We outline the key takeaways from the Federal Court’s December 2024 and April 2025 decisions in the section 46 class action.
On 7 April 2025, the Federal Court dismissed applications to stay the assessment of costs and assess costs on an indemnity basis in Stillwater Pastoral Company Pty Ltd’s (Stillwater) representative proceedings against Stanwell Corporation Ltd (Stanwell) and CS Energy Ltd (CS Energy) for an alleged breach of s 46 of the Competition and Consumer Act 2010 (Cth) (CCA). The dismissal follows an earlier judgment handed down on 4 December 2024 which found that Stillwater had failed to establish its allegations in their entirety. Copies of the 4 December 2023 judgment on liability (the Liability Judgment) and 7 April 2025 judgment on costs (the Costs Judgment) can be found here and here.
In brief, Stillwater brought the representative proceedings on behalf of a closed class of Queensland energy consumers. Stillwater alleged under the old misuse of market power provisions that between 20 January 2015 and 20 January 2021, Stanwell and CS Energy (together, the Respondents):
- had a substantial degree of market power in the Queensland Region of the National Energy Market (QRNEM); and
- took advantage of that market power for the purpose of deterring or preventing other electricity generators from engaging in competitive conduct by adopting a ‘Short-notice Rebidding’ trading strategy that sought to maximise profits during Queensland summer months (detailed below).
In the Liability Judgment, Justice SC Derrington concluded that the Respondents’ significant market share, did not equate to significant market power. Her Honour further held that any Short-notice Rebidding strategy pursued by the Respondents was only transient in nature, and therefore could not amount to substantial market power.
Subsequently, Stillwater sought to stay the assessment of costs pending the determination of its appeal of the Liability Judgment. The Respondents further requested that her Honour exercise her discretion to order costs on an indemnity basis due to Stillwater’s rejection of separate offers of compromise made by both, and alleged persistence in the prosecution of a hopeless case.
Both applications were dismissed by Justice SC Derrington in the Costs Judgment which found that:
- the benefits of a stay were outweighed by the likely prejudice to the Respondents that arise from the loss of interest which would otherwise accrue; and
- it was not unreasonable for Stillwater to reject offers which were unlikely to receive the Federal Court’s approval, nor to persist with the prosecution of a novel case which was based on ‘an unsettled state of the law’.
With the recent rise in private action under the CCA, the judgments provide useful insights into the issues that can arise when pursuing novel competition claims in a class action context. Further, the judgments serves as clear statements on how the Federal Court will take into account the novelty and uniqueness of a case when applying orthodox economic and legal principles.
Facts
The Respondents, both state-owned corporations, are the largest electricity Generators in the Queensland region of the NEM. As Generators, they sold electricity to customers through the centrally-coordinated NEM dispatch process, which balances supply and demand in five-minute intervals by matching the bids made by Generators to electricity demand in each trading interval. Generators are able to place new bids or re-bid up until the close of the trading interval window.
Generators in the NEM only receive revenue from the dispatch of electricity (or the provision of ancillary services). As Justice SC Derrington acknowledged in the Liability Judgment, this results in a need for Generators to significantly increase electricity spot prices for short periods of time in order to recover costs (including variable costs, which increase during periods of high demand).
Stillwater alleged that to maximise profit during summer (when demand for electricity is high), the Respondents both adopted a Short-notice Rebidding trading strategy in which they:
- submitted rebids at much higher prices;
- deliberately delayed submitting those rebids until the close of the trading interval window with the expectation and intention that this delay would prevent competing Generators from having a sufficient opportunity to react or adjust their bids in response; and
- submitted those rebids in circumstances that were not materially different from the circumstances that existed when the initial bid was made and without providing any explanation for the rebid consistent with competitive behaviour.
The alleged purpose of this strategy was to deter or prevent other Generators from engaging in competitive conduct, in order to ensure maximum profitability for Stanwell and CS Energy.
Stillwater initially alleged that this strategy was implemented over the course of 95,232 impugned trading interval, but subsequently reduced its allegations to only 352 trading intervals. Ultimately, Stillwater sought to establish its case by reference to 13 example trading intervals (Sample Intervals) which had been selected by Stillwater’s expert witness, Dr Shaun Ledgerwood.
The Liability Judgment – the Federal Court’s dismissal of Stillwater’s misuse of market power claims
(a) Relevant Market
The relevant market for the purpose of assessing the question of substantial market power was found to be the wholesale supply of electricity to the QRNEM, including inflows from other regions of the NEM. In reaching this conclusion, Justice SC Derrington considered three diverging opinions that were put forward by each of the parties’ experts.
Initially, Stillwater’s expert contended that the relevant market comprised each of the 9,211 dispatch intervals in which the QRNEM was price-separated due to the binding of transmission constraints between Queensland and New South Wales. This position was heavily scrutinised by the Respondent’s experts as well as Justice SC Derrington. In particular, her Honour described Dr Ledgerwood’s conclusion as artificial and ‘infected’ by an inversion of the approach to identifying anti-competitive conduct’.
Ultimately, Dr Ledgerwood retracted his opinion and endorsed the views of CS Energy’s expert that the relevant market was the wholesale supply of electricity to the QRNEM, including inflows of electricity generated outside Queensland from NSW via the interconnecting transmission infrastructure.
(b) Did Stanwell and CS Energy have ‘substantial market power’?
Stillwater sought to establish that the Respondent’s individually, and in aggregate, had a substantial degree of market power due to:
- the high barriers to entry for new Generators in the NEM generally;
- the physical advantages that the Respondent’s were alleged to each have over competitors as a result of their greater generation capacity (with the alleged consequences that both could submit low offers for volumes at most, or all, levels of forecasted demand, and ramp up their generation volume more quickly than competitors); and
- the lack of other constraints on their ability to engage on Short-notice Rebidding.
Justice SC Derrington was again highly critical of the evidence adduced by Dr Ledgerwood in support of Stillwater’s arguments, describing it as highly theoretical, conceptually flawed and at times, incorporating false assumptions.
In dismissing Stillwater’s arguments, her Honour relied upon the findings by French J (as he then was) in AGL v ACCC (Loy Yang) [2003] FCA 1525 that market power which arises during periods of high demand when a Generator might seek to cause price spikes is ‘transient’ and ‘does not amount to an ongoing ability to price without constraint from competition’.
In relation to the Respondent’s greater capacity comparative to other Generators, her Honour reiterated the observations of Gleeson CJ and Callinan J in Boral Besser Masonry Ltd (now Boral Masonry Ltd) v ACCC [2003] HCA 5; 215 CLR 374 that market share does not per se equal market power.
The ‘statistical insignificance’ of the number of occasions on which Stillwater alleged that Stanwell and CS Energy had successfully spiked the price was seen as ‘overwhelming evidence’ that those spikes were transient in nature and therefore, incapable of supporting an inference of substantial market power. Further, her Honour observed that neither Respondent had any greater ability to ensure that they were instructed to dispatch than other Generators in the market.
The question of whether the Respondents had substantial market power in aggregate did not arise for consideration as her Honour found that the Respondents were not ‘related’ within the meaning of s 4A of the CCA.
(c) Did the alleged Short-notice Rebidding strategy exist?
Due to an absence of direct evidence, Stillwater sought to establish the existence of the Short-notice Rebidding strategy by submitting that inferences that could be drawn from:
- strategy and training documents produced by the Respondents;
- the nature, frequency and effect of the Short-notice Rebidding itself; and
- an analysis of what occurring during each of the 13 Sample Intervals.
Her Honour accepted that the Respondents had adopted trading strategies aimed at achieving higher revenues (which may involve the making of delayed rebids). However, her Honour rejected Stillwell’s contention that the intention, or expectation, of any delayed rebids was to ensure that competing Generators would have insufficient time to appropriately respond.
In arriving at this conclusion, Justice SC Derrington observed that:
- the NEM functions as a blind auction in which traders do not have insight into how another Generator may respond to a rebid ‘such that a rebidding trader is simply “chancing his luck” that a price spike will occur’;
- rebidding was permitted up until approximately 67 seconds before the end of dispatch interval and had been recognised by the Australian Energy Markets Commission as important to the operation of the NEM;
- the need to assess all of the circumstances before a Generator is able to submit any rebid may legitimately cause delays;
- other Generators were equally familiar with the operation of the NEM and had access to the same publicly available information; and
- an analysis of the Sample Intervals did not provide evidence of the alleged strategy.
(d) Did Stanwell and CS Energy take advantage for a proscribed purpose?
Even if Stillwater had established both substantial market power and the trading strategy, Justice SC Derrington held that Stillwater would still have failed to establish that the Respondent’s took advantage of their substantial market power for the alleged proscribed purpose of deterring or preventing a responsive rebid by other Generators.
In particular, her Honour observed that the Respondent’s ‘hope’ that their trading strategies would cause a price spike, does not equate to an intention or expectation, nor a purpose of deterring a competitive response from other Generators. Price spikes were described as an ‘intended and ubiquitous’ feature of the NEM that were not prohibited, with her Honour stating that engaging in profit maximising behaviour is not a proscribed purpose.
The Costs Judgment – the Federal Court’s dismissal of the stay application and refusal to make an indemnity costs order
(a) The likelihood that significant costs would be wasted if Stillwater’s appeal were successful
Following Justice SC Derrington’s finding that the allegations were not made out in their entity, Stillwater lodged its notice of appeal and consequently sought to stay the assessment of costs pending the appeal’s determination. Stillwater argued that a stay was appropriate as:
- its appeal was arguable, particularly in the context of a ‘novel and complex representative proceedings’; and
- it was likely that significant costs would be wasted if the appeal were successful given the size of the costs assessment required to be undertaken.
Although Justice SC Derrington agreed with both submissions, her Honour found that they were outweighed by the likely prejudice to the Respondents which would arise from the loss of interest that would otherwise accrue until the appeal were finalised. As the determination of the appeal was estimated to take a minimum of 18 months, if unsuccessful, a stay was found to risk providing Stillwater a ‘windfall benefit’ that would be ‘significantly higher’ than any wasted costs.
The risk was found to be one which could not be mitigated, with her Honour observing that, unlike the NSW Supreme Court, the Federal Court is not empowered to order that interest be payable on a future costs judgment.
(b) Did Stillwater unreasonably continue with its claim?
In relation to the Respondent’s request that Justice SC Derrington exercise her discretion to order indemnity costs, Stanwell alleged that such an order was appropriate as Stillwater knew from no later than 26 February 2024 onwards, that it had no chance of success.
Stillwater’s alleged knowledge was said to have arisen from several factors, including that:
- the significant reduction in the number of impugned trading intervals that was initially pleaded demonstrated that the claim lacked reasonable prospects;
- it should have been apparent to Stillwater that Dr Ledgerwood had analysed a different market from that which it had pleaded;
- the proofs of evidence of two Stanwell traders stated that they did not deliberately delay making rebids;
- substantial discovery did not find any document which revealed the alleged trading strategy; and
- Stanwell’s expert evidence showed that all Generators in the market engaged in the same conduct.
Her Honour disagreed that the reduction in impugned trading intervals or the contents of Stanwell’s evidence were sufficient to find that Stillwater persisted in the prosecution of a hopeless case. This was as no party is expected to ‘accept the unchallenged testimony of a witness for another party’ and therefore, Stillwater was entitled to test the evidence at trial.
In respect of the criticisms levied at Dr Ledgerwood in the Liability Judgment, her Honour held that subsequent findings that an expert’s opinion was unpersuasive cannot be used to retrospectively undermine the reasonableness of relying on that evidence before it had been tested at trial.
Accordingly, the court rejected Stanwell’s submission for costs on an indemnity basis for the reason that Stillwater persisted in the prosecution of a hopeless case.
(c) Stanwell and CS Energy’s offers of compromise
In addition to Stanwell’s submissions as to the hopeless of Stillwater’s case, both Respondents also sought indemnity costs on the basis of Stillwater’s rejection of offers of compromise which were made ten days before the commencement of the liability hearing.
The terms of both offers were that the Respondent’s would:
- bear their own costs of the proceeding (estimated to be in excess of $12,000,000 for Stanwell and $17,000,000 for CS Energy);
- not enforce the existing costs orders against Stillwater which amounted to $799,623.37 for Stanwell and $2,350,000 for CS Energy; and
- waive any entitlement to the security for costs in the sum of $8,050,000.
Her Honour found that both offers foreshadowed an application for indemnity costs if Stillwater rejected the offers and was ultimately unsuccessful at trial.
(d) Did Stillwater unreasonably reject the offers?
Justice SC Derrington observed that additional challenges arise when a respondent seeks to rely on an offer of compromise to settle the entirety of a representative proceeding. Namely that for a Court to approve the settlement and determine that it represents fair value, it must understand the likely value of each group members’ claim which may not be ascertainable without proceeding with the case.
However, her Honour found that this did not mean respondents to representative proceedings are inherently precluded from taking advantage of the cost consequences which flow from an unreasonable refusal of an offer of compromise. Rather, it will turn on the particular circumstances of each case.
In relation to the Respondent’s offers, her Honour observed that class members would not have received any return had the offers been accepted whereas independent advice obtained by the parties indicated that the quantum of Stillwater’s claim could be in the vicinity of $600 million. In such circumstances, her Honour stated that the settlement was unlikely to receive Court approval and held that therefore Stillwater’s rejection was not unreasonable.
Next Steps
After refusing to stay the assessment of costs or order costs on an indemnity basis, Justice SC Derrington ordered that costs be assessed on a lump sum basis (with the parties agreement) and that a Registrar be appointed to assist her Honour with the assessment of costs.
Image credit: Electric Generator Gauges by Eric Kilby / OpenVerse / CC-BY-SA 2.0 / Remixed to B&W and resized
