Involved vertical merger - arrangements between Pacific National (and related bodies) and Aurizon (and related bodies) in relation to the 'supply of intermodal freight and bulk steel rail linehaul services to various end-users for whom transportation by road or sea was not an economically effective substitute.' (para 1).

The ACCC alleged:

'Pacific National’s acquisition of the Acacia Ridge Terminal from Aurizon would have the likely effect of substantially lessening competition in breach of section 50 of the Competition and Consumer Act 2010 (CCA).
The ACCC also alleged that a ‘terminal services subcontract’ between Pacific National and Aurizon that provided for Pacific National to conduct the day to day operations at the interstate side of the Acacia Ridge Terminal would substantially lessen competition in the interstate and Queensland intermodal rail markets in contravention of section 45 of the CCA.
The ACCC was concerned that the acquisition of the Acacia Ridge Terminal, or the existence of the long-term terminal services subcontract, would deter a new entrant from providing interstate linehaul services in competition with Pacific National.'
( ACCC media release)

At trial

Justice Beach rejected the ACCC's case relating to s 45 and s 50 (subject to accepting undertakings). Justice Beach noted that, with some hesitation, he would have accepted the ACCC's case on s 50 'but for' the undertaking.

On appeal

The Court held that there was insufficient evidence to establish the acquisition would likely result in a substantial lessening of competition. See ACCC Media release.

Special leave

An application for special leave to appeal to the High Court was dismissed on 8 December 2020. See ACCC media release.

Special leave

High Court

Special leave filing date
26 June 2020

Hearing
8 December 2020

Result
Dismissed

ACCC special leave press release 1

ACCC special leave press release 2

ACCC v Pacific International Pty Ltd

High Court of Australia

The High Court has dismissed the ACCC’s application for special leave to appeal from the Full Federal Court’s decision that the PN acquisition of the Acacia Ridge terminal would not be likely to substantially lessen competition.

In response, ACCC Chair, Rod Sims, commented:

“… With the acquisition set to proceed, Australia will be left in the position where the dominant intermodal rail linehaul services provider will also own the critical infrastructure that potential competitors need to access in order to compete,”

“The ACCC faces challenges in contested merger cases where a forward looking merger test is applied. The nature of the test, and the inherent uncertainties in predicting the future, make it difficult to prove that a change in the market structure after the merger will substantially lessen competition in the future.”

“This task is further complicated by the need to prove that competition is likely to be substantially lessened compared to a hypothetical future in which the acquisition did not occur,” Mr Sims said.

“These challenges raise important issues for the consideration of whether Australia’s current merger laws are fit for purpose.”

See ACCC media release.

Appeal snapshot

Federal Court of Australia
(Full Court)

Year
2019-2020

Hearing
17-20 Feb 2020
Judgment reserved

Judges
Justice Middleton
Justice Perram
Justice O'Bryan

Appeal lodged
26 June 2019

File Number
VID695/2019 ➤

Copyright

Full Federal Court judgment

ACCC appeal press release 2

ACCC appeal press release 1

ACCC v Pacific International Pty Ltd
[2020] FCAFC 77 (6 May 2020)

Federal Court of Australia, Victorian Registry
Justices Middleton, Perram and O’Bryan

The Court dismissed the appeal, affirming Justice Beach’s decision at trial to dismiss the ACCC’s claim that Pacific National’s proposed acquisition of Aurizon’s Acacia Ridge rail terminal would contravene section 50.

For a useful summary of the key findings see

CommBar Matters: Daniel Clough, Alice Muhlebach, Tim Farhall and Sarah Hogan 'Full Court’s decision in ACCC v Pacific National (27 May 2020)

Facts

The proceedings related to the proposed sale of Acacia Ridge Terminal (rail terminal in Queensland) by Aurizon (and related bodies) to the Pacific National group of companies. The Terminal comprises a standard gauge terminal and a narrow gauge terminal. Pacific National was the largest provider of rail linehaul services in Australia.

The Court cited various earlier cases setting distilling the meaning of various terms and phrases used in section 50.

Market definition

On market definition the Court cited QCMA (at 101), observing a market is the ‘area of close competition between firms or … the field of rivalry between them … a market is the field of actual and potential transactions between buyers and sellers amongst whom there can be strong substitution, at least in the long run, if given a sufficient price incentive …’

The Court observed that the ‘boundaries of markets may be blurred and overlap with other markets (at 102) and may ‘be defined by a subset of customers, being customers for whom substitution possibilities differed from other customers’ (para 107). In particular, market definition may be undertaken by reference to ‘the identity or characteristics of captive customers if (para 107):

‘the suppliers are able to identify who is a captive customer’ and
‘the suppliers are able to prevent resale or arbitrage between the non-captive customers and the captive customers’

In this case the trial judge found there were some freight owners requiring interstate rail linehaul services for whom road or sea services did not provide an effective substitute (see para 109).

The Court also observed (at 139) that:

… a market is an economic concept and the task of defining it must be conducted in accordance with economic principle and be based on commercial reality and real world facts. However, the courts have long recognised that because “[t]he economy is not divided into an identifiable number of discrete markets into one or other of which all trading activities can be neatly fitted”, the identification and definition of a market for particular goods or services will often involve “value judgments about which there is some room for legitimate differences of opinion”: Queensland Wire at 196. …

Substantial lessening of competition

On the meaning of competition the Court cited with approval the familiar passages from the QCMA decision (at 100), including that competition ‘expresses itself as rivalrous behaviour’, that competition is a ‘process rather than a situation’ and that whether firms compete is a ‘matter of the structure of the markets in which they operate’, including market concentration, barriers to entry, product differentiation, vertical relationships and the extent of vertical integration and the nature of any agreements between firms restricting their ability to function independently.

Nature of the test in section 50

The Court emphasised the forward looking nature of the test requiring:

[216] ‘a comparison between the nature and extent of competition in the future with the acquisition and without the acquisition in any market potentially affected by the acquisition. It involves a prediction about the future. While the subject of the prediction - the effect on competition of the acquisition - must be proved on the balance of probabilities, it is not necessary that each relevant predicted fact be proved on the balance of probabilities.’

[218] In the usual case, predictions about the nature and extent of competition in the future with and without the acquisition will be rooted firmly in past and present market conditions, which are susceptible of proof in the ordinary way. Most markets have a history from which an assessment of substitution possibilities, concentration, barriers to entry and other commercial behaviours and conditions can be undertaken and reliable predictions about the future can be made. Further, some future facts are more certain than others. For example, commercial firms and governments make plans about investment or entry into markets, which are observable facts able to be proved in the ordinary way. Such facts provide a platform on which a court is able to undertake the assessment required by s 50.

Meaning of substantial

Competition must be ‘substantially’ lessened.

The Court observed that ‘“Substantial” is an evaluative, rather than a precise, legal standard’ (para 219) and further:

[219] The current state of the authorities shows that “substantial” means “real or of substance” and, in that sense, meaningful or relevant to the competitive process

Effect or ‘likely’ effect and the meaning of likely

The Court accepted that effect imposes a higher standard of certainty than ‘likely effect’ (220); this was the case even though it rendered the first limb (‘effect’) redundant.

The ‘ordinary’ meaning of likely is ‘probable’ (para 222) and the ‘juxtaposition of the dual legal standards in the section also supports the conclusion that ‘likely’ means ‘probable’ (para 223). However, the judicial history of the interpretation of ‘likely’ has set a lower standard and there is no justification for changing that now. Justice Deane’s construction of the word in the context of s 45D to mean ‘a real chance or possibility’ as been repeatedly applied (at 347-348):

Section 45D (1) proscribes conduct only if it be engaged in for the purpose of causing loss or damage to the business of the relevant corporation. Even though conduct be engaged in for such a purpose it will be outside the proscription contained in the subsection unless it "would have or be likely to have" that effect. Plainly the reference to "would be likely to have" is meant to convey a lower degree of likelihood than the reference to "would have". In the case where conduct has not occurred, a court would be constrained to determine whether conduct "would have" the specified effect by reference to the ordinary standard of whether it was more likely than not that it would. In such a case, if "likely" is interpreted as meaning "more likely than not", it would add little to the practical scope of the section….

The conclusion which I have reached is that, in the context of s. 45D (1), the preferable view is that the word “likely” is not synonymous with “more likely than not” and … it will suffice … if that conduct is, in the circumstances, such that there is a real chance or possibility that it will, if pursued, cause such loss or damage. Whether or not such conduct is likely (in that sense) to have that effect is a question to be determined by reference to well-established standards of what could reasonably be expected to be the consequence of the relevant conduct in the circumstances. … [emphasis added]

This approach was endorsed by Justice French in AGL (at 348), stating that:

[245] ‘The meaning of “likely” reflecting a “real chance or possibility” does not encompass a mere possibility.’ … The assessment of the risk or real chance of a substantial lessening of competition cannot rest upon speculation or theory. … The word “likely” has to be applied at a level which is commercially relevant or meaningful as must be the assessment of the substantial lessening of competition under consideration …’

Conclusions

The Court concluded that there would not be a substantial lessening of competition arising from the proposed merger, but did consider that absent the Undertaking (remedy) provided that the merger would have been likely to substantially lessen competition (para 268)

Trial snapshot

Federal Court of Australia

Year
2019

Citation
[2019] FCA 669

Judge
Justice Beach

Issues
Mergers
Anti-competitive agreeements

File
VID864/2018 ➤
18 July 2018

Competition legislation considered
Competition and Consumer Act 2010 (Cth)
s 45
s 50

Applicant
ACCC

First respondent
Pacific National Pty Limited

Second respondent
HV Rail Pty Ltd

Third respondent
Queensland LH Co Pty Ltd

Fourth Respondent
Queensland Pud Co Pty Ltd

Fifth Respondent
Aurizon Holdings Limited

Sixth Respondent
Aurizon Operations Ltd

Seventh Respondent
Aurizon Terminal Pty Ltd

Eighth Respondent
Aurizon Property Pty Ltd

Interested Person
Qube Holidngs Limited

Counsel for ACCC
Mr PD Crutchfield QC
Mr A McClelland QC
Ms C Van Proctor
Ms S Forder
Ms A Muhlebach
Mr D Preston

Solicitor for ACCC
DLA Piper Australia

Counsel for the first to fourth respondent
Mr NC Hutley SC
Dr RCA Higgins SC
Mr A Barraclough
Mr B Lim

Solicitor for the first to fourth respondent
Clayton Utz

Counsel for the fifth to eighth respondent
Mr CA Moore SC
Mr DJ Roche
Mr A D’Arville

Solicitor for the fifth to eighth respondent
Ashurst Australia

Counsel for interested person
Mr N De Young

Solicitor for interested person
Gilbert + Tobin

Copyright

ACCC v Pacific National Pty Limited (No 2)

[2019] FCA 669 (15 May 2019)

Justice Beach delivered his judgment on 15 May 2019: ACCC v Pacific National Pty Limited (No 2) [2019] FCA 669 (FCA page)

[Summary to follow]

Keywords

COMPETITION – acquisition involving Queensland rail terminal – Acacia Ridge Terminal including the Brisbane Multi User Terminal – access to terminal – acquisition producing vertical integration – discrimination against new entrants by vertically integrated operator – ability to discriminate – incentive to discriminate – reasonable perception of ability and incentive to discriminate – barriers to entry heightened by such acquisition – availability of alternative terminals – Brisbane Multimodal Terminal at Port of Brisbane – standard gauge terminal at Bromelton, Queensland – narrow gauge terminal at Tennyson, Queensland – Inland Rail Project – prospect of new entry – efficiencies from vertical integration – elimination of double marginalisation – intermodal and steel rail interstate linehaul services – market definition – defining market by reference to end users with no ready substitutable services for rail services – two economic conditions supporting definition by reference to end users – capacity to price discriminate amongst users – no capacity for profitable arbitrage – interstate market(s) – north-south interstate market – east-west interstate market – Queensland market – non-bulk steel – bulk steel – competition in the relevant market(s) – substantial lessening of competition – meaning of “likely” – real chance – standard of proof of counterfactual – contravention of s 50 of the Competition and Consumer Act 2010 (Cth) – undertaking proffered by the acquirer – terminal services subcontract – provisions having likely effect of substantial lessening of competition – comparison of factual and counterfactual scenarios – alternative causation case – contravention of s 45(2) of the Competition and Consumer Act 2010 (Cth)