FEDERAL COURT OF AUSTRALIA

Australian Competition and Consumer Commission v Pacific National Pty Limited [2020] FCAFC 77

ORDERS

THE COURT ORDERS THAT:

1.    Within 14 days, the parties confer, and file in the Court an agreed minute of order (including as to the costs of the trial, the appeal and cross-appeals) and in default of agreement, short written submissions of no more than 3 pages in length as to each party’s proposed minute of order.

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

REASONS FOR JUDGMENT

MIDDLETON AND O’BRYAN JJ:

A.    Introduction

1    This proceeding concerns the proposed sale of the Acacia Ridge Terminal (ART) by entities within the Aurizon group of companies (Aurizon) to entities within the Pacific National group of companies (Pacific National) pursuant to a Business Sale Agreement executed on 28 July 2017. The ART is a rail terminal located in Queensland, approximately 16 km south of the Brisbane central business district. It contains two terminals: the Brisbane Multi User Terminal, which is a standard gauge rail terminal that connects to the standard gauge interstate rail network; and the Queensland Terminal, which is a narrow gauge rail terminal that connects to the narrow gauge rail network within Queensland. Pacific National supplies rail linehaul services on the North-South and East-West standard gauge interstate railway lines and between terminals on the narrow gauge railway line in Queensland that runs along the coast between Brisbane and Cairns, referred to as the North Coast Line. Pacific National is the largest provider of rail linehaul services in Australia by revenue and volume of freight transported.

2    Pursuant to clause 5.1 of the Business Sale Agreement, completion of the sale was conditional on, amongst other things, the parties receiving competition law clearance for the sale in one of three ways: written confirmation from the Australian Competition and Consumer Commission (ACCC) that it did not propose to intervene in the acquisition pursuant to s 50 of the Competition and Consumer Act 2010 (Cth) (Act) (commonly referred to as informal clearance); authorisation of the acquisition by the Australian Competition Tribunal under Part VII of the Act; or the Federal Court declaring or making orders to the effect that the acquisition would not contravene s 50 of the Act.

3    The ACCC did not give the parties informal clearance. On 18 July 2018, it commenced a proceeding in the Federal Court alleging, amongst other things, that the sale of the ART pursuant to the Business Sale Agreement would contravene s 50 of the Act and sought orders restraining the parties from completing the sale. At the time of trial, the ACCC’s allegation was that the acquisition of the ART by Pacific National would be likely to have the effect of substantially lessening competition in markets (defined with greater specificity below) for interstate rail linehaul services on the North-South corridor (essentially between Melbourne, Sydney and Brisbane) and on the East-West corridor (essentially between Perth, Adelaide and either Melbourne or Sydney), whether considered as separate markets or part of a single market. The relief sought by the ACCC included a declaration pursuant to s 21 of the Federal Court of Australia Act 1976 (Cth) (FCA Act) that the acquisition would contravene s 50 of the Act and an injunction under s 80(1)(a)(i) of the Act restraining Pacific National from acquiring the ART.

4    On 15 May 2019, the primary judge delivered judgment: Australian Competition and Consumer Commission v Pacific National Pty Limited (No 2) [2019] FCA 669. His Honour concluded that, upon the Court accepting an undertaking proffered by Pacific National relating to the future conduct of the ART (the Undertaking), the proposed sale of the ART by Aurizon to Pacific National would not contravene s 50 of the Act (at [1611]). The primary judge stated that, if he had not accepted the Undertaking (which he referred to as a hypothetical scenario), “on balance, and not without some hesitation” he would have accepted the ACCC’s s 50 case (at [1612]). More specifically, his Honour would have found that the acquisition of the ART by Pacific National would be likely to have the effect of substantially lessening competition in either:

(a)    a single market comprising the supply of rail linehaul services for the transport of intermodal freight (excluding bulk steel) over long distances on the North-South and East-West corridors to beneficial freight owners and freight forwarders for whom neither road services nor sea services provides an effective substitute for rail linehaul services; or

(b)    separate markets for the North-South and East-West corridors,

which are referred to in the reasons of the primary judge as the “Interstate markets” (adopting a definition used in the ACCC’s pleading). We prefer to use the descriptive term “interstate rail linehaul markets” to distinguish these markets from markets in which freight owners and freight forwarders consider that road services or sea services provide an effective substitute for rail linehaul services (which might be described as intermodal transport markets). His Honour found that the analysis of the competitive effects of the proposed acquisition of the ART is not affected by whether the relevant markets are defined as a single combined market or two separate markets, and there is no challenge to that finding on the appeal.

5    The primary judge made final orders on 6 June 2019, dismissing the ACCC’s application and ordering the ACCC to pay 50% of the respondents’ party-party costs of the proceeding: ACCC v Pacific National Pty Ltd (No 3) [2019] FCA 866.

6    On 26 June 2019, the ACCC filed a notice of appeal, which was subsequently amended on 26 November 2019. By the amended notice of appeal, the ACCC challenged the primary judge’s acceptance of, and reliance on, the Undertaking in finding that the sale of the ART would not contravene s 50. The ACCC advanced two principal contentions.

7    First, the ACCC contends that the primary judge did not have power to accept the Undertaking. A central argument advanced by the ACCC is that the power to accept an undertaking in the circumstances of a case such as the present is a power that is enlivened once a contravention of s 50 is found, and the Court may then accept an undertaking in lieu of granting injunctive relief as a remedy for the contravention. The ACCC submitted that the primary judge erred by taking the Undertaking into account as part of the factual matrix in assessing whether the sale of the ART would contravene s 50.

8    Second, the ACCC contends in the alternative that, if the primary judge was empowered to accept the Undertaking, his Honour erred in doing so. The central argument advanced by the ACCC was that the primary judge erred in concluding that the Undertaking would be effective in preventing Pacific National from engaging in anti-competitive conduct in the operation of the ART following the acquisition and that the Undertaking was not formulated with the necessary precision such as to be capable of being readily obeyed and enforced.

9    On 18 July 2019, each of Pacific National and Aurizon filed notices of cross-appeal, which were subsequently amended on 8 November 2019. The grounds of cross-appeal raised by the respondents were similar but not identical. However, because the interests of the respondents in the appeal are mutual, if a ground of appeal of either respondent is upheld by the Court, the other respondent will benefit from the successful appeal. Substantively, the respondents challenged the primary judge’s reasoning with respect to market definition and the assessment of the likely competitive effects of the sale of the ART.

10    In relation to market definition, the respondents contend that the primary judge erred in concluding that interstate rail linehaul markets exist that are confined to a subset of Pacific National’s rail linehaul customers, being those customers for whom neither road services nor sea services provides an effective substitute for rail linehaul services (so-called “captive” customers). The respondents contend that the primary judge erred in failing to find that the existence of such markets is dependent on two preconditions: first, that suppliers can identify and target “captive” customers with higher prices (that is, price discriminate); and, second, that profitable arbitrage must not be possible (that is, the non-captive customers must not be able to resell the product to the captive ones or purchase it on their behalf, thereby defeating the price discrimination). The respondents contend further that the evidence did not support a conclusion that Pacific National could identify and target “captive” customers with a sufficient degree of accuracy to engage in price discrimination profitably.

11    In relation to the likely effect of the acquisition on competition, the central argument advanced by the respondents was that the primary judge erred in concluding that the acquisition of the ART by Pacific National would have the likely effect of substantially lessening competition by increasing barriers to entry into the interstate rail linehaul markets in circumstances where: (i) in the medium term, a competing rail terminal would be built (through the Inland Rail Project); and (ii) barriers to entry were already high and there was no realistic prospect of new entry within that timeframe in any event.

12    Aurizon also advanced the contention that the primary judge erred in construing the word “likely” in s 50 as synonymous with there being a “real chance”. Aurizon contends that the word means “more probable than not”.

13    The respondents further contend that, if the primary judge erred by taking the Undertaking into account as part of the factual matrix in assessing whether the sale of the ART would contravene s 50 as the ACCC contends, his Honour should have accepted the Undertaking in lieu of granting the injunction sought by the ACCC because, for substantially the reasons his Honour gave, the Undertaking sufficiently addressed the likely anti-competitive effects of the acquisition.

14    On 26 November 2019, the ACCC filed a notice of contention in response to the respondents’ amended notices of cross-appeal. The notice raises two matters. The first concerns the assessment of the competitive effect of the acquisition, and specifically the timeframe within which the primary judge ought to have considered the potential for new entry. The second concerns the Undertaking and advances a contention that the Court is not empowered to accept the Undertaking in lieu of the injunctive relief sought by the ACCC for reasons that include:

(a)    the power to accept an undertaking in lieu of injunctive relief granted pursuant to s 80(1) of the Act is limited to an undertaking in a form that reflects the relief sought by the ACCC; and

(b)    the acceptance of the Undertaking would not involve an exercise of the judicial power of the Commonwealth and would infringe Chapter III of the Constitution.

15    For the reasons that follow, we would allow the cross-appeals and dismiss the appeal.

16    By way of summary, in respect of the respondents’ cross-appeals, we are of the view that:

(a)    the primary judge did not err in defining the relevant markets in which to assess the competitive effects of the proposed acquisition;

(b)    the primary judge did not err in construing the word “likely” in s 50 as meaning a real commercial likelihood, whether or not the likelihood is greater or less than 50%;

(c)    respectfully, the primary judge erred in concluding that, in the absence of the Undertaking, the proposed acquisition would contravene s 50.

17    The finding that the proposed acquisition would not contravene s 50 requires the dismissal of the ACCC’s appeal and renders the ACCC’s grounds of appeal moot. Although it is not strictly necessary to address the ACCC’s grounds of appeal, it is appropriate to do so in case the matter goes further and also because the issues are of some importance and the Court has heard full argument. In summary, we are of the view that the power to accept an undertaking in the circumstances of a case such as the present is a power that is enlivened once a contravention of s 50 is found, and the Court may then accept an undertaking in lieu of granting injunctive relief as a remedy for the contravention. It follows, in our respectful view, that the primary judge erred in taking the Undertaking proffered by the respondents into account as part of the relevant factual matrix and, on that basis, reaching a conclusion that the acquisition of the ART by Pacific National would not contravene s 50. However, the form of undertaking that may be accepted by the Court in lieu of injunctive relief is not limited to the form of injunctive relief sought by the ACCC in the proceeding. It would therefore have been open to the primary judge, as a matter of legal power, to accept an undertaking that ameliorated the anti-competitive effects of the proposed acquisition in lieu of granting an injunction to prevent the proposed acquisition. We are not persuaded that, if the primary judge had exercised the discretionary power to accept the Undertaking in lieu of injunctive relief, the exercise of power would have been erroneous.

B.    Background facts

18    The following is a summary of the background facts, as found by the primary judge, which are relevant to the disposition of the appeal and are not contested on the appeal. It should be noted that there are many facts referred to in the reasons of the primary judge that were relevant to the allegations made by the ACCC at trial, including the allegations concerning the Terminal Services Subcontract, but which are not relevant to the issues raised on the appeal. In particular, at trial, the ACCC alleged that the interstate rail linehaul markets also comprised the supply of services for the transport of bulk steel, and there were a large number of findings made in respect of the transport of bulk steel. The primary judge concluded that the transport of bulk steel comprised a separate market (at [371], [520] and [529]), and there is no challenge to that finding by the ACCC. Accordingly, it is unnecessary to refer to the bulk steel aspect of the case below.

19    Certain findings made by the primary judge were redacted for confidentiality in the published reasons. Unless necessary to explain our reasons, we have not referred to those findings that were redacted.

B.1    The parties to the sale transaction

20    As already noted, the parties to the sale transaction were entities within the Aurizon group and entities within the Pacific National group.

Aurizon

21    Aurizon is and was a vertically integrated rail linehaul operator and freight forwarder. It continues to own the ART, pending the outcome of this litigation initiated by the ACCC. The business of the ART is described below.

22    At all relevant times until December 2017, Aurizon operated an interstate intermodal business that provided rail linehaul services for intermodal freight on interstate routes. When Aurizon provided rail linehaul services on interstate routes to or from Queensland, Aurizon’s trains travelled to and from the Brisbane Multi User Terminal (within the ART), where they were unloaded and loaded. Aurizon elected to close its interstate intermodal business in December 2017.

23    Up to 14 January 2019, Aurizon also operated a Queensland (intrastate) intermodal business. Through that business, Aurizon supplied rail linehaul services between terminals on the North Coast Line to freight forwarders and freight owners. Aurizon offered freight owners a full freight solution, including both rail linehaul services on the North Coast Line and “pick-up and delivery services”, and, in some cases, also services to consolidate and deconsolidate freight owners’ freight. When Aurizon provided rail linehaul services on the North Coast Line, Aurizon’s trains travelled to and from the Queensland Terminal (within the ART). Aurizon was the only rail operator that used the Queensland Terminal. On 14 January 2019, Aurizon sold its Queensland intermodal business to Linfox Australia Pty Ltd (Linfox).

24    Aurizon does not provide road freight services or sea freight services.

Pacific National

25    Pacific National provides rail linehaul services on interstate routes and between terminals on the North Coast Line. It is the largest provider of rail linehaul services in Australia by revenue and volume of freight transported. It principally supplies those services to freight forwarders, such as Toll and Linfox, rather than directly to freight owners.

26    When Pacific National provides rail linehaul services for intermodal freight on interstate routes to or from Queensland, Pacific National's trains travel to and from the Brisbane Multi User Terminal, where they are unloaded and loaded. Since Aurizon's closure of its interstate intermodal business in December 2017, Pacific National has been the only rail operator to use the Brisbane Multi User Terminal.

27    When Pacific National provides rail linehaul services on the North Coast Line for intermodal freight, Pacific National's trains travel to and from the narrow gauge terminal located at Tennyson (Tennyson terminal), where they are loaded and unloaded. The Tennsyon terminal is located approximately 10 km from the ART and approximately 9 km from the Brisbane CBD. Freight from far north Queensland to be moved interstate by rail is transported by truck between the Tennyson terminal and the ART, and vice versa for freight moving from interstate to far north Queensland.

28    Pacific National does not provide road services or sea services or, generally, “pick-up and delivery” services.

B.2    The Acacia Ridge Terminal

29    The ART is a rail terminal located in Queensland, approximately 16 km from the Brisbane central business district. The ART contains two terminals: the Brisbane Multi User Terminal, which is a standard gauge terminal that connects to the standard gauge interstate network; and the Queensland Terminal, which is a narrow gauge terminal that connects to the narrow gauge network within Queensland. The Brisbane Multi User Terminal and the Queensland Terminal are connected by a dual gauge railway line, and serviced by marshalling yards and associated sidings and facilities.

30    The ART facilitates the movement of intermodal freight into, out of and within Queensland, as it connects to both the standard gauge interstate network from the south and the narrow gauge rail network to the north, leading to the North Coast Line. The ART also facilitates transhipment of intermodal freight from standard to narrow gauge and vice versa, whether by rail, in which case trains can be broken up and shunted from the Queensland Terminal to the Brisbane Multi User Terminal and vice versa, or by road, in which case containers are transported by truck between the two terminals.

31    The ART is located near to rail sidings, depots, distribution centres and warehouses that are owned or operated by major customers of the rail operators which use the ART, including logistics companies and freight owners.

32    Currently, the ART is owned by Aurizon. As part of the transaction entered into between Aurizon and Pacific National described below, Aurizon engaged Pacific National to provide certain terminal services at the Brisbane Multi User Terminal with effect from 1 December 2018 pursuant to a contract called the Terminal Services Subcontract. Until 30 November 2018, Aurizon engaged Qube Logistics (Qld) Pty Ltd, an entity within the Qube group of companies (Qube), to provide similar terminal services at the Brisbane Multi User Terminal. The Terminal Services Subcontract does not apply to the Queensland Terminal.

B.3    The relevant transactions

33    The primary judge set out the background to the relevant transactions at [9]-[13] and [51]-[80]. Given the narrowing of the ACCC’s case at trial, and the further narrowing of issues on this appeal, it is unnecessary to refer to the detailed chronology of the relevant transactions. The following is a summary of the principal events.

34    In February 2017, Aurizon initiated Project Eyre, which was an assessment of market interest in the sale or shutdown of, or joint venture to own and operate, its intermodal business including the ART, the interstate intermodal business and the Queensland intermodal business.

35    From April 2017, Aurizon conducted a sale process for the ART, the interstate intermodal business and the Queensland intermodal business. In May 2017, Aurizon received six non-binding offers for parts or all of that business:

(a)    two indicative offers from Qube and Oaktree for the whole of the intermodal business, including the ART, the interstate intermodal business and the Queensland intermodal business;

(b)    two indicative offers from Genesee & Wyoming and Pacific National for the Queensland intermodal business and the ART only; and

(c)    two indicative offers from the Australian Rail Track Corporation (ARTC) and Charter Hall for the ART.

36    Aurizon invited Pacific National, Qube and three other bidders to make binding bids by 4 August 2017.

37    On 20 July 2017, Pacific National made a pre-emptive binding bid for the ART. Following subsequent negotiations, on 28 July 2017 Aurizon and Pacific National entered into a package of agreements:

(a)    the Business Sale Agreement, pursuant to which Aurizon agreed to sell, and Pacific National agreed to buy, the ART for a purchase price of $170 million, as adjusted in accordance with the terms of the agreement; and

(b)    the Terminal Services Subcontract, pursuant to which Pacific National was appointed as operator of the Brisbane Multi User Terminal in place of Qube from 1 December 2018.

38    On 11 August 2017, Aurizon and Pacific National also executed an agreement under which Pacific National agreed to acquire the Queensland intermodal business for a payment of $20 million, also conditional on competition law clearance. On the same day, Aurizon resolved to close its interstate intermodal business, which was announced on 14 August 2017. In December 2017, Aurizon closed its interstate intermodal business.

39    On 12 February 2018 and 15 March 2018, Aurizon announced that it would close its Queensland intermodal business if it was not able to gain ACCC approval for its sale to Pacific National.

40    In its originating application filed on 18 July 2018, the ACCC sought an interlocutory injunction requiring Aurizon to carry on its Queensland intermodal business in the ordinary and usual course. On 13 August 2018, the primary judge granted that interlocutory injunction: Australian Competition and Consumer Commission v Pacific National Pty Ltd [2018] FCA 1221.

41    In January 2019, Aurizon sold its Queensland intermodal business to Linfox under arrangements whereby Aurizon supplies a “hook and pull” service to Linfox, described below.

B.4    Intermodal freight

42    Intermodal freight is freight that is packed in containers or pallets, which allow the freight to be transferred between modes of transport such as road, rail and/or sea without the freight itself being handled. A wide variety of products can be transported as intermodal freight, including food, beverages, finished steel products and household and personal effects.

43    Intermodal freight can be distinguished from freight known as "bulk freight", which generally refers to large quantities of homogenous, loose commodity products such as coal, minerals and agricultural products where they are not containerised. The present proceeding does not concern the transport of any form of "bulk" freight, except to the extent that "bulk" freight is on occasion transported in containers (in which case it is categorised as "intermodal" freight).

B.5    Relevant railway infrastructure

44    The railway networks that are relevant to this proceeding are either narrow or standard gauge. Locomotives and rail wagons (together referred to as rolling stock) can generally only be used on either narrow or standard gauge railway lines. However, it is possible for sections of a railway to be dual gauge; that is, to be built such that there are more than two parallel rails on the track placed in a way that enables both standard gauge and narrow gauge rolling stock to use the track.

45    The interstate railway network for rail linehaul services is a standard gauge network, which runs from the southern entrance of the ART, via Sydney to Melbourne, and through to Kalgoorlie in Western Australia. This network is owned or operated under long term leases by the ARTC.

46    Within Queensland, railway lines are almost exclusively narrow gauge. Three parts of the Queensland railway network, each of which are owned by Queensland Rail, are relevant to this proceeding:

(a)    the North Coast Line, which is a narrow gauge railway line that runs along the coast between Brisbane and Cairns, and various destinations in between.

(b)    the dual gauge section of railway track that runs from the border of the ARTC network at the southern entrance to the ART to Fisherman Island at the Port of Brisbane, where it terminates (dual gauge section); and

(c)    the narrow gauge metropolitan network in and around Brisbane.

47    The use of different gauges between the interstate routes and within Queensland means that freight travelling by rail into Queensland and then north beyond Brisbane must be transferred from the standard gauge network to the narrow gauge network. Freight travelling by rail from within Queensland to Brisbane and then interstate must be transferred from the narrow gauge network to the standard gauge network.

B.6    Movement of intermodal freight within Australia

48    Intermodal freight can be transported by one or more of road, rail and, in some cases, sea. In some cases, transport providers deal directly with the party seeking transport for their freight, and in other cases a freight forwarder organises transport on behalf of that party.

49    Intermodal rail terminals play an important role in the transport of intermodal freight because they are the location at which intermodal freight is transferred from road transport to rail transport (or vice versa), and at which numerous other significant ancillary services are provided.

50    The movement of intermodal freight within Australia predominantly occurs using rail and/or road, with sea used to a smaller extent. Rail transport involves the movement of freight using a rail network, and can be combined with the use of a second mode of transport, usually road, for some legs of the journey. Road transport involves the movement of freight using vehicles travelling by road. It is also used in conjunction with other modes of transport, to transport freight on the first and last leg of a journey. Coastal shipping is used for transport between mainland ports and Tasmania. There is limited coastal shipping between mainland ports, but coastal shipping has in some instances been used to move freight between the east and west coasts of Australia.

51    The movement of intermodal freight by rail typically involves three distinct stages. The first stage is the use of a truck to collect freight from the origin point nominated by the customer, and the transport of that freight by road to a terminal where it is loaded onto a train. The second stage is the transport of that freight by train from the terminal (the terminal of origin) to a terminal near to the customer's nominated destination point (the destination terminal), where it is unloaded from the train. The third stage is the use of a truck to collect the freight from the destination terminal and deliver it to the destination point nominated by the customer ("pick-up and delivery" services).

52    The movement of intermodal freight by road can occur in two ways. In some cases, the process is similar to that described above. The truck collects the freight from the customer, and transports it to a depot or terminal. At the depot or terminal, the freight is loaded on to a truck that is suitable for transporting intermodal freight over long distances. The freight is transported by truck from the depot or terminal of origin to a depot or terminal near to the customer's nominated destination point, where the freight is loaded onto a truck that is suitable for transporting intermodal freight over shorter distances (“pick-up and delivery” services). In other cases, it may not be necessary for the freight to be taken to some or all of the depots or terminals referred to. That is, a truck may collect the freight from the customer's nominated origin point and transport it directly to the customer's destination point, without the need to attend any depot or terminal. Alternatively, a truck may collect the freight from the customer's nominated origin point and transport it directly to the destination depot/terminal without attending a depot/terminal of origin or collect the freight from the depot/terminal of origin and transport it directly to the customer's destination point.

53    The movement of freight by sea occurs in the same way as described in relation to rail freight above, except that the freight is transported to and from a terminal for loading onto a ship rather than a train.

54    For each of rail, road and sea transport, the long-distance leg of the freight task is referred to as the "linehaul" component and the service of supplying this component of the freight task is referred to as a "linehaul" service. In these reasons, the terminals at which freight is transferred from one mode of transport to another are referred to as "intermodal terminals".

55    Broadly speaking, there are up to three participants involved in the transport of intermodal freight being:

(a)    freight owners, which are the ultimate owners of the freight to be transported;

(b)    freight forwarders, which are businesses that organise the entire movement of the freight from its point of origin to its point of destination on behalf of the freight owner; and

(c)    linehaul providers, which operate the rail, road or sea linehaul service used to transport the freight owner's freight.

56    Freight owners often contract with a freight forwarder to arrange the movement of intermodal freight, but in some instances contract directly with a rail linehaul provider. The freight forwarder often operates one or more of the transport modes themselves (for example, they may operate the “pick-up and delivery” services and, in some cases, also rail or road services), and otherwise acquires from another operator any transport services that they do not themselves provide. In some cases the freight forwarder's service includes the service of packing freight into containers, and in other cases this task is undertaken by the freight owner. The freight forwarder is, in this sense, an intermediary between the freight owner and the transport provider.

57    If a freight owner requires transport for a volume of intermodal freight that is less than a full container load, a freight forwarder may combine that freight with other freight (referred to as consolidation). This allows the freight forwarder to increase container utilisation, and thereby decrease the unit costs of transporting the freight. If a freight forwarder does this, they may transport the freight from the freight owner's point of origin to an intermediate facility (such as its own depot) for consolidation before the freight is further transported as described above, and then to another intermediate facility to separate a freight owner's consolidated freight from other freight (referred to as deconsolidation), before the freight owner's freight is transported to the destination point.

B.7    Rail transport suppliers

58    The businesses of Aurizon and Pacific National have been described above. As there noted, Aurizon closed its interstate intermodal business in December 2017 and sold its Queensland intermodal business to Linfox in January 2019. At the time of the proceeding, the other suppliers of rail linehaul services in Australia were SCT Logistics and Linfox (following its acquisition of the Queensland intermodal business).

SCT Logistics

59    At all relevant times, SCT was, and continues to be, a vertically integrated rail operator and freight forwarder, operating rail linehaul services for intermodal freight on interstate routes, and also providing associated “pick-up and delivery” services. SCT supplies services directly to freight owners and does not generally deal with other freight forwarders.

60    In December 2014, SCT sought access to the Brisbane Multi User Terminal, but was refused access by Aurizon on the basis that the Brisbane Multi User Terminal was capacity constrained. Until January 2017, SCT provided intermodal rail services between Melbourne and Brisbane under a "hook and pull" arrangement with Aurizon. In January 2016, Aurizon gave SCT twelve months' notice of its intention to cancel the hook and pull arrangements it had previously agreed with SCT. As a result, SCT constructed its own intermodal terminal at Bromelton to service customers on the Melbourne–to-Brisbane corridor. That terminal opened in January 2017.

61    Historically, the majority of the intermodal freight SCT has transported was non-containerised. SCT principally provides rail linehaul services using a fleet of louvered vans (also referred to as "wagons"), although SCT's terminals have container handling facilities and SCT provides container haulage on both the North-South and East-West corridors.

62    When SCT provides rail linehaul services for intermodal freight on interstate routes, its trains travel to and from a standard gauge intermodal terminal at Bromelton. SCT does not operate any rail linehaul services on narrow gauge railways within Queensland.

Linfox

63    Mr Ian Strachan, President of Linfox’s intermodal operations across Australia, whose evidence was accepted by the primary judge, deposed that Linfox is a vertically-integrated road linehaul operator and intermodal freight-forwarder with operations in all states of Australia, other than Tasmania. Prior to acquiring Aurizon’s Queensland intermodal business, Linfox’s operations in Queensland were very limited.

64    On 12 October 2018, Aurizon and Linfox entered into the following agreements in relation to the Queensland intermodal business:

(a)    A Business Sale Agreement to transfer ownership of the Queensland intermodal business, excluding Aurizon's fleet of locomotives and certain other assets relating to rail haulage services, to Linfox.

(b)    A Hook/Pull and Maintenance Services Agreement under which Aurizon provides Linfox with rail haulage services for the Queensland intermodal business. Under that agreement, Aurizon provides locomotives (which are retained by Aurizon) to pull wagons (which would then be owned by Linfox) to carry out the rail haulage required for the Queensland intermodal business. Aurizon also provides Linfox with the requisite rail infrastructure access rights so that the wagons can be hauled under Aurizon's rail operator accreditation for the purposes of the rail safety legislation. Aurizon also provides maintenance services in respect of Linfox's wagons. Linfox has an option to purchase Aurizon's Queensland intermodal business fleet of locomotives at the end of the term of the agreement.

(c)    A RIM Services Agreement under which Aurizon provides Linfox with rail infrastructure manager services (for the purposes of the rail safety legislation) at various terminal locations used by the Queensland intermodal business for a period of five years from completion of the Queensland intermodal business sale or until Linfox obtains the requisite regulatory accreditations.

(d)    Three Terminal Services Agreements under which Aurizon provides terminal services to Linfox at the Aurizon terminals at Townsville and Mt Miller and at the Queensland Terminal for a period of five years from completion of the sale of the Queensland intermodal business, with a further two five-year periods at Linfox's option.

(e)    A Transitional Services Agreement under which Aurizon provides Linfox with information technology services on a transitional basis following completion of the business sale.

65    Aurizon and Linfox also agreed on leases over the business sites at Townsville, Emerald, Rockhampton and Mackay and a licence over certain areas (including the freight distribution centre) located at the ART.

66    According to Mr Strachan, Linfox's acquisition of the Queensland intermodal business is important because it facilitates Linfox's entry into Queensland. As a result of the transactions with Aurizon, Mr Strachan deposed that Linfox will obtain:

(a)    a national footprint to compete with other national competitors like Toll, i.e. by offering a national end-to-end freight forwarding service;

(b)    the ability to undertake services into and out of Far North Queensland;

(c)    the opportunity to compete for and win new freight forwarding customers and other contract logistics opportunities in Queensland; and

(d)    access to terminals and other facilities including the ART in Queensland.

67    In relation to Linfox’s use of the Queensland Terminal within the ART, Mr Strachan gave evidence that Linfox has executed a terminal services agreement and freight distribution centre licence with Aurizon which enable Linfox to access relevant parts of the ART as part of its operation of the Queensland intermodal business and to receive certain services from Aurizon, such as the loading and unloading of trains, shunting and container storage. Such arrangements specifically contemplate that Aurizon will novate these arrangements to Pacific National in the event that Aurizon sells the ART to Pacific National. Mr Strachan understands that this will also require Pacific National's consent to the novation and that Pacific National has agreed to give its consent. Such arrangements also contemplate novation if the ART is sold to another party.

68    In relation to the Brisbane Multi User Terminal within the ART, Linfox has a rail linehaul agreement with Pacific National under which Linfox freight carried by Pacific National can access the Brisbane Multi User Terminal. For the term of Linfox's rail linehaul agreement with Pacific National, Mr Strachan said that he was not presently concerned about the Terminal Services Subcontract between Aurizon and Pacific National. Given the arrangements described in the previous paragraph, and given that the Queensland Terminal is separate from the Brisbane Multi User Terminal, according to Mr Strachan, the provision of terminal services by Pacific National at the Brisbane Multi User Terminal would not affect Linfox's access to, or use of, the Queensland Terminal.

B.8    Pricing of rail linehaul services

69    Pacific National and Aurizon adopt different contractual arrangements for the supply of rail linehaul services to freight forwarders and to freight owners.

Pacific National

70    Pacific National's contracts with customers seeking rail linehaul services for intermodal freight consist of standard terms and conditions, a rate card which identifies the rates to be charged for the relevant rail linehaul services, and, in some instances, a rail haulage agreement (sometimes referred to as a "partnership agreement") that generally has a term of 3 to 5 years and contains terms and conditions specific to the customer.

71    Pacific National has five categories of rate cards that apply nationally: one rate card offers Pacific National's standard prices, and the other four rate cards each offer different levels of discounts to Pacific National's standard prices. Pacific National applies different rates cards to different customers, based principally on the volume of freight that the customer transports. The particular prices that a customer pays under any one rate card depend on the size of the container, the volume being shipped, the origin-destination pair of the route over which the freight is shipped, the direction of travel and the day of the service. In addition to these five rate cards, Pacific National also applies specialised rate cards for customers with particular freight types, such as removalists, and customers transporting automotive or express freight.

72    Approximately 80% of Pacific National's customers receive services under a rate card and Pacific National's standard terms and conditions without a rail haulage agreement; approximately 20% of Pacific National's customers have a rail haulage agreement. Customers with a rail haulage agreement generated 55% of Pacific National's intermodal freight volume in the 2018 financial year.

73    In addition to the arrangements described above, there are also occasions when Pacific National provides customers, usually freight forwarders, with rate assistance for a particular tender. Pacific National does this by entering into a commodity rate agreement. This is an agreement negotiated between Pacific National and its customer under which Pacific National agrees to provide transport for a specific freight task or tasks at a specific rate (a "commodity rate") that is lower than the rate that would otherwise apply under the arrangements described above. The commodity rate is negotiated between Pacific National and its customer. If the customer is successful in winning the tender, the commodity rate applies to the particular freight task won under that tender. That freight task is defined, and hence the application of the commodity rate is limited, by reference to one or more of the following factors: the routes over which transport is to be provided; the nature of the freight to be carried; and the identity of the freight owner whose freight is to be carried. So, for example, if Pacific National offered a freight forwarder commodity rates to help it to win work to carry particular volumes for a particular freight owner on particular routes, and the freight forwarder won that tender, the freight forwarder would pay Pacific National the relevant commodity rates for that particular volume on those particular routes. But the commodity rates would not apply to any other volumes or routes carried for that particular freight owner or to freight carried for other freight owners. Commodity rate agreements require the customer to identify the commodity rate code when seeking to use that rate.

74    Most commodity rate agreements apply to customers who have a rail haulage agreement, and have the effect of modifying the rates payable under the rail haulage agreement in relation to the particular business the subject of the relevant tender. However, Pacific National has also entered into commodity rate agreements with customers, such as removalists, who are not a party to a rail haulage agreement. The particular prices that a customer pays under any one commodity rate agreement depend on the size of the container, the volume being shipped, the origin-destination pair of the freight being shipped and the day of the service.

75    In the period from 1 October 2016 to 30 September 2018, Pacific National had at least 650 commodity rate agreements in place in relation to services provided on the North-South corridor.

Aurizon

76    Aurizon has supplied rail linehaul services, including as part of its freight forwarding services, on both a contracted and uncontracted basis. For uncontracted customers, Aurizon supplied rail linehaul services in accordance with its standard terms and conditions. For contracted customers, Aurizon supplied such services in accordance with its standard terms and conditions and rates agreed between Aurizon and the customer. The rates that applied to a particular customer could be either scheduled rates or negotiated rates. Scheduled rates are rates set out in one of four separate schedules of rates - one schedule contains "standard" rates, one contains rates specific to removalists, and the two other schedules contain rates at two different levels of discounts from the standard rates. The selection as to which scheduled rates apply to a particular customer depends on whether the customer is contracted or uncontracted, the volume of freight they wish to have transported and, in the case of removalists, the nature of that freight. However, contracted customers who have been prepared to make a volume commitment to Aurizon and/or to do so on a desirable corridor where Aurizon had linehaul capacity, could generally negotiate lower rates with Aurizon. In some other cases high volume customers could receive rail linehaul services at costed rates, which could be significantly lower than the scheduled rates.

77    In addition, further charges, discounts, rebates, rate review mechanisms and sign-on payments for contracted customers have been negotiated between Aurizon and the customer, and additional fees could be added for particular contracted and uncontracted customers depending on the nature of the service they required.

B.9    The role of intermodal rail terminals

78    Generally speaking, the following activities take place at the ART and other intermodal terminals:

(a)    freight forwarders or freight owners deliver intermodal freight, which are stored until they are loaded onto trains;

(b)    trains arrive at the terminal and are allowed to enter the terminal from the connecting rail network under the management of train controllers who manage the terminal's interface with the provider of access to the connecting network;

(c)    trains are unloaded using equipment such as forklifts and gantry cranes and freight is moved from the train to the ground (for later relocation), a waiting truck, another train or a storage area;

(d)    the unloaded containers are, if not directly loaded onto another train or truck, stored;

(e)    if the terminal is a dual gauge terminal, freight may be moved from a standard gauge train to a narrow gauge train and vice versa;

(f)    trains are subject to safety checks;

(g)    wagons may be stored for periods of time;

(h)    trains undergo a level of servicing, including wagon checks or repairs, locomotive fuelling and locomotive provisioning, which involves supplying the rail operator with water, fuel and sand required for the locomotive;

(i)    damaged or unsafe wagons are removed from trains;

(j)    trains are reconfigured, meaning that they are broken up and reassembled into different length trains - for example, trains may need to be reconfigured into smaller lengths if they would otherwise be too long to use the terminal or particular infrastructure at the terminal, which involves attaching and detaching locomotives, uncoupling and stowing wagons and shunting (that is, pushing or pulling) wagons;

(k)    trains are loaded;

(l)    trains are allowed to exit the terminal onto the connecting rail network, under the management of train controllers who manage the terminal's interface with the provider of access to the connecting network;

(m)    freight forwarders or freight owners collect intermodal freight for delivery to its final destination; and

(n)    the track and loading equipment at the terminal undergo maintenance.

79    Because of the wide range of activities conducted at a terminal, rail operators, freight forwarders, freight owners and road operators each "use" a rail terminal. Rail operators use a terminal for operating, servicing and loading or unloading trains. Freight forwarders, freight owners and their road operators use a terminal for delivering and collecting freight in the course of providing “pick-up and delivery” services.

80    In order to use a rail terminal, a rail operator requires:

(a)    access to capacity on the rail network that connects to the terminal - rail capacity is allocated in the form of a "train path", which is the right granted by the relevant track owner to run a train of specified maximum length and weight from an origin to a destination at a specified time; and

(b)    access to capacity at the terminal - terminal capacity is allocated in the form of a "terminal window", which is a defined period of time during which a train can occupy rail tracks within a terminal for loading and unloading, train storage and, potentially, provisioning.

81    A rail operator needs to obtain terminal windows and train paths that align, in the sense that the train path must allow the train to arrive at and depart from the terminal within its terminal window. But not all capacity is "equal" and differing train paths and terminal windows will have different attractiveness to a rail operator's customers, different operating efficiency and cost implications and differing interconnectivity with other networks.

82    From the perspective of a rail operator, the fundamental task of any intermodal rail terminal is to allow rail operators to load containers onto, or unload containers from, trains and trucks at the terminal in an efficient and timely manner. It is important to rail operators that they can provide a cost-effective and competitive rail haulage offering, which requires the following things:

(a)    First, rail operators require terminal windows of adequate quality to enable them to compete with other rail providers. For instance, a rail operator requires windows that align with relevant train paths, are at an appropriate time of day to allow the operator to meet their own customers' needs, and are of an appropriate duration to allow them to load, unload and provision their locomotives. An important consideration for interstate departures from Queensland is to avoid the train being held up on the outskirts of Sydney during peak passenger periods, when restrictions are imposed on freight trains operating in the Sydney network.

(b)    Second, rail operators require that the terminal windows allocated to the operator are in fact made available to the operator on a day-to day-basis in accordance with that allocation.

(c)    Third, rail operators require that trains that are not running to timetable (that is, running early or late) are still serviced quickly and efficiently.

(d)    Fourth, rail operators require that services at the terminal are provided quickly and efficiently, including that loading occurs according to the loading plan provided by the rail operator.

83    Where a terminal is operated by a rail operator which uses the terminal, it is important to other rail operators that:

(a)    they receive service quality and pricing that is comparable to that which the terminal operator applies in relation to its own rail operations;

(b)    the terminal is operated safely, and that safety requirements are implemented in a pragmatic and non-discriminatory way; and

(c)    their confidential information is protected and not able to be used by the terminal operator to assist them in their own rail business.

84    In selecting a freight forwarder for a freight task and, where relevant, in selecting rail as the freight mode of choice, a freight owner usually obtains a commitment from the freight forwarder that the freight owner’s freight will arrive at its destination according to schedule. As a result of its obligations to the freight owner, the freight forwarder will have regard to a range of services provided at an intermodal rail terminal, including the following:

(a)    the time by which they must deliver goods to the terminal in order for those goods to be loaded onto a particular train (the "cut-off time");

(b)    whether the train can depart on time;

(c)    the time it takes for a truck to enter the terminal, deliver or collect freight and leave the terminal (referred to as the "truck turnaround time");

(d)    whether containers are damaged whilst at the terminal; and

(e)    the time that their freight is available for collection at its destination (known as "freight availability").

B.10    Choice of transport mode

85    Freight forwarders or freight owners consider a wide range of factors when deciding whether to acquire rail linehaul services or to acquire road or sea linehaul services instead. For some freight forwarders and freight owners, having regard to the characteristics of their freight, the transport they require and the routes over which they require it, neither road linehaul services nor sea linehaul services are an effective substitute for rail linehaul services. Before Aurizon closed its interstate intermodal business, such freight forwarders and freight owners benefitted from competition between Pacific National and Aurizon in relation to the supply of the relevant rail linehaul services in the form of lower prices and improved service quality.

86    Acquirers of rail linehaul services (whether freight forwarders or freight owners) usually consider a variety of factors specific to their needs in deciding whether to acquire a rail linehaul service. Those factors include the following:

(a)    The total cost of using the rail linehaul service, any required “pick-up and delivery” services and any costs to the freight owner that are associated with use of those services arising due to internal processes such as inventory management (for example, business costs relating to the need to maintain inventory, or the fact that particular stores only have limited off-shelf storage).

(b)    The total cost of using road or sea linehaul services instead of a rail linehaul service, any required “pick-up and delivery” services and any associated internal costs of the type just referred to.

(c)    The freight owner's requirements about delivery, including speed of delivery, frequency of delivery and the degree to which the freight owner requires a time or date specific delivery window.

(d)    Whether the attributes of the freight being transported, including the volume, weight, perishability, number of products to be transported or other characteristics of the relevant freight, leads the freight owner to favour a particular transport mode.

(e)    The appropriateness of any relevant schedules, flexibility in the departure time and the effect of service interruptions like breakdowns or flooding.

(f)    The ability of a rail linehaul service, a road service and/or a sea service to meet the freight owner's needs for reliable delivery, including guaranteed capacity for high volumes of freight.

(g)    The origin and destination of the transport service the customer requires, and the distance of a suitable terminal or port from the origin and destination points for the freight. For example, the greater the distance between the rail terminal and the customer's origin or destination point, the greater the cost of “pick-up and delivery” services. These increased costs may reduce or eliminate a freight forwarder's competitive advantage having regard to the location of its existing facility, and can affect the choice between rail linehaul services and road services.

(h)    Whether the freight owner has invested in, or is otherwise effectively tied to, using particular infrastructure that is specific to a particular mode of transport, for example, rail sidings or delivery docks that are not suitable for receiving freight from the types of trucks used for long distance transport.

(i)    Safety considerations.

(j)    Environmental concerns.

87    A number of factors can lead freight owners or freight forwarders to acquire a rail linehaul service or a road service, rather than a sea service, notwithstanding that sea services can be cheaper than road or rail linehaul services. These include the following factors:

(a)    The location of ports relative to the points of origin and destination may mean that delivery by sea services involves additional handling and delivery costs compared to rail linehaul services or road services.

(b)    Sea services are typically less frequent than rail linehaul services. There are no regular services of the kind that are often needed by freight owners (e.g. a daily or twice-weekly service), which means that a higher volume of freight must be shipped at any one time. Those higher volumes may exceed a freight owner's demand for transport. But even if they do not, the need to transport greater volumes on a single service could increase inventory management costs.

(c)    The availability of sea services is less reliable than road services or rail linehaul services. Sea services are provided by international container vessels and their availability depends on shipping lines having capacity to take containers for domestic legs of their journeys.

(d)    Door-to-door transit time is generally longer, meaning that it takes longer to transport freight using sea services than it does using rail linehaul services.

(e)    Sea is not suitable for certain goods, such as steel grades which may rust.

(f)    Unlike road services and rail linehaul services, it is not possible to guarantee the price of sea services on a long-term basis. Rather, the pricing of sea services is volatile, particularly when chartered opportunistically.

88    A number of factors can lead freight owners or freight forwarders to acquire a rail linehaul service rather than a road service. These include the following factors:

(a)    Overall cost: rail linehaul services are more cost effective than road services over longer distances.

(b)    Volume: rail linehaul services may better accommodate the transportation of larger volumes than road services, and may be scaled up without as much investment.

(c)    Safety: rail linehaul services have a lower interaction with the public, given that they run on a fixed line. Heavy vehicles on the road may pose a particular danger to the public particularly, for example, in far north Queensland where road access is limited.

(d)    Environmental concerns: rail linehaul services create less road traffic and air pollution than do road services.

(e)    Time: rail linehaul services may be quicker over longer distances than road services, although this may not be true for shorter and medium distances.

B.11    Historical competition in the supply of rail linehaul services

North-South rail linehaul services

89    North-South rail linehaul services are rail linehaul services supplied interstate and over long distances between terminals in Queensland, New South Wales and Victoria.

90    Prior to the closure of Aurizon’s interstate intermodal business in December 2017, Aurizon, Pacific National and SCT supplied North-South rail linehaul services in relation to intermodal freight. Aurizon and Pacific National were each other’s closest competitors. SCT was not as close a competitor, as SCT did not generally deal with freight forwarders and SCT’s louvered wagons were not suitable for most customers who sought to transport containerised freight. Following the closure of Aurizon’s interstate intermodal business, Pacific National and SCT are each other’s only competitors, but some of the limitations affecting SCT persist.

91    As a result of the factors set out in section B.10 above, there are some freight owners (or freight forwarders acting on their behalf) requiring transport of intermodal freight between cities serviced by North-South rail linehaul services for whom road services and sea services do not provide an effective substitute. Those customers include:

(a)    Woolworths, a grocery retailer, which uses North-South rail linehaul services for part of its secondary freight from Melbourne to Brisbane due to a mix of safety, service, cost and corporate and community objectives;

(b)    Metcash, a grocery wholesaler and retailer, which transports freight from its distribution centre in Laverton to Queensland using North-South rail linehaul services;

(c)    Wridgways, a removalist, which uses North-South rail linehaul services between Brisbane, Sydney and Melbourne;

(d)    Allied Pickfords, a removalist, which uses rail for part of its interstate freight tasks;

(e)    K&S, a freight forwarder, which uses North-South rail linehaul services;

(f)    Austrans, a freight forwarder of ambient goods (goods that can be transported at room temperatures), which uses North-South rail linehaul services between Melbourne and Brisbane;

(g)    Orica, a provider of explosives and blasting systems, which transports sodium cyanide from Brisbane to Kalgoorlie and relies on North-South rail linehaul services for the north-south leg of this route; and

(h)    McColl’s Transport, a transport company, which regularly uses North-South rail linehaul services to transport bulk chemicals.

East-West rail linehaul services

92    East-West rail linehaul services are rail linehaul services supplied interstate and over long distances:

(a)    between terminals in Western Australia and terminals in one or more of New South Wales, Victoria and South Australia; and

(b)    between terminals in South Australia and terminals in one or more of Western Australia, New South Wales and Victoria.

93    Prior to the closure of Aurizon’s interstate intermodal business in December 2017, Aurizon, Pacific National and SCT supplied East-West rail linehaul services in relation to intermodal freight. Aurizon and Pacific National were each other's closest competitors. SCT was not as close a competitor to those businesses for the reasons given in respect of the North-South route. Following the closure of Aurizon’s interstate intermodal business, Pacific National and SCT are each other’s only competitors, but some of the limitations affecting SCT persist.

94    In like manner to the North-South corridor, there are some freight owners (or freight forwarders acting on their behalf) requiring transport of intermodal freight between cities serviced by East-West rail linehaul services for whom road services and sea services do not provide an effective substitute.

C.    RELEVANT LEGISLATIVE PROVISIONS

95    Section 50(1) of the Act provides:

(1)    A corporation must not directly or indirectly:

(a)    acquire shares in the capital of a body corporate; or

(b)    acquire any assets of a person;

if the acquisition would have the effect, or be likely to have the effect, of substantially lessening competition in any market.

96    In determining whether a proposed acquisition would have the effect, or would be likely to have the effect, of substantially lessening competition, s 50(3) provides a non-exhaustive list of factors that must be taken into account:

(3)    Without limiting the matters that may be taken into account for the purposes of subsections (1) and (2) in determining whether the acquisition would have the effect, or be likely to have the effect, of substantially lessening competition in a market, the following matters must be taken into account:

(a)    the actual and potential level of import competition in the market;

(b)    the height of barriers to entry to the market;

(c)    the level of concentration in the market;

(d)    the degree of countervailing power in the market;

(e)    the likelihood that the acquisition would result in the acquirer being able to significantly and sustainably increase prices or profit margins;

(f)    the extent to which substitutes are available in the market or are likely to be available in the market;

(g)    the dynamic characteristics of the market, including growth, innovation and product differentiation;

(h)    the likelihood that the acquisition would result in the removal from the market of a vigorous and effective competitor;

(i)    the nature and extent of vertical integration in the market.

97    Section 50(6) stipulates that “market” means any market for goods or services in Australia, a State, a Territory or a region of Australia.

98    The concept of a market in the Act is further defined in s 4E as follows:

For the purposes of this Act, unless the contrary intention appears, market means a market in Australia and, when used in relation to any goods or services, includes a market for those goods or services and other goods or services that are substitutable for, or otherwise competitive with, the first‑mentioned goods or services.

99    The concept of lessening competition is expanded by s 4G as follows:

For the purposes of this Act, references to the lessening of competition shall be read as including references to preventing or hindering competition.

100    The principal concept in s 50, competition within a market, has been the subject of considerable judicial analysis and is well understood. For present purposes, it is unnecessary to go further than the oft-cited statements of the Trade Practice Tribunal in Re Queensland Co-operative Milling Association Ltd (1976) 25 FLR 169 (QCMA) at 187-189:

Competition may be valued for many reasons as serving economic, social and political goals. But in identifying the existence of competition in particular industries or markets, we must focus upon its economic role as a device for controlling the disposition of society’s resources. Thus we think of competition as a mechanism for discovery of market information and for enforcement of business decisions in the light of this information. It is a mechanism, first, for firms discovering the kinds of goods and services the community wants and the manner in which these may be supplied in the cheapest possible way. Prices and profits are the signals which register the play of these forces of demand and supply. At the same time, competition is a mechanism of enforcement: firms disregard these signals at their peril, being fully aware that there are other firms, either currently in existence or as yet unborn, which would be only too willing to encroach upon their market share and ultimately supplant them.

This does not mean that we view competition as a series of passive, mechanical responses to “impersonal market forces”. There is, of course, a creative role for firms in devising the new product, the new technology, the more effective service or improved cost efficiency. And there are opportunities and rewards as well as punishments. Competition is a dynamic process; but that process is generated by market pressure from alternative sources of supply and the desire to keep ahead.

…

Competition expresses itself as rivalrous market behaviour. In the course of these proceedings, two rather different emphases were placed upon the most useful form such rivalry can take. On the one hand it was put to us that price competition is the most valuable and desirable form of competition. On the other hand it was said that if there is rivalry in other dimensions of business conduct — in service, in technology, in quality and consistency of product — an absence of price competition need not be of great concern.

In our view effective competition requires both that prices should be flexible, reflecting the forces of demand and supply, and that there should be independent rivalry in all dimensions of the price-product-service packages offered to consumers and customers.

Competition is a process rather than a situation. Nevertheless, whether firms compete is very much a matter of the structure of the markets in which they operate. The elements of market structure which we would stress as needing to be scanned in any case are these:

(1)     the number and size distribution of independent sellers, especially the degree of market concentration;

(2)     the height of barriers to entry, that is the ease with which new firms may enter and secure a viable market;

(3)     the extent to which the products of the industry are characterized by extreme product differentiation and sales promotion;

(4)     the character of “vertical relationships” with customers and with suppliers and the extent of vertical integration; and

(5)     the nature of any formal, stable and fundamental arrangements between firms which restrict their ability to function as independent entities.

Of all these elements of market structure, no doubt the most important is (2), the condition of entry. For it is the ease with which firms may enter which establishes the possibilities of market concentration over time; and it is the threat of the entry of a new firm or a new plant into a market which operates as the ultimate regulator of competitive conduct.

101    As also explained in QCMA, it follows that the identification of markets must be the essential first step in assessment of present competition and likely competitive effects (at 190). The Tribunal explained:

A market is the area of close competition between firms or, putting it a little differently, the field of rivalry between them (if there is no close competition there is of course a monopolistic market). Within the bounds of a market there is substitution - substitution between one product and another, and between one source of supply and another, in response to changing prices. So 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. Let us suppose that the price of one supplier goes up. Then on the demand side buyers may switch their patronage from this firm’s product to another, or from this geographic source of supply to another. As well, on the supply side, sellers can adjust their production plans, substituting one product for another in their output mix, or substituting one geographic source of supply for another. Whether such substitution is feasible or likely depends ultimately on customer attitudes, technology, distance, and cost and price incentives.

102    As discussed further below, while the concept of a market is well understood, the identification of markets may involve a fact-intensive exercise (Air New Zealand Ltd v Australian Competition and Consumer Commission (2017) 262 CLR 207 (Air New Zealand) at [39] per Nettle J) and the boundaries of markets may be blurred and overlap with other markets (Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Co Ltd (1989) 167 CLR 177 (Queensland Wire) at 196 per Deane J; NT Power Generation Pty Ltd v Power and Water Authority (2004) 219 CLR 90 at [68] per McHugh ACJ, Gummow, Callinan and Heydon JJ). Recently, in Australian Competition and Consumer Commission v Flight Centre Travel Group Pty Ltd (2016) 261 CLR 203 (Flight Centre), Kiefel and Gageler JJ summarised the necessary factual and conceptual enquiry as follows (at [69], citations omitted):

…Because “the 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 services will often involve "value judgments about which there is some room for legitimate differences of opinion". Identifying a market and defining its dimensions is "a focusing process", requiring selection of "what emerges as the clearest picture of the relevant competitive process in the light of commercial reality and the purposes of the law". The process is "to be undertaken with a view to assessing whether the substantive criteria for the particular contravention in issue are satisfied, in the commercial context the subject of analysis". "The elaborateness of the exercise should be tailored to the conduct at issue and the statutory terms governing breach". Market definition is in that sense purposive or instrumental or functional.

103    The prohibition in section 50 uses the conditional (or hypothetical) future tense: the prohibition applies if the acquisition would have the effect or would be likely to have the effect of substantially lessening competition. The test is in relevantly the same form as sections 45 and 47 and, since 6 November 2017, section 46. It is well settled that the test requires a comparison between the nature and extent of competition in any market potentially affected by the acquisition in the future with the acquisition and without the acquisition: see, in the context of s 47, Dandy Power Equipment Pty Ltd v Mercury Marine Pty Ltd (1982) 64 FLR 238 at 259-260 per Smithers J and Stirling Harbour Services Pty Ltd v Bunbury Port Authority (2000) ATPR 41-752 (Stirling Harbour (2000) ATPR 41-752) at [113] per French J (approved on appeal at Stirling Harbour Services Pty Ltd v Bunbury Port Authority (2000) ATPR 41-783 (Stirling Harbour (2000) ATPR 41-783) at [12] per Burchett and Hely JJ), and followed in the context of s 50 in Australian Gas Light Company v Australian Competition and Consumer Commission (No 3) (2003) 137 FCR 317 (AGL No 3) at [352] per French J and Australian Competition and Consumer Commission v Metcash Trading Ltd (2011) 282 ALR 464 (Metcash 282 ALR 464) at [130] and [343] per Emmett J (upheld on appeal in Australian Competition and Consumer Commission v Metcash Trading Ltd (2011) 198 FCR 297 (Metcash 198 FCR 297)).

104    The word “substantially” as used in the section is imprecise. However, the Courts have consistently said that, in each of sections 45, 47 and 50, the word does not connote a large or weighty lessening of competition, but one that is “real or of substance” and thereby meaningful and relevant to the competitive process: Stirling Harbour (2000) ATPR 41-752 at [114] per French J (approved on appeal at Stirling Harbour (2000) ATPR 41-783 at [13] per Burchett and Hely JJ); AGL (No 3) at [351] per French J; Rural Press Ltd v ACCC (2003) 216 CLR 53 (Rural Press) at [41] per Gummow, Hayne and Heydon JJ. The primary judge adopted that meaning and there is no challenge to his Honour’s approach.

105    The word “likely” is capable of more than one meaning. As discussed further below, it can mean more probable than not or it can mean a possibility that is real as opposed to remote. In the present case, the primary judge adopted the latter meaning. That aspect of his Honour’s reasons is the subject of challenge in this appeal, and is considered below.

D.    MARKET DEFINITION ISSUES

(Pacific National grounds of cross-appeal 1 to 6; Aurizon grounds of cross-appeal 5)

D.1    Primary judge’s findings

106    The primary judge determined (at [371], [413] and [414]) that the relevant markets in which to assess the effects on competition of the acquisition were:

(a)    separate markets for the supply of rail linehaul services on the North-South corridor and the East-West corridor; or

(b)    a single market for the supply of rail linehaul services on the North-South and the East-West corridors,

in each case for the transport of intermodal freight over long distances to freight owners and freight forwarders for whom neither road services nor sea services provides an effective substitute for rail linehaul services. As mentioned earlier, we will refer to those markets as the interstate rail linehaul markets. The markets so defined relate to a subset of users of rail linehaul services – users for whom neither road services nor sea services provided an effective substitute. Such customers may be referred to as “captive” customers. The primary judge considered that the transport of bulk steel by rail occurred in a separate market (at [520]–[529]) and there is no challenge to that finding.

107    There was no dispute between the parties that a market might be defined by a subset of customers, being customers for whom substitution possibilities differed from other customers. As the primary judge observed (at [111]), various regulatory guidelines in Australia and overseas confirm that market definition may be appropriately undertaken by reference to the identity or characteristics of captive customers if two conditions are satisfied: first, that the suppliers are able to identify who is a captive customer; second, the suppliers are able to prevent resale or arbitrage between the non-captive customers and the captive customers: see the ACCC’s Merger Guidelines (November 2008, but updated to include the Harper reforms) at [4.36], the Merger Assessment Guidelines (UK) jointly published by the Competition Commission and the Office of Fair Trading (September 2010) at [5.2.28] to [5.2.30], and the Horizontal Merger Guidelines (US) jointly published by the US Department of Justice and the Federal Trade Commission (August 2010) at sections 3 and 4.1.4. With respect to the underlying economic theory, the primary judge referred to a paper by Hausman J, Leonard G and Vellturo C titled “Market Definition Under Price Discrimination” (1996) 64 Antitrust Law Journal 367 at 369 and a paper by Baker JB titled “Market Definition: An Analytical Overview” (2007) 74 Antitrust Law Journal 129 at 151. Both papers explained that, for such a market to exist, it must be possible for the suppliers to be able to price discriminate between their customers, charging higher prices to captive customers in comparison to non-captive customers for the same service. The ability to price discriminate effectively required that the two conditions referred to above be satisfied: that the supplier is able to identify the customers to whom prices can be increased (which can be referred to as the “identification condition”) and that the product or service in question could not be profitably arbitraged between customers (which can be referred to as the “arbitrage” condition).

108    In the present case, the primary judge made the following findings.

109    First, his Honour found that there are some freight owners requiring transport of intermodal freight serviced by interstate rail linehaul services and for whom road services and sea services do not provide an effective substitute (at [238]–[300] in respect of North-South rail linehaul services and at [313]-[321] in respect of East-West rail linehaul services).

110    Second, his Honour found (at [377] and [378]) that the rates for the relevant interstate rail linehaul services have been frequently negotiated between Pacific National or Aurizon and their customer (the freight forwarder or freight owner to whom the services are supplied). The result of the negotiations is that rates may vary between freight forwarders and between the freight owners (even between freight owners using the same freight forwarder) and among the individual freight tasks of a particular freight owner. Consequently, price differentiation between customers is not unusual and price increases (or lesser discounts) may be targeted at individual customers.

111    Third, his Honour accepted the evidence of Dr Philip Williams that economic bargaining theory helped explain the manner in which negotiations for the supply of interstate rail linehaul services may occur (at [379]–[385]). Dr Williams explained that economic theory considers such negotiations as involving a bargaining over surplus. The “surplus” is the extra value generated by an activity compared to not engaging in that activity, net of any extra costs associated with the activity. Where a customer has a choice between using rail linehaul services and road services, the surplus available to them from using road services will constrain their negotiations with a supplier of rail linehaul services: that supplier must offer terms that at least leave the customer with the same surplus they could achieve by using road services, or else the customer will use road services instead. Where road services generate a particularly high surplus, it may be difficult or impossible for a supplier of rail linehaul services to negotiate terms that provide a comparable surplus to that available by using road services. This may prevent the supplier of rail linehaul services from reaching a bargain with the customer, and may also mean that the availability of rail linehaul services exerts little or no constraint on the supplier of road services when dealing with that customer. The same applies, in reverse, where rail linehaul services generate a particularly high surplus. Where a customer’s surplus from rail linehaul services and road services is comparable, the suppliers of each service will be closely constrained by each other. Dr Williams identified several users of interstate rail linehaul services on the North-South and East-West routes for whom neither road services nor sea services provided an effective substitute. The primary judge accepted that evidence.

112    Fourth, the primary judge did not accept that interstate rail linehaul markets for supply to captive customers could exist only if the two preconditions stated by Pacific National existed (at [464]). As this aspect of his Honour’s reasoning is central to the cross-appeals on market definition, it is helpful to reproduce the paragraphs in full:

463     I accept that the ability of providers of North-South Rail Services, East-West Rail Services and Queensland Rail Services (collectively or partly, Rail Services), which I have defined in terms of rail linehaul services provided to users who have no relevant substitutes, to be able to identify and negotiate different terms for the supply of services to the relevant users is relevant to assessing the extent to which the ART acquisition and provisions of the TSS are likely to substantially lessen competition in the relevant markets.

464    But the proposition that a market may be defined by reference to a subset of customers only when PN's two theoretical preconditions for price discrimination are satisfied may be going too far. A market is an area of close competition or a field of rivalry between firms. It is a 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. Moreover, as I have already explained, market definition is purposive. It is undertaken to facilitate the analysis of the conduct at issue, and the potential harm said to flow from it. As I have said based on the case law, market definition is therefore a focusing process, which involves value judgments about which there is some room for legitimate differences of opinion. And the same facts may well give rise to the identification of more than one market. In that context I am not necessarily required to satisfy myself of particular preconditions, such as those identified by PN, before identifying a market by reference to a particular subset of customers.

465    Now PN's preconditions may be justified as a matter of high economic theory, but there is no requirement that I necessarily need be satisfied of those preconditions in order to define markets by reference to a subset of customers in the present proceeding.

113    It is important to have close regard to the first of the two preconditions stated by Pacific National, which was not accepted by the primary judge. The first precondition was not merely that suppliers are able to identify and target captive customers (which is an accepted condition in the competition regulatory guidelines referred to above); it is that for anti-competitive price discrimination to be profitable, it must be “successful in a large percentage of cases” and be capable of implementation “with a high degree of accuracy” (see at [447] and [448]). Pacific National argued at trial (and in this appeal) that this requirement was particularly necessary in industries such as rail linehaul where fixed costs are high (as a percentage of total costs) and so an attempted price increase that fails will result in the loss of the customer and a relatively large loss of margin.

114    In relation to Pacific National’s ability to price discriminate between captive and non-captive customers, the primary judge found:

(a)    (at [471]) Pacific National prices rail linehaul services for intermodal freight by reference to a range of different rate cards, with different rate cards offered to different customers depending on the volume of freight to be transported, and in some cases the nature of the customer’s business (for example, removalists or customers transporting automotive and/or express freight).

(b)    (at [472]) For some customers, Pacific National enters into a separate rail haulage agreement, such that a customer is supplied pursuant to negotiated terms and not solely pursuant to a rate card and Pacific National’s standard terms. Pricing under rail haulage agreements can be further adjusted by the use of commodity rate agreements. The discount under the commodity rate agreement is referred to as a “commodity rate”. When Pacific National offers to enter into a commodity rate agreement with a freight forwarder, the commodity rates it offers are specific to the particular work that the freight forwarder is seeking to win, that is, specific to the particular freight owner, routes and freight the subject of the particular opportunity.

(c)    (at [476]) Significant information is disclosed to Pacific National by a freight forwarder seeking a commodity rate including the identity of the freight owner; the characteristics of the relevant freight task (including the route and the volume, weight and nature of the freight to be transported); whether the freight task is currently or may in future be supplied by an alternative transport mode; and the level of competition in relation to the freight task.

(d)    (at [477]) Pacific National makes a decision as to whether and what commodity rate it will apply in relation to a particular freight task having regard to the information provided by the freight forwarder. A key basis on which Pacific National offers, or declines to offer, commodity rates is Pacific National’s assessment of whether such rates are necessary in order for the freight forwarder to win the work in competition with Aurizon or SCT.

(e)    (at [478]) The commodity rates granted by Pacific National are highly tailored.

(f)    (at [479]) The fact that Pacific National can and does tailor its pricing to particular freight owners and freight tasks demonstrates that Pacific National has the ability to adjust its pricing to reflect the strength of the competitive constraints it faces in relation to the supply of particular rail linehaul services for a particular freight owner. It can now and may in the future be able to grant lower discounts, withhold discounts altogether, or increase prices where freight owners or freight forwarders acting on their behalf have less compelling outside options available to them, including for those freight owners who have no effective substitute for the use of rail linehaul services.

(g)    (at 483) Pacific National is well placed to apply its own information and judgment in the pricing process. It is a well-experienced operator on each of the interstate routes and has familiarity with the demand for rail linehaul services on those routes and the nature of the businesses of many, if not all, of the users of those services.

(h)    (at [484]) Pacific National’s own internal documents evidence the importance it places on understanding the commercial and competitive environment that influences the demand for rail linehaul services, including the particular circumstances of individual freight owners, as well as freight forwarders.

(i)    (at [485]) The evidence shows that the information available to Pacific National is sufficient to enable it to tailor prices in response to the competitive environment it faces. Pacific National may not be able to tailor its prices perfectly to match its customers’ willingness to pay, or be able in all cases to tailor its prices to customers without risk of pricing higher than a customer will tolerate and losing the customer, or pricing lower than a customer would tolerate and forgoing margin. But Pacific National can and does engage in significant tailoring of its prices, notwithstanding that it lacks perfect information, faces uncertainty, and cannot perfectly tailor its prices to match its customers’ willingness to pay.

115    The primary judge concluded (at [492]) that the conditions for competition in the supply of interstate rail linehaul services to captive customers are different to those concerning supply to other freight owners and freight forwarders (who are not captive), such that the potential harm from the acquisition arises for the captive customers in a way that it would not arise for non-captive customers. His Honour determined that, for the purposes of market definition, no further inquiry into Pacific National’s preconditions is necessary or desirable.

D.2     Contentions of the respondents

116    By their cross-appeals, the respondents contend that the primary judge erred in finding that markets existed for the supply of interstate rail linehaul services for the transport of intermodal freight over long distances to freight owners and freight forwarders for whom neither road services nor sea services provided an effective substitute for rail linehaul services.

117    The respondents’ 6 grounds of cross-appeal on market definition were expressed in ways that appeared to overlap. Further, the respondents’ submissions did not always articulate the differences between the various grounds. Nevertheless, the grounds and submissions can be distilled into the following contentions (which we will label as 1 to 5 for convenience):

(a)    Contention 1 is that the primary judge erred, as a matter of law, in concluding that it was unnecessary, in order to find a market for supply of rail linehaul services to captive customers, to find that Pacific National was able to identify the captive customers “with a high degree of accuracy”.

(b)    Contention 2 is that the primary judge erred in failing to find, as a matter of fact, that Pacific National was not able to identify captive customers “with a high degree of accuracy” and therefore would be unable to engage in price discrimination.

(c)    Contention 3 is that the primary judge erred in finding that Pacific National can now, and could in the future, grant lower discounts, withhold discounts, or increase prices to captive customers.

(d)    Contention 4 is that the primary judge erred in relying on Dr Williams’ evidence concerning bargaining theory, because a predicate of bargaining theory is that all parties know the surplus likely to be created by all possible deals and that predicate was not able to be established in this case.

(e)    Contention 5 is that the primary judge erred in making specific factual findings, set out below.

118    In relation to contention 1, the respondents argued that the primary judge erred at [464] in reasoning that, because market definition is purposive and can involve value judgements and give rise to identification of more than one market, it was unnecessary to be satisfied of the “identification” condition. The respondents submitted that the purposive nature of market definition means no more than that the process is undertaken with a view to assessing whether the substantive criteria for the particular contravention in issue are satisfied, in the commercial context that is the subject of analysis: Flight Centre at[69] per Kiefel and Gageler JJ). It does not abrogate the need for analysis in accordance with economic principle: Australian Competition and Consumer Commission v Liquorland (Australia) Pty Ltd [2006] ATPR 42-123at [438] per Allsop J. A market is essentially an economic concept: Air New Zealand at [41] per Nettle J and at [59], [63], [65] per Gordon J; Australian Competition and Consumer Commission v Australia and New Zealand Banking Group Limited (2015) 236 FCR 78 at [136]. The task of defining it must always be conducted in accordance with economic principle and based on commercial reality and real world facts: Boral Besser Masonry Ltd v Australian Competition & Consumer Commission (2003) 215 CLR 374 (Boral) at [247] per McHugh J; Air New Zealand [60] per Gordon J. The fact that market definition can involve value judgements and (in some cases) give rise to identification of more than one market is a product of the application of economic principle and not a basis for declining to apply it.

119    The respondents submitted that the test applied by the primary judge for market definition, at [492], was whether there existed rail linehaul customers for whom transport by road or sea was not an effective substitute. They submitted that that test was wrong. The existence of such customers does not define a market unless the supplier is able to price discriminate in respect of such customers, which requires the customers to be identifiable by the supplier.

120    In relation to contention 2, the respondents submitted that the findings of the primary judge only supported the conclusion that Pacific National can and does charge different prices to different customers (for the same service). However, that finding does not support a further finding that Pacific National is able to target captive customers (contrary to the primary judge’s reasons at [479]). A supplier may charge different prices for reasons that have nothing to do with anti-competitive price discrimination such as variations in the cost of serving different customers, the volume and/or term of the customer’s contract, and demand and the supplier’s capacity at the particular time.

121    The respondents argued that in an industry with high fixed costs and low marginal costs, such as rail linehaul, price discrimination must be successful in a high percentage of cases for it to be profitable (because the loss of a customer results in a large loss of profit margin, measured as the difference between revenue and marginal cost). It would therefore be necessary for the supplier to be able to identify and target captive customers with a high degree of accuracy, and not have a “rough” understanding as opined by Dr Williams, which evidence was relied on by the primary judge (at [486]).

122    The respondents further argued that the primary judge erred in finding that Pacific National received sufficient information from freight forwarders to enable it to identify captive customers by exercising its commercial judgement (at [482]-[484]) and making educated guesses (at [486]). They submitted that the information available to Pacific National would provide limited insight into its customers’ willingness to use different modes of transport for the following reasons:

(a)    First, freight owners’ willingness to use different modes of transport is based on a range of considerations, the identity of which vary from freight owner to freight owner, and the information that freight forwarders supply to Pacific National does not enable Pacific National to determine the mix of considerations that any particular freight owner takes into account.

(b)    Second, according to Dr Williams’ analysis (which the trial judge accepted), for much of the cargo that some identified captive customers carry on rail, road services are a substitute. This meant that simply targeting these users with higher prices would fail, because it would result in most of their freight moving to road. To be profitable, Pacific National would need to identify the particular portion of the users’ freight for which road is not a substitute, and target only that portion of freight with higher prices. The respondents submitted that the primary judge did not undertake that analysis.

(c)    Third, many freight owners transport a range of products and their willingness to use rail may vary considerably between the products that are transported. To engage in price discrimination of the type alleged, Pacific National would need to be able to estimate reliably not only the willingness of freight owners to pay for rail services for a particular product, but the combination of products that the freight owner transports.

(d)    Fourth, commodity rate agreements have a term of up to 12 months and merely give freight owners the option of Pacific National transporting their cargo by rail at a particular price. The freight owner can, at any time, move its cargo to road (or sea). Accordingly, for price discrimination to be effective, Pacific National would need to be able to estimate reliably users’ willingness to use rail not only at the commencement of the commodity rate agreement, but throughout its (up to 12 month) term. The respondents submitted that the notion that Pacific National could ex ante reliably predict a user’s willingness to use rail services for the entire term of the commodity rate agreement has an air of commercial unreality.

(e)    Fifth, freight owners’ willingness to use rail services is idiosyncratic. Freight owners that transport similar products on the same routes may take different matters into account when deciding whether to use rail services, and may ascribe different value to the matters they do take into account.

(f)    Sixth, even if Pacific National could form a reliable view that a particular freight owner considered road (or sea) services to be a limited substitute for rail services, to engage profitably in price discrimination, Pacific National would need also to know how much the freight owner is willing to pay for rail services.

123    In relation to contention 3, the respondents submitted that a conclusion that substantial market power could be exercised by controlling the level of a discount off a standard rate necessarily implies that the standard rate itself involves an exercise of substantial market power. The respondents submitted that that was not put and not found and is contrary to unchallenged evidence and the commercial reality of the use of standard rates by Pacific National and its users. They further submitted that:

(a)    There was evidence that road linehaul has very low barriers to entry. Consequently, the supply of road linehaul services is highly competitive.

(b)    The evidence disclosed that for many, if not most, freight owners, road is a substitute for rail.

(c)    Consequently, when Pacific National is setting prices for those customers - including its standard rates - there was nothing to suggest that Pacific National was other than constrained by road prices.

(d)    Given that road linehaul prices are highly competitive, in the absence of evidence to the contrary, Pacific National’s standard rates can also be inferred to be competitive.

(e)    Put differently, it could be inferred that Pacific National does not have substantial market power when it is setting its standard rates. If offering no, or lower, discounts would not involve an exercise of substantial market power, it would not constitute a substantial lessening of competition.

124    In relation to contention 4, the respondents referred to Dr Williams’ evidence (at paragraph 54(a) of Dr Williams report) that according to bargaining theory, if all parties know the surplus that is likely to be generated by all possible deals, parties will always bargain to an economically-efficient solution and each party must receive at least its best outside option. They argued that it followed that a predicate of bargaining theory is that all parties know the surplus likely to be created by all possible deals. The respondents submitted that that predicate was not established on the facts of the case and therefore the theory was inapplicable.

125    In relation to contention 5, the respondents submitted that the following factual findings made by the primary judge were erroneous:

(a)    First, the trial judge found (at [466]) that the level of discount that freight owners receive from Pacific National’s standard rates varies depending on the competitive options the freight owners have available to them but there was no evidence to support that finding.

(b)    Secondly, the trial judge found (at [479], [480], [485]-[487] and [1339]) that Pacific National can now, and may in the future be able to, grant lower discounts, withhold discounts altogether, or increase prices where freight owners or freight forwarders acting on their behalf have less compelling outside options. The respondents submitted that that finding was a conclusion apparently based on the fact that Pacific National can and does charge different prices to different customers and/or Pacific National’s ability to make “educated guesses” about users’ willingness to use rail services rather than road or sea services, neither of which supported the finding.

(c)    Thirdly, the trial judge found (at [476]) that, when a freight forwarder seeks to negotiate a commodity rate agreement with Pacific National, the freight forwarder discloses to Pacific National the “level of competition” in relation to the freight task. The respondents submitted that the trial judge nowhere explained what disclosing the “level of competition” meant and, to the extent that it meant users disclosed to Pacific National what they considered their outside options to be, it was an error because there was no evidence to support it.

(d)    Fourthly, the trial judge found (at [477]) that, when deciding whether and what commodity rate it will apply in relation to a freight task, Pacific National considers: (i) the costs incurred by an alternative supplier of rail linehaul services, and (ii) the freight owner’s willingness to pay for rail linehaul services. The respondents submitted that the evidence did not support that finding.

126    For the reasons set out below, we reject each of the respondents’ grounds of appeal and contentions on market definition.

D.3    Contentions of the ACCC

127    The ACCC advanced 2 primary contentions in response.

128    First, the ACCC contended that there was no need for the primary judge to satisfy himself of what the respondents call the “identification” condition in finding that markets existed for the supply of interstate rail linehaul services for the transport of intermodal freight over long distances to “captive” freight owners and freight forwarders. The ACCC argued that it was not necessary to satisfy the “identification” condition in circumstances where the evidence showed that price discrimination is currently being practised in the proposed market. The ACCC submitted that the primary judge found that Pacific National was tailoring its prices for rail services by reference to the competitive constraints Pacific National faced (or did not face) in supplying rail services to a particular user for a particular freight task. In that regard, the ACCC’s submissions supported the reasoning of the primary judge, which has been summarised above and is considered below. The ACCC also referred to the underlying evidence that was before the primary judge, which is also considered below.

129    In respect of its first contention, the ACCC submitted that the respondents’ submissions misunderstand the economic theory underlying the Hausman article on which they rely. The article recognises that a key question for defining a “price discrimination” market is whether a hypothetical monopolist could profitably price discriminate. However, the ACCC submitted that the article does not (nor could it) purport to mandate a methodology by which that question must be answered. There may be many approaches to establishing the feasibility of such discrimination. One approach is to demonstrate that price discrimination is currently being practised in the proposed market. On the other hand, where such discrimination is not currently being practised, the question whether it is feasible might be determined in a theoretical way, including by considering the so-called identification condition. That is to say, where price discrimination is not currently being practised, consideration may be given to conditions which predict whether price discrimination could, in theory, be practised.

130    The ACCC’s second contention, put in the alternative, is that if and to the extent that it was necessary for the primary judge to be satisfied of the identification condition, that satisfaction is to be established in a pragmatic “real world” business-like fashion, not in an overly exacting or theoretical textbook sense, and that the trial judge’s findings amount to such satisfaction. In particular, the ACCC submitted that it was not necessary for Pacific National to have near complete information about a freight owner’s willingness to pay in order for Pacific National to be able to tailor its prices to reflect a freight owner’s competitive options.

131    For the reasons set out below, we accept the ACCC’s second contention, but not its first contention. In our view, the first contention fails to explain how the practice of price discrimination by a business can be observed or identified as a matter of fact if customers with differing competitive options cannot be observed or identified. The relevant principle is uncontroversial and, as noted earlier, is stated in the ACCC’s merger guidelines. Expressed in the language of the Hausman article, a key question for defining a “price discrimination” market is whether a hypothetical monopolist could profitably price discriminate between customers according to their individual competitive options. It may be accepted that that ability could be proved in a number of ways, including by evidence of the fact of relevant discrimination. However, proof of the fact of relevant discrimination necessarily involves proof that the supplier is able to identify, or at least make informed guesses about, customers who have more limited competitive options. It is an obvious business fact that a supplier is not able to price discriminate between customers according to their individual competitive options unless the supplier is able to make informed assessments of such options.

D.4    Consideration of the respondents’ contentions

132    As already noted, there was no dispute between the parties that the evidence showed that Pacific National’s pricing framework resulted in significantly differentiated prices between categories of customers and between individual customers. However, the fact of differentiated prices may have no particular implications for market definition. As the respondents submitted, price differentiation will often exist where customers have heterogeneous demand causing differences in the economic cost of supply. The differing demand factors may relate to the volume, weight or type of freight to be carried and the route, time, frequency and urgency of the transport service required. Those factors do not reflect competitive constraints and therefore the resulting differences in prices do not inform market definition.

133    In industrial economics, the phrase “price discrimination” has a defined meaning, to distinguish it from mere price differentiation. As Dr Williams stated in the Joint Statement of the economic expert witnesses, a firm engages in price discrimination if it charges different categories of customer different unit prices for the same service. The essential point is that price discrimination refers to differences in price that reflect differences in competitive constraints in supplying different customers. The respondents submitted that to observe price differentiation is not necessarily to observe price discrimination. So much may be accepted. The respondents’ further submission, that the available evidence did not permit the primary judge to find price discrimination, cannot be accepted for the reasons discussed below.

Contention 1

134    The respondents’ first contention is that the primary judge erred, as a matter of law, in concluding that it was unnecessary, in order to find a market for supply of interstate rail linehaul services to captive customers, to find that Pacific National was able to identify the captive customers “with a high degree of accuracy”. In our view, the primary judge did not err. The respondents’ contention is based on a misstatement of the primary judge’s reasons, and underpinning the contention is an incorrect view that, for the purposes of establishing a contravention of s 50 of the Act, markets must be proved with a high degree of empirical certainty.

135    Contrary to the respondents’ argument, the primary judge did not reason (at [464]) that, because market definition is purposive and can involve value judgements and give rise to identification of more than one market, it was unnecessary to be satisfied of the “identification” condition. Rather, the primary judge rejected the identification condition stipulated by Pacific National, namely that suppliers must be able to identify and target captive customers with a high degree of accuracy (at [448]). What was rejected was the degree of empirical certainty sought to be imposed by Pacific National.

136    The primary judge accepted the economic theory underpinning the existence of markets defined by a subset of customers who have more limited substitution options compared to other customers. That is clear from his Honour’s discussion of the theory (at [100]-[116]). His Honour explained the concept of price discrimination (at [102]), being the incentive and ability to charge customers different prices depending on their willingness to pay for the product (which is affected by their competitive options). His Honour accepted the two conditions associated with the existence of such markets, the first being that the supplier is able to identify the customers to whom prices can be increased (at [105]). His Honour accepted that the necessity for that condition was obvious because if a supplier could not identify customers who are willing to pay a price above the competitive level, the supplier cannot sensibly price discriminate let alone profitably (at [106]). His Honour also recognised that a supplier’s knowledge of its customers’ competitive options may be less than perfect, and the implications for pricing behaviour in those circumstances (at [114]-[115]).

137    However, his Honour did not accept that it was necessary to find that Pacific National could identify customers for whom road or sea services were not an effective substitute with a high degree of accuracy. Rather, his Honour assessed whether the evidence showed that Pacific National’s pricing structures enabled it to price discriminate in respect of captive customers (for example, at [469]-[475]), and whether Pacific National had sufficient information about its customers in order to engage in such price discrimination effectively (for example, at [476]-[486]). His Honour’s ultimate conclusion was that the conditions for competition in the supply of rail linehaul services to captive customers are different to those for supply to non-captive customers (at [492]), thus defining a separate market for the purposes of applying s 50. The ability of Pacific National to identify captive customers is implicit in his Honour’s conclusion that the conditions for competition in the supply of rail linehaul services to captive customers are different to those for supply to non-captive customers. It is that ability that results in the different conditions for competition.

138    Contrary to the respondents’ submissions, there is nothing erroneous or unorthodox in his Honour’s approach. It is consistent with the policy objectives of the legislation and well-established principles. Two points can be made. First, the application of s 50 to a given acquisition is necessarily an evaluative exercise. The relevant legal standard, whether the acquisition would have, or be likely to have, the effect of substantially lessening competition in a market involves an enquiry into the nature and extent of competition in relevant markets and a hypothetical prediction of the extent to which such competition may be lessened if the acquisition were allowed to proceed (which necessarily requires an evaluation of the means or processes by which competition may be lessened). The degree of lessening that satisfies the legal standard is encapsulated by the word “substantially” which, as observed earlier, is imprecise but has been interpreted as meaning real or of substance, thereby connoting a lessening that is meaningful to the competitive process. Second, the task of defining markets is undertaken for the purpose of applying the legal standard in s 50. As observed by Professor M Brunt in an article that has been referred to many times in the cases, the “market” concept is an instrumental concept designed to assist in the analysis of processes of competition and sources of market power; “market definition is but a tool to facilitate a proper orientation for the analysis of market power and competitive processes – and should be taken only a sufficient distance to achieve the legal decision” (Market Definition Issues In Australian And New Zealand Trade Practices Litigation (1990) 18 Australian Business Law Review 86 at 93 and 126-7). Market definition is also an evaluative exercise because its object is to describe, and thereby define, in a given area of trade and commerce the competitive constraints affecting suppliers and acquirers.

139    Underpinning the respondents’ contention is a view that markets must be proved with a high degree of empirical certainty. It can be accepted, as the respondents submitted, 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. In the present case, the primary judge was required to assess, for the purposes of applying s 50 to the ART acquisition, whether Pacific National was competitively constrained by road linehaul services in respect of its entire business, or whether there was a section of that business in respect of which the competitive constraints differed and Pacific National had greater market power to increase prices (or reduce discounts) such that the area should be considered to be a separate market. Evaluating the evidence before him, the primary judge came to the view that a separate market existed. Of course, there must be a sufficient evidentiary basis for that conclusion, which is considered under the respondents’ further contentions. But there was no legal error in the primary judge’s approach.

Contentions 2 and 5

140    There is overlap between contentions 2 and 5 and it is convenient to address them together.

141    The respondents’ second contention is that the primary judge erred in failing to find, as a matter of fact, that Pacific National was not able to identify captive customers “with a high degree of accuracy” and therefore would be unable to engage in price discrimination. For the reasons already given, in our view it was not necessary for the primary judge to find that Pacific National was able to identify captive customers with a high degree of accuracy. However, in their submissions, the respondents advanced a broader argument to the effect that the evidence at trial did not support a finding that Pacific National was able to identify and target captive customers with higher prices (or lower discounts). That argument is also taken up in the respondents’ fifth contention.

142    For the reasons that follow, we reject contentions 2 and 5.

143    The respondents do not challenge the primary judge’s findings concerning Pacific National’s pricing structure and the primary judge’s conclusion that Pacific National applies differentiated pricing to many customers using a combination of rate cards, rail haulage agreements and commodity rate agreements. Nor do the respondents challenge the primary judge’s findings concerning individual customers of Pacific National for whom road transport was not an effective substitute. Rather, the respondents challenge the finding that, in negotiating rail haulage agreements and commodity rate agreements, Pacific National has sufficient information about its customers’ competitive options that it can target higher prices (in effect, lower discounts) to those customers for whom road or sea services are not an effective substitute (ie, engage in price discrimination).

144    The thrust of the respondents’ challenge is that the evidence at trial was insufficient to establish that factual finding made by the trial judge. In the course of the four-day appeal, the Court was taken to a sample of the evidence before the primary judge. However, it was not possible for the Court to be taken to, or be referred to, the entirety of the evidence before the primary judge. In those circumstances, the respondents face a significant challenge in demonstrating that the factual findings made by the primary judge were wrong. As observed by Kirby J in State Rail Authority of NSW v Earthline Constructions Pty Ltd (1999) 73 ALJR 306 at [90] (in a passage referred to with approval by Gleeson CJ, Gummow J and Kirby J in Fox v Percy (2003) 214 CLR 118 at [23]):

The true advantages in fact-finding which the trial judge enjoys include the fact that the judge hears the evidence in its entirety whereas the appellate court is typically taken to selected passages, chosen by the parties so as to advance their respective arguments. The trial judge hears and sees all of the evidence. The evidence is generally presented in a reasonably logical context. It unfolds, usually with a measure of chronological order, as it is given in testimony or tendered in documentary or electronic form. During the trial and adjournments, the judge has the opportunity to reflect on the evidence and to weigh particular elements against the rest of the evidence while the latter is still fresh in mind. A busy appellate court may not have the time or opportunity to read the entire transcript and all of the exhibits. As it seems to me, these are the real reasons for caution on the part of an appellate court where it inclines to conclusions on factual matters different from those reached by the trial judge. These considerations acquire added force where, as in the present case, the trial was a very long one, the exhibits are most numerous, the issues are multiple and the oral and written submissions were detailed and protracted. In such cases, the reasons given by the trial judge, however conscientious he or she may be, may omit attention to peripheral issues. They are designed to explain conclusions to which the judge has been driven by the overall impressions and considerations, some of which may, quite properly, not be expressly specified. (references omitted)

145    Bearing those considerations in mind, we are not satisfied that there is any error in the primary judge’s finding that Pacific National has sufficient information about its customer’s competitive options that it can target higher prices (in effect, lower discounts) to those customers for whom road or sea services are not an effective substitute. We will refer to a sample of the evidence that the Court was taken to:

(a)    Mr Andrew Adam, the President of Freight for Pacific National, deposed that Pacific National will agree a commodity rate agreement with a freight forwarder to provide them with rate assistance for a particular tender and Pacific National evaluates the request based on factors that include the incumbent transport provider (which may be road or another rail operator). Mr Adam exhibited a sample spreadsheet created by Pacific National which records requests for commodity rate agreements and contained information about the incumbent transport providers in respect of freight tasks for which commodity rate agreements were sought from Pacific National. This included information as to the type of incumbent transport provider (road or rail) and the percentage of the customer’s freight needs met by the transport provider.

(b)    In evidence were a considerable number of emails from freight forwarders to Pacific National containing requests for commodity rate agreements, and internal Pacific National emails considering such requests. Consistently with the evidence of Mr Adam, the freight forwarders requesting a commodity rate agreement identified the incumbent transport supplier of the freight task or the likely competitive supplier (which was commonly Aurizon). Some of the emails provided an indication of the pricing being offered by the competitive transport provider. Some emails also contained Pacific National’s view on the extent to which its current rates were competitive with the likely alternative transport providers.

(c)    Mr Ian Strachan, the President of Intermodal at Linfox, gave testimony that, when negotiating a commodity rate agreement with Pacific National, a relevant consideration is the level of competition for the freight task.

146    The primary judge also found (at [484]) that Pacific National’s own internal documents evidence the importance it places on understanding the commercial and competitive environment that influences demand for rail linehaul services. His Honour provided an example of such an internal document, although its contents were redacted for confidentiality. It is not revealing a confidence to observe that the document records, amongst other things, Pacific National’s commercial objective of understanding the key decision-making criteria of freight forwarders and freight owners in selecting the mode of transport.

147    Further, the primary judge found (at [483] that Pacific National is a well-experienced operator on the North-South and East-West corridors and has familiarity with the demand for rail linehaul services on those routes and the nature of the business of many, if not all, of the users of those services. Given the scale of Pacific National’s business, it would be expected that it pays close attention to the commercial activities and decisions, including pricing decisions, of its actual or potential competitors, and makes pricing decisions based on a careful assessment of its customers’ needs and the competitive choices available to them.

148    Giving due regard to the advantages of the primary judge in hearing the totality of the evidence, we are not persuaded that his Honour erred by making findings without a sufficient evidentiary foundation.

Contention 3

149    The respondents’ third contention is that the primary judge erred in finding that Pacific National can now, and could in the future, grant lower discounts, withhold discounts, or increase prices to captive customers. As noted earlier, the argument was to the effect that it is not possible to exercise market power (ie, price less competitively) by refraining from offering a discount to a standard rate unless the standard rate itself involved an exercise of market power. The respondents argued that that was not put and not found and is contrary to unchallenged evidence and the commercial reality of the use of standard rates by Pacific National and its competitors. The contention was rejected by the primary judge, in our view correctly (at [488]-[491]).

150    In advancing this contention, the respondents do not rely on any economic evidence adduced at the hearing. Rather, they put the argument as a syllogism. As outlined earlier, the steps in the reasoning are that: (i) there was evidence that road linehaul has very low barriers to entry and therefore it should be concluded that the supply of road linehaul services is highly competitive; (ii) the evidence disclosed that for many, if not most, freight owners, road is a substitute for rail; (iii) it follows that, when Pacific National is setting prices for those customers - including its standard rates - there is nothing to suggest that Pacific National was other than constrained by road prices; and (iv) given that road linehaul prices are highly competitive, in the absence of evidence to the contrary, Pacific National’s standard rates can also be inferred to be competitive. In our view, the syllogism suffers from a number of flaws.

151    First, the primary judge did not accept Mr Morton’s hypothesis that Pacific National’s “standing offer”, being its pricing under its rate cards, was set based on road prices (at [431]-[434]). Amongst other things, his Honour observed that Mr Morton acknowledged that he could not prove that that is what Pacific National does and Pacific National did not lead evidence from those responsible for setting Pacific National’s prices as to the validity or otherwise of Mr Morton’s hypothesis. Thus, the starting point for the syllogism breaks down.

152    Second, (at [440]) the primary judge took account of Mr Morton’s evidence that demonstrated that Pacific National’s prices do not reflect its standard tariff, but vary materially below that tariff. The respondents’ use of Pacific National’s standard rates as some kind of benchmark competitive price does not reflect the evidence. The evidence established that, for a large volume of freight carried by Pacific National, prices were set by individual negotiation.

153    In a pricing framework which involves a high proportion of individually negotiated prices, “standard rates” cannot be characterised as competitive or uncompetitive. The primary judge found that Pacific National’s rate cards were a standardised reference point from which discounts were allowed based on the requirements (and no doubt bargaining power) of individual customers. It is meaningless to describe the standard rate, to which a discount is applied, as either competitive or uncompetitive – it is not the applicable price for the customer concerned. For some customers (such as customers who have small quantities of freight to be transported on infrequent occasions), the standard rate may be competitive. For other customers, the standard rate would not be a competitive rate, but nor is it charged. The primary judge found (at [466]) that competition often occurred through Pacific National offering individually-tailored discounts to freight forwarders to win the business of particular freight owners, where the level of discount varied depending on the competitive options those freight owners had available to them - the freight owners with more attractive outside options in negotiation processes were able to extract better discounts. Within that pricing framework, the respondents’ contention is simply inapplicable.

Contention 4

154    The respondents’ fourth contention was based on Dr Williams’ evidence concerning bargaining theory. The respondents argued that Dr Williams’ evidence showed (at paragraph 54(a) of his report) that a predicate of bargaining theory is that all parties know the surplus likely to be created by all possible deals. The respondents submitted that that predicate was not established on the facts of the case and therefore the theory was inapplicable.

155    The contention is based on a misstatement of Dr Williams’ evidence. At paragraph 54(a) of his report, Dr Williams referred to two points arising from bargaining theory. The first is that, if all parties know the surplus that is likely to be generated by all possible deals, parties will always bargain to an economically-efficient solution. The second is that each party must receive at least its BATNA (best alternative to a negotiated agreement) and may also receive a share in the extra surplus produced once each party has received its BATNA.

156    The respondents’ contention that a predicate of bargaining theory is that all parties know the surplus likely to be created by all possible deals does not follow from either of those points. Dr Williams’ first point is a statement about the economically-efficient solution to the bargaining transaction. The statement is that an economically-efficient outcome will be achieved if the parties know the surplus likely to be generated by all possible deals. However, that does not suggest that bargaining only occurs under that condition. It is simply a statement that the outcome may not be economically-efficient if the parties have imperfect knowledge. Similarly, Dr Williams’ second point is the self-evident proposition that a party will not make a bargain that is less attractive than its next best option. Accordingly, if a customer has the option of transporting freight by road or rail, the customer will not make a bargain with Pacific National for transport by rail that is less attractive than an available road option. It does not follow that bargaining only occurs if both parties know the surplus likely to be created by all possible deals.

D.6    Conclusion on market definition

157    In conclusion, we reject the respondents’ cross-appeals in so far as they relate to the primary judge’s findings on market definition.

E.    COMPETITION ISSUES

(Pacific National ground of cross-appeal 7; Aurizon grounds of cross-appeal 1 to 4; ACCC’s notice of contention grounds 1 and 2)

E.1    Primary judge’s findings

158    The primary judge’s ultimate finding on the question whether the acquisition would have, or would be likely to have, the effect of substantially lessening competition is stated at [1611] and [1612] as follows:

1611 As to the ACCC's s 50 case, upon my acceptance of the Undertaking which I consider to be part of the future with the ART acquisition, I would reject that case as well.

1612 Now an interesting hypothetical arises as to whether, if I had not accepted the Undertaking, I would have found for the ACCC on its s 50 case. On balance, and not without some hesitation, I would have accepted its case. In the absence of the Undertaking, barriers to entry, real or reasonably perceived, would be heightened, particularly in relation to the supply of North-South Rail Services whether constituting a separate Interstate market or being part of the one Interstate market which also includes East-West Rail Services. On that basis I do not need to concern myself with Aurizon's submission that the ART acquisition would not on any view affect the supply of East-West Rail Services. Now although Qube was not likely to enter in the factual or the counterfactual, the latter with the Terminal Services Subcontract, I could not rule out the realistic commercial chance of another potential new entrant emerging in the relevant timeframe. Further, the potential threat of such emergence could act as a discipline on PN's present behaviour concerning the supply of North-South Rail Services. But given that I have accepted the Undertaking, I do not need to elaborate further. And nor do I need to hypothesise further concerning the effect on any market for rail linehaul services concerning bulk steel if I had not accepted the Undertaking.

159    The following matters are immediately apparent from his Honour’s ultimate finding. First, his Honour found that the acquisition would not contravene s 50 because of the Undertaking offered by Pacific National which his Honour indicated he would accept. Second, it followed that his Honour’s assessment of the competitive effect of the acquisition in the absence of the Undertaking was, as his Honour said, hypothetical. Third, because the assessment in the absence of the Undertaking was hypothetical, his Honour did not elaborate on his ultimate finding. Fourth, his Honour’s assessment that, in the absence of the Undertaking, the acquisition would have contravened s 50 was “on balance, and not without some hesitation”. Fifth, the anti-competitive effect was focussed on the North-South rail linehaul market, whether defined as a separate market or part of a broader interstate rail linehaul market (which included the East-West corridor). Sixth, his Honour found that, in the absence of the Undertaking, s 50 would have been contravened because barriers to entry in the supply of North-South rail linehaul services, real or reasonably perceived, would be heightened by the acquisition. In that respect, his Honour concluded that he could not rule out the realistic commercial chance of another potential new entrant emerging in the relevant timeframe, and the potential threat of such emergence could act as a discipline on Pacific National's present behaviour concerning the supply of North-South rail linehaul services.

160    The following summary of the primary judge’s reasons identifies the principal legal conclusions and factual findings relevant to the grounds of cross-appeal on the question of the competitive effects of the acquisition.

Meaning of likely

161    The primary judge discussed the key legal principles concerning the statutory test in s 50 at [1253] to [1279]. Most of those principles are uncontroversial on this appeal and have been referred to in section C above. In relation to the meaning of the word “likely”, the primary judge stated the following conclusions:

1274 First, the phrase "likely to have the effect" of a substantial lessening of competition requires only a real chance. There is no compelling reason why a test that is appropriate to determine the likely effect on competition in the context of s 45 should not also apply to s 50.

1275 Second, the standard of a real chance implicit in the concept of likely is to be understood at a level which is commercially relevant and meaningful. I am concerned with real commercial likelihoods, not with mere possibilities, however plausible they might be.

1276 Third, and importantly, the subject of the likelihood or real chance is singular in the sense that s 50 refers to the likely effect of substantially lessening competition and thus ultimately poses one question involving one evaluative judgment. In the present case, the application of s 50 turns on my satisfaction in relation to this single evaluative judgment, even though the exercise of determining whether the competitive effects of a transaction amount to a substantial lessening of competition involves multiple constituent inquiries, namely, identifying the futures with and without the transaction, identifying the effect on competition of each, and then making the relevant comparison leading to answering the one question that I have identified.

1277 In this regard, it is a distraction to ask what standards of proof apply at each of the atomised constituent steps involved in assessing competitive effects. I am inclined to follow Yates J's approach in Metcash. Yates J identified the potential problem with atomising s 50 in the following terms: "a counterfactual is no more than an element of [the] calculus … [I]t has no separate existence or purpose … other than as an aid to detect the existence and extent of change in the process of competition" (at [228]). That led his Honour to doubt the adoption of different legal standards for individual elements of the test because to do so could obliterate the statutory standard, which posed one question involving one evaluative judgment with that one evaluative judgment to be assessed on the basis of a real chance.

1278 Now in this context, the ACCC is going too far in saying that it can necessarily establish a contravention of s 50 by proof of a real chance of the existence of a counterfactual and a real chance of a substantial lessening of competition in the sense that one real chance is compounded with another. Indeed, to apply s 50 on the basis of a real chance of a substantial lessening of competition built upon a real chance in the counterfactual may, depending upon how one does it, be erroneous. In doing so I would not have directed myself to the single statutory question and may have inappropriately reduced the probability inherent in the real chance to be assessed for the ultimate question.

1279 Now I accept that the ACCC does not necessarily need to prove its counterfactual on the balance of probabilities. But the magnitude of any real chance that it demonstrates in respect of the alleged future states will practically and ultimately affect the magnitude of the real chance that it is able to demonstrate in respect of the alleged effects on competition and whether that rises to the requisite level of a likely effect of substantially lessening competition. Considering both the counterfactual and the alleged competitive effects together, the evaluation required compositely is whether a real commercial likelihood of a substantial lessening of competition has been shown.

The ACCC’s case at trial

162    At [1280] to [1348], the primary judge set out the arguments advanced by the ACCC as to why and how the acquisition of the ART would be likely to have the effect of substantially lessening competition. The primary judge summarised the arguments as follows (at [1345] and [1346]):

1345 In summary, the ACCC says that comparing the future state of competition with and without the ART acquisition demonstrates that the likely effect of the ART acquisition is that:

(a)    PN would have the ability and incentive, or perceived ability and incentive, to discriminate against third parties in favour of its own operations with respect to access to the BMUT;

(b)    it would materially raise barriers to entry for the supply of North-South and/or East-West Rail Services for any party contemplating entry into the market(s) for the provision of these services; and

(c)    as a result, it would be unlikely that Qube or any other party would commence supplying North-South or East-West Rail Services.

1346 It says that these factors would combine to materially reduce the competitive constraint on PN in the Interstate market(s) for the foreseeable future.

163    The ACCC did not suggest that there was any inaccuracy in that summary of its case. It is a case built on three asserted cumulative effects of the acquisition: that Pacific National would have the ability and incentive to discriminate against third party users of the Brisbane Multi User Terminal within the ART; that that would increase barriers to entry to the North-South rail linehaul market (the ACCC also relying on the East-West rail linehaul market); and that, as a result, it would be unlikely that Qube or any other person would enter that market. The ACCC argued that those effects gave rise to a contravention of s 50. It is convenient to consider the primary judge’s findings on each of those asserted effects. Before doing so, the primary judge’s findings with respect to alternative terminals to the ART should be noted.

Alternative terminals to the ART

164    The primary judge found (at [538]) that the ART is the only terminal which provides a viable option in the short to medium term (three to five years) to support the provision of, relevantly, North-South rail linehaul services by a new entrant on the scale required to conduct a sustainable business. There was no challenge to that finding on the appeal.

165    In terms of alternatives, the primary judge found (at [559]) that, for a potential new entrant into the interstate rail linehaul market, the only potential alternatives in respect of standard-gauge accessible terminals are the SCT-owned Bromelton terminal, the Brisbane Multi-modal Terminal located at the Port of Brisbane and a new (as yet unbuilt) terminal. The primary judge found (at [560]) that none of the alternatives to the ART would realistically be available to a new entrant to use in the next three to five years and offer comparable benefits to those of the ART.

166    The building of a new rail terminal in connection with the Inland Rail Project is relevant to the respondents’ cross-appeals. On that topic, the primary judge made the following findings:

(a)    (at [629]) The Inland Rail Project involves an upgrade of existing railway lines and construction of new railway lines for freight between Melbourne and Brisbane. It is currently proposed to enter Queensland at a point west of Toowoomba and approach Brisbane from the west, joining the existing railway line just south of the ART.

(b)    (at [630]) The most cogent evidence for when the Queensland parts of the Inland Rail Project will be completed came from Mr Keyte (the chief operating officer of the Port of Brisbane), who estimated that it would take ten years from the date of trial, i.e. the end of 2028.

(c)    (at [631]) As a result of the Inland Rail Project having been approved, it is likely that new terminals will be constructed in South-East Queensland, which could potentially include a terminal constructed by the ARTC at Bromelton. No such terminals are likely to be built within the short to medium term of three to five years.

(d)    (at [632]) Mr Keyte gave evidence about various limitations on the ART itself, including road congestion and ultimately capacity limitations, and that he did not expect the ART to have a life expectancy beyond 10 years from the date of trial. Further, he expected to see another terminal or terminals being developed during the construction phase of the Inland Rail Project, whether that be by the ARTC at Bromelton, Greenbank or Ebenezer.

167    The primary judge returned to the building of a new rail terminal as a result of the Inland Rail Project at [1364], finding that a new terminal is likely to be built in no later than 10 years. His Honour observed that the ARTC has already acquired land at Bromelton to build such a terminal and the ARTC’s proposed terminal at Bromelton may be completed in as little as 3 to 5 years.

168    Accordingly, the primary judge found (at [640]) that he cannot be satisfied that any potential alternative terminals to the ART would be or would be likely to be available for a potential new entrant to commence a sustainable business providing rail linehaul services in the short to medium term (by which his Honour meant in the next 3 to 5 years).

Ability and incentive to discriminate

169    The primary judge set out his findings with respect to Pacific National’s future ability and incentive to discriminate against new entrants, by reason of both the Terminal Services Subcontract (the legality of which is no longer challenged in this appeal) and the ART acquisition, at [775] to [937]. There was no challenge to those findings on the appeal.

170    At [827], the primary judge concluded that Pacific National would not have a meaningful ability to discriminate against new entrants if the ART acquisition does not occur and it is not the owner of the ART, even if it is a party to the Terminal Services Subcontract (and thereby provides services at the ART). That conclusion resulted from his Honour’s analysis of the terms of the Terminal Services Subcontract. Conversely, at [828], the primary judge found that, in the absence of the Undertaking, ownership of the ART would give Pacific National complete commercial and operational control of the Brisbane Multi User Terminal, including over whether, when and on what terms it would allow a third party to use the Brisbane Multi User Terminal to operate rail linehaul services in competition with Pacific National. His Honour concluded that in the absence of an appropriate undertaking, Pacific National could decide not to grant access to the Brisbane Multi User Terminal, to charge an increased price for such use, to grant access only on terms that leave the potential new entrant at a competitive disadvantage and to refuse or inhibit any expansion of capacity of the Brisbane Multi User Terminal in such a way that disadvantages a potential new entrant.

171    At [903] and [904], the primary judge concluded that Pacific National, as the owner of the ART, and without any undertaking to discipline its behaviour, would have an incentive to discriminate against a new entrant. However, the primary judge also accepted that there would be some downsides or disincentives in doing so if a new entrant was allowed access by Pacific National and discriminatory conduct occurred during such access. His Honour concluded that, on balance, Pacific National would have greater incentives than disincentives to bar access to the ART to an actual or potential downstream competitor in the provision of rail linehaul services or to engage in opportunistic discriminatory behaviour to the extent that it perceived it could get away with it. At [905] and [906], the primary judge found that neither Aurizon, nor an alternative purchaser of the ART such as Qube, would have an incentive to foreclose a competing user of the ART, in contrast with Pacific National.

172    At [916]-[918], the primary judge also found that, if Pacific National acquired the ART, a potential new entrant would reasonably perceive that Pacific National would have the incentive to operate the ART in a way that favours its own provision of rail linehaul services in the relevant markets. Further, a potential new entrant seeking to establish a business supplying rail linehaul services in competition with Pacific National could be expected to proceed carefully in circumstances where the cost of new entry is exceedingly high, a potential new entrant would know that if it entered it would have no real choice but to use the ART, and Pacific National would be a very substantial and well-established competitor of the new entrant in relation to the supply of rail linehaul services. His Honour concluded that, in those circumstances, there is a real chance that a potential new entrant would be deterred by its reasonable perception that Pacific National, as the owner of the ART, would have the ability and incentive to discriminate against it in the absence of any undertaking.

Barriers to entry

173    At [938]-[940], the primary judge found that a new entrant seeking to provide, relevantly, North-South rail linehaul services would need to make substantial capital and other investments, obtain necessary accreditations and approvals, and enter into contractual commitments regarding access to relevant rail and terminal infrastructure. They would need to make such arrangements at considerable scale in order to achieve economies that would allow them to compete with incumbent rail operators. Moreover, there is a significant lead time and a long-term investment horizon associated with making these investments. The combination of the sunk costs associated with these investments, and the importance of a new entrant achieving economies of scale, would have the effect that a new entrant seeking to provide, relevantly, North-South rail linehaul services would face substantial barriers to entry. Specifically, a new entrant would need to:

(a)    obtain rolling stock (which alone can take approximately two years);

(b)    obtain access to qualified maintenance services to undertake service programs required for rolling stock and equipment, and access to maintenance facilities across the rail network;

(c)    obtain rights to use train paths;

(d)    obtain rights to access various rail terminals;

(e)    recruit accredited drivers and other personnel;

(f)    obtain accreditations from relevant rail authorities and regulators; and

(g)    acquire or obtain access to intermodal containers.

174    At [941], the primary judge also found that a new entrant would likely require access to the ART. In that regard, his Honour referred to his earlier findings regarding alternative terminals (which are summarised above).

Likelihood of new entry

175    The primary judge discussed the evidence concerning the likelihood of new entry by Qube at [943]-[989]. However, ultimately his Honour rejected the ACCC’s case in so far as it relied on the prospect of new entry by Qube. His Honour found (at [1293] and [1361]) that Qube would not enter the market in the future with the acquisition or without the acquisition owing to the fact that Pacific National would provide services at the ART pursuant to the Terminal Services Subcontract.

176    In relation to other potential new entrants, the primary judge observed (at [1005]) that, other than Qube, the ACCC did not expressly identify other potential new entrants in the relevant timeframe. His Honour recorded the ACCC’s submission that all that was necessary to show by the ART acquisition was that barriers to entry had been heightened to establish its s 50 case. In response to that submission, his Honour said:

1005 …But to disembody the question of whether barriers to entry had been heightened from the question of whether there was potential for new entry in the relevant timeframe has its difficulties. One is usually addressing the former insofar as it impacts on or affects the likelihood of the latter. And indeed one is considering relevant competition consequences flowing from an increase in barriers to entry in the relevant timeframe. If there is likely to be none as there would be no new entry anyway, then the ACCC’s case theory based on a barriers to entry argument becomes more problematic. But having said that, I cannot rule out a real chance of new entry into the relevant markets of either Qube or another entity in, say, 5 years. Moreover, such potentiality could discipline PN’s behaviour now and in the short to medium term in terms of its pricing of Rail Services. …

177    At [1307], the primary judge reiterated that the ACCC’s case that the ART acquisition would increase barriers to entry is focussed upon a hypothetical new entrant that the ACCC has not been able to identify.

Substantial lessening of competition

178    The primary judge’s conclusions showed that, on the ACCC’s case theory, the window of time in which competition might be substantially lessened by the ART acquisition was relatively narrow. The primary judge observed:

1387 …the Inland Rail Project will likely be completed in no later than 10 years. Other terminals will be built during the course of construction of that project. ARTC has already acquired land to construct a terminal at Bromelton site. That new terminal in Bromelton may be completed within 5 years.

1388 I agree with the respondents that there is no realistic possibility that any lessening of competition could continue after the completion of the Inland Rail Project. And before then, the only potential entrant that the ACCC can identify is Qube. But as the respondents correctly contend, that is unsurprising given that barriers to entry are high in any event. But even if Qube were to enter, it would at best be targeting entry in 3 to 5 years. More generally, whether entry would occur in the window in which any lessening of competition could realistically occur is to some extent speculative.

…

1402 Now even assuming that entry by Qube was likely, in my view any such entry is likely to be no earlier than the next 5 years. And it may be that an alternative terminal would be constructed within as early as 5 years.

179    Thus, the potential for competitive harm was squeezed between the likely lead time for new entry and the construction of a new rail terminal in Brisbane.

180    The primary judge summarised his conclusions about the effect on competition of the acquisition (in the absence of the Undertaking) at [1417]-[1418]:

1417 …in the future without the ART acquisition, the Terminal Services Subcontract remains in place and as I have said does not give rise to any s 45 question. But in such a scenario, that is, where the Terminal Services Subcontract is in place, Qube has in my view definitively said that it will not enter. But what then is the ACCC's case?

1418 The ACCC says that because Qube at least would not enter in that scenario, the substantial lessening of competition arises due to increased barriers to entry only. It is said that if I find that Qube's reason for not entering is irrational and idiosyncratic, it follows that there remains the potential for a rationally acting new entrant to enter the Interstate market(s). But in some respects this is speculation. No one else has been realistically identified by the ACCC although I invited the ACCC to identify others. Moreover, the question of barriers to entry is not to be assessed in a vacuum. The question is whether realistically there are other potential entrants who may or would be likely to enter in the relevant timeframe absent the barrier or increased barrier to entry created by the acquisition. Raising barriers to entry does not necessarily establish a s 50 case. Having said that, I am inclined to accept Dr Williams' evidence that raising barriers will more likely preserve the current high market concentration and act less as a discipline on PN's behaviour because the threat of new entry is less. But that is all in the absence of an undertaking. With an undertaking and the ART acquisition I do not consider that there is likely to be any substantial lessening of competition comparing the likely relevant futures.

E.2    The Respondents’ contentions

181    By their cross-appeals, the respondents contend that the primary judge erred in finding that, absent the Undertaking, the acquisition of the ART by Pacific National was likely to have the effect of substantially lessening competition in contravention of s 50. The grounds of cross-appeal are not identical between the respondents. The grounds can be distilled to the following two principal contentions:

(a)    Contention 1 is that the primary judge erred in finding that (in the absence of the Undertaking) the acquisition of the ART would be likely to have the effect of substantially lessening competition through raising barriers to entry to the North-South rail linehaul market because:

(i)    the finding that new entry may occur was mere speculation (being ground 1 of Aurizon’s amended notice of cross-appeal);

(ii)    the evidence showed that new entry was dependent on the acquisition of an existing intermodal business and, because Aurizon had sold its intermodal business, there was no longer any realistic prospect of new entry (being ground 2 of Aurizon’s amended notice of cross-appeal); and

(iii)    the evidence showed that the potential for anticompetitive harm from the acquisition would cease with the completion of the Inland Rail Project in 2028 and there was no realistic prospect of new entry in that time period (being ground 3 of Aurizon’s amended notice of cross-appeal and ground 7 of Pacific National’s amended notice of cross-appeal).

(b)    Contention 2 is that the primary judge misinterpreted the word “likely” in s 50 - Aurizon contends that the word means “more probable than not”, whereas the primary judge interpreted the word to mean a “real chance” (being ground 4 of Aurizon’s amended notice of cross-appeal).

182    Each of the contentions is independent of each other. In particular, the first contention, and each of its subsidiary contentions, proceeds on the basis that the word “likely” in s 50 means “a real commercial likelihood” rather than “more probable than not”. In that sense, the second contention is put in the alternative.

183    Although some of the above contentions were formally advanced by Aurizon rather than Pacific National, the submissions of the respondents were somewhat interwoven and each adopted submissions made by the other. For that reason, in the following summary of the respondents’ contentions, we will not distinguish between the respondents.

Contention 1

184    In relation to contention 1(i), the respondents submitted that the ACCC’s case about potential entry relied solely on Qube. The ACCC did not lead evidence of any other potential entrant to the industry. The respondents argued that if the ACCC had propounded any other potential entrant then this would have led to a range of further factual enquires by the respondents about the likelihood of entry by such postulated entrants. The evidence from Qube was that it would not enter the market if the Terminal Services Subcontract with Pacific National remained in place. The respondents interpolated that that evidence was in support of the ACCC’s case that the Terminal Services Subcontract would lead to a substantial lessening of competition, but the primary judge rejected that aspect of the ACCC’s case and the Terminal Services Subcontract therefore has remained in place. Accordingly, Qube’s evidence was that it will not enter the market because of the Terminal Services Subcontract with Pacific National, which the primary judge accepted (at [1293], [1307], [1351] and [1355] – [1361]). Having made that finding, there was no evidentiary basis for the primary judge to conclude that there was a real chance of any other person entering the market. His Honour rightly identified that this would be to engage in speculation (at [1418]). Despite that, the primary judge makes reference to the evidence of Dr Williams as supporting a conclusion that raising barriers (alone) might constrain Pacific National less. The respondents submitted that Dr Williams’ evidence, reproduced by the primary judge at [1299], did not support that conclusion because it recognised, apart from Qube, that the prospect of new entry was speculative.

185    In relation to contention 1(ii), the respondents submitted that not only was there no evidence to support a conclusion that there was a realistic possibility of new entry, the evidence before the Court adduced by the ACCC was to the contrary. The ACCC adduced evidence from Mr Nacey, the General Manager Commercial at Qube, to the effect that for Qube to enter the market it would be necessary to acquire an existing intermodal business such as the business then operated by Aurizon. The respondents submitted that it is clear from Mr Nacey’s evidence as a whole that he regarded the acquisition of existing customer relationships as a prerequisite to Qube commencing the supply of interstate intermodal rail services. There was no evidence from Mr Nacey that he would have considered commencing an interstate intermodal business without such a stepping stone and his evidence was to the effect that commencing an intermodal business without acquiring an existing business was not viable. The ACCC also adduced evidence from Mr James, Qube’s Managing Director, who deposed that, despite the sale of Aurizon’s Queensland intermodal business to Linfox, Qube “maintained its aspiration” to commence interstate intermodal rail services. The primary judge found, however, that Mr James accepted in cross examination that Qube may need to acquire an established intermodal rail business in order to enter (at [988]). The respondents submitted that, consistent with this evidentiary position, the primary judge concluded that Qube was “highly unlikely” to enter the relevant markets without first acquiring an established interstate intermodal business (at [962]). Despite that, the primary judge concluded that “although Qube was not likely to enter in the factual or the counterfactual … I could not rule out the realistic commercial chance of another potential new entrant emerging in the relevant timeframe” (at [1612]). The respondents submitted that there were two errors in that conclusion. First, the conclusion effectively reversed the onus, requiring the respondents to negative the possibility of new entry rather than the ACCC proving the realistic possibility of new entry. Second, the conclusion was contrary to the evidence adduced from Qube about the commercial need to acquire a customer base for entry to be viable.

186    In relation to contention 1(iii), the respondents submitted that the primary facts found by the primary judge lead inexorably to the conclusion that there is no real chance of new entry. The respondents relied on five matters:

(a)    First, any new entry would need to occur by no later than 2028, when the Inland Rail Project is expected to complete (as found by the primary judge at [1364] and [1388]). That is because new rail terminals will be constructed in South East Queensland in the course of the project that will provide effective substitutes for the ART (as found by the primary judge at [1364]). Once one of those terminals has been constructed, any increase in barriers to entry that Pacific National’s ownership of the ART would create will dissipate, such that the ART acquisition would not have any relevant effect on competition. Indeed, the new terminals may be constructed within as little as three to five years from the date of the reasons (as found by the primary judge at [631]). Hence, throughout the reasons, the primary judge’s focus was on the lack of substitutes for the ART within three to five years, and not out to 2028 (see at [538], [560], [561], [562], [631], [942], [1525]).

(b)    Secondly, the process of planning for and commencing supply of rail services takes years (as found by the primary judge at [1459], [1463] and [1529]).

(c)    Thirdly, the primary judge referred to Mr Keyte’s evidence that the ART was unlikely to have a life expectancy beyond 10 years (at [632]) and therefore any potential entrant will, over the coming years, have an increasingly strong incentive to delay entry until one or more of the new terminals being constructed concurrently with the Inland Rail Project is complete.

(d)    Fourthly, barriers to commencing supply of rail services are high (as found by the primary judge at [938]-[940] and [1388]).

(e)    Fifthly, the trial judge found that Qube would not commence supply of rail freight services if the ART acquisition does not proceed (at [1293], [1307], [1351] and [1361]). That finding was significant, not only because it highlights the absence of evidence to support a finding of a real commercial chance of entry, but also because it positively suggests that entry would not occur.

Contention 2

187    In relation to contention 2, the respondents submitted that the trial judge erred by interpreting the word “likely” as meaning a “real chance” rather than its ordinary meaning “more probable than not”. The respondents observed that the “real chance” test follows a line of authority about the meaning of the word “likely” in provisions of the Act that traces back to the decision of Deane J in Tillmanns Butcheries Pty Ltd v Australasian Meat Industry Employees’ Union (1979) 42 FLR 331 (Tillmanns) where his Honour interpreted the meaning of the word as it appeared in s 45D. The approach of Deane J has been adopted in the different statutory contexts, in most cases without substantive analysis or challenge from any party. There are no binding decisions of the Full Court as to the meaning of the term in s 50 of the Act. There are some obiter observations of the Full Court in Metcash 198 FCR 297, but no party in that case contended that “likely” bore its ordinary meaning.

188    Starting with the text, the respondents submitted that the natural and ordinary meaning of the word “likely” is “probable”, i.e. more probable than not, relying on definitions provided by the Oxford English Dictionary and the Macquarie Dictionary. That the ordinary meaning of “likely” is “probable” is confirmed by judicial decisions which have considered the meaning of the word, citing as examples Australian Telecommunications Commission v Krieg Enterprises Pty Ltd (1976) 14 SASR 303 at 312-313 per Bray CJ and Assistant Minister for Immigration and Board Protection v Splendido [2019] FCAFC 132 at [57] per Mortimer J, with whom Moshinsky J agreed, and at [127] per Wheelahan J.

189    The respondents submitted that neither the statutory context nor the statutory purpose of s 50 provides a justification for departing from the ordinary meaning of the word “likely”.

190    The respondents observed that Tillmanns concerned s 45D of the Act which relevantly provided that a person shall not, in concert with another person, engage in conduct that hinders or prevents the supply of goods or services by a third person to a corporation where the conduct is engaged in for the purpose, and would have or be likely to have the effect, of causing substantial loss or damage to the business of the corporation. The respondents submitted that that provision is materially different from the current s 50, in that it requires the existence of both a relevant purpose and the effect of causing substantial loss or damage to the business of the corporation. Bowen CJ (with whom Evatt J agreed) noted (at 339) that “the word ‘likely’ is one which has various shades of meaning”, but concluded (at 340) that it was unnecessary to determine its meaning in the context of s 45D because “whichever meaning is adopted the evidence leads me to the conclusion that the likelihood of substantial loss or damage has been established”. While Deane J concluded that, in s 45D, “likely” means a real chance or possibility, the respondents submitted that that conclusion was affected by the terms of s 45D which required proof of purpose and effect. Deane J’s conclusion was as follows (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. On the other hand, if conduct had run its ordinary course and had not had the specified effect, it would be but rarely that a court would feel justified in disregarding the lesson of the event and finding that while the conduct did not have the specified effect it had been more likely than not that it would have that effect (see per Dixon J. Willis v. Commonwealth (20)).

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 that if relevant conduct is engaged in for the purpose of causing loss or damage to the business of the relevant corporation, it will suffice, for the purposes of the subsection, 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. In determining the answer to that question, it will be relevant that the persons engaging in the conduct did so with the purpose of causing such loss or damage.

191    The respondents acknowledged that there are two strands to the above reasoning. One strand, relied on by the respondents, is the fact that the section depends upon proof of purpose as well as effect. The second strand concerns the use, in the statutory provision, of two tests or legal standards: whether the conduct would have the effect, or whether the conduct would be likely to have the effect, of causing substantial loss or damage to the business of the corporation. Deane J reasoned that the latter test must be intended to convey a lower degree of likelihood in comparison to the former test. However, as the application of the ordinary standard of proof has the consequence that the former test requires proof of the effect on the balance of probabilities, it must follow that the latter test requires proof to a lower standard of certainty. The respondents noted that similar reasoning was applied by French J in AGL No 3 at [347]. The respondents submitted that the second strand of reasoning conflates the relevant fact to be proved with the standard of proof required to establish that fact. They illustrated the difficulty in that strand of reasoning by reference to the prohibition of cartel conduct in Division 1 of Part IV of the Act. Relevantly, under s 45AD(2), a provision of a contract, arrangement or understanding between competitors will be a cartel provision if it has or is likely to have the effect of fixing prices. It can be observed that the definition uses two tests: has the effect or is likely to have the effect. Under Division 1, cartel conduct is both a criminal offence (see Subdivision B) requiring proof beyond reasonable doubt and a civil wrong (see Subdivision C) requiring proof on the balance of probabilities. The respondents submitted that the meaning of the word “likely” in the definition of the prohibited conduct cannot be determined by whether the criminal or civil provisions are applied.

192    The respondents acknowledged that Deane J’s interpretation of “likely” has been applied in relation to other provisions of the Act that use the expression “likely”, but they submitted that that has been done with little critical examination or challenge. The respondents provided the Court with a table highlighting the common drafting technique in Part IV of the Act that uses a dual legal standard: viz whether conduct “is or is likely to be”, “has or is likely to have the effect” or “would have the effect or be likely to have the effect”. That drafting technique appears in the definition of cartel provisions in s 45AD and in ss 45, 45D, 45DA, 45DB, 46, 47, 50 and 50A and related provisions. The same drafting technique is used in s 18 of the Australian Consumer Law (Schedule 2 to the Act) (ACL), which prohibits conduct that is misleading or deceptive or is likely to mislead or deceive. Section 18 is the successor to s 52, which was formerly in Part V of the Act. The respondents referred the Court to the following appellate authorities (set out below in chronological order) in which Deane J’s reasoning in Tillmanns has been applied with (on the respondents’ submission) little critical examination:

(a)    In Global Sportsman Pty Ltd v Mirror Newspapers Ltd (1984) 2 FCR 82 (Global Sportsman) at 87, the Full Federal Court concluded that “likely”, in the context of s 52(1) of the Act (now s 18 of the ACL) meant “real or not remote chance or possibility regardless of whether it is less or more than fifty per cent”, referring to Deane J’s reasoning in Tillmanns.

(b)    In News Ltd v Australian Rugby Football League Ltd (1996) 64 FCR 410 (News Limited) at 564-565, the Full Federal Court adopted the real chance test in relation to the prohibition of exclusionary provisions, previously defined in s 4D (now repealed), referring to both Deane J’s reasoning in Tillmanns and Global Sportsman.

(c)    In Monroe Topple & Assocs Pty Ltd v Institute of Chartered Accountants in Australia (2002) 122 FCR 110 (Monroe Topple), the Full Federal Court concluded that the reasoning of Deane J in Tillmanns was equally applicable to s 45 (at [111] per Heerey J, with whom Black CJ and Tamberlin J agreed.

(d)    In Universal Music Australia Pty Ltd v ACCC (2003) 131 FCR 529 (Universal Music) at [247], the Full Federal Court adopted the real chance test in the context of s 47, following Monroe Topple.

(e)    In Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592, another case concerning s 52 of the Act, Gleeson CJ, Hayne and Heydon JJ referred to the real chance test in Global Sportsman with apparent approval (at [112]).

(f)    In Seven Network Limited v News Ltd (2009) 182 FCR 160 (Seven Network), News Limited contended that the word “likely” did not mean “real chance” in the context of s 45(2) of the Act. Dowsett and Lander JJ said that “there is a substantial body of authority which supports” the real chance meaning, “in particular the decision of the Full Court in Monroe Topple”. Their Honours concluded that they should follow Monroe Topple unless satisfied that it was clearly wrong (at [750]).

(g)    In Australian Competition and Consumer Commission v Cascade Coal Pty Ltd [2019] FCAFC 154 (Cascade Coal) at [148], the Full Federal Court again construed “likely” as meaning real chance in the context of s 4D.

193    The respondents observed that the meaning of “likely” in the context of s 50 was considered in Metcash 198 FCR 297, but none of the parties in that case sought to argue that the “real chance” meaning was wrong (although Metcash and Franklins formally reserved their rights to do so) (at [218]). Nor did the case turn on the question, because the Court found that the ACCC’s case did not even satisfy the lower threshold (at [230]-[231] per Yates J, with whom Finn J agreed). Nevertheless, in obiter dicta remarks, Buchanan J concluded that the real chance test should not be applied to s 50 (at [37]-[89]). His Honour observed that the reasoning of Deane J in Tillmanns was influenced by the particular statutory context of s 45D, and that none of the Full Court decisions applying the reasoning of Deane J involved any detailed consideration.

194    The respondents submitted that there are a number of reasons for not applying the “real chance” test when considering s 50. First, it does not reflect the ordinary meaning of the words of the statute. Second, the relevant extrinsic materials acknowledge that mergers can lessen competition or improve efficiencies, which requires a line to be drawn between those mergers that are likely to be beneficial and those which are likely to be detrimental to the community (Commonwealth, Parliamentary Debates, House of Representatives, 3 November 1992, 2405-2406 (Michael Duffy, Attorney-General). This suggests that the prohibition is only intended to operate if the anti-competitive effects are likely in the sense of being probable. Third, the real chance test is inherently uncertain because it does not define the level of probability that is sufficient for the chance to be “real”.

195    An alternative argument advanced by the respondents is that, even if the word “likely” means “real chance”, the ACCC could not succeed in a case under s 50 unless the Court concludes: (i) that it is more probable than not that one of the ACCC’s counterfactuals will come to pass if the proposed acquisition does not proceed; and (ii) that there is a real chance that, if the proposed acquisition does proceed, that would result in a substantial lessening of competition compared to the scenario in which one of the ACCC’s counterfactuals comes to pass. The respondents submitted that that was the approach adopted by Emmett J at first instance in Metcash 282 ALR 464 (at [146]). On appeal in Metcash 198 FCR 297, Yates J (with whom Finn J agreed) refrained from expressing a concluded view on the proper construction of, and standard of proof that is to be applied in relation to, s 50, but expressed the provisional view (at [227]) that there was but a single question. As noted earlier, Buchanan J concluded that the real chance test should not be applied at all, but that if it was appropriate to apply that test at all, he agreed with the approach taken by Emmett J (at [90]).

E.3    The ACCC’s contentions

The ACCC’s notice of contention

196    By ground 1 of its notice of contention, the ACCC contends that the “relevant timeframe” in which the primary judge could not rule out the commercial chance of another potential new entrant emerging (at [1612]) should be understood as meaning within ten years. By ground 2, the ACCC contends that if the primary judge did not mean that timeframe, his Honour should have applied that timeframe. The respondents accepted that the relevant timeframe applied by the primary judge in assessing the competitive effects of the sale of the ART was the anticipated period of 10 years until the completion of the Inland Rail Project (in 2028), and did not challenge that approach. Accordingly, it is unnecessary to consider ground 2 of the ACCC’s notice of contention.

Response to the respondents’ first contention

197    The ACCC submitted that the primary judge was correct to find that, absent the Undertaking, the acquisition of the ART would be likely to have the effect of substantially lessening competition. It argued that the respondents’ contentions with respect to that finding misunderstand the significance of the primary judge’s finding that the acquisition would materially heighten barriers to entry (at [1353], [1612]), thereby eliminating the threat of entry as a competitive constraint on Pacific National (at [1005], [1418], [1612]). The ACCC argued that a finding that an acquisition will heighten barriers to entry permits a court to conclude that there is a real chance of competition being substantially lessened, unless new entry is impossible or so close to impossible as to not warrant further scrutiny; i.e. unless the barriers to entry are already so high that there can be no harm in raising them further. In that respect, the ACCC referred to various authorities establishing that barriers to entry are a significant factor in assessing the competitiveness of a market and that an increase in barriers to entry may be a significant factor in assessing whether competition is substantially lessened, including Queensland Wire at 189 per Mason CJ and Wilson J and at 201 per Dawson J, Pilbara Infrastructure Pty Ltd v Australian Competition Tribunal (2012) 246 CLR 379 at [100] per French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ, and QCMA at 189, amongst others. The ACCC argued that a court should conclude that heightened barriers to entry are of no competition concern only if, even without the acquisition, new entry was impossible or so close to impossible as not to warrant further scrutiny, relying on the following passage of the Trade Practices Tribunal in In re Tooth & Co Ltd; In re Tooheys Ltd (1979) 39 FLR 1 (Re Tooth and Tooheys) at 69:

The applicant Tooth sought to convince us that barriers to entry by a new brewer were so high in this industry that, realistically, the existence of the ties could have no effect upon prospects for entry. That contention, however, would require a finding that entry is impossible. Our review of the evidence points to the characterization of the condition of entry as difficult but not impossible.

198    The ACCC argued that this approach is consistent with the fundamental principle that s 50 has an important role to play to prevent “relevant and meaningful” accretions of market power for firms otherwise sheltered from constraints including high barriers to entry: Rural Press at [41] per Gummow, Heydon and Hayne JJ. The ACCC submitted that facilitation of any competition in markets with high barriers to entry is of significance: Rural Press at [46] per Gummow, Heydon and Hayne JJ; Universal Music at 590; Australian Competition and Consumer Commission v Cement Australia Pty Ltd (2013) 310 ALR 165 at [3180]-[3182]; and Arnotts v Trade Practices Commission (1990) 24 FCR 313 at [107].

199    The ACCC submitted that the primary judge accepted (at [1418]) the following opinions of Dr Williams (recorded at [1297]-[1299]):

(a)    The presence of substantial barriers to entry in the relevant markets has important implications for assessing the effects of the impugned conduct on competition. If the impugned conduct further deters entry when some entry is possible, it may well be the case that the markets will need to wait a long time before another potential entrant is willing to accept the risks associated with entry.

(b)    The acquisition of the ART is likely to raise barriers to entry to the North-South rail linehaul market because the Pacific National group of companies will have (i) the ability to discriminate against rail providers in relation to their actual or potential access to, or use of, any services at the Brisbane Multi User Terminal and/or the Queensland Terminal; and (ii) an incentive to discriminate against any potential entrant in the terms of access to the Brisbane Multi User Terminal.

200    The ACCC submitted that the primary judge’s finding that he could not rule out a real chance of new entry did not involve any reversal of onus and was supported by the evidence. The ACCC referred to the following:

(a)    Pacific National’s business documents indicating that Pacific National regarded the future where it did not acquire the ART as a future in which there was a prospect of new entry, referring particularly to a memorandum dated 18 July 2017 provided to Pacific National’s President of Intermodal, Andrew Adam, two days before Pacific National’s bid for the ART (Exhibit A37) and a Pacific National Board Paper dated July 2017 (Exhibit A43).

(b)    Mr Morton, Pacific National’s expert economist, gave evidence that customer-sponsored entry was viable and “common”, concluding that there are several freight owners that are likely to have sufficient scale to support a new entrant in their own right.

(c)    Various facts showed that the rail market is dynamic, including the closure of Aurizon’s interstate intermodal business in December 2017, SCT’s entry into the North-South market in January 2017 and Linfox’s entry into Queensland from October 2018.

(d)    Aurizon received six non-binding bids for the ART in its initial sales process from Qube, Oaktree, Genesee & Wyoming, Pacific National, ARTC and Charter Hall (as recorded by the primary judge at [62]).

(e)    While Aurizon originally proposed to close its Queensland intermodal business, following the grant of an interlocutory injunction Linfox purchased the business and entered that market, presenting a future threat of entry to the interstate market.

(f)    One of the original bidders for the ART, Genesee & Wyoming, is the monopoly interstate intermodal rail operator on the Adelaide-to-Darwin rail corridor (as the primary judge found at [912]).

201    In relation to the position of Qube, the ACCC submitted that its case at trial was not confined to Qube as the sole potential new entrant if the acquisition did not proceed, referring to its written and oral submissions at trial. We accept that submission. However, as observed by the primary judge, the ACCC did not identify, or adduce evidence concerning, any other potential new entrant at trial.

Response to respondents’ second contention

202    The ACCC submitted that the primary judge was correct to interpret the word “likely” in s 50 as meaning a “real chance”.

203    The ACCC argued that, in applying s 50, and understanding the work done by the word “likely”, four interrelated matters should be considered:

(a)    the burden of proof (which, in the present case, was borne by the ACCC as applicant, although in a case for a negative declaration, such as AGL No 3, the burden will be borne by the merging parties seeking the declaration);

(b)    the standard of proof (which, being a civil case, is “on the balance of probabilities”);

(c)    the ultimate issue to be proved (which is whether the acquisition “would have the effect, or be likely to have the effect, of substantially lessening competition in any market”, which issue must be proved on the balance of probabilities); and

(d)    the primary facts to be proved (which, in the context of a future acquisition, will necessarily concern future events and effects and will therefore involve possibilities and chances where some will be more certain than others and some will be more material in consequence than others to the ultimate issue).

204    In relation to the primary facts, the ACCC submitted that it is not necessary for the ACCC to establish every fact on the balance of probabilities. Only the ultimate issue must be proved to that standard. The likelihood of certain events occurring in the future, and the significance for competition should they occur, are matters that fall to be considered by the Court in evaluating whether the acquisition would have, or be likely to have, the effect of substantially lessening competition on the balance of probabilities. Whether any particular fact to be taken into account in the evaluative analysis is so important that it must be determined on the balance of probabilities will depend on the specific circumstances of the case. In that context, the ACCC submitted that a useful analogy can be drawn with the approach to proof of hypothetical events in Sellars v Adelaide Petroleum (1994) 179 CLR 332 (Sellars) and Malec v J C Hutton Pty Ltd (1990) 169 CLR 638 (Malec).

205    The ACCC supported the reasoning of Deane J in Tillmanns and French J in AGL No 3 to the effect that the words “would have the effect, or be likely to have the effect”, contains two limbs. The first, ‘would have the effect”, requires the Court to be satisfied on the balance of probabilities. The second, “would be likely to have the effect”, is satisfied if the acquisition could reasonably be expected to lead to the effect, whether the likelihood is greater or less than 50%.

206    The ACCC observed that the “real chance” meaning of “likely” in the provisions of Part IV of the Act has been followed on numerous occasions by intermediate appellate courts, including in News Limited, Monroe Topple, Seven Network and Cascade Coal (and, in the context of provisions based on s 18 of the ACL such as s 1041E of the Corporations Act 2001, by the NSW Court of Appeal in James Hardie Industries NV v Australian Securities and Investments Commission (2010) 274 ALR 85 at [184]). To adopt a different meaning in the context of s 50 would require at least News Limited and Monroe Topple to be overruled, because the word “likely” in each two-limbed collocation in the Act should be given the same interpretation (in accordance with the usual presumption that the same words be given the same meaning wherever they appear in the same statute: Tabcorp Holdings Ltd v Victoria (2016) 90 ALJR 376 at [65]).

207    The ACCC says that the ordinary meaning of the word “likely” is not limited to “probable”, referring to the definition “to be reasonably expected to do, to be” in the Oxford English Dictionary and by the definition “reasonably to be believed or expected” in the Macquarie Dictionary. Further, the authorities support the propositions that “likely” is “capable of a number of different meanings” (Jungarrayi v Olney (1992) 34 FCR 496 (Jungarrayi) at 506) and that it is a “protean” word that “has more than one usual meaning” and “always takes its colour from its surroundings … The context in which the word is used in a particular statute will usually indicate the intended meaning” (Minister Administering the Crown Lands Act v Deerubbin Local Aboriginal Land Council [No 2] (2001) 50 NSWLR 665 (Deerubbin) at [52] per Spigelman CJ). The ACCC observed that, even in the context of a single-limbed expression, in Boughey v The Queen (1986) 161 CLR 10 (Boughey), Mason, Wilson and Deane JJ interpreted the word “likely” in the expression “likely to cause death” by adopting its “ordinary meaning” of “a substantial – a ‘real and not remote’ – chance regardless of whether it is less or more than 50 per cent” (at 21).

208    In relation to contextual considerations, the ACCC submitted that Parliament has repeatedly re-enacted provisions in Part IV of the Act, including s 50, using the two-limb formulation of anti-competitive effect. In particular, s 50 was amended to include the two-limb formulation in 1992, well after Tillmanns and Global Sportsman. The most recent example is the amendment to s 46 to include the two-limb formulation enacted by the Competition and Consumer Amendment (Misuse of Market Power) Act 2017 (Cth). The Explanatory Statement to the amending Bill stated (at para 1.22):

The concept of the purpose, effect or likely effect of substantially lessening competition is new to section 46. This concept already exists in a number of provisions in Part IV of the Act, and it is intended that the existing jurisprudence will inform the application of this concept in the context of section 46.

209    The ACCC submitted that the “existing jurisprudence” endorsed by the Explanatory Statement includes the “real chance” meaning of the word “likely”. The ACCC submitted that when Parliament repeats words that have been judicially considered, the usual presumption is that it is taken to have intended the words to bear the meaning already judicially attributed to them: WorkPac Pty Ltd v Skene (2018) 264 FCR 536 at [107] (referring to the relevant authorities for that presumption).

210    In relation to purposive considerations, the ACCC submitted that the respondents’ argument based on beneficial mergers overlooks the fact that such mergers can be exempted from the prohibition in s 50 by administrative authorisation under s 88. The ACCC argued that the object of s 50 is to prohibit mergers if there is a proven risk of a substantial lessening of competition. The availability of authorisation also addresses the respondents’ concern that the real chance test is uncertain. The ACCC referred to the second reading speech for the Trade Practices Bill 1974 (Cth) in which the Attorney-General, Senator Lionel Murphy, said “[q]uestions will of course arise as to whether particular mergers are likely to have such an effect on competition. In this regard the provisions for clearances and for authorisations will be available and will enable businesses to resolve their uncertainties” (Attorney General Senator Lionel Murphy, Second Reading Speech, Trade Practices Bill 1974 (Cth), 30 July 1974, p 545 quoted in AGL No 3 at [322]). The ACCC argued that the concern about uncertainty is, in any event, overstated given that the “real chance” test has been applied workably in numerous statutory contexts.

211    In relation to the respondents’ alternative argument based on the reasoning of Emmett J in Metcash 282 ALR 464, the ACCC submitted that the reasoning must be understood in the factual context of the case. The Court took the view that, for the ACCC to succeed, it had to prove that, in the likely future without the merger, a third party would acquire the unprofitable and failing Franklins enterprise, and do so in a way that was successful and enduring so as to provide a real competitive input into a market dominated by Woolworths and Coles. Unless that counterfactual could be established, there could be no lessening of competition. Emmett J concluded that the possibility of the consortium purchasing the assets and exerting any meaningful competition was “a matter of pure speculation” (at [425]). The case is distinguishable from the present and the reasoning does not stand for some broader proposition.

E.4    Consideration of the respondents’ contentions

212    As noted earlier, the respondents’ first contention on the competition issue, and each of its subsidiary contentions, proceeds on the basis that the primary judge’s construction of the word “likely” in s 50, a real commercial likelihood rather than more probable than not, is correct. The second contention, that “likely” means probable, is put in the alternative. It is nevertheless convenient to commence with the meaning of the statutory language.

The statutory language and the meaning of “likely”

213    Before turning directly to the meaning of the word “likely”, a number of preliminary matters about s 50 should be noted. There was no material dispute between the parties about these matters.

214    First, a contravention of s 50 is a civil wrong which must be proved on the balance of probabilities: s 140 of the Evidence Act 1995 (Cth). The matter that must be proved on the balance of probabilities is that the impugned acquisition would have, or be likely to have, the effect of substantially lessening competition in any market.

215    Second, the matter that must be proved - the effect on competition of the acquisition - might be described as an “economic fact”. It is a conclusion about a condition of the real world - it is in one sense observable - but the condition is observed and described through the tools and language of the social science of economics. Competition describes the nature and extent of rivalry between firms engaged in trade and commerce. Many of the observable facts that contribute to a conclusion about competition are listed in s 50(3) of the Act and include:

(a)    whether products and sources of supply are substitutes for acquirers (on the demand side) or for suppliers (on the supply side);

(b)    the level of concentration in a given market;

(c)    the height of barriers to entry to a given market, which necessarily requires an understanding of the nature or cause of the barriers;

(d)    the extent of vertical integration in a given market;

(e)    whether acquirers have countervailing power, which also requires an understanding of the commercial conditions that cause that power to exist;

(f)    the dynamic characteristics of the market, including growth, innovation and product differentiation over time; and

(g)    pricing behaviours which might reveal market power or the absence of market power.

216    Third, the prohibition in s 50 is a forward-looking test and requires 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.

217    An analogy, although imperfect, can be drawn with the Court’s assessment of damages in respect of future periods of time, for example loss of earning capacity or the loss of a contractual opportunity. In Malec, the High Court confirmed that, in such circumstances, the court does not ignore a possible eventuality because the likelihood of it occurring is less than 50%. Rather, the court evaluates the possibilities, applying an appropriate discount to reflect the likelihood of the eventuality occurring in arriving at an assessment of damages (at 639-640 per Brennan and Dawson JJ and at 642-643 per Deane, Gaudron and McHugh JJ). While Malec concerned damages for personal injuries, that approach has been applied in the context of contractual damages (The Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64) and statutory damages in respect of a contravention of s 52 of the Act (Sellars). The analogy is imperfect because the assessment of damages differs in many respects from the assessment required by s 50. In the context of damages, the court is concerned about the unfairness that would arise for a plaintiff that has been wronged if future eventualities (which would be otherwise compensable) could not be proved on the balance of probabilities (Malec at 643 per Deane, Gaudron and McHugh JJ). Nevertheless, s 50 requires the court to undertake a forward-looking assessment of the effect on competition of the acquisition. A common sense approach requires the court to assess what may occur in the relevant market in the future, taking into account the likelihood as a matter of possibility as well as probability, and weigh such predictions in the overall assessment of whether the acquisition would have, or be likely to have, the effect of substantially lessening competition 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.

219    Fourth, the matter that must be proved is a substantial lessening of competition. “Substantial” is an evaluative, rather than a precise, legal standard. In Rural Press, in the context of s 45 of the Act, Gummow, Hayne and Heydon JJ adopted with apparent approval the statement of French J in Stirling Harbour (2000) ATPR 41-752 that the relevant question is whether the effect is substantial in the sense of being meaningful or relevant to the competitive process (at [41]). However, at footnote 67, their Honours noted that French J had referred to three authorities: Tillmanns in which Deane J expressed the view that “substantial” (in s 45D) meant “real or of substance and not insubstantial or nominal”; Radio 2UE Sydney Pty Ltd v Stereo FM Pty Ltd (1982) 62 FLR 437 in which Lockhart J said that (at 445) “[in s 45] the lessening of competition must be at least real or of substance”, and said that he saw “considerable force in the view . . . that, in the context of s 45, the word means substantially in the sense of considerably”; and Eastern Express Pty Ltd v General Newspapers Pty Ltd (1991) 30 FCR 385 in which Wilcox J rejected the view that an effect on competition which was more than insignificant was, for that reason alone, substantial (at 420-422). Their Honours observed that it was not necessary to decide between the foregoing statements, but concluded that it is plain that the authorities do not support the proposition that it would be sufficient for liability if the relevant effect on competition was quantitatively “more than insignificant” or “not insubstantial”. 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.

220    Fifth, s 50 contains two legal standards or limbs. The section is contravened if the acquisition would have the effect of substantially lessening competition; and the section is also contravened if the acquisition would be likely to have the effect of substantially lessening competition. No party suggested that the two legal standards have the same meaning. Each party accepted that the first limb imposes a higher standard of certainty than the second limb. Each party also accepted that the lower standard in the second limb effectively rendered the first limb redundant, although the ACCC emphasised that the redundancy was not impermissible and that it is a frequent redundancy in the law that a norm may be stated in two forms, one of which is more difficult to satisfy than the other. It should be observed, however, that there are two legal standards; it may well be, for instance, after looking at the evidence, a court could be satisfied to the necessary level of satisfaction that the acquisition would have the effect of substantially lessening competition. The dual legal standard in s 50 is also to be found in ss 45, 46, 47 and 50A, and a similar form of language is to be found in ss 45AD, 45D, 45DA and 45DB. It must be accepted that the same redundancy exists in each of those provisions and the language used is a form of drafting that has been replicated throughout the provisions of Part IV of the Act.

221    With that background, the meaning of “likely” can be considered in light of textual, contextual and purposive considerations.

222    As to the text, in our view the ordinary meaning of the word “likely” in everyday language is “probable” (in the sense of more probable than not) and that meaning is consistent with dictionary definitions. The ACCC argued that the definition in the Macquarie Dictionary, “reasonably to be believed or expected”, conveyed a lower degree of expectation than “more probable than not”. However, the whole definition is “seeming like truth, fact, or certainty, or reasonably to be believed or expected; probable”, which conveys the sense of “more probable than not”. The ACCC also relied on a passing comment of Mason, Wilson and Deane JJ in Boughey to the effect that the ordinary meaning of “likely” included “a substantial – a ‘real and not remote’ – chance regardless of whether it is less or more than 50 per cent” (at 21). However, the ratio of the case was the meaning to be given to the word in its statutory context (s 157(1) of the Criminal Code Act 1974 (Tas)), not the meaning of the word in ordinary language. Gibbs CJ, in agreement as to the result, considered that the ordinary meaning of the word is “probable” (at 14), and Brennan J, in dissent, observed that the dictionary definitions treat “likely” and “probable” as synonyms (at 42). The more significant point to be taken from cases such as Boughie, Jungarrayi and Deerubbin is that the word is capable of bearing a meaning of a real or substantial chance, even if it is less than 50%.