FEDERAL COURT OF AUSTRALIA

Australian Competition and Consumer Commission v Pacific National Pty Ltd [2018] FCA 1221

ORDERS

THE COURT ORDERS THAT:

1.    Subject to further order, Aurizon Operations and Aurizon Property must each maintain, manage and operate the Business in the ordinary course of business, including maintaining the supply of services by the Business as required to meet customer requirements from time to time.

2.    Subject to further order, Aurizon Holdings must take all reasonable and necessary steps to ensure that Aurizon Operations and Aurizon Property carry on the Business in accordance with Order 1.

3.    Orders 1 and 2 have effect until the earlier of:

(a)    the ACCC accepting an undertaking pursuant to section 87B of the Competition and Consumer Act 2010 (Cth) from Aurizon containing the same or substantially the same terms as Orders 1 and 2, in addition to the usual boilerplate terms required by the ACCC in undertakings accepted in connection with a matter arising under section 50 of the Competition and Consumer Act 2010 (Cth); and

(b)    the Federal Court of Australia making final orders in this proceeding.

4.    For the purposes of Orders 1 to 3:

ACCC means the Australian Competition and Consumer Commission.

Aurizon means Aurizon Holdings, Aurizon Operations and Aurizon Property.

Aurizon Holdings means Aurizon Holdings Limited (ACN 146 335 622).

Aurizon Operations means Aurizon Operations Ltd (ACN 124 649 967).

Aurizon Property means Aurizon Property Pty Ltd (ACN 145 991 724).

Business means the Business as that term is defined in the QIB BSA.

QIB BSA means the Business Sale Agreement entered into between Aurizon Operations, Aurizon Property, Pacific National Pty Limited (ACN 098 060 550), Queensland LH Co Pty Ltd (ACN 620 979 768) and Queensland PUD Co Pty Ltd (ACN 620 981 606) on 11 August 2017.

5.    The parties’ costs of and incidental to the Applicant’s interlocutory application be their costs in the cause.

6.    The trial of this proceeding be fixed for hearing on 19 November 2018 at 10.15am on an estimate of 10 days.

7.    The Applicant file and serve short submissions (of no more than 5 pages) in support of the programming orders it seeks by 1.00pm on Tuesday 14 August 2018.

8.    The Respondents file and serve short submissions (of no more than 5 pages) in response by 1.00pm on Wednesday 15 August 2018.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

(revised from transcript)

BEACH J:

1    The ACCC by its interlocutory application has sought interlocutory injunctions in essence against the Aurizon parties requiring them to carry on Aurizon’s Queensland intermodal business (the QIB) until the hearing and determination of these proceedings. It has also sought interlocutory injunctions against the Pacific National parties restraining them until trial from:

(a)    soliciting or attempting to solicit for employment or seeking to engage the services of employees used by the Aurizon parties in the QIB; and

(b)    soliciting or attempting to solicit customers of the QIB.

2    The mandatory injunction sought against the Aurizon parties is exceptional. Nevertheless, given that I have determined to bring on the main trial of these proceedings on 19 November 2018, and to deliver a final judgment before Christmas of this year, I propose to grant the injunction sought. The injunction will operate for a relatively short period, even though I accept that there will be significant prejudice to the Aurizon parties in the interim. The injunction is necessary to preserve the status quo. In this regard the Aurizon parties have not yet commenced to shut down the QIB. Moreover, the injunction is necessary to preserve the competitive framework in Queensland concerning the relevant markets dealing with intermodal and steel rail linehaul services. If no injunction is granted, Pacific National may achieve a monopoly position in Queensland which to say the least is likely to produce a substantial lessening of competition. Now I accept that I ought only grant a mandatory injunction of the type sought in exceptional circumstances. Moreover, the present context also involves no undertaking as to damages being given by the ACCC, which is a point in favour of the Aurizon parties on the balance of convenience. But the period of the restraint is short. The status quo is preserved by the restraint. And the adverse consequences for competition are too severe if I do not impose the restraint. Accordingly, exceptional circumstances exist and I will grant the injunction sought against the Aurizon parties.

3    But as to the prohibitory injunction sought against the Pacific National parties, I am not satisfied that I should grant such an injunction. In form and expression its terms are problematic. Moreover, to grant such an injunction could discourage normal competitive behaviour on the part of the Pacific National parties. Indeed to grant an injunction would alter the status quo concerning Pacific National. But if opportunistic or predatory behaviour is engaged in by the Pacific National parties between now and trial concerning Aurizon’s QIB, its employees or customers, then I will deal with the Pacific National parties harshly and impose restraints which will be draconian and not to their liking. Moreover, if Pacific National were to engage in such behaviour, evidence thereof might assist to confirm aspects of the main ACCC case concerning the ss 45 and 50 contraventions.

4    Let me now elaborate on the applicable principles and their application to the present case.

LEGAL PRINCIPLES

5    Section 80(2) of the Competition and Consumer Act 2010 (Cth) (the Act) empowers me to grant an interim injunction “where it is desirable to do so” pending determination of an application for an injunction in relation to a contravention of the Act.

6    As in other contexts, I propose to apply the two-pronged test of:

(a)    whether the ACCC has made out a prima facie case; and

(b)    whether the balance of convenience favours the grant of the injunctions sought.

7    Let me first say something on the prima facie case limb. In relation to the test in Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57 at [65] to [72] per Gummow and Hayne JJ and the prima facie case limb, it is necessary to show a sufficient likelihood of success to justify the grant of the injunction, with such sufficiency being dependent upon the nature of the right being asserted and the practical consequences that are likely to flow if an injunction was granted. The prima facie case formulation commanded majority support in ABC v O’Neill. It was expressly referred to by Gummow and Hayne JJ, supported by Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618; further, Gleeson CJ and Crennan J agreed with the exposition of the principles set out by Gummow and Hayne JJ. Further, many decisions of this Court have used the prima facie case language. Contrastingly, the serious question to be tried formulation had its genesis in earlier authority where the bar might be perceived to have been set too low as a consequence of the use of such phraseology. Earlier authority did not colour such a formulation with the flexibility and nuance that is now required.

8    Now part of the relief sought by the ACCC is in the form of a mandatory injunction. But there is no separate test. The ABC v O’Neill test is equally applicable to mandatory injunctions in terms of the formulation of the test as distinct from its application in a particular case. The applicant does not have to show anything additional, such as a “high degree of assurance”. This has been discussed in earlier authorities, including by Gummow J in Businessworld Computers Pty Ltd v Australian Telecommunications Commission (1988) 82 ALR 499; [1988] FCA 206.

9    Sometimes the approach in the context of mandatory injunctions has been to view the matter through the lens of taking the course that produces the lesser risk of injustice if it should turn out that the decision of the court is “wrong”, in the sense of either granting an injunction where a party fails or would fail to establish its right at trial or failing to grant an injunction to a party who succeeds or would succeed at trial. Generally, it has been previously thought that a mandatory injunction will usually have the consequence of creating a greater risk of injustice if granted and the decision turns out to be “wrong”, rather than if it were to be with-held.

10    Now several points. This lens is not in form how the second limb of the ABC v O’Neill test has been formulated. But some aspects of this lens are not mutually inconsistent with that second limb. Further, one cannot generalise in relation to mandatory injunctions in any event. But it may be that for a particular form of mandatory injunction in a case, if such a lens were to be used the strength of the prima facie case may be relevant to that lens; the stronger the prima facie case, the less the likelihood of being “wrong” if the injunction was to be granted. Now this is not a backdoor for some requirement for a “high degree of assurance” being necessary to be shown for mandatory injunctions in general, but rather suggests that the strength of the prima facie case should be in the mix in dealing with the balance of convenience at least, which I will discuss in a moment. Moreover, even on the first limb, the strength of the probability required depends, in part, on the consequences likely to flow. If the consequences are more severe with respect to a particular mandatory injunction, then the probabilities required might rise.

11    Let me make another point concerning the mandatory injunction sought against the Aurizon parties. I accept that I should not grant a mandatory injunction requiring the carrying on of a business unless exceptional circumstances are shown, including the strong likelihood of substantial detriment to the public interest and competition if such an injunction were to be refused.

12    Let me now elaborate on the balance of convenience limb.

13    The balance of convenience looks at what the inconvenience, injury or injustice to the applicant would be if the injunction were refused and seeks to weigh that against the inconvenience, injury or injustice to the respondent if the injunction were granted. Only if the balance lies in favour of the applicant, that is, if the inconvenience, injury or injustice to the applicant if the injunction were refused outweighs the respondent’s prejudice, would an injunction be granted. Further, it is necessary to assess the balance of convenience in the context of considering the strength of the prima facie case (see Samsung Electronics Company Ltd v Apple Inc (2011) 217 FCR 238 at [67]). The stronger the prima facie case, the less strong the balance has to weigh in favour of the applicant. Putting it slightly differently, if the balance is more equally poised, but the applicant has a strong prima facie case, then the interaction between the two limbs may tip the balance in favour of granting an injunction. Moreover, if a mandatory injunction is sought, the relevance of the strength of the prima facie case may take on an additional dimension for the reasons I have just discussed, but not in the previously discarded “high degree of assurance” threshold sense.

14    Now I have referred to the inconvenience, injury or injustice to the applicant. But of course the applicant here is the competition regulator. Accordingly, in the present context I am required to consider the inconvenience, injury or injustice to the public interest, market actors and consumers flowing from potentially detrimental effects on competition in the relevant markets if I were to refuse the injunction sought.

15    There is another aspect that is not unimportant. Normally an applicant for an injunction would give an undertaking as to damages to protect the respondent’s downside risk if an injunction turns out to have been “wrongly” granted. But here, the ACCC is not required to give an undertaking as to damages. I have taken into account the detriment that may be caused to the respondents and third parties associated with them by the grant of any injunction that may not be ameliorated in the absence of an undertaking as to damages being given.

16    Let me now consider the question of whether there is a prima facie case. And let me say at the outset concerning the principal injunction sought that it is sufficient for present purposes to say that I have found a prima facie case concerning the Principal Understanding, which I will define in a moment, but only insofar as it concerns what has been described as the “control provision” and the “exclusivity provision”. Let me elaborate.

PRIMA FACIE CASE

(a)    The elements of the ACCC’s case

17    The ACCC submits that on the evidence before me it has established a prima facie case with the following elements.

18    First, it is said that the first respondent (Pacific National) and the fifth respondent (Aurizon) made a contract or arrangement or arrived at an understanding with each other on or about 28 July 2017 (the Principal Understanding) containing provisions that:

(a)    from at least 1 December 2018, Pacific National would, directly or indirectly through its related bodies corporate, have operational control of the Acacia Ridge Terminal’s (ART) standard gauge Brisbane Multi User Terminal (BMUT), by a Pacific National entity acquiring ART or, if the acquisition did not proceed, by a Pacific National entity being appointed to operate BMUT, so that a Pacific National entity would have:

(i)    substantive responsibility for, and control of, BMUT including responsibility for loading and unloading trains, storing containers, and overseeing and co-ordinating the provision of locomotives to rail operators; and

(ii)    input into future decision making regarding allocation of capacity at BMUT to other rail operators.

As consideration, Pacific National or its related bodies corporate would pay to Aurizon or its related bodies corporate $200 million, of which $30 million was a non-refundable upfront payment, and $170 million was payable if Pacific National acquired ART (the control provision);

(b)    Aurizon would negotiate exclusively with Pacific National in relation to the sale of Aurizon’s QIB for a defined exclusivity period, in return for Pacific National paying a substantial fee, refundable only in limited circumstances (the exclusivity provision); and

(c)    if QIB was not acquired by Pacific National or its related bodies corporate, Aurizon would cease to provide intermodal and steel rail linehaul services (the relevant services) in the market for the supply of the relevant services over long distances in Queensland (Queensland market) and close QIB (the QIB provision).

19    It is said that each of these provisions had the purpose, or would be likely to have the effect, of substantially lessening competition in one or more of the Queensland market and markets for the supply of the relevant services between interstate locations (interstate markets) and that each of Pacific National and Aurizon thereby contravened s 45(2)(a)(ii) of the Act (as then in force).

20    Second, it is said that each of the respondents contravened s 45(2)(b)(ii) of the Act (as then in force) and s 45(1)(b) (as currently in force) by giving effect to one or more of the said provisions of the Principal Understanding.

21    Third, it is said that by entering into the Terminal Services Subcontract (TSS) relating to the BMUT on 28 July 2017, Pacific National and the sixth respondent (Aurizon Operations) made a contract containing provisions that have the purpose, or would be likely to have the effect, of substantially lessening competition in each of the Queensland market and interstate markets in contravention of s 45(2)(a)(ii) of the Act (as then in force). Further, Aurizon was knowingly concerned in Aurizon Operations’ said contravention of s 45(2)(a)(ii) of the Act (as then in force).

22    Fourth, it is said that the acquisition by the second respondent (HV Rail), a Pacific National entity, of the ART (whether pursuant to the Business Sale Agreement entered into between HV Rail, Pacific National, Aurizon Operations and the seventh respondent (Aurizon Terminal) on 28 July 2017 (the ART BSA) or otherwise), would contravene s 50 of the Act because it would be likely to have the effect of substantially lessening competition in each of the Queensland market and interstate markets. Let me elaborate.

23    The ACCC says that Pacific National and Aurizon are the only providers of the relevant services in the market for their supply over long distances in the Queensland market. Further, prior to December 2017, they were two of only three providers of the relevant services in the interstate markets.

24    In February 2017, Aurizon commenced a project to test market appetite for a sale, joint venture, or shutdown of its intermodal business, including the ART, QIB and its interstate intermodal business (IIB). From April 2017, Aurizon conducted a sale process for such assets. In May 2017, Aurizon received six non-binding offers for parts or all of such assets. It invited Pacific National, Qube Holdings Ltd and three other bidders to make binding bids by 4 August 2017.

25    On 20 July 2017, Pacific National made a pre-emptive binding bid for the ART. The ACCC says that following subsequent negotiations, on or about 28 July 2017, Pacific National and Aurizon arrived at the Principal Understanding, which contained the control, exclusivity and QIB provisions, alternatively the control and exclusivity provisions. But in terms of formal written agreements the following occurred.

26    On 28 July 2017, Pacific National and Aurizon entered into:

(a)    the ART BSA between Pacific National, HV Rail, Aurizon Operations, and Aurizon Terminal, under which HV Rail would, on certain conditions, pay Aurizon Operations and Aurizon Terminal a pre-adjustment purchase price of $170 million and acquire the ART and would, if completion did not occur within six months, pay Aurizon Operations and Aurizon Terminal a delay payment of $5 million;

(b)    an Agreement for Ongoing Commercial Arrangements (AOCA) between Pacific National and Aurizon Operations under which Pacific National would, on certain conditions, pay $30 million to Aurizon Operations. The conditions relevantly required the parties to execute the TSS pursuant to which, so the ACCC says, Pacific National would have operational control of BMUT. Pacific National and Aurizon Operations executed the TSS on 28 July 2017; and

(c)    a Commitment Deed under which Pacific National would pay $10 million (refundable in limited circumstances) in return for Aurizon Operations exclusively negotiating with it regarding the sale of QIB.

27    On 11 August 2017, Aurizon Operations and Aurizon Property Pty Ltd, Pacific National, Queensland LH Co Pty Ltd and Queensland PUD Co Pty Ltd (two Pacific National entities) executed a business sale agreement under which the Pacific National entities would acquire QIB.

28    On 11 August 2017, Aurizon resolved to close the IIB and on 14 August 2017 it announced such proposed closure. In December 2017, Aurizon closed the IIB.

29    On 12 February 2018 and 15 March 2018, Aurizon announced that it would close the QIB if it was not able to gain ACCC approval for the QIB acquisition. Such approval has not been forthcoming. The QIB acquisition is not proceeding.

30    The ACCC says that Pacific National and Aurizon gave effect to the control provision on 28 July 2017 by executing the ART BSA, the AOCA and the TSS. It is also said that Pacific National and Aurizon gave effect thereto by Pacific National paying Aurizon Operations $30 million and the acceptance thereof.

31    Further, it is said that Pacific National and Aurizon gave effect to the exclusivity provision by executing the Commitment Deed and exclusively negotiating the QIB acquisition between 28 July and 11 August 2017. It is also said that Pacific National and Aurizon gave further effect thereto by Pacific National paying Aurizon Operations $10 million and the acceptance thereof.

32    Further, it is said that Aurizon gave effect to the QIB provision by making the announcements on 12 February and 15 March 2018.

33    Before proceeding further I should say something about the ACCC’s case concerning the effects on competition.

34    The ART is located approximately 16 kilometres south of the Brisbane CBD. It encompasses BMUT, the narrow-gauge Queensland terminal, marshalling yards and associated sidings and facilities. The ART facilitates the movement of rail freight into, out of and within Queensland, including transhipment between standard and narrow gauge lines. No other intermodal rail terminals in South East Queensland on the ACCC’s case are suitable for use by new entrants into the relevant markets. It is said that the combination of these factors means that use of the ART, and particularly BMUT, provides a very significant competitive advantage to a rail operator wishing to provide the relevant services in the relevant markets.

35    The ACCC also contends, and I have no reason to doubt this on the evidence currently before me, that road transport is not a close constraint on the supply of a substantial proportion of the relevant services in the relevant markets due to price and/or non-price constraints. Further and generally, barriers to entry and expansion in the relevant markets are high.

36    In relation to the Principal Understanding, the ACCC says that the purpose of each of the control, exclusivity and QIB provisions or their likely effect separately or cumulatively was to produce a substantial lessening of competition in the relevant markets.

37    It is said that in the future with one or more of the control, exclusivity and QIB provisions, Pacific National would be the sole provider of the relevant services in the Queensland market and the larger of two such providers in the interstate markets because:

(a)    Pacific National would have operational control of BMUT;

(b)    Aurizon would close QIB;

(c)    Aurizon has closed IIB; and

(d)    a party other than Pacific National would be unlikely to enter the relevant markets whilst Pacific National had operational control of BMUT, as Pacific National would have a strong incentive to operate BMUT in a way that favoured its own services and disadvantaged any other provider who may seek to use BMUT.

38    Further, it is said that Pacific National’s operational control of BMUT and position as the sole Queensland provider of the relevant services and the major interstate provider would give Pacific National the ability and incentive to sustainably increase prices for, and/or decrease the quality and/or quantity of, relevant services in the relevant markets and either foreclose new entrants from entering, or significantly increase barriers to entry into, the relevant markets.

39    Further, it is said that in the future without one or more of the control, exclusivity and QIB provisions, Aurizon would be likely to have continued with the sale process and, ultimately, a participant in the sale process or another person other than Pacific National would have either:

(a)    acquired and controlled ART and also QIB and/or IIB, and commenced supplying the relevant services in the relevant markets; or

(b)    acquired and controlled ART, reducing or not increasing the barriers to entry to the relevant markets for new entrants.

40    I would say now that if the Principal Understanding with the relevant provisions was established at a prima facie level, and in particular the control provision and the exclusivity provision, then the alleged anti-competitive purposes or effects would also be made out at the prima facie level at least on a plain vanilla analysis and comparison of the future with and without scenarios. The relevant debate between the parties before me has concerned more whether a prima facie case has been made out concerning the existence of the Principal Understanding including one or more of the said provisions.

41    The ACCC has also sought to put a case that provisions of the TSS have the purpose, and one or more of them cumulatively has the likely effect, of a substantial lessening of competition in the relevant markets. In the future with those provisions, it is said that Pacific National would have operational control of BMUT, and parties other than Pacific National would not, or would be unlikely to, enter into the relevant markets. But in the future without those provisions, the situation would be as I have just described.

42    Further, the ACCC has also sought to put a case that the ART acquisition would have the likely effect of a substantial lessening of competition in each of the relevant markets. In the future with the ART acquisition, Pacific National would have ownership and control of ART, including BMUT, and would be the sole Queensland provider and major interstate provider for the relevant services. Pacific National would have the ability and incentive as I have referred to earlier. Contrastingly, the likely future without the ART acquisition would be as I have also described earlier.

43    In my view, on the material before me, it seems to me that there is a sufficient case made out at the prima facie case level in terms of the ACCC’s position concerning the provisions of the TSS in terms of its purpose or effect on competition, and it has also made out a prima facie case concerning its position that the ART acquisition would have the likely effect of a substantial lessening of competition for the reasons that I have briefly summarised. Let me turn to an analysis of the prima facie case limb in more detail.

(b)    Analysis

44    In my view, the ACCC has made out a prima facie case concerning:

(a)    the existence of the Principal Understanding, with the control provision and the exclusivity provision;

(b)    the purpose and likely anti-competitive effects arising therefrom;

(c)    the purpose and likely anti-competitive effect of provisions of the TSS;

(d)    the likely anti-competitive effect of the ART acquisition.

45    Save for the prima facie case concerning the likely anti-competitive effects of the TSS and the ART acquisition which appears strong, I am not able to assess the strength of the prima facie case in anything other than moderately strong terms concerning the Principal Understanding and the existence of the control provision and the exclusivity provision. Contrastingly, in relation to the ACCC’s case concerning the existence of the QIB provision, I would prefer at this stage to say that an injunction in the terms sought against the Aurizon parties can be supported irrespective of the merits of any prima facie case concerning the QIB provision, which I must say has problematic aspects; given that I will be the trial judge, it is undesirable that at this stage I descend into any further detail, particularly as it concerns the existence of the QIB provision.

46    Now it must be said that the ACCC’s case is largely inferential concerning the Principal Understanding. Nevertheless an inference is reasonably open and can be drawn from the nature of the agreements that the parties resolved be entered into and the relevant course of negotiations, that the parties arrived at the Principal Understanding, at least containing the control and exclusivity provisions being that:

(a)    from at least 1 December 2018, Pacific National would have operational control of ART’s standard gauge BMUT, by Pacific National acquiring ART or, if the acquisition did not proceed, by Pacific National being appointed to operate BMUT, so that Pacific National would have:

(i)    substantive responsibility for, and control of, BMUT including responsibility for loading and unloading trains, storing containers, and overseeing and co-ordinating the provision of locomotives to rail operators; and

(ii)    input into future decision making regarding allocation of capacity at BMUT to other rail operators.

(b)    Aurizon would negotiate exclusively with Pacific National in relation to the sale of Aurizon’s QIB for a defined period, in return for Pacific National paying Aurizon a fee.

47    Now the ACCC has made detailed submissions concerning the overlap between the ART BSA and the TSS. It also puts a plausible case that the ART BSA and the AOCA were not intended to be independently operating agreements. Moreover, it is reasonably arguable that the Commitment Deed was part of the same package of agreements.

48    I consider that it may arguably be inferred that the agreements that Aurizon and Pacific National agreed to enter into, and subsequently executed on 28 July 2017, were not intended to have independent or isolated effects as they gave effect to the Principal Understanding, and it is arguable that they gave effect to or provide some basis for an inferential case for the existence of the Principal Understanding. And it is also arguable that the agreements had been designed by Aurizon and Pacific National in an interlocking and overlapping manner to achieve the control and exclusivity provisions of the Principal Understanding.

49    Now Aurizon has contended that the ACCC has not established a prima facie case concerning the Principal Understanding. It says that there is no direct evidence thereof. Further, it says that such an understanding is inconsistent with the contemporaneous documents. Further, it says that such an understanding is inconsistent with the surrounding factual matrix.

50    Now I would make a number of general observations concerning the evidence, although it will be appreciated that it is inappropriate to delve into the detail at this stage given that I am the trial judge.

51    First, it may be accepted that the ACCC’s case is largely inferential. Accordingly, Aurizon’s contention about a lack of direct evidence cannot carry the day.

52    Second, the ACCC has set out details of the contemporaneous documents (the detail of much of which is confidential) which reasonably arguably, together with the relevant circumstances, could support the ACCC’s inferential case, putting to one side the QIB provision for the moment.

53    Third, the surrounding facts including the obvious strategic value of access to the ART to provide the relevant services in Queensland could reasonably support the existence of the Principal Understanding, putting to one side the QIB provision for the moment.

54    Fourth, the nature and consequences of the relevant agreements, considered against the contemporaneous documents and surrounding facts, and the consequence that the outcome of those agreements has resulted in the number of providers in the relevant interstate markets reducing from three to two and would likely see the relevant Queensland market diminish from two competitors to one supplier, supports, with other evidence, an inference that the Principal Understanding may have been reached, putting to one side for the moment the QIB provision.

55    Further, as the ACCC points out, the following broad context is important and the setting in which the relevant agreements and transactions are to be assessed:

(a)    Pacific National and Aurizon are the only providers of the relevant services in Queensland. It is a market characterised by high barriers to entry.

(b)    Pacific National and Aurizon have executed a series of agreements, on or about the same date, at least three of which concern the ART and are overlapping (the TSS, Terminal Services Agreement (TSA) and ART BSA). The ART is of central importance to the provision of the relevant services by new entrants to the Queensland market.

(c)    After those agreements were executed, Aurizon announced plans to close its QIB if the ACCC opposed Pacific National’s proposed acquisition of that business, which could result in Pacific National becoming the monopoly supplier of the relevant services in Queensland.

56    That setting is not unhelpful to the ACCC in terms of the inferential case that it has sought to make.

57    Fifth, now Aurizon points to the fact that the relevant detailed series of agreements were executed with the assistance of experienced lawyers. It also says that in contrast to the ACCC, Aurizon has adduced direct evidence from Mr Lippiatt, the executive at Aurizon responsible for the carriage of the negotiations and dealings with Pacific National, who gave evidence that there was no Principal Understanding. Now I have taken this into account, but at the end of the day such matters and evidence are not definitive to negate the ACCC’s prima facie case.

58    I also agree with the ACCC that there is a prima facie case that the purpose of the TSS was to substantially lessen competition in the relevant markets, given the course of negotiations between the parties, the important nature of access to BMUT at the ART that would support entry into the relevant markets, the payment made by Pacific National to Aurizon under the AOCA in consideration for entering into the TSS, and that the TSS was arguably redundant as soon as it was executed given the ART BSA was executed at the same time. It is open to infer that Pacific National wished to acquire operational control of BMUT at the ART for the competitive advantages that operational control would deliver to Pacific National.

59    And as to the apparent effect of the TSS, there is evidence before me to suggest that its terms confer some measure of operational control on Pacific National; see for example the affidavit evidence of the Qube employees and also the opinion evidence of Mr Kuypers of HoustonKemp Economists and notwithstanding the evidence of Mr Lippiatt to the contrary.

60    Further, I agree with the ACCC that there is arguably a significant change in the position of the terminal operator in moving from the agreement with Qube to the TSS with Pacific National. Qube is an independent operator with no separate above rail operations utilising the ART and as such has no incentive to discriminate in favour of its own rail linehaul services. Contrastingly, Pacific National, an incumbent provider of services and key user of the ART, is unlikely to have an incentive to provide equivalent services to a competitor. Arguably, there are no relevant changes to the TSS to reflect this shift in the position of the terminal operator.

(c)    The linkage between the prima facie case and the injunction sought

61    Although I have found that the ACCC has made out a prima facie case, I have not done so with respect to the QIB provision. Yet Aurizon asserts that if there is no prima facie case with respect to the QIB provision, then there is little basis for the injunction sought.

62    Now Aurizon accepts that a possible alternative basis may have been subject matter preservation, but it says that to preserve the ART, one does not need to preserve the QIB. No potential acquirer has said that they will buy the ART only if they can acquire the QIB. Indeed, the evidence is that the reverse is the case, namely, that no one will buy the QIB unless they can acquire or gain control of the ART.

63    Aurizon also points out that the ACCC is not seeking a permanent injunction preventing the closure of the QIB, and therefore there is a disconformity with the interlocutory injunction sought as compared with the claimed final relief.

64    Now I agree with the ACCC that interlocutory injunctive relief is not required to be limited to causes of action in respect of which permanent injunctive relief is sought in the same terms. The basis of the grant of an interlocutory injunction is to preserve the status quo and to prevent a respondent from acting in a way that will undermine or diminish the efficacy of any final judgment that I may deliver. Injunctive relief may be necessary if the ACCC establishes a prima facie case for any of the causes of action that it alleges. In my view, the ACCC’s prima facie case that Aurizon and Pacific National have contravened the Act by entering into the TSS and the Principal Understanding supports the interlocutory injunction, even if the Principal Understanding does not include the QIB provision.

65    Now Aurizon submits that the ACCC’s allegation that Aurizon and Pacific National have contravened the Act by entering into the TSS and the Principal Understanding (absent the QIB provision) does not support the interlocutory injunction. Aurizon contends that if the TSS amounts to a contravention of s 45 of the Act, then the relevant agreement(s) will be unable to be performed and Pacific National will not provide the subcontracted terminal services at the ART. It argues that there is no nexus between that outcome and the closure of the QIB.

66    But the ACCC alleges that Aurizon and Pacific National have contravened s 45(2)(a)(ii) of the Act (as then in force) by making the TSS. And the TSS is not conditional on competition clearance. The effect of Aurizon and Pacific National contravening the then s 45(2)(a)(ii) by making the TSS is arguably not to be considered in isolation. Arguably, it was part of a package of agreements entered into on 28 July 2017 that brought Aurizon’s sale process to an end, and arguably made the closure of the QIB inevitable if it was not sold to Pacific National. As the ACCC contends, in the future without the TSS, arguably none of those agreements are likely to have been entered into. The sale process would likely have continued. Arguably a participant in the sale process other than Pacific National would likely have then acquired the ART and the QIB.

67    Further, I agree with the ACCC that this counterfactual analysis is even more apparent when one considers that the entry into of the relevant agreement(s) is alleged by the ACCC to be one of the matters by which Aurizon and Pacific National sought to give effect to the control provision of the Principal Understanding. Arguably, by giving effect to the control provision by, inter-alia, making the TSS and the ART BSA, there was little prospect of another bidder emerging for the QIB. As the ACCC put it, either Pacific National would acquire the QIB or Aurizon would close the QIB because there were no bidders for the QIB on a standalone basis. Further, arguably none were likely to emerge given Pacific National would have operational control of BMUT at the ART.

68    But in the future without the control provision, the sale process would likely have continued, and a participant in the sale process other than Pacific National would likely have acquired the ART and the QIB.

69    Now it is said that if the TSS is later held to be void by me, Pacific National would not have operational control of BMUT under the TSS, and therefore no harm arises from the contravention that would support an interlocutory injunction. But the ACCC says that there has been actual not prospective contraventions of s 45. If the injunction is not granted, the harm that was caused by those contraventions being the cessation of the sale process and shutdown of the QIB will crystallise. That harm cannot be unwound if there was, in fact, a contravention on 28 July 2017 when the TSS was made. On this aspect, I consider the ACCC’s position to be at the least reasonably arguable.

70    Before concluding this part of my reasons, let me deal with some other points relevant to the closure question, although they also relate to the balance of convenience question.

71    First, it is said that the Board of Aurizon has resolved to shutdown the QIB in any event. Now I accept that it has previously expressed such an intention, but that decision is not immutable. That position can be and should be re-assessed depending upon changed circumstances, particularly if the ART transaction and the TSS does not proceed.

72    Second, Aurizon asserts that if the Principal Understanding had not been made, the QIB would have been shut down anyway. But for the reasons advanced by the ACCC, I do not accept such a definitive assertion.

73    In summary, I have found for the ACCC on the prima facie case question save and except with respect to the existence of the QIB provision. But notwithstanding that I have not found a prima facie case on the QIB provision, nevertheless I consider that the injunction sought preventing closure of the QIB is supportable in any event. Further, in terms of the prima facie case that I have found concerning the Principal Understanding, I consider it to be moderately strong. The prima facie case on the ART acquisition and the TSS is strong.

BALANCE OF CONVENIENCE

74    In my view, the balance of convenience favours the grant of an injunction against Aurizon.

75    I agree with the ACCC that substantial and irreversible harm will arise to competition in at least the relevant Queensland market for an indeterminate but significant period if an injunction is not granted. Pacific National may become entrenched as a monopoly supplier for the relevant services in Queensland, which harm may not be remedied by final relief. Any step towards or closing the QIB may be irreversible. Let me elaborate.

76    As the ACCC submitted, where customers are dependent on certainty of freight arrangements, the effect of Aurizon closing its QIB is likely to be that Aurizon’s customers will seek to enter into contracts with Pacific National or freight forwarders who use Pacific National for rail linehaul. Pacific National would likely thereby indirectly acquire the QIB by virtue of its position as the monopoly supplier of the relevant services in Queensland.

77    Further, if Pacific National has become the monopoly supplier in the relevant Queensland market by reason of the closure of the QIB, and has entered into contracts with customers, the risk of customers being unable or unwilling to switch from Pacific National to a new entrant is likely to create a significant barrier to entry. Further, if the QIB is shut down, then the assets that are used to conduct that business are likely to be dispersed or disposed. Those assets may be difficult and costly to re-assemble or recreate by a new entrant. Now these are also obvious points and I note that Aurizon did not contest the various consequences that I have just identified as being at the least realistic possibilities.

78    Further, I agree with the ACCC that Qube, who was the most probable entrant into the relevant Queensland market if it could acquire the ART, is unlikely to enter that market if the QIB is closed.

79    Further, not granting the injunction would also have the effect of crystallising the harm caused by inter-alia the making of the TSS in contravention of s 45(2)(a)(ii) of the Act (as then in force). In the future without the TSS, it is likely that a bidder other than Pacific National would have acquired the ART and the QIB. But once the Principal Understanding containing the control provision was entered into, the closure of both Aurizon’s IIB and the QIB was arguably a direct consequence. As the ACCC points out, Qube as the only likely bidder would not have acquired the QIB whilst an incumbent competitor had operational control of BMUT at the ART. And if Pacific National did not acquire the QIB, the only feasible alternative would be to shut it down (assuming the said operational control of BMUT held by Pacific National).

80    Consequently, as the ACCC submits, if the injunction is not granted, the future without the TSS (that is, with a competitor to Pacific National in the Queensland and interstate markets), which existed up until the time of the contravention of s 45(2)(a)(ii) of the Act (as then in force), cannot eventuate. The direct consequences of Pacific National and Aurizon entering into the Principal Understanding containing the control provision are likely to occur and would be difficult to reverse irrespective of the final relief.

81    Contrastingly, if the interlocutory injunction is granted then the future without the alleged Principal Understanding, the ART BSA and the TSS is likely to be preserved. The QIB has the prospect of continuing in operation with two competitors in the relevant Queensland market. If the ACCC succeeds, then the position that existed before the respondents entered into the Principal Understanding and the agreements that gave effect to it (including the TSS) will have been preserved. I agree with the ACCC that it is a real prospect that the anti-competitive consequences (if any) of the Principal Understanding may be avoided. Aurizon may look to other bidders to acquire the ART and the QIB.

82    Now Aurizon has made a number of points concerning the balance of convenience and it is convenient to deal with them in turn.

83    First, it says that I should weigh the strength of the prima facie case on the balance of convenience question. I agree and I have done so. But I consider that the strength of the prima facie case does not really assist my task on the balance of convenience question one way or the other.

84    Second, I also agree with Aurizon that given the injunction sought, exceptional circumstances should be shown. But I think this is shown given the very serious and irremediable consequences that will be caused to competition in the relevant Queensland market if the QIB business is shut down or steps are taken to commence that process at this time.

85    Third, I accept that some losses will be caused to Aurizon by the interlocutory injunction in running the QIB which will not be ameliorated by any undertaking as to damages, as none has been given. But in the overall scheme of things and given that I will list the trial for 19 November 2018, with a judgment by Christmas 2018, that prejudice will not be too great. Indeed, the projected cash losses are relatively quite modest for that shorter time frame. Moreover, if the injunction is granted, Aurizon for the moment will be able to postpone incurring the significant shut down costs. Moreover, a benefit to it may be to increase its commercial optionality if the ACCC wins at trial concerning the ART and the TSS.

86    Fourth, I accept that there will be prejudice to Aurizon, and other parties, including potentially employees if I delay the process for the shut down by granting the injunction now. But I would also note that the shut down process has not yet begun. In one sense, the grant of the injunction to prevent the shut down will preserve the status quo.

87    Now Mr Lippiatt has deposed on behalf of Aurizon as to the substantial prejudice that may be caused. I have taken this into consideration, although I will not set out the detail thereof as most of what he has said is highly confidential. Further, Mr Lippiatt has also deposed to many undesirable features concerning the uncertainty that will be produced for Aurizon’s customers and employees, including work safety risks. I accept that this is so.

88    Fifth, Aurizon says that the scope of the injunction is uncertain. Further, it queries the extent of the obligation to carry on the QIB in the ordinary and usual course, in circumstances where the nature of the business will necessarily be changing and decaying, and the business will thus be modified over time. It contends that the injunction is uncertain in scope and content. But I think that this submission is over-stated for the reasons given by the ACCC particularly when the operation of the injunction will be for a relatively short time. Further, over the weekend Aurizon has filed further submissions concerning difficulties with the proposed wording of the injunction. Now I would note that Aurizon has not assisted me by submitting alternative wording. I propose to order an injunction in a modified form to that submitted by the ACCC over the weekend to take into account some of Aurizon’s concerns, recognising of course that the form of the order is not a perfect solution.

89    Sixth, Aurizon contends that the grant of the injunction will be futile and that it is unlikely to benefit competition. Aurizon says that the QIB is to be and will be closed down anyway, and that there will be no acquirer for the QIB, particularly a non-Pacific National acquirer. I am not convinced by the definitive terms in which Aurizon has put such a proposition. Substantial reliance has been placed by Aurizon on the evidence of Mr Lippiatt in this respect. But he is not the relevant decision maker and some speculation was involved. Moreover, Aurizon and its Board cannot be so definitive, and must of course react to changed circumstances.

90    Now the ACCC accepts that Aurizon ultimately cannot be prevented from closing the QIB should it consider that to be in the best interests of the company. But Aurizon is a publicly listed company. If the ACCC is ultimately successful in this proceeding, and obtains a permanent injunction restraining the sale of the ART to Pacific National, then a decision about to whom its intermodal assets and business will be sold to, and on what terms, will be a matter for the Board of Aurizon, taking into account their fiduciary and statutory duties. At that time, if there is value in selling the QIB which exceeds the cost of shutting it down, and it is in the best interests of Aurizon and its shareholders, the Board may direct that a sale take place.

91    Further, as the ACCC points out, selling the QIB would also result in a stemming of Aurizon’s losses from that business. Further, selling the QIB would result in Aurizon avoiding shut down costs. Now the QIB might be unattractive to a third party without the benefit of control of the ART. But to third parties such as Qube, the whole of the business is more attractive than the ART alone. As I say, a realistic prospect, if the ACCC wins at trial, is that the Board of Aurizon might then direct a sale of the ART and the QIB to a non-Pacific National entity.

92    I reject Aurizon’s futility argument, including the argument that Aurizon is irrevocably committed to shutting down the QIB whatever may occur in terms of the final relief granted in these proceedings. Aurizon’s argument, to me, on the evidence before me, suggests a potentially uncommercial approach.

93    Finally, I accept that the ACCC is not seeking any final injunction concerning preventing the shut down of the QIB. But that does not disentitle the ACCC to the interlocutory injunction, particularly given the utility to it as I have explained.

94    In summary, the balance of convenience favours the grant of an injunction against Aurizon in the terms sought by the ACCC, subject to some modification. I will discuss with counsel in a moment the form thereof.

95    Let me now turn to the position of the injunction sought by the ACCC against Pacific National which I can deal with more briefly.

PACIFIC NATIONAL

96    The ACCC seeks a complex form of injunction against Pacific National, in essence seeking to micro-manage Pacific National’s dealings and behaviour concerning the customers and employees of Aurizon’s QIB pending the trial and its determination.

97    Various versions of this complex form of injunction have been put forward, with submission and counter-submission made over the weekend which I have had the benefit of considering.

98    The ACCC has sought to justify the highly proscriptive and prescriptive injunction in the following terms. It says that the mandatory injunction requiring Aurizon to carry on the QIB is insufficient to eliminate the risk of the competitive harm which Aurizon and Pacific National sought to achieve by the Principal Understanding. It says that this is because Pacific National could engage in conduct that could damage the QIB prior to the determination of these proceedings, for example, by seeking to entice existing customers of the QIB to use Pacific National; alternatively, Pacific National could lock in new customers or lock up new volumes from its existing customers which could prevent the expansion of the QIB. The ACCC says that as the objective of its interlocutory application is to effectively preserve the QIB and its competitiveness pending final determination of these proceedings, the interlocutory injunction sought restraining Pacific National is justifiable for this object to be achieved.

99    I reject the ACCC’s injunction application against Pacific National. Let me state my reasons shortly.

100    First, elements of the ACCC’s proposed injunction against Pacific National in fact are likely to have anti-competitive consequences and prevent Pacific National from engaging in normal competitive behaviour vis-à-vis Aurizon’s QIB.

101    Second, the ACCC’s asserted risk concerning Pacific National’s behaviour is largely speculative. But if circumstances come to light between now and trial concerning any abnormal poaching behaviour by Pacific National, then I will deal with such conduct harshly and swiftly. Moreover, such aberrant behaviour may be relevant to fortifying part of the ACCC’s case in terms of the asserted principal contraventions.

102    Third, the complex terms of the injunction sought are problematic in terms of their meaning and compliance. Clarity and simplicity is desirable, particularly given the sanction of contempt proceedings for non-compliance.

103    Fourth, Pacific National has recited a litany of criticisms as to the form of the injunction sought, even as proposed to be modified by the ACCC over the weekend. These include:

(a)    the difficulty if not impossibility of compliance;

(b)    the impact upon the ordinary conduct of its business;

(c)    the impact of the restraint on contracting;

(d)    the asymmetrical effect and burden that would be produced in the market place in that Pacific National would have a burden imposed upon it that Aurizon would not have in terms of normal competitive behaviour.

104    I do not propose to linger on any of these matters. For present purposes it is sufficient to say that I do not consider that at the moment there is real threatened conduct by Pacific National that would justify an injunction in the highly unusual terms sought by the ACCC.

SUMMARY

105    In summary, the injunction sought against Aurizon will be granted, but the injunction sought against Pacific National will be refused.

106    I will now discuss with counsel the necessary orders to give effect to my reasons.

Associate:

Dated:    13 August 2018

SCHEDULE OF PARTIES