decision is Melway Publishing Pty Ltd v Robert Hicks Pty Ltd [1999] FCA 664; [1999] ATPR 41-693; and the Federal Court's is Robert Hicks Pty Ltd v Melway Publishing Pty Ltd [1999] ATPR 41-668. Note that Robert Hicks Pty Ltd traded as Auto Fashions Australia.

[76] The High Court's third s 46 decision, Boral Besser Masonry Ltd v ACCC [2003] ATPR 41- 915, concerns predatory pricing.

[77] Hilmer Report, above n 3, 243. This conclusion has been supported in, for example, O'Bryan, above n 13, 88; and R Smith, 'Competition Law and Policy - Theoretical Underpinnings' in M Arblaster and M Jamison (eds), Infrastructure Regulation and Market Reform: Principles and Practice (1998) 16, 23.

[78] Y-bar is used to produce star picket posts by cutting the Y-shaped steel into fence post lengths and drilling holes through which wire will pass. Star picket fencing is the most popular form of rural fencing in Australia.

[79] The High Court's decision in Queensland Wire [1989] HCA 6; (1989) 167 CLR 177 confirms that supply on unreasonable or restrictive terms amounts to constructive refusal to supply. According to Mason CJ and Wilson J (185), the offer by BHP was at 'an excessively high price relative to other BHP products'; Deane J (197) described it as an 'unrealistically high' price; and Toohey J (204) identified a refusal to supply at a 'competitive' price.

[80] Hilmer Report, above n 3, 243.

[81] Ibid.

[82] [1987] ATPR 40-810, 48,819.

[83] Ibid.

[84] Queensland Wire [1989] HCA 6; (1989) 167 CLR 177, 191 (Mason CJ and Wilson J); 194 (Deane J); 202 (Dawson J); and 213 (Toohey J). This point was expressly confirmed by the High Court in Melway [2001] ATPR 41-805, 42,754 (Gleeson CJ, Gummow, Hayne and Callinan JJ).

[85] Queensland Wire [1989] HCA 6; (1989) 167 CLR 177, 192 (Mason CJ and Wilson J); 197-8 (Deane J); 202-3 (Dawson J); and 216 (Toohey J).

[86] Ibid.

[87] Ibid 192 (emphasis added). Similar views were expressed by Dawson J (202) and Toohey J (216).

[88] Ibid 192 (Mason CJ and Wilson J); 197-8 (Deane J); 202-3 (Dawson J); and 216 (Toohey J).

[89] Section 46(4)(a) provides that the reference to 'power' in s 46(1) is a reference to market power. Thus, the power taken advantage of by the respondent corporation must in fact be market power.

[90] [1992] FCA 511; [1992] ATPR 41-196, where French J held that there was no evidence of a use of 'market power': ibid 40,644.

[91] Ibid. French J's approach in Natwest was expressly applied by Wilcox J in General Newspapers Pty Ltd v Australian and Overseas Telecommunications Corp Ltd [1993] ATPR 41-215, 40,956 to conclude that, even without substantial market power, the respondent company would have acted in the same way. For similar reasoning, see, more recently: Monroe Topple & Associates Pty Ltd v Institute of Chartered Accountants in Australia [2001] FCA 1056; [2001] ATPR (Digest) 46-212; Rural Press Ltd v ACCC [2002] FCAFC 213; [2002] ATPR 41-883; and ACCC v Australian Safeway Stores Pty Ltd (No 2) [2001] FCA 1861; [2002] ATPR (Digest) 46-215.

[92] Kirby J dissented.

[93] [2001] ATPR 41-805, 42,757.

[94] The majority did not disturb the finding of the trial judge, Merkel J, that the refusal to supply the respondent was for an exclusionary purpose, namely, to deter or prevent competition at the wholesale level, but warned of the danger of proceeding 'too quickly from a finding about proscribed purpose to a conclusion about taking advantage': ibid 42,755.

[95] Ibid 42,758. In dissent, Kirby J maintained that Queensland Wire stood for the proposition that to 'take advantage' of market power for a proscribed purpose, a corporation must simply 'use' that power (for example, by refusing supply) for a prohibited reason, and that it 'was unnecessary to pose hypothetical questions (sometimes difficult to resolve) as to whether such corporation could or would, acting rationally, have engaged in the forbidden conduct if it were subject to effective competition': ibid 42,769. With respect, Kirby J's view is directly contrary to the competitive market test espoused by the High Court in Queensland Wire.

[96] Prompted perhaps by Pengilley's criticism of using a perfectly competitive market as the benchmark for comparison: W Pengilley, 'Misuse of Market Power: Present Difficulties - Future Problems' (1994) 2 Trade Practices Law Journal 27, 41; and W Pengilley, 'Misuse of Market Power: The Unbearable Uncertainties Facing Australian Management' (2000) 8 Trade Practices Law Journal 56, 60. Featherston and Edwards share the view that it should not be incumbent on firms with market power to behave as if they were constrained by forces that operate in a perfectly competitive market: R Featherston and G Edwards, 'Recent Developments in Misuse of Market Power' (2000) 8 Trade Practice Law Journal 79, 90.

[97] [2001] ATPR 41-805, 42,758.

[98] Ibid.

[99] Ibid 42,759. Steinwall describes this as a 'qualification' to the competitive market test: R Steinwall, 'Melway and Monopolisation - Some Observations on the High Court's Decision' (2001) 9 Competition & Consumer Law Journal 93, 98.

[100] [2001] ATPR 41-805, 42,759. The point is that a competitive market may just as easily support exclusive distribution arrangements of the kind that Melway had in place as direct sales to retailers.

[101] [2001] ATPR 41-805, 42,760.

[102] Ibid. Note that here their Honours are asking the 'corollary' question under the competitive market test.

[103] Ibid, citing with approval Heerey J's dissenting judgment in Melway in the Full Federal Court.

[104] Ibid 42,761 (emphasis in original).

[105] Ibid (emphasis added).

[106] See also W Seah, 'Fair Competition or Unfair Predation: Identifying the Misuse of Market Power under Section 46' (2001) 9 Trade Practices Law Journal 236, 243; and Steinwall, above n 99, 100.

[107] [2002] FCAFC 302; [2003] ATPR 41-909.

[108] Ibid 46,549 (Lee J); and 46,562 (Branson J); Finkelstein J dissenting (46,571). The case turned on the interpretation of s 2B Trade Practices Act, which confirms that the provisions of Part IV Trade Practices Act (including s 46) bind the Crown 'so far as the Crown carries on a business'.

[109] Ibid 46,566 (Branson J); and 46,586 (Finkelstein J); Lee J dissenting (46,549).

[110] In constructing the relevant hypothetical market (which, his Honour noted, following Melway, was not required to be a perfectly competitive market), Finkelstein J made the following reasonable assumptions: that PAWA had the capacity to allow its infrastructure to be used by third parties who intended to supply electricity to customers in the geographic area in which PAWA sold electricity; that PAWA had at least one competitor who was equally able to satisfy the demands of third parties; and that PAWA and its hypothetical competitor were willing to make their infrastructure available to third parties on reasonable terms and conditions. Ibid 46,584.

[111] Ibid 46,585.

[112] Ibid. This conclusion would hold if PAWA had been an unintegrated, rather than a vertically integrated, monopolist. Indeed, in such circumstances, PAWA would have no incentive to deny access to its facilities.

[113] This would include a constructive refusal to supply as well.

[114] [2002] FCAFC 302; [2003] ATPR 41-909, 46,585.

[115] See above n 80.

[116] See text accompanying n 62 above.

[117] See text accompanying n 85 above.

[118] Commerce Select Committee, above n 24, 8 (emphasis added).

[119] Gilbertson, above n 12, 154.

[120] In fact, a proscribed purpose need only be one of the purposes motivating the respondent corporation, provided it is a 'substantial' purpose: s 4F Trade Practices Act. New Zealand has a similar provision in s 2(5) Commerce Act.

[121] [1989] HCA 6; (1989) 167 CLR 177, 191.

[122] K McMahon, 'Refusals to Supply by Corporations with Substantial Market Power' (1994) 22 Australian Business Law Review 7, 18.

[123] Ibid. Cf Alexiadis' claim that conduct fulfilling the requirements of s 46(1)(a), (b) or (c) cannot be anything but predatory: P Alexiadis, 'Refusal to Deal and Misuse of Market Power under Australia's Competition Law' (1989) 10 European Competition Law Review 436, 452.

[124] Clarke and Corones contend that the immediate effect of s 46 is 'to protect individual (and in practice, small) firms from the predatory conduct of large firms, rather than to protect competition as such': P Clarke and S Corones, Competition Law & Policy: Cases and Materials (1999) 110.

[125] [1989] HCA 6; (1989) 167 CLR 177, 191 (emphasis added).

[126] See also V Nagarajan, 'The Regulation of Competition by Section 46 of the Trade Practices Act' (1993) 1 Competition & Consumer Law Journal 127, 128.

[127] [1989] HCA 6; (1989) 167 CLR 177, 194. Dawson J noted his general agreement with the judgment of Deane J, ibid 198.

[128] Ibid 213.

[129] [2001] ATPR 41-805, 42,752 (Gleeson CJ, Gummow, Hayne and Callinan JJ).

[130] Hilmer Report, above n 3, 243.

[131] Ibid. The Hilmer Committee supported the purpose test in s 46; its concern was directed to the difficulties of proof the test presented to an access seeker: Hilmer Report, above n 3, 70 and 244. Taking issue with this, Hardy has argued that it is 'pointless to question whether the holder of an essential facility has a proscribed purpose under s 46' as, whatever the purpose, the access seeker does not gain access to the essential facility: S Hardy, 'Misuse of Market Power - Purpose or Effect?' (1997) 5 Trade Practices Law Journal 114, 117. Pengilley has similarly described it as a 'barren enquiry' when access claims are being evaluated, contending that the appropriate basis for evaluation involves 'consideration of the circumstances in which ownership rights may be circumscribed in the interests of competition policy': W Pengilley, 'The Privy Council Speaks on Essential Facilities Access in New Zealand: What are the Australasian Lessons?' (1995) 3 Competition & Consumer Law Journal 26, 43.

[132] ASX Operations Pty Ltd v Pont Data Australia Pty Ltd [1991] ATPR 41-069, 52,222.

[133] General Newspapers Pty Ltd v Telstra Corp [1993] FCA 473; [1993] ATPR 41-274, 41,697.

[134] Pursuant to s 46(7) Trade Practices Act, the existence of a purpose proscribed by s 46(1) may be inferred from the conduct of the respondent corporation. The recently introduced s 36B Commerce Act permits an equivalent inference to be drawn in New Zealand cases.

[135] D Robertson, 'The Primacy of "Purpose" in Competition Law - Part 1' (2001) 9 Competition & Consumer Law Journal 101, 121-2 (emphasis in original).

[136] Prince has similarly stated that the determination of the 'purpose' element of s 46 'should be based largely on an objective test': P Prince, 'Queensland Wire and Efficiency - What Can Australia Learn from US and New Zealand Refusal to Deal Cases?' (1998) 5 Competition & Consumer Law Journal 237, 250.

[137] Seah agrees that evidence 'of both an objective and subjective nature will ordinarily be considered where available': above n 106, 248.

[138] [1989] HCA 6; (1989) 167 CLR 177, 193 (emphasis added).

[139] For further discussion, see, for example, M Williams, 'Section 46 of the Trade Practices Act: Misuse of Market Power - A Modern Day Catch 22?' (1992) 22 Queensland Law Society Journal 377, 384; McMahon (above n 122) 11-12; S Welsman, 'In Queensland Wire, The High Court has Provided an Elegant Backstop to "Use" of Market Power' (1995) 2 Competition & Consumer Law Journal 280, 303; B Marshall, 'Refusals to Supply under Section 46 of the Trade Practices Act: Misuse of Market Power or Legitimate Business Conduct?' (1996) 8 Bond Law Review 182, 192-3; Abadee, above n 11, 35; and D Meltz, '"Market Entry - See Adjoining Map": Melway and the Right Not to Supply' (2002) 10 Trade Practices Law Journal 96, 104-8.

[140] Ibid. Judicial recognition of such legitimate business reasons may be found in, for example: Mark Lyons Pty Ltd v Bursill Sportsgear Pty Ltd [1987] ATPR 40-809, 48,800; Australasian Performing Rights Association v Ceridale Pty Ltd [1990] ATPR 41-042, 52,129; Petty v Penfold Wines Pty Ltd [1993] FCA 427; [1993] ATPR 41-263, 41,553; John S Hayes & Associates Pty Ltd v Kimberley-Clark Australia Pty Ltd [1994] FCA 1096; [1994] ATPR 41-318, 42,236; and Stirling Harbour Services Pty Ltd v Bunbury Port Authority [2000] FCA 38; [2000] ATPR 41-752, 40,734.

[141] See also S Corones, 'The Characterisation of Conduct under Section 46 of the Trade Practices Act' (2002) 30 Australian Business Law Review 409, 419.

[142] As failure to give such evidence will entitle the court to assume that the evidence would not have helped the respondent corporation: TPC v Nicholas Enterprises Pty Ltd [1979] ATPR 40-126. Refer, for example, to the comments of Mason CJ and Wilson J in Queensland Wire: see text accompanying n 138 above.

[143] [1995] ATPR 41-372.

[144] Ibid 40,123.

[145] See, for example, Welsman, above n 139, 312-13; Marshall, above n 139, 183; Prince, above n 136, 243; Shafron, above n 13, 60; Seah, above n 106, 256-7; and W Pengilley, 'Misuse of Market Power: Australia Post, Melway and Boral’ (2002) 9 Competition & Consumer Law Journal 201, 225.

[146] As mentioned previously, pursuant to s 4F Trade Practices Act, it is sufficient to constitute a breach of s 46 if a proscribed purpose in s 46(1) was one among other purposes, so long as the proscribed purpose was a 'substantial' one. It follows, therefore, that if a corporation can establish that it was motivated substantially by some 'legitimate' purpose, there will be no contravention of s 46.

[147] Kench, above n 13, 141 (emphasis added). The access problem is regarded as potentially more severe where the essential facility is vertically integrated into upstream or downstream markets than where it is not.

[148] See, for example, United States v Aluminum Co of America 148 F 2d 416 (1945); and Commercial Solvents Corp v Commission of the European Communities [1974] 1 CMLR 309.

[149] See, for example, Aspen Skiing Co v Aspen Highlands Skiing Corp [1985] USSC 162; 472 US 585 (1985); and B&I Line Plc v Sealink Harbours Ltd [1992] 5 CMLR 255.

[150] For further discussion, see A Ahern, 'Refusals to Deal after Aspen' (1994) 63 Antitrust Law Journal 155, 173-82; Kench, above n 13, 142-4; D Glasl, 'Essential Facilities Doctrine in EC Anti-trust Law: A Contribution to the Current Debate' (1994) 15 European Competition Law Review 306, 314; and Organisation for Economic Co-operation and Development, The Essential Facilities Concept (1996) 34.

[151] See n 140 above.

[152] See text accompanying n 71 above.

[153] See, for example, Seah, above n 106, 257; and Gilbertson, above n 12, 156, where it is contended that 'anti-competitive purpose can easily be concealed by a strategically created trail of documents designed to show legitimate business reasons for conduct actually engaged in for an anti-competitive purpose.'

[154] Refer to Robertson's comments on establishing 'purpose': see text accompanying n 135 above.

[155] Whether, in the particular circumstances, the conduct is a 'normal' response, or consistent with industry practice, would be a relevant consideration: see, further, Corones, above n 141, 417.

[156] Such as those explained in the text accompanying nn 140 and 150 above.

[157] McMahon, above n 122, 18.

[158] G Hay and K McMahon, 'Duty to Deal under Section 46: Panacea or Pandora's Box?[1994] UNSWLawJl 3; (1994) 17 University of New South Wales Law Journal 54, 58.

[159] [1989] HCA 6; (1989) 167 CLR 177, 184-5.

[160] Ibid.

[161] As McMahon expressly acknowledged, 'A purpose of eliminating competition must be discerned from the excessively high price. It is this purpose, similar to leverage, which distinguishes this situation from merely the collection of monopoly profits or the efficiencies to be gained by vertical integration': above n 122, 21.

[162] Cf G Hay, 'Reflections on Clear' (1996) 3 Competition & Consumer Law Journal 231, 235, where it is argued that if monopoly profits 'are immune from scrutiny ... consumers will not have been well served'.

[163] [1991] ATPR 41-109.

[164] Ibid 52,666 (Lockhart, Gummow and von Doussa JJ).

[165] See also Welsman, above n 139, 288; and O'Bryan, above n 13, 90.

[166] Smith has criticised the 'inability of s 46 to deal directly with monopoly pricing that is not for a proscribed purpose': above n 77, 23. However, O'Bryan's analysis overcomes this perceived limitation by assuming that at some (extremely high) price, a purpose of eliminating competition will be discerned. This is consistent with McMahon's reasoning, cited previously: see n 161 above.

[167] O'Bryan, above n 13, 91.

[168] Ibid.

[169] Ahdar, above n 11, 104.

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