"[I]t is plain that s 52 was not intended to extend to all conduct, regardless of its nature, in which a corporation might engage in the course of, or for the purposes of, its overall trading or commercial business. … What the section is concerned with is the conduct of a corporation towards persons, be they consumers or not, with whom it (or those whose interests it represents or is seeking to promote) has or may have dealings in the course of those activities or transactions which, of their nature, bear a trading or commercial character. "
138 It must be said, however, that the Competition Code has a different context. The provisions are aimed at procuring and maintaining a free market system that will operate as an efficient means of allocating scarce resources between competing ends. If the operation of s 13 is restricted so that the Competition Code will only apply to conduct which is itself the carrying on of business, one of the principal objects of the Code (putting government business on the same footing as private enterprise) will not be achieved. Private corporations that are regulated by the Competition Code, and the Trade Practices Act (upon which the Code is modelled), are caught by their provisions if they engage in anti-competitive conduct in the course of carrying on their commercial activities, not because that conduct is itself an aspect of their respective businesses. Moreover, a good deal of the activities that are caught by the antitrust provisions could not be characterised as being of a trading or commercial character. So it should be with the Crown. In my opinion, if conduct by the Crown is engaged in during the course of carrying on a business, that is sufficient to bring it under the Code's umbrella. Any other construction would unduly limit the Code's operation, and would certainly not put the Crown and its agencies on the same footing as private enterprise.
139 Having come to the conclusion that the Competition Code applies to conduct that is not of itself the carrying on of a business it is, strictly speaking, unnecessary for me to consider the other basis upon which NT Power relies to bring PAWA's refusal to grant access within the reach of the Competition Code. However, as this case may go on appeal, it is preferable that I express my views on the argument. I will be brief.
140 To meet the judge's approach head on, NT Power says that PAWA was in fact in the business of transmitting and distributing electricity. This argument has two limbs. The first is that PAWA was in the transmission and distribution business because it provided these services to itself. The second limb is that PAWA entered into "good faith" negotiations with NT Power in relation to access to its infrastructure, and thus "it regarded as part of its business functions the undertaking of that type of negotiation".
141 I have already mentioned that the word "business" is not without its difficulties. In Rolls v Miller (1884) 27 Ch 71, 88 Lindley LJ said that the word can mean "almost anything which is an occupation, as distinguished from a pleasure - anything which is an occupation or duty which requires attention is a business". In Hope v Bathurst City Council (1980) 144 CLR 1, 8-9 Mason J said that the word "business" denotes "activities undertaken as a commercial enterprise in the nature of a going concern, that is, activities engaged in for the purpose of profit on a continuous and repetitive basis." These meanings will not always be of assistance, and they cannot be relied upon in this case because the word is defined to include a business not carried on for profit. Yet whatever meaning is to be given to the word, it will not encompass a set of dealings that are wholly internal. In such a case there is no commercial, or even quasi-commercial, enterprise in existence, and nothing in the nature of a going concern. Put another way, there can be no business in the absence of dealings, or the potential for dealings, with third parties. Moreover, I do not believe that acts which are preparatory to the setting up of a commercial enterprise or going concern amount to carrying on a business. That is to say, there will be no business when there is nothing more than negotiations for its establishment, though a business will commence if the negotiations are successfully concluded.
142 Now it is necessary to determine whether PAWA's refusal to grant access to its distribution facilities breached cl 46. A breach of that clause will be established if: (1) PAWA had a substantial degree of market power, (2) PAWA took advantage of that power and (3) PAWA did so for a relevant purpose. I will deal with each issue in turn, beginning with the question of market power.
143 It is a convenient but not an essential approach to determining whether a firm has market power first to identify the market in which it is said that power exists and then to ascertain whether the firm has power in that market. This is the approach that was adopted by the judge and I will follow his path. Both NT Power and PAWA relied upon the expert evidence of economists. Dr Fitzgerald was called by NT Power and Professor Teece by PAWA. Their evidence dealt with a number of topics, including the type of market or markets that exist in the "electricity industry". On this issue there was very little difference between them. Dr Fitzgerald defined a market as "a collection of buyers and sellers that have the potential to interact resulting in the possibility of exchange". Because this definition includes all buyers and all sellers of all goods, Dr Fitzgerald acknowledged that at least for antitrust purposes it is necessary to place boundaries on the market. To that end he employed the notion of "substitution", noting the definition of market in s 4E of the Trade Practices Act where a market for goods or services is defined to include substitutable goods or services. Reference should also be made to the authoritative statement by the Trade Practices Tribunal in Re Queensland Co-operative Milling Association Ltd (1976) 8 ALR 481, 517 that "a market is the field of actual and potential transactions between buyers and sellers amongst whom there can be strong substitution, at least in the long run, if given a sufficient price incentive." A slightly different definition is preferred by G Stigler and R Sherwin in their article "The Extent of the Market" 28 Journal of Law and Economics 555 (1985). They define a market (at 555) as "that set of suppliers and demanders whose trading establishes the price of a good". So, products are in the same market "when their relative prices maintain a stable ratio" (Stigler and Sherwin at 566): that is, when the cross-elasticises of supply and demand are high.
144 Dr Fitzgerald said that it is usual to distinguish four markets in the electricity industry: a market for the generation of electricity, a market for the transmission of electricity (the transmission being from the place of generation to the point of distribution), a market for the distribution of electricity (the distribution being from a distribution point to the customer) and a market for the sale of electricity . Dr Fitzgerald said that for a variety of reasons, including the small scale of operations in the Northern Territory, it was appropriate to approach this case on the basis that there were two markets: a supply market which incorporates the generation and sale of electricity and a carriage market which includes both the transmission and distribution of electricity.
145 Professor Teece divided the electricity industry into four "economically separable functional elements: • generation; • transmission (at high voltages); • distribution (generally at lower voltages); and • sale - either wholesale or retail, although the distinction between wholesale and retail is often quite blurred." He said that each of these functions was economically distinct, partly because one could not be substituted for another. Professor Teece was of the view that each separable functional element was a separate market. He disagreed with Dr Fitzgerald's consolidation of these markets into two. This difference of opinion is relatively insignificant in this case and certainly will not affect its outcome.
146 While there was substantial agreement at trial about the particular markets that exist in the electricity industry, especially that there was a market both for the transmission and distribution of electricity, on appeal PAWA contends that there were no such markets. In support of this argument PAWA relies upon what I regard as a discredited theory, namely that there can be no market for the purposes of the antitrust legislation if there is no trade in that "market".
147 I say that the theory is discredited for two reasons. In the first place orthodox industrial organisation economics consistently considers the existence of potential as well as actual competitors when identifying the participants in a market. Orthodox theory also has regard to potential as well as actual substitutes for the purposes of determining what products are in a market. The reason why potential competitors, and potential demand and supply substitutes, are taken into account is because they constrain those who operate in the market. It is not a far step from this approach to conclude that there is a market where there is a demand for a product and one can find a person willing to supply that product. In any event, as I have mentioned, Professor Teece acknowledged that there are markets for the distribution and transmission of electricity. He reasoned that PAWA was a supplier of these services because it notionally supplied them to itself. It was a "self-supplier" to use his language.
148 The second reason for rejecting the theory is that it was rejected by the High Court in Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Co Ltd (1989) 167 CLR 177. I appreciate that Queensland Wire has come under attack in Melways Publishing Pty Ltd v Robert Hicks Pty Ltd (2001) 75 ALJR 600. But it is not in that category of case which one might describe as dead but not yet buried. In any event, on the issue now under consideration, Queensland Wire was not overruled. It will be remembered that Queensland Wire concerned a constructive refusal to supply goods. The respondent, BHP, had substantial market power in the market for steel and steel products. BHP only offered to supply Y-bar, a product used in the manufacture of a popular type of rural fencing, to the appellant, QWI, at an excessively high price. QWI commenced proceedings claiming that BHP's conduct amounted to a refusal to supply contrary to s 46. The claim was dismissed at first instance on the ground that to fall within s 46 it was necessary to establish some hostile intent, some sort of "reprehensible", "predatory" or "unfair" conduct: see (1987) 16 FCR 50, 65, 68. The Full Court ((1987) 17 FCR 211) dismissed the appeal but on the ground that, as Y-bar had never been sold, there had never been a market for Y-bar so as to attract the operation of s 46. On appeal the High Court found for QWI, rejecting unanimously the trial judge's determination that the words "take advantage" in s 46 required the establishment of some conduct deserving of criticism. The High Court also rejected the Full Court's view that there was no market in steel or steel products. In that connection Deane J said (at 196):
"While actual competition must exist and be assessed in the context of a market, a market can exist if there be the potential for close competition even though none in fact exists. A market will continue to exist even though dealings in it be temporarily dormant or suspended. Indeed, for the purposes of the Act, a market may exist for particular existing goods at a particular level if there exists a demand for (and the potential for competition between traders in) such goods at that level, notwithstanding that there is no supplier of, nor trade in, those goods at a given time - because, for example, one party is unwilling to enter any transaction at the price or on the conditions set by the other."
Dawson J said (at 200):
"[T]he existence or non-existence of sales of a product cannot conclude whether a market exists or not. It must be sufficient to constitute a market that there is a product for exchange, regardless of whether exchange or negotiation for exchange has actually taken place."
Toohey J said (at 211-212):
"[T]he absence of existing buyers does not mean that there is no market for Y-bar. It would be a curious consequence if the offering by BHP of a limited supply of Y-bar established a market for that product but the withholding of supply altogether meant that there was no market."
149 The next question is whether PAWA had a substantial degree of power in the market or markets for the transmission and distribution of electricity. On this question there was a sharp difference of opinion between the economists. Dr Fitzgerald took as his starting point the following definition of market power:
"Market power is the ability of a corporation to behave persistently in a manner different from the behaviour that a competitive market would enforce on a corporation facing otherwise similar cost and demand conditions. Consistent with this definition, subsection 46(3) directs that, in determining the degree of market power held by a corporation, regard needs to be paid to the extent to which that corporation is constrained by actual and potential competitors, suppliers and purchasers."
150 This definition is consistent with that usually put forward by industrial organization economists. Generally, they define 'market power' as a firm's ability to raise its price above the competitive level without losing so many sales that the price is unprofitable: see eg Landes and Posner, "Market Power in Antitrust Cases" 94 Harvard Law Review, 937 (1981), Hay, "Market Power in Antitrust" 60 Antitrust Law Journal 807 (1992), Areeda et al, Antitrust Law 2nd ed. (2000) vol IIA, ch 5, sub-ch 5A and vol IIIA, ch 8, sub-ch 8A. In this approach "price" is not confined to the rate of exchange for the goods in question. It includes such things as the quality of goods and the terms of trade upon which the goods will be supplied, all of which have an economic value. So, in the definition one could substitute "reduce quality below competitive levels" for "raise price above competitive levels". Put differently, indeed putting it the way that Professor Teece did in his analysis, market power is the ability of a firm to exercise discretion in the market place. A more complete statement of Professor Teece's position, which in my view is substantially correct, is that market power "is the ability to exercise discretion in the marketplace, such as in setting prices, sales terms or quantities. Except in perfectly competitive markets, firms generally can exercise at least some (albeit small) measure of market power - as in monopolistically competitive markets - because they face downward sloping demand curves."
151 It is implicit in each of these definitions (which do not differ greatly) that market power will only exist when there is the ability to raise prices or exclude competition for a significant period. That is to say, it would not be useful to show that a firm could only raise its price temporarily without any loss of sales. If that were to be the sole test of market power few firms would lack that power. It is the requirement that a firm has the ability to behave persistently in a manner different from how it would in a competitive market that PAWA relies upon for its contention that it had no market power.
152 Ordinarily PAWA's position as a monopolist in the market or markets for the transmission and distribution of electricity would give it substantial market power. In the absence of its consent, or legislation that restricted its rights, PAWA had the exclusive capacity to distribute and transmit electricity in the Northern Territory (with the exception of the presently irrelevant Darwin to Katherine 132kV transmission line). Its market conduct was unconstrained by the existence of any competitors or any potential competitors, because there could be none. However, when PAWA refused to grant NT Power access over its infrastructure it could only maintain that refusal for a relatively short period. The Northern Territory government had committed itself to implementing an access regime for electricity infrastructure. By April 1998 the government's position was that "it will probably be two to three years before the process is complete". In 2000 that access regime came into force with the passage of the Electricity Networks (Third Party Access) Act (NT) and related legislation. The access regime provides a legal framework for third parties, including electricity retailers, generators and industrial users, to negotiate access formerly to PAWA's and now PAWC's transmission and distribution facilities so that they can transmit electricity to their own customers: Electricity Networks (Third Party Access) Code (Part 2); Electricity Networks (Third Party Access) Act (Part 1). PAWA was, and its successor now is, required to use all reasonable endeavours to accommodate the requirements of those seeking access to the electricity network: Electricity Networks Code, cl 6. PAWA argues that by 1998 it lacked substantial market power because whatever market power it may once have had was no longer sustainable in light of the imminent introduction of the new access regime.
153 It must be accepted that any discussion of market power is temporal. A firm must have market power for some appreciable period before it has significance for antitrust purposes. Most firms could raise prices above competitive levels for a day, or even for a week, but competition would soon bring them back into line. Thus to have market power implies having the ability to maintain raised prices or exclude competition for a significant period. But that period need not necessarily be measured according to the calendar. The reference is to operational time, such as the time within which a potential competitor who is waiting in the wings could acquire the facilities needed to enter into the market to take advantage of the possibility of making a profit. Moreover, the determination of the temporal dimension of a market involves an inquiry that has no economic based answer, but involves policy judgments: Hovencamp, "Exclusive Joint Ventures and Antitrust Policy" 73 Columbia Business Law Review, 1 at 80-82 (1995). This case has the added problem of identifying the point of time at which the existence of market power must be evaluated.
154 Professor Teece says that if market power could not be exercised for more than a year or so, then the electricity market should be treated as if it were fully contestable. At what point of time does Professor Teece's one year period commence? He has nominated as the starting point the time when the alleged contravening conduct is engaged in. At face value this seems to be a reasonable approach. But on closer examination, it produces curious results. Assume that from a given point in time (which I will identify as "X") a firm has the ability to raise its price above competitive levels for a period of five years. Let us see whether the firm has market power at two points in time: X plus three and a half years and X plus four and a quarter years. According to Professor Teece the firm would have market power at the point X plus three and a half years because its position and power as a monopolist would continue for more than one year. That has within it the point which is X plus four and a quarter years, at which time it is still deemed to have market power. But, according to Professor Teece, if the allegedly offending conduct takes place at X plus four years, the firm would not have market power at that point because it faces competition in nine months. My purpose in raising this hypothetical example is to demonstrate the apparent inconsistencies which would follow upon the selection of an arbitrary period of time during which power must continue to exist before it can be said that the firm has market power, and also to point out the difficulty that arises if the position is examined solely by reference to the time of the allegedly contravening conduct.
155 In my opinion sometimes it will be appropriate for market power to be analysed on the basis of long term horizons, and on other occasions short term horizons will do. In the case of a long term monopolist who has, and will continue to have, discretionary power in a market it is not always necessary to consider for how long into the future that power will continue to exist. The relevant feature of the market is not that the temporal dimension of the market power, whatever that may be, has only a short period to run. The monopolist has market power until its ability to exercise its discretionary power is eliminated or significantly reduced by an actual or potential competitor. Until that time, the monopolist will have market power for the purposes of the antitrust provisions of the Competition Code.
156 Turning now to the issue at hand, PAWA's position in 1998 must be examined by reference to the different markets in which it operated. In the generation and supply markets, in particular the supply market, the likelihood that an access regime would soon be introduced no doubt affected PAWA's dominant position. As Professor Teece pointed out, the access regime would eliminate the main barrier to entry into these markets (the requirement for access to transmission and distribution facilities). Accordingly, PAWA was forced to react to the threat of competition from new entrants, especially NT Power, by taking steps the details of which I will mention later. Things were different in the transmission and distribution markets. There was never to be any competition in these markets. There would only be statutory control which would prevent the exercise of market power. In 1998 it was not known when the regime would be introduced and what form it would take. These matters depended upon political considerations which, by their very nature, are uncertain. Professor Teece is correct when he says that "the regulatory and political oversight that [would] exist under the open access regime being proposed would prevent the exercise of any market power that derived from natural monopoly in these [markets]". But until the introduction of the regime PAWA's market power continued to exist. That is to say, in 1998 there was no potential competitor whose existence could affect the way PAWA behaved in the distribution and transmission markets and the threat of legislation to regulate its conduct in these markets, where there was no other owner of distribution or transmission facilities, could have no effect on its conduct. Indeed the evidence shows that in fact it had no effect because PAWA was able to maintain its refusal to grant access to its facilities until the new regime was in place. Professor Teece made the point that until the new regime came into existence PAWA remained a natural monopolist with the powers that came from that position. The following answers that he gave in cross-examination are instructive:
Q. Are you saying there in effect that once in place that regime will prevent the exercise of any market power that derived from natural monopoly in the transmission and distribution functions?
A. Yes
Q. Do we take it from that that you accept that the result of its natural monopoly in the transmission and distribution functions, that PAWA prior to the introduction of this access regime, has a substantial degree of market power?
A. In the literal sense that I mentioned earlier.
Q. Are you saying in effect that once this regime comes into place, the exercise of that market power will be constrained or possibly prevented?
A. Yes.
The qualification to which Professor Teece referred was that PAWA was under the control of the Minister who could set PAWA's prices. I do not regard this as a relevant constraint on market power which affects PAWA's position as a monopolist.
157 Now it is necessary to determine whether PAWA used its substantial power in the market (that is the distribution and transmission markets) to refuse to grant NT Power access to its infrastructure. PAWA contends that it did not take advantage of its power and that its refusal can be characterised as the performance of a duty imposed by s 16 of the PAWA Act, the exercise of a regulatory function or the exercise of a property right. It is convenient to deal separately with each of these contentions.
158 It will be remembered that s 16 of the PAWA Act provided that, in the exercise of its powers and in the performance of its functions, PAWA was subject to the direction of the Minister. According to PAWA it refused to grant NT Power access to its infrastructure because it was under a direction to that effect, a direction with which it was bound to comply. In that event, so the argument goes, the refusal could not be regarded as the use of market power. I need to mention another aspect of this submission. It concerns the purpose of the refusal to grant access. PAWA says that the only relevant purpose is that of the Minister who gave the direction, and his purpose cannot be attributed to PAWA.
159 Lying behind these submissions are two unstated assumptions that were not explored at trial or on appeal. Those assumptions are: (1) That the Crown in right of the Northern Territory and PAWA are to be regarded as separate bodies for all purposes and (2) That if the Minister exercised his power of direction under s 16, the Minister's purpose should not be attributed to PAWA. It may be, however, that neither assumption is well founded.
160 Speaking generally, a reference to "the Crown" in legislative provisions such as s 13 of the Reform Act is a reference to the executive government of the particular polity, and certainly not to the reigning monarch: M v Home Office [1994] 1 AC 377, 395. The executive government comprises ministers, many officials, departments of state, and often both statutory and non-statutory bodies. In Town Investments Ltd v Department of the Environment [1978] AC 359 at 381 Lord Diplock said that instead of "the Crown", it would be better to speak of "the government":
"a term appropriate to embrace both collectively and individually all of the Ministers of the Crown and parliamentary secretaries under whose direction the administrative work of government is carried on by the civil servants employed in the various government departments. It is through them that the executive powers of Her Majesty's government in the United Kingdom are exercised, sometimes in the more important administrative matters in Her Majesty's name, but most often under their own official designation. Executive acts of government that are done by any of them are acts done by 'the Crown' in the fictional sense in which that expression is now used in English public law."