Scott Morrison says his government is weighing up the implications of a Federal Court decision which could make Newcastle port's proposed container terminal unviable.
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The Federal Court on Tuesday dismissed an Australian Competition and Consumer Commission action over the legality of controversial port sale deals which have stymied the Newcastle project.
In a response to questions to the Prime Minister office, a spokesperson said the government was "carefully considering" the judgement and its impact on the proposed terminal.
"The government is keen to see further development in the Hunter to realise the region's potential," the spokesperson said.
Justice Jayne Jagot announced her decision on Tuesday morning but will not publish her full judgement until the various legal parties have had a chance to review it.
The court proceedings concerned 50-year agreements, known as Port Commitment Deeds, which were entered into as part of the privatisation of Port Botany and Port Kembla by the NSW government in May 2013.
The secret Botany and Kembla deeds, revealed by the Newcastle Herald in 2016, oblige the NSW government to compensate NSW Ports, the operators of Port Botany and Port Kembla, if container traffic at the Port of Newcastle is above a minimal specified cap.
Another 50-year deed, signed in 2014 when Newcastle port was privatised, requires the Port of Newcastle consortium to reimburse the government for any compensation paid to NSW Ports. This reimbursement would effectively double the cost of moving a container at Newcastle.
The ACCC launched its action against NSW Ports in 2018 under the Competition and Consumer Act.
NSW Ports then filed a cross-claim against the government and Port of Newcastle.
It is not yet clear whether Justice Jagot ruled that the deals were not anti-competitive or whether NSW Ports was entitled to "derivative" Crown immunity under the Competition and Consumer Act because the consortium was dealing with the NSW government.
The ruling is a win for Premier Gladys Berejiklian, who has publicly defended the deals.
ACCC boss Rod Sims told the Newcastle Herald that he was "incredibly disappointed" with the decision.
"Obviously, with this decision, it means we've got a good chance of being stuck with a monopoly container port provider in NSW for the next 50 years," he said.
"This damages the NSW economy.
"It shows why privatising assets with anti-competitive arrangements like this is just so damaging."
The ACCC's lawyers will review the judgement before deciding whether to appeal.
Mr Sims said the "ball is in the government's court" regarding whether it would "buy out" the compensation arrangement with NSW Ports.
"I don't fully understand the financial consequences for them, so it's hard to say," he said.
"What I do know is suppressing competition like this has got to be very bad for the NSW economy, not to mention the economy of the Hunter."
A Port of Newcastle representative said the company was disappointed with the outcome but could not comment further until it had seen the reasons for the judgement.
The delay in publishing the judgement will give the parties' lawyers an opportunity to identify which parts of it should be redacted under their confidentiality agreement.
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Port of Newcastle, which paid $1.7 billion for the port, is keen to develop a large-scale container terminal to diversify its operations in the face of possible declining coal exports.
The consortium has been pursuing a political solution to the issue alongside the court proceedings.
Restored Nationals leader Barnaby Joyce, the member for New England, is understood to be a strong supporter of a Newcastle terminal to support farmers in the state's north.
The port consortium's special projects director, Ross Cadell, was pre-selected two weeks ago to represent the Nationals on the Coalition's NSW Senate ticket in the next federal election.
Mr Sims denied the loss was a blow to the ACCC's standing.
"People forget how many cases we've won. We've got about an 85 per cent hit rate.
"Even on competition cases we've had a lot in recent years."
Newcastle MP Tim Crakanthorp said Labor "wants this fight to continue" and would be poring over the judgement.
"I recall meeting with ACCC years ago to help expose this secret deal, so this is an incredibly disappointing decision after what feels like has been a marathon," he said.
"The ACCC may have lost the case, but common sense tells us that there is a business ready to spend billions of their own dollars making the Hunter stronger and the government should be letting this happen."
"Now more than ever we need to be laying the groundwork to diversify our economy but this deal has placed a straitjacket on the Port's growth and completely sold out our region."
ACCC lawyer Michael Borsky, QC, had argued during court hearings last year that the Botany and Kembla lease "had the purpose or likely effect of substantially lessening competition" to boost the port's sale price.
Mr Borsky laid out a timeline for Justice Jagot which he said demonstrated that the former Labor government had promoted the development of a large container terminal on the former BHP steelworks site at Mayfield from 2003 to 2011.
The government's Newcastle Port Corporation had reached a deal in 2011 with Newcastle Stevedores Consortium to develop a terminal, but the state had blocked the sale after potential Botany and Kembla operators said it would make those two ports less attractive.
Mr Borsky referred to a series of emails and briefings involving, among others, consultants Morgan Stanley, port bidders, then treasurer Mike Baird, senior bureaucrats and Newcastle Port Corporation which he said showed the government had scuppered the Mayfield deal out of concern it would affect the Botany and Kembla price tag.
The documents, some of which remain confidential, showed the government had been briefed on how a Newcastle terminal would cut the Botany and Kembla lease value by a "substantial sum which I'm not at liberty to read", he said.
The state had included the 50-year compensation provisions in the deals to assure the private sector of the long-term value of the port leases regardless of any changes in future government policy regarding a Newcastle container terminal.
"Precisely because governments couldn't bind decisions of future governments, particularly over a term of, say, 50 years, this sort of regime was proposed to be included in the transaction documents that were being prepared on behalf of the state," Mr Borsky said in relation to email advice from Morgan Stanley to NSW Treasury.
Morgan Stanley, which was advising the government on the sale process, had suggested a Newcastle reimbursement fee kick in at 200,000 containers a year, but the state had eventually settled on a far less generous cap of 30,000.
Mr Borsky said Treasury documents showed Mr Baird had signed off on the compensation provisions in 2013 after being briefed on the port commitment deeds.
Barrister Stephen Free, SC, acting for the NSW government, told the court last year that the container fees, placed in the context of the port deeds and the transactions, were "really trivial provisions in the scheme of things".
He said the compensation provisions had arisen "at the end of the transaction process" to manage "perceived sovereign risks" and not to lessen the prospect of competition.
Noel Hutley, SC, acting for NSW Ports, told the court last year that the development of a Newcastle container terminal would, in effect, "cleave" the state's container market in two, resulting in the two ports not competing against each other but operating in separate, distinct markets.
"Whether or not such a [Newcastle] project came to fruition affected how big a monopoly they were buying and thus how much they should pay," Mr Hutley said.
"In this way it wasn't an end to impede competition ... it was merely to get what we paid for."
He said there would be no competition between a realised container port in Newcastle and the ports at Botany and Kembla "save perhaps ... an insignificant overlap in the port's hinterlands".
Mr Hutley agreed with the ACCC argument that bidders for Botany and Kembla and the state thought the prospect of a Newcastle terminal "material to the price payable for those assets".
"But the reasons for this were not that they feared competition ... but rather because they recognised that the advent of a Newcastle container terminal could redraw the boundaries of their monopoly," he said.
Mr Hutley and Mr Free said the compensation provisions were "effectuating state policy" that Newcastle would be developed as a container terminal only after Botany and Kembla reached capacity.