AUSTRALIAN COMPETITION TRIBUNAL

Application by Sea Swift Pty Limited [2016] ACompT 9

IN THE AUSTRALIAN COMPETITION TRIBUNAL

THE TRIBUNAL DETERMINES THAT:

1.    Subject to the conditions in the Annexure to this determination, Sea Swift Pty Limited (ACN 010 889 040) (“Sea Swift”) is granted authorisation pursuant to ss 95AT and 95AZJ of the Competition and Consumer Act 2010 (Cth) to acquire:

(a)    shares in:

(i)    Perkins Maritime Pty Ltd (ACN 009 616 960); and

(ii)    Perkins Lady Jan Pty Ltd (ACN 064 110 247); and

(b)    assets from:

(i)    Perkins Shipping Pty Ltd (ACN 009 597 835);

(ii)    Perkins Properties Pty Ltd (ACN 009 592 885); and

(iii)    Gulf Freight Services Pty Ltd (ACN 010 755 683)

as set out in a Deed of Amendment dated 17 March 2016 and the appended Amended and Restated Asset and Share Sale Agreement between the following parties:

Vendors:

Perkins Industries Pty Ltd (ACN 009 593 257)

Perkins Shipping Pty Ltd (ACN 009 597 835)

Perkins Properties Pty Ltd (ACN 009 592 885)

Gulf Freight Services Pty Ltd (ACN 010 755 683)

Vendor Guarantor:

Toll Holdings Limited (ACN 006 592 089)

Purchaser:

Sea Swift Pty Limited (ACN 010 889 040)

Purchaser Guarantor:

Sea Swift (Holdings) Pty Limited (ACN 159 387 390)

2.    This determination includes the Annexure and all Schedules thereto.

ANNEXURE TO THE DETERMINATION DATED 1 JULY 2016

CONDITIONS OF THE TRIBUNAL’S AUTHORISATION

TRANSFERRED CONTRACTS CONDITION

1    Transferred Contracts Condition

(a)    The authorisation is subject to the condition that Sea Swift will not give effect to, or rely on, any provision in the Transferred Contracts which requires the Customer to:

(i)    exclusively use the marine freight services of Sea Swift; or

(ii)    allow Sea Swift a Right of First Refusal; or

(iii)    ship a minimum volume of freight with Sea Swift,

(together the Transferred Contracts Condition).

(b)    For the purposes of the Transferred Contracts Condition:

(i)    Transferred Contracts means the contracts listed in Schedule 2; and

(ii)    Sea Swift must ensure that its obligations under the Transferred Contracts Condition are published on Sea Swift’s website and communicated to Customers within 30 days of the Completion Date.

REMOTE COMMUNITY SERVICE CONDITION

2    Remote Community Service Condition

(a)    The authorisation is subject to the condition that Sea Swift will:

(i)    maintain a minimum level of scheduled services to the locations and at the frequencies set out in the Remote Community Service Schedule contained in Schedule 3; and

(ii)    maintain an up-to-date shipping schedule of services on its website, (together the Remote Community Service Condition).

(b)    Sea Swift’s obligations under the Remote Community Service Condition are suspended to the extent that it is prevented from carrying out those obligations by an event or circumstance, or combination of events or circumstances, that are beyond the reasonable control of Sea Swift, including but not limited to:

(i)    fire, lightning, explosion, flood, earthquake, storm or any other act of God or force of nature;

(ii)    damage to vessel(s) or port facilities;

(iii)    civil commotion, sabotage, war, revolution, radioactive contamination, or toxic or dangerous chemical contamination;

(iv)    strikes, lock-outs, industrial disputes, labour disputes, industrial difficulties, labour difficulties, work bans, blockades or picketing;

(v)    the impact of public holidays or necessary vessel maintenance or refit; or

(vi)    any event or circumstance that prevents or jeopardises the safe operation of any scheduled service.

REMOTE COMMUNITY PRICE CONDITION

3    Remote Community Price Condition

(a)    The authorisation is subject to the condition that Sea Swift will:

(i)    charge no greater than the Maximum Charge for the destinations and services listed in the Remote Community Service Schedule, except as allowed by Condition 4 or in accordance with the Independent Price Review Process set out in Schedule 5;

(ii)    publish on its website the Maximum Base Price for the Services, as well as the applicable rate of GST, Consignment Note Fee, Dangerous Goods Surcharge and Minimum Freight Charge, for each Financial Year,

(the Remote Community Price Condition).

(b)    For the purposes of the Remote Community Price Condition:

(i)    Subject to clause 3(b)(ii) below, Maximum Charge means:

(A)    for Vehicle Freight Services, the Maximum Base Price multiplied by the number of units carried; and

(B)    for all other Services, the Maximum Base Price multiplied by total tonnes or total cubic metres carried (whichever is greater);

(the Maximum Base Freight Charge),

plus additional charges that may include:

(C)    the Fuel Surcharge Fee;

(D)    applicable GST;

(E)    the Consignment Note Fee;

(F)    the Port, Council and Royalty Charges;

(G)    the Dangerous Goods Surcharge (if applicable); and

(H)    Other Charges (if applicable).

(ii)    If, for a particular service, the sum of:

(A)    the Maximum Base Freight Charge;

(B)    the Fuel Surcharge Fee;

(C)    the Consignment Note Fee;

(D)    the Port, Council and Royalty Charges; and

(E)    the Dangerous Goods Surcharge (if applicable);

is less than the Minimum Freight Charge, then the Maximum Charge is the total of:

(F)    the Minimum Freight Charge;

(G)    applicable GST; and

(H)    Other Charges (if applicable).

(iii)    Maximum Base Price is to be determined in accordance with the following formula:

Maximum Base Price = Base Price x (1 + CI)

where:

CI = CPI + LRI

Base Price is determined as follows:

For the Financial Year commencing 1 July 2015 the rates set out for the services listed in Schedule 4.

For each subsequent Financial Year, the Base Price is the accumulated Maximum Base Price as calculated for the previous Financial Year.

CPI is determined in accordance with the following formula:

CPI = [(CPIn – CPIb) / CPIb] x WFCPI

where:

CPIn = the quarterly Consumer Price Index: All groups, Australia for the quarter that was most recently published as at the date on which Sea Swift proposes to complete an Annual Price Review.

CPIb = the quarterly Consumer Price Index: All groups, Australia for the quarter ending June of the previous Financial Year.

WFCPI = the cost component weighting of general costs to provide the Service (31%).

And CPI is subject to a minimum of zero. CPI cannot be a negative number.

LRI is determined in accordance with the following formula:

LRI = LRIn x WFWPI

where:

LRIn = the annual labour rate percentage increases as set out in the Sea Swift Collective Agreement.

WFWPI = the cost component weighting of labour costs to provide the Service (52%).

And LRI is subject to a minimum of zero. LRI cannot be a negative number.

(iv)    Consignment Note Fee is a per-consignment fee to cover the cost of documenting a consignment from receipt through to delivery. The Consignment Note Fee is as follows:

(A)    for destinations listed in the Remote Community Service Schedule in the Northern Territory: $15.00 plus GST.

(B)    for destinations listed in the Remote Community Service Schedule in Far North Queensland: $15.00 plus GST.

(v)    Port, Council & Royalty Charges means any charges or statutory fees levied by the applicable port, government or council bodies on the cargo that is imported and exported to/from a wharf, barge ramp or any other landing site in respect of the Service being provided to the customer.

(vi)    Fuel Surcharge Fee is calculated as a percentage of the Maximum Base Freight Charge for a Service. The percentage surcharge and fee are calculated (on a monthly basis) as follows:

Fuel Surcharge percentage = [(Fn – Fb) / Fb] x WFF

Fuel Surcharge Fee = Fuel Surcharge percentage x Maximum Base Freight Charge

where:

Fb = the average fuel price as at 2 February 2016 obtained from AIP Terminal Gate Pricing – Diesel – National Average (exclusive of GST and any applicable rebates).

Fn = the average fuel price on the first Business Day of the month prior to the Monthly Fuel Surcharge Review obtained from AIP Terminal Gate Pricing – Diesel - National Average (exclusive of GST and any applicable rebates).

WFF = the cost component weighting of the fuel costs to provide the Service (17%).

And the Fuel Surcharge Fee is subject to a minimum of zero. The Fuel Surcharge Fee cannot be less than zero.

(vii)    Other Charges means any charges for voluntary additional services that a customer requests to be provided in conjunction with the service. These charges are notified to and accepted by the customer prior to the service being provided.

(viii)    Dangerous Goods Surcharge is applied as a percentage of the Maximum Base Freight Charge for all goods that are classified as dangerous goods under the Australian Dangerous Goods Code or the International Maritime Dangerous Goods Code. During the term of this Condition, the Dangerous Goods Surcharge percentage will be no higher than 25%.

(ix)    Minimum Freight Charge means a specified minimum charge to consolidate and transport a single consignment of freight. The Minimum Freight Charge is as follows:

(A)    for destinations listed in the Remote Community Service Schedule in the Northern Territory: $50.00.

(B)    for destinations listed in the Remote Community Service Schedule in Far North Queensland: $50.00.

4    Price Reviews

(a)    Sea Swift may increase the Maximum Base Price for the Services from or on 1 July each Financial Year in accordance with the formulas set out in Clause 3(b)(iii) above (Annual Price Review).

(b)    Sea Swift may increase the Fuel Surcharge Fee on a monthly basis in accordance with the formula set out in Clause 3(b)(vi) above (Monthly Fuel Surcharge Review).

(c)    Sea Swift may increase the applicable GST at any time but only in accordance with changes legislated by the Australian Federal Government.

(d)    Sea Swift may only:

(i)    increase its Base Price above the Maximum Base Price determined using the formula in Clause 3(b)(iii); or

(ii)    increase the Additional Fees above the amounts set out in or determined according to Clause 3(b)(iv)-3(b)(viii);

in accordance with the Independent Price Review Process set out in Schedule 5 (Additional Proposed Price Increase).

5    Period for Which Sea Swift Must Comply With the Conditions

(a)    Subject to paragraphs (b), (c) and (d) below, Sea Swift must comply with the Conditions until the earliest of:

(i)    five years from the Completion Date;

(ii)    a determination is made by the Tribunal that it is no longer necessary for Sea Swift to comply with the Conditions (including in circumstances where the ACCC has accepted an undertaking under section 87B of the Act in substantially the same terms as the Conditions); and

(iii)    if the parties do not complete the Proposed Acquisition, when Sea Swift notifies the Tribunal of the non-completion of the Proposed Acquisition (and provides a copy of the notice to the ACCC).

(b)    Sea Swift will be relieved of its obligation to comply with the Transferred Contracts Condition in respect of each of the Transferred Contracts on the date that the Current Term of that Transferred Contract expires.

(c)    Subject to sub-clause 5(d) below, Sea Swift will be suspended of its obligation to comply with the Remote Community Service Condition if another operator commences operating a weekly (or more frequent than weekly) Scheduled Service, and operates that Scheduled Service for a period of 12 consecutive weeks or more:

(i)    along one of the following routes, in which case the suspension applies to that route and any destination transhipped through that route:

(A)    Cairns – Weipa;

(B)    Cairns – Thursday Island/Horn Island;

(C)    Darwin – Gove; or

(D)    Darwin – Groote Eylandt,

or

(ii)    to any specific destination set out in the Remote Community Service Schedule contained in Schedule 3, in which case the suspension applies in respect of that destination.

(d)    If Sea Swift is suspended of its obligations to comply with the Remote Community Service Condition under sub-clause 5(c) above, because another operator commences operating a weekly (or more frequent than weekly) Scheduled Service along one of the routes listed in sub-clause 5(c)(i) or a specific destination under sub-clause 5(c)(ii), and that operator subsequently ceases to provide that Scheduled Service, Sea Swift must re-commence that Scheduled Service in accordance with the Remote Community Service Condition as soon as practicably possible, but no later than 28 days after that operator ceases to provide the Scheduled Service.

(e)    Sea Swift may subcontract any or all of its obligations under the Remote Community Service Condition to another qualified supplier, but will remain responsible for satisfying the Remote Community Service Condition, subject to clause 5(c) above, at prices that comply with the Remote Community Price Condition.

SELF-COMPLIANCE REPORTING

6    Annual Reporting

Within 30 days of the end of each Financial Year comprising the Term of these Conditions, Sea Swift is to provide the ACCC with a report containing the following information:

(a)    in relation to each of the Services to destinations listed in the Remote Community Service Schedule:

(i)    the Base Prices that it charged for the previous Financial Year;

(ii)    the Base Prices that it is charging in the current Financial Year, including details of all inputs and calculations underlying any increase to the Base Prices from the previous Financial Year that have been made in accordance with Clause 3(b)(iii);

(iii)    the Fuel Surcharge Fee for each calendar month of the past Financial Year, including all underlying calculations;

(iv)    the result of any Independent Price Review process during the previous Financial Year, including all documents prepared for the purpose of, or resulting from, the Independent Price Review; and

(v)    details of any instances of non-compliance by Sea Swift with the Remote Community Price Condition during the relevant Financial Year, or confirmation that there has been no instance of non-compliance.

(b)    the current schedule of Services and the frequency of those Services to each of the destinations set out in the Remote Community Service Schedule.

(c)    details of any instances of non-compliance by Sea Swift with the Remote Community Service Condition (including failure to provide services in accordance with Schedule 3) during the relevant Financial Year.

Sea Swift must provide the ACCC with any information or documents that the ACCC reasonably requests to verify the accuracy of the report.

7    Event Reporting

Within 30 days of the occurrence of an event listed below which occurs during the Term of these Conditions, Sea Swift is to provide the ACCC with a report containing the following information:

(a)    for any suspension of Sea Swift’s obligation to comply with the Remote Community Service Condition under clause 2(b):

(i)    the nature and duration of these circumstances; and

(ii)    the resulting changes that Sea Swift has made to its Scheduled Service schedule and the expected duration of those changes.

(b)    for any suspension of Sea Swift’s obligation to comply with the Remote Community Service Condition under clause 5(c):

(i)    details of the Scheduled Service route(s) and destination(s) that Sea Swift has ceased or intends to cease servicing; and

(ii)    details of the other operator who has commenced operating a Scheduled Service in relation to the relevant routes(s) or destinations(s) including the frequency and continuous duration of the Scheduled Service provided by that operator.

(c)    for any obligations under the Remote Community Service Condition that are subcontracted by Sea Swift to another qualified supplier under clause 5(e):

(i)    the details of the Scheduled Service route(s) and destination(s) that Sea Swift has subcontracted; and

(ii)    a copy of the subcontract agreement between Sea Swift and the qualified supplier.

8    Review Event

(a)    If a Review Event occurs, Sea Swift may apply to the Tribunal to vary or suspend (for a period of time) one or more of the Conditions to the extent the variation or suspension is necessary to deal with the effect of the Review Event on Sea Swift.

(b)    Review Event means an event or circumstance that has the result that Sea Swift:

(i)    is unlikely to be able to comply with its obligations under the Conditions; or

(ii)    believes that it is necessary to seek some variation due to changed circumstances (including any relevant market change, such as the loss of major contracts to competing coastal and community marine freight suppliers, or overall market contraction, or changes within the relevant regulatory environment, any of which that has a material impact on service viability).

GOVE LEASE UNDERTAKING

9    Gove Lease Undertaking

The authorisation is subject to the condition that Sea Swift:

(a)    by the Completion Date has executed and given to the ACCC in respect of the Gove Lease an undertaking pursuant to section 87B of the Act in the same form as Annexure E to Sea Swift’s Application for Authorisation filed on 4 April 2016;

(b)    complies with the Gove Lease Undertaking in all material respects unless and until released from it by the ACCC; and

(c)    does not transfer the Gove Lease without the approval of the ACCC.

TOLL COMMITMENTS

10    Toll Commitments

The authorisation is subject to the condition that Toll:

(a)    releases back to their owners two vessels it currently uses in the Northern Territory, being the Toll Territorian and the Bimah Tujuh as soon as reasonably practicable after the Completion Date;

(b)    sells the Warrender as soon as reasonably practicable after the Completion Date; and

(c)    does not sell the Warrender to Sea Swift, any Officer of Sea Swift, any Related Entity of Sea Swift or any Officer of such Related Entities, or any person acting under the direction or for the benefit of any of those persons or Related Entities.

11    Time limit on Proposed Acquisition

The authorisation is subject to the condition that the Proposed Acquisition is completed by 30 September 2016.

12    Defined Terms and Interpretation

A term or expression starting with a capital letter in the conditions:

(a)    which is defined in the Dictionary in Schedule 1 of the Annexure (Dictionary), has the meaning given to it in the Dictionary; or

(b)    which is defined in the Corporations Act, but is not defined in the Dictionary, has the meaning given to it in the Corporations Act.

SCHEDULE 1

Dictionary

Act means the Competition and Consumer Act 2010 (Cth)

ACCC means the Australian Competition and Consumer Commission.

Additional Fees means the Fuel Surcharge Fee, the Consignment Note Fee, the Port, Council and Royalty Charges, the Dangerous Goods Surcharge and Other Charges.

Additional Proposed Price Increase has the meaning given in clause 4.

Annexure means the Annexure to the Tribunal’s determination dated 1 July 2016 including all Schedules to the Annexure.

Annual Price Review has the meaning given in clause 4.

Base Price has the meaning given in clause 3(b)(iii).

Completion Date means the date on which the Proposed Acquisition is completed.

Conditions means each of the conditions set out in this Annexure.

Consignment Note Fee has the meaning given in clause 3(b)(iv).

Customer means a counterparty to the Transferred Contracts identified in Schedule 2.

Current Term of a Transferred Contract includes any option to renew or extend the term of the Transferred Contract.

Dangerous Goods means dangerous or hazardous materials classified under the Australian Dangerous Goods Code or the International Maritime Dangerous Goods Code.

Dangerous Goods Surcharge has the meaning given in clause 3(b)(viii).

Dry Freight Services means scheduled services for the transport of cargo by sea (including the transport of Dangerous Goods) which does not require a temperature controlled environment and does not include Vehicle Freight Services.

Financial Year refers to the period from 1 July to 30 June in each year.

Fuel Surcharge has the meaning given in clause 3(b)(vi).

Gove Lease means the lease between Perkins Properties Pty Ltd and the Arnhem Land Aboriginal Council in relation to the Gove Wharf at Melville Bay Rd, Foreshore Drive, Nhulunbuy, to be acquired by Sea Swift as part of the Proposed Acquisition.

Gove Lease Undertaking has the meaning given in clause 9(a).

GST means the Goods and Services Tax.

Independent Price Expert means the person appointed under Schedule 5.

Independent Price Review Process means the process set out in Schedule 5.

Maximum Base Price has the meaning given in clause 3(b)(iii).

Maximum Charge has the meaning given in clause 3(b)(i).

Minimum Freight Charge has the meaning given in clause 3(b)(ix).

Monthly Fuel Surcharge Review has the meaning given in clause 4(b).

Other Charges has the meaning given in clause 3(b)(vii).

Port, Council & Royalty Charges has the meaning given in clause 3(b)(v).

Price Increase Notice has the meaning given in clause 3(a) of Schedule 5.

Proposed Acquisition means the proposed acquisition by Sea Swift of:

(a)    shares in:

(i)    Perkins Maritime Pty Ltd (ACN 009 616 960); and

(ii)    Perkins Lady Jan Pty Ltd (ACN 064 110 247); and

(b)    assets from:

(i)    Perkins Shipping Pty Ltd (ACN 009 597 835);

(ii)    Perkins Properties Pty Ltd (ACN 009 592 885); and

(ii)    Gulf Freight Services Pty Ltd (ACN 010 755 683)

as set out in a Deed of Amendment dated 17 March 2016 and the appended Amended and Restated Asset and Share Sale Agreement.

Refrigerated Freight Services means scheduled services for the transport of cargo by sea (including the transport of Dangerous Goods) which requires a temperature controlled environment and does not include Vehicle Freight Services.

Remote Communities Independent Price Expert means the person appointed in accordance with clause 1(a) of Schedule 5.

Remote Community Price Condition has the meaning given in clause 3.

Remote Community Service Condition has the meaning given in clause 2.

Remote Community Service Schedule means the schedule identified in Schedule 3.

Review Event has the meaning given in clause 8.

Right of First Refusal means a clause in any of the Transferred Contracts that may have the purpose or effect of requiring a Customer to allow Sea Swift to match any price proposed by a competitor.

Scheduled Service means a service by which an operator offers to the public to carry freight between two or more destinations at predetermined dates or days of the week.

Sea Swift means the entity Sea Swift Pty Ltd ACN 010 889 040.

Sea Swift Collective Agreement means the collective agreement between Sea Swift and employees of Sea Swift lodged with the Fair Work Commission in 2009 in relation to employees’ terms and conditions of employment, and includes any replacement of that agreement in the future.

Services means the scheduled general cargo services set out in Schedule 4, being:

(a)    Dry Freight Services;

(b)    Refrigerated Freight Services; and

(c)    Vehicle Freight Services,

but excluding charter services.

Term means the period between the Completion Date and that date that is five years after the Completion Date.

TML means the entity trading as Toll Marine Logistics Australia.

Toll means Toll Holdings Limited (ACN 006 592 089)

Transferred Contracts means the contracts listed in Schedule 2.

Transferred Contracts Condition has the meaning given in clause 1.

Tribunal means the Australian Competition Tribunal.

Vehicle Freight Services means scheduled services for the transport of motor vehicles by sea, specifically meaning a domestic vehicle under 6m in length.

SCHEDULE 2

Transferred Contracts

SCHEDULE 3

Remote Community Service Schedule

* Unless otherwise specified.

SCHEDULE 4

BASE PRICES

North Queensland

Schedule of rates (excludes GST) ¹

¹ Excludes Additional Fees, including the Fuel Surcharge Fee and Port & Council Charges (see further information below on Additional Fees).

² Dry and refrigerated freight will be charged either per cubic metre or per tonne, whichever measure is the greatest for a given consignment. Note that where freight is outside standard slot dimensions (20ft container size 6m x 2.4m x 1.8m) or weighing more than 20 tonnes, this schedule of rates will not apply and the Remote Community Price Condition does not apply to that service. Sea Swift will provide an individual quote to customers for such freight.

³ Sea Swift and TML adopt different terminology in categorising their respective rates. Sea Swift’s standard terminology for all dry freight is “Dry”. TML’s standard terminology for dry freight is “General Cargo”. Sea Swift’s terminology has been adopted in this Schedule.

⁴ Sea Swift’s standard terminology for temperature controlled freight is “Refrigerated”. TML’s standard terminology for temperature controlled freight is “Freezer / Chiller”. Sea Swift’s terminology has been adopted in this Schedule.

⁵ Sea Swift’s standard terminology for vehicle freight is “Passenger Vehicles”. TML’s standard terminology for vehicle freight is “Vehicles up to 5.3 mtrs”. Sea Swift’s terminology has been adopted in this Schedule. Note that the schedule of rates will not apply to vehicles over 6 metres in length and the Remote Community Price Condition does not apply to that service. Sea Swift will provide an individual quote to customers for such freight.

Northern Territory

Schedule of rates (excludes GST) ¹

¹ Excludes Additional Fees, including the Fuel Surcharge Fee and Port & Council Charges (see further information below).

² Dry freight will be charged either per cubic metre or per tonne, whichever measure is the greatest for a given consignment. Refrigerated freight will be charged per kg. Note that where freight is outside standard slot dimensions (20ft container size 6m x 2.4m x 1.8m) or weighing more than 20 tonnes, this schedule of rates will not apply and the Remote Community Price Condition does not apply to that service. Sea Swift will provide an individual quote to customers for such freight.

³ Sea Swift’s standard terminology of “Dry” freight has been adopted.

⁴ Sea Swift’s standard terminology of “Refrigerated” freight has been adopted.

⁵ Sea Swift’s terminology for vehicle freight has been adopted in this Schedule. Note that the schedule of rates will not apply to vehicles over 6 metres in length and the Remote Community Price Condition does not apply to that service. Sea Swift will provide an individual quote to customers for such vehicles.

⁶ Note that TML does not currently service Nguiu. Sea Swift’s rates as at 1 August 2015 for deliveries to Nguiu have been adopted.

⁷ Note that TML does not currently service Paru. Sea Swift’s rates as at 1 August 2015 for deliveries to Paru have been adopted.

⁸ Note that TML does not currently service Snake Bay. Sea Swift’s rates as at 1 August 2015 for deliveries to Snake Bay have been adopted.

⁹ Note that TML does not currently service Port Keats. Sea Swift’s rates as at 1 August 2015 for deliveries to Port Keats have been adopted.

Additional Fees Information

SCHEDULE 5

Independent Price Review Condition Process

1    Appointment of Remote Communities Independent Price Expert

(a)    Within 28 days of the Completion Date, Sea Swift must appoint a Remote Communities Independent Price Expert for, subject to paragraph 1(c) of this Schedule 5, the duration of this Condition.

(b)    Remote Communities Independent Price Expert must have the qualifications and experience necessary to carry out its functions independently of Sea Swift and must not be:

(i)    an employee or officer of Sea Swift or its Related Bodies Corporate or of Toll or its Related Bodies Corporate, whether current or in the past 3 years;

(ii)    a professional adviser of Sea Swift or its Related Bodies Corporate or of Toll or its Related Bodies Corporate, whether current or in the past 3 years;

(iii)    a person who holds a material interest in Sea Swift or its Related Bodies Corporate or of Toll or its Related Bodies Corporate;

(iv)    a person who has a contractual relationship with Sea Swift or its Related Bodies Corporate or of Toll or its Related Bodies Corporate (other than the terms of appointment of the Remote Communities Independent Price Expert);

(v)    a customer, material supplier or material customer of Sea Swift or its Related Bodies Corporate or of Toll or its Related Bodies Corporate; or

(vi)    an employee or contractor of a firm or company referred to in paragraphs 1(b)(iii) to 1(b)(v) of this Schedule 5.

(c)    Sea Swift must, as soon as practicable, appoint a replacement Remote Communities Independent Price Expert who meets the requirements set out in paragraph 1(b) of this Schedule 5 in the following circumstances:

(i)    if the Remote Communities Independent Price Expert resigns or otherwise stops or is unable to act as the Remote Communities Independent Price Expert; or

(ii)    if Sea Swift has terminated the Remote Communities Independent Price Expert's terms of appointment in accordance with those terms of appointment.

(d)    Where the Remote Communities Independent Price Expert is unable to act for a period of time, Sea Swift may appoint a replacement Remote Communities Independent Price Expert to act as the Remote Communities Independent Price Expert for that period of time only.

(e)    Within 2 Business Days of the appointment of the Remote Communities Independent Price Expert under paragraph 1(a) of this Schedule 5 or replacement of the Remote Communities Independent Price Expert under paragraphs 1(c) or 1(d) of this Schedule 5, Sea Swift must:

(i)    forward to the ACCC a copy of the executed terms of appointment; and

(ii)    publish the name and contact details of the Remote Communities Independent Price Expert on Sea Swift's website.

2    Conditions relating to the Remote Communities Independent Price Expert's functions

Sea Swift must:

(a)    procure that the terms of appointment of the Remote Communities Independent Price Expert include obligations on the Remote Communities Independent Price Expert to:

(i)    continue to satisfy the independence criteria in paragraph 1(b) of this Schedule 5 for the period of his or her appointment;

(ii)    provide any information or documents requested by the ACCC about Sea Swift's compliance with this Independent Price Review Condition Process directly to the ACCC; and

(iii)    report or otherwise inform the ACCC directly of any issues that arise in the performance of his or her functions as the Remote Communities Independent Price Expert or in relation to any matter that may arise in connection with this Independent Price Review Condition Process;

(b)    comply with and enforce the terms of appointment for the Remote Communities Independent Price Expert;

(c)    maintain and fund the Remote Communities Independent Price Expert to carry out his or her functions;

(d)    indemnify the Remote Communities Independent Price Expert for any expenses, loss, claim or damage arising directly or indirectly from the performance by the Remote Communities Independent Price Expert of his or her functions as the Remote Communities Independent Price Expert except where such expenses, loss, claim or damage arises out of the gross negligence, fraud, misconduct or breach of duty by the Remote Communities Independent Price Expert;

(e)    not interfere with, or otherwise hinder, the Remote Communities Independent Price Expert's ability to carry out his or her functions as the Remote Communities Independent Price Expert;

(f)    provide and pay for any external expertise, assistance or advice required by the Remote Communities Independent Price Expert to perform his or her functions as the Remote Communities Independent Price Expert;

(g)    provide to the Remote Communities Independent Price Expert any information or documents requested by the Remote Communities Independent Price Expert that he or she considers necessary for carrying out his or her functions as the Remote Communities Independent Price Expert or for reporting to or otherwise advising the ACCC; and

(h)    ensure that the Remote Communities Independent Price Expert will provide information or documents requested by the ACCC directly to the ACCC.

3    Raising an Additional Proposed Price Increase

(a)    Sea Swift may seek an Additional Proposed Price Increase by providing written notice to the Remote Communities Independent Price Expert (Price Increase Notice).

(b)    A Price Increase Notice must detail:

(i)    the specific Service and location (within the Northern Territory or Far North Queensland) to which the Additional Proposed Price Increase relates;

(ii)    the specific amount of the Additional Proposed Price Increase; and

(iii)    Sea Swift’s reasons for the Additional Proposed Price Increase. By submitting a Price Increase Notice, Sea Swift agrees to comply with this Independent Price Review Condition Process.

(c)    Sea Swift may at any time withdraw a Price Increase Notice by written notice to the Remote Communities Independent Price Expert, in which case the powers and authority of the Remote Communities Independent Price Expert to make a determination of that Price Increase Notice under paragraph 4 of this Schedule 5 shall forthwith cease.

4    Remote Communities Independent Price Expert Determination

(a)    Where the Remote Communities Independent Price Expert has received a Price Increase Notice in relation to an Additional Proposed Price Increase, the Remote Communities Independent Price Expert must:

(i)    determine whether Sea Swift’s proposed price increase is reasonable and appropriate having regard to the principles listed in paragraph 5 below; and

(ii)    decide whether to accept, reject or vary Sea Swift’s proposed price increase.

(b)    The Remote Communities Independent Price Expert will make his or her determination within:

(i)    30 days of the receipt of the Price Increase Notice from the Sea Swift; or

(ii)    such further period as necessary for the Remote Communities Independent Price Expert to consider information requested under paragraph 4(c) of this Schedule 5, as the Remote Communities Independent Price Expert reasonably requires.

(c)    Sea Swift must provide the Remote Communities Independent Price Expert with any information he or she requires to make a determination under this paragraph 4 of this Schedule 5 within a timeframe reasonably determined by the Remote Communities Independent Price Expert.

(d)    In the event that more than one Price Increase Notice is received in relation to a proposed new Additional Proposed Price Increase for a particular Service, the Remote Communities Independent Price Expert will only make a single determination about that Additional Proposed Price Increase.

(e)    The Remote Communities Independent Price Expert's determination is final and binding on Sea Swift.

(f)    When making a determination under this paragraph 4 of this Schedule 5, the Remote Communities Independent Price Expert is acting as an expert and not as an arbitrator.

5    Relevant considerations

In determining whether an Additional Proposed Price Increase is reasonable and appropriate, the Remote Communities Independent Price Expert will have regard to the following principles:

(a)    that the Additional Proposed Price Increase should be set taking into account:

(i)    all efficient input costs;

(ii)    an appropriate allocation of Sea Swift’s relevant overhead costs;

(iii)    expected volumes over the period Sea Swift has used to calculate the proposed price increase;

(iv)    whether the “weighting factors” (WFCPI, WFWPI and WFF) referred to in the calculation of Maximum Base Price continue to accurately reflect the cost component weighting of general costs, labour and fuel;

(v)    a rate of return that utilises a weighted average cost of capital which would be required by a benchmark efficient entity providing services with a similar degree of risk as that which applies to Sea Swift; and

(vi)    the long term interests of customers of the Service.

6    Notice and Publication of Determination

(a)    The Remote Communities Independent Price Expert must notify Sea Swift of the determination within seven days of making a determination.

(b)    Within 30 days of receiving the determination:

(i)    Sea Swift must notify its affected customers of the Remote Communities Independent Price Expert's determination by writing to or emailing customers, or publishing the information about the determination on its website;

(ii)    if a retrospective adjustment is necessary to comply with the Remote Communities Independent Price Expert’s determination, Sea Swift must refund the relevant adjustment amount to the relevant customer(s).

(c)    Whatever the outcome, the cost of the Remote Communities Independent Price Expert's determination will be borne by Sea Swift.

7    Date price increase takes effect

If the Remote Communities Independent Price Expert makes a determination under paragraph 4, then the new price increase as determined by the Remote Communities Independent Price Expert takes effect on the date that Sea Swift is notified under paragraph 6(a) of Schedule 5.

8    Sea Swift must notify the ACCC

Sea Swift must notify the ACCC at the time it initiates an Independent Price Review Process and must notify the ACCC of the results of each review, in each case within 5 business days of the relevant event occurring

REASONS FOR DETERMINATION

THE TRIBUNAL:

1    Unless otherwise indicated, all references to legislation are references to the Competition and Consumer Act 2010 (Cth).

2    On 4 April 2016, Sea Swift Pty Limited (“Sea Swift”) filed a Form S with the Australian Competition Tribunal (“the Tribunal”)(“Application”). Sea Swift thereby applied under s 95AU for the grant of an authorisation under s 95AT(1) in relation to its proposed acquisition of shares in two companies and most of the assets associated with the general marine freight business of Toll Marine Logistics (“TML”) in Far North Queensland (“FNQ”) and the Northern Territory (“NT”) from subsidiaries of Toll Holdings Limited (“Toll”) (“Proposed Acquisition”). Annexure A to the Application set out conditions (“Proposed Conditions”) on the basis of which the Tribunal might grant authorisation. Sea Swift also indicated that, if required by the Tribunal, it was prepared to give an undertaking to the Australian Competition and Consumer Commission (“ACCC”) pursuant to s 87B relating to arrangements for accessing the wharf facility at Gove that was to be acquired from TML as part of the Proposed Acquisition (“Gove Lease Undertaking”); the proposed form of the undertaking was set out in Annexure E to the Application. The Application also set out commitments that Toll was willing to make if the Tribunal were to grant authorisation (“Toll Commitments”).

3    Toll was given leave to intervene in the proceedings on an unrestricted basis. While Toll was an intervener in these proceedings, both Sea Swift and Toll sought approval of the Proposed Acquisition.

4    The Maritime Union of Australia (“MUA”) was given leave to intervene on the basis that its intervention would be limited to making submissions, adducing evidence and cross-examining other witnesses on the topic of any detriment to the public by reason of any risk to the employment or prospective employment of its members by Sea Swift or Toll in the NT or FNQ in relation to the Proposed Acquisition.

Determination

5    On 1 July 2016, the Tribunal announced that it had determined to authorise the Proposed Acquisition subject to the conditions set out in the determination (“Determination”). Shortly before making the determination, the Tribunal circulated to the ACCC, Sea Swift and Toll a draft of the Determination containing conditions which it intended to impose and invited submissions in relation to them. Changes to the Proposed Conditions required by the Tribunal, including conditions relating to the provision of the Gove Lease Undertaking and the Toll Commitments are mentioned below.

6    It is a condition of the Determination that the Proposed Acquisition be completed by 30 September 2016.

7    These are the Tribunal’s reasons for making the Determination.

Confidentiality Regime

8    On 15 April 2016 Justice Middleton (now the President of the Tribunal) issued a set of directions for the use and management of confidential information provided to the Tribunal in respect of the proceedings (“Confidentiality Regime”). “Confidential Information” was defined as “all information filed with the Tribunal in these proceedings in respect of which a claim of confidentiality has been made and not refused by the Tribunal, including the Sea Swift Pricing Information”. External legal advisers, consultants and independent experts retained by Sea Swift, Toll, and the ACCC (and their support staff) received unrestricted access to Confidential Information provided that the names of those persons had been notified to Sea Swift, the ACCC, any intervener and the Tribunal. The ACCC and its staff as well as the Tribunal and staff of the Tribunal and Federal Court of Australia assisting the Tribunal were also given access to Confidential Information as necessary. Mr Scruby, counsel for the MUA and Mr Nathan Keats, the MUA’s legal representative, were given access to some Confidential Information on the same basis.

9    Information which remains subject to the Confidentiality Regime has been redacted. Prior to publication, the Tribunal circulated a final draft of the reasons to the ACCC and external legal advisors to Sea Swift, Toll and the MUA to facilitate maintenance of confidentiality claims.

Introduction

10    Both Sea Swift and TML operate “full service” marine freight businesses providing scheduled services for delivery of freight by sea to islands and remote coastal communities in FNQ (including the Outer Torres Strait Islands (“OTSI”)) and the NT. Those services will be referred to as “scheduled services”, distinct from ad hoc charter (sometimes called “project”) freight services described more fully below. Sea Swift and TML are each other’s nearest competitors in FNQ and the NT.

11    Sea Swift has provided a scheduled service to remote communities in FNQ for over 30 years; its main depot has been in Cairns since 1987. In 2009, TML was established following Toll’s acquisition of Perkins Industries Pty Ltd and its subsidiaries (“Perkins Group”). For ease of reference in these reasons, the Tribunal will refer to Perkins Group without distinction between individual companies since nothing turns on the distinction. Perkins Group had been providing shipping services predominantly in the NT, including to remote NT communities, for at least 40 years. Perkins Group’s operations in FNQ were less extensive and, since some time before 2003, they were largely limited to servicing contracts with Alcan (later Rio Tinto) and Woolworths on the Cairns-Weipa route.

Sea Swift

12    Sea Swift is a subsidiary of Sea Swift (Holdings) Pty Ltd (“Sea Swift Holdings”) which became majority owned by private equity firms CHAMP Ventures Funds (“Champ Ventures”) in November 2012. HarbourVest Partners 2007 Direct Fund LP and various individuals (including members of Sea Swift’s management) invested at the same time.

13    Sea Swift describes itself as a marine logistics company providing shipping and associated services in FNQ and the NT. The main products and services that Sea Swift supplies are:

(1)    General cargo services: Sea Swift operates both charter and scheduled services for cargo including food, fuel and other goods to customers such as businesses, government agencies, mining projects and individuals on remote islands and in coastal communities;

(2)    Fishery support: Sea Swift provides mothershipping services to fishing fleets, including the delivery of fuel, fresh water, packaging, consumables and exchange crew to fishing vessels and the transportation of catch back to port;

(3)    Charter and project logistics: Sea Swift provides these services to resources and infrastructure customers who require large, sporadic or one-off deliveries, including the movement of construction and infrastructure materials and machinery for major projects;

(4)    Passenger cruise: Sea Swift provides limited services transporting passengers and their vehicles to various locations across FNQ and the Torres Strait Islands; and

(5)    Fuel retail: Sea Swift retails a small volume of fuel to regional communities at depots located in FNQ and the Torres Strait Islands.

14    Sea Swift operates the Humbug Wharf in Weipa on behalf of RTA Weipa Pty Ltd and has utilised the Gove Boat Club facility at Gove since early 2014. It operates depots at Darwin (Hudson Bay), Cairns, Weipa, Seisia/Bamaga (without a lease), Horn Island, Gove and Thursday Island.

TML

15    From 2009 until August 2014, in addition to charter and scheduled services provided to island and coastal communities in FNQ and the NT, TML ran Perkins Group’s international liner service on the Darwin-Dili-Singapore route. That international part of the service was sold as part of a planned restructure and turnaround of the performance of the TML business as a whole. TML no longer provides any international liner services into or out of Australia. It continues to provide marine logistics services to the oil and gas sector in Queensland and Western Australia. Toll became a subsidiary of Japan Post Co Ltd in May 2015.

16    To conduct its scheduled service business in the NT and FNQ, TML currently employs the following assets.

17    Vessels – TML uses two vessels in FNQ and three vessels in the NT. The two vessels in FNQ are both owned by TML: the Fourcry and the Warrender. The vessels used in the NT to provide scheduled services have changed from time to time, but currently include: the Coral Bay owned by TML, the Bimah Tujuh chartered from Barge Express and the Territorian also on charter. TML also owns the Biquele Bay which is currently used for ad hoc charter work (not scheduled services).

18    Landing facilities – TML uses various landing facilities in the NT and FNQ, all of which are common user facilities apart from its private landing facilities in Darwin and the facilities that it operates at Gove.

    Toll currently has a lease over wharf facilities in Melville Bay, located on the Gove Peninsula, about 13 kilometres from the community of Nhulunbuy in the NT; it is owned by the Arnhem Land Aboriginal Land Trust (“Gove Lease”). The wharf is land based, on the lee side of Gove Harbour. The facilities include a public wharf, a “heavy lift” (“lift-on/lift-off”) wharf and a “roll-on/roll-off” landing ramp. The landing ramp is suitable for discharge of freight from barges. An aerial photograph of this facility identifying each of the wharves appears at Annexure 8 to these reasons. Access to the heavy lift wharf (but not the landing ramp) is the subject of an undertaking to the ACCC under s 87B. The undertaking was first given by Perkins Group in December 2003 after it acquired Gulf Freight Services Pty Ltd (“Gulf Freight Services”); it was modified in 2005 to allow a priority user arrangement with Alcan during the expansion of its alumina refinery at Gove; and it was continued when Toll acquired Perkins Group in 2009. TML provides stevedoring services on the heavy lift wharf and the roll-on/roll-off landing ramp.

    TML’s private landing facility in Darwin at Frances Bay is on land which is partly owned and partly leased by Toll. If the Proposed Acquisition is authorised, Toll will be required to allow Sea Swift to use this facility for an interim period. The evidence of Toll’s officers is that whether or not the Proposed Acquisition was authorised, the Frances Bay facility will be closed and (subject to necessary approvals) the land will be re-zoned and sold for residential development.

    TML uses other common user facilities in the NT including the Groote Eylandt Mining Company Pty Ltd (“GEMCO”) facility at Groote Eylandt and various landing ramps in the remote communities.

    In FNQ, the landing facilities used by TML at Cairns, Seisia/Bamaga, Thursday Island and Horn Island are all common user facilities managed by Ports North. In Weipa, TML uses a common user facility managed by North Queensland Bulk Port Corporation.

    TML has no infrastructure or equipment in the remote communities where customers typically collect their freight from the landing point (usually a beach) when the barge arrives.

19    Staff – TML employs staff across the NT and FNQ, including management and administrative staff in Darwin, terminal managers and support staff in Darwin and Cairns, material handling officers and other staff to operate depots and handle freight, and crew to operate the vessels used to provide the services (other than the Bimah Tujuh which is manned by the vessel owner, Barge Express). Based on evidence given by Mr Scott Woodward (the General Manager of Toll Energy which incorporates TML), TML employed 128 staff of whom 17 live in remote communities and are employed as depot/terminal staff. Vessel crews are subject to an enterprise bargaining agreement between Toll, the Australian Maritime Officers Union and the MUA. None of TML’s staff will be transferred to Sea Swift under the Proposed Acquisition.

20    Large contracts – There are only a limited number of contracts which provide “base load” volume for scheduled services in the NT and FNQ. The routes (and therefore remote communities served) and the frequency of the scheduled services that TML provides is typically determined by the requirements of its base load customers. Due to the nature of much of the freight (for example, fresh produce and other perishable items and fuel) and customer requirements, TML services most destinations on a weekly basis. The exceptions are that TML services some destinations in the NT on a fortnightly basis and services remote communities in OTSI on a schedule “TBA” basis, due to low levels of demand in those locations.

21    At the time of the hearing, TML’s five largest contracts which provide base load for the provision of scheduled services (“Largest Contracts”) were:

(1)    GEMCO (60% owned by South 32), which has manganese mining operations on Groote Eylandt in the NT;

(2)    Rio Tinto, which has mining operations in Gove in the NT and Weipa in FNQ. TML has a contract with Rio Tinto in relation to Gove (Sea Swift has the contract for Weipa). In mid-February 2016, lest authorisation not be granted to the Proposed Acquisition, Rio Tinto put the Gove and Weipa contracts out to tender; XXXX XX XXX XXX XXX XXX XXX XXX XXXXXXXXXX XXXXXX XXXX XXX XXX XXXX;

(3)    Arnhem Land Progress Aboriginal Corporation (“ALPA”), which operates retail stores in over 25 remote locations in the NT and FNQ. TML only provides scheduled services to ALPA in the NT;

(4)    Puma Energy Australia (“PUMA”), which supplies fuel to remote communities in the NT, including under contract from the Northern Territory Power & Water Corporation (“NT Power & Water”); and

(5)    Islanders Board of Industry and Service (“IBIS”), which operates stores and fuel depots in 15 remote communities in FNQ. This is the only large customer contract that TML has in FNQ.

22    The customers party to the Largest Contracts will be referred to as the “Largest Customers”.

23    TML charters the Bimah Tujuh and a crew from Barge Express to provide services under the ALPA and PUMA contracts to communities at Garden Point, Maningrida, Ramingining, Milingimbi, Goulburn Island and Croker Island. It has subcontracted the performance of its services in the FNQ under the IBIS contract to Sea Swift.

24    XXX XXX XXX XXX XXX XXX XXXXXXXXXX XXXXXX some have exclusivity provisions or rights of first refusal.

25    A full list of the customer contracts which TML will transfer to Sea Swift under the Proposed Acquisition is set out in Schedule 2 of the Annexure to the Determination; there are 28 in all (“Transferred Contracts”).

Competition between Sea Swift and TML

26    From 2013, there was a period of intense competition in the NT and FNQ with both Sea Swift and TML adopting a strategy of aggressive pricing in an attempt to gain market share in the territory in which the other was dominant. This resulted in reduced prices and improved service levels on some routes.

27    In January 2013, Sea Swift acquired a NT-based marine freight service provider, Tiwi Barge, and with the support of Caltex it commenced offering a full service scheduled service in competition with TML in the NT. It pursued a strategy of expanding its business in the NT by competing for TML’s contracts. In 2013, Caltex awarded a contract to Sea Swift previously held by TML in relation to the carriage of fuel in support of the contract Caltex had with NT Power & Water. TML also lost the Woolworths contract at Gove, the Rio Tinto Weipa contract and the Woolworths Weipa contract to Sea Swift, resulting in TML incurring heavy losses.

28    TML retaliated by expanding into the Torres Strait in FNQ in early 2014. TML won the IBIS contract from Sea Swift but it was not otherwise successful in winning large contracts in FNQ.

29    In October 2014, TML recovered the contract to carry fuel in the NT when PUMA won the NT Power & Water contract from Caltex.

30    As a result of aggressive competition, both TML and Sea Swift made heavy losses in the financial years 2014 and 2015. They both subsequently undertook cost-cutting measures, including abandoning or subcontracting some routes.

31    In March 2014, Toll’s senior management considered the various options for the TML business, including restructuring and cost cutting, divestment or merger and exiting the market. Mr David Jackson (CEO of Toll’s Resource and Government Logistics division, the division in which TML sits) says that he doubted that cost cutting would be effective because of TML’s underlying cost base, including enterprise bargaining agreements that resulted in a high cost of labour compared to other operators. Mr Jackson says that in taking a decision to exit the market, Toll would seek to minimise costs and disruption to TML’s customers. This was important because Toll wished to maintain its reputation with customers who were customers of the broader Toll group; it was therefore important to maintain continuity of supply and for the contracts to be performed on their current (or no less advantageous) terms. He was also aware of the social dimensions of the business conducted in the NT and FNQ.

32    On this basis, Toll made contact with CHAMP Ventures to see if there was interest in a merger between TML and Sea Swift. In August 2014, the Toll Board considered the options of winding up the business or selling to Sea Swift. Mr Jackson was authorised to pursue negotiations. In light of all of the factors and the scale of the losses incurred by TML, Mr Kruger (Toll’s Managing Director) and Mr Jackson were of the view that Sea Swift was the only realistic purchaser as only Sea Swift would be able to generate sufficient costs synergies to offset TML’s substantial operating losses. In Mr Jackson’s view, it would be a waste of time and money to seek another purchaser and Mr Kruger agreed that there was no other likely purchaser. Mr Scott Woodward also holds that view.

Timetable concerning the Proposed Acquisition

33    The Proposed Acquisition and the associated regulatory process developed as follows:

(1)    On 8 September 2014, Sea Swift and Toll entered into a terms sheet in relation to a proposed transaction.

(2)    On 24 November 2014, Sea Swift, Sea Swift Holdings, Toll and the relevant subsidiaries entered into an Asset and Share Sale Agreement (“Original Agreement”) relating to the shares and assets to be sold to Sea Swift. The Original Agreement contained a condition that Sea Swift obtain either formal or informal merger clearance from the ACCC or merger authorisation from the Tribunal before a sunset date of 31 May 2015.

(3)    On 5 December 2014, Sea Swift and Toll sought informal merger clearance from the ACCC.

(4)    By letter dated 26 February 2015, Toll advised its customers that if the transaction with Sea Swift was not approved, Toll would commence winding up TML’s operations in the NT and FNQ.

(5)    The Original Agreement was varied on 26 June 2015 following renegotiation of the sunset date and to address concerns raised by the ACCC during the informal clearance process. A side deed was also executed.

(6)    On 9 July 2015, the ACCC advised that it would not grant an informal clearance.

(7)    On 21 September 2015, the Original Agreement (as amended) was varied and Sea Swift filed an application pursuant to s 95AU with the Tribunal seeking authorisation under s 95AT. Sea Swift withdrew that application on 16 November 2015 after it became apparent that there were issues surrounding the accuracy of its financial statements.

(8)    By letter to its customers dated 21 October 2015, Toll reiterated its intention to exit the markets in the NT and FNQ and advised customers that it anticipated that if the Tribunal did not authorise Sea Swift’s acquisition of TML’s marine freight business in the NT and FNQ, it would cease providing scheduled services within approximately 60 days and wind up its operations.

(9)    The Original Agreement was further varied on 17 March 2016 when a Deed of Amendment was executed. The Amended and Restated Asset and Share Sale Agreement (“ARASSA”) giving rise to the Proposed Acquisition was set out in Schedule 1 to the Deed of Amendment.

(10)    A further application under s 95AU seeking authorisation under s 95AT was filed by Sea Swift on 4 April 2016.

(11)    The Tribunal issued a memorandum as to the validity of the application under s 95AW on 8 April 2016.

(12)    On 22 April 2016, the ACCC filed the “ACCC Issues List” in relation to the Proposed Acquisition and on 16 May 2016 it provided its Report to the Tribunal pursuant to s 95AZEA (“ACCC Report”).

34    Details of the Proposed Acquisition are summarised at [79]-[84].

Legal Principles

35    There was no contention between the parties as to the principles applicable to the Tribunal’s decision whether to grant authorisation.

36    Section 50 prohibits a corporation from acquiring shares or assets if the acquisition would have the effect, or be likely to have the effect, of substantially lessening competition in any market.

37    The Tribunal may grant authorisation to a person to acquire shares in the capital of a body corporate or acquire the assets of another person and it may do so subject to such conditions as are specified in the authorisation, including a condition that a person must make and comply with an undertaking to the ACCC under s 87B: ss 95AT(1) and 95AZJ. Section 50 does not prevent an acquisition in accordance with an authorisation, so long as the conditions of any authorisation are complied with before, during and after the acquisition: ss 95AT(2) and (3).

Test to be applied – s 95AZH

38    The Tribunal must not grant an authorisation “unless it is satisfied in all of the circumstances” that the proposed acquisition would result, or be likely to result, in “such a benefit to the public that the acquisition should be allowed to occur”: s 95AZH(1).

39    Section 95AZH(2) specifies certain matters to which the Tribunal must have regard in determining what amounts to a public benefit. None of the matters set out in s 95AZH(2) is relevant to Sea Swift’s application.

“Net public benefits” test

40    This is the second time the Tribunal has had to consider s 95AZH. However, as noted by the Tribunal in Application for Authorisation of Acquisition of Macquarie Generation by AGL Energy Limited [2014] ACompT 1 (“Mac Gen”) at [156], it has, on a number of occasions, considered the expressions “benefit to the public” and “detriment to the public” appearing in s 90 which continue to apply to the evaluation of non-merger authorisations. Section 90(9) of the Trade Practices Act 1974 (Cth), which is in substantially the same terms as s 95AZH, was considered at some length in Re Qantas Airways Limited [2004] ACompT 9 (“Re Qantas”).

41    Unlike s 90, s 95AZH does not refer to detriment to the public as a factor in the Tribunal’s decision whether to authorise a proposed acquisition. Nonetheless, the Tribunal in Mac Gen found that in applying the test under s 95AZH(1), it must examine the likely anti-competitive effects of a proposed acquisition on the one hand and the likely public benefits flowing from it on the other and weigh them against each other: Mac Gen at [160]. This Tribunal adopts that position.

42    A public benefit arises from a proposed acquisition if the benefit would not exist without the acquisition or if the acquisition removes or mitigates a public detriment which would otherwise exist. If a claimed public benefit exists, in part, in a future without the proposal, the weight accorded to the benefit may be reduced appropriately. Public benefit is a wide concept and may include anything of value to the community generally so long as there is a causal link between the proposed acquisition and the benefit: see Application by Medicines Australia Inc (2007) ATPR 42-164; [2007] ACompT 4 (“Medicines Australia”) at [107], [118]-[119]. Benefits not widely shared may nevertheless be benefits to the public: Hospital Benefit Fund of Western Australia Inc v Australian Competition and Consumer Commission (1997) 76 FCR 369 at 375-377. However, the extent to which the benefits extend to ultimate consumers is a matter to be put in the scales: Mac Gen at [168].

43    A public detriment includes the reduction of competition arising from an acquisition as well as other matters contrary to the goals pursued by society, including the goal of economic efficiency; public detriment may not be confined to competitive detriment: see Medicines Australia at [108] and [115]; see also Re Australian Association of Pathology Practices Incorporated (2004) 206 ALR 271; ATPR 41-985; [2004] AComptT 4 at [93]-[94]; and Re VFF Chicken Meat Growers’ Boycott Authorisation (2006) ATPR 42-120; [2006] AComptT 2 at [66]-[67].

Future “with and without”

44    In assessing relevant public detriments and public benefits associated with a proposed acquisition, the Tribunal looks to hypothetical futures, one where the acquisition takes place and is in effect and one where it does not take place, the so called “with and without” test. The test is not to compare the present situation with the future situation: it is not a “before and after” test: Medicines Australia at [117]-[119].

Degree of satisfaction required

45    The Tribunal must be satisfied that a claimed benefit or detriment is such that it will, in a tangible and commercially practical way, be a consequence of a proposed acquisition if the acquisition is allowed to occur and that the applicant is commercially likely to act in a way which brings about the benefit or detriment. The benefit or detriment must be sufficiently capable of exposition (but not necessarily quantitatively so) rather than “ephemeral or illusory”: see Re Qantas at [156].

46    For a benefit or detriment to be taken into account, it must “be of substance and have durability”. Any estimate as to their quantification should be robust and commercially realistic. The assumptions underlying the estimates should be spelled out in such a way that they can be tested and verified. Care must be taken to distinguish between one-off benefits and those of a more lasting nature. The options for achieving claimed benefits should be explored and appropriate weighting given to future benefits not achievable in any other less anti-competitive way. The Tribunal must be satisfied that “there is a real chance, and not a mere possibility” of the benefit or detriment eventuating. While it is not necessary to show that the benefits or detriments are certain to occur, or that it is more probable than not that they will occur, claims that are purely speculative in nature should not be given any weight: see Mac Gen at [163]-[164] and the cases there cited.

47    The Tribunal’s decision must be based in the real world and not rest on speculation or theory alone: see Australian Gas Light Company v Australian Competition and Consumer Commission (No 3) (2003) 137 FCR 317; [2003] FCA 1525 (“AGL v ACCC (No 3)”) per French J (as he then was) at [348]. While French J was considering the test in s 50, the parties accept that this proposition is equally applicable to the assessment which the Tribunal is required to make under s 95AZH(1).

48    In summary, the Tribunal is called upon to make a robust and commercially realistic judgment of the claimed public benefits and public detriments, exposed by its reasoning process: see Mac Gen at [172]; cf Re Qantas at [206]-[210].

Does s 95AZH(3) bar the grant of an authorisation?

49    An authorisation cannot be granted for an acquisition that has occurred: s 95AZH(3).

50    For completeness, the Tribunal mentions that shortly before the “readiness” case management conference held on 3 June 2016, it was drawn to the Tribunal’s attention that Sea Swift’s Application had been made on 4 April 2016, more than 14 days after the ARASSA was adopted by Sea Swift and Toll when they entered into the Deed of Amendment on 17 March 2016. This was relevant because of the combined effect of s 50(4) and s 4(4). While the Tribunal was satisfied that it had jurisdiction to hear the application which had been validly made, it sought submissions as to whether it was in a position to grant an authorisation if it was satisfied that the Proposed Acquisition resulted (or would be likely to result) in “such a benefit to the public that the acquisition should be allowed to occur”: see s 95AZH(1).

51    Section 50(4) provides:

Where:

(a)    a person has entered into a contract to acquire shares in the capital of a body corporate or assets of a person;

(b)    the contract is subject to a condition that the provisions of the contract relating to the acquisition will not come into force unless and until the person has been granted a clearance or an authorization to acquire the shares or assets; and

(c)    the person applied for the grant of such a clearance or an authorization before the expiration of 14 days after the contract was entered into;

the acquisition of the shares or assets shall not be regarded for the purposes of this Act as having taken place in pursuance of the contract before:

(d)    the application for the clearance or authorization is disposed of; or

(e)    the contract ceases to be subject to the condition;

whichever first happens.

[Emphasis added]

52    Section 4(4):

In this Act:

(a)    a reference to the acquisition of shares in the capital of a body corporate shall be construed as a reference to an acquisition, whether alone or jointly with another person, of any legal or equitable interest in such shares; and

(b)    a reference to the acquisition of assets of a person shall be construed as a reference to an acquisition, whether alone or jointly with another person, of any legal or equitable interest in such assets but does not include a reference to an acquisition by way of charge only or an acquisition in the ordinary course of business.

[Emphasis added]

53    At the case management conference on 3 June 2016, Mr Burnside QC referred the Tribunal to AGL v ACCC (No 3) at [338]-[339] in which these provisions were considered by French J:

… Acquisitions of shares are defined by what amounts to a deeming provision in s 4(4)(a) of the Act. A reference to such an acquisition ‘shall be construed as a reference to an acquisition, whether alone or jointly with another person, of any legal or equitable interest in such shares’. On that definition, one transaction may give rise to successive acquisitions for the purposes of s 50. A corporation which enters into a contract to purchase the shares of a body corporate may acquire an equitable interest prior to settlement and thereby acquire the shares pursuant to s 4(4). This will not necessarily attract the prohibition in s 50. Where the acquisition of the legal interest has not been completed and no right subsists in the acquirer as a shareholder in the target body corporate then forging any link to a substantial lessening of competition would be problematic.

In the case of a contract subject to a condition precedent, as in the present case, no interest is conveyed until satisfaction of the condition. Broken Hill Pty Co Ltd v Trade Practices Tribunal (1980) 47 FLR 384; (1980) 31 ALR 401 concerned an acquisition of shares conditional upon authorisation by the Trade Practices Commission. It conveyed no direct beneficial interest in the shares. A direct beneficial interest was acquired only when the contract became specifically enforceable by an order to convey or transfer. Prior to the condition being satisfied, the purchaser could seek an order to require the vendor to do what it must under the contract to secure fulfilment of the condition…

54    Clause 2 of the ARASSA states that the contract is conditional on the Tribunal authorising the Proposed Acquisition. Sea Swift and Toll submitted that Sea Swift’s only entitlement under the ARASSA was to specific performance of any steps required to fulfil the condition; no “acquisition” occurred as a result of entry into that agreement. It was further submitted that if it were to be found that Sea Swift had acquired a legal or equitable interest in the relevant shares or assets upon entry into the Deed of Amendment, Sea Swift did not seek authorisation of that interest; it sought authorisation of the acquisition of assets and shares that would occur if and when the agreement is completed. Accordingly, Sea Swift did not seek to rely on s 50(4).

55    The ACCC did not seek to contradict those submissions. As submitted by Mr Burnside QC at the case management conference, if s 50(4) operated as a time bar it would also have profound implications for the ACCC’s informal clearance process.

56    Having regard to s 42 and relying on the reasoning and authority of AGL v ACCC (No 3) at [338]-[339], the presidential member found that s 95AZH(3) does not prevent the grant of an authorisation in this matter.

Witnesses and other evidence

Matters the Tribunal must take into account

57    Section 95AZG(2) sets out the matters that the Tribunal is required to take into account in making its determination which include:

(1)    any submissions in relation to the application made to it within the period specified by the Tribunal. In addition to written and oral submissions received from Sea Swift, Toll, the ACCC and the MUA, the Tribunal received submissions from Mr Peter Ah Loy of See Hop Trading Pty Ltd trading in the Thursday Islands; Mr Mark Hedley of Weipa; the Torres Strait Island Regional Authority; the Honourable Warren Entsch MP, Federal Member for Leichhardt based in Cairns; the Department of Prime Minister and Cabinet (“Department of PM & C”); and the Department of the Chief Minister of the NT. One submission was received from an entity which was not prepared to allow the parties access to the submission. As the entity did not respond to a request from the Tribunal to provide the submission to the parties’ lawyers or experts under the Confidentiality Regime so that they would have an opportunity to respond to it, the Tribunal has treated that submission as withdrawn and has not considered it;

(2)    any information received pursuant to a notice issued by the Tribunal under s 95AZC; a notice was issued to Sea Swift and a response received;

(3)    any information received pursuant to a notice issued by the Tribunal under s 95AZD; notices were issued to, and responses received from: Toll; TML; PUMA; ALPA; Barge Express; Mr Ken Conlon, the Managing Director of Barge Express; and Mr Stephen Muller, the Chief Executive Officer of MIPEC Pty Ltd (“MIPEC”);

(4)    any information obtained from consultations under s 95AZD(2);

(5)    any report by the ACCC given to the Tribunal under s 95AZEA. The Tribunal received the ACCC’s Report on 16 May 2016; and

(6)    any information or evidence provided to the Tribunal in the course of the ACCC assisting it under s 95AZF.

Lay witnesses

58    The Tribunal received one or more statements or evidence by way of affidavit from each of the lay witnesses set out in Annexure 1 to these reasons other than Mr Slimming (who attended the hearing in response to a summons issued by the Tribunal pursuant to s 105(2) at the request of the ACCC). As is evident from Annexure 1, the lay witness included officers and employees of Sea Swift and Toll, their competitors (both for scheduled and charter services), CHAMP-Ventures, remote community based organisations and current or former customers of TML and Sea Swift. Those lay witness who gave oral evidence appeared before the Tribunal in person or by video-conference facilities from Cairns or Darwin. The Tribunal thanks each of them for their assistance.

Expert evidence

59    Seven expert witnesses were engaged by the ACCC or Sea Swift and each provided a report. No expert evidence was tendered by either Toll or the MUA. Of the experts who provided a report, only Professor Stephen King was not called to give evidence at the hearing.

60    Experts who were asked to provide a report by the ACCC were:

    Dr Philip Williams of Frontier Economics Pty Ltd;

    Professor Stephen King, Department of Economics, Monash University; and

    Mr. John Lindholm, a partner in Ferrier Hodgson specialising in insolvency and turnarounds.

61    Experts asked to provide a report by Sea Swift were:

    Mr George Siolis, a partner in RBB Economics;

    Mr Simon Bishop, a partner in and co- founder of RBB Economics;

    Mr Stephen Meyrick, an associate of Synergies Economic Consulting; and

    Mr John-Henry Eversgerd, a partner in PPB Advisory. Mr Eversgerd is the partner in charge of the disputes and valuation practice.

62    Professor King was asked by the ACCC to provide an opinion on the Proposed Conditions, as contained in Annexure A to Sea Swift’s Application, in terms of the conceptual and/or practical issues that could arise in relation to the implementation and enforcement of behavioural undertakings. He was also asked to assess whether the Proposed Conditions and the Gove Lease Undertaking set out in Annexure E to Sea Swift’s Application were likely to be effective in addressing the anti-competitive detriments alleged by the ACCC to be the likely consequence of the Proposed Acquisition. While he did not give oral evidence, Professor King’s opinions were the subject of submissions by the parties and addressed to some extent in concurrent evidence given by the other expert economists.

63    Mr Siolis was asked by Sea Swift to answer the following questions in respect of the operations of Sea Swift and TML in the NT and FNQ:

(1)    Are one or both parties currently profitable in the relevant market?

(2)    Could one or both parties become profitable in the relevant market if they succeeded in winning some major (large multi-destination) customers?

(3)    What are the likely costs of a single operator operating in the relevant market?

64    To enable Mr Siolis to answer these questions, Sea Swift and TML provided him with data relating to their operations in the NT and FNQ.

65    Mr Lindholm was asked by the ACCC to respond to the following questions:

(1)    What would you advise Toll to do with its marine logistics business in the NT and FNQ if the proposed acquisition of TML’s assets by Sea Swift does not proceed?

(2)    If, at February 2016, Sea Swift had a right to terminate the ARASSA, at that time, would you have advised Sea Swift to exercise that right or to amend the ARASSA, and why?

(3)    What amount of the total consideration to be paid by Sea Swift under the ARASSA is attributable to goodwill?

66    Mr Eversgerd was instructed by Sea Swift to review and comment on Mr Lindholm’s opinions, but, due to time constraints in the lead up to the hearing, he was not asked to perform his own analysis of the questions put to Mr. Lindholm.

67    Messrs Lindholm and Eversgerd gave concurrent evidence at the hearing. Concurrent evidence is sometimes colloquially referred to as a “hot tub”.

68    Messrs Bishop and Meyrick were each asked by Sea Swift to address the following questions:

(1)    Is the Proposed Acquisition likely to substantially lessen competition in the relevant markets?

(2)    What public benefits, if any, are likely to arise as a result of the Proposed Acquisition?

(3)    Is the Proposed Acquisition likely to result in a public benefit that outweighs any likely public detriment constituted by any lessening of competition?

69    Dr Williams was asked by the ACCC to respond to the following questions:

(1)    Identify and assess any public detriments that are likely to arise as a result of the Proposed Acquisition, including in particular any competitive detriments.

(2)    Comment on whether the public benefits of the Proposed Acquisition claimed by Sea Swift and Toll have a real chance of happening; would be a result of the Proposed Acquisition; and whether they are of substance, durable, quantifiable and of a lasting nature.

(3)    Comment on whether the claimed public benefits of the Proposed Acquisition outweigh any public detriments that are likely to arise as a result of the Proposed Acquisition.

(4)    Review and comment upon the reports of Mr George Siolis, Mr Stephen Meyrick and Mr Simon Bishop.

70    Dr Williams and Messrs Bishop and Meyrick (who are together referred to as the “expert economists”) also gave concurrent evidence.

71    Before the hearing, the Tribunal asked each of the two groups of experts who would give concurrent evidence to produce a document that outlined areas of agreement, and perhaps more importantly, areas where they could not agree. Two very helpful documents were provided to the Tribunal and those documents were of assistance in formulating the questions put to the witnesses by the parties’ counsel and the Tribunal.

72    The expert economists agreed on 16 of the 30 propositions considered by them. Of the 14 propositions about which there was disagreement, nine related to barriers to entry, expansion and exit, and two to the closely related issue of potential competition. Of particular note were the disagreements on whether sunk costs; reputational advantages; the timing of tenders for big contracts; the availability of assets (especially vessels and depots); and access to wharf facilities at Gove constituted barriers to entry.

73    Linked to these considerations was disagreement about whether the market was contestable in any acceptable manner; whether the Proposed Acquisition would increase the market power of Sea Swift beyond what would happen in the counterfactual; whether goodwill can be a reliable indicator of market power; and whether the reshaping of the market represented an integral part of the on-going competitive process in the market for scheduled marine freight services in the NT and FNQ.

74    In their joint document, Messrs Eversgerd and Lindholm concurred on seven of the nine propositions relating to the first question asked of Mr. Lindholm, two of the three propositions under the second question, and two of the five propositions under the third question (Mr Lindholm stated that he had not been asked by the ACCC to provide an opinion on one of the propositions under the third question). They disagreed strongly on three key matters:

(1)    how to assess the present value of the consideration that Sea Swift proposes to pay Toll for the purchase of its operations if not by reference to the face value attributed to it by Sea Swift and Toll;

(2)    the best commercial option for Toll to pursue, given its decision to exit the NT and FNQ markets, and to whom it might seek to sell its assets; and

(3)    the estimated goodwill value included in the purchase price.

75    It should be noted that neither of Messrs Lindholm or Eversgerd was asked to provide a formal valuation of the consideration Toll would receive under the ARASSA.

76    The Tribunal would like to thank all the experts for their contributions. They developed their arguments carefully and clearly; they engaged on the disputed issues with civility. That the Tribunal has accepted some of the experts’ assessments and rejected others casts no reflection on the work or diligence of the experts whose arguments were not accepted by the Tribunal.

Annexures

77    Annexures 2-7 to these reasons were prepared by the parties as a joint response to the Tribunal’s request for information dated 15 June 2016. The information in these annexures is derived from information in Sea Swift’s Application, witness statements, annexures to witness statements, oral evidence given at the hearing and exhibits. Footnotes (other than explanatory footnotes), which appeared in the joint response have been omitted and minor grammatical amendments have been made.

78    Annexure 8 is an aerial photo of the Gove Wharf. It was included as a schedule to Sea Swift’s proposed s 87B undertaking in respect of the Gove Lease which was filed as Annexure E to Sea Swift’s Application.

The Proposed Acquisition

79    The Proposed Acquisition is constituted under a Deed of Amendment dated 17 March 2016 which appends the ARASSA. The Proposed Acquisition will take effect subject to the Conditions set out in the Determination.

Shares and assets to be acquired

80    In summary, Sea Swift sought authorisation to acquire:

(1)    all of the shares in Toll’s subsidiaries Perkins Maritime Pty Ltd and Perkins Lady Jan Pty Ltd;

(2)    three vessels, Toll Coral Bay, Toll Fourcroy and Toll Biquele Bay;

(3)    by novation, the Transferred Contracts including the five Largest Contracts;

(4)    the Gove Lease; and

(5)    a small number of leases or freehold title to depots and residential houses which are used as staff accommodation in various locations and rights to various containers and equipment (such as forklifts, container handlers, vehicles and demountable buildings) and miscellaneous small assets.

Excluded assets

81    Some specific assets are not the subject of the Proposed Acquisition, including:

(1)    one of Toll’s vessels, the Warrender, and two vessels which TML charters (the Bimah Tujuh and the Toll Territorian); and

(2)    TML’s Frances Bay terminal facility in Darwin. Sea Swift will have access to the Frances Bay facility for a limited transition period.

82    As mentioned above, Sea Swift will not employ TML’s employees as part of the Proposed Acquisition.

83    The Proposed Acquisition does not include TML’s marine logistics work for the oil and gas sector in Queensland or Western Australia or TML’s scheduled or charter services outside of the NT and FNQ. These parts of TML’s business are not subject to the XXXXXX XXXXX mentioned in the next paragraph.

Consideration

84    As consideration for the shares and assets Toll’s subsidiaries will receive:

(1)    at completion, approximately XXX XXX cash, the agreed value of the tangible assets (other than bunker oil) being transferred;

(2)    deferred consideration in the form of a note issued by Sea Swift with a face value of XXX XXXXXXX, an interest rate of XXX per annum and a term of XXXXX commencing at completion (XXXXXX XXXXX XXXXXXX XXXXX XXXX XXX XXXXXX). The vendor note will rank after external lenders but before loan notes to other shareholders;

(3)    XXX of the issued securities in Sea Swift Holdings. Toll and its affiliates will be subject to a XXXXXX XXXXX XXXXXXX XXXXX XXXX XXX XXX XXXXXX XXXXX XXXXXXX XXXXX XXXX XXX XXX XXX XXXX; and

(4)    a reimbursement amount of XXX XXXXX XXXX XXX XXX XXX XXX XXXX XXXXXX XXXXX XXXXXXX XXXXX XXXX XXX XXX XXX XXX XXXX XXXXXXX XXXXX XXXX XXX XXX XXXXXX XXX XXXX. This amount was also payable (subject to conditions) if the authorisation was not granted.

Proposed Conditions

85    The Proposed Conditions as set out in Sea Swift’s Application were modified as a result of issues raised by the Tribunal at the hearing and in consultation relating to the draft Determination. For reasons which appear below, the Tribunal did not accept that the Proposed Conditions (other than the Gove Lease Undertaking) were required to address competitive detriments arising out of the Proposed Acquisition.

86    It was the Tribunal’s view that the Proposed Conditions as modified by the Tribunal (described below) resulted in public benefits that justified authorisation. The Gove Lease Undertaking requires special comment and it is dealt with elsewhere in these reasons.

Transferred Contracts Condition

87    As set out in Sea Swift’s Application, this Proposed Condition prohibited Sea Swift from relying on or giving effect to any exclusivity or minimum freight volume clauses in the Transferred Contracts during their term. As noted previously, there are 28 Transferred Contracts, including TML’s five Largest Contracts.

88    XXX of the Largest Contracts contained rights of first refusal. Although Sea Swift submitted that this right did not impair the contestability of these contracts because it would be open to the customers to terminate the contracts on XXXX XXX XX notice, the Tribunal accepted the ACCC’s submission that from the perspective of a new entrant, these provisions would have a similar effect to an exclusivity clause because it gives the incumbent service provider the right to match competitive offers on price or service conditions. Sea Swift accepted the Tribunal’s position that the Transferred Contracts Condition should preclude reliance on rights of first refusal.

89    Sea Swift also accepted the Tribunal’s position that the list of Transferred Contracts should not remain confidential and confirmed that references in the Condition to the “term” of a contract referred to the initial term and all periods by which the term might be extended or renewed at the option of the customer. The Transferred Contracts are listed in Schedule 2 of the Annexure to the Determination so that this information is available to Sea Swift’s competitors.

90    When the Tribunal provided the parties with a consultation draft of the Determination, the ACCC submitted that although the Condition prohibited Sea Swift from relying on a provision which required the customer to consign a minimum volume of freight with Sea Swift, it should be amended so that it also applied to clauses which provided for price discounts when specified volumes of freight were exceeded. The Tribunal did not accept the ACCC’s submission because price discounts set at different levels of volume are a normal aspect of competition in a market; they reflect the fact that the greater the volume the easier it is for a provider to meet its fixed costs and derive a profit. The Tribunal did not accept that the suggested amendment was required to support contestability of the Transferred Contracts.

Remote Community Service Condition

91    As set out in Sea Swift’s Application, this Proposed Condition requires Sea Swift, for a period of five years after the completion of the Proposed Acquisition, to maintain a minimum level of scheduled services to the locations currently serviced by Sea Swift or TML as set out in Schedule 3 of Annexure A to Sea Swift’s Application, and maintain an up-to-date shipping schedule of services on its website. This Proposed Condition covers 38 remote locations; Sea Swift will undertake to service 35 of these locations on a weekly basis, two on a fortnightly basis and one once per month. The services may not be provided following a specified “force majeure” event.

92    As framed in Sea Swift’s Application, Sea Swift would be relieved of this Condition if another operator provided services on a route for eight consecutive weeks. Having regard to the needs of remote communities, the Tribunal raised with Sea Swift its concern that this was not a sufficient time to test whether the competitor would provide the service as a real substitute to Sea Swift. As a result, Sea Swift offered to amend the Proposed Condition by substituting a period of 12 weeks for eight weeks and undertaking to re-enter the route within 28 days after it became aware that the other operator had ceased to provide at least a weekly service. Sea Swift submitted that if it lost one of the base load contracts which secured the viability of a route, it would be inappropriate for it to be required to service the communities along that route for a long period, but it accepted that it would prejudice those communities greatly if the other operator operated in the market for only a relatively short period and then withdrew. The Tribunal accepted that crafting the Condition by reference to the base load contracts could give rise to undue complexity.

93    The Condition as imposed by the Tribunal was amended to include the 12 week period offered by Sea Swift, a requirement that Sea Swift resume services within 28 days of an alternative provider withdrawing from that route and a requirement that Sea Swift’s yearly report contain any instances of non-compliance with this Condition.

Remote Community Price Condition

94    By this Proposed Condition, Sea Swift undertakes to charge no greater than a specified “Maximum Charge” for a period of five years in relation to “dry freight”, “refrigerated freight” and “vehicle freight” to the remote communities, and it will comply with specified requirements for any price increase. Mr Bruno, Sea Swift’s Chief Operating Officer, says that these are the types of freight most usually carried for uncontracted customers. It does not cover “liquid commodities”, such as bulk fuel in containers such as 200 litre drums, other bulk goods in containers across sizes of 5-20 feet, bulka bags or integrated bulk containers, or other items such as boats, trailers, gas bottles and machinery.

95    The “Maximum Charge” specified in the Remote Community Price Condition is set by reference to the “Base Price” identified in Schedule 4 of the Annexure to the Determination. For customers in FNQ, the Base Price is based on Sea Swift’s scheduled rates as at 1 August 2015. For customers in the NT, it is based on TML’s scheduled rates as at 1 September 2015 (except for destinations not currently serviced by TML, in respect of which Sea Swift's scheduled rates apply). The Maximum Charge will be subject to annual price increases based on publicly available price indexes – being the Consumer Price Index and the annual labour rate percentage increases in Sea Swift’s collective bargaining agreement. Schedule 4 also sets out how Sea Swift will impose the other components of its pricing for these services such as a fuel surcharge fee, a consignment note fee, a port and council fee, a dangerous goods surcharge, a minimum freight charge and charges for any additional services a customer may require. Apart from indexed increases, Sea Swift may only increase prices affected by this Condition if the increase is approved by an independent pricing expert or the Tribunal determines that it is no longer necessary for Sea Swift to comply with this Condition. Sea Swift must notify the ACCC at the time it initiates an Independent Price Review Process as well as the results of any review. It is also required to report annually to the ACCC the Base Prices charged in the previous financial year and the Base Prices it is charging in the current financial year (including details of the inputs and calculations underlying any increase to the Base Prices).

Gove Lease Undertaking

96    Sea Swift submitted that access to the facilities operated by TML as part of the Gove Lease is not a significant barrier to entry for suppliers in the NT because there are other facilities available at Gove. Sea Swift argued that it entered the market without use of the facilities at the Gove Lease (see [148] below). Nonetheless, Sea Swift offered to accept as a condition of authorisation that it enters into the Gove Lease Undertaking. Sea Swift submitted that the prices reflected in the Gove Lease Undertaking are less than those currently charged by TML and that the undertaking is in a form that had previously been accepted by the ACCC when offered by the Perkins Group. Further, Sea Swift submitted that the undertaking will extend to the roll-on/roll-off ramp which is not covered by the existing s 87B undertaking.

Toll Commitments    

97    Toll offered to make the following commitments to the Tribunal if authorisation was granted:

(1)    to release back to their owners two vessels it currently uses in the NT, being the Toll Territorian and the Bimah Tujuh;

(2)    to sell its line haul vessel, the Warrender, in a timely manner and at a fair market value. The Warrender is currently used by TML to provide scheduled services on the Cairns-Weipa route. Toll offered undertakings in relation to how the value would be determined; and

(3)    to not sell the Warrender to Sea Swift.

98    The Tribunal is unconcerned about the price at which Toll sells the Warrender, but considered that the other aspects of these commitments should comprise a Condition of any authorisation, a position accepted by Sea Swift and Toll.

Reporting

99    Sea Swift is required to submit documentation to the ACCC in relation to its compliance with the Conditions at the end of each financial year and to provide the ACCC with the details of any suspension of its obligations in accordance with the Conditions or any subcontract it enters into for the performance of its obligations. The reporting requirements proposed by Sea Swift were amended by the Tribunal to require Sea Swift to report any failure to comply with the Remote Community Service Condition as well as the Remote Community Price Condition and to provide any information to the ACCC which it requires and reasonably requests in relation to matters raised in the report.

Sea Swift and Toll’s positions in summary

100    Sea Swift and Toll claimed that the Proposed Acquisition results in public benefits which justify authorisation having regard to the Proposed Conditions. They claimed that there are no public detriments having regard to the “counterfactual” that TML will withdraw from the NT and FNQ in any event, leaving Sea Swift as the only full service provider and the most likely provider to TML’s Largest Customers. They submitted that if the Tribunal finds that the Proposed Acquisition does result in competitive detriments, the Proposed Acquisition should be authorised because it results in net public benefits which justify authorisation.

101    The public benefits that Sea Swift and Toll contend will result from the Proposed Acquisition are, in summary:

(1)    Subject to the customers’ consent to transfer the Transferred Contracts to Sea Swift, Sea Swift will honour the Transferred Contracts for their term, including the prices negotiated under those contracts. Absent the Proposed Acquisition the customers under the Transferred Contracts would have to seek an alternative provider and the customers would be likely to lose the benefit of the prices negotiated during the heat of competition between Sea Swift and TML.

(2)    The Transferred Contracts Condition allows customers to “try before they buy” because Sea Swift will not rely on exclusivity or minimum volume clauses in those contracts. This means that customers would not suffer disruptions in service while providing them with the opportunity to investigate and test the capabilities and terms of alternative providers. Sea Swift said that the Transferred Contracts are regularly contested by actual and potential competitors through tender processes conducted on a periodic basis and the effect of the Proposed Condition is to enhance the contestability of the contracts, thereby improving conditions for entry and expansion into the relevant markets. It also imposes an additional competitive discipline on Sea Swift which may not exist if authorisation is refused and the TML business in the NT and FNQ is wound up.

(3)    The proposed Remote Community Service Condition and the Remote Community Price Condition are designed to “protect the most vulnerable communities” in the NT and FNQ by providing assurance as to the minimum frequency of services and imposes a limitation on price increases for uncontracted customers in remote communities. Without the Proposed Acquisition there would be a risk of declining frequency of services on routes and no protection against arbitrary price rises. Indeed it may not be in the commercial interest of Sea Swift or any other service provider to service some of these routes so that routes might be rationalised.

(4)    The Proposed Acquisition allows an orderly exit for TML, minimising disruption to TML’s customers and the potential for damage to its reputation and customer relationships. It also allows TML’s assets to be more efficiently deployed in the market as some of TML’s vessels will remain in the NT and FNQ for use in the provision of scheduled services. Toll will realise better value for its assets than it would in a wind up scenario, the funds from which it will be able to allocate or deploy in its other business activities. Sea Swift and Toll submitted that this lowers barriers to entry because new providers will be more likely to enter the market (or existing providers are more likely to expand their operations) if they know that an orderly exit is possible. This will result in a competitive environment that is more conducive to new entry over a longer period than if the TML business is wound up.

(5)    Sea Swift will be able to access additional revenues, vessels and equipment which would allow it to rationalise and reduce the combined fixed costs of both its scheduled services and charter services; this will enable Sea Swift to maintain these services on a more reliable, efficient and sustainable basis in the long term. It allows the industry to move towards its most efficient cost structure.

102    Sea Swift and Toll say that the Proposed Acquisition results in no public detriment because:

(1)    As TML will exit the markets with or without the Proposed Acquisition, it will not result in any public detriment arising from any lessening of competition. Sea Swift contends that the movement towards one full service operator of scheduled services in FNQ and the NT will occur with or without the Proposed Acquisition. There is insufficient demand to support more than one full service provider across all routes in the relevant markets. The sustainable and most efficient market structure is one with a single full service operator with peripheral competition from other barge operators.

(2)    Barriers to entry are low; the markets are relatively unsophisticated with low levels of innovation, technological change and product and service differentiation. There is a range of potential entrants who could win key contracts or routes. In support of these propositions, Sea Swift and Toll say that:

(a)    The inputs used in supplying coastal and community freight services are readily obtainable by other operators; the inputs are non-specialised, commonly available and inherently re-deployable. Specifically, the four main requirements for a supplier to be able to supply a scheduled service (vessels, landing facilities, depots/equipment and employees) remain unaffected by the Proposed Acquisition. TML’s vessels are not specialised and Sea Swift will acquire some vessels for convenience only. The employment of TML’s staff will not be transferred to Sea Swift so that they remain available to competitors. There are alternatives to the Gove Lease for landing facilities at Gove, noting in particular that Sea Swift established itself there without needing to access the facilities operated by TML at the Gove Lease.

(b)    Large customer contracts sufficient to underpin entry into the market have terms of three to five years and they are often subject to termination at the customer’s convenience or are non-exclusive; a new entrant can readily compete for those contracts. These conditions demonstrate that major customers have substantial countervailing power and can react if prices become too expensive or if the quality of service reduces by awarding contracts to new providers in order to sponsor entry.

(c)    There are many other providers of charter services in the NT and FNQ who are able to commence scheduled services without substantial investment. Sea Swift submitted that, with the exception of Barge Express, the other competitors in FNQ and NT that currently provide charter services are unlikely to be in a position to commence servicing TML’s Largest Contracts within the 60 day period in which TML will wind up its operations. It submitted that in due course Ezion/Teras (“Teras”), Shorebarge, Carpentaria Contracting, Pacific Marine Group and MIPEC may seek to provide scheduled services “should they consider it economically worthwhile”.

103    In response to the MUA’s contention that public detriment arises from the fact that TML’s workforce will no longer be employed if the Proposed Acquisition proceeds, Sea Swift submitted that the position of TML’s employees is the same whether or not the Proposed Acquisition is approved.

The ACCC’s position in Summary

104    The ACCC opposed the grant of authorisation on the basis that the claimed public benefits from the Proposed Acquisition are minimal and do not outweigh the substantial detriments likely to result from the lessening of competition if the Proposed Acquisition proceeds so that it does not meet the “net public benefits” test.

105    The ACCC’s position can be summarised in the letter of instructions dated 12 May 2016 given to Professor Stephen King by the ACCC’s solicitors in connection with seeking his opinion of the Proposed Conditions:

1.    Please assume the following in relation to Sea Swift’s and Toll Marine Logistics’ (TML’s) current scheduled marine freight service operations in the Northern Territory (NT) and Far North Queensland (FNQ):

1.1    New entrants face barriers to entry and/or mobility.

1.2    The barriers to entry and/or mobility are:

1.2.1    Incumbent scheduled marine freight service providers have advantages over potential entrants when competing for customer contracts, which represent a substantial proportion of available volume and revenue on many routes. This is because:

(a)    Reputational factors (in particular a track record of providing a reliable service in a region) lead to customer loyalty towards incumbent scheduled marine freight service providers.

(b)    There are economies of scale in the provision of scheduled marine freight services, and the staggered timing of tenders for customer contracts provides incumbents with a competitive advantage when bidding for incremental customer contracts as they individually come up for retendering.

1.2.2    There is a lack of access on reasonable terms and conditions to the roll-on-roll-off ramp at Gove. There may also be similar access issues in relation to other ports and other common user landing facilities.

1.2.3    Sea Swift has previously engaged in strategic behaviour, including low pricing, in response to attempted entry.

1.2.4    Potential new entrants are likely to incur sunk costs which are not recoverable on exit, including losses incurred during the establishment phase after entry and the costs of acquiring and relocating suitable vessels. There are cost disadvantages from not being able to access already ‘fit-for-purpose’ vessels that are appropriate for the purpose of providing scheduled marine freight services.

2.    Please assume that the detriments that are likely to result from the Proposed Acquisition include:

2.1    The Proposed Acquisition will remove Sea Swift’s largest and closest competitive constraint (i.e. TML) and lessen the level of competitive constraint from other existing and potential suppliers of scheduled marine freight services.

2.2    If the Proposed Acquisition does not proceed, TML will seek to maximise its profits/minimise its losses from its exit from the relevant market(s). This is likely to involve TML seeking to see its business as a going concern – either in part or as a whole (for instance, by selling its business operations in the NT). If it is unable to do so, it will seek to sell its assets and is likely to seek to sell them in bundles, including by way of assisting to assign existing customer contracts to third parties that acquire some of its physical assets. It is also possible that in the process of TML seeking to sell its business in whole or in part or seeking to sell its assets, one or more customers may choose to put their contracts out to tender in the market such that TML will not be able to assign those contracts. These alternatives all have the potential to reduce the identified barriers to entry/mobility in a way that will provide a greater competitive constraint on Sea Swift in the future than would be the case if the Proposed Acquisition proceeded.

2.3    It will be more difficult for potential entrants to win customer contracts from Sea Swift if the Proposed Acquisition proceeds because of customer stickiness: reputation of (and past dealings with) suppliers matter for customers of scheduled marine freight services. This is especially the case given existing TML customers will have already been transferred to a new supplier (i.e. Sea Swift) if the Proposed Acquisition proceeds.

2.4    If the Proposed Acquisition proceeds, potential entrants will not be able to bid for TML’s assets and the market will lose the benefit of:

2.4.1    competition from potential entrants for TML’s assets and customer contracts;

2.4.2    potential entrants obtaining contracts and/or assets such as fit-for-purpose, proven vessels that will enable them to better compete with Sea Swift for customers in the future (including when contracts come up for renewal); and

2.4.3    Sea Swift being forced to compete for TML’s customers at a time when TML would be seeking to sell its assets and assign contracts to potential acquirers of its assets.

2.5    Sea Swift will acquire the lease with the Arnhem Land Aboriginal Land Trust in relation to the Gove heavy lift wharf and roll-on roll-off ramp at Melville Bay Rd, Foreshore Drive, Nhulunbuy, in circumstances where there is not suitable alternative landing facility at Gove.

(collectively, the ‘Competitive Detriments’).

106    While the ACCC accepted that the most likely outcome is that TML will not continue its operations in the NT and FNQ, it submitted that:

(1)    It is very unlikely that TML would abruptly withdraw from the market in breach of its customer contracts and any benefit flowing to TML’s contracted customers from having their contracts novated to Sea Swift would be limited in scope and duration.

(2)    The claimed benefits relating to issues including lowered costs of entry for competitors, cost savings and dynamic efficiencies should be given little to no weight.

107    Based on the reports by Mr Lindholm and Dr Williams, the ACCC submitted that the fact that Sea Swift did not take advantage of TML’s exit announcements on 26 February and 21 October 2015 and instead elected to enter into the renewed agreement on 17 March 2016 and pay a “substantial premium” over the value of tangible assets to be acquired demonstrates that it is buying market power by paying to ensure that TML’s assets are not obtained by its competitors, resulting in a substantial lessening of competition. If the Proposed Acquisition did not proceed, it would be open to Toll to maximise profit and minimise reputational damage resulting from TML’s exit by selling its NT business as a going concern or selling its vessels together with the assignment of contracted customers along “trunk” routes (see [164] below) in the NT. The ACCC submitted that these are counterfactuals that the Tribunal should take into account on the basis that there is a “real chance” that they might occur.

108    The ACCC submitted that TML’s exit in the absence of the Proposed Acquisition is the most pro-competitive outcome because it presents a “unique opportunity” to lower barriers to entry or expansion for Sea Swift’s competitors by making TML’s major customer contracts contestable at the same time, not in the usual staggered way, so that the factor of incumbency is removed. This opportunity would be lost if the Proposed Acquisition is authorised. The ACCC said that large customers do not have sufficient countervailing power to constrain Sea Swift from increasing prices after the Proposed Acquisition because very few of them are in a position to sponsor a new entrant. Even if the threat of sponsoring a new entrant is effective for large customers, it would not constrain prices for uncontracted customers.

109    The ACCC submitted that if the Proposed Acquisition proceeds, the likelihood of marine freight operators entering or expanding to provide scheduled services in competition with Sea Swift will be limited. In closing submissions, the ACCC submitted that as a result of the high barriers to entry, “hit and run” entry would not be credible. This view was based on a number of matters which the ACCC identified as constituting significant barriers to entry or expansion by Sea Swift’s competitors, including:

(1)    the need to secure regular freight volumes;

(2)    difficulties overcoming the advantages held by an incumbent supplier which would include customer loyalty, the perceived “quality” of the product through reputation, economies of scale and the staggered timing of contracts coming up for renewal;

(3)    the lack of suitable access to landing facilities, particularly at the Gove Lease;

(4)    the risk of strategic responses by incumbents to new entry; and

(5)    sunk costs of entry, including losses incurred while establishing a reputation and the costs of acquiring and repositioning suitable vessels.

110    Based on Professor King’s report, the ACCC submitted that:

(1)    the Transferred Contracts Condition does not address the advantages of incumbency that Sea Swift would enjoy when competing against other potential rivals for customer contracts in the future;

(2)    the Gove Lease Undertaking would not mitigate Sea Swift’s incentive and ability to price discriminate against its competitors;

(3)    the outcomes to be derived from the commitments offered by Toll are, in respect of some of its vessels, likely to occur in any event should the Proposed Acquisition not proceed;

(4)    the Remote Community Price Condition would be ineffective and inadequate in scope; for example, it does not apply to some major freight categories, such as fuel, and it does not reflect the discounts which a substantial proportion of the market currently receives. Due to the complexity of the calculations, it will be difficult for customers to monitor whether Sea Swift is complying with this Condition;

(5)    the Remote Community Service Condition would provide little or no benefit to customers because it is likely that all communities will continue to be serviced with or without the Proposed Acquisition. The Condition does not maintain current service levels as services to some remote communities will drop back from twice weekly to once weekly;

(6)    the Remote Community Service Condition and Remote Community Price Condition suffer from the following shortcomings:

(a)    they are limited in duration and are therefore incapable of remedying the effects of a significant structural change arising from the Proposed Acquisition;

(b)    they are unlikely to reflect prices or service frequencies that would be set in a competitive market in the future in the absence of the Proposed Acquisition;

(c)    there is a real prospect that Sea Swift would be able to circumvent or mitigate the extent of its obligations under these Conditions; and

(d)    these Conditions are not subject to independent monitoring or oversight or any other enforcement mechanism; and

(7)    there is a significant risk that the Proposed Conditions will lead to market distortions.

111    The ACCC was concerned that the information that Sea Swift was obliged to provide under the Remote Community Price Condition and the Remote Community Service Condition was inadequate.

112    The ACCC had a range of comments in relation to the Gove Lease Undertaking, including those put forward by Professor King and that it did not reflect its current practice in relation to other ports. In its 29 June 2016 response to the Tribunal’s draft Determination, the ACCC said that the undertaking should include standard provisions for independent audit employed in infrastructure access undertakings such as the one imposed by the Tribunal in Mac Gen. This was the first time the ACCC gave the Tribunal any draft provisions to support its submissions on the content of the Gove Lease Undertaking.

Postion taken by the MUA

113    The MUA was concerned that if the Proposed Acquisition was authorised, Sea Swift would hold all of the major contracts for the provision of scheduled services in the NT and FNQ such that it would be “highly unlikely” that other service providers will have any need for additional labour. It submitted that the downturn in mining and project work in recent times means other employment prospects in the industry are poor.

114    The MUA contended that the employment prospects of TML’s employees were “significantly improved” in the future without the Proposed Acquisition because of the “greater likelihood” that other service providers would increase their activities in FNQ and the NT by acquiring some of TML’s customer contacts and/or vessels. The MUA relied particularly on the evidence of Mr Hamilton of Shorebarge and Mr Conlon of Barge Express.

115    The MUA submitted that it was Sea Swift’s evidence that it will use its existing workforce who are currently employed on a casual or part-time basis to fill additional labour requirements and would otherwise consider using independent contractors. On that basis and whether or not former TML employees were members of the MUA, the “practical effect” of the Proposed Acquisition from the point of view of the TML employees was equivalent to a restraint on trade. As put by Mr Scruby in oral closing submissions “the TML employees are shut out of even competing for jobs and it is not simply a matter that they’re not going to get them”.

Marine Freight Services industry in NT and FNQ

Description of marine freight services

116    Broadly, marine freight services involve the carriage of cargo by ship or barge and fall into two categories, charter services and scheduled services.

Charter services

117    Charter (sometimes called project) marine freight services are one-off or short-term services for specific (usually large) customers which sometimes require an entire vessel for a particular shipment, often in the mining, construction and electricity businesses. Those services more likely involve the carriage of different (usually bulky) goods which cannot easily be supplied on regular scheduled services and are generally carried from point to point with no intermediate stops.

118    The parties agree that the companies which provide these services in addition to Sea Swift and TML in the NT are: Barge Express (formerly Sealink), Bhagwan Marine, Teras, Offshore Marine Services and Shorebarge; and in FNQ they are: Carpentaria Contracting, Carpentaria Freight Services, MIPEC and Pacific Marine Group and Palm Island Barge.

Scheduled services

119    Scheduled services are regular services between two or more locations according to a regular schedule and voyages take place irrespective of whether there is sufficient cargo to cover the cost of that journey. The supplier carries cargo for anyone who wishes to ship it between those locations; some customers are regular or contracted (such as supermarkets or mining companies) and others only require ad hoc services for freight for items ranging from vehicles to household items. For example, Sea Swift currently operates a scheduled service from Cairns to Horn Island, Thursday Island, Seisia and Weipa, departing from Cairns on Tuesday and arriving at the other locations according to a schedule that is published by Sea Swift in advance. Any customer who wishes to ship goods from Cairns to those locations can deliver goods to Sea Swift in Cairns prior to a particular cut off time on Monday for the shipment that departs on Tuesday.

Communities served

120    The island and coastal communities in FNQ and the NT that require marine freight services generally fall into two categories, communities built around mining projects and communities predominantly comprised of Aboriginal and Torres Strait Island people. The services are essential to these communities because road access to them is impossible (because the community is on an island) or limited (often due to the state of the road or they are impassable during the wet season). Some roads to coastal areas are being improved but they are generally not yet sufficiently reliable to provide a year-round alternative to scheduled marine freight services. Air freight is prohibitively expensive for bulk requirements and the size of planes used means air freight is not suitable for other items, such as heavy equipment or vehicles.

121    Annexures 3 and 4 to these reasons are maps demonstrating the routes for scheduled services currently operated in the NT and FNQ by Sea Swift, TML and their competitors. As can be seen, the routes cover long distances. The provision of services to some communities can be restricted by tides, strong currents and reefs so that navigation is only safe at certain times of the day or month.

122    The routes are generally very sparsely populated. A submission from the Department of PM & C indicates that of the approximately 35,515 people living in the communities serviced by Sea Swift and TML, 25,401 are Aboriginal or Torres Strait Islanders. That figure does not include people living on outstations or smaller satellite communities who depend on the larger communities for goods and services. The affected communities have high rates of unemployment and welfare dependence.

123    The largest communities to which cargo is delivered are, usually, the centres which revolve around mining: Gove, Groote Eylandt and Weipa.

Reliance on scheduled services

124    The consistent evidence of the witnesses from the remote communities is that they need scheduled services to be regular and reliable. This is because they carry essentials such as groceries, fuel, pharmaceuticals, mining consumables and building materials. Many of these customers require “depot to door” services, where the freight is not just delivered to a particular wharf, but to a business or other premises. Many communities require weekly scheduled services, because they do not have storage capacity for large quantities of fuel and stocks of perishable foods.

125    Witnesses from the remote communities emphasised the importance of scheduled services arriving at or near the scheduled times, since many landing facilities in remote communities are not manned or are tide-dependent. Perishable goods may spoil or their shelf life may be limited if a landing is not made at a scheduled time so that the facility is unattended; it is also costly for customers to arrange for staff to deal with stock landed at non-scheduled times.

126    Many communities have benefited from the competition between Sea Swift and TML due to obtaining better prices, additional weekly services (twice weekly where they previously only had one) and more reliable arrival at scheduled times. Two scheduled services at different times in the week allow quick “catch up” for perishable goods, fuel or other supplies, for instance, where weather has prevented a scheduled delivery or where a consignor has missed the time for loading on a provider’s vessel. For this reason, many of the witnesses from remote communities have stressed that they would prefer to continue to receive two scheduled services from competitors. However, a number of witnesses did not appear to be aware at the time they gave their witness statements, or even when they were cross examined at the hearing, that TML had announced that it will cease to provide scheduled services if authorisation was refused.

Is there a static level of demand?

127    There has been a significant downturn in demand for the carriage of freight over the past 18 months due to the end of the project construction phase of the mining boom, reductions in government spending and lower prices received for many commodities. This has affected both scheduled services and charter services. There has been a drop in population in some areas; for instance, by reason of the closure of the aluminium smelter at Gove, Rio Tinto’s workforce has reduced from 1,200 to 400.

128    The ACCC submitted that the downturn in the mining and resources industries is cyclical and there are other areas of growth such that the Tribunal should not accept Sea Swift’s proposition that there is a relatively static level of demand for scheduled services in the NT and FNQ. For instance, the Amrun (South of Embley) project is being developed by Rio Tinto 40 kilometres south of Weipa (the mine at Weipa is nearing the end of its productive life), GEMCO plans to spend US$139 million in expanding its mine on Groote Eylandt, there is some population growth in Arnhem Land and there are building projects around Maningrida, which has been identified by the NT Government as one of the major NT growth towns. Other communities are aiming to develop offerings for fishing industries (for instance, at Gove) and tourism (for instance, in FNQ). There is a whole of government plan for the Torres Strait Islands involving an investment of $169 million in capital works between August 2013 and September 2019.

129    The Tribunal accepts that the mining and resources industries are cyclical and therefore the profitability of service providers to those industries will also have cyclical features. Sea Swift’s board papers prepared in 2014 reflect this fact. However, while it would not be appropriate to take a short-term view, there is no evidence of when the current cyclical downturn will end or to what level those industries might be expected to recover. Further, even if there is likely to be some population growth in the NT and FNQ due to infrastructure development, the population is nonetheless sparse and suggestions that there may be significant growth are speculative.

130    The Tribunal accepts Mr Bruno’s evidence that the market for scheduled services is constrained by relatively static year-on-year volumes of freight shipped to and from remote communities in FNQ and the NT.

Services provided by Sea Swift and TML in the NT and FNQ

131    Sea Swift and TML are the only providers of scheduled services in FNQ. They each have depot facilities in Cairns, Thursday Island, Horn Island, Seisia/Bamaga and Weipa. Of the 21 communities receiving scheduled services in FNQ, 18 were serviced by both Sea Swift and TML. Seventeen of these communities were serviced by both providers on a weekly (or more frequent) basis.

132    In the NT, Teras has been providing a scheduled service between Darwin and Port Melville and Port Keats since 2013 and for a number of years TML has subcontracted some of its scheduled services in the NT to Barge Express. Sea Swift and TML compete with each other and approximately ten others in both FNQ and the NT for charter and project services.

133    Of the 17 routes operated in the NT at the time of the hearing, Sea Swift was servicing 12 and TML was servicing 13. Eight of the routes were being serviced by both Sea Swift and TML; seven of these were on a weekly (or more frequent) basis.

134    There are arrangements between TML and Sea Swift on an ad hoc basis apparently directed at ensuring uninterrupted services to communities in the NT and FNQ. A reciprocal slot arrangement between Sea Swift and TML allows for each of them to carry the other party’s freight in the event of an emergency or breakdown. For a temporary period in 2015, due to the dry-docking of one of its own vessels, Sea Swift charted a vessel owned by TML. On the rare occasion, Sea Swift also accesses TML’s Gove Lease facilities.

Requirements to be able to provide a service

135    There are four basic logistical requirements for a person who wishes to supply marine freight services: vessels, access to landing facilities in the various remote communities, depots and equipment and employees. For the reasons set out below, the Tribunal accepts that these four requirements (save for landing facilities at Gove) can be met easily by a market entrant with the necessary funds.

Vessels

136    The types of vessel suitable to transport cargo by ship to remote communities are line haul vessels and barges/landing craft; these are required to have relevant registration.

137    Any operator with sufficient funds is currently able to buy or charter these types of vessels domestically. The evidence given by Mr Bruno and officers of Sea Swift’s competitors discloses that following the end of the downturn in the mining and resources industries, there are numerous suitable vessels available for purchase or charter in Australia, including in Darwin and Western Australia at relatively modest cost and in a relatively short time frame of up to a month. Vessels can also be obtained internationally, but this would take a little longer and would cost more to ensure that the vessel meets Australian registration standards. Although Mr Johnson of Teras gave evidence that it had once taken him eight months to secure registration of a vessel he obtained from overseas, he explained to the Tribunal at the hearing that this was not a typical vessel and the problem occurred in the early days of a new registration system.

138    The Tribunal accepts that Sea Swift will acquire the proposed vessels from TML under the Proposed Acquisition for convenience. While they are known to be suitable for the routes operated by TML, acquiring those vessels confers no competitive advantage because of that factor.