The agreements meant the Port of Newcastle effectively has to compensate the owner of Sydney's Port Botany if container cargo starts to be diverted to NSW's second-largest city.

The compensation due was so high, it was uneconomical for Newcastle to compete with Botany, breaching competition laws, the competition watchdog had alleged.

But Federal Court Justice Jayne Jagot on Tuesday dismissed the Australian Competition and Consumer Commission's claim.

Her reasons for judgment will be released at a later date once the parties redact confidential information.

The decision vindicates the Liberal-National state government, which privatised both ports and Wollongong's Port Kembla for a combined $6.85 billion after coming to power in 2011.

Botany the state's primary container cargo port, and Kembla, which primarily handles imported vehicles, grain and other bulk cargo, are both owned by NSW Ports.

The consortium - comprising of Australian Super, CBUS, HESTA, HostPlus and other industry superannuation funds - said it was "pleased" by the court's decision.

But ACCC chair Rod Sims said the judgment provides an "enormous hurdle" for Newcastle to develop a container terminal.

"Absent new entry, NSW Ports will have an effective monopoly in moving containers in NSW for 50 years," he said in a statement.

"We took this action to remove a barrier to competition in an important market, the supply of port services, which has a significant impact on the cost of goods paid by Australian consumers.

"Such barriers damage Australia's productivity performance."

A report commissioned by Port of Newcastle in 2018 suggested a large-scale container terminal in the state's second-largest city would deliver a $6 billion boost to the NSW's economy.

But a later report, commissioned by NSW Ports, found Port Kembla would be the most viable candidate for a second container terminal given it was closer to Sydney's booming west.

Justice Jagot considered the legality of the 50-year agreement requiring NSW to compensate NSW Ports should its Port Botany lose traffic to Newcastle.

NSW wouldn't be out of pocket as a second deal meant it was reimbursed by Newcastle, effectively doubling the cost of moving a container at the Port of Newcastle.

Newcastle is the world's largest coal export port and the country's third-largest port by volume.

But it handles few containers, lacking the specialist equipment that allows Port Botany to handle 2.7 million standard container units each year.

The compensation clauses kick in once Newcastle exceeds a cap of about 30,000 units a year.

NSW Ports had denied the watchdog's key allegations, including those concerning the purpose and effect of the agreements.

Port of Newcastle is owned by British Virgin Islands-registered Goldframe Investment Limited and Gardior, a consortium of super funds including Australian Catholic Superannuation and Sunsuper.

Australian Associated Press